BUSINESS

BlackBerry: Operation Costs Quadrupled Since Last Estimate

10/01/2013 06:30 EDT | Updated 12/01/2013 05:12 EST
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Thorsten Heins, president and chief executive officer of Research In Motion Ltd. (RIM), pauses while speaking at the company's annual shareholders meeting in Waterloo, Ontario, Canada, on Tuesday, July 10, 2012. Research In Motion Ltd. aims to release the first of its new BlackBerry 10 smartphones globally in January, betting that the device will help it regain market share lost to rivals led by Apple Inc. and Google Inc. Photographer: Brent Lewin/Bloomberg via Getty Images
TORONTO - BlackBerry (TSX:BB) says the cost of reworking its operations will likely be four times as much as it estimated earlier this year and may turn out to be even be higher than that.

According to financial report documents filed with regulators, the smartphone maker expects to book US$400 million in charges from a variety of factors before the end of May 2014.

Those expenses will cover costs associated with the previously announced layoffs of 4,500 employees, the reworking of its smartphone lineup and other changes to its manufacturing, sales and marketing operations, it said.

Earlier this year, BlackBerry said it would likely book $100 million in charges through its fiscal 2014 year, as it cut back staff and reduced other costs. Since then, the company's financial results have weakened, mostly on poor sales of its BlackBerry Z10 touchscreen phones.

The Globe and Mail reported Wednesday that BlackBerry has asked real estate firms to suggest ways for tapping the value of its properties in the Waterloo area, about 20 buildings.

Its sources said that BlackBerry has asked for ideas to generate the largest possible return from its real estate in as little time as possible, through a confidential process begun last week.

BlackBerry responded to the Globe with an email that said it reviews its real estate on an ongoing basis.

“Should space become unnecessary for BlackBerry’s continued use, we will work with key partners in the community who may need some of our surplus space,” the email said.

Last week, the company booked a US$965-million loss for the second quarter and announced the massive layoff that will extend into next year.

"Other charges and cash costs may occur as programs are implemented or changes completed," the company said in the financial documents.

The documents provide the clearest picture yet of what's happening behind the scenes at the struggling Waterloo, Ont.,-based technology company. BlackBerry has been trying to regain control of its quickly eroding share of the smartphone market while also scaling back bloated operations.

It disclosed that it has marked certain unnamed assets as "redundant" and some have already hit the auction block, including properties, as well as plants and equipment, though the company did not identify anything specific.

For the second quarter, BlackBerry said it booked a loss of $7 million related to the declining value of those assets.

While BlackBerry stopped providing specific data for its subscriber base earlier this year, saying that it no longer accurately reflects its business model, the company said "customers" continued to decline in the second quarter in every region except the Asian-Pacific market.

In its outlook, the company said monthly service revenues are expected to decline further in the third quarter, though not at the escalated rate experienced in the second quarter. The company said service revenue dropped about 27 per cent to $724 million in the three months ended Aug. 31.

It expects service revenues to fall another 12 per cent in the third quarter.

Last week, BlackBerry received a conditional takeover offer from Fairfax Financial (TSX:FFH), one of BlackBerry's largest shareholders, worth $9 per share. The transaction values the company at $4.7 billion.

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