It has been a very bad week, of course, for Research in Motion Limited (RIM). The outage afflicting its Blackberry service has left users fuming. The company’s management has given the impression that it was trying to say as little as possible during the crisis leaving a void that has been filled with media speculation and public anger across the social networks. Apparently the failure of a “core switch”, possibly in nearby Slough, along with its failover caused the problem initially with subsequent backlogs creating ongoing difficulties. When a disaster is so catastrophic and so unexpected it is impossible for anyone involved to be certain how long it will take to fix but RIM seems to have been unable to keep users informed at all leaving the impression that it didn’t care.
A look at RIM’s accounts, however, is more revealing than its PR department has proved to be in the latest crisis. RIM’s latest quarterly results show a business that has turnover in billions of dollars and profits in hundreds of millions. The report begins with highlights which feature the fact that “The BlackBerry subscriber base grew 40% year over year to surpass 70 million” and goes on to say that “RIM shipped approximately 10.6 million BlackBerry smartphones and approximately 200,000 BlackBerry PlayBook tablets”. Pretty impressive! A comparison with the previous quarter, though, begins to tell a different story. At the end of the first quarter RIM had $2.9 billion in cash or equivalents. In the space of three months half of that money has gone. Since the company made a profit the cash hasn’t been burnt by losses: it must have gone elsewhere. Again the text offers a helpful explanation, “Uses of cash included strategic purchases of intellectual property assets associated with RIM’s participation in a consortium of companies that successfully bid to acquire Nortel Networks Corporation’s patent portfolio, of which RIM’s cost is approximately $780 million, capital expenditures of approximately $285 million, and working capital requirements.” No doubt the investors are happy that RIM is making valuable acquisitions like the Nortel patents to boost its business but simple arithmetic would suggest that the ‘working capital requirements’ must be a number on a similar scale. The figures themselves reveal that the main drain on working capital was a huge increase in inventory of $754 million. It looks as though RIM has an awful lot of unsold BlackBerrys and Playbooks.
Both the first quarter and second quarter narratives provide a clue as to what is happening behind the scenes at RIM describing a new focus for the business such “that it would be reducing its global workforce across all functions by approximately 2,000 employees, representing approximately 10% of the total global workforce”. So, with competitors like Apple getting ahead in the technology race and cash resources drying up, management took the decision to decimate the workforce, especially the divisions that aren’t dedicated to producing sexy new products. Maybe they’re regretting that now?