Blackberry outsources smartphone development to Indonesia

REUTERS/Regis Duvignau

WATERLOO, Ontario (Reuters) – BlackBerry Ltd’s decision to outsource the development of its smartphones helps it avoid the risks of a competitive market and focus on its more lucrative businesses of software and managing rival devices, its chief executive said on Wednesday.

The company’s shares rose 5% as investors welcomed a further shift away the money-losing handset business, in which BlackBerry had gone from being a market leader to trailing far behind rivals like Apple Inc.

In a model for how it plans to keep BlackBerry-branded handsets in the market, the company said it had signed a deal with Indonesia’s BB Merah Putih to manufacture, distribute and promote new devices in that country, its largest handset market.

BlackBerry said it was in late-stage discussions for a similar deal in China and working on several India initiatives.

“What we did was cut off the entire chain, and I’ll take a royalty,” Chen told reporters, noting it could now avoid inventory and supply chain costs. “I’m still in the handset business, but I’m in it in a profitable way.”

Chen said less than 100 jobs would be lost from its latest move away from making hardware.

The change would likely weigh on overall revenue for two more quarters before software revenue growth makes up for the decline, he said.

Revenue fell to $334 million in the fiscal second quarter ended Aug. 31 from $490 million in the year-ago period, missing analysts’ estimates of $393.75 million.

“This is an entirely sensible decision and probably an overdue one,” said IDC technology analyst John Jackson. “Software revenue and the margin profile associated with that is where the focus should have been, and now can be.”

BlackBerry said revenue from software and services was $156 million in its second quarter, down from $166 million in the first quarter. The device business accounted for $105 million in revenue.

BlackBerry also said Chief Financial Officer James Yersh would leave as of Oct. 1 for personal reasons, and be replaced by former Sybase executive Steven Capelli.

Excluding large one-time costs, the company said it broke even in its second quarter. On that basis, analysts had on average expected a loss of 5 cents a share, according to Thomson Reuters I/B/E/S.

BlackBerry raised its full-year earnings outlook to a range of breakeven to a loss of 5 cents a share, excluding special items. It had previously expected a loss of 15 cents a share.

(Reporting by Alastair Sharp in Waterloo; Additional reporting by Allison Martell in Toronto; Editing by Lisa Von Ahn and Richard Chang)

1 Comment

  1. This will be an interesting move by BlackBerry. I believe they have left this too late for them to survive in the Indonesian market. Five years ago every Indonesian had a BlackBerry, most of them were grey market, if not all of them. You could tell by the telco branded stickers on them from all over Europe, Middle East and other Asian locations. But Indonesians are actually a very tech savvy people and they are all over Samsung as their preferred brand and this is because Indonesia is one of the largest locations for Instagram and Facebook. Having a good camera (selfie style) is essential, but also the brand is most important. Indonesians are very brand conscious, and I dont see too many people, especially women, using BlackBerry here. So why was BlackBerry so popular five years ago? Simple BBM was free and the social networking through BBM was huge. Now of course the killer apps of WhatsApp, Line, Path and so on have replaced not only BBM but also to a large extend email. I know there are other reasons for BlackBerry to set up shop here in Indonesia, but they will need a killer phone to get Indonesians back to using their devices and services.

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