BlackBerry supplier Jabil Circuit looking to wind down partnership

TORONTO—The future of BlackBerry’s handset business was in question ahead of the company’s latest financial results due Sept. 27, after one of its smartphone suppliers said it’s in talks to end a partnership agreement with the Canadian company.

The chief executive of Jabil Circuit Inc. told analysts in a conference call that Jabil is reconsidering how much BlackBerry will contribute to its financial results next year.

The Waterloo, Ont.-based company is scheduled to report its second-quarter financial results early Sept. 27, which could give further insight into how badly it has suffered in the latest round of smartphone wars.

Already the company has said it expects to post nearly $1-billion in losses related to poor sales of its latest BlackBerry devices.

BlackBerry has always declined to outline its relationships with manufacturers, though Wistron of Taiwan is considered the other major supplier of BlackBerry 10 devices.

BlackBerry has only said it plans to reduce the number of smartphones it sells, and focus exclusively on selling to business users, not shutter its hardware division entirely, which makes the comments from Jabil chief executive Mark Mondello a surprise.

“We are in discussions right now on how we are going to wind down the relationship,” Mondello said, breaking with Jabil’s usual practice of declining comment on specific customers.

“BlackBerry has been a great partner over the past six to seven years and we believe that they will offer their typical high integrity co-operation as we navigate this probable disengagement in the coming months,” he added.

Jabil is factoring in a combination of income loss and the financial hit that would be felt on the company’s infrastructure, Mondello said.

The manufacturer said the timing for any decision was uncertain, but that it was likely to happen “in the coming months.”

The comments add to growing anticipation that BlackBerry could stop making physical devices after its latest offerings failed to catch fire with consumers.

Earlier this week, BlackBerry became the centre of a highly conditional takeover offer from Fairfax Financial, one of the company’s largest shareholders.

Investors have appeared less than impressed with the uncertainty surrounding the potential deal.

Shares of the company extended their decline for another session, falling four cents to $8.22 on the Toronto Stock Exchange.

Fairfax chief executive Prem Watsa did not return calls seeking comment on the continued erosion of BlackBerry’s stock price.

Since the conditional bid was put forward, BlackBerry stock has dropped more than 12 per cent.

The handset business has been under the microscope of analysts since before the launch of BlackBerry’s new smartphones earlier this year, with several suggesting that the company shut it down to reduce losses and focus on profitable parts of its business tied to security software.

Jefferies analyst Peter Misek said he believes that Jabil mainly produces the BlackBerry Q10, the company’s new keyboard smartphone.

“While a Q10 inventory writedown is possible, we think 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,” Misek wrote in a note on BlackBerry.

U.S. carrier T-Mobile has disclosed that it will no longer stock BlackBerrys in its retail stores, though customers will still be able to order the phones and have them shipped.

Canadian carriers Telus and Rogers declined to say whether they were making any changes to how they would stock or promote BlackBerry devices.

Bell said it continues to stock BlackBerry products.

Last week, BlackBerry disclosed that it would stop promoting its phones as consumer devices, heeding the growing dominance of Apple’s iPhone and devices on the Android operating system.

Even large business consumers have been reluctant to sign new contracts with BlackBerry in recent months.

Reports have pegged financial services giant Morgan Stanley as one BlackBerry customer that has held back from signing a new contract.

The BlackBerry smartphone remains popular with corporate and government workers, though earlier this year the company launched a product that migrates its popular security features to other devices.

A product called Secure Work Space allows Apple and Android users to separate their data and work apps, such as email and calendars, from their personal apps allowing for a security standard once only available on BlackBerry phones.

While the operations of BlackBerry remain uncertain, investors haven’t warmed to the Fairfax offer of US$9-per-share for the company, which values it at about $4.7-billion.

The highly conditional offer has been met with skepticism that it will succeed.

This week Watsa tried to calm those concerns saying that he had every intention of completing the acquisition of the smartphone maker, in an interview with The Associated Press.

“We’ve got a track record of 28 years of completing what we’ve done. We’ve never renegotiated,” Watsa said.

BlackBerry said earlier this week that Fairfax signed a letter of intent that “contemplates” buying BlackBerry for $9 a share.

Fairfax, BlackBerry’s largest shareholder, is trying to attract other investors.

The offer for BlackBerry is subject to six weeks of due diligence for both Fairfax and any other partners that join the transaction.

Last week, the company said will likely post a loss of US$950- to US$995-million for the fiscal second-quarter.

It also projected US$1.6-billion in sales, far short of analyst expectations of about US$3-billion.

A plan to cut about 40 per cent of its global workforce, about 4,500 jobs, is also underway.