Saturday, May 26, 2012

RIM, BlackBerrys and Waterloo

The Globe & Mail announced this morning that RIM is planning large layoffs in the next couple of weeks, probably more than 2,000 of its 16,500 worldwide workforce. I got out just in time: I resigned from RIM so recently that my last day was this week and I haven't even started my new job yet. But I live in Waterloo, and RIM's fate affects all of us here.

(Full disclosure: I do not have any confidential information, and if I did I wouldn't spill it here. But with skin in this game, I have spent a lot of the last year reading the industry analysts and thinking about these issues.)

In a town of 100,000, RIM is the largest employer with nearly 10,000 employees located here. RIM occupies approximately 30 buildings in Waterloo, most in the Phillip-Columbia neighborhood.

Waterloo has done very, very well as RIM flourished. Property values are significantly higher than the rest of the region, meaning our tax revenues are also very high.

For many local businesses, from business support to sandwich shops to retail, RIM or RIM employees are the major customers.

As an interesting side note, the salaries at RIM have brought in a particular kind of business. Many RIM employees (not me) receive enormous salaries. Our subdivisions are packed with huge luxury houses. A friend who works at a jewelery store tells me that they regularly sell Rolex watches at more than $15,000 each, always to RIM executives. Waterloo has a disproportionate number of high end shops and restaurants.

We're all hoping that RIM turns things around and becomes a booming business once more, but there is very little chance that that will happen. RIM is pinning all its hopes on its new operating system, BB10. Since RIM unveiled BB10 at the beginning of this month, the stock price has fallen more than 30%. Analysts do not think BB10 will save the company for a number of reasons, including:
  • This year's release will be 1.0, meaning that it will have lots of insufficiencies and bugs that will take years to work out, and RIM doesn't have time.
  • The new OS has some good features, but not enough to make it competitive against Apple and Android, especially as Apple is set to release iPhone5 around the same time as RIM expects to release its BB10 phones.
  • And most importantly, consumers are more interested in apps than hardware, so a smartphone lives or dies on its apps. RIM just can't attract enough app developers to get the apps built.
The success of the company isn't just based on the quality of its products. According to analysts' reports, RIM has significant inventory problems these days. They say that its attempt to be competitive in the low end smartphone market (its sales have moved from richer to poorer countries) has resulted in lower quality phones with markedly higher return rates. Public perception of the company has also taken a huge hit recently, partly because of its inability to meet deadlines and release quality products, partly because of unintentionally funny and/or annoying ad campaigns, and partly because of stunts like a recent scandal in Australia where RIM secretly hired people to stage an anti-iPhone rally.

So what's going to happen?

In the near term, the Globe says that layoffs will occur on June 1 (next Friday). The Globe reports that the first to go will be from the legal department, HR, finance, sales and marketing. I could add (as pure speculation) that people working on the old Java-based operating system are vulnerable, along with internal support personnel, manufacturing workers, and employees who fill secondary roles.

Over the next year we can expect more layoffs; RIM will start to vacate many of its Waterloo buildings. In the long term, RIM will probably survive as a smallish company; for example, QNX, which is an Ottawa-based company that RIM purchased last year, has a successful business creating the operating system for automobiles. At some point parts of RIM will probably be purchased by other companies, although an all-out sale seems unlikely (RIM has courted a number of companies and all passed on buying it so far). By 2014 or so, in a good-case scenario RIM may have consolidated its remaining local employees into its three buildngs at Northfield and University.

For employees who work outside of Waterloo, there shouldn't be too many difficulties in finding other jobs. In Waterloo, the situation is quite different. For example, RIM probably employs as many technical writers in Waterloo as all other local companies combined. As those technical writers get laid off, there simply won't be local jobs for them. But it is quite possible that local house prices will fall after layoffs, so it isn't going to be easy for some of them to move.

As for the city of Waterloo, the tide has already started to turn. Waterloo property values are so high that the high tech hub has started to move to Kitchener, which is not only cheaper and more central to transit but also has a large number of empty manufacturing buildings that make attractive office space. (Communitech and Google have gorgeous offices in the Lang Tannery.)

Currently, a building on King Street in Uptown Waterloo (store on bottom, a couple of apartments up top) will set you back $600,000 to a over a million dollars. In downtown Kitchener, you can pay half that. Downtown Kitchener still has a scuzziness factor, but it is fast improving - and it is a much more interesting and varied downtown than Waterloo. If Waterloo's high end boutiques lose their clientele, you have to expect that there will be some dramatic changes.

One has to hope that someone at Waterloo City Hall has started to prepare for what might be coming. I hope they're running a series of projections of tax revenue given several possible scenarios, and thinking about how to cope with each. Uptown Waterloo was planned as an upscale, boutique shopping destination: will that vision survive the fall of RIM? (And is anyone thinking about the possibility that the Uptown could become a club district as Kitchener did, with the problems that would bring?) Does the city have a plan for attracting new businesses to the empty office buildings? If Waterloo has thousands of new unemployed people, what will the impact be on social services?

Don't get me wrong. I hope RIM can survive and thrive. But there is enough reason to think it won't that we need to be prepared.

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6 comments:

tedparkinson said...

This is a thoughtful and interesting article. Well done! I disagree with one thing: "This year's release will be 1.0, meaning that it will have lots of insufficiencies and bugs that will take years to work out, and RIM doesn't have time." This is not necessarily the case. RIM has already used the OS for the Playbook and because of the chip shortage they have have many extra months to work out the bugs. So it COULD be a fully functioning OS which works well and encourages app developers.

Even if the OS is great, people may not flock to RIM products. Their future is in the overseas markets, or perhaps even with Facebook buying them to make a smartphone.

I hope you are wrong on a few other things as well, but it is worthwhile thinking about the RIM downsizing effect on Waterloo and region.

Yappa said...

Hi Ted,

I'm always a worst case scenario type thinker. I think Waterloo should be prepared for the worst but hope for the best.

As for the 1.0 thing, I got that from Boy Genius Report: http://www.bgr.com/2012/03/30/research-in-motion-is-dead/. I don't know that there's much relation between PB2 and BB10, but I really don't know anything about that. I wish them well...

Frank Moher said...

Ruth,

Could I republish this piece in the online magazine I edit, backofthebook.ca? We can offer you a (small) fee to do so.

Let me know? http://backofthebook@singlelane.com

Thanks

Frank

Frank Moher said...

Sorry, correct e-mail is backofthebook@singlelane.com

Jeff Gingerich said...

Well said Ruth. As a local residential Realtor and Waterloo resident, I certainly hope the fallout from these job cuts is minimized. We must remember in every adversity, there is opportunity.

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