BlackBerry Teams With Foxconn, Announces $4.4B Loss

By Michelle Maisto  |  Posted 2013-12-20

BlackBerry Teams With Foxconn, Announces $4.4B Loss

BlackBerry announced a $4.4 billion loss for its fiscal 2014 third quarter, which ended Nov. 30. But, under new CEO John Chen, it also began to share its strategy for bringing the business back to profits. Part of that strategy is a five-year deal with Foxconn, which will jointly design and manufacture devices with BlackBerry, as well as manage BlackBerry's device inventory and the logistics of its supply chains.

Foxconn will develop and manufacture the new BlackBerry smartphones in its facilities in Mexico and Indonesia, and BlackBerry will own all of its intellectual property and perform product assurance checks on all devices, it said, as it currently does with all third-party manufacturers.

"Going forward, we have a reasonable plan," Chen said on the company's Dec. 20 earnings call. "We have a clean balance sheet, we're strong in cash, we're no longer worried about whether we're going to be around [in the future]. We have some areas to beef up ... but we've taken away the biggest chokehold of the last few years and we're ready to fight back."

Chen added that, "for the foreseeable future," BlackBerry designers in North America will focus on enterprise-focused handsets for North America only. ("That's not to say we won't focus more on consumer devices later," he added.) Foxconn will work on designing smartphones for identified emerging markets—Indonesia is one of them—with the first phone coming out in the March-April time frame.

"I already have one in my hand right now," Chen said, suggesting how far along in the process the plan is.

Foxconn, the largest manufacturer of electronic devices in the world, joined the mainstream consciousness in 2010, after at least a dozen employees tried to kill themselves on one of its campuses, and later the conditions around workers building Apple products were questioned. 

Terry Gou, chairman and founder of Foxconn, said in a statement that he's looking forward to working with BlackBerry, "an iconic brand with great technology and a loyal international fan base," as it "positions itself for future growth."

Emerging markets have been something of a saving grace for BlackBerry, as its sales and income have plummeted. During the quarter, BlackBerry sold 4.3 million BlackBerry smartphones—its lowest sales figure since 2006. Of those devices, 3.2 million were running the company's old operating system, BlackBerry 7.

"This is troubling, since lower-end devices also have lower margins," J. Gold Associates Principal Analyst Jack Gold said in a note following the call. "It also indicates that most of the devices went into emerging markets, thereby indicating that mature markets continue to move away from BlackBerry adoption."

BlackBerry Teams With Foxconn, Announces $4.4B Loss

BlackBerry brought in revenue of $1.2 billion during the quarter, which was down 24 percent from the previous quarter and 56 percent from a year ago.

The company also shared its new organizational structure, which will focus on enterprise services (more than 30,000 companies have agreed to test BES10, which is good news though not yet any revenue); messaging (BlackBerry added 40 million new iOS or Android users to BBM in the last 60 days, bringing its total to 80 million); QNX, which will soon unveil new technologies for automotive and cloud services; and of course, devices.

"This is an excellent [approach] as it recognizes the three growth areas that are critical to the company's turnaround and offsetting the declines in the core devices business," Jan Dawson, chief analyst with Jackdaw Research, wrote in a Dec. 20 blog post.

However, Dawson continued, "the company stopped short of reporting revenues in any of these new segments, which is a sign of just how small the revenues there are today. BlackBerry needs to grow these three revenue streams enormously in the near future to make up for the loss in revenues in the handset business."

Will Americans Buy BlackBerry Handsets Again?

BlackBerry has sensibly stopped trying to lure consumers away from competing devices and steadied its focus on enterprise users. But with consumers increasingly using their personal devices as work devices (a trend BlackBerry understands, as BB10 now offers device management support for BlackBerry, iOS and Android devices), getting even enterprise users in developed markets to buy BlackBerry handsets will be a tremendous feat.

Nobody expected pretty numbers from the BlackBerry earnings call, "but these results remind me of the old saying: Beauty is only skin deep, but ugly goes all the way through," Bill Menezes, a principal research analyst with Gartner, told eWEEK, suggesting that BlackBerry's problem runs to the company's core.

That the majority of sales were BlackBerry 7 devices underscores that people continue to ignore the fact that BlackBerry has a handset consideration, and will in the coming years, said Menezes.

Further, with BlackBerry 7 development coming to a close in the coming years, "The company has yet to provide how—given this latest sign that BB10 handsets have failed in the market—it plans to sustain the handset business post-BB7," Menezes continued.

"The Foxconn partnership provides one sign—low-end devices for emerging markets—but that doesn't address the still-huge embedded BlackBerry global base that increasingly will be migrating off the platform. Not good for the company's financials going forward."

According to Gold, working in BlackBerry's favor is the fact that loyalty tends to be greater in emerging markets and people tend to stick with BlackBerry for its secure (and private—users can BBM without using their names) messaging.

"Frankly, BlackBerry has done a poor job over the past couple of years of marketing their products and telling users why they should look at BlackBerry," Gold told eWEEK. "But once you lose a consumer to another device, it's very hard to get them back. That is BlackBerry's challenge."

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