A giant inventory of unsold smartphones is casting a shadow over BlackBerry's future as the company struggles to recoup what's left of its reputation, even while it slashes 4,500 employees across its global operations.
The company, based in Waterloo, Ont., has been hemorrhaging staff for months, but the latest job reductions announced Friday mark one of the deepest cuts by the Canadian company.
The losses will affect 40 per cent of its staff, leaving about 7,000 people at the company.
"From our perspective this is a move made out of desperation," said Bill Kreher, a technology analyst with financial services firm Edward Jones.
"The job cuts, while necessary, likely came way too late."
Revenue shortfall
It's a dismal sign for BlackBerry, which already has lingered in uncertain territory for months as questions emerged over whether its latest BlackBerry 10 devices would find traction in a highly competitive smartphone market dominated by Apple and Samsung devices.
Overall revenue will fall short by a longshot, with the company projecting about $1.6 billion in sales compared to analyst expectations of $3.03 billion, according to a survey by Thomson Reuters.
At this point, BlackBerry's best bet seems to be in selling off portions of the company — if anybody wants it. After putting itself on the market last month, the company has yet to announce any interested bidder or financial backing from an outsider that could inject new life.
Chief executive Thorsten Heins called the latest announcement "difficult, but necessary" for the company.
He said the company will refocus on professional smartphone users, as it moves ahead with his three-stage plan intended to return BlackBerry to profitability.
"This puts us squarely on target with the customers that helped build BlackBerry into the leading brand today for enterprise security, manageability and reliability," he said in a release.
Share price falls
After the announcement, BlackBerry shares tumbled 16 per cent, or $1.74, to close at $9.08 on the Toronto Stock Exchange.
The decline of BlackBerry has been ferocious, even though it has taken years to materialize. Many analysts have blamed the slide on delays of its new smartphones and an overall inability to keep up with competitors.
On Friday, the company issued the most damning insight into how its much-hyped new phones have been received.
BlackBerry expects to post a loss of US$950 million to $995 million when it reports its second-quarter earnings next Friday. Most of that will come from a massive writedown of up to $960 million, primarily from poor sales of its BlackBerry Z10 touchscreen smartphones.
It will also book a $72 million restructuring charge related to changes in its operations, which include previous layoffs.
The company says job cuts will help halve its operating costs by the end of May 2014. Earlier this week, BlackBerry dismissed reports that it would reduce its staff as rumours and speculation.
During the past few months the company has been chipping away at operations with small groups of layoffs. In July, the company gave pink slips to 250 workers at its product-testing facility in Waterloo, and followed up with cuts of about 60 employees, mostly in its sales department, earlier this month.
Throughout the summer, there were departures of several mid-level executives who were responsible for the launch of the new BlackBerry operating system and the PlayBook.
The company made another equally devastating round of cuts to its staff last year when it announced plans to lay off about 5,000 workers in an effort to save $1 billion across its operations.
One of BlackBerry's strengths has been the massive amount of cash in its coffers that would help it weather the expensive launch of its new phones. However, the company has begun to eat into those savings, with cash on hand falling to $2.6 billion at the end of the second quarter, down from $3.1 billion in previous quarter.
About 5.9 million BlackBerrys were sold to customers in the second quarter, but the company only recognized revenue on about 3.7 million of them, it said. A representative for the company did not respond to questions about where the remainder of the hardware revenue went, but the company had enthusiastically given away devices ahead of the launch.
BlackBerry management also continues to evaluate its strategic alternatives under a plan announced last month, which could include a sale of the company.
Even as questions about its future swirl, BlackBerry is moving forward with its plans, which include making its popular BlackBerry Messenger chat application available for the Android operating system on Saturday, and iPhones on Sunday.
Waterloo hopeful
In Waterloo, there was cautious optimism that the tech sector hub will be able to weather the job losses. Mayor Brenda Halloran said the community has "confidence in the strength and potential" of BlackBerry as well as the many other community-based technology companies, which number about 1,000.
BlackBerry also disclosed Friday that it will simplify the number of phones it offers, reducing the portfolio to four devices from six. Half of the lineup will be marketed towards higher-end consumers, while the other two will be for entry-level customers.
The BlackBerry Z10 will be repurposed and marketed as an entry-level device under the plan, it said.
"We're now at a higher level and more urgency in terms of an acquisition and a deal ever since they announced the strategic review — quite frankly ever since they had a dismal launch of BlackBerry 10," said Morningstar analyst Brian Colello.
"The strategy and how this company will find its niche in the marketplace is certainly up in the air."
Earlier this week, BlackBerry unveiled its latest device, a larger smartphone called the BlackBerry Z30, which serves as a midpoint between a phone and tablet. The Z30 comes with a five-inch screen, improved battery life and faster processor than the models released earlier this year.
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