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June 29, 2012

RIM posts dire first quarter financials admist delays; layoffs

Blackberry smartphone maker Research in Motion has posted its first operating loss in its history, alongside collapsing revenues, mass staff layoffs and delays to the launch of its next generation smartphone.

By Allan Swann

The Ontario based company, formerly the world’s leading smartphone maker, has announced that it will be laying off 30% of its workforce and has delayed the launch of its new BlackBerry 10 series of smartphones to the beginning of 2013. The devices were originally meant to launch in late 2011, early 2012.

RIM CEO and President Thorsten Heins
RIM CEO and President Thorsten Heins

The company has posted an operating loss – its first in company history – of $518m to June 2 2012. This time last year this was a profit of $695m.

Its revenue for the quarter was $2.8bn, down from $4.9bn in the same quarter 2011. Its cash remains steady at $2.2bn, down from $3bn in first quarter last year.

The company has refused to offer guidance on its earnings over the last six months, with apparent good reason.

Just as worrying has been the shrink in gross margin, from 44% in 2011 to just 28% – put quite simply, their aging BlackBerry 7 range of devices are losing their value and being discounted heavily – with no replacement in sight.

RIM says it sold 7.8m smartphones in the quarter, and 250,000 Playbook tablets. This time last year it shipped 13.2m smartphones and 500,000 Playbooks. This is a sales drop of 40% for its smartphones, and 50% for tablets. Apple is selling 35-37 million smartphones a quarter, and is dominating enterprise activations too – formerly RIM’s bread and butter. Android is seeing 1 million activations per day.

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CEO Thorsten Heins said that the company’s subscriber base is 78 million, but offered no projection on the growth rate here. RIM didn’t break out its subscriber figures last year, but it had 45 million in 2010.

"Our first quarter results reflect the market challenges I have outlined since my appointment as CEO at the end of January. I am not satisfied with these results and continue to work aggressively with all areas of the organization and the Board to implement meaningful changes to address the challenges, including a thoughtful realignment of resources and honing focus within the Company on areas that have the greatest opportunities," Heins said.

He has also announced that there will be quite severe job cuts of 5000 staff – or 30% of the RIM workforce – in order to realise $1bn in cost savings for the company, as part of the company’s CORE restructuring program. This program alone will cost the company $350m in restructuring fees.

Despite the company’s global BlackBerry Jam developers tour, where BB10 code is being made available to app developers on a generic alpha handset, Heins said the integration of its new features and the ‘associated large volume of code into the platform has proven to be more time consuming than anticipated.’

Rivals have already starting ripping off some of the features RIM demoed.

It has also appointed a new Chief Legal Council, Steve Zipperstein, formerly General Council at Verizon. This follows the hiring of Kristian Tear, Chief Operating Officer and Frank Boulben, Chief Marketing Officer as the latest additions to RIM’s executive management team, the first major hirings since Heins took over the company in January. At the Q4 2012 results he attempted to get rid of a lot of the dead wood.

The company offered a vague outlook for 2013, the first it has offered this year. It will post an operating loss in the next quarter, due for reporting in September.

RIMs share price stayed constant at $9.13 (at the time of print), which reflects the fact that the market had expected these results, and that it remains the subject of takeover rumours. By comparison, at the beginning of 2011 it was $69.

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