RIM adjusts to new reality by slashing 2,000 jobs

TORONTO Mon Jul 25, 2011 12:06pm EDT

A man holds a BlackBerry PlayBook during the Research In Motion (RIM) annual general meeting of shareholders in Waterloo July 12, 2011. REUTERS/ Mike Cassese

A man holds a BlackBerry PlayBook during the Research In Motion (RIM) annual general meeting of shareholders in Waterloo July 12, 2011.

Credit: Reuters/ Mike Cassese

TORONTO (Reuters) - BlackBerry maker Research In Motion plans to cut about 11 percent of its workforce as it struggles to keep pace with Apple and Google in the mobile market it once dominated.

The Canadian company's shares sunk 3 percent after the Monday announcement of 2,000 job cuts, a month after RIM said would reduce headcount for the first time in almost a decade.

The company, which described the cost reduction as "a prudent and necessary step" for its long-term success, said it would inform employees who will lose their jobs this week.

The job cuts, which were slightly deeper than some had expected, raised questions about whether lower costs alone would go very far in addressing RIM's lackluster financial performance or the steady erosion of its market share.

"The problem is you can't cut your way into growth or market leadership, and while I'm sure there was fat at RIM, the core problem sits squarely with management," said Ed Snyder from Charter Equity Research.

RIM also announced changes among its top executives. It said one of its three chief operating officers, Don Morrison, would retire and the other two, Thorsten Heins and Jim Rowan, would take on additional responsibilities.

"Cost-cutting is unlikely to change the competitive position for the company" or accelerate RIM's revenue growth, BGC Partners analyst Colin Gillis said.

That said, analysts also saw lower costs as a necessary adjustment to a new reality facing RIM, once the leading force in the multi-billion dollar smartphone market.

Apple's iPhone and devices powered by Google's Android software have steadily eroded BlackBerry's market share, especially in the United States, while RIM's PlayBook, introduced in April, was a late entry to a tablet computer market that Apple's iPad virtually invented.

RIM's shares -- halved so far this year -- have been weighed down by earnings that missed the company's own limp forecasts and a dire warning that sales will slip further because of delays in getting new smartphones to market.

"I think this is obviously realigning the cost structure to a new growth, or sales, reality," said Peter Misek, an analyst at Jefferies & Co.

FINANCIAL IMPACT UNEXPLAINED

RIM said it would explain the financial impact of the cuts when it reports second-quarter results on September 15. RIM said the second-quarter and full-year outlooks it had already issued did not reflect the impact of the cuts.

Mike Abramsky, an analyst at RBC Capital Markets, called the job cuts "more significant than previously suggested." He estimated the pre-tax charge at between $200 million and $250 million.

Monday's announcement was the first time RIM quantified its job cut plans, which it revealed last month. The reduction will bring its workforce to 17,000.

RIM has not cut jobs in nearly a decade. In 2002 it slashed 10 percent of its staff following a dip in revenue and spiraling costs as it started selling its early BlackBerry phones via carriers.

MORRISON'S DEPARTURE

The departure of Chief Operating Officer Don Morrison was expected. Currently on temporary medical leave, the executive will retire after more than 10 years at the company.

RIM said Thorsten Heins will now oversee both hardware and software product engineering, and Jim Rowan will take charge of operations.

RIM also promoted Patrick Spence, who has impressed analysts and investors as managing director for the Europe, Middle East and Africa region, to head of global sales and marketing.

Chief Technology Officer David Yach will focus on software platform development and developer and application ecosystem as RIM juggles upgrades to its aging BlackBerry operating system and a transition to QNX, which powers the PlayBook tablet.

His responsibility for the enterprise business has been shifted to Chief Information Officer Robin Bienfait.

The changes follow a stream of senior RIM executives who have defected lately, including two who left for rival Samsung Electronics in a month.

Misek, who has an "underperform" rating on RIM's stock, said the job cuts were less important to RIM's outlook than a successful launch of devices due within months and its eventual transition to the QNX operating system on its smartphones.

"I think the key here, more than ever, is when do their products launch and what kind of reception will they have and most importantly, when will QNX come in. We don't think those answers are here yet," he said.

RIM's Nasdaq-listed stock, already near multi-year lows, was down 3 percent at $27.05 by mid-morning. The stock was down 3.3 percent at C$25.59 on the Toronto Stock Exchange.

(Additional reporting by S. John Tilak and Euan Rocha in Toronto, Aftab Ahmed in Bangalore; editing by Janet Guttsman and Frank McGurty)

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Comments (11)
gslusher wrote:
Cutting jobs seldom helps a tech company like RIM to turn around. The cut may be 11%, but the work output will drop by a lot more as the remaining employees are concerned about their own jobs.

It appears that RIM has decided to cut way back on the PlayBook, as they’ve “delayed” (read, “Cancelled”) the larger screen version AND a 4G version. They will be even less competitive in the tablet market. They’re slipping in smartphone market share worldwide, but especially in the US. They’re adding sales in “emerging markets” but those tend to be lower-cost phones that people use for texting, rather than Internet access. The margins will be lower on those phones, as they compete directly with Nokia and the multitude of Asian feature phones and “keyboard phones.”

One question: have the CEOs taken a massive pay cut? They should cut their total compensation by at least 50%, if not more. (An 80% cut would be reasonable.) No bonuses for any executives until the company improves a lot. At least 25% of the top management should be fired, as well. After all, they cost a lot more and produce a lot less than the average worker.

Jul 25, 2011 10:16am EDT  --  Report as abuse
DownNuP wrote:
The first bad quarter in nine years and the first thing they do is go after the employees? Stay classy RIM. I know I won’t ever buy another one of your products.

Jul 25, 2011 10:44am EDT  --  Report as abuse
EN3 wrote:
Payroll is the easiest controlled expence. Why work at hard a cutting expences when we can just get rid of people. Business 101 since the reagan era. Don’t worry ceo and corporate vp’s will get big bonus’s end of the year for controlling expenses.

Jul 25, 2011 11:11am EDT  --  Report as abuse
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