BlackBerry's Foxconn deal spurs evolution into services company [Times of Oman]
(Times of Oman Via Acquire Media NewsEdge) Michigan: 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.
TORONTO: BlackBerry'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 on Friday for Foxconn to make its phones at plants in Indonesia and Mexico, sending the shares up 16 per cent, 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 to 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 yesterday'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 and Google'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.
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.
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 on 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 further said.
If the joint venture works out, Foxconn could eventually design and produce all BlackBerry phones, Chen said.
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