Industryweek 5834 Blackberry

BlackBerry Takes another $4.4 Billion Hit

Dec. 20, 2013
The new partnership, according to BlackBerry, demonstrates its long-term commitment to selling smartphones, after speculation that it might abandon device sales to focus on software and services.

OTTAWA -- BlackBerry (IW 1000/412) said Friday it fell deeper into the red in the past quarter as the struggling smartphone maker unveiled a manufacturing partnership with Taiwan-based Foxconn and a revamped organizational structure.

The Canadian firm reported a massive $4.4 billion loss in its third quarter, four times higher than in the previous quarter, as smartphone sales slumped by half.

The company also unveiled a five-year partnership with Foxconn, described as "the world's largest manufacturer of electronic products and components."

Foxconn will jointly develop and manufacture a number of new devices and help manage inventory -- an area where BlackBerry has struggled.

Foxconn, the marketing name for Hon Hai Precision Industry Co. (IW 1000/24), is also a main supplier of one of BlackBerry's chief rivals – Apple (IW 500/4).

The new partnership, according to BlackBerry, demonstrates its long-term commitment to selling smartphones, after speculation that it might abandon device sales to focus on software and services.

BlackBerry has made repeated public pleas over the past year for customers to stick with it amid forecasts of its pending demise.

The Waterloo, Ontario-based firm attributed the extent of its quarterly loss to a $4.6 billion charge for an inventory write-down and other one-time costs.

But the company is also seeing plummeting sales, with third quarter revenues of just $1.2 billion, 56 percent lower than a year earlier.

The results were "worse than depressed expectations," said RBC Capital Markets analyst Marc Sue.

The company sold just 1.9 million smartphones in the quarter, nearly half the figure from the previous quarter, suggesting the release of the Z10 handset -- a touchscreen device launched this year and aimed at competing against Apple and Android rivals -- has failed.

But the company said that 40 million new iOS/Android users have registered over the past 60 days to use its messaging system.

Sue summed up the results as reflecting the company's challenge in maintaining customers, predicting "more layoffs to come" as it burns through cash.

The company's "lack of clear strategy (will) weigh on shares," he said in a note to clients.

'Significant Work Ahead'

This was the first financial report since John Chen was slotted into BlackBerry's top job last month, in a management shakeup that also saw several top executives depart.

Chen said BlackBerry's enterprise services for organizations and its messaging products are in good shape, and its "most immediate challenge" is to turnaround its handset business.

"We have accomplished a lot in the past 45 days, but still have significant work ahead of us as we target improved financial performance next year," Chen said.

The chief executive said BlackBerry is "financially strong" and has "a broad and trusted product portfolio to work with."

"With the operational and organizational changes we have announced, BlackBerry has established a clear road map that will allow it to target a return to improved financial performance in the coming year," he vowed.

In September, the company announced that it was laying off 4,500 staff -- or one third of its global workforce -- after losing $965 million in its second quarter.

BlackBerry helped create a culture of mobile users glued to smartphones, but lost its luster as many moved to iPhones or devices using Google's Android software.

BlackBerry still has some 70 million subscribers worldwide, but most of these are using older handsets, with newer devices on the BlackBerry 10 platform unveiled in January failing to gain traction.

Technology analyst Jack Gold said the partnership with Foxconn should help BlackBerry "both financially by lowering costs and with new designs for the emerging markets where they still have a major presence."

But he noted that the company "still has a way to go to achieve turnaround."

"The new management restructuring will likely help, but the primary challenge is to stem the losses in devices and get more people interested in the higher end devices, which is not happening at the current time," Gold said.

- Michel Comte, AFP

Copyright Agence France-Presse, 2013

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