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BlackBerry to retreat from consumer market, lay off 4,500 employees

BlackBerry to retreat from consumer market, lay off 4,500 employees

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BlackBerry logo stock (1020)
BlackBerry logo stock (1020)

As rumored earlier this week, BlackBerry is to lay off 4,500 employees, around 40 percent of its workforce, and retreat from the consumer market. The layoff news comes in an unexpected early earnings guidance release, in which the struggling manufacturer reveals it expects to book losses totalling almost $1 billion in the most recent quarter.

The Z10 launch has been a disaster for BlackBerry

The massive loss is mainly attributable to the disastrous sales performance of the company's Z10 smartphone, its first to run its new BlackBerry 10 OS. BlackBerry says it will take a "primarily non-cash, pre-tax charge against inventory and supply commitments in the second quarter of approximately $930 million to $960 million" due mainly to the Z10. In the second quarter, the company shipped just 3.7 million smartphones, most of which were running BlackBerry 7, the company's older operating system. The company was shy in revealing exactly how many BlackBerry 10 devices it sold last quarter.

The reason for the disparity between BlackBerry 10 and 7 numbers this quarter appears to be extremely over-zealous shipping in the previous quarter, leading to lots of unsold Z10s and, ultimately, the multi-million dollar inventory charge. Although BlackBerry would not break even without the charge, the shortfall would have been more akin to the meagre $84 million loss booked last quarter.

Expect deep price cuts and a retreat from the mainstream

Moving forward, BlackBerry appears to be stepping back from the mainstream consumer market to focus on what it calls "prosumer" and enterprise-focused devices. It says it'll trim its smartphone offerings down from six to just four devices; two high-end, two entry-level. Its new Z30 smartphone is clearly aimed at the high-end, with the Z10 to be "re-tiered" as an entry-level handset — expect deep price cuts in the near future.

Speaking on today's news, BlackBerry CEO Thorsten Heins called the changes "difficult, but necessary... 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." The quote is as clear an indication as you'll get that BlackBerry sees no future for itself as a maker of consumer smartphones.

BlackBerry's best chance of survival looks to be the enterprise market

Although the change in direction is sure to disappoint fans, BlackBerry hasn't fallen as dramatically behind in the enterprise market as it has in the consumer landscape. Perhaps the only non-sour note in today's release notes that installations of the company's latest BlackBerry Enterprise Service servers increased from 19,000 to 25,000 in three months; a sign of progress in an otherwise worrying day for BlackBerry. The company's board says it's examining "strategic alternatives," with multiple reports strongly suggesting it's searching for a buyer to inject some much-needed cash into its day-to-day operations.

Update: BlackBerry has released its Q2 financial report, confirming its losses and 3.7 million smartphone shipments.

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