Troubled BlackBerry maker Research in Motion (RIM) is slumping deeper into the mire after it issued a shock profit warning and analysts suggested it will face another huge writedown on unsold stock.
A dire "Business Update" from new CEO Thorsten Heins revealed that the company is expecting an operating loss for its second quarter, the results of which will be released at the end of June.
The company’s last financial results revealed a loss of $125m, while revenue plunged 25% from the year-ago quarter. The message from Heins suggests this quarter will be even worse. He also said the "challenging" conditions will continue for the next few quarters.
He said "the on-going competitive environment" is impacting RIM business "in the form of lower volumes and highly competitive pricing dynamics in the marketplace," leading to the expected loss. Bloomberg has suggested that RIM’s stockpile of unsold BlackBerry phones and PlayBook tablets grew 18%. The piles of unsold goods could total just over $1bn in value, Bloomberg suggested.
Heins also said RIM has engaged JP Morgan Securities and RBC Capital Markets to launch a strategic review of the business, suggesting a sale of at least parts of the business is still very much an option. The company had previously rejected takeover offers from Amazon and a joint venture with Microsoft and Nokia.
The company will also be making "significant" job cuts over the next few months. According to Reuters, that could mean the company reducing its headcount from 16,500 to closer to 10,000. However Heins also pointed out that RIM will be hiring in what he calls "key areas," such as the BlackBerry 10 team.
It seems that the once-great company is now pinning all its hopes on BlackBerry 10 – its upcoming operating system revamp. However that has seen repeated delays and a release date has still not been confirmed. The company says it is on target for a release in the "latter part of calendar 2012."
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However it could well be too late by then. Apple’s upcoming Worldwide Developers Conference, to be held on June 11, is likely to include updates to the iPhone and iOS operating system, potentially pushing RIM further down the pecking order.
Quite simply RIM has failed to make devices – either BlackBerries or PlayBooks – that enough people want to buy. Apple and Android are both surging ahead in terms of sales and market share. The business space, always RIM’s stronghold, has also turned its back on the Canadian firm, with many believe Apple’s iPhone presents a viable alternative in the workplace.
Peter Misek, an analyst at Jefferies & Co, told Reuters it is difficult to see RIM recovering from this situation, given its slow development cycle.
"I don’t see the tide turning," he said. "The problem is the BlackBerry 10 handsets aren’t coming out next quarter, so you know next quarter is going to most likely be worse. Then you look at the November quarter, when we’ll probably get the BB10 handsets and at the same time we’ll have the iPhone 5. So that quarter is probably going to be bad."
"So we have a string of bad quarters coming and it really is tough to see how it’s going to get better," he added.
The company briefly halted trading in its shares as it announced the business update. Shares dropped to below $10 when trading resumed. RIM’s shares have lost about 80% of their value over the last year.
