BlackBerry Ltd. (BBRY) is eliminating a third of its staff and scaling back operations after quarterly sales missed analysts’ estimates by half, a sign of quickening deterioration at the already struggling smartphone maker.
The company will cut 4,500 jobs and record an inventory writedown of as much as $960 million for the fiscal second quarter, according to a statement today. Waterloo, Ontario-based BlackBerry expects to report a net operating loss of as much as $995 million for the period. Sales were about $1.6 billion, compared with the $3.03 billion average estimate of analysts surveyed by Bloomberg. The shares fell the most in three months.
In a concession that it has failed to gain traction against Apple Inc. (AAPL)’s iPhones or Google Inc.’s Android devices, BlackBerry is narrowing its focus to the market for corporate and professional users. Even that decision may not be enough, with customers such as Morgan Stanley holding off on committing to new BlackBerry devices.
“That’s the nail in the coffin,” said Keith Lam, managing partner with Red Sky Capital Management Ltd. in Toronto. His firm manages C$220 million ($214 million) and is getting rid of its BlackBerry shares because of the results. “If you’re not selling your devices -- and that’s the thing everyone was hoping would turn around the company -- that’s just not happening.”
BlackBerry’s $1.6 billion in revenue would be its lowest quarterly sales since mid-2007, when smartphones were a nascent market. Back then, the iPhone had been out for less than three months, and Google’s now-dominant Android operating system was still in the development phase.
BlackBerry has hired accounting firm PricewaterhouseCoopers LLP to evaluate the company for potential buyers, according to two people with knowledge of the move.
Chief Executive Officer Thorsten Heins was counting on the BlackBerry 10 phones -- introduced in January to good reviews -- to reverse a sales slide, return the company to profitability and make the brand hip again. Instead, its market share continues to slide and BlackBerry remains unprofitable. Morgan Stanley (MS) is holding off on upgrading to the new platform, concerned that the company won’t be around to support the devices, people familiar with the matter said last month.
The Canadian company said it will record revenue for sales of 3.7 million smartphones last quarter, mainly from earlier BlackBerry 7 devices. Overall, 5.9 million smartphones were sold through to customers in the period, including ones shipped to carriers earlier, the company said.
The inventory writedown is mostly for Z10 touch-screen devices, which the company had designated as its flagship model to compete with the iPhone. The company also introduced two devices this year with physical keyboard, the Q10 and Q5.
The adjusted second-quarter net loss will be as much as $265 million, or 51 cents a share, BlackBerry said. That compared with the average analyst estimate of 16 cents.
BlackBerry had 12,700 workers as of the end of March, the last time it disclosed a number.
“It is always a cause for concern for our government” when a company like BlackBerry fires workers,’’ Canadian Industry Minister James Moore said in an e-mailed statement. “Our thoughts are with those who have lost their jobs.”
BlackBerry is the biggest spender on research and development among publicly traded Canadian companies, according to data compiled by Bloomberg, making its employee base important for the nation’s economy.
“Even if they aren’t all in Canada, the knock-on effects could be significant over the coming months,” said Terrence Connelly, principal at hedge fund Contingent Macro Advisors LLC in Lafayette, California.
The writedown extends a streak of inventory charges, which were previously spurred in part by the ill-fated PlayBook tablet. The company took a pretax expense of $485 million in December 2011, a second charge of $267 million the following March and a third writedown of $335 million in June 2012.
Still, BlackBerry continues to introduce new products. In addition to the Q10, Z10 and Q5 released so far this year, BlackBerry this week introduced the Z30, a model with the company’s largest screen yet. It goes on sale in the U.K. and Middle East starting next week.
A team of accountants and lawyers from New York-based PricewaterhouseCoopers have been working at BlackBerry since August, said the people, who asked not to be identified because the contract hasn’t been made public.
It previously hired Perella Weinberg Partners LP as an adviser -- alongside its bankers at JPMorgan Chase & Co. -- to help explore its options, a person familiar with the decision said earlier this month.
While Fairfax Financial Holdings Ltd. (FFH), BlackBerry’s largest shareholder, has talked to Canadian pension fund managers to build support for a takeover deal, according to a person with knowledge of the discussions earlier this month, investors have speculated that a homegrown bid for the company faces long odds. BlackBerry took steps this month to lobby the Canadian government over foreign-takeover issues.
“It appears the only option BlackBerry has is to ultimately sell itself,” said Neeraj Monga, an analyst at Veritas Investment Research Corp. in Toronto. “But it seems nobody’s stepping up to the plate.”
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