Research in Motion, the company responsible for BlackBerry mobile devices, was on the receiving end of a grim ultimatum: Slash 90 percent of its current staff and focus on pleasing its hardcore users, or continue to slowly shrink to its demise. This coming from a Wall Street analyst hired to help turn the struggling company around.
“We believe the fundamental story at RIM is essentially broken,” Morgan Stanley analyst Ehud Gelblum stated while downgrading RIM from “equal weight” to “underweight,” based on the company’s “rapidly deteriorating fundamentals.”
Since Gelblum’s judgement was released, RIM’s stock has taken a loss of eight percent, with the company’s first fiscal quarter earnings report due later this week. Falling as low as $9.31 on the Toronto Stock Exchange, RIM was trading at its lowest price since 2003.
“We believe there is a subset of current RIM subscribers that would remain loyal to their BlackBerry devices either for security reasons or simply because of personal preferences. However, we believe this group is relatively small,” Gelblum added. He suggested that the company may need to return to private business, in order to implement internal reforms and transform itself into a niche player in the market. RIM currently employs about 16,500 workers, but Gelbum believes that the company would need to cut that number down to around 2,000 to survive.
RIM has acknowledged many of these issues already, and is looking to save billions next year by cutting manufacturing costs as well as jobs. Much of RIM’s future plans have been invested in the upcoming BB10 operating system due out by the end of the year, but Gelbum stated that the phones are “likely too late and fraught with risks.” In addition, the expectation of the new phones will prevent the small BlackBerry user base from buying current models until the new ones are released.
Last month RIM CEO Thorstein Heins publically admitted that the company had hired investment banks to research potential options, including the licensing of the BlackBerry software, or even a sale. RIM expects to report an operating loss in Thursday’s fiscal report.
