You’ve probably heard it said that everybody loves a good underdog story.
Apply that thinking to the stock market, and there’s no greater underdog at the moment than BlackBerry (BBRY).
You know the tale of woe here. Having been at the top of its game and the undoubted mobile leader in the corporate world, the company kicked back and admired its handiwork. Meantime, Apple (AAPL) and Google (GOOG) raced past and left it choking on fumes.
In short, when it came to “innovate or die,” BlackBerry died.
Many analysts think BlackBerry has zero chance of surviving. But like Lazarus rising from the dead, shares are up 70% since early December, and it’s one of the best-performing stocks of 2014.
So are these guys right? Is BlackBerry dying the world’s slowest, most painful death like everyone believes? Or is this another case of a heavy underdog springing a surprise?
Let’s have a look…
The Market’s Ugliest Fundamentals
There’s no doubt that BlackBerry’s fundamentals are some of the most frightening around. Its last earnings report showed…
- A steep decline in year-over-year earnings per share – from $2.24 to a loss of $1.20.
- A net income plunge of 149% – from $9 million to a loss of $4.4 million, versus the same quarter one year ago.
- Net cash flow dropped by 108% to minus $81 million, compared to a year earlier.
- And shares have significantly underperformed the S&P 500 and communications equipment industry.
This is what happens when you live on past glories and fail to innovate.
But is it too late for a turnaround?
Well, let’s start at the top…
Chen Flips the Script
An upgrade in the CEO’s office can make a massive difference when it comes to transforming a company’s fortunes.
Just as Apple did when it rehired Steve Jobs, BlackBerry is taking steps towards rebuilding itself by recently appointing John Chen as Chief Executive Officer.
Chen has made it his mission to redefine Blackberry’s purpose within the industry it once dominated. He realizes that in order for the company to achieve any level of success again, it just needs to STOP.
As in, stop running in a race that the company lost years ago.
And that means flipping the business model.
BlackBerry used to be a hardware company that created software on the side. Today, Chen is investing heavily in BlackBerry’s software business, with hardware as an afterthought.
He wants to reclaim the enterprise market that BlackBerry once dominated not too long ago. Only in a different way.
BlackBerry’s Four Pillars
Blackberry’s fortunes boil down to four pillars of revenue, so that it can first stabilize the business, and then sustain itself as a legitimate company…
Pillar #1: Automotive Infotainment
In 2010, while operating under its Research In Motion name, BlackBerry paid $200 million for a company named QNX.
Fast forward to today, and QNX is one of the most widely used software systems in the auto industry.
QNX is a lot like SoftKinetic, a company I met with at CES 2014.
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Technically speaking, QNX provides technology that’s known as a “microkernel system.”
Simply put, a microkernel system is about as minimal as a computer operating system can get. So minimal, in fact, that in its purest form, it provides no operating system services at all! It only provides the tools needed to implement services like low-level address space management, thread management, and inter-process communication (IPC).
So QNX is essentially a software company that manufactures operating systems, development tools and professional services for embedded, connected systems.
Connected systems like Apple’s CarPlay, for example…
An Unlikely Partnership
CarPlay is Apple’s first ever automotive technology.
It basically acts as an extension of your iPhone, converting it into a hands-free infotainment system when you’re driving your car.
Apple has already embedded CarPlay into various makes and models, such as Volvo, Mercedes-Benz, Jaguar, and Ferrari.
And it wouldn’t be possible without BlackBerry’s QNX business as a tool to build the iOS connected car software.
QNX provides the “hooks” so that CarPlay can access the car’s native interface (i.e., the steering wheel buttons, display screen, etc.)
Of course, once the tech media caught wind of this, some analysts immediately jumped to the following conclusion: Since QNX will power CarPlay, QNX will be in every vehicle that offers CarPlay.
To those “gurus” who then blindly recommended BlackBerry shares based on this shoddy analysis, swing and a miss, fellas…
Analysts Have This One Wrong… Here’s the Truth
Not to diminish QNX’s market potential, but it’s important to understand that the above assumption suggests that there’s an exclusivity agreement between Apple and BlackBerry.
This isn’t true (well, not yet, anyway).
The reality is, QNX doesn’t just center on Apple.
The QNX software is licensed by auto manufacturers, and Apple can build its iOS infotainment “app” on other underlying operating systems, too. Just like Microsoft (MSFT) Office runs on Mac operating systems and how the Twitter (TWTR) app can run on just about any OS.
In other words, not every partnership that Apple establishes with car manufacturers to use CarPlay uses QXN. A good amount of them use Linux.
So the whole idea that CarPlay must run on QNX – and therefore, QNX will ride the coattails of Apple’s latest launch – is off the mark.
However, as the table below shows, BlackBerry has notched a huge score, with Ford (F) dropping Microsoft in favor of QNX. Here’s the full breakdown…
While it’s true that BlackBerry’s QNX will play a big role in the company’s prospects, it’s not the full story, or the Holy Grail for BlackBerry that some would like you to believe. Rather, it will just be one critical pillar out of four.
Coming up: I’ll outline the remaining three – and give you the best way to play BlackBerry… which may be the best speculative “Buy” on the market today.
Your eyes in the Pipeline,