RIM Aims to Drive $1B in Savings

By Michelle Maisto  |  Posted 2012-05-30

RIM Job Cuts Could Reach 6,000, Bad News Continues for BlackBerry Maker

BlackBerry maker Research In Motion knows that things are going to get far worse before they can get better. Analysts might be quick to add, if they get better.

RIM management has said it expects €œsoft results€ for the next few quarters, as well as an operating loss for the May quarter that analysts with Canaccord Genuity, in a May 30 report, said is €œwell below€ their 5.4 percent operating margin estimate.

RIM€™s fiscal 2013 first quarter ends June 2. By June 1, the company is expected to begin a round of layoffs that could include 2,000 jobs, The Globe and Mail reported May 26.

Reuters, citing a person familiar with the matter, said the staffing reductions could affect as many as 6,000 people in RIM€™s legal, marketing, sales, operations and human resources divisions.

During a March 29 earnings call, RIM CEO Thorsten Heins outlined his plan for keeping the sinking company afloat€”if not resurrecting it to its former glory, as he said was his intention at RIM€™s BlackBerry World 2012 event in Orlando a month later. The plan, said Heins, includes refocusing resources on RIM€™s €œkey opportunities€; implementing programs for greater employee accountability and efficiency; and selling as many BlackBerry 7 handsets until RIM€™s real white knight€”the BlackBerry 10 platform€”arrives toward the end of the year.

€œIn our evaluation of the organization structure, we have identified a level of complexity that is not conducive to the efficient operation of our business,€ Heins said during the call.

He went on to explain a CORE plan€”a companywide initiative to drive improvements and efficiencies across all functions of the organization. The target of CORE, he added, is to €œdrive $1 billion in savings by the end of fiscal 2013 based on our current run rates.€

RIM Aims to Drive $1B in Savings

According to Reuters, RIM currently has 16,500 staff members globally, compared with nearly 20,000 at its peak.

The Canaccord analysts also pointed to RIM€™s belt-tightening efforts. €œRIM €¦ disclosed hiring two investment banks to explore strategic options and will commence significant cost reduction programs to cut $1 billion in annual operating expenses, versus [fourth quarter 2012] levels,€ they wrote.

The analysts were iffy on Heins€™ plan to move BB7 phones, as well as on the success BlackBerry 10 handsets will find when they arrive, given the tremendous competition they face.

€œWith increased smartphone competition from new Android and Windows smartphone launches, including the HTC One, Samsung Galaxy S III, Huawei Ascend and Nokia Lumia, RIM management expects continued soft results for the next couple of quarters, and this is consistent with our checks indicating very soft BlackBerry sales globally,€ states the report. It adds that by the time BlackBerry 10 launches, the market will likely also include an €œLTE iPhone 5.€

While RIM remains €œbullish€ on BlackBerry 10€™s prospects, the Canaccord analysts are maintaining a €œcautious€ outlook. They expect that, with RIM struggling to gain traction in the smartphone market, it €œmay eventually sell assets, sell the entire company or materially change its business model to a smaller niche supplier.€

Investors, they added, will focus on a €œsum of the parts analysis.€ RIM€™s network operations center (NOC) and subscriber base, at 78 million, is the majority of its value, they explain. To maintain its services business, RIM will need to continue making BlackBerry smartphones. RIM€™s enterprise base is roughly 20 million subscribers; RIM€™s lower-revenue consumer base, meanwhile, €œholds little value in an acquisition,€ the analysts wrote, €œdue to our belief this base is already at risk longer term to competing smartphone ecosystems.€

With Android phones and lower-priced iPhone 3GS and iPhone 4 handsets slowly taking over RIM€™s consumer base, they continued, €œ we believe likely suitors would assign minimal value to this business and would likely need to spend considerable cash to unwind this portion of RIM's business that would include shutting down the device segment.€

Analysts with Jefferies, more depressingly, note that selling the company first requires a willing buyer.

Microsoft, they said in a May 30 research note, €œwill wait to see how Windows 8 fares before possibly buying RIM. We do not think Facebook will buy RIM and believe most non-U.S. companies will be barred from buying RIM by the U.S. government.€

They added, €œWe believe licensing talks have cooled due to RIM€™s whipsawing views and deteriorating fundamentals. We think potential licensees will wait to see how the [BlackBerry 10] launch goes before making a decision.€

RIM€™s Heins, speaking to the press at the BlackBerry World 2012 event, said RIM had €œa little fat on the hips€ that needed to be slimmed down, but that, with new efficiencies and a clearer agenda in place, company morale was way up.

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