Struggling Canadian smartphone manufacturer Research in Motion Limited (RIMM) is preparing for another round of restructuring, which could reduce its global workforce by 2,000. We believe that the poor performance of the company – facing market share declines due to stiff competition from Apple Inc’s (AAPL) iPhone and Google Inc’s (GOOG) android based smartphone – is the primary reason for the layoffs.
This is the second time in almost a year that the company is reducing its employee strength after it sacked some 2,000 employees in July 2011. The restructuring process, which is expected to come from the company’s legal, marketing, sales, operational and human resource divisions, will slash its employee strength to 14,500.
The handset manufacturer, once a dominant player in the wireless e-mail sector, is currently facing significant market share loss to iPhone and android based smartphones. Research in Motion, which sells it smartphones under the Blackberry brand, has a secured and robust mailing system.
However, smartphones running on Apple’s iOS and Google’s Android platform supports thousands of application which has made them a preferred choice among customers. Recent report by IDC showed that among the 152.3 million smartphones that were shipped in the first three months of the year, the share of android based smartphones and iPhone is a staggering 125 million or 82.07%. RIMM continues to struggle as its market share has almost halved from its previous market share to 6.4%.
According to Research in Motion, the restructuring is a part of the company’s long term goal of creating value for itself by improving the effectiveness of its resources and enhancing its operational efficiency, thereby saving $1 billion by the end of 2013. We believe, in addition to that, the maker of BlackBerry also needs to improve on its smartphone strategy to cope with the fierce competition from other manufacturers.
Recommendation: We are maintaining our long-term Underperform recommendation on Research in Motion Limited. Currently Research in Motion Limited has a Zacks #5 Rank, implying a short-term strong sell rating on the stock.
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