BlackBerry's outsourcing plan with Foxconn paves way for transformation to a services firm- report

By Nicel Jane Avellana

Dec 21, 2013 04:41 AM EST

The five-year outsourcing deal that BlackBerry Ltd entered into with Foxconn Group has started the company's evolution into a services firm, Bloomberg reported. This has pleased investors who were looking for a smaller but nimbler smartphone company.

Yesterday, BlackBerry said it would be letting Foxconn manufacture its phones in the latter's Indonesia and Mexico plants, a move that would enable the embattled firm to decrease production spending and not have the kind of gluts in its inventory that led to last quarter's writedown of $4.6 billion. This was apparently welcomed by investors as the announcement sent BlackBerry's shares soaring 16%, its highest one-day gain in over four years, the report said.

After its attempts at selling the firm failed last month, investors and analysts have urged that BlackBerry to relieve itself of the business of making handsets as this was costing it money. The report said that although the deal will not abandon the operation or guarantee that the business will once again be profitable, it will help BlackBerry put its focus back to services and software. These products will enable the company to earn higher margins and can be sold to customers no matter what phone they are using.

BlackBerry Chief Executive Officer John Chen told reporters in a press briefing, "The hardware business was losing money and was a chokehold. I've relieved that."

BlackBerry is now trying to concentrate on its business customers after years of losing market share to Apple Inc and Google Inc, the report said. Jackdaw Research Analyst Jan Dawson told Bloomberg that the outsourcing deal was the biggest sign so far that BlackBerry is ready to take on a new role.

The report quoted Dawson as saying, "This is definitely a milestone. BlackBerry was always first and foremost a devices company. Now they're outsourcing a big chunk of that business and focusing more on other things."

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