Whenever I mention BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY), the response tends to be, “isn’t that company dead already?” With a nonstop losing war with Android and iOS, BlackBerry, which once had the most popular devices, doesn’t look anything like it used to.
The fundamental change to the business was exactly what the company needed and, in my opinion, makes this company worth considering.
The big news happened in 2016 when CEO John Chen said, “the phone market on the high end is saturated,” and announced the company would no longer be making its own mobile devices. This was something I had wanted BlackBerry to do for a long time, so when this announcement was made, my interest in BlackBerry increased.
BlackBerry has been making exclusive agreements with companies to license its software.
The first agreement was the joint venture, PT BlackBerry Merah Putih in Indonesia. This partnership is with PT Tiphone, an affiliate of Telkomsel, Indonesia’s largest mobile provider. Then it announced a global licensing agreement with TCL Communication. And in the beginning of February, BlackBerry announced that it had formed a long-term licensing agreement with Optiemus Infracom Ltd. These three deals give global exposure to BlackBerry-branded devices without BlackBerry having to make them.
This is smart because the agreements allow BlackBerry to focus entirely on software. In a recent earnings call, the CEO said, “this licensing model allows BlackBerry to generate ongoing high-margin revenue from a device software based on the number of units sold.”
Licensing software is a business that could generate hundreds of millions for BlackBerry every year. One analyst predicted that, thanks to the incredibly large patent portfolio BlackBerry has, the company could generate $400 million a year.
Another advancement is in embedded software. It announced a formal agreement in 2016 with Ford Motor Company (NYSE:F); BlackBerry’s QNX software will be used in Ford’s cars. BlackBerry is now a tier-one partner of Ford’s, which means BlackBerry’s engineers will be on site with Ford to work on integration.
Another area where embedded software has been improving is with BlackBerry’s Radar project. Titanium Transportation, a logistics company with over 1,200 trailers, will use this software to track trailers, and maximize routes and what they’re carrying.
Finally, cybersecurity is going to become a bigger revenue generator for the company. BlackBerry got into the consulting business with the acquisition of Encription, a U.K. firm. BlackBerry has been forming partnerships with consulting firms to use its software to support its cybersecurity initiatives. All told, cybersecurity consulting could grow to be a US$23-billion-a-year business by 2019, which BlackBerry will certainly try to take a chunk of.
Here’s the simple reality about BlackBerry … its brand is tarnished. It tried for too long to be a hardware company, despite Android and iOS beating it every step of the way. Now that it’s focusing on software and cybersecurity, I expect this company to turn around. It’ll just take some time, which means you need patience to invest in BlackBerry.
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Fool contributor Jacob Donnelly has no position in any stocks mentioned. David Gardner owns shares of Ford. The Motley Fool owns shares of Ford.