This past Friday, Blackberry, a relatively empty shell of what not long ago was Canadian and global telecom titan Research in Motion (RIM), announced another round of lay-offs. The announced 4,500 job cuts add to the already massive downsizing of the company’s workforce undertaken over the last couple years, including 5,000 lay-offs last summer and 2,000 lay-offs summer 2011. That’s more than half the nearly twenty thousand workers the company employed at its peak in 2009. The remarkable impact RIM’s demise has had on the Canadian labour market pales in comparison to the potential impact it will have on Canadian innovation.
It can be, and indeed has been, argued that the company simply couldn’t afford to continue to employ that many workers in the face of plummeting market share and little prospect for recovery. The company’s stock price peaked at $147.55 per share mid-2008 ($235.99 in 2007, pre-stock split). After Friday’s announcement of an expected $1B loss for the second quarter of the year, it dropped to $8.03 per share. RIM/Blackberry’s market capitalisation dropped from a high of $83B in 2008 to less than $4.5B after its Friday announcement. (all prices in USD)
Almost immediately following the announcement, Blackberry received a provisional offer from Fairfax Financial Holdings to purchase the company for $4.7B. The CEO of Fairfax, Prem Watsa, resigned from Blackberry’s board of directors August 12, the same day the Board approved the formation of a committee to review potential offers to sell the company. A couple of days later, Blackberry’s Board gave its CEO, Thorsten Heins, an incentive to sell the company by nearly tripling his termination payout to $56M.
Hopefully the media (and OSC) investigate whether Blackberry’s CEO may have been actively undercutting the company’s value. Just over the weekend, Blackberry bungled the release of its Blackberry Messenger application for Google and Apple’s market-leading mobile operating systems, effectively missing its announced summer launch. In June, Mr. Heins reneged on Blackberry’s commitment to release an operating system upgrade for owners of its tablets, practically all of whom also owned its phones (since the tablet could not perform basic functions untethered). Turning off that many potential and existing customers in such short order is either the height of incompetence or subterfuge. The $56M golden parachute suggests the latter.
In addition to the loss of employment in the tens of thousands, RIM has been Canada’s greatest investor in terms of corporate research and development (R&D). Even as it struggled in 2011, RIM spent more than $1.5B on R&D. For context, the top 100 Canadian corporations (RIM incl.) collectively spent $8.1B on R&D that year. Whether Fairfax continues RIM’s prodigious R&D effort remains to be seen, although many analysts have suggested a potential buyer may profit by selling off RIM’s undervalued IP assets. Given the potential impact of the company’s sale on Canadian innovation, the federal government’s silence is deafening.
A choice quote from an August 6, 2012 Canadian Business article, aptly titled The end of RIM, sums the situation up well:
If what we as a nation are going to focus on is pulling stuff out of the ground, selling it to the world and then buying back the finished goods, I can tell you from a prosperity perspective which way we’re going, and it’s not up.
-John Ruffolo, head of the venture capital arm of OMERS