Celestica to stop making products for RIM

Mon Jun 18, 2012 1:46pm EDT
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TORONTO (Reuters) - Contract electronics maker Celestica Inc will stop making products for its biggest customer, Research In Motion Ltd, by the end of the year as the BlackBerry maker seeks to cut costs by shrinking its global supply base.

Toronto-based Celestica has mainly built BlackBerry Bold and Curve models in Mexico for the North American market. RIM's sales in the United States have been hit particularly hard as it struggles to compete with Apple Inc's iPhone and devices using Google Inc's Android software.

RIM's decision to trim the number of companies that build its smartphones illustrates the falling fortunes of the once-dominant smartphone maker as it looks to cut $1 billion from its operating costs this year. Major layoffs are planned.

Celestica will likely take a near-term hit due to RIM's move but it is expected to bounce back as it diversifies into higher-value and higher-margin markets.

"On some level this is a positive for Celestica," said CIBC World Markets analyst Todd Coupland. "RIM has been losing market share and they've been facing the brunt of that, both in terms of their business and their valuation," he said.

RIM's three main remaining suppliers are Flextronics International Ltd, Jabil Circuit Inc, and Quanta Computer Inc, which makes RIM's poor-selling PlayBook tablet.

Coupland said that, excluding cash, Celestica trades at half the multiple of Jabil. He expects either Flextronics or Jabil, which both have operations in Mexico, to win the contract to build RIM products for North America.

RIM accounted for 19 percent of Celestica's first-quarter revenue, but that was down from a year earlier due to weak demand and program transitions at the smartphone company.

Waterloo, Ontario-based RIM declined to comment on Monday on specific supplier relationships but pointed to its fourth-quarter earnings call in late March, when it said it would make changes to its supply chain in a bid to lower costs.   Continued...

A sign of Research in Motion (RIM) is seen at its headquarters in Waterloo, Ontario, January 22, 2012. REUTERS/Geoff Robins