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RIM shrinks work force as rivals gain ground

The Blackberry tablet, or Playbook, that is set to be officially releases on April 19, photographed at RIM headquarters in Waterloo, Ontario on April 12, 2011.

Peter Power/Peter Power/The Globe and Mail

Desperate to catch up to its rivals in a market it once dominated, Research In Motion Ltd. is slashing 2,000 jobs, a stopgap measure to boost profits while the company waits for BlackBerry sales to improve.

After quadrupling the size of its work force in the past five years, RIM said Monday it will undergo the biggest round of layoffs in its history in an attempt to improve its financial performance after months of product delays, disappointing quarterly earnings and a flagging share price, which has dropped more than 55 per cent this year.

However, the move to cut staff is still at best a short-term measure while the smart-phone maker tries to solve its fundamental problem: an inability to attract consumers to its BlackBerry devices in the same way competitors such as Apple Inc. and Samsung Electronics Co. Ltd. have done.

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"It's long overdue," Queen's University School of Business professor John Pliniussen said of the job cuts. "It should have happened six months ago." But he added that RIM's survival continues to hinge on its ability to gain back customers with a slew of mobile devices set for release this year, and then an entirely new line of powerful gadgets running on a new operating system, called QNX, next year.

"That's the missing piece: Making us excited again about what RIM stands for," Prof. Pliniussen said.

For months, RIM's top executives have dismissed long-term concerns about the smart-phone maker's future, claiming the company was simply going through a difficult "transition period" as it shifts from traditional BlackBerrys to a more powerful generation of high-end phones.

But Monday's announcement that the Waterloo-based technology giant is cutting more than 10 per cent of its work force dealt a surprising blow to the Canadian tech sector. Investors and analysts have been expecting layoffs for some time, although few expected job losses of this magnitude. RIM had indicated the cuts were coming earlier in the year, as part of a larger effort to cut back on "non-core" operations. It is unclear whether RIM will also move to outsource more of its manufacturing operations to cheaper regions in order to cut costs.

In addition to the layoffs, RIM announced a number of changes in its executive ranks. Chief operating officer (product and sales) Thorsten Heins will oversee all product engineering functions at the company. Chief information officer Robin Bienfait will also take on responsibility for the business enterprise unit. Chief operating officer (operations) Jim Rowan and chief financial officer Brian Bidulka will oversee the cost-cutting program. The job descriptions of the co-CEOs appear to remain unchanged.

Paul Taylor, the chief investment officer for BMO Harris Private Banking, said RIM's management had prepared the Street for layoffs, but that it was still a shock to see that many high-paying jobs disappear from an important sector. But like other investors, he says he's still waiting to see fresh products, and that the Street will be waiting anxiously to see what the take-up is by the middle of November.

"Really, they can shuffle all the chairs they want on deck, at the end of the day, do they have a competitive product suite?" asks Mr. Taylor, who oversees $14.5-billion in assets, including RIM shares.

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"We, like everyone, will watch very carefully. Really, there's no news. At this point in time, no press releases, no shuffling of co-chair or co-CEO responsibilities, no layoffs" will amount to a turnaround strategy, he added, since "the litmus test for this company is, do they have market-competitive smart phones?"

Employees in North America and elsewhere will begin receiving their pink slips and severance package details this week. Although RIM will not yet say which areas will see the most cuts, it's a safe bet at least some jobs will go at the company's sprawling Waterloo facilities, where RIM still serves as the anchor of Canada's most important technology centre. Indeed, RIM and its founders have played an instrumental role in developing the city's technology credentials, from millions of dollars in donations to the University of Waterloo, to the development of world-class research institutes.

RIM has about 19,000 employees worldwide, 9,000 of which are in Waterloo.

Ironically, RIM's investment in Waterloo helped shine a light on the engineering talent in the area, drawing powerhouses such as Google to build a large presence in the area. With RIM shedding jobs, it is likely that more of that talent will flock to those competitors.

"Waterloo has been our main development centre in Canada," said David Lawee, Google's vice-president of corporate development, who oversees the company's acquisitions strategy. "The talent is phenomenal. The people are phenomenal."

In a testament to RIM's importance in Waterloo, within hours of the layoffs announcement, Communitech, an organization representing 800 tech companies in the region, issued a statement expressing "absolute confidence in the continued growth and success of Research In Motion."

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Investors will get a more detailed breakdown of the layoffs during RIM's next quarterly earnings call on Sept. 15. Between now and then, the Canadian smart-phone maker is expected to launch several new products, the success or failure of which will likely have far more impact on RIM's future than the current round of cost-cutting.

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