In January, I talked about what to look forward to for BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) in 2017. And year to date, investors must be ecstatic with the stock which is up nearly 65%. And with so many great things happening to the company, investors have to be wondering where this once-battered tech stock is going to go from here.
I believe that the future for BlackBerry remains incredibly bright for a multitude of reasons. However, the core reason is that the company finally got out of the hardware business and became a pure-play software business.
That move was done through three key partnerships. BlackBerry launched a joint venture called BB Merah Putih, which is co-owned by Indonesia’s largest mobile provider Telkomsel. BlackBerry signed an exclusive long-term deal with Optiemus Infracom Ltd. for the right to design and manufacturer BlackBerry devices. And finally, TCL, a Chinese company, can distribute BlackBerry devices to the rest of the world.
Three separate companies are now responsible for the design and distribution of BlackBerry devices; BlackBerry itself is responsible for the software. It receives licensing fees, which is a great business to be in, since the company doesn’t need to invest resources in creating new devices.
And now that BlackBerry is out of the hardware business, it can focus on what really matters: QNX.
According to Gus Papageorgiou at Macquarie Capital Partners, BlackBerry could reach US$45 per share in three years thanks to the QNX software and its Radar system. QNX is BlackBerry’s operating system software which is used for vehicle systems. The software runs in 60 million vehicles around the world, accounting for 50% of the infotainment software market.
Ford Motor Co. (NYSE:F) has effectively gone all-in on QNX, signing a deal with BlackBerry to become a tier-1 partner. BlackBerry moved 400 workers to Ford to strengthen the car maker’s self-driving car efforts with QNX. I expect this software line to become an increasingly large part of the business.
The Radar system allows shipping companies to manage their tractor trailers far more efficiently. The companies are able to track data points about the trailer, including whether it is in transit or at its destination. According to Papageorgiou, early customers are reporting a 17% reduction in the number of trailers they need. Couple that with the ability to charge customers more for taking too long to unload trailers, the Radar system has the ability to significantly impact the business.
Now, both of these products are going to take time scale up, and there’s no denying that there are other software companies that are considering entering this business. Fortunately, BlackBerry is in a great cash position to expand its software business where needed.
This is, in part, thanks to the US$940 million final arbitrage agreement it reached with Qualcomm Incorporated (NASDAQ:QCOM). Essentially, BlackBerry argued that it had paid too much in royalties, and the arbiter agreed. With the current war chest at US$1.7 billion, and adding an additional US$940 million, BlackBerry is in a great position to focus on its core software business and grow it.
My belief on BlackBerry is simple: at some point, investors are going to realize that BlackBerry is no longer a hardware company, but rather, a software one. When that happens, they’ll see the potential and that’ll open the floodgates. With the stock up 65% year to date, I believe there remains considerable upside for this company.
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