Moody's Affirms Jabil Circuit (JBL) Ratings Amid BlackBerry (BBRY) Troubles
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Overall Analyst Rating:
BUY (
Down)Dividend Yield: 0.3%
Revenue Growth %: -21.8%
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A scenario in which BlackBerry Ltd. (Nasdaq: BBRY) exits the smartphone handset market would be credit negative for its major manufacturing partner, Jabil Circuit Inc. (NYSE: JBL), and distributor, Brightstar Inc., but would not affect either of those company's ratings, Moody's Investors Service says in a new report. With Jabil looking to end its manufacturing relationship with BlackBerry and BlackBerry's reporting a $965 million net loss in the second quarter, and given that the handset market requires significant scale to be competitive, Moody's believes the probability that BlackBerry Ltd. will quit the handset market is growing.
"If BlackBerry exits the handset market, we estimate that Jabil Circuit would lose around $2.1 billion in revenue in the first year and Brightstar about $1.2 billion over 12 to 18 months, but these declines would not affect the companies' ratings because both have reduced their exposure to BlackBerry over the past few years," says Senior Vice President, Gerald Granovsky in "Supply Chain Revenue Would be Pressured by BlackBerry Potential Handset Exit."
Jabil has been decreasing its exposure to BlackBerry by reducing production of the latter's handsets, Granovsky says. And while BlackBerry accounted for around 30% of Brightstar's total sales in 2011, that figure is now down to about 19%, and is still declining.
Moody's believes Jabil will end its relationship with BlackBerry as soon as practicable, while Brightstar and other mobile distributors such as Tech Data Corp., Ingram Micro Inc. and Intcomex will continue to distribute BlackBerry handsets as long as the devices are available.
"Jabil has been looking to reduce its dependence on the tech sector for revenues, while disengagement with BlackBerry would also eliminate uncertainty around production requirements and alleviate the need to devote capital resources to a partnership with an uncertain future," Granovsky says. "Further, we concur with Jabil that it will still be able to generate about $1 billion in operating cash flows in fiscal 2014."
Selling off its remaining inventory should boost Brightstar's free cash flow in the near term, Moody's says. BlackBerry handsets remain popular in some countries in Latin America, such as Argentina, and the region is a key selling region for the company. Once Brightstar's existing supply is sold, it would take on additional product only on a pre-sold basis. Ultimately, however, Brightstar's rating and outlook will depend on its ability to improve profitability, and to grow its value-added products for the mobile device industry.
"If BlackBerry exits the handset market, we estimate that Jabil Circuit would lose around $2.1 billion in revenue in the first year and Brightstar about $1.2 billion over 12 to 18 months, but these declines would not affect the companies' ratings because both have reduced their exposure to BlackBerry over the past few years," says Senior Vice President, Gerald Granovsky in "Supply Chain Revenue Would be Pressured by BlackBerry Potential Handset Exit."
Jabil has been decreasing its exposure to BlackBerry by reducing production of the latter's handsets, Granovsky says. And while BlackBerry accounted for around 30% of Brightstar's total sales in 2011, that figure is now down to about 19%, and is still declining.
Moody's believes Jabil will end its relationship with BlackBerry as soon as practicable, while Brightstar and other mobile distributors such as Tech Data Corp., Ingram Micro Inc. and Intcomex will continue to distribute BlackBerry handsets as long as the devices are available.
"Jabil has been looking to reduce its dependence on the tech sector for revenues, while disengagement with BlackBerry would also eliminate uncertainty around production requirements and alleviate the need to devote capital resources to a partnership with an uncertain future," Granovsky says. "Further, we concur with Jabil that it will still be able to generate about $1 billion in operating cash flows in fiscal 2014."
Selling off its remaining inventory should boost Brightstar's free cash flow in the near term, Moody's says. BlackBerry handsets remain popular in some countries in Latin America, such as Argentina, and the region is a key selling region for the company. Once Brightstar's existing supply is sold, it would take on additional product only on a pre-sold basis. Ultimately, however, Brightstar's rating and outlook will depend on its ability to improve profitability, and to grow its value-added products for the mobile device industry.
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