BlackBerry is in the process of transforming itself from a hardware company to a software company. Back in the day, BlackBerry was once a dominating player in the smartphone industry but soon their market share had been taken by Android and iPhone. Since then, the company has been struggling and trying to transform its business strategy to be software-focused. Today, 98% of BlackBerry’s revenue comes from software and services, comparing to only 3% in 2014. During this transformation, their revenue and profits have been declining year over year, its profitability has been shredded into pieces. The company has just released its 2020 results and showed that its revenue and profitability have deteriorated once again, with revenue declined by 14% comparing with the previous year and a loss of $1.97 per share. The market is so bearish on the stock but we think otherwise, this might be the darkest before the dawn.
BlackBerry QNX is a real-time operating system (RTOS). RTOS is an operating system that serves real-time applications with real-time data. It’s targeted to solve problems as it goes. The difference between RTOS and traditional OS that we are using daily, such as iPhone IOS, Windows, and Android is that RTOS will not crash if something goes wrong with the system. For example, when the Windows operating system encounters an error, it will shut itself down and gives us a blue screen. If an RTOS runs into the same problem, it will bypass it and won’t shut itself down. This is useful in many applications, such as autonomous driving. Imagine your car’s operating system shuts down while self-driving, the result can be catastrophic.
The EV market, as we all know, is growing rapidly. According to IHS Markit, the total sales of EV globally is around 2.5 million cars in 2020 and they expect it to grow by 70% in 2021. They also said global sales will top 12.2 million cars in 2025, indicating annual growth of nearly 52% (compounded). By 2021, China and Europe will account for the largest market shares, with China at about 44% and Europe at about 28%. Then North America with 16% and a combined share of 11% for Japan and South Korea. The EV market and autonomous driving technology seem to be growing together, autonomous driving features are more common in EVs than traditional cars. And the amount of effort and money required to develop a reliable operating system is too much, that many automakers will consider adopting an existing platform like the QNX rather than developing their own. With that being said, the user base of the QNX operating system will increase exponentially as the EV market grows.
The QNX operating system doesn’t just work on cars, it can also work on smart home appliances and even smart city infrastructures. As of today, there are more than 175 million cars on roads that use the QNX operating system.
Despite the declining revenue and EPS, we are optimistic about BlackBerry. We need to keep in mind that the company is undergoing a complete transformation, from a hardware focus to a software focus, the management has been great at executing their plan. The company has positioned itself in 2 of the fast-growing industries, EV and cybersecurity, both as industry leaders with good market share. We expect BlackBerry’s growth to pick up in 2022 and onwards.