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 The stock rose as much as 17 percent after the company announced the
five-year partnership with Taiwan's Foxconn Technology Co Ltd, which
will initially build low-end devices for sale in Indonesia and other
emerging markets. BlackBerry said it hoped to expand the fledgling
relationship to its top-of-the-line smartphones.
The deal is unconventional in that BlackBerry will no longer pay
upfront for components used in the devices made on its behalf in
Foxconn's Indonesian and Mexican factories.
Instead, Foxconn will take a share of profit on each device in
return for taking on inventory management, which can result in
writedowns if smartphones go unsold. Foxconn will also help with
developing, designing and distributing the handsets.
Chief Executive John Chen, who took the helm at BlackBerry last
month, said he expected the Foxconn deal to help BlackBerry's
handset business turn cash-flow positive, and for the company as a
whole to post a profit for the fiscal year that begins in early
2015.
"It's almost like BlackBerry is disposing of its consumer handset
business without actually disposing of it," said Jefferies analyst
Peter Misek, who likened the deal to what Hewlett-Packard Co and
Dell have done with laptops.
The move, which comes a month after BlackBerry said it was giving up
on a plan to sell itself, helped take the sting out of the massive,
$4.4 billion loss that it posted for the quarter ended November 30,
as smartphone sales shriveled.
A new line of devices running on BlackBerry 10 software has failed
to gain traction, forcing the company to write off $1.6 billion of
inventory and supply commitments for the quarter. The previous
quarter it wrote off $934 million for unsold phones.
The Waterloo, Ontario-based company pioneered the concept of
on-the-go email, and for years its pagers and phones were must-have
devices for political and business leaders. But in recent years it
has lost its once-dominant market share to Apple Inc's iPhone and a
slew of smartphones powered by Google Inc's Android operating
system.
As of Thursday's close, the stock had fallen 47 percent this year.
It was last trading up 14 percent on Nasdaq at $7.13.
"The most immediate challenge for the company is how to transition
the devices operations to a more profitable business model," said
Chen, who is credited with turning around Sybase, a database and
mobile software company, before it was sold to German software
company SAP AG in 2010.
Chen has said he is counting on strong growth in BlackBerry's
service business, which manages smartphone traffic on the internal
networks of corporate and government clients.
"Just jettisoning all the stuff and driving on with the part of the
business that makes money makes a heck of a lot of sense to me and
that is very clearly where Chen is going," said Ross Healy, a
portfolio manager at Macnicol & Associates who owns a small number
of BlackBerry shares.
Carolina Milanesi, an analyst at Kantar Comtech, said the deal is a
good move for Foxconn, the world's largest electronic parts
manufacturer and a major partner of Apple Inc.
"This might be the first step for them to try and diversify, and
experiment with putting their brand on the products they make," she
said.
DEVICES ARE A CHALLENGE
In his first presentation to analysts after the release of
BlackBerry's results, Chen struck an upbeat tone tempered with a
heavy dose of realism. The mix may have helped soothe nervous
investors who had sharply lowered their expectations for BlackBerry
after a string of disappointing news.
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"It's clear that he's not the old guard, he's not there trying to do
what Lazaridis and Thorsten were up to. He's actually been taking
some concrete steps," said Mark McKechnie, an analyst at Evercore
Partners, referring to BlackBerry's founder Mike Lazaridis and
Thorsten Heins, Chen's predecessor.
Chen moved quickly to stamp his authority on BlackBerry, hiring
several former colleagues from his time at Sybase and SAP for senior
roles in corporate strategy, marketing, and enterprise strategy, a
key unit in the stripped-back company.
BlackBerry sold about 4.3 million handsets in the third quarter,
with older BlackBerry 7 models accounting for about 3.2 million of
that number.
The company recognized hardware revenue on 1.9 million devices, down
from 3.7 million in the previous quarter.
On a brighter note, its cash pile grew to $3.2 billion from $2.6
billion a quarter earlier, but that included $1 billion raised by
issuing convertible notes to a group of investors last month after
calling off a months-long search for a buyer.
Service revenue slipped 13 percent as fewer people paid to use
BlackBerry's secure network, and the company said that level of
decline could be expected to continue.
Along with the writedown on unsold phones, the company also slashed
by $2.7 billion the carrying value of some long-lived assets, mostly
licensing deals made when it was far larger.
QUARTERLY RESULTS
The company reported a third-quarter net loss of $4.4 billion, or
$8.37 a share, compared with year-earlier net income of $9 million,
or 2 cents a share.
Excluding the inventory writedowns and impairment charges, the loss
was $354 million, or 67 cents a share.
Analysts on average had expected a loss of 44 cents a share,
according to Thomson Reuters I/B/E/S.
Revenue fell to $1.19 billion from $2.73 billion as increased
uncertainty about the company's fate led to further sales erosion.
Wall Street had forecast $1.6 billion.
Morningstar analyst Brian Colello said BlackBerry's turnaround
strategy was more important than its latest operating results.
"I don't think it's a surprise that the revenue, operating margin
and the business continues to decline. I think the bigger question
is, what is the turnaround story at this point?" he said. "They have
a lot of different assets that could point the company in different
directions."
(Additional reporting by Poornima Gupta
and Edwin Chan in San Francisco; editing by Frank McGurty, Lisa Von Ahn and Peter Galloway)
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