On Wednesday of this week, the WSJ reported that BlackBerry may cut as many as 40% of total jobs. When we talked about this on the latest CrackBerry podcast, we were not yet sure if the 40% number was accurate, or if these cuts were above what the company had already said they’d do.
Then we did some of our own digging and we found out the headcount would be dropping to about 7600, verifying the WSJ report. I was all set to publish an editorial on this, which I wrote this afternoon in a car en route to Ottawa, when BlackBerry put out a press release with details confirming something we already knew. When Kevin BBM’d me to tell me the stock was halted, my reply was, “I figure profit warning, confirmation of layoffs and inventory write down”. Turns out that’s exactly what they announced moments later.
The preliminary quarterly results show a huge loss ... almost a billion dollars. But it’s all coming from the non-cash charges associated with writing down inventory. Backing out the inventory write down it looks like the business is still pretty close to break even. But the signs are bad, since BlackBerry only sold 3.7 million handsets in the quarter. Most of these handsets run BlackBerry 7, which means there has been a very significant decrease in quarter-over-quarter sales of BlackBerry 10.
The company announced its intention to refocus on enterprise and prosumer markets, with plans for only 4 devices (2 high end and 2 entry level) rather than 6. They confirmed plans to layoff about 4500 employees, which are new layoffs, and take the headcount down to be about 7600.
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.
I’m not saying all of the bloat was driven by hardware launches, but it’s one solid example.
I think if BlackBerry had never gone through the hyper growth and resulting crash the employee base would never be sitting at over 10,000 today. Given the concentrated nature of their business (smartphone hardware, software and a NOC), they really should not require that many employees.
Facebook has 5300 employees. They don’t make phones but they create a lot of software for desktops and mobiles on multiple operating systems. Google has almost 45,000 employees yet they dominate the Internet with Adwords, Adsense, YouTube, endless other services, and oh yeah ... a little something called Android and the hardware business they bought from Motorola. Given the incredible number of projects that Google runs I can see why they have so many employees. BlackBerry in no way needs one quarter the number of employees compared to the world’s largest Internet company.
It’s always sad to see jobs get cut. On a personal level, it sucks to know that plenty of loyal, smart and hardworking BlackBerry folks are about to lose their jobs. And it’s also easy to see why so many people are writing that these cuts spell death for the former smartphone king.
I don’t think there is any way to avoid sounding like I’m sugar coating bad news. That’s fine. That is what happens when you discuss the necessity of job cuts as a company reacts to the market rather than being proactive, as I wish BlackBerry had been. But these cuts are necessary. BlackBerry needs to get back to having a manageable base of employees who are focused on the few critical projects and programs.
A leaner BlackBerry with 7600 employees seems like it should be able to make decisions faster and get the important things done. Key word being “should”. In the end it all comes down to execution, which is where people have a perfectly valid reason for criticizing the company over the last few years.
If you think about all the things Facebook has launched in the last year such as Graph Search, Facebook Home (including Chat Heads), all sorts of new advertising features, and of course Instagram Video ...all while growing their revenue base and doing this with 5300 employees ... it seems ludicrous to me to suggest that BlackBerry needs much more than 7600.
These cuts, they say, will reduce operating expenses by about 50% within 3 quarters. If they want to be profitable as a smaller, niche player this is what they have to do.