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Collaboration with BlackBerry boosts Foxconn's bid for vertical integration

TAIPEI/SAN FRANCISCO -- Foxconn's BlackBerry Ltd. deal marks the Taiwanese firm's biggest step up the value chain — a chance to not just assemble smartphones, but help design them, too.

The agreement to design and market phones starting in Indonesia, the world's fourth-most populous country but an under-penetrated market, is a boon to a mega-manufacturer trying to grow its margins while making a play for a bigger slice of the global mobile devices market.

Best known for putting together iPhones, Foxconn honed its skills by meeting Apple Inc.'s exacting standards and supply chain rigour. It boasts a workforce of more than 1 million and the scale to negotiate cheaper component prices than BlackBerry could obtain on its own.

BlackBerry announced on Friday that Foxconn will help design the hardware for its future low-end devices as part of a 5-year deal, furthering the template for manufacturing specialists to scale the value chain. BlackBerry itself will remain focused on software technology.

The Canadian firm wants to produce many of the new phones in Indonesia - the first new model is code-named “Jakarta” — where Foxconn has been navigating bureaucracy for over a year to set up a manufacturing plant in Southeast Asia's biggest economy.

Foxconn — the trading name of Hon Hai Precision Industry — expects an agreement with local authorities in February, and plans to set up joint ventures with local private firms to tap the potentially vast Southeastern Asian market. While it waits to set up production facilities in Indonesia, Foxconn will make BlackBerry phones at its Chinese factories.

Indonesian government officials have said Hon Hai wants to gradually invest as much as US$10 billion over 5 years with local partner Erajaya Swasembada, and Indonesia will offer the Taiwanese firm a tax package aimed at kickstarting the plan.

Hon Hai has yet to confirm these details.

“BlackBerry wanted to develop new products in Indonesia, while we're also tapping the local market there. They saw our ambition, so we started talking,” said Foxconn spokesman Simon Hsing. “The partnership gives us mutual benefits to explore existing and new emerging markets together.”

The first Foxconn-built BlackBerry — a low-cost 3G model based on BlackBerry 10 software and targeting Indonesia — could be rolled out by April.

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