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With Huge Losses, BlackBerry Takes a Step Away From Hardware

It appears that BlackBerry is becoming a relic even faster than we expected. On Friday the struggling smartphone maker revealed massive fiscal third-quarter losses and announced a new five-year deal with Foxconn to manufacture its devices.

For months there has been speculation that BlackBerry (BBRY) would get out of the hardware business, and the deal with FoxconnFoxconn Technology (2354:TT) is a step in that direction. “At some point it becomes uneconomic to produce handsets in such small quantities,” Andy Perkins, an analyst at Société Générale (GLE:FP), told Bloomberg News.

The move will allow BlackBerry’s new chief executive officer, John Chen, to refocus on services and software, particularly for enterprise clients. The shift in strategy comes in the wake of a disastrous decision by former CEO Thorsten Heins to invest heavily in the development of a new mobile operating system and a slate of accompanying devices designed to compete directly with Apple (AAPL) and Google (GOOG) in the consumer-oriented smartphone and tablet markets. BlackBerry’s announcement today also included news that the company will take a charge of $4.6 billion, related in part to the horrendous performance of the BB10 devices.

In recent months, before BlackBerry took down its “for sale” sign, the Canadian government had made clear to executives that it would not accept a takeover bid by any Chinese company due to national-security concerns. Along the way, the Canadian government managed to scuttle interest in BlackBerry on the part of the Beijing tech-giant Lenovo (992:HK).

By teaming up with Foxconn, the new chief executive appears to have successfully shifted some of BlackBerry’s business to the publicity-averse Taipei company without overstepping the Canadian government’s security concerns.

Gillette is a staff writer for Bloomberg Businessweek in New York.

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