How QNX Is Turning Out to Be a Game Changer for Blackberry Ltd (BBRY)?

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Once lovingly known as ‘CrackBerry’ due to the addictive nature of their handsets, the Blackberry Ltd (NASDAQ:BBRY) (TSE:BB) dream ended abruptly with the rise of Apple and Android. The fall of the beloved ‘Research in Motion’ was massive and unfitting for a technology giant. The company, however, has risen from its ashes, becoming a software giant, and accepting the smartphone defeat gracefully. Now earning more than 60 percent of its revenues from software, the company has begun deep collaboration with Ford Motors. So how did this change of fortune happen for Blackberry? There is one answer- QNX. QNX is in over 60 million vehicles worldwide and used by over 40 automotive manufactures, in brands such as Audi, Bentley, BMW, Buick, Chevrolet, Chrysler, Ford, GMC, Honda, Hyundai, Jaguar, Kia, Table of Contents 9 Land Rover, Maserati, Mercedes-Benz, Porsche, Toyota, and Volkswagen.

Blackberry CEO John Chen

Where did Blackberry go right?

QNX was earlier used by the company to developed operation systems. It all changed with the arrival of CEO John Chen. He utilized the QNX module for the auto industry, creating a variety of automotive solutions to control infotainment systems and to power autonomous driving platforms. In retrospect, the hiring of Chen was the first right decision made by the company. He closely looked at the company’s problems, made tough decisions and is finally driving the company towards profitablity. Blackberry’s shares have surged the most in 15 months after posting great earnings reports in front of the investors.

The self-driving cars segment is booming with many technology giants taking a leap of faith in the world of driverless cars. Tesla and TenCent recently joined hands to create a shared driverless car vision. Blackberry hit on the right notes at the right time, moving into the auto and infotainment sector. A partnership with Ford is a strategic move for the company to get ahead in the software business. John Chen, confident and optimistic about the company’s performance, said, “There is no danger of the company financially being in trouble.” He stressed the fact that the company’s debt was halved about 6 months ago and they still have $1.1 billion in cash.

QNX History

QNX was initially purchased in 2010 for around $200 million by BlackBerry, which was then Research in Motion. The figure was cited as 5 times revenue, which would put the generated revenue at $40 million in 2010. Not much is known about the exact revenue generated by QNX today, although a Wells Fargo analyst estimated that QNX generated 40% of the the company’s then $500 million software revenue in 2015. This would put it at about $200 million in revenue.

Currently QNX results are consolidated amongst other things apart of BlackBerry’s Technological Solutions division which is found under Software and Services.  Software and Services generated $652 million in revenue and $149 million in operating income in the fiscal year ending February 28th, 2017.

Is QNX enough?

The company needs to rev up their per-car revenue. From a $3 to $5 per car revenue, Blackberry Ltd (NASDAQ:BBRY) will have to take a 3x leap and reach about $15 per car for raking in profits. This one-time revenue will be backed by periodic payments for security, upkeep, and OTA updates. The company recently transferred 400 heads to work with Ford in a bid to build strategic alliance with the automaker. Blackberry’s acquisitions have worked perfectly for the company in getting market recognition as a tech firm. Its truck radar systems, known for their accuracy, helped the company land a deal with Ford.

John Chen, who was earlier skeptical about using Blackberry Ltd (NASDAQ:BBRY)’s cash, is now planning to invest $1.7 billion to promote R&D within the company. New acquisitions can also be added to this list.

There are speculations about the company working with other automakers in the future. QNX has helped Blackberry define a cozy and comfortable niche, which is not going away anywhere in the future. With QNX, they have become a small but important connecting node between Google’s Android and other front end systems and the automakers. The internet of things business is also working in Blackberry’s favor. As software gains momentum, QNX will lead Blackberry Ltd (NASDAQ:BBRY)’s turnaround story from the front.

QNX could either lead a resurgence for the company or go the way of the company’s once dominate handset, an early leader which gave way to competition from the big tech giants. Nonetheless the company provides software in a growing connected space with quite a bit of untapped potential. We will see if they can harness it.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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