BlackBerry dealt a blow to its employees and investors Friday, announcing it will slash 40 percent of its workforce as its revenue is anticipated to fall to roughly half of where it was a year ago. The announcement came after days of speculation that the smartphone maker would announce such news.
The struggling smartphone maker said it will cut 4,500 employees, as it seeks to reduce its operating costs by approximately 50 percent between now and the end of its fiscal first quarter, which will be in June 2014.
“We are implementing the difficult, but necessary operational changes announced today to address our position in a maturing and more competitive industry, and to drive the company toward profitability,” Thorsten Heins, BlackBerry CEO, said in a statement.
BlackBerry also noted it expects to generate roughly $1.6 billion in revenue in its fiscal second quarter, which is just over half of the $2.9 billion it raised a year ago. Analysts, meanwhile, were expecting the smartphone maker to generate a hefty $3.1 billion of revenue in the quarter, based on high expectations for sales of the company’s new Z10 devices.
But BlackBerry said intense competition dealt a blow to those anticipated Z10 sales. According to the smartphone maker:
As a consequence of the more intense competition the company is experiencing in its hardware business, it expects to report a primarily non-cash, pre-tax charge against inventory and supply commitments in the second quarter of approximately $930 million to $960 million, which is primarily attributable to BlackBerry Z10 devices.
As a result of the substantial charge, the company expects to post a net loss upwards of $995 million – just a hair under $1 billion. According to the Wall Street Journal, analysts were expecting the company to post a net loss of around 15 cents a share, compared to its estimated loss of what will be upwards of 51 cents a share when the company formally reports its second quarter results on Sept. 27.
Z10 Silver Bullet Misses Mark
BlackBerry trotted out its Z10 and Q10 smartphones earlier this year, with its new BlackBerry 10 operating system. But despite its efforts, the new devices failed to draw as much attraction from consumers and Wall Street as the company had hoped. It sold 2.7 million of the BlackBerry 10 devices in the first quarter, below Wall Street’s expectations.
In the second quarter, the company noted it sold 3.7 million devices – however most of the units were the older BlackBerry 7 devices. The company explained that it can’t count the sales of its newer BlackBerry 10 devices until they pass through the carrier and retailers onto the end customer.
As the company’s financial woes and potential sale of its business become more public to consumers and corporate customers, it’s likely going to become harder for BlackBerry to make sales. After all, consumers locked into a two-year contract with their carrier are likely going to want assurance that their smartphone manufacturer is going to be around to service the phone or provide helpdesk support should they encounter problems.
And that’s just one of the many challenges BlackBerry faces in bring customers in. For several years, it’s been losing major marketshare to Apple’s iPhone and Google’s Android devices. According to comScore’s three-month moving average ending in July, BlackBerry saw its smartphone platform market share fall to 4.3 percent from April’s three-month moving average of 5.1 percent. In July, Google’s Android captured 51.8 percent of the market share and Apple held 40.4 percent.
Cutting Workers, Cutting Smartphone Portfolio
In addition to lopping off nearly half its workforce, the company is cutting back its smartphone portfolio by a third. In the future, it will offer only four phones, compared to six. Two of the devices will be entry-level and two will be high-end.
BlackBerry says it plans to refocus its efforts on the enterprise and professional consumer, or prosumer.
With these changes, BlackBerry may be improving its prospects of finding a buyer. At a minimum, it notes, it has $2.6 billion in the bank in cash and short-term securities and no debt. So any buyer will likely pay at least that amount to acquire the company.