The deal between BlackBerry Ltd (NASDAQ:BBRY) and large auto parts maker Delphi Automotive Plc (NYSE:DLPH) has refuted almost all of the bear theories about BlackBerry and BlackBerry stock. Now it’s just a matter of time until investors realize the tremendous future earnings power of BlackBerry, enabling BlackBerry stock to reach $20 and beyond.
Much of the bear thesis on BlackBerry stock was based on the idea that BBRY was a loser company whose products were largely useless, old, uncompetitive and irrelevant. Before the Delphi deal, there were many signs that this was not the case, as I and a few others have pointed out.
For example, BlackBerry’s enterprise mobile management software received great ratings from well-respected IT research firm Gartner, multiple central banks have bought its EMM system, Ford Motor Company (NYSE:F) partnered with it to develop advanced software for automobiles, and FedEx Corporation (NYSE:FDX) bought its Radar tracking system.
BlackBerry Stock Before Delphi
But before the Delphi deal, the bears still had some plausible arguments as they attempted to suggest that BBRY and BlackBerry stock were doomed to mediocrity at best. They could point to the large amount of competition in the EMM space, say awards don’t really mean anything, claim that the FedEx deal was just a small trial that wouldn’t go anywhere, suggest that the Ford deal wouldn’t really develop into anything significant either, and point out that some automakers were dumping QNX.
There is, however, no credible way for the bears to refute the tremendous positive implications of the Delphi deal. This is not a small trial, as Delphi plans to incorporate the QNX operating system into its only autonomous driving system. Moreover, Delphi could have chosen many other companies and/or types of software to run the platform. And in a statement in conjunction with the disclosure of the deal, Delphi’s CTO said that “safety in high performance computing systems is paramount to a production ready autonomous driving solution.”
The paramount nature of safety in the software that will operate self-driving vehicles—and the belief that QNX was best positioned to provide such safety—is a thesis that we bulls have pushed and bears have rejected. The Delphi deal proves who was right on that count. Furthermore, it’s a pretty good bet that Delphi and Ford will not be the only huge companies who adopt this viewpoint.
Nor can anyone deny that self-driving cars will be a huge trend that’s going to generate a great deal of revenue for the automakers and software companies that are successful in the space.
BlackBerry’s Revenue Outlook
Speaking of revenue, the bears’ last refuge is apparently to try to claim that deals like the one that BlackBerry made with Delphi won’t generate much revenue, so BlackBerry stock won’t get much of a lift from this transaction and others like it. The BBRY bears point to the fact that QNX has only generated $3-$5 per car in the past, when it was used primarily as an operating system for infotainment systems. But there is no comparison between an operating system for an infotainment system (which controls a few pieces of data, Bluetooth, maps and an audio system) and an operating system for a self-driving car. In addition to the above, the self-driving car OS has to handle all sorts of complex navigation and provide security that could literally easily be the difference between life and death. Saying that BlackBerry should get the same revenue when QNX is only used to power an infotainment system and when it’s also used to control and secure an autonomous navigation system is a little like saying car and plane makers should get paid the same amount per unit because cars and planes are both vehicles that have engines.
BlackBerry Stock Bottom Line
Autonomous vehicles will be like huge, extremely complex and very vulnerable mobile computers. According to Recode, in 2015 about 280 million PCs were sold, and Windows, Microsoft Corporation’s (NASDAQ:MSFT) operating system, generated “nearly” $15 billion in revenue for the company. That works out to around $50 per PC. Moreover, of course Windows, unlike QNX, does not provide great security, and autonomous vehicles are a little more complicated than PCs. Consequently, BlackBerry’s royalty per autonomous vehicle should at least approach $100 per vehicle. And just as Microsoft used its foothold with businesses to sell them other products (think Office, servers and cloud computing), BlackBerry should be able to do the same with autonomous vehicle customers. For example, it could develop an integrated traffic reporting system (like Waze but better), develop its own personal assistant (like Alexa but for the car) , and create a system that allows drivers to easily track where their friends and loved ones’ vehicles are (it’s a little creepy, but it would eliminate the need to call to find out when your spouse is going to be home for dinner). Of course, all of these services would cost a few dollars per month. BBRY CEO John Chen has alluded to his desire to sell different types of software products via QNX in the past, and his vision looks set to become a reality. Given the Microsoft-like royalties that BlackBerry will command and the extra services it will sell, BlackBerry’s profits will soar, causing BBRY stock to jump
Bears’ thesis on Blackberry has been proven totally wrong, and bulls have been vindicated. Now it’s just a matter of time before BlackBerry’s financial results and then BlackBerry stock catches up with reality.
As of this writing, Larry Ramer owned shares of BlackBerry stock.