BlackBerry Ltd. (BBRY:US), the smartphone maker looking to go private in a $4.7 billion deal, is seeing support from suppliers, bank customers and partners wobble amid speculation the company may stop producing hardware.
Jabil Circuit Inc. (JBL:US), an electronics supplier whose second-largest customer is BlackBerry, said yesterday it will probably disengage from that relationship in the coming months. That’s a sign the smartphone company’s device business is shrinking, said Peter Misek, an analyst at Jefferies Group LLC.
“BlackBerry’s ongoing handset business will be much smaller and could even disappear,” said the New York-based analyst, who has a hold rating on the shares.
The Jabil comments follow a move by T-Mobile US Inc. (TMUS:US), the fourth-largest U.S. carrier, to begin removing BlackBerry inventory from its stores. While display models of the phones will still be on view, customers will have to get inventory shipped to them directly, T-Mobile said in a statement. Reuters previously reported on the plan.
“T-Mobile continues to support the BlackBerry platform,” the Bellevue, Washington-based carrier said. “The T-Mobile retail channel is moving toward fulfillment via direct ship for BlackBerry devices, rather than in-store inventory.”
The revamped BlackBerry 10 lineup, unveiled in January as the linchpin of the company’s comeback plan, hasn’t sold as well as analysts had projected. That’s contributed to plunging sales and mounting losses. Longtime customers such as Morgan Stanley (MS:US) are holding off on committing to new devices, people familiar with the matter have said.
UBS AG (UBSN), the world’s biggest wealth-management firm, also has yet to make the upgrade and is running a BlackBerry 10 pilot project to determine whether to move to the new platform, said Samuel Brandner, a spokesman for the Zurich-based bank. UBS employees can use older models of BlackBerry, or Apple Inc.’s iPhones with added security software, to access work e-mail, he said.
While UBS currently uses about 20,000 BlackBerrys globally, the bank is evaluating other technical solutions and has “strategic options ready in case of a permanent blackout of BlackBerry,” Brandner said.
Credit Suisse Group AG (CSGN), Switzerland’s second-biggest bank, has decided against adopting BlackBerry 10 for now, the company said in a statement. In addition to the lack of its compatibility with BlackBerry’s earlier platforms, the “dwindling albeit loyal population of BlackBerry users, and concerns about long-term viability, are causing us to pause and wait and see on any upgrades,” the Zurich-based bank said.
“There are other very viable and attractive secure enterprise mobile alternatives now that mean we do not need to solely rely on BlackBerry as our mobile platform,” the bank said.
Faced with these challenges, BlackBerry reached a tentative agreement this week for a buyout by a group led by its biggest shareholder, Fairfax Financial Holdings Ltd. (FFH) The consortium is still seeking financing for the offer, which will be subject to due diligence and further negotiation.
BlackBerry relies on Jabil and Wistron Corp. (3231) to supply it with handsets, and the Jabil announcement suggests changes are in the works, Misek said. After an inventory writedown of almost $1 billion primarily for unsold BlackBerry Z10 models, the question turns to what the company will do with its Q10, a keyboard-equipped device that was released more recently.
BlackBerry “may just stop most of the production and use its existing stockpile and channel inventory to fulfill demand from any enterprise who are upgrading,” he said.
Shares of St. Petersburg, Florida-based Jabil tumbled 9.9 percent to $21.62 at the close in New York, the biggest drop in more than two years. BlackBerry fell 0.7 percent to $7.95, its third straight day of declines.
Concern over declining orders also took a toll on Taiwan-based Wistron. It accounts for 40 percent to 50 percent of BlackBerry’s phone shipments, according to Ying-chang Kuo, an analyst at President Capital Management in Taipei. The shares fell the most since April in Taiwan trading today.
Celestica Inc. (CLS:US), a Toronto-based electronics supplier, began winding down its BlackBerry production last year. At the time, the company got almost a fifth of its revenue from the smartphone company.
After releasing preliminary quarterly results last week, BlackBerry plans to issue more complete numbers tomorrow morning. It won’t be holding its customary conference call with analysts, citing the Fairfax buyout agreement.
James Moorman, an analyst at S&P Capital IQ in New York, said in a report that he was disappointed about the canceled call, though he believes the company should focus on closing the Fairfax deal.
“We think it will be its best option,” he said.
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