- VW announces a "take over" of the BlackBerry Connectivity Research Centre. It seems BlackBerry is parting ways with 200 employees as part of the deal.
- While 2 days ago, almost 6 million shares were available to short, there are now only 3.4 million shares. The shorts are actually increasing and not going away.
- Unanswered questions remain about some parts of the business and these may cause the stock to trade within a range of $9.50 and $11.
- Given the stock is now +64.51% since John Chen became CEO and +28.59% since the recent earnings report, there is a general belief that a short correction is in order.
- A general review of BlackBerry's performance since the release of OS 10 is provided along with a cautionary note regarding short-term weaknesses for the company.
It seems BlackBerry (NASDAQ:BBRY) has quietly sold a piece of the company to Volkswagen (OTCQX:VLKAY). The BlackBerry PR machine is strangely quiet on this one. As a long-term shareholder, I find this whole business rather curious and can understand the opportunity presented to shorts:
- Wednesday morning, BlackBerry traded as high as $10.98 in the pre-market, only to fall to $10.60.
- During regular hours, it traded between $10.61 and $10.88, and closes at $10.66.
- The volume Wednesday was below average; it has been steadily above average since the June 19th earnings report.
- Contrary to what Shock Exchange might want you to believe, there does not seem to be a short squeeze. It is good to see that there are more people going long the stock (hence, accounting for it maintaining the upward momentum); however, a quick comparison of the number of shares available to short today versus 2 days ago tells a much more different tale: 2 days ago, the number of shares available to short was almost 6 million. As of today's close, it is down to 3.6 million. During the day, it was about 3.4 million. If anything, the shorts are increasing.
(click to enlarge)
Source: Interactive Brokers
Where in the World is QNX?
By the June 19th earnings report, shareholders were desperately wanting to know how much QNX is really worth. It was one of the most frequently asked about and debated topics in the commentaries in my Demystified series, and I would hazard a guess that it accounted for a good 15 to 20% of the debate between bulls and bears. Unfortunately for us, Chen was not ready to give solid numbers.
- Richard Tse from Cormark Securities asks, "Can you give us some similar metrics on the QNX side, the size of that business and what do you think that could scale to?"
- To this, John Chen replies, "Not right now. [It's] royalty-based and the royalty usually lags about a couple of years after the design wins. [It's] a lager in terms of what revenue comes in. On the other hand, when revenue comes in, the margins are very high."
While I am patiently curious to see what QNX is worth in the future, and I know that the infotainment business is just heating up with Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) Android and Apple's (NASDAQ:AAPL) CarPlay looking for a place on dashboards, today's news about VW purchasing the facility in Bochum really has me baffled:
- Does it make the discussion of royalties and revenues for QNX a moot point? Does this mean QNX is not going to grow as we are now selling parts of QNX? Or does this mean we are selling packaged extensions to various automobile companies, and VW is just the first of a new series of car companies that will be buying bits and pieces of BlackBerry car technology?
- If it is great news, why is BlackBerry silent? Being silent implies that it is not great news. Does the "Connectivity" team at this facility work on connected cars? Has VW purchased a sizeable chunk of the QNX development team? How big is the QNX team within BlackBerry, anyway? How much did they sell this Bochum facility and crew for?
- A "take over" does not a partnership make. Is BlackBerry's involvement in connected cars decreasing as a result of selling knowledge, patents, and a specialized group of engineers to VW?
- Whatever happened to monetizing QNX? Is this a blueprint for how the monetization will happen going forward?
- Have we further streamlined costs? Is it at the expense of future growth (ie. royalties by selling licenses to various auto companies)?
When the questions are many, the bears have a chance to come out of their caves to make their presence known. We need more answers. #BBFactCheck, where are you?
So... What Do We REALLY Know?
From my various research, this is what I know about the sale to VW:
- The BlackBerry Connectivity Research Center will become Volkswagen Infotainment GmbH. And while many people on CrackBerry were wondering if the facility was previously shut down and empty already, according to a German website, 200 engineers who work at the "grounds of the Ruhr University and in a smaller lab in the city" will be transferred to VW.
- From BlackBerry itself, I was able to find two addresses for offices in Bochum. They appear to be the locations that will cease to belong to BB: Uni Tech Centre (Universitatsstrasse 140); and Bochum (Alleestraße 165a).
- The Bochum facility was open in September of 2008 and the facility was leased. It comprises of 51,116 sq ft used for R&D activities.
- Volkswagen is a part of the Open Automotive Alliance, of which there is no indication BlackBerry is a member. The OAA is committed to the Android platform and VW expresses an interest in running Android on top of QNX and is uncertain it will integrate Apple's CarPlay.
Further questions to ponder largely revolve around the competitors moving into infotainment and showing greater interest in security, two areas that are largely BlackBerry's bread and butter:
- While we have found out that Apple's CarPlay runs on QNX, it seems BlackBerry has failed to clarify if Android will directly challenge QNX. Will it be running as a layer on QNX or as the core OS on some vehicles?
- Google's passion for dominance knows no bounds and perhaps, while it may not currently be able to challenge BlackBerry in the connected cars department, its recent purchase of Divide and the partnership with Samsung (OTC:SSNLF) to bring Knox technology to past and future releases of the Android OSes, seems to suggest Google is trying to burrow deeper into the connected car environment. It knows that consumers are unwavering in their desire for a secure vehicle. It is one thing to have malware on your phone, it is another to have your car hijacked by hackers. Will what Google ends up learning by working with Samsung on security software for phones end up bringing both giants into the connected car environment as a team?
- The lack of any public announcement of a partnership between Google and BlackBerry suggests that they are not working together. BlackBerry's alliance with Amazon and the fact that they are in agreement with the plan to use stock Android (which has no access to Google Play Services and happens to be open source) makes BlackBerry's devices segment viable again. However, not truly building a relationship with Google makes BlackBerry vulnerable to the synergy of Google and Samsung as they take the fight to the 4-wheeled arena.
Shorts Are Salivating
Bears love confusing circumstances. Definitely, the VW announcement proves to be one. Given the recent climb in the share price since the earnings report, they are waiting in the wings to short. It may be better said that this morning, the shorts are back with a vengeance and making use of the following information to solidify their conviction that the stock is due for a correction:
- BBRY traditionally trades down for anywhere from 1 week to 1 month at this time of year.
- The volume today is below average.
- Analyst ratings on the stock is $9.12 (13.34% downside) according to AnalystRatings.net and $8.83 (17.40% downside) according to StreetInsider.
BlackBerry has come a long way since January 30, 2013, when BlackBerry 10 was introduced along with the Z10 and the Q10. On that particular day, 223.8 million shares changed hands. It was the highest volume day in 10 years, according to NASDAQ. The stock is still down 39.22% since that time. And at its height, BBRY traded for $148.13 per share (June 19, 2008).
On a positive note, the stock is up 85.39% from the $5.44 all-time low of December 10, 2013. The latest earnings report ranks 64th in volume across a 10 year span upon analyzing historical data (72 .5 million shares changed hands). Under John Chen's leadership, we are now at an all-time high but hitting a critical resistance point: the $11 barrier. It has been a near hit and also a pivotal point for declines in the past.
In the window of time until the next short interest report comes out (expected on July 10th after 4 pm EST), and the next institutional holding report is due (the 13F filing deadline is August 14th), the bears are Berry Berry Hungry again.
Editor's Note: This article discusses one or more securities that do not trade on a major exchange. Please be aware of the risks associated with these stocks.