Shares of Celestica (CLS: Charts, News) plunged at the open yesterday after the Canadian-based contract electronics maker announced that it would stop manufacturing Blackberries for ailing smartphone maker Research in Motion (RIMM: Charts, News). Celestica’s stock recovered later during intraday trading, but shares of RIM declined more than 2%. Research in Motion is Celestica’s biggest customer, accounting for 19% of its revenue during the first quarter of 2012. Celestica announced that it would “wind down” its manufacturing relationship with RIM over the next three to six months.
The problem was already apparent during Celestica’s April 24 earnings conference call, when CEO Craig Muhlhauser noted that it was “working with RIM as it assesses its supply chain strategy.” Muhlhauser also discussed the possibility of consolidating RIM’s business to fewer locations as a viable alternative to completely ending the relationship.
The shift away from manufacturing Blackberries is estimated to cost up to $35 million in restructuring charges, which will dilute Celestica’s full year earnings. Muhlhauser stated that the situation would be clearer by the middle of the fiscal year. RIM’s ongoing problems, which have led most analysts to predict the company’s demise by the end of 2012, have made it impossible for Celestica to provide a full-year outlook. This month, at the WWDC, only 9% of attending developers stated that they were producing software for RIM devices – a steep plunge from 36% last year – leading many to speculate that the company would unlikely survive another year.
Celestica reaffirmed its second quarter guidance for earnings between 20 to 26 cents per share on revenue between $1.65 billion and $1.75 billion. Analysts had been expecting earnings of 25 cents per share on $1.82 billion in revenue. The company is scheduled to report its second quarter earnings on July 27. Despite its strong dependence on RIM, Celestica shares have slid a mere 3% over the past four years. During that same period, RIM crashed 88%.
Celestica is a $1.6 billion company that started as the manufacturing wing of IBM, which operates in 40 locations across 11 countries. The company also manufactures products for IBM Corp. (IBM: Charts, News) and Cisco Systems (CSCO: Charts, News). The company is the largest electronics company in Canada, and trades on both the TSX and NYSE. Although Celestica has never disclosed the exact nature of the products it produces for RIM, industry insiders have reported that the company is responsible for the partial production of the Bold 9900 and the Curve 8520, among others.
Other News About CLS
Toronto’s Celestica to stop making products for RIM
Celestica abandons sinking smartphone maker RIM.
Celestica Waving Good-Bye To RIM, No Longer Making Their Handsets
Celestica looks towards brighter horizons after abandoning its long-time client. Other Stocks in the News
Burger King eyes China expansion
Burger King wants to spread to China – but is it too late to the party?
INSANELY GREAT: Tim Cook!
Tim Cook has impressed analysts and journalists alike with his newest moves as CEO of Apple.
Copyright 2012 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.