BlackBerry Ltd. (BBRY) reported a more than 40 percent plunge in sales and vowed to cut a third of its workforce, raising concern that it’s on the same downward spiral as Palm Inc., though without prospects for a last-minute buyer.
The company said yesterday that it’s eliminating 4,500 jobs and recording an inventory writedown of as much as $960 million for the fiscal second quarter. BlackBerry expects to report a net operating loss of as much as $995 million in the period and sales of $1.6 billion -- about half the $3.03 billion that analysts had estimated, according to data compiled by Bloomberg.
The bleak results sent BlackBerry shares tumbling 17 percent and drew comparisons to Palm, another smartphone pioneer that fell out of favor with consumers. Like BlackBerry, that company attempted a comeback with a new operating system -- only to see it fizzle with shoppers. Palm was able to entice Hewlett-Packard Co. (HPQ) into buying it in 2010, though that didn’t save the product line from being discontinued.
“It reminds me very much of Palm,” said Keith Lam, managing partner with Red Sky Capital Management Ltd. in Toronto. “HP tried to catch a knife buying Palm and it didn’t work out. So I’m not sure why anybody would step in here. These numbers are extremely bad.”
BlackBerry shares fell to $8.73 at the close in New York yesterday, marking the biggest one-day drop in more than two months. The stock has declined 26 percent this year, bringing its market value to $4.6 billion.
BlackBerry said last month that it was forming a special committee to evaluate its strategic options, including a potential sale of the company. Finding a buyer may not be easy, though. JPMorgan Chase & Co. and RBC Capital Markets spent close to a year quietly canvassing potential acquirers without success, people with knowledge of the matter said last month.
BlackBerry also has hired accounting firm PricewaterhouseCoopers LLP to evaluate the company for potential buyers, according to two people with knowledge of the move.
The company put out its financial results a week before their scheduled release, aiming to get the news out of the way and show that it was charting a course toward recovery. 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 users.
Still, that decision may not be enough, Lam said. The revamped BlackBerry 10 lineup, the linchpin of the company’s comeback plan, hasn’t sold as well as analysts had estimated. Customers such as Morgan Stanley are holding off on committing to new devices, concerned about BlackBerry’s future.
Nail in Coffin
“That’s the nail in the coffin,” said Lam, whose firm manages C$220 million ($214 million). While Red Sky was a BlackBerry investor, it’s getting rid of its stake because of the results, he said. “There’s no point anymore.”
BlackBerry’s $1.6 billion in revenue would be its lowest quarterly sales since 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.
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 in the red.
The Canadian company said it will record revenue for sales of 3.7 million smartphones last quarter, mainly from earlier BlackBerry 7 devices. In all, 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 the Z10 touch-screen device, which was seen as the company’s flagship model and chief iPhone competitor. BlackBerry also introduced two phones this year with physical keyboards, 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.
The latest job cuts follow a move to eliminate 5,000 jobs last year, part of an effort to save $1 billion in operating costs. BlackBerry had 12,700 workers as of the end of March, the last time it disclosed a number.
BlackBerry is the biggest spender on research and development among publicly traded Canadian companies, according to data compiled by Bloomberg. That makes 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 inventory writedown, meanwhile, extends a streak of similar charges. 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 offer new products. Earlier this week the company introduced the Z30, a model with the company’s largest screen yet. The device 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 people familiar with the process, who asked not to be identified because the contract hasn’t been made public.
The smartphone maker previously hired Perella Weinberg Partners LP as an adviser -- alongside its bankers at JPMorgan - - to help explore its options, a person familiar with the decision said earlier this month.
Fairfax Financial Holdings Ltd. (FFH), BlackBerry’s largest shareholder, has talked to Canadian pension fund managers to try and build support for a takeover deal, according to a person with knowledge of the discussions. However, he hasn’t made much progress, the person said.
“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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