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QNX: Blackberry’s Secret Weapon against Apple and Google

Many turnaround experts sound alarms of “burning platform” while they embark onto a sinking ship like Blackberry or Nokia. Not John Chen. The new CEO of Blackberry (BBRY $7.5 on Jan. 3, 2014) wasted no time trashing his predecessors. He identified where the company did well, and went straight into the business of injecting confidence into employees, customers and investors. “This isn't the first time I've held the reins at a tech company facing challenging circumstances. I'm here to tackle this challenge because I believe we can succeed,” wrote Mr. Chen in his Op-Ed for CNBC.

So why does John Chen believe he can succeed? Why does Fairfax’s Prem Watsa believe in him? Well, next week, they will reveal their secret weapon: QNX, pronounced Qnix. If you haven’t heard of that three-letter word, I don’t blame you. Many research reports about Blackberry did not even mention QNX. It is the little unknown operating system with a leadership position in car software systems.

The Next Mobile Battlefield: Cars

If you think about it, the car is truly the ultimate mobile device. Automakers are already incorporating information + entertainment (infotainment) units -- essentially touchscreen dashboards -- into their standard models. By 2020 some 80% of new vehicles are expected to have built-in infotainment units, up from just 40% currently. It’s a growth market that John Chen loves to dive into if you study his playbook at Sybase.

If Blackberry is about mobile security and productivity, then car systems could be the next battleground for Blackberry to fend off the onslaughts from Apple and Google.

We don’t know the revenue growth rate for QNX yet. Mr. Chen hinted that QNX was one of Blackberry’s most exciting technologies and it was poised for further growth. “Already the dominant machine-to-machine technology of the automotive industry, new capabilities and cloud services are being unveiled at CES (Consumer Electronics Show in Las Vegas) in January, and we're looking toward adjacent verticals for expansion,” wrote Mr. Chen.

QNX Big Touchscreen Dashboard in a BMW M5?

QNX Bentley TouchscreenOn January 7th, QNX will reveal its CES 2014 Technology Concept Car. After collecting information from various sources and reading the tea leaves, we venture a guess that their Concept Car might be a 2013 BMW M5, priced around $92,900. Last January, they showcased a stunning black Bentley sat with the top down on the showroom floor. The Bentley -- a Continental GTC convertible starting at $191,000 and its futuristic dashboard inside became the center of attention throughout most of the week as thousands of geeks filed through the Las Vegas Convention Center's North Hall. The dashboard boasted 3-D maps and reverse cameras, pre-touch technology that kicks the massive 17-inch screen to life as a hand approaches, and even, per Bentley's request: video conferencing (only functional when the car is safely in park, of course). 

This year, January 7-10, 2014, at Las Vegas Convention Centre, North Hall, Booth #536, QNX will have show a few more trick to generate wider adoption by car makers and play catch up with even larger dashboard from Tesla Motors (TSLA).

On the auto front, QNX appears to be the current leader in terms of market share, although other players, including Google (GOOG), Apple (AAPL) and Microsoft (MSFT), are not too far behind. Microsoft (MSFT) which is working with Ford (F) on its Sync system. Google recently signed a deal with Audi to bring Android to cars. Apple had already shown something at the keynote presentation IOS7 , with iOS in the Car.

From Tough Beginning to Stellar Reputation

The leadership role QNX may soon play in the auto industry would have been hard to predict at the time of the company's founding in 1980. In the early days, co-founders Dan Dodge and Gordon Bell barely survived financially, a task made all the more difficult considering they didn't take venture capital funding. The duo routinely worked 20-hour days, and CEO Dodge, 58, was supported by his working wife; Bell, the COO who retired in 2004, lived with his parents during the company's early days in order to save money. QNX was originally designed for use in PCs but lost the battle miserably against Microsoft’s DOS and Windows. As QNX operating system evolved in the late '90s, the software's flexibility and stability slowly transitioned the company's focus toward other industrial and consumer products. Nuclear power plants, hospitals, and casinos are just a few of the areas QNX software can be found. In 2009, QNX software was part of a Switzerland-based effort known as Solar Impulse that created a solar-powered airplane.

In 2004, Harman International, a manufacturer of audio and infotainment equipment, purchased QNX, only to sell it in less than six years later to mobile phone manufacturer Research in Motion (now BlackBerry). BlackBerry purchased the software company for $200 million in an attempt to recharge the brand's ailing smartphone operating system. QNX’s revenue is hard to gauge because it’s embedded into BlackBerry 10. However, it would soon become a reporting segment within Blackberry. It could show “exciting” growth numbers as Mr. Chen puts it.

QNX Leading the Race for Car Operating Systems

Fortune magazine asked analysts what reputation QNX carries, and got phrases like "rock solid" or "a solution for things that can't crash". This is understandable considering the potential consequences of a Windows-like crash while traveling at freeway speeds. (In a 2003 interview, one QNX customer jokingly told Fortune, "The only way to make this software malfunction is to fire a bullet into the computer running it.") QNX has wielded this reputation to carve out an early hold on the so-called infotainment market share, shipping more than 9 million units in 2011, over 60% of all such units sold, according to Derek Kuhn, vice president of sales and marketing. Audi, Toyota (TM), BMW, Porsche, Honda (HMC), Land Rover -- QNX has been in them all, and Kuhn estimates QNX software currently operates in "tens of millions" of cars around the globe. An automotive industry report from IHS pegs infotainment revenues at $6.7 billion for 2013.

For now, QNX is looking to innovate and lead. Some of the more sophisticated mapping technology is already available to consumers, and QNX engineers are planning out our dashboards years into the future. With specific details under wraps, Kuhn will only offer up a tease: "Some of what we are working on right now for the 2017 model year," he says, "is even blowing our minds."

Can Apple and Google Sink Their Teeth into BlackBerry Again?

While Apple has started to bring a few of its apps to the automotive industry, it does not have an automotive OS.  In contrast, BlackBerry subsidiary QNX’s CAR 2.0 platform, as demonstrated on the QNX Bentley, is often referred to as the industry’s gold standard.  The best example is GM’s well-known OnStar system, which is powered by QNX Neutrino.  With a long list of customers including Acura, Audi, BMW, GM, Hyundai and Porsche, QNX has a significant lead in the industry.

Different from Apple’s proprietary connections, QNX supports open standards which can work with non-BlackBerry smartphones. On April 17, 2013, QNX announced it is bringing the 7Digital music store to the QNX CAR 2.0 platform.  This allows BlackBerry 10 users to access music they purchased on their Z10 while in the car, without needing to have their phone inside the car.  Because 7Digital is also pre-installed on other smartphones like the HTC One and Samsung Galaxy S4, this 7Digital feature is also accessible to consumers who use non-BlackBerry smartphones.

However, Apple’s relatively large smartphone and tablet market share, and its apparent interest in cars means that it will continue to seek to make inroads in the industry.  It is believed that Apple will continue to bring individual apps (like Apple Maps) to cars, until the company is ready to launch an automotive OS. Meanwhile, Team Google+Audi and Team Microsoft+Ford may also embrace open standards.

While QNX car operating system may have a leading position now, we don’t know if Apple and Google can sink their teeth into Blackberry yet again, on the car mobility front.

Disclosure: The author and his investment clients has positions in BBRY, AAPL, MSFT, F.

About the author:

Dr. Zen
Brian Zen, CFA, PhD, author of "Superinvestor Lecture Notes", serves as Chief Investment Strategist at Zenway Group, a New York-based registered investment advisory firm providing asset management services, training Certified Securities Appraisers (CSA), and teaching Graham-Buffett Value Investing. Previously, Brian served as vice president at JPMorgan Chase and portfolio manager at Prudential-Bache Securities and Janney Montgomery Scott, while teaching graduate-level investment analysis at St. John's University. Brian was a Bernard Baruch Fellow and graduated summa cum laude from Bernard M. Baruch College. He is also a graduate of Columbia University's executive program in value investing. Brian appreciates your feedback at: bzen@zenway.com

Visit Dr. Zen's Website


Rating: 4.5/5 (14 votes)

Comments

kfh227
Kfh227 premium member - 3 months ago

That Bentley infotainment cluster I think ended up in the porsche 918 hybrid!

BrianZen
BrianZen premium member - 3 months ago
BrianZen
BrianZen premium member - 1 month ago

http://www.businessweek.com/news/2014-02-23/ford-said-to-drop-microsoft-for-blackberry-qnx-in-sync-units-2

Boy, had we told you so?! Cheer on, John Chen!

The voice call on my Verizon BBM still doesn't work. Is Verizon blocking it? This would be a significant competitive disadvantage that must be overcome immediately.

Let's all call on BlackBerry to solve this problem.

mmmm2805
Mmmm2805 - 1 month ago

Wonderful!!

And according to another online source (with link provided below), it is said that QNX generates around $100 million annually as compared to around $40 million when Blackberry bought it from Harman International back in 2010, which if turned out to be correct is really showing “exciting” growth numbers as John Chen put it and will certainly excite the market as well.

However, while this news in addition to your article altogether shows bright prospects about QNX on car industry, it is puzzling why QNX has yet to generate a larger portion of revenue to Blackberry than it should have been given its dominant position in automotive technology. I guess one of the key data that is important to gauge the value of QNX but is missing from many of the research reports (at least public research reports i have access to) is: how much does Blackberry charge for a QNX system installed on each vehicle (or machine in general). According to another online article (with link provided below), it seems that QNX is free of charge for machine that is of non-commercial nature. Blackberry is a wonderful company and I reckon that its Q10 handset (which I’m using) is the most reliable handset in the market in terms of its battery life, browsing and texting. However, with its declining market share compared to iphone and samsung, it seems that in short-term timeframe QNX offers a more realistic turnaround bright spot. If Dr Zen could provide the above important but missing information it’s about time to decide whether to go in heavily in BBRY!

Sources

  1. http://embedded-m2m-solutions.tmcnet.com/topics/embedded-m2m-solutions/articles/359197-blackberry-with-sale-fizzled-looks-bring-qnx-m2m.htm
  2. http://tech-beta.slashdot.org/story/01/02/22/230222/qnx-now-free-for-non-commercial-use

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