What do you think? Is RIM in a ‘death spiral’ or just being playing it smart? Will they recover and hold their ground?
As stock markets digested news of Research in Motion’s job cuts and details of its latest BlackBerry leaked out ahead of an official announcement, analysts said it’s no sure bet whether shedding 2,000 employees will help the high-tech giant in the long run.
If the job cuts are in RIM’s hardware division, it was the right move, according to Tavis C. McCourt, a technology analyst for Morgan Keegan & Co. If it was software developers, that could be a problem, he added.
“They need to ramp up their software staffing, and they probably could cut in hardware or sales and marketing,” said McCourt, who rates RIM shares “market perform,” with a price target of $42.
RIM shares were up in trading on the TSX Tuesday, rising as high as $25.93 in the morning, before closing at $25.86, a gain of 67 cents on the day.
McCourt says it’s still an open question whether the cuts to 11 per cent of the Waterloo-based RIM’s global workforce, announced Monday, will help, even if they’re in the right place.
“There are companies which have made big cuts and then bounced back strongly, and there are companies which have made cuts which led to more cuts and more cuts,” said McCourt.
McCourt pointed to General Electric, which trimmed roughly 80,000 jobs in 2001 to deal with a slumping economy, as an example of the former. Yahoo! is an example of the latter, McCourt said.
“GE trimmed down, bounced back and is now stronger than ever. At Yahoo!, they’re still struggling to find their way,” McCourt added.
York University business professor Fred Lazar said what happens next will be telling.
“The key here is if in 6-10 months there’s another major announcement of job cuts, then chances are they’re more in a death spiral than recovery mode,” said Lazar.
Companies looking to trim jobs have to maintain a very delicate balance, particularly when it comes to managing reactions from the stock market, Lazar added.
“If the cut’s too big, then people say ‘I guess the problem was bigger than we thought it was.’ If it’s too small, then they say ‘the company’s not doing enough to cut costs,’” said Lazar.
Meanwhile, the company had planned to unveil details Tuesday night of its latest BlackBerry devices, the Bold 9900 and 9930, but it was apparently beaten to the punch by Verizon, one of several U.S. phone carriers offering BlackBerry service.
RIM has been criticized repeatedly for delayed product launches.
A Verizon video posted on Youtube Monday says the Bold 9900 and 9930 are thinner than previous BlackBerrys, have bigger keyboards, and quicker processors. The Verizon video also said the 9930 will run on the company’s ultra-fast 4G LTE network.
“That’s the biggest change that I see. This will be the first LTE-enabled BlackBerry,” said Duncan Stewart, director of research at Deloitte Canada.
Still, Stewart said one new smartphone isn’t going to change RIM’s fate, at least partly because the company doesn’t have a single device representing 70 per cent of its sales at any given time, as does Apple.
“The launch of any single device isn’t a game-changer. The fact that they’re still coming out with thinner phones, faster phones, that’s what’s important – not any particular one,” said Stewart. “People used to wonder whether one product announcement a year was really necessary. Now it’s every month or two.”