BlackBerry Enlists Foxconn to Make Phones as Sales Plunge
(Corrects Foxconn’s name in first paragraph of story that ran on Dec. 20.)
BlackBerry Ltd. (BBRY), the struggling smartphone maker, struck a five-year deal with Foxconn to manufacture its devices, following another quarterly plunge in sales and mounting losses.
Foxconn will make products for BlackBerry at plants in Indonesia and Mexico, according to a statement today. BlackBerry will own all of its intellectual property and handle quality assurance through Foxconn, an Apple Inc. (AAPL) supplier and the world’s largest manufacturer of electronic products.
The deal lets BlackBerry offload more of the costs of its unprofitable manufacturing operations, helping it focus on corporate software and services. After years of losing market share to Apple and Google Inc.’s Android, the company is trying to make a comeback by zeroing in on business customers. The Foxconn deal also is more practical now that BlackBerry is a shadow of its former self, said Andy Perkins, an analyst at Societe Generale in London.
“At some point it becomes uneconomic to produce handsets in such small quantities,” said Perkins, who rates BlackBerry a hold.
Sales in the three-month period ended Nov. 30 fell 56 percent to $1.19 billion, Waterloo, Ontario-based BlackBerry said today. That missed the average estimate of $1.59 billion in a Bloomberg survey of analysts. BlackBerry posted a loss from continuing operations of 67 cents. Analysts had predicted a loss of 46 cents.
BlackBerry shares fell as much as 8.8 percent to $5.70 in early trading after the earnings were released.
BlackBerry Chief Executive Officer John Chen, hired last month after the company abandoned a plan to sell itself, is trying to restore confidence among both investors and customers. The exploration of a sale loomed over most of its fiscal third quarter, having been announced on Aug. 12 before being scrapped on Nov. 4. That may have deterred customers from upgrading.
“The near term will be very challenging,” said Pierre Ferragu, an analyst with Sanford C. Bernstein in London who has a neutral rating on BlackBerry. It’s “difficult at this stage to have a conviction that BlackBerry can succeed.”
The company also said today that it’s taking a charge of $4.6 billion to write down the value of assets, inventory and supply commitments. BlackBerry recognized revenue from 1.9 million smartphones in the quarter, compared with 3.7 million in the previous period.
Chen, who is credited with reviving software maker Sybase Inc. before it was sold to SAP AG (SAP), has already begun making big management changes. Three weeks after his Nov. 4 start date, BlackBerry’s marketing, finance and operations chiefs left the company. This week Chen appointed former SAP executives as BlackBerry’s new heads of enterprise services, corporate strategy and marketing.
BlackBerry’s share of the global smartphone market tumbled to just 1.7 percent in the third quarter from 4.1 percent a year earlier, according to IDC. Android, the Google Inc. operating system used by Samsung Electronics (005930) Co. and others, had an 81 percent share, and Apple’s iOS had 13 percent, IDC said.
That’s left investors skeptical of Chen’s chances of turning BlackBerry around. The stock has fallen 20 percent through yesterday’s close since Nov. 1, the last trading day before he took over. It’s down more than 95 percent below its 2008 high.
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