By David George-Cosh and Jacquie McNish
KANATA, ONT. -- BlackBerry Ltd. is betting its future on a
business that makes software for next-generation driverless
cars.
Having abandoned production of its once-ubiquitous smartphones,
the Canadian company recently refocused its mission around QNX, a
core unit whose technology provides a foundational layer for car
entertainment and information systems. BlackBerry aims to double
its QNX engineering staff to about 1,000 in the coming years and
spend $76 million to create a center for self-driving car
technology in Ottawa.
BlackBerry is entering a highly competitive field, with some of
the world's biggest tech companies investing in autonomous-vehicle
research. Still, the company's QNX push has yielded some early
results, including tie-ups with Ford Motor Co. and Aptiv PLC, the
General Motors Co. spin-off formerly known as Delphi Automotive
PLC. A possible deal with Tata Motors Ltd.'s Jaguar Land Rover unit
is in the works.
In September, the company launched a marketing campaign with
billboards in Silicon Valley and Detroit showing a car with the
tagline "Is Your Car BlackBerry Secure?" hoping to persuade people
its technology can protect autonomous vehicles from hacking.
Over the long term, "the auto sector is our best chance at
revenue growth," BlackBerry Chief Executive John Chen said in an
interview. Mr. Chen will deliver a keynote address next month at
the North American International Auto Show in Detroit.
BlackBerry's push into the auto market likely will be
highlighted when the company reports its third-quarter fiscal 2018
earnings on Wednesday.
The company has struggled to find its foothold in recent years
after being hobbled by competition from phones made by Apple Inc.
and Samsung Electronics Co. BlackBerry once counted 80 million
phone subscribers using its email service, according to the
company. Its customer base evaporated after employers began
allowing workers to use personal devices, and its market
capitalization plunged from a peak of C$79.5 billion in 2008 to
C$3.24 billion in late 2013.
The number of handsets BlackBerry sells via third-party
manufacturers -- the company stopped making its phones last year --
is now so small that research firm Gartner Inc. measured its share
of the global device market at 0.0%. Its other main business,
software management for phones, currently makes up the bulk of its
revenue but analysts say it is appearing to plateau.
A successful turnaround pinned to QNX could make BlackBerry
attractive to a potential buyer, said Todd Coupland, a technology
analyst with CIBC World Markets. But "it will first need to
announce more self-driving wins to legitimize its position in the
market," he added.
One potential sign that the software initiatives might be
working: The company's share price is up 52% this year.
If the stock continues to rise, BlackBerry's two biggest
shareholders, Pasadena, Calif.-based Primecap Management Corp. and
Toronto-based Fairfax Financial Holdings Ltd., could support a
potential sale, which would allow them to recoup an investment that
has long performed poorly, people familiar with the matter said.
The two shareholders collectively own about one-quarter of the
company's shares.
In recent years, interested suitors such as Samsung and Oracle
Corp. have been drawn to BlackBerry's large library of mobile,
encryption and QNX patents, the people said. However, Mr. Chen has
rebuffed several quiet takeover overtures as inadequate and
BlackBerry's major shareholders have backed him, they added. A
spokeswoman from Oracle declined to comment, and Samsung didn't
return phone calls or emails seeking comment.
For instance, Fairfax Financial's 12% stake, which includes
stock and convertible debt, has an average of cost, excluding debt,
of about $16 a share, according to one of the people. Takeover
overtures in recent years have fallen well below the investor's
cost, the person said, but the gap has narrowed as Mr. Chen's pivot
into the auto market gains traction. BlackBerry shares are trading
around $11.
There are nearly a dozen companies developing operating systems
in the auto sector that compete with QNX, according to a recent
report by CIBC World Markets. Apple, Alphabet Inc.'s Waymo division
and Tesla Motors Inc. use their own operating systems for their
driverless cars. Toyota Motors Corp. opted to use open-source
technology for some of its future software plans.
BlackBerry's QNX software handles the complex code needed to
analyze data that driverless cars absorb through sensors and help a
car's computer prioritize what parts of a vehicle should be running
in real-time. It also will allow a car to continue functioning even
if one of those systems stops working, an ideal feature for
self-driving cars, Blackberry said. In addition, the system shields
a car's computer from malware, rogue software and distributed
denial of service attacks, the company said.
BlackBerry bought QNX from Harman International Industries
Inc.,, which was acquired earlier this year by Samsung, in 2010 to
help bolster its handsets' operating system with its BB10 devices.
The company sought to include enough features to draw interest away
from iPhones and Android-supported phones. The new BlackBerry
devices failed to catch on and the company shifted its engineering
resources back to its QNX division as car makers started developing
software.
Today, the QNX unit operates out of a modest three-story
building in a suburb of Ottawa occupied by hundreds of engineers,
with piles of car parts strewn about. A garage contains several
high-end vehicles, such as a Lincoln MKZ and a Mercedes-AMG CLA45
coupe, equipped with the latest driverless technology for
testing.
Some of BlackBerry's customers said that QNX provides them with
a competitive edge because the software already adheres to safety
standards for use in the automotive sector, a result of the
company's investment in this area.
"For us, that was the decision-maker," said Aptiv's chief
technology officer Glen De Vos in an interview. Aptiv has plans to
launch its own autonomous driving solutions by 2019 and partnered
with BlackBerry in September.
--Chester Dawson contributed to this article.
(END) Dow Jones Newswires
December 19, 2017 09:14 ET (14:14 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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