Future for BlackBerry Uncertain after Huge Second Quarter Loss

BlackBerry reported results for the second quarter on Friday that were indicative of the company’s continuing slide in the smartphone market.

For the quarter ended August 31, BlackBerry reported a net operating loss of $965 million on revenue of $1.6 billion.  BlackBerry had a net operating loss of $229 million on revenue of $2.9 billion for the same quarter in 2012.

Leading up to the announcement, BlackBerry had warned analysts that it would incur a significant loss.  In addition, the company announced that it would lay off 4,500 employees as it seeks to trim costs and better align the size of its business with its current market share.

Thorsten Heins, CEO of BlackBerry, indicated that he was displeased with the results.

“We are very disappointed with our operational and financial results this quarter and have announced a series of major changes to address the competitive hardware environment and our cost structure,” Heins noted in a release that accompanied the earnings report.  “We understand how some of the activities we are going through create uncertainty, but we remain a financially strong company with $2.6 billion in cash and no debt.”

Competition May be Too Great for BlackBerry

Despite the large cash reserves BlackBerry still holds on its balance sheet, analysts are concerned that no changes by the smartphone manufacturer can help it reclaim market share from its competitors or return to profitability.  Many analysts expect that BlackBerry may simply choose to vacate the handset manufacturing market altogether.

Sales of smartphones using BlackBerry 10, the company’s latest operating system that was released in January, continue to fall below expectations.  BlackBerry charged off almost $1 billion related to unsold units of the BlackBerry Z10, the latest handset the company has brought to the market.

In addition, competition from chief handset competitors Apple and Samsung have only increased recently.  Earlier this month, Apple released the highly anticipated iPhone 5s.  Apple announced that it had sold over 9 million units in its first weekend of sales.

To put that number in perspective, note that BlackBerry sold less than 6 million units in the entire second quarter.  Many of those units were not sold at a profit as BlackBerry sought to recover the corporate user base who has largely abandoned the company.

As recently as 2009, BlackBerry held over 50 percent of the handset market share in the United States, as the company was the go-to phone for many business users.  But with the advent of touchscreen smartphone offerings by its competitors, BlackBerry has seen its US market share plummet to 3 percent in the second quarter of this year.

Next Steps for BlackBerry

Early last week, BlackBerry announced that Fairfax Financial Holdings may purchase the company at a cost of $9 per share, taking the company private.  Given the number of outstanding shares, BlackBerry would have a value of $4.7 billion at that purchase price.

Fairfax is currently the largest single shareholder of BlackBerry, owning approximately 10 percent of the outstanding shares.

BlackBerry’s stock price closed at $8.03 per share at the end of trading on Friday.

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Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.