Research In Motion

Celestica to stop making products for RIM

Celestica will stop making products for its biggest customer Research in Motion by the end of the year.

Contract electronics maker Celestica has mainly built BlackBerry Bold and Curve models in Mexico for the North American market.

RIM is seeking to cut costs by shrinking its global supply base after sales in the United States have been hit particularly hard as it struggles to compete with Apple's iPhone and devices using Google'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, with major job losses 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, Jabil Circuit, and Quanta Computer, 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 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.

Celestica had also seen the writing on the wall, telling investors in April that the volume of business and the locations at which it manufactures products for RIM would likely change.

Struggling RIM has hired bankers from J.P. Morgan and RBC Capital to help evaluate its strategic options.

Celestica, which also produces servers and other products for branded manufacturers such as IBM and Cisco Systems, said it expects restructuring charges of up to $35 million.

It did not provide a timetable for taking the charges but said it will wind down the operations over the next three to six months.

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