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Summary

  • The affects of restructuring are showing with a sustained rise in the stock price over the last few weeks.
  • QNX's success in the healthcare industry might result in massive growth for the company due to the sheer size of the industry and the need for technology.
  • The sale of non-core assets will allow the company to enhance its cash position and reduce operating expenses.

BlackBerry (NASDAQ:BBRY) is seeing the fruits of its strategic decisions over the last few months - the company was able to report a profit for the last quarter which resulted in a nice upward movement. Furthermore, the focus on cost cutting and sale of non-productive assets {real estate} has enhanced the cash position of the company. The recent announcement about BlackBerry handsets winning design awards has further supported the upward movement of the stock. We see BlackBerry as a very solid turnaround play as we have discussed in detail different aspects of the business, and we remain optimistic about the prospects of the company. We will take a look at recent developments and the implications for BlackBerry in this article.

Progress in Restructuring

After selling most of its Canadian real estate for $278 million, BlackBerry has recently announced to sell its R&D facility located in Germany. The company has been aggressively laying off its unused and non-crucial fixed assets in order to bring its cost down. For a company in the turnaround, it is important to focus both on the top line as well as the operating expenses - controlling the expenses is usually an easier option since it is mostly under the company's control. However, cost cutting cannot be done infinitely and the growth in the top line is important. Nonetheless, the measures about cost cutting usually prove to be beneficial at the start of the turnaround, and we believe BlackBerry is currently going through this phase.

The interesting part of the recent deal is that the assets are being sold to Volkswagen along with 200 BlackBerry employees for an undisclosed sum. For those who have been following our QNX division coverage of BlackBerry would now understand what is going on. The price of the deal is not disclosed because it was not the point of the deal in the first place. This is an impressive tactic of BlackBerry to secure its QNX market share in the car infotainment system.

Volkswagen already uses QNX in the infotainment systems of its wide array of cars. These 200 employees were mainly providing their services to Volkswagen in Germany. Now with this deal, BlackBerry has laid-off 200 employees and it will further decrease the operating expenses of the company. As disclosed by the company, these two hundred employees are already indoctrinated with QNX technicalities. They might be able to do a better job setting up a better infotainment system for the company now that they are exclusively working for them. This would increase the worth of QNX in the consumer satisfaction and the overall market.

Moreover, this move represents Volkswagens intent to stick to QNX for its car infotainment system. QNX already has a strong market and is continuing to get better. The competition is not nearly as good as QNX. We have seen Microsoft (NASDAQ:MSFT) being rejected by Ford for not being good enough. Furthermore, Car infotainment system is the one industry where even Google (NASDAQ:GOOG) (NASDAQ:GOOGL) and Apple (NASDAQ:AAPL) need QNX to be operative. It is definitely becoming a strong area of Blackberry.

Healthcare Industry

As recently reported by managing director of Blackberry India, the company is spreading its footprint in Healthcare industry by bringing together thousands of medical devices which will help detect health problems earlier. The company is launching its healthcare services in a partnership with NantHealth. NantHealth has a wide network in healthcare industry. Its platform is currently running in roughly 250 hospitals in the world which connect over 16,000 medical devices. This segment of the company is also powered by QNX and we have seen its success of connectivity in car-infotainment systems. However, Healthcare is a much more sophisticated industry. If the company manages to be successful here, it can reap substantial benefits as the global healthcare industry is massive.

India has been an important region for BlackBerry. Even when its smartphones sales went down in the rest of the world; the company was able to report healthy sales figures for India. Due to the sheer size of the market, BlackBerry can also benefit from the Indian healthcare industry. The industry is growing at an average rate of 4%. Through this partnership and NantHealth network in healthcare industry, BlackBerry could have a head start and establish itself as a major player.

Conclusion

BlackBerry is certainly on the right track regarding its turnaround plan - the company has been able to sell non-core assets to raise cash and the further sale of assets is likely to free up more cash and reduce operating expenses. Furthermore, the launch of new handsets during the second half of the year will enhance the top line of the company. If the new handsets are successful in garnering customer attention, then the company will also be able to grow its services revenues, which is extremely important for BlackBerry. We are seeing QNX gather traction in different industries and healthcare will prove to be a major growth driver for the company if QNX gets a foothold in this sector.

Additional Disclosure: This article is for educational purposes only and it should not be taken as an investment recommendation. Investing in stock markets involves a number of risks and readers/investors are encouraged to do their own due diligence and familiarize themselves with the risks involved.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: BlackBerry Will Continue To Grow