High-tech company Celestica Inc. is winding down its manufacturing services for Research In Motion (TSX:RIM) as the struggling BlackBerry maker looks to cut costs.
Celestica Inc. (TSX:CLS) said Monday that it will cease manufacturing services for RIM over the next three to six months.
RIM said it's trying to cut costs with its suppliers.
"As we outlined in our Q4 earnings call, we are making changes to our supply chain as part of wider efforts to improve the efficiency and cost effectiveness of RIM's operations to help meet our strategic objectives and to deliver long-term value to our stakeholders," the Waterloo, Ont., company said in an emailed statement.
Celestica, which makes electronics components, said it has been working closely with RIM as the BlackBerry maker assesses its supply chain strategy.
"Celestica has been a high-performing manufacturing supplier for RIM and will work closely with RIM throughout the transition," the Toronto company said in a statement.
Celestica could not be reached for further comment, saying more information would come when it releases second-quarter results on July 27. However, the company said that prior to any recoveries, its restructuring charges would not exceed US$35 million.
Telecom analyst Anil Doradla said the decision isn't surprising.
"From RIM's point of view, they need to streamline their manufacturing process so it's all about cost-cutting," said Doradla of Chicago-based William Blair & Co.
"Right now, it's all about tightening the belt and that goes all the way down to their supply chain," Doradla said.
Doradla said RIM has other component suppliers such as Florida-based Jabil Circuit and its components could be part of the new BlackBerry 10 smartphones due out later this year.
RIM will have a tough job attracting and keeping BlackBerry users, he said.
"I've looked at the handset industry for over a decade and I've never seen any handset company recover after making a series of strategic blunders. The graveyard of the handset industry is littered with bodies who have been darlings of the Street at one time," he said, citing Sony Ericsson, Siemens and Phillips.
RIM expected its new generation of BlackBerry smartphones to be out last year and its PlayBook tablet launch also was met with lukewarm reviews when launch in April 2011.
Celestica, meanwhile, reaffirmed its second-quarter financial guidance provided April 24. The company anticipates revenue to be in the range of US$1.65 billion to US$1.75 billion, with adjusted net earnings of 20 to 26 cents per share.
Toronto-based Celestica supplies components and equipment in the communications, computer, telecom aerospace, defence and other markets.
On the Toronto Stock Exchange, Celestica shares were up 10 cents at $7.71 in early afternoon trading Monday, while RIM shares were down 25 cents at $10.92.
Note to readers: This a corrected story: A previous version said Celestica's Q2 results would be issued Friday
Market Share Eroding
RIM experienced trouble competing in the U.S. smartphone market in early 2011 and <a href="http://www.huffingtonpost.com/2011/06/03/rim-market-share_n_871129.html?ir=Canada" target="_hplink">dropped from second place to third</a>, as Google's Android and Apple's iPhone gathered steam. The company's shares decreased 40 per cent in value since February,<a href="http://www.huffingtonpost.com/2011/06/03/rim-market-share_n_871129.html?ir=Canada" target="_hplink"> Reuters reported in June</a>.
When facing leaner times in July, the struggling tech company <a href="http://www.huffingtonpost.ca/2011/07/25/rim-to-cut-2000-jobs_n_908392.html" target="_hplink">announced its plan to cut 11 per cent of its workforce</a>, or about 2,000 employees, in an attempt to scale back.
To add insult to injury, millions of BlackBerry users around the world <a href="http://www.huffingtonpost.com/2011/10/12/blackberry-outage-rim_n_1006691.html?ir=Canada" target="_hplink">experienced network outages</a>, resulting in messaging and browsing delays in October 2011. Co-CEO Mike Lazaridis <a href="http://www.huffingtonpost.ca/2011/10/13/rim-blackberry-outage_n_1008424.html" target="_hplink">posted an apology to YouTube</a> promising improvements to the system.
Following disappointing PlayBook sales resulting in <a href="http://www.huffingtonpost.ca/2011/12/02/rim-playbook-485-million-charge_n_1125380.html" target="_hplink">huge profit losses</a>, RIM <a href="http://www.huffingtonpost.com/2011/11/28/blackberry-playbook-best-buy_n_1116532.html?ir=Canada" target="_hplink">slashed its tablet prices down to $199</a>, which prompted a major pre-Christmas rush. However, customers became outraged when Best Buy, unable to keep up with demand, <a href="http://www.huffingtonpost.com/2011/11/28/blackberry-playbook-best-buy_n_1116532.html?ir=Canada" target="_hplink">reportedly cancelled existing orders and removed the PlayBook from its website</a> when it ran out of stock. In early January, RIM <a href="http://www.huffingtonpost.com/2012/01/03/blackberry-playbook-price-rim_n_1181167.html?ir=Canada" target="_hplink">put its struggling PlayBook tablet on sale</a> again in the U.S. for $299.
Mere days before RIM named Thorsten Heins as its new CEO, Samsung <a href="http://www.huffingtonpost.com/2012/01/17/samsung-rim-buyout_n_1210958.html?ir=Canada" target="_hplink">denied rumours</a> that it planned to purchase RIM or license its operating system, causing RIM shares to dip.
May was not a kind month to RIM. Soon after the<a href="http://www.huffingtonpost.ca/2012/05/28/karima-bawa-research-in-motion_n_1550984.html" target="_hplink"> departure of the company's chief legal officer</a>, Karima Bawa, the company announced that it would hiring two financial firms to advise on the company's financial performance.
If the announcement of the necessary outside help wasn't bad enough, numerous reports surfaced regarding RIM's massive layoffs during the end of May. The cuts were estimated at laying off <a href="http://www.ottawacitizen.com/business/layoffs+could+many+employees/6689699/story.html" target="_hplink">anywhere from 2000 - 6000 workers.</a>