RIM posts dismal earnings, delays BlackBerry 10 operating system

June 28, 2012: 4:43 PM ET

First quarter results offer a grim look inside the troubled Blackberry maker. The company will fire 5,000 employees and delay its upcoming operating system.

FORTUNE -- BlackBerry maker Research in Motion reported a wider-than-expected loss and yet another delay of its long-awaited BlackBerry 10 operating system on Thursday, marking a new low point in the company's downward spiral.

The bad news isn't entirely surprising. Just last month, newish CEO Thorsten Heins warned that "lower volumes and highly competitive pricing dynamics in the marketplace" would likely result in an operating loss for the quarter, and that the company's financial performance would continue to be challenged for the next few quarters. Shares fell 17% to 7.60 in Friday premarket trading.

The company reported a first-quarter loss of $518 million, or 99 cents a share. Overall sales at the Waterloo, Ontario-based company came in at $2.8 billion, down 43% from $4.9 billion in the same quarter a year ago and considerably lower than analysts' expected first-quarter revenue of $3.1 billion.

During the quarter, RIM says it shipped 7.8 million BlackBerry smartphones and a meager 260,000 BlackBerry PlayBook tablets. The company also announced cost-cutting efforts that will include a "workforce reduction" of about 5,000 employees.

MORE: RIM: What the hell happened?

"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 in a written statement. "Our top priority going forward is the successful launch of our first BlackBerry 10 device, which we now anticipate will occur in the first quarter of calendar 2013. In parallel with the roll out of BlackBerry 10, we are aggressively working with our advisors on our strategic review and are actively evaluating ways to better leverage our assets and build on our strengths, including our growing BlackBerry subscriber base of approximately 78 million, our large enterprise installed base, our unique network architecture and our industry leading security capabilities."

RIM's (RIMM) BlackBerries once dominated the smartphone industry, but in recent years the company has been on a fast decline. Its management failed to react quickly to Apple's (AAPL) iPhone and devices running Google's (GOOG) Android operating system, which now rule the mobile market.

The company's last hope is BlackBerry 10, but this isn't the first time the mobile operating system has been delayed. In his business update last month, CEO Heins said that the company had made "significant progress" on several fronts, like development on BlackBerry 10, which was expected to launch by end of this year and is now slated for early 2013. On a call with investors on Thursday, Heins said that the integration of new features and development of the BlackBerry 10's software code has "proven to be more challenging and time-consuming than anticipated." With BlackBerry 10 devices not expected to launch until the first quarter of 2013, RIM will miss out on this year's holiday sales season. In the meantime, a new iPhone and more Android devices are expected to launch, and Microsoft is expected to make a big push with the latest version of Windows.

"For the first BlackBerry 10 device to win the attention of customers and developer at its new launch date it will have to prove itself better than the alternatives by leaps and bounds — the likelihood of that is very, very low," Charles Golvin, an analyst with Forrester Research, wrote on Thursday.

But on the call with investors on Thursday, RIM executives insisted that BlackBerry 10 would be a viable competitor and create "long-term stakeholder value." In parallel with development of the new mobile platform, RIM is also looking into other strategic options. Last month, the company announced it had engaged JPMorgan (JPM) and RBC Capital to "review" its options, which could include forging new partnerships or breaking up the company. Investors had hoped to hear more details on what a new, strategic direction of the company could look like, but they got nothing on Thursday's earnings call. All Heins would say is that RIM is looking into everything from continuing with its existing "standalone" strategy to "whatever other model you could think about."

While RIM evaluates options, sales of BlackBerries are slowing. And it's not just consumers that are abandoning RIM's QWERTY devices in favor of iPhones and Android smartphones. A growing number of corporate customers are ditching RIM for so-called "bring your own device" programs that let employees use their smartphone of choice at work. RIM's net subscriber base grew last quarter, but it is bleeding customers in North America -- a crucial market in which the company rakes in a higher revenue per user, otherwise known as ARPU.

RIM's churn won't improve over the next few quarters, especially in light of the company's announcement that BlackBerry 10 will launch later than expected. RIM now says it expects to report an operating loss in the second quarter of fiscal 2013 as well.

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About This Author
Michal Lev-Ram
Michal Lev-Ram
Writer, Fortune

Based in Silicon Valley, Michal Lev-Ram covers enterprise and mobile technologies for FORTUNE. Prior to joining FORTUNE, she wrote for CNNMoney, Fast Company, Popular Science and other business and technology publications. She was also a staff writer at Business 2.0 and holds a B.A. in journalism from San Francisco State University.

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