Celestica to stop making smartphones for RIM

RIM recently announced it was streamlining its supply chain as part of an overall effort to cut costs

Contract manufacturer Celestica said it would phase out manufacturing services for Research In Motion, as the struggling maker of the BlackBerry smartphone attempts to cut costs amid slowing demand.

The Canadian manufacturer said in a statement on Monday it will wind down its manufacturing services for RIM over the next three to six months. Further details will be provided in the company's second-quarter results press release and conference call, scheduled for July 27, it added.

"We do not normally comment on specific supplier relationships," RIM said in an emailed statement. "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."

RIM, which has other manufacturers, was Celestica's largest customer, and in the first quarter of this year accounted for 19 percent of the manufacturer's revenue. The share of RIM business in total revenue was however down from 21 percent in the first quarter of last year. The company manufactured some smartphones models for RIM from facilities in Mexico, Romania and since March from Malaysia, besides providing certain after-market services to RIM primarily from Mexico.

Celestica said in April that as RIM had recently announced its intention to conduct an evaluation of its global supplier base with intentions to reduce the number of production locations, there was significant uncertainty ahead, including the possibility of not having business from RIM.

RIM has seen its market share decline in the smartphone market because of competition from Apple's iPhone, and phones running the Android operating system. Research firm IDC reported in May that 9.7 million phones running the BlackBerry operating system shipped in the first quarter for a market share of 6.4 percent, which was far lower than shipments of 13.8 million units for a market share of 13.6 percent in the first quarter of last year.

The company, which has also witnessed a management shakeup, said revenue for its fourth fiscal quarter ended March 3, 2012 at US$4.2 billion was down 25 percent from $5.6 billion in the same quarter of fiscal 2011. The company's net loss in the quarter was $125 million.

RIM said in May that its financial performance will continue to be challenging for the next few quarters, and cautioned that competition could lead to an operating loss in its first quarter ended June 2.

Celestica said it estimates that its restructuring charges prior to any recoveries will not exceed $35 million, a figure it had mentioned in April when it discussed its relationship with RIM.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com

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