BlackBerry’s (BB) software development platform, QNX, has been significantly improved from a technical standpoint and has multiple positive catalysts both within and outside of its core automotive market. Indeed, outside of the auto sector, the demand for QNX, which specializes in meeting rigorous safety and security standards, appears to be rapidly increasing.
The other main part of BlackBerry is its Secure Communications business. Secure Communications, which provides security solutions to governments and businesses, also has meaningful positive catalysts.
Overall, BlackBerry still looks well-positioned to grow rapidly over the longer term, making BB stock a very good bet for patient, long-term growth investors.
UNDERSTANDING THE POWER OF QNX AND ITS TECHNICAL IMPROVEMENTS
QNX “sits in (software) stacks that have the highest requirements for safety, performance, security, and reliability,” the President of BlackBerry QNX, Mattias Eriksson, explained at a Wells Fargo conference on June 12. Featuring a real-time operating system, development tools, middleware, and a cloud solution, the product separates hardware and software while enabling manufacturers to easily develop and manage additional software, including autonomous-driving systems.
QNX is known for being very reliable and secure, as well as enabling real-time performance. It is deployed in 255 million vehicles globally, and it’s being used by the top ten automakers and 24 of 25 of the world’s leading electric-vehicle makers, he stated.
QNX helps automakers bring their vehicles to market more quickly and reduce the cost of “maintaining (IT) architecture” over a vehicle’s “lifetime,” Eriksson explained.
In order to meet the requirements set by Nvidia (NVDA), BB’s latest version of QNX, SDP 8, is able to provide more computing power on each of its chips, the executive explained. In conjunction with SDP 8, BB launched Hypervisor 8, a system that “enables multiple operating systems… to operate on the same system-on-a-chip (SoC).”
Hypervisor’s virtual management capabilities result in greater “reliability and performance,” while ensuring that different applications work well together, John Wall, Chief Operating Officer and Head of Products, Engineering and Services at QNX, said in a statement in May.
QNX’S POWERFUL, POSITIVE DRIVERS
Traditionally utilized primarily by automakers, the software is starting to be used much more widely by other sectors, including robotics and medical devices.
Nine of the top ten leading medical device makers are now using the product, said Eriksson, suggesting that QNX is particularly widely utilized in “surgical robots.” And speaking on BlackBerry’s earnings call held on June 24, CEO John Giamatteo said, “We’re targeting substantial expansion of our beachheads in robotics, industrial automation, and medical devices and equipment.”
The strategy seems to be working, as sectors outside of the automotive sector account for 43% of the value of the sales pipeline of SDP 8, CEO John Giamatteo said on the call. The latter figure suggests that the demand for QNX by sectors outside of automobiles is soaring.
And within the auto sector, the proliferation of software within vehicles in general and the increased utilization of ADAS and self-driving systems in particular are likely to meaningfully boost the revenue generated by QNX in the long term. In 2030, 80% of vehicles globally are expected to be able to utilize QNX, up from 20% presently, Eriksson stated. The proliferation of computing within automobiles will fuel the change, he explained. “The trends are clear. That’s where it’s going,” he said.
All of these developments appear to be already meaningfully boosting QNX’s revenue and profitability. In the company’s first quarter that ended in May, QNX’s revenue increased 8% versus the same period a year earlier to $57.5 million, while its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) jumped to $12.7 million, up from $8.9 million.
In Q2, QNX’s revenue is expected to again be in the $55 million to $60 million range. But for the full year, BB is predicting that QNX’s sales will be $250 million to $270 million. If the unit’s revenue comes in at $57.5 million again in Q2 and its full-year revenue ends up at the midpoint of the company’s guidance, its sales will average $72.5 million in the second half of the firm’s fiscal year. That’s a 26% surge compared with the $57.5 million of revenue that it generated in Q1.
SECURE COMMUNICATIONS ALSO HAS POSITIVE CATALYSTS
Secusmart, BlackBerry’s encrypted voice and data system, which, according to Giamatteo, has military-level capabilities, may be purchased by a number of governments during the company’s current fiscal year.
And boding well for Secusmart’s longer-term outlook, the CEO said that, “Governments are increasingly evaluating the tools they use in the wake of vulnerabilities seen in using consumer-focused platforms for critical communications.”
Moreover, AtHoc, the company’s emergency-response system, won new contracts from a number of impressive components of the federal government, including the US Marine Corps, US Air Force, Senate, FEMA, and the White House Communications Agency,” Giamatteo reported.
Finally, Direct ChassisLink, described by BB as “the top provider of container chassis in the U.S. intermodal space,” added BlackBerry Radar to all of its 100,000 DCL53 domestic 53-foot chassis. Radar is “an intelligent asset monitoring solution designed for trailers, containers, railcars, and chassis,” according to BB. The Direct ChassisLink deal could positively move the needle of BB’s overall results and may encourage other major transportation providers to utilize the product in the future.
*This article is intended to be informational only; it is not financial advice.
