With New Outsourcing Deal, BlackBerry Cancels Two Phones
A small item from BlackBerry's earnings-related filing Friday got lost in the news of its hardware partnership with Taiwan's Foxconn Technology Group-sales of its new phones have been so bad that BlackBerry was forced to cancel the rollout of two not-yet-released phones.
Context & Ripple Effects
The cancellation is a footnote to a collapse already in progress: in September BlackBerry was in such disarray it cancelled the call to discuss its own results, and on December 20 it reported quarterly sales of just 1.9 million new phones — down from 3.7 million the prior quarter — alongside a $4.4 billion loss and interim CEO John Chen's arrival.
The same Friday filing that announced the Foxconn outsourcing partnership for budget smartphones also revealed the two scrapped devices, and the story travelled widely — picked up within a day by The Verge, CNET, Digital Trends, CrackBerry and other BlackBerry-watching outlets, a sign of how closely each filing is now parsed for signs of the company's trajectory.
First-order effects
- Two not-yet-released BlackBerry phones are dead before launch, thinning an already shrunken BB10 lineup to whatever inventory and the Foxconn-built budget devices can carry.
- Chen's turnaround math now runs through Foxconn: the Taiwan partner owns manufacturing of the low-end devices meant to stabilize volumes while Chen targets profitability by fiscal 2016.
Second-order effects
- Handing budget production to Foxconn converts BlackBerry from a vertically integrated phone maker into a brand licensing its name onto a partner's cost structure — Foxconn gains leverage over the roadmap, and any further volume shortfall makes deeper outsourcing the path of least resistance.
- Carriers and enterprise buyers weighing BlackBerry against cheap Android alternatives now face a thinner, slower-release portfolio, accelerating the drift Chen is counting on his service and security businesses to offset.
Third-order effects
- If the Foxconn model holds, BlackBerry completes the slide from designing and building its own hardware to stamping its brand on contract-made devices — a structural endpoint the 2016 profitability promise quietly assumes.
- The episode is one more data point in the consolidation of handset manufacturing into a few Asian contract manufacturers, where scale economics leave sub-scale branded vendors little reason to keep their own factories.
The trend: Struggling smartphone brands are retreating from in-house manufacturing toward contract partnerships like BlackBerry's with Foxconn, trading hardware independence for survival economics.