BlackBerry’s Latest Round Of Job Cuts Do Little To Address Its Real Problem


Last week, BlackBerry (NASDAQ:BBRY) announced that it would be cutting an undisclosed number of jobs in its devices business. The layoffs come just about a month after the company said that it was considering closing offices in Sweden, in a move that would reduce its headcount by about 100 employees. [1] However, the current round of job cuts is unlikely to have a particularly positive impact on BlackBerry’s valuation or the general sentiment around the stock, given that the company’s real problem at the moment is not high costs but weak revenue growth.

We currently have a $10 price estimate for BlackBerry, which is slightly below the current market price.

See our complete analysis for BlackBerry here

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BlackBerry has been doing a great job of controlling costs over the last two years.  The company has cut down its workforce from over 16,000 employees in 2012 to about 6,225 full-time employees as of February 2015, while also divesting assets and outsourcing parts of its handset design and manufacturing business. These initiatives have allowed the company to post small profits over the last two quarters, while also helping to stem cash losses. However, the company is likely running out of inefficiencies and costs to prune, and future earnings growth will have to be driven by reversing a precipitous decline in revenues. Blackberry’s revenues have fallen from close to $20 billion in CY2011 to just about $3.65 billion as of CY2014 as shipments from the company’s once dominant smartphone division fell from over 50 million units in 2011 to roughly 7 million units in CY2014. BlackBerry’s high-margin service revenue (which accounted for 47% of total revenue in Q4) has also been falling fast, and the company projects 15% quarterly declines going forward as subscribers leave the platform. Much of the burden of BlackBerry’s recovery and earnings growth now rests with its software division, which offers the BlackBerry Enterprise Server (BES) enterprise mobility management (EMM) software and products such as the QNX embedded system software and BlackBerry Messenger. The company plans to more than double software revenue to about $600 million during FY2016. However, this may not be easy, given the intense competition in the mobility management space and we have yet to truly see signs of life from this division (see BlackBerry’s Software Business: Scenarios That Could Impact The Stock Price).

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Notes:
  1. BlackBerry to Lay Off Undisclosed Number of Employees in Device Business, WSJ, May 2015 []