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A Celestica employee works on a motherboard at the company’s facility in Dongguan, China, in this 2009 file photo. (Vincent Yu/AP)
A Celestica employee works on a motherboard at the company’s facility in Dongguan, China, in this 2009 file photo. (Vincent Yu/AP)

Celestica profits plunge as RIM business winds down Add to ...

Celestica Inc. says its second-quarter earnings plunged 48 per cent amid weaker revenue and warned sales will continue to be hit this year as it copes with winding down manufacturing for Research In Motion, once its largest customer.

The electronics component manufacturer said Friday it earned $23.6-million, or 11 cents per share, down from $45.7-million, or 21 cents per share in the quarter a year earlier.

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Revenue sank to $1.74-billion from $1.83-billion in the 2011 quarter as it began winding down operations for RIM.

However, analysts had expected revenue of only $1.69-billion and its shares rose 6.2 per cent, or 46 cents, to $7.85 in afternoon trading on the Toronto Stock Exchange after being beaten down following the initial RIM announcement in June.

On an adjusted basis, the year-over-year difference was slightly narrower, with earnings this quarter of $47.1-million, or 22 cents per share, compared to $58.7-million, or 27 cents per share in the year-earlier. The adjusted earnings missed analysts’ expectations by two cents per share.

Celestica, which makes electronics components, announced in June that it would cease manufacturing services for RIM over the next three to six months as the struggling BlackBerry maker looks to cut costs with its suppliers. The company expects to complete manufacturing for RIM by the end of the third quarter.

The company said its second-quarter results were hit by a $21.8-million charge related to the wind-down of RIM operations. It also booked a 2-per-cent per-share charge related to higher than expected income taxes, as well as a three cent per-share charge on stock-based compensation.

During the second quarter, RIM represented 17 per cent of total revenue and Celestica expects revenue from RIM to decrease to 10 per cent of total revenue by the third quarter.

However, as the company has been focused on diversifying its customer base over the past few years, its portion of revenues from diversified end markets represented 19 per cent of total revenue, up from 13 per cent in the year earlier.

Because RIM was such a significant customer, the company said it will take additional restructuring actions in 2012 to reduce its cost structure, but it did not elaborate on what those actions are.

It expects to book between $40-million and $50-million in total restructuring charges by the end of 2012, of which $20.1-million was booked in the second quarter.

Celestica said the RIM-related wind-down, as well as a challenging demand outlook has led it to believe that revenue in fiscal 2012 will show negative growth and that it will no longer achieve its three-year annual revenue growth target of between 6 and 8 per cent.

For the third quarter, the company anticipates revenue to be in the range of $1.6-billion to $1.7-billion, and adjusted net earnings per share to be between 17 cents and 23 cents. Analysts had expected earnings of 24 cents per share.

The company has been hit by a steady decline in orders recently as extreme volatility continues to roil stock markets and deplete business confidence.

It has been working for years to reduce its reliance on a small group of customers, especially those that produce consumer gadgets, like struggling RIM, which once represented as much as 20 per cent of its business.

A decline in orders for RIM’s BlackBerry smartphone, due in part to the growing popularity of rival Apple Inc.’s iPhone, has hit Celestica as well because it means fewer orders for the components of the devices it produces for the telecommunications company.

“Our priorities continue to be further diversifying our customer base and developing new capabilities to increase the value we deliver to our customers, while taking measures to prepare for an increasingly difficult economic environment,” said Craig Muhlhauser, Celestica president and chief executive officer.

As part of its ongoing strategy to diversify its customer base, the company also announced Friday it has an agreement to acquire California-based D&H Manufacturing Company, a components manufacturer for semiconductor equipment for about $70-million. D&H generates about $80-million in revenue and has about 350 employees.

Celestica expects the deal to close in the third quarter.

“The acquisition further strengthens Celestica’s diversified markets offering and will allow us to provide our customers with additional capability in large scale and high quality precision machining,” said Mr. Muhlhauser.

Toronto-based Celestica supplies components and equipment in the communications, computer, telecom aerospace, defence and other markets.

Celestica used to be a division of IBM Canada and was later sold to Onex, one of Canada’s largest investment companies with interests in aerospace, health-care and many industrial and services sectors.

Toronto-based Onex has a minority equity stake but majority voting rights in the company.

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