Blackberry: Powering 235M Cars
Q2 FY2024 ER Digest
In Section 1.0, I go through my Blackberry thesis.
In Section 2.0, I analyze Blackberry´s IoT division.
In Section 3.0, I analyze Blackberry´s cybersecurity division.
In Section 4.0 I analyze the company´s financials.
In Section 5.0, I conclude the write up.
1.0 Thesis Re-Cap
Blackberry QNX is the most undervalued tech platform on Earth.
Blackberry´s real-time operating system, QNX, is installed in 235m+ cars on the road today, with all major OEMs (including the new EV OEMs) except for Tesla onboard. Blackberry currently monetizes QNX via a one-time fee per car, thus the business exhibits little operating leverage. However, with cars becoming more and more defined by software, QNX stands as the gateway to an emerging multi-billion-dollar data value chain.
Cars generate inordinate amounts of data. Capturing and processing it can unlock valuable insights for all stakeholders along the auto value chain. Blackberry IVY (which became generally available in May) is a platform designed to do just that. Ivy is, at its core, an app store for cars that abstracts away the complexity of managing the data value chain for OEMs.
By enabling a higher level of monetization per unit of QNX, IVY has the potential to meaningfully increase operating leverage for Blackberry.
Blackberry also fields a cybersecurity division, Blackberry Cylance, an XDR solution. Cylance scarcely seems competitive compared to Crowdstrike and Sentinel One. However, by extending the reach of its RT-OS (real time operating system) QNX, Blackberry has created distribution infrastructure it can use to preferentially deploy its cybersecurity offerings.
As with so much AI-driven software, XDR aims to deliver higher quality, leading security by aggregating the most and best data. Blackberry's QNX installed base is effectively a proprietary distribution channel, via which the company gets access to data that no one else has access to. Thus, the IoT business is positioned to give Blackberry an advantage on the XDR side over time.
By merging the IoT and cybersecurity businesses, Blackberry has the potential to meaningfully increase its operating leverage.
It is also worth noting that, while Blackberry´s forte is the auto space, the company is also taking strides toward other IoT verticals such as medical and aerospace. QNX´s moat is trust–it is very hard to get folks across industries to trust your operating system because:
The operating system cannot fail under any circumstance.
In case of failure, the OEM stands to lose a tremendous amount.
This is why Blackberry’s potential can be found in any of Blackberry’s IoT verticals. Blackberry has currently monopolized the auto space and, given enough time, will likely monopolize others. In turn, as time goes by, more and more things will be connected to the internet, which increases the number of potential verticals to saturate.
From its acquisition of QNX, it has taken Blackberry 15 years to hit 235m cars. Thus, although a quarterly evaluation of progress is very much in order, the thesis requires a long time horizon. It will take perhaps another decade for Blackberry to permeate medical and aerospace, for example. Yet, the wait will be worthwhile so long as Blackberry is able to:
Effectively grow the QNX installed base.
Convert it into networks per vertical (like IVY).
Blackberry’s financials may be mediocre, but if the company stays alive and meets the above two conditions, the payoff down the line should be worthy. In the interim, evaluating the company exclusively per its financials misses the point.
Blackberry recently announced that it will finally split the IoT and cybersecurity divisions into two separate entities. The company is targeting an IPO for the IoT business in H2 of next fiscal year. I believe this is a great move. lt gives the QNX moat more transparency.
The long term success of QNX is far from guaranteed of course. Given its extraordinary reach, one would expect it to be more well known. In fact, I believe its relative obscurity is due to branding. When the layperson hears “Blackberry,” they seldom express any excitement regarding the aforementioned verticals or any desire to research their potential.
The IoT spinoff can make the QNX moat rather evident to the world and especially if it involves a thorough rebranding of the division. I welcome the move and continue to be impressed by Chen´s management.
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