BlackBerry’s QNX Faces Significant Threats In The Auto Market


BlackBerry (NASDAQ:BBRY) has been counting on its software and services business to reverse its fortunes over the last few years. The QNX embedded operating system, which is primarily used to power automotive infotainment systems, is viewed as the second largest component of the firm’s software sales, after its enterprise mobility management business. While BlackBerry sees QNX as a long-term growth driver, with opportunities in areas such as the Internet of Things, the bread-and-butter infotainment business could face some significant risks. In this note, we take a look at the potential size of the QNX business.

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How Important Is QNX To BlackBerry?

While QNX competes directly against Microsoft’s Windows Embedded Automotive as well as several custom Linux-based operating systems in the automotive space, it remains the market leader. Although BlackBerry does not break down its QNX revenues, the product is likely quite lucrative for the company at the moment. QNX is believed to power well above 60 million automotive infotainment systems globally, and Blackberry is expected to deliver 36 million QNX licenses in 2017. The company has indicated that typical licences for automobiles sell for roughly $3 to $5 per unit. This implies that the firm could garner roughly $144 million from its QNX business this year, assuming a fee of $4 per license. This translates to roughly 20% of the company’s projected software revenues for the year. Margins on the software could also be attractive, given the potentially limited marketing expense compared to BlackBerry’s other software products and also due to the significant volumes.

What Are The Risks?

That said, BlackBerry’s QNX business does face some significant risks. Automotive infotainment systems and the business model that BlackBerry uses to sell the software could be ripe for disruption. QNX software essentially operates behind the scenes, running the core functionality of the system, with car companies building their custom interfaces on top of these operating systems (Ford’s Sync and Audi’s MMI, for example). The interfaces that ship with cars today are viewed as somewhat underwhelming by customers, as automakers typically lack the software design and UI expertise. Moreover, infotainment units that run embedded operating systems such as QNX do not provide much scope for third-party applications, limiting their usefulness.

Silicon Valley smartphone giants such as Apple (NASDAQ:AAPL) and Alphabet (NADDAQ:GOOG), Google’s parent company, have been increasingly interested in the automotive market. While both companies have thus far restricted themselves to offering automotive interfaces for their respective mobile platforms (CarPlay and Android Auto), there are indicators that they could shake up the auto market the same way they disrupted the smartphone space. For instance, Bloomberg has reported that Apple is developing an operating system for its self-driving car software to run on. Google, on the other hand, has formally launched its “Android Automotive” infotainment system, bringing a car-focused version of Android to market. The company is likely to license the OS – which is expected to run natively on the infotainment system’s CPU, unlike Android Auto which is just a projection of the phone – to car makers just as it does for phone OEMs. Besides tremendous amounts of capital and sizable R&D budgets, both Apple and Google have deeply entrenched digital platforms that include large smartphone user bases as well as an army of application developers. This could put BlackBerry, which lacks a platform, at a significant disadvantage as the market evolves.

Other Opportunities For QNX

While the bread-and-butter business faces risks, there is scope for QNX to expand in areas such as the Internet of Things and more specialized automotive technologies. For instance, the QNX Neutrino RTOS is an operating system that powers time-sensitive tasks, such as driver assistance systems for cars as well as medical, military and industrial embedded systems. BlackBerry also has an edge on the security front, and this could be increasingly important at a time when hacking and malware are increasingly prevalent. For instance, QNX is compliant with ISO 26262 – which is essentially an international standard for safety for electronics systems in automobiles. Alternatives such as Windows and most versions of Linux are not compliant with the standard.

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