they are killing it in a very stealth way making so many components found in your safety packages in your car/truck/SUV. nowhere is their name present.
Yeah, this is basically it. People think of them as a failed smartphone company, which they were. They also seem to remember BB getting pumped during the meme stock craze of 2021, which also happened.
But they've quietly built a real business, shed some anchors, returned to consistent profitability, and they're set to benefit from a technology inflection point as we get to things like robotics, autonomous driving, etc.
The company I worked for that was acquired by my employer focused on small-scale durable flash storage for the embedded, industrial, medical, military, etc markets. The company I spent 5 years at before that was an embedded computing company focused on the same markets. These are markets characterized by long development cycles, often high regulatory burdens, and demands on suppliers that products remain the same over 5+ year time horizons, because change=bad. Thus, it becomes a market where getting designed in means you're probably NEVER getting designed out. Someone's not going to pivot away from you because a competitor's product is $0.50 less costly. It's very "sticky".
In that market, there is demand for what is called a real-time operation system, or RTOS. Essentially the difference between an RTOS and something like Windows or Linux or Android or iOS is determinism. In an RTOS, everything is basically guaranteed to execute when and how it is supposed to, things are made to be fault-tolerant so if you have to reset one function/capability it can be done without interrupting other running processes, and therefore it's necessary for mission-critical applications.
I.e. let's say it controls your car's ABS system. Well, your car's ABS system can't decide not take an extra 500 ms to operate because the processor got too busy doing something in your infotainment system. That might be the difference between hitting or not hitting a car in front of you. Or let's say it controls a surgical robot doing neurosurgery. It can't cut an extra 0.5 cm deep because some process hogged memory and it couldn't keep up. That's potential patient brain damage or death.
Blackberry owns QNX, an RTOS that's been around a long time and powers a lot of critical infrastructure. As MarqHusker mentions, they're big in automotive, and they're in something like 275M+ vehicles and growing, on top of various other embedded customers. They have a strong backlog relative to their annual sales, such that they have perfect line of sight to predictable recurring revenue well into the future.
They have somewhat of a moat with having already achieved several critical
safety certifications, things that will take years and many millions of dollars for other vendors to catch up.
(They also have a secure communications division, which I'm less familiar with.)
So that's what they do. They've restructured around a consistent, profitable, defensible business. They've now been profitable 9 of the last 10 quarters, and have increased EPS QoQ in 8 of the last 10 quarters. While there might have been bankruptcy risk 3-4 years ago, I think that risk has passed and at the very least, you now have a good, stable business. If I were looking for a job today and got an offer from Blackberry to work on / support QNX, I wouldn't have qualms or concerns accepting it.
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Why is it important? And where does the growth come?
This is where it starts to get speculative. The downside to the above business is while it's a good business to be in or work for, a good business doesn't also mean a strong stock, especially if it's overvalued. They [currently] don't pay a dividend, and sit at a forward PE of 52. In order for this to be a good investment, they need to grow.
Well, the first step is building on their vehicle platforms. Their newest OS version is built for modern multicore CPUs, and they've partnered with another company to create a platform called Alley Kore. One of the biggest vehicle trends is more convergence of compute, where instead of having a bunch of little processors distributed throughout the vehicle each handling one little function, more and more of the vehicle's functions will be centralized. What this means for QNX is that because it's already a known and trusted RTOS in automotive, they'll get the first crack at being designed in to control more vehicle functions. This offers the potential of increased licensing and higher revenue per vehicle. Because software is high-margin business, this could lead to multiples of revenue with no additional fixed costs or even requiring higher vehicle volume. While I think organic growth and volume increase in their vehicle business is happening, higher content per vehicle is the accelerant that can push the number up.
The second is a major societal inflection point. Robotics (or as many people are calling it, "physical AI") is expected to be one of the major growth stories over the next 5+ years. And if you're going to have a bunch of motile robots, many of which will weigh hundreds of pounds or more, and many built with appendages / control surface capable of exerting extreme force for whatever task they're designed for, that creates tremendous risk to human life. You're going to want to know that those robots are controlled by a deterministic OS like QNX, and you may demand that the OS be safety-certified in the way that QNX already is. Robotics is a greenfield business of unknown ulitmate revenue size--but again I believe that the potential is there for Blackberry to see multiples of revenue compared to their current business based on this trend. QNX could become
the OS of physical AI.
Now, this won't happen overnight. I think part of the reason the market is sleeping on this is that the one thing about these markets is that things don't happen fast. Designs moving from concept to production can often take YEARS, and that means that some of the revenue gains I'm postulating here wouldn't actually show up on the balance sheet until 2028-30.
But I think the potential is a stock price that could be 5x or more by 2030. If they're laying the groundwork now and the revenue starts going hockey stick post-2028, it's better to get in before the market has recognized the potential than to be late to the party.
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But what if I'm wrong?
A former colleague once told me that he saw our company at that time as a "lifestyle business". Meaning it's a business that you know is stable, you know can keep paying you, your job is secure. The business doesn't have the potential for explosive growth, and that's fine, because you also have faith you're not going to come to the office one day and find padlocks on the door.
In many ways, that's the embedded business (which I was in). You're supporting the types of customers that fall into the "too hard" pile for the big boys. It's a niche business. Stable, predictable, but limited. The risk is that if it grows too big, then it gets the attention of other bigger, stronger, more well-capitalized competition.
And that's the risk with Blackberry. The stock already ran. It was trading in the $3-5 range up until mid-April. It's now $9.20 and my shares are at an average cost basis of $9.63. When I first started looking at them they were about $6 but I waited while doing my due diligence and didn't get in at that point. So the fear I have is that if the growth story doesn't materialize, the stock is currently a little bit overvalued.
I don't worry about bankruptcy risk or losing it all... I believe the company is strong, stable, and the restructuring was successful. But if my thesis is a 3-5 year story and the revenue growth over the next 5 years is incremental rather than explosive? Well, even if the current value around $9-10/share might merely be the fair value as earnings grow incrementally over 5 years, that'd be no better than money sitting in cash.
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So as a result, it's a small holding. Large enough that if it pays off it'll be at least a non-trivial sum, but small enough that it can't really hurt me if it doesn't.
