On Friday, BlackBerry Limited (formerly Research in Motion) announced that it expected to lose somewhere between $950 million to $995 million in the second quarter of its current fiscal year, and plans to lay off forty percent of its workforce in an attempt to control costs and adjust to the decline in revenue.
Inevitably, this news was reported or received by many tech pundits as the latest sign that BlackBerry is disintegrating, crumbling, dying.
(The company previously announced a few weeks ago it was conducting a “strategic review”, which could lead to a sale of the company).
While it’s true that BlackBerry has not been faring well lately, this news – bad as it is – does not mean the firm is doomed. BlackBerry is not in bankruptcy, nor is it on the verge of collapse, even though it may seem like it is thanks to endless rounds of unfavorable and negative media coverage, much of it undeserved.
While the job cuts BlackBerry has acknowledged are coming will be very painful, they are needed to bring down its operating expenditures. BlackBerry doesn’t dominate the smartphone market like it used to, and there is far less demand for its handsets. The company has no choice but to downsize, as Chris Umiastowski writes:
Let’s look at the job cuts. Almost always, cuts like this happen in a reactive manner. Things aren’t going well in the business, and senior management responds with cost cutting. If that was all there was to this I’d be overly negative also. But when I think back to how quickly BlackBerry grew in the two years prior to the business peak, it is my observation that they let hiring get way out of hand. Just consider how many handsets they were pumping out each year. Each handset required a hardware design team, supporting software versions, marketing, carrier teams, supply chain management, and support from accounting and legal.
Nowadays, BlackBerry has a much smaller product portfolio. So far this year it has introduced just four handsets running its new BB10 operating system: the Z10, the Q10, the Q5, and the Z30. The “Z” series consists of slate touchscreen phones, while the “Q” series phones have traditional QWERTY keyboards.
I have and use both the Z10 and Q10, and they are excellent devices, but they have not been well marketed. I continue to meet people who own older BlackBerrys, but have not heard about BlackBerry 10, let alone seen it in action.
That suggests there is a significant awareness problem. People don’t know that the new handsets run a new and powerful operating system that is much more stable and reliable. They don’t know that the new handsets can run Android applications. They don’t know the new handsets have the incredibly useful Time Shift camera or (in the case of the Z10 and Z30) the amazingly powerful predictive virtual keyboard.
BlackBerry acknowledged that sales have been well below expectations in its press release. In fact, unsold devices are the reason for the loss:
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.
Emphasis is mine.
In other words, BlackBerry manufactured too many Z10s ahead of the Z10 launch, expecting that the Z10 would sell better than it did. The company apparently learned from this and did not repeat the same mistake when it launched the Q10 or the Q5. (The Z30 was just announced and is not on sale yet).
Without the inventory writedown, BlackBerry would be reporting a much, much smaller loss. Remember, the total loss is expected to be between $950 and $995 million; the inventory writedown will be in the neighborhood of $930 million to $960 million. It accounts for ninety-six percent of the total loss.
In a nod to market realities, BlackBerry also announced it intends to refocus on the enterprise and “prosumer” markets. That suggests the company has defined a narrower and more sensible target market for its handsets.
“Going forward, we plan to refocus our offering on our end-to-end solution of hardware, software and services for enterprises and the productive, professional end user,” said BlackBerry CEO Thorsten Heins.
“This puts us squarely on target with the customers that helped build BlackBerry into the leading brand today for enterprise security, manageability and reliability.”
BlackBerry’s ability to retain its enterprise customers is key. Right now, BlackBerry is stuck in a Catch 22 situation: In order to bolster BlackBerry 10 adoption, the company needs to convince its existing enterprise customers to switch to BlackBerry Enterprise Server 10 (BES 10) and deploy BB10 handsets.
But if existing customers aren’t confident the company won’t be around to take care of them down the road, they’ll be hesitant to invest in BlackBerry 10.
The company absolutely needs to break out of the downward spiral that it’s in if it is to survive as a going concern. Though news reports have suggested the board is looking at selling BlackBerry, it’s not clear who would buy it. The Canadian and American governments are almost certain to object to a sale to a firm based in Asia, even if any are interested, and Microsoft, sometimes mentioned as a buyer, has no need for BlackBerry, having just bought Nokia’s handset business.
Rather than trying to sell itself, BlackBerry ought to:
- Take on an enterprise-focused equity partner like IBM, Oracle, or Cisco like Chris Umiastowski says. This should be the outcome of the “strategic review” the company is conducting. Perhaps the biggest reason to do this isn’t even to improve the balance sheet (the company has $3.1 billion in cash and investments) but rather to shore up investor and customer confidence. If people think BlackBerry is sticking around, they’ll feel more comfortable choosing BlackBerry 10 or migrating to BlackBerry 10.
- Completely rethink its marketing strategy. Awareness of BlackBerry 10 is low, even among the “prosumers” the company wants to target. The company’s advertising for BB10 devices needs to be totally redone, as it hasn’t been effective. A new approach is needed, led by a new marketing executive. The company should also look at encouraging BB10 adoption through product placement in television and Internet shows, targeting “prosumers”.
- Improve its execution. BlackBerry announced a few months ago that it would bring BBM (BlackBerry Messenger) to iOS and Android by the end of summer. The worldwide launch was supposed to begin yesterday, but there were so many hiccups and complications that it has been paused. There’s just no excuse for this. BlackBerry needs to show it can deliver, and so far, the launch of BBM has been an embarrassing failure.
- Diversify into new markets. Companies like Western Union, Intel, and IBM have reinvented themselves when they needed to. BlackBerry needs to develop other lines of business besides smartphones. With QNX, it has a strong presence in automotive computing. It should work to expand that and look at other markets it can compete in with QNX.
Predictions about BlackBerry’s death are just that… predictions. Tech pundits are like political pundits. They don’t know what is going to happen, but they speak and act as if they do, and they don’t worry about issuing corrections or mea culpas down the road… unless they’re held accountable and get asked about that prediction they made way back when.
We could do with more neutral and thoughtful reporting in the tech blogosphere, and less futurism and sensationalism. As Yoda says to Luke in The Empire Strikes Back when asked to make a prediction about Han, Leia, and Chewie’s survival: “Difficult to see. Always in motion is the future.”
BlackBerry can turn itself around. It’s not dead and it’s not dying. Struggling, yes, but not dying. Again, history is filled with examples of companies that have reinvented themselves in addition to companies that have failed.
It seems tech pundits have forgotten that, once upon a time, Apple was in a predicament even worse than BlackBerry’s.
As Walter Issacson writes in Steve Jobs:
Business Week ran a cover asking “Is Apple Mincemeat?” Red Herring ran an editorial headlined “Gil Amelio, Please Resign”; and Wired ran a cover that showed the Apple logo crucified as a sacred heart with a crown of thorns and the headline “Pray”. Mike Barnicle of the Boston Globe, railing against years of Apple mismanagement, wrote, “How can these nitwits still draw a paycheck when they took the only computer that didn’t frighten people and turned it into the technological equivalent of the 1997 Red Sox bullpen?”
On March 15th, 1997, Apple (then known as Apple Computer) told the public and the press that it would lay off around 30% of its workforce in an attempt to cut costs. The announcement bears many similarities to Friday’s news from BlackBerry. Here’s the San Francisco Examiner report on that news:
Apple Computer Inc. Chairman Gil Amelio swallowed hard as he laid out his plan to save the beleaguered computer giant – a plan featuring fewer products and a considerably smaller work force.
The much-anticipated announcement Friday from Amelio and other top Apple officials began with the news of a 31 percent cut in the company’s work force: 4,100 workers – 2,700 full-time employees and 1,400 contract workers – will lose their jobs.
“It’s very painful for us to be laying off people who have been working very hard to bring Apple back to health,” Amelio told reporters and analysts in a telephone conference.
But, he said, the only way to return the company to profitability was to slim it down from its present 13,400 employees and to cut its line of software and computer models.
Ultimately Apple’s board lost confidence in Amelio and replaced him with Steve Jobs, although Jobs initially refused to accept the title of CEO. It took many years to rebuild, but Apple went on to become extremely profitable and extremely successful by almost every measure, launching the iPod, the iPhone, and the iPad. Today Apple has a massive cash hoard and a high market cap.
It’s come a long way since 1997.
I wonder what today’s tech pundits would have said about Apple had they been blogging about the company in 1997. Would they have proclaimed it on the verge of death? Would they have been rooting for its demise?
It seems to me that many tech writers are ill equipped to practice business and financial journalism. They may be good at critically evaluating gadgets, but they don’t understand how to properly analyze a company. Sadly, they are more emotionally and mentally invested in seeing their own predictions come to fruition. And many of them have predicted that BlackBerry will soon be gone. Kaput. Dead.
It’s possible BlackBerry will be sold. It’s possible that BlackBerry’s stock price will keep sinking and its market cap will keep declining. It’s possible BlackBerry’s fortunes will get worse before they get better, or might not get better at all.
But none of these things is certain. It’s also possible BlackBerry will streamline and refocus, take on an equity partner, and return to stability and profitability.
That’s the point I want to make here in this post. Too many tech pundits write as if they know for a fact what is going to happen.
But they don’t. They do not have precognitive powers.
When someone like Darrell Etherington of TechCrunch reports on BlackBerry’s problems launching BBM, he ought to leave out commentary like this:
The launch of BBM for iPhone and Android, should it ever actually happen, will be a nice escape raft for people still clinging to the sinking ship, but that’s about it. The other ship BlackBerry is conceivably aiming to float here, the one where it builds a competitive cross-platform messaging platform to rival WhatsApp and others, has already sailed long, long ago.
Etherington’s sarcasm and dismissiveness adds no value whatsoever to his reporting. In fact, it diminishes his reporting. He would been smart to delete the last paragraph of his post prior to publishing it. Too bad he didn’t.
Let’s imagine what this paragraph might have looked like, circa the late 1990s:
The launch of the iMac, should it ever actually happen, will be a nice escape raft for people still clinging to the sinking ship, but that’s about it. The other ship Apple is conceivably aiming to float here, the one where it builds a competitive computing platform to rival Windows and others, has already sailed long, long ago.
The company Etherington happens to work for (AOL) has certainly had its own problems since being spun off from Time Warner. Yet AOL has managed to avoid being commonly branded as a sinking ship like BlackBerry has. Maybe it has something to do with the fact that it employs a number of tech pundits itself. (AOL owns TechCrunch, Engadget, Tuaw, and the Huffington Post).
To date, I have refused to buy into the negative press and apocalyptic predictions about BlackBerry. Friday’s news doesn’t change my perspective. I take a long term view of things. The layoffs and the loss are a sad development, but not a catastrophic one. I will continue to use and enjoy BlackBerry 10, and encourage friends and family to install BBM when it does become available for other platforms.
In my experience, nothing beats a BlackBerry when it comes to security, productivity, and messaging. BB10 is a fantastic mobile platform and I look forward to seeing it get even better with the forthcoming release of BlackBerry 10.2.