Crushed Blackberry

I wasn’t going to write about the cell phone business again for some time. After all, this is a site about semiconductor and EDA primarily. But the cell-phone business in all its facets is a huge semiconductor consumer and continues to grow fast (despite my morbid focus on those companies that do anything but).

But Research in Motion (RIM) announced their results last week. RIM is more famous by the name of its product, Blackberry. Crackberry as it used to be called. Now, not so much, it’s lost its addiction.

They lost 30% of their market share. In one quarter. A couple of years ago they had 20% market share. Now they have 5%. And the market grew four-fold, so in unit terms they are not off as much as it might seem. But if you stay static in a market that is growing explosively then you are not going to survive. And RIM is not going to survive. They have engaged bankers to explore strategic options (most of which probably involve dismembering the company since it is hard to see it as a going concern in its current form).

They announced two other big things. They are going to lay off 5,000 people. Since they have 15,000 employees that is a third of the company. Any company can lay of 5-10% of their people with minimal effect: people who don’t contribute, marginal products and so on. But nobody can lay of 30% of the company and “cut to success”. I don’t know anyone who ever did it.

Perhaps worse is that the new Blackberry operating system 10, which was meant to come out in 3Q and is now delayed until 2013 (and, as some commentators say, will probably never come out since RIM’s realistic runway isn’t that long). RIM had decided to focus on the business market (their core strength but also the slowest growing segment, especially in the new world of BYOD, Bring Your Own Device) so that might not matter that much since business is less affected by Christmas than consumer. But it’s a disaster by any measure. As a software manager in past lives I know how hard it is to forecast product delivery dates, especially when the world is changing around you (and management is changing your priorities on a daily basis) but a 6 month slip now is likely to be fatal. That poor software manager is also probably being told to do without 25% of his engineers too. Doesn’t add up.

Anecdotally, what is killing RIM is Android. I have 3 friends who had Blackberries a couple of years ago. All three have Android phones now. Obviously iPhone is in the picture too. If it weren’t for Nokia, this would be the worst track record ever. And I don’t just mean in cell-phones, no companies have ever collapsed so fast as RIM and Nokia. Moreover, they play in a trillion dollar industry (of which there are only a handful: mobile, automotive, finance, medicine…) so a percentage point is tens of millions of dollars.