For BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY), 2016 was a pivotal year. But I believe that 2017 has the potential to be an even more important and potentially profitable year. Due to a series of smart moves the company made in 2016, the push to become a leaner and software-focused BlackBerry has worked. And there are a series of moves that I believe will occur in 2017 to continue BlackBerry’s growth.
The first move has to do with its continued expansion into the licensing business. As you might recall, BlackBerry made the decision to get rid of its hardware division back in September 2016. In its place, the company launched the first of many joint ventures. The first is BB Merah Putih, launched with PT Tiphone, an affiliate of Indonesia’s largest mobile provider, Telkomsel. Then at the end of December, BlackBerry signed another deal with TCL Communication to be the exclusive global manufacturer and distributor for all BlackBerry-branded smartphones, except in India, Sri Lanka, Nepal, Bangladesh, and Indonesia.
The reason these licensing deals are so lucrative for the business is due to the low costs associated with them. Instead of having to design phones and create the hardware, BlackBerry can focus on its software. As CEO John Chen said in the most recent earnings call, “this licensing model allows BlackBerry to generate ongoing high-margin royalty revenue from a device software based on the number of units sold.”
In that earnings call, he also said that BlackBerry is in the late stage of discussions about a partnership in India. With a population of over one billion, and with the right marketing by its hardware partner, this could turn out to be lucrative for BlackBerry.
The next area of growth is in embedded software. In 2016, BlackBerry announced a formal agreement with Ford Motor Company (NYSE:F) in which the car company will use BlackBerry’s QNX software in its cars. While this has been going on for a while, this agreement solidifies BlackBerry as a tier-1 partner for Ford; BlackBerry’s engineers will work with Ford hand in hand rather than as a secondary supplier.
In 2017, I expect to see more announcements like this, though perhaps not quite as large in scope. One area that should begin to show promise is the Radar project: a supply chain tracking solution. BlackBerry announced that Titanium Transportation, a North American logistics company with over 1,200 trailers, would be using Radar. I anticipate there will be further customer announcements in 2017 and new partners in the area.
Finally, I expect BlackBerry to seriously ramp up its cybersecurity practice. The company acquired Encription, a U.K. cybersecurity consulting firm in February 2016. On January 5, at International CES 2017, BlackBerry announced that Giuliani Partners, a consulting firm, had chosen BlackBerry as the software platform to “support the firm’s cybersecurity consulting services for government and enterprise customers.”
With all the talk of nations hacking political parties and corporate attacks, I expect this business to ramp up aggressively in 2017. Cybersecurity consulting in 2016 was a US$16.5-billion-a-year business, but by 2019, that should balloon to US$23 billion a year. I expect BlackBerry to get its piece.
BlackBerry will never be what it once was: a premium hardware provider. However, that doesn’t mean it won’t continue to succeed and generate much higher margins on the software it sells. I won’t buy it just yet, but I wouldn’t fault someone for taking a chance on this security software provider.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Jacob Donnelly has no position in any stocks mentioned. David Gardner owns shares of Ford. The Motley Fool owns shares of Ford.