* RIM accounted for 19 pct of Celestica's Q1 revenue
* Celestica sees restructuring charges of up to $35 mln
* Keeps $0.20-$0.26 forecast for Q2 adjusted EPS
TORONTO, June 18 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
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.
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 optionsž.
Celestica, which also produces servers and other products
for branded manufacturers such as IBM Corp and Cisco
Systems Inc, 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.
The company said it continues to expect an adjusted
second-quarter profit of 20 cents to 26 cents a share on revenue
of $1.65 billion to $1.75 billion.
Shares of Celestica, which has a market value of C$1.47
billion, slipped 0.5 percent to $7.43 on Nasdaq on Monday
morning. They are down 17 percent this year.
RIM's Nasdaq-listed shares fell 1.7 percent to $10.70. They
are down 70 percent this year.