BlackBerry to End Internal Hardware Development, Work to Be Outsourced

BlackBerry to End Internal Hardware Development, Work to Be Outsourced

By Aleksandra Sagan, The Canadian Press

A Canadian flag flies at BlackBerry’s headquarters in Waterloo, Ontario. In this July 9, 2013 photo. BlackBerry says it plans to end all internal hardware development, signalling a strategic shift for a company that built its reputation on innovative smartphone technology created at its base in Waterloo. (THE CANADIAN PRESS/Geoff Robins)

WATERLOO, Ont. – BlackBerry will stop making its signature smartphones, the company said Wednesday after facing repeated calls to leave the hardware business that was once the basis of its reputation as a global technology leader.

All hardware development and manufacturing will be outsourced to partners, which will license the BlackBerry’s technology and brand, while the Canadian company concentrates on growing the software side of its business.

“We have decided to discontinue all the handset hardware development, only hardware,” said BlackBerry chairman and CEO John Chen in a conference call with analysts.

“We believe that this is the best way to drive profitability in the device business,” he said.

This strategy already exists to some extent for the Waterloo, Ont.-based company.

Chen said one or two products are already made by partners but BlackBerry has also been developing its own smartphone.

The outsourcing of all remaining hardware development — to be complete by Feb. 28, when the company’s financial year ends — will reduce BlackBerry’s expenses by eliminating the need to carry inventory, as well as reducing staff and equipment costs, he said.

“It’s a long list of savings,” Chen said.

BlackBerry has struggled to sell its once popular smartphones — which originally featured a distinctive keypad and the company’s own operating system.

It recently released handsets using versions of the Android operating system, the Priv and the lower-priced DTEK50 that began shipping in August.

During the company’s second quarter ended Aug. 31, it sold about 400,000 smartphones, including the DTEK50, for an average price of $271, Chen said.

Under the new plan to outsource the work, BlackBerry will start to report its hardware revenue based on royalties it receives from licensing agreements with its partners, Chen said.

It announced Wednesday that it signed its first major device software licensing agreement with a telecom joint venture in Indonesia.

The BB Merah Putih joint venture will manufacture, distribute and promote BlackBerry-branded devices running the company’s secure versions of Android software and applications for the Indonesian market. BlackBerry has the option to distribute these devices outside of Indonesia, but is not likely to do so, Chen said.

BlackBerry, which reports its results in U.S. dollars, says it had a $372 million net loss in the three months ended Aug. 31, equivalent to 71 cents per share, but broke even after excluding certain items.

Revenue was $334 million or $352 million after adjustments. That was below analyst estimates of $391.75 million.

Chen had said at the previous quarterly earnings release that he expected the company’s mobility solutions segment, which includes hardware and a mobility software licensing service, to break even or record a slight profit in this financial year.

CP - The Canadian Press