BlackBerry shares rally on Foxconn deal

Manufacturing partnership expected to shield Canadian vendor from writedowns

Tags: Blackberry (www.blackberry.com)CanadaFoxconn Technology GroupTaiwan
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BlackBerry shares rally on Foxconn deal The deal is expected to help turn cash-flow positive for BlackBerry, which has announced losses for its previous fiscal quarter of $4.4bn. (Getty Images)
By  Stephen McBride Published  December 23, 2013

BlackBerry shares gained as much as 17% after the Canadian smartphone maker's announcement on Friday that it would enter into a five-year manufacturing deal with Foxconn's Hong Kong subsidiary FIH Mobile Ltd.

According to a report from Reuters, The deal will initially cover budget handsets for emerging markets, but is expected to broaden in time to cover premium models.

Under the terms of the unconventional deal, BlackBerry will not pay up front for phone components. Foxconn will receive profit share in return for managing inventory, thereby shielding BlackBerry from writedowns in the event of unsold units.

BlackBerry's recently appointed CEO, John Chen, expects the deal to help turn cash-flow positive for the troubled vendor, which had announced losses for its previous fiscal quarter of $4.4bn. The company said it shipped just 1.9m smartphones during the November quarter, down from 6.9m in the same quarter in 2012.

"It's almost like BlackBerry is disposing of its consumer handset business without actually disposing of it," said Jefferies analyst Peter Misek, who compared the Foxconn deal to what Hewlett-Packard Co and Dell have done with laptops.

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