On Dec. 21, BlackBerry Limited (BB, Financial), a Canadian cybersecurity company that provides intelligent security software and services to enterprises, carmakers and government agencies, released its fiscal third-quarter 2022 financial results.
The company exceeded revenue and earnings estimates but issued a conservative outlook for the next quarter due to supply chain headwinds, which masked the steady progress BlackBerry has been making of late. The company seems to be moving in the right direction with its new business strategy. though it still has a long way to go to recover from its failure as a smartphone manufacturer.
BlackBerry is making steady progress
BlackBerry reported $184 million in revenue for the quarter, down 18% year-over-year but 4% above the consensus estimates of analysts. The increasing adoption of cloud-based software with the shift towards remote working helped the company deliver strong results from its IoT segment, and the company reported non-GAAP breakeven earnings per share versus an expected loss of 7 cents per share.
The company's IoT segment generated $43 million in revenue for the third quarter, up 34% year-over-year, driven by the strong demand for its QNX product. On Dec. 15, the company announced a multi-year partnership with BMW (FRA:BMW, Financial) to build new Level 2 and 2 plus autonomous drive systems on QNX for all BMW makes and models. In addition to licensing, the company will also provide a professional services team to assist BMW in meeting its development goals.
To accelerate changes in the autonomous digital cockpit market, Alphabet, Inc. (GOOG, Financial) (GOOGL, Financial), Qualcomm Incorporated (QCOM, Financial) and BlackBerry announced a collaboration on Oct. 12. The market leaders are joining hands to design a chipset that reduces developer friction and overall costs while allowing BlackBerry's Hypervisor QNX to interact easily with the Android automotive operating system. The demand for automotive digital cockpit solutions is on the rise, driven by in-vehicle telematics, improved entertainment systems, safety and pollution sensors, navigation systems and infotainment systems. According to Grand View Research, this market had an estimated value of $19.8 billion in 2020 and will grow at a compound annual growth rate of 8.8% from 2021 to 2028.
Exhibit 1: U.S. Automotive digital cockpit market size (2016-2028)
Source: Grand View Research
By the end of 2022, more than 90% of passenger cars on the road are expected to be connected to advanced internet-enabled automotive systems, and the rising usage and acceptance of Apple CarPlay and Android Auto will continue to drive the growth of this market.
BlackBerry is also gaining a considerable foothold in the Indian automobile market through its partnership with India’s leading automotive company, Mahindra & Mahindra Limited (BOM:500520, Financial). On Nov. 17, the company announced that Mahindra had chosen the QNX Real-Time Operating System and Hypervisor to power its next-generation SUVs.
According to Research and Markets, India's electric vehicle market is predicted to grow at a compounded annual growth rate of 94.4% from 2021 to 2030, reaching a value of $152.21 billion. This growth is expected to be driven by government support to control the rising levels of vehicle emissions. Mahindra is entering the EV market with its $403 million three-year investment plan in the electric car industry, which should open doors for BlackBerry to profitably monetize its relationship with this vehicle manufacturer.
Last quarter, cybersecurity and licensing brought in $128 million and $13 million in revenue, respectively. The demand for security solutions is on the rise with many unsuspecting companies falling victim to the scams and threats of cybercriminals, which paints a promising picture of what the future holds for BlackBerry’s security segment. The company has also started gaining the confidence of small and medium-sized businesses for its Protect and Guard managed service offerings. Many young businesses continue to shift to the cloud for the ease of scaling, adapting, managing and automating processes, which has also resulted in an increased level of security breaches, creating additional demand for cybersecurity products. BlackBerry is uniquely positioned to grow in this market with its artificial intelligence and machine learning-powered cost-effective security solutions.
Takeaway
BlackBerry expects the auto industry supply chain concerns to be a significant barrier to vehicle production levels through mid-2022. Despite these short-term challenges, the company seems to be well-positioned to execute its turnaround strategy to become a leader in the global automotive infotainment systems market and the cybersecurity market. So far, the company has been able to execute its strategy effectively despite macroeconomic challenges, but the company will have to showcase consistent performance to win back the trust of investors.
