Why BlackBerry’s Software Deal With Ford Is Promising


BlackBerry (NASDAQ:BBRY) has signed an agreement with the Ford Motor Company to provide software – including its QNX operating system, its Certicom security technology, and audio processing technology – for the automotive giant’s connected cars. The deal should help BlackBerry increase its presence in the connected automobile market, which is projected to grow to about $53 billion by the year 2018. Below we outline some of the key takeaways from the deal and how it helps BlackBerry.

We have a $8 price estimate for BlackBerry, which represents a 15% premium over the current market price.

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BlackBerry To Deal Directly With Automakers

BlackBerry already has a large presence in the automotive space via its QNX embedded systems software, which powers infotainment systems in upwards of 60 million cars. However, the firm typically licenses its software to infotainment hardware vendors, who in turn sell products to automakers. For instance, Ford buys some of its infotainment systems from Panasonic, which licenses BlackBerry software. However, with the Ford agreement, BlackBerry will deal directly with the auto major, becoming a Tier-1 supplier. This should allow it to build deeper relationships within the industry. There is also a possibility that the deal with Ford – the world’s fifth largest automaker – could help BlackBerry ink similar arrangements with other auto companies as well.

Greater Potential For Monetization

While QNX enjoys wide deployment in the automotive market, monetization has been weak. IHS analysts previously estimated QNX licensing fees at a relatively paltry $3 per vehicle. Moreover, the overall QNX business is estimated to account for just about 2% of BlackBerry’s overall revenue. This is because the QNX OS and middleware largely operate behind the scenes, with the real value and differentiation coming from the applications and user interfaces that OEMs build on top of these systems. However, with the Ford deal, BlackBerry will dedicate a team of engineers to help Ford incorporate its software into new vehicles. This could allow BlackBerry to capture more value from the overall connected car value-chain, beyond just OS and middleware licencing.

Early Mover Advantage In Working With Automakers

Software is playing an increasing role in automobiles (software and electronics account for upwards of 30% of a modern automobile’s cost) and this has made Silicon Valley companies such as Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) beef up their presence in the space. Both firms have been partnering with automakers to deploy dashboard interfaces for their respective smartphone platforms (Apple’s Car Play and  Google’s Android Auto). However, their larger ambition lies in full fledged self-driving and connected car platforms, and there isn’t any public evidence thus far that they are working directly with auto companies in this regard. BlackBerry, on the other hand, will have a first mover advantage via the deal with Ford.

Self Driving Car Opportunity

While the press release relating to the deal made no explicit mention of self-driving cars, BlackBerry had previously indicated that it was building software to power autonomous vehicles. Ford has also been doubling down on this space, indicating that it planned to ship 100,000 self-driving taxis a year to ride-sharing services by 2021, while targeting to sell autonomous cars to mainstream consumers by 2025. This gives us reason to believe that there could be room for the two companies to work together in this space down the road.

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