BlackBerry (BBRY) is off to a good start this year with its stock up 22.85% year-to-date. The previous year was tough for the company amid huge losses in smartphone segment. There have been positives for the company which has resulted in increased investor confidence. In a previous article, I highlighted the importance of QNX to BlackBerry and argued that it can be the future of the company. The decision by Ford (F) to choose QNX for its vehicles can be a massive success for the company, and it can increase the scope of the system considerably.
Ford to Kick Microsoft and Choose QNX
Ford will choose QNX in its upcoming Sync system instead of Microsoft (MSFT) Windows. There have been complaints from the customers as there were some glitches in Microsoft's System. Since infotainment system is an important part of a vehicle now, Ford is considering QNX. Also, QNX is cheaper than the subscription Ford pays to Microsoft. In 2013, QNX was installed in 11.6 million vehicles worldwide. At the moment, 7 million Ford vehicles are using Sync, which shows that there is substantial opportunity for QNX to grow its base with Ford.
Ford sold over 2.4 million vehicles in the U.S. only, during the last year. For the current year, the total vehicle sales for all the companies are expected to be close to 16 million. However, for the first month of the year, most of the companies have recorded lower sales than the last year, mainly because of the colder than expected weather. Furthermore, Ford is also increasing sales overseas, the sales in China increased by 49% during the last year. For the current year, Ford is expecting sales of about 1 million units in China. As Ford takes QNX to power its infotainment systems, it will become an important part of BlackBerry's portfolio. It is not clear how much BlackBerry would charge for QNX. However, at the moment, it is all about increasing the footprint of the software, with the increased base, the company will be able to extract more revenue from its partners. Also, as the system establishes itself with major players, the company will be able to charge higher prices in the future.
BlackBerry QNX has managed to get other big clients in the market other than Ford. It powers the infotainment systems of Audi (OTC:AUDVF) and BMW. However, the number of vehicles sold by these two companies is lesser than Ford. As of 2013, the annual sales of BMW were close to 1.65 million units. Audi's sales are also in the same range as BMW.
Competition with New Entrants
Although the automobile market is looking favorable for the company, there are threats of strong competition ahead. Google (GOOG) and Apple (AAPL) are also stepping into the car infotainment business and these two companies can prove to be a threat for BlackBerry. Following this year, the competition is about to get fierce. BlackBerry will need to be extremely active on the research and development front in order to stave off the competition.
QNX is not just limited to infotainment systems. It also powers industrial, medical, networking and defense equipment. If the company can put more focus on this software, it can result in huge profits in the coming years. QNX has the potential to become a cash cow for BlackBerry - however, the company will have to work hard to increase its footprint. Research and development along with the marketing expenses are the main costs of QNX. QNX is already making inroads in the market and I believe if the company continues to increase its footprint; it will become a hugely important system for BlackBerry and may result in becoming the savior of the company.
There are positives for BlackBerry and the stock is making a solid recovery. However, it should be kept in mind that the company is still going through some troubles. The new leadership has made some solid moves and it looks like the recovery will continue. The management needs to execute the strategy well in order to take BlackBerry back to its best. The increased focus on enterprise, software and the QNX segment will drive future growth. The risk and reward ratio is still favorable for the stock holders, in my opinion. I have already talked about the liquidation value in the article mentioned above - the growth in some key areas is promising for the company and I believe the stock will rise further in 2014.