The EMS provider {complink 987|Celestica Inc.} has announced it is winding down its manufacturing relationship with {complink 4644|Research In Motion Ltd. (RIM)}, the struggling maker of the BlackBerry. Celestica said that the restructuring charges will not exceed $35 million, and that disengaging with RIM will take three to six months.
Celestica gave no indication which party initiated the breakup. In April, it told analysts during a regular earnings conference call that it had been working with RIM as it reassessed its supply chain strategy.
Ending a manufacturing partnership is time-consuming and can be costly for both the EMS and the OEM. (See: Apple & Foxconn: Breaking Up Is Hard to Do.) According to the Globe and Mail of Toronto, Celestica gets as much as one-fifth of its overall revenue from RIM.
The EMS consulting firm Charlie Barnhart & Associates told us in an email that it can take as long as three fiscal quarters to dismantle an outsourcing pact.
“Obviously, there is a range on this data point as well, but that number is extremely hard to pin-down as it's much more complicated to determine when the 'initial internal discussion' (re: the disengagement) actually took place,” Barnhart said. “Plus many of the failed cases we study drag on for several years due to material liability issues, legal proceedings, warranty related claims, etc.”
Celestica is expected to offer more details during its second-quarter earnings release and conference call, which are scheduled for Friday, July 27.
RIM is going to Mexico for lower cost. I am more concerened about RIM product quality. Celestica may get more business from Microsoft.
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THis may be one more reason for RIM loosing its Premium Brand image. And for RIM there may not be an alternative to such cost cutting.
It will be interesting to find out who initiated the split. I imagine RIM needs lower cost solution and considering RIM was such a large portion of Celestica's revenue I doubt Celestica forced the split.
Celesticamight be looking at a better partner for more business oppurtunity. AS told Microsoft can be one amoung them.
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@p_d: yes, this is, potentially, a way for savings, but – imo –Â is not the key for ensuring market recovery, they need to enroll someone with the target for innovation doing more on that area; it should be a good time, hence other competitors are still facing issues on the market…
@flyingscot: I think Celestica may also have started having doubts about the future of RIM. May be they didn't want to be in a situation where they face the bad name if something happens to RIM. This could be one reason why they may have chosen to break the partnership.
“ RIM is going to Mexico for lower cost. I am more concerened about RIM product quality. Celestica may get more business from Microsoft.”
@_hm: Do you think companies in Mexico can compete with Chinese manufacturers in terms of technical strength and capabilities? Yes, they may be able to catch up with the labor costs but that's not the only component. There's so much more to it.
The real solution for RIM problem may not be breakup with celestica. Rather blackberry should look at reducing selling price of their phones to compete in current smart phone market.
AT first I thought Celestica initiated the breakup because RIM is so unstable. But reading that RIM accounts for one-fifth of Celestica's revenue puts some doubt in my mind. Celestica will have a hard time replacing that, particularly if it is going after mobile equipment. I believe the EMS also mentioned some repositioning, so maybe they will go after a different market.
Barbara, actually what happens for the mobile industries. If we are analysis the market we can see that Nokia is on the way of shutting down and now RIM also follows it. Intel gave up their mobile chip plans and today I had read that semiconductor firm Renesas Electronics Corp. could sell its mobile chip subsidiary, Renesas Mobile Corp. According to industrial analysis, most of the developments are going to happens in communication sector, which includes Tablet and smartphones. But in day to day life we are hearing only about negative news.
Elctrnx, I think still RIM can work it out for a better plan as part of sustainability. RIM has to diversify its R&D and production facility to Tablets and Smart phones with 3G/4G capabilities. Most of the 3G phones from blackberry (except High end models) have no video calling facility. Another area is they have to rework the Play book with most soficated facilities/functionalities and to be independent of networks.
Mexico people do not do anything. Whole operation is handled by few experts from RIM. Cost will be as low as China. Quality  is of more concern.
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@_hm: What about the labor in the manufacturing facility? Won't that comprise of the local technicians?
@Timoor: In production environment, techs follow strict instruction given to them which in turn comes from designer in other country. This will not make much difference. But sometime, management takes short cuts and that is of more concern.
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RIM product everything became questionable a long time ago. Instead of cutting costs, they need to refocus on their core objectives (whatever that may be at this point in time)
@_hm: So their productivity and efficiency is not a concerned even if they are semi-skilled labor? I think these factors should matter a lot to ensure the efficiency of the output.
@Timmor: With advent of very high level of automation, this is very low skill work. Most people can be trained for this type of work. Output of worker is very much controlled in this type of environment.
Well, I seriously wish RIM all the luck in the World. They really revolutionized smartphones and mobile chatting (IMHO). What they need to do now is reinvent themselves, or at least, pick their battle – one they know they can win.