BlackBerry posts $4.4B loss, strikes deal with Foxconn

BlackBerry (NASDAQ:BBRY) reported a massive $4.4 billion net loss for its fiscal third quarter, mainly as a result of $4.6 billion in charges. In addition, the  company forged a five-year manufacturing deal with Foxconn for the contract manufacturer to jointly develop and manufacture some of BlackBerry's new lower-end devices and manage the inventory associated with those devices.

BlackBerry booked non-cash, pre-tax charges of $4.6 billion "associated with long-lived assets, inventory and supply commitments, and previously announced restructuring and strategic review process," which pushed its loss from continuing operations to $4.4 billion, compared to a loss of $965 million in its fiscal second quarter and a net profit of $14 million in the year-ago period.

The company's adjusted net loss, excluding charges, was $354 million, compared to an adjusted net loss of $248 million in the in the fiscal second quarter and an adjusted net loss of $114 million in the year-ago quarter.

However, it was BlackBerry's revenue that truly rocked in its latest quarter. Revenue for the quarter clocked in at j$1.2 billion, down 24 percent from approximately $1.6 billion in the fiscal second quarter and down a staggering 56 percent from $2.7 billion in the year-ago quarter. The revenue breakdown for the quarter was approximately 40 percent for hardware, 53 percent for services and 7 percent for software and other revenue.

During the third quarter, the company recognized hardware revenue on approximately 1.9 million BlackBerry smartphones compared to 3.7 million BlackBerry smartphones in the fiscal second quarter, but most of the units recognized were older BlackBerry 7 devices. Strikingly, BlackBerry said that it sold just 4.3 million BlackBerry smartphones to end customers in its latest quarter, and only 1.1 million were its newer BlackBerry 10 smartphones. The company had banked on the BlackBerry 10 platform to help turn around its fortunes this year, but sales have been a disappointment, something interim CEO John Chen conceded.  

In one bright spot, the company's total cash balance was $3.2 billion as of November 30, compared to $2.6 billion at the end of the fiscal second quarter.

Chen, the former CEO of Sybase, joined BlackBerry on Nov. 4 replacing former CEO Thorsten Heins. The company announced last month it had halted its plans to go private in a $4.7 billion deal led by Fairfax Financial Holdings, its largest shareholder, and instead received $1 billion in financing in the form of convertible notes from Fairfax and other investors. BlackBerry has also said it will cut 4,500 jobs, around 40 percent of its workforce.

In a conference call with analysts Friday, Chen said that just because BlackBerry is currently focused on certain market segments, such as enterprise, it does not mean BlackBerry will not go after the consumer market in the future. Chen said the company will focus on "secure, end-to-end offerings in mobile computing" and will have four main business units: devices, enterprise software and services, its BlackBerry Messenger platform and QNX-based embedded technologies for M2M.

On the Foxconn deal, Chen said that other board members and BlackBerry's previous management had explored it and he merely completed the deal. Chen said the agreement gives BlackBerry a partner with a proven track record of efficiency and supply chain management that can turn around hardware designs much faster than BlackBerry could on its own. 

Initially, the Foxconn partnership will focus on making a smartphone for Indonesia and other fast-growing markets. That 3G smartphone willl run BlackBerry 10 and be released in March or April of next year.

Foxconn will take over the hardware design for BlackBerry's lower-end phones and the companies will collaborate on distribution channels, Chen said. The revenue will flow to BlackBerry as those devices are sold, although Blackberry will pay Foxconn for building the products.

The Foxconn deal comes after Jabil Circuit, a key BlackBerry manufacturing partner, indicated in September it would disengage from doing business with BlackBerry. Jabil CFO Forbes Alexander said on a conference call this week that the company was winding down its partnership but added that it expects to support BlackBerry through the first calendar quarter of 2014.

Chen said that BlackBerry's handset volumes might shrink slightly before the company bounces back, which he expects to happen in the middle of the company's next fiscal year, or third quarter of 2014.  Chen said that he has been in touch with key carrier partners, including Verizon Wireless (NYSE:VZ) and AT&T Mobility (NYSE:T), and they remain interested in BlackBerry's enterprise offerings. BlackBerry will continue to develop its own higher-end devices, he said.

Chen also touched on the company's other business segments, and said that QNX software is already in cars and that the company has 40 auto OEM partners. He said the plan is to invest in the M2M market and grow in other vertical markets.

For more:
- see this release
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this Engadget article

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