Research In Motion (RIM) announced plans to cut 2,000 jobs worldwide. This is the BlackBerry maker’s biggest workforce reduction in a decade. According to management, the job cuts should help make the company attractive again for shareholders, as well as for consumers. The question is whether the ”prudent and necessary” step is enough to turn the tide.
Remarkable is that RIM is cutting personnel while it has trouble launching a new OS, getting products to market on time and creating an apps business.
Market share under pressure
RIM’s market share is under pressure worldwide. While it has some local successes, such as in the Netherlands, RIM is largely dependent on business in North America. In this region its market share was 25.7 percent in the first quarter of 2011, according to ComScore, down from 30 percent in the previous quarter. RIM is mainly losing share to Apple (iPhone, iOS) and Google (multiple devices with the Android OS).This is putting serious pressure on revenues. In its fiscal first quarter, RIM reported revenues down 12 percent and profits fell to USD 695 million from USD 935 million. The company sold around half a million PlayBook tablets and 13.2 million BlackBerrys, both below analyst expectations. RIM blamed the drop, which should be over in Q3, on the delay in products such as the BlackBerry 9900/9930 and the PlayBook with 4G support.
These figures stand in sharp contrast to Apple’s results. Apple sold 20.34 million iPhones in its fiscal Q3 to June, up 142 percent from a year earlier. iPad sales growth was even greater, with unit sales up 183 percent to 9.25 million. Apple generated revenues of USD 28.57 billion, almost double the year-earlier amount. Profit rose to USD 7.31 billion or USD 7.79 per share, versus USD 4.25 billion or USD 3.51 per share a year ago.
Changing markets
Delays are a big part of RIM’s problem. RIM has long been active in the mobile market and knows how hectic, dynamic and competitive it can be, but its top management (especially founders Jim Balsillie and Mike Lazaridis) have acquired the reputation of being stubborn and unwilling to give in to changing market conditions created single-handedly by Apple: a high-end smartphone with a previously unmatched user experience, attractive design and platform loved by developers. Nokia suffered the same, but was smart enough to partner with Microsoft. RIM, traditionally strong in the business market, stood its ground initially and was able in at least some markets to benefit.In the Netherlands RIM does particularly well. The BlackBerry Bold 9700 was the best-selling mobile phone and smartphone in the Netherlands in 2010, according to figures from GfK Retail and Technology. The BlackBerry’s market share is also growing in 2011, according to Telecompaper’s research (see our report Dutch Mobile Consumer Q1 - Handset Edition). This is largely due to Apple’s exclusive deal with T-Mobile, which led to competitors embracing the BlackBerry as an alternative. In addition, applications such as BlackBerry Messenger and Ping are very popular with young people.
However in the last 1-2 years, Android is creating a serious challenge to RIM’s position, while the iPhone remains popular as ever.The market is waiting for an answer, but the longer it waits the less likely it will be to care when something happens.
QNX: Holy Grail?
RIM is pinning its hopes on QNX. This is the successor to BlackBerry OS, which is already on its seventh version. QNX was acquired with the takeover of the eponymous company in April last year. RIM expects QNX will allow it to compete in the democratized smartphone market, bringing both the consumer and the business user to BlackBerry. That said the trend is increasingly for consumers to determine which handset/OS they bring to the office. Some companies set a telecom budget and leave it to employees to choose their equipment.
RIM’s first step in the tablet market, the PlayBook, runs already on QNX. However, the launch of the PlayBook was far from smooth. The device arrived too late, suffered from bugs with the mail and calendar functions and could only get a 3G connection by connecting to a BlackBerry phone. RIM CEO Jim Balsillie made the situation worse by rejecting the early criticism and saying that people simply hadn’t understood the PlayBook.
QNX does have the latest standards and works technically, but that’s not everything. A mobile OS stands are falls just as much on the support of million of developers. And this is where QNX is lacking. Developers are less interested in the OS due to its complexity, and not unimportant, the lack of scale for the system. It’s clear that from this perspective Android and iOS are more accessible and more lucrative. RIM plans to migrate QNX to its BlackBerry smartphones in 2012 in order to compete on a higher level with Apple and Google. A noble effort, but by that time clearly a difficult one.
Competition is moving on
Later this year and early next year a number of new mobile devices is expected. Samsung will continue the success of its Galaxy series with the Galaxy SIII. Its predecessor, the SII sold 3 million units within a few weeks of launch. The SIII is expected to include an even faster processor and new screen. This will likely go up against the iPhone 5/iPhone 4S, which also promises enhanced performance. Nokia and Microsoft will also unveil late this year the first fruits of their cooperation, and HTC continues to surprise with its strong results and an attractive line-up of devices. In the mean time, LG is also working on a new smartphone strategy and smaller OS such as webOS (HP) and Bada (Samsung) are still active.
If RIM hits the market in the first half of next year with QNX on its smartphones, the question is whether consumers and business users will still be interested. At that point the company will need to weigh up its results and decide whether 2,000 job cuts was really enough to make the difference.
