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A BlackBerry smartphone. (Bloomberg) |
BlackBerry Ltd.’s five-year deal to outsource smartphone production to Foxconn Group is jump-starting its transformation into a services provider, pleasing investors who were looking for a smaller, nimbler company.
BlackBerry announced plans Friday for Foxconn to make its phones at plants in Indonesia and Mexico, sending the shares up 16 percent, the biggest one-day gain in more than four years. The move will help the struggling company cut production spending and avoid the kind of inventory gluts that contributed to a $4.6 billion writedown last quarter.
Since BlackBerry’s attempt sell itself faltered last month, some investors and analysts have pushed the company to get out of the money-losing business of making handsets. While Friday’s move doesn’t jettison the operation or guarantee a return to profitability, it helps BlackBerry refocus on services and software ― products that earn higher margins and can be sold to customers regardless of what kind of phone they use.
“The hardware business was losing money and was a chokehold,” BlackBerry Chief Executive Officer John Chen said at a press briefing. “I’ve relieved that.”
After years of losing market share to Apple Inc. and Google Inc.’s Android, the company is trying to make a comeback by zeroing in on business customers. Friday’s move was the biggest sign yet that the once-dominant smartphone maker is ready for a new role, said Jan Dawson, an analyst with Jackdaw Research in Provo, Utah.
“This is definitely a milestone,” he said. “BlackBerry was always first and foremost a devices company. Now they’re outsourcing a big chunk of that business and focusing more on other things.”
BlackBerry shares climbed to $7.22 in New York, marking the biggest one-day gain since April 2009. Until Friday’s rally, the stock had declined 47 percent this year.
Thorsten Heins, BlackBerry’s previous CEO, had stressed in 2012 that the company wouldn’t manufacture phones in China because of security concerns. Friday’s deal doesn’t change that. Though Foxconn has manufacturing in mainland China, the company is Taiwan-based and the BlackBerry work will be done in other countries. BlackBerry also isn’t licensing technology to Foxconn, signaling that the company isn’t ready yet to get out of the business entirely.
Still, allying with Foxconn ― famous for churning out iPhones, PlayStations and personal computers ― lets the company offload manufacturing without having to find a buyer for its phone business. BlackBerry sought takeover offers for the entire company earlier this year, only to see a $4.7 billion bid by its largest investor fall apart.
As part of the Foxconn deal, the manufacturer will help BlackBerry design phones and then produce lower-end models that will be sold in six to seven main markets, Chen said Friday. The first phone, codenamed Jakarta, will be a 3G model that comes out around April.
Over time, Foxconn will take over the design of those lower-end phones, letting BlackBerry’s staff in North America focus on pricier models for business customers, Chen said. If the joint venture works out, Foxconn could eventually design and produce all BlackBerry phones, Chen said.
That will free up engineers to create new services that don’t have to run on the BlackBerry platform. The company has already developed software, such as its messaging application, for iPhone and Android devices. It’s also building an enterprise technology center in Washington, D.C., to work with government clients on new software security innovations. (Bloomberg)
