BlackBerry Posts Huge Loss on Write-Down and Charges

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.

"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.

BlackBerry Posts Huge Loss

Nathan Denette/CP, via Associated PressBlackBerry introduced the Z10 model earlier this year in Toronto. The company said it was stepping back from its handset business.

OTTAWA — BlackBerry reported a $4.4 billion loss and a 56 percent drop in revenue for its fiscal third quarter on Friday and said it would step back from its once-core handset business through a partnership with the Asian contract manufacturer Foxconn.

Chen on BlackBerry’s Turnaround Prospect The company's stock price over the last five years.News from the technology industry, including start-ups, the Internet, enterprise and gadgets.
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The dismal financial news followed the failure of BlackBerry to find a buyer for the company last month and the replacement of Thorsten Heins, the chief executive, with John S. Chen, the former chairman of Sybase. Mr. Chen has since fired several high-level executives at the company.

The substantial loss, which follows one of nearly $1 billion in the second quarter, again reflected the failure of the BlackBerry 10 line of phones, which were portrayed as a lifesaver for the company when introduced earlier this year. The third-quarter loss included a $2.7 billion write-down mainly related to BlackBerry 10 phones. Of the 4.3 million BlackBerrys purchased by consumers and businesses during the quarter, 3.2 million were models that use the obsolete BlackBerry 7 operating system.

The company’s $1.2 billion in revenue compared with $2.7 billion in the same period a year ago and represented a 24 percent drop from the previous quarter.

BlackBerry, like other many other hardware companies including Apple, has long relied on Foxconn to manufacture phones. But the new partnership appears to take the relationship to a new level.

The arrangement seems to be a way for BlackBerry to effectively hand over some of its handset business without running afoul of Canadian foreign investment laws. The government of Canada has made it clear that for national security reasons it would not allow the sale of BlackBerry or any significant portion of the company to any Chinese firm or a company with extensive Chinese operations, as is the case with Foxconn which which headquartered in Taiwan.

BlackBerry said that it would jointly develop and manufacture some phones with Foxconn in the future, including a new model aimed at the Indonesian market, and that Foxconn “will manage the inventory of those devices.” BlackBerry said that it will control all of the “intellectual property” in phones created through the partnership.

As he has suggested previously, Mr. Chen said that as the company slowly steps out of the handset business, it will focus its energies on its BlackBerry Messenger instant messaging service; software that allows companies to manage and control smartphones used by their employees; and developing mobile data products for automobile manufacturers and mobile security.

“With the operational and organizational changes we have announced, BlackBerry has established a clear road map that will allow it to target a return to improved financial performance in the coming year,” Mr. Chen, who is also executive chairman, said in a statement.

This article has been revised to reflect the following correction:

Correction: December 20, 2013

An earlier version of this article misstated the description of Foxconn, the contract manufacturer. It is headquartered in Taiwan, not China.

Blackberry Says to Explore Strategic Alternatives

BlackBerry, which pioneered mobile email with its first smartphones and email pagers, said on Monday it had set up a committee to review its options, sparking a debate over whether Canada's one-time crown jewel is more valuable as a whole or snapped up piece by piece by competitors or private investors.

The company said Prem Watsa, whose Fairfax Financial Holdings Ltd is BlackBerry's biggest shareholder, was leaving the board as BlackBerry determines its next steps.

Canada's Globe and Mail newspaper said Fairfax was talking to industry and private equity players about possibility taking BlackBerry private. Fairfax did not respond to requests for comment.

Other potential buyers of BlackBerry assets, if not the company itself, could include deep-pocketed Canadian pension funds, as well as some of its rivals.

BlackBerry, once a stock market darling, has bled market share to Apple Inc and phones using Google Inc's Android operating system, and its new BlackBerry 10 smartphones have failed to gain traction with consumers.

BlackBerry shares rose more than 10 percent to $10.78 in New York and C$11.13 in Toronto in afternoon trading. But the shares remain well below their levels in June, before the company reported dismal results that included poor sales of the BlackBerry 10 that it viewed as key to a turnaround.

The share price peaked at about C$150 in June 2008, when BlackBerry, then known as Research In Motion, had a market capitalization of more than $80 billion.

BlackBerry's assets include a shrinking, yet well-regarded services business that powers its security-focused messaging system, worth $3 billion to $4.5 billion; a collection of patents that could be worth $2 billion to $3 billion; and $3.1 billion in cash and investments, according to analysts.

Even at a conservative estimate, that is more than the company's $5.4 billion market capitalization, although analysts say the smartphones that bear its name have little or no value and it might cost $2 billion to shut the unit that makes them.

BlackBerry's fate is likely to involve the Canadian government, which vets foreign takeovers of domestic companies. The government said it would not comment on speculation, but a spokesman for Industry Minister James Moore said the government wished BlackBerry well in its search for new options.

Companies tipped as possible partners for BlackBerry have included Microsoft Corp and Amazon.com Inc, as well as Lenovo Group Ltd, where a senior executive said earlier this year the Chinese computer maker would consider a bid for BlackBerry to boost its own mobile business.

But Chinese involvement would trigger deep concerns about security issues from the Canadian government.

Sources say Wall Street bankers have also pitched deals involving BlackBerry to companies such as HTC Corp and Samsung Electronics Co Ltd, so far without success.

Watsa said Fairfax has "no current intention" to sell its BlackBerry shares - some 10 percent of the company. But if he remained on the board of directors, he would have a conflict of interest if he wanted to be part of a play for BlackBerry.

"I continue to be a strong supporter of the company, the board and management as they move forward during this process," he said in a statement.

Analysts expressed scepticism about the new committee, noting that BlackBerry announced a review more than a year ago when it hired JPMorgan and RBC as financial advisers. A source said both are still involved in the current strategic review.

"While a change in structure could result in a higher stock price in the near term, we do not envision any changes that would help BlackBerry reverse the significant smartphone share loss or rapid decline in service revenues," said Tim Long, analyst at BMO Capital Markets.

BREATHING ROOM

DealBook: Still Trailing Rivals, BlackBerry Seeks a Way Out

Bits Blog: BlackBerry Posts Loss, Despite New Phone

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Quick, Hide the BlackBerry, It’s Too Uncool

“I’m ashamed of it,” said Ms. Crosby, a Los Angeles sales representative who said she had stopped pulling out her BlackBerry at cocktail parties and conferences. In meetings, she says she hides her BlackBerry beneath her iPad for fear clients will see it and judge her.

The BlackBerry was once proudly carried by the high-powered and the elite, but those who still hold one today say the device has become a magnet for mockery and derision from those with iPhones and the latest Android phones. Research in Motion may still be successful selling BlackBerrys in countries like India and Indonesia, but in the United States the company is clinging to less than 5 percent of the smartphone market — down from a dominating 50 percent just three years ago. The company’s future all depends on a much-delayed new phone coming next year; meanwhile RIM recorded a net loss of $753 million in the first half of the year compared with a profit of more than $1 billion a year earlier.

Among the latest signs of the loss of cachet: One of the first steps Marissa Mayer took as Yahoo’s newly appointed chief executive to remake the company’s stodgy image was to trade in employees’ BlackBerrys for iPhones and Androids. BlackBerrys may still linger in Washington, Wall Street and the legal profession, but in Silicon Valley they are as rare as a necktie.

As the list shrinks of friends who once regularly communicated using BlackBerry’s private messaging service, called BBM, many a BlackBerry owner will not mince words about how they feel about their phone.

“I want to take a bat to it,” Ms. Crosby said, after waiting for her phone’s browser to load for the third minute, only to watch the battery die. “You can’t do anything with it. You’re supposed to, but it’s all a big lie.”

The cultural divide between BlackBerry loyalists and everyone else has only grown more extreme over the last year as companies that previously issued employees BlackBerrys — and only BlackBerrys — have started surrendering to employee demands for iPhones and Android-powered smartphones.

Goldman Sachs recently gave its employees the option to use an iPhone. Covington & Burling, a major law firm, did the same at the urging of associates. Even the White House, which used the BlackBerry for security reasons, recently started supporting the iPhone. (Some staff members suspect that decision was influenced by President Obama, who now prefers his iPad for national security briefings. A spokesman for the White House declined to comment.)

Out in the world, the insults continue. Victoria Gossage, a 28-year-old hedge fund marketer, said she recently attended a work retreat at Piping Rock Club, an upscale country club in Locust Valley, N.Y., and asked the concierge for a phone charger. “First he said, ‘Sure.’ Then he saw my phone and — in this disgusted tone — said, ‘Oh no, no, not for that.’ ”

“You get used to that kind of rejection,” she said.

“BlackBerry users are like Myspace users,” sneers Craig Robert Smith, a Los Angeles musician. “They probably still chat on AOL Instant Messenger.” 

BlackBerry outcasts say that, increasingly, they suffer from shame and public humiliation as they watch their counterparts mingle on social networking apps that are not available to them, take higher-resolution photos, and effortlessly navigate streets — and the Internet — with better GPS and faster browsing. More indignity comes in having to outsource tasks like getting directions, booking travel, making restaurant reservations and looking up sports scores to their exasperated iPhone and Android-carting partners, friends and colleagues.

“I feel absolutely helpless,” said Ms. Gossage. “You’re constantly watching people do all these things on their phones and all I have going for me is my family’s group BBM chats.”

Ryan Hutto, a director at a San Francisco health information company, said he frequently depended on others, often his wife, for music playlists, navigation and sports scores. “After two or three questions, people start to get irritated,” Mr. Hutto said.

His wife, Shannon Hutto, says with a sigh: “Anytime we go anywhere, I always have to pull up the map. If we’re searching for a restaurant, I pull up the Yelp app. If we need a reservation, I pull up OpenTable. I kind of feel like his personal assistant.”

Still, a few BlackBerry users say they’re sticking with the device, mainly because of the BlackBerry’s efficient, physical keyboard. “I use my BlackBerry by choice,” said Lance Fenton, a 32-year-old investor who frequently travels and needs to send e-mails from the road. “I can’t type e-mails on touch-screen phones.”

Mr. Fenton said he could not wrap his head around iPhone fever. “I constantly ask people, ‘What is so great about it?’ and they have these nonsensical answers,” he said. “Someone told me I’m missing out on some app that maps their ski runs. I ski four days a year. On the road, I don’t need a ski app.”

RIM’s most recent efforts to hold on to loyal customers, as well as software developers building apps for its next generation of phones scheduled to be available next year, have elicited universal cringes. In a recent promotional video, Alec Saunders, RIM’s vice president for developer relations, is shown belting out a rock song titled “Devs, BlackBerry Is Going to Keep on Loving You,” a riff on the 1981 power ballad by REO Speedwagon “Keep on Loving You.”

“This is the sign of a desperate company,” said Nick Mindel, a 26-year-old investment analyst. “Come on, BlackBerry, I always had some faith, but you just lost a customer. Frankly, I don’t think they can afford to lose many more.”

After eight years with a BlackBerry, Mr. Mindel said he just joined the wait list for the iPhone 5. When it arrives, he said, "I’m considering removing my BlackBerry battery, pouring in cement, and using the BlackBerry as an actual paperweight.”

BlackBerry Maker Posts a Loss, but Stock Jumps in After-Hours Trading

Without naming the rivals to the BlackBerry 10 phone, Thorsten Heins, the company’s president and chief executive, acknowledged that Apple’s iPhone 5, new smartphones running Google’s Android operating system and Windows Phones will make life even more of a struggle for RIM before its rollout.

“There’s many new products coming in so the market is going to get tougher, more challenging,” Mr. Heins told analysts in a conference call Thursday, adding that that will most likely force RIM to cut prices further.

After twice delaying the BlackBerry 10, the company has promised to deliver the smartphone sometime next year.

Many analysts had expected nothing but bad financial news for the quarter long before Thursday. “The street is largely giving RIM a pass on this quarter as it readies the important BlackBerry 10 launch,” said Bill Kreher, an analyst at Edward Jones. “The fact of the matter is that the company has really placed all its bets on BlackBerry 10.”

There was no concealing how far RIM’s fortunes had declined. Its net loss for the second fiscal quarter, which ended Sept. 1, was $235 million — better than the $518 million loss in the previous quarter, but a steep fall from the net income of $329 million in the same quarter a year earlier. Shipments of BlackBerrys last quarter were 7.4 million, compared with 10.6 million a year earlier.

The company said revenue in the most recent quarter was $2.9 billion, up from $2.8 billion in the first quarter though down 31 percent from $4.2 billion a year ago. Analysts had expected a far steeper year-on-year drop in revenue of 41 percent and some feared that the company had dipped into its cash holdings. But RIM actually increased its cash thanks to sharp cost-cutting.

As a result, RIM’s stock jumped more than 20 percent in after-hours trading. In the regular session, before its announcement, it closed at $7.14 a share. RIM’s shares have been as high as $24.74 over the last year.

Several analysts said they were now focused on next year. The new smartphones will be based on a new and more sophisticated operating system and are promised for the first calendar quarter of next year.

“I don’t think anything good can come out until they release BB 10, aside from selling the company or something else in the strategic review,” said Peter Misek, an analyst with Jefferies & Company.

But Shaw Wu, an analyst at Sterne Agee, said the dominance of Apple and Android had closed the window of opportunity for RIM’s BlackBerry 10 strategy and turned the company’s last great hope into its biggest problem.

“It’s about survival now, it’s not about BlackBerry 10,” said Mr. Wu, who is based in San Francisco. “That’s almost secondary. The battle now is staying alive and looking after your current customers. It’s not really clear that their core customers are looking for BlackBerry 10.”

Unless BlackBerry 10 is an exceptional hit, which is far from certain, Mr. Wu said that RIM might be able to continue for only one or two more years. Some analysts had expected that the company would report that subscriber growth had stalled. At a developers’ conference earlier this week, Mr. Heins  said that the number of BlackBerry users had instead grown to 80 million, up from 78 million.

Unlike other smartphone makers, RIM continues to directly profit from every active BlackBerry handset long after its sale. RIM receives monthly subscription fees from carriers for every BlackBerry in exchange for routing the phone’s data through its own, closed network. Under normal conditions, the network allows RIM to provide high security for corporate and government users and it reduces the amount of wireless data consumed by all BlackBerrys.

But it became apparent in the conference call that growth was driven by sales in markets like South Africa and Indonesia where prices and service revenue are low.

“They’re pushing the subscriber base up by offsetting the loss of very high-value customers in markets where it’s critical to build momentum now,” said Charles S. Golvin, an analyst at Forrester Research. “It’s a matter of the market getting away from them.”

Bits Blog: RIM Shows Off New BlackBerry Phones, but Gives No Release Date

Eric Risberg/Associated Press Thorsten Heins, the president and chief executive of RIM, did not offer a specific date for the coming line of BlackBerry 10 phones.

OTTAWA — Research in Motion said on Tuesday that its coming line of BlackBerry 10 phones would include the company’s popular BlackBerry Messenger service, a feature still absent on its tablet computers.

But during his presentation to software developers in San Jose, Calf., Thorsten Heins, the president and chief executive of RIM, still did not offer a specific date for what he called “our most important launch ever.” Mr. Heins said, however, that the new phones, which have been delayed twice, will be on sale at some point early next year.

At the meeting, the company displayed the second version of a prototype BlackBerry 10 phone. Outwardly, it appeared little different from a prototype given to developers in May. But the software on the phone demonstrated on Thursday looked much more refined and advanced. In addition to BlackBerry Messenger, it included apps for Facebook, LinkedIn, Twitter and Foursquare, which were integrated with the phone’s calendar, datebook and e-mail apps.

RIM also showed how corporations and governments would be able to segregate their data and app from users’ personal selections and information.

The software linking all the features, Mr. Heins said, will allow users to perform a variety of tasks from a single screen without switching applications.

Although creating new phones and a new operating system has clearly been a struggle for the company, Mr. Heins made no effort to temper expectations.

“We are convinced that the BlackBerry 10 platform will shape the next 10 years as profoundly and significantly as BlackBerry shaped the last 10 years,” he said. Recent demonstrations of the prototype to people at telephone companies and elsewhere, he said, have made “believers out of those who had previously written BlackBerry off.”

Still, the success of the new phones remains to be seen. On Thursday, Mr. Heins will have to face a much less cheery group, RIM’s investors, when he announces the company’s second-quarter results. A Bloomberg survey of 35 analysts found that they expected the company to report that earnings fell 41 percent from the same period last year.

Leading up to Tuesday, some analysts speculated that the total number of BlackBerry users had not grown or had even declined during the quarter, which would have been a first for the company. But Mr. Heins said RIM had counted 80 million BlackBerry users during the quarter, up from 78 million the last time the company reported.