BlackBerry Warns of Bleak 2Q, Deep Job Cuts Amid Huge Inventory Charge

Slumping smartphone maker BlackBerry (NASDAQ:BBRY) warned shareholders on Friday it expects to suffer a fiscal second-quarter loss of nearly $1 billion, generate half the revenue it had been projected to and axe 40% of its workforce.

The bleak news from BlackBerry, once the world's smartphone leader, sent its beaten-down stock plummeting as much as 46% to fresh 52-week lows below $6 before bouncing back above $8.

“This company is melting down by the moment,” said Roger Kay, president of Endpoint Technologies Associates. “In the tech industry, if you miss a product cycle or two, you literally almost go out of business. There’s very little room to recover if you lose the rhythm of the industry.”

The profit warning and cost-cutting moves come as BlackBerry attempts to find a suitor to acquire its business after falling far behind Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG).

Huge Inventory Charge

Slammed by a pre-tax inventory charge of $930 million to $960 million, BlackBerry projected a net operating loss of $950 million to $995 million for the second quarter.

The Canadian company expects to generate quarterly revenue of $1.6 billion, which is not even close to the Street’s view of $3.11 billion.

Citing “more intense competition” in its hardware business, BlackBerry said the inventory charge is mostly attributable to its Z10 devices. BlackBerry also sees a pre-tax restructuring charge of about $72 million tied to ongoing cost efficiency moves.

BlackBerry expects to only recognize hardware revenue on about 3.7 million smartphones, most of which are BlackBerry 7 devices. The company said that’s because some BlackBerry 10 devices that were shipped in the quarter won’t be recognized until those devices are sold through to end customers.

BlackBerry projected an adjusted net loss of $250 million to $265 million, or 47 cents to 51 cents per share. Analysts had been calling for a loss of just 15 cents a share, though it’s not clear if those numbers are comparable.

Adjusted gross margins are expected to range between 35% and 37%.

Deep Job Cuts

After adjusting for the big quarterly loss, BlackBerry expects to end the second quarter with about $2.6 billion in total cash, cash equivalents and investments.

To combat these bleak financial trends, BlackBerry announced a restructuring that would involve cutting about 4,500 employees, or roughly 40% of its workforce. These moves match reports earlier this week of deep headcount reductions.

BlackBerry also said it plans to slash operating expenditures by about 50% by the end of the first quarter of 2015.

"We are implementing the difficult, but necessary operational changes announced today to address our position in a maturing and more competitive industry, and to drive the company toward profitability,” BlackBerry CEO Thorsten Heins said in a statement.

As it struggles to regain traction in the smartphone world, BlackBerry said its future smartphone portfolio will transition from six devices to four, focusing on enterprise and prosumer-centric devices, including two high-end phones and two entry-level ones.

“This puts us squarely on target with the customers that helped build BlackBerry into the leading brand today for enterprise security, manageability and reliability,” Heins said.

Tough Sell

It’s easy to see how the latest profit warning could make BlackBerry’s sales process that much more difficult.

“I don’t think they could pay me to take it away,” said Kay, who sees evidence BlackBerry is in the midst of a “death spiral.”

BlackBerry only said that its special committee running the buyout process “continues to evaluate strategic alternatives.”

Recent reports indicate BlackBerry is drawing tepid interest from potential suitors, though some private-equity firms have signaled more of an interest in breaking up the company rather than acquiring it outright. 

Billionaire Prem Watsa, BlackBerry's largest shareholder, has reportedly emerged as the front-runner to acquire the company.

Shares of BlackBerry were trading down 2.38% to $10.27 Friday afternoon when they were halted for the preliminary results.

After trading resumed, BlackBerry briefly dove as low as $5.69 -- representing a 46% plunge from Thursday's close at $10.52. BlackBerry closed on Friday well off its lows at $8.73, down 17.06% on the day.