News

Waiting on BlackBerry 10? RIM won't have a new smartphone for sale until 2013

TORONTO – Research In Motion delivered a shopping list of bad news Thursday as the BlackBerry-maker delayed its new operating system and smartphones until next year, announced it will cut a third of its workforce and posted dismal earnings results.

The series of announcements shocked the market, which was already expecting a loss from the company, but chief executive Thorsten Heins said RIM is determined to stay the course.

As the company pushes ahead with its plans there will be plenty of casualties, in particular the 5,000 employees that the troubled smartphone company says will be laid off across its global operations before the end of the year.

The Waterloo, Ont.-based company (TSX:RIM) also faces further pressure on its financial results as it endures another seven to nine months without a new product on the market.

RIM, which reports in U.S. dollars, posted a loss of US$518 million or 99 cents per share for its latest quarter, a steep decline from the profit of $695 million or $1.33 per share a year ago.

Excluding one-time items including a non-cash charge to goodwill, the company said it lost $192 million or 37 cents per share diluted — steeply missing expectations.

Revenue for the three months fell to $2.81 billion, less than the $3.1 billion analysts had predicted, and dramatically lower than $4.91 billion a year earlier.

In a conference call with analysts, Heins said that RIM’s software developers faced more challenges than they expected when it came to integrating certain features into the new operating system. As a result, a launch this year was “no longer realistic.”

“I want to make clear that these issues are not related to the quality or functionality of the software,” he said.

Heins spent much of the time discussing plans for the BlackBerry 10 operating system, and looking toward its new launch date, which is now in the first three months of 2013 — a lifetime in the technology industry.

Before then, consumers will have the opportunity to buy the latest update to Apple’s iPhone, expected later this year, and numerous new smartphones using Google’s Android operating system this fall.

“If you compare us to others, did we take the hard road? Absolutely,” Heins said on the conference call, defending RIM’s choice to develop its own software.

“Building and completing this mobile computing platform… is where we will take BlackBerry, and that’s why it was absolutely necessary to build its own platform.”

However, the enthusiasm of even the most patient investors appears to be waning.

RIM’s already eroded stock was down another 15 per cent in after-hours trading on the Nasdaq, losing US$1.34 to US$7.79 as of 7:30 p.m. ET. Shares closed up two cents at C$9.46 on the Toronto Stock Exchange in regular hours trading Thursday.

At least one analyst was not impressed with RIM’s results Thursday.

“At this point there is a chance that we may never see a BB10 handset given RIM’s track record,” wrote National Bank analyst Kris Thompson in a note.

“RIM is intent on launching a ‘distinct’ smartphone platform; all we see at this point is an extinct platform. Are consumers and enterprises really going to wait for another platform? No!”

Thompson upgraded his shares to a “sector perform” on the basis that the company could be broken up and sold for $8 per share, based on its cash holdings and intellectual property.

Rumours have circulated for months that a potential buyer could swoop in and pick up the company, and when nobody appeared to be interested, questions emerged over whether Heins would decide to put a chunk of RIM up for sale — most likely its struggling hardware division.

Heins has repeatedly said that selling the company is farthest from his mind, though he has never completely ruled it out. Instead, Heins wants RIM to weather the next three quarters with tightened spending and fewer employees as it works to create a completely revamped vision.

That will include cutting back on the number of different BlackBerry devices on the market, as well as reducing its “layers of management” and outsourcing more of its non-core functions, the company said.

“We’re trying to be as responsible and as respectable to our employees and communities that we are in, so we’re trying to do this as fast as we can to really avoid any uncertainty with the people that are affected,” he said.

RIM is also working with JPMorgan Chase & Co. and RBC Capital Markets to help evaluate its strategic options, which Heins said range from the company being a “stand alone to whatever other model you could think about.”

“It’s also a matter of the board deciding on what strategic direction they want to take the company,” he said.

The company is also involved in “intensive talks” to licence the BlackBerry 10 operating system to outsiders, Heins noted, though he wouldn’t divulge any further details.

The launch of BlackBerry 10, seen as key to the recovery of the company, had been expected later this year and will now miss the important holiday shopping season.

Heins told investors on the call that many wireless carriers actually prefer that the company launch its new devices in the first-quarter of next year because faster networks will be in place.

During the quarter, RIM shipped 7.8 million BlackBerry smartphones, a dropoff from 11.1 million in the fourth quarter of 2012. Tablet shipments of the BlackBerry PlayBook were nearly halved in the quarter to 260,000.

In its outlook, the company said the next several quarters will remain very challenging for its business. RIM expects to report a further operating loss in the second quarter of fiscal 2013, as it continues to invest in marketing programs and work through the transition to BlackBerry 10.

“I understand that this is an incredibly difficult message to deliver, but it is necessary,” Heins said.

“We have a strong balance sheet which we’re committed to maintaining.”

Uncertainty has engulfed the future of RIM in recent months as speculation swirls over whether the company could be bought, or forced to sell off certain pieces of its operations to survive.

The company has been strongly criticized for delaying BlackBerry 10, but executives have insisted they want to get this right rather than face an onslaught of bad reviews, like those that came after it rushed the releases of the BlackBerry Storm touch screen and the PlayBook tablet.

Executives at RIM have said the company intends to focus more on its enterprise business, or the big companies that buy smartphones in large quantities. Still, many of its sneak previews of the BlackBerry 10 system have focused on flashy applications and features more akin to the consumer market, such as photo editing software and games.