Weekly Update

The connected car is great, but can BlackBerry fully monetize QNX?

Shares of BlackBerry dipped last week after the company posted disappointing third-quarter revenues. The Canadian company generated $793 million during the quarter, down substantially from the $1.19 billion it reported during the same period a year ago and well short of the $931.5 million analysts expected.

The earnings report contained some good news: BlackBerry reported a positive cash flow of $43 million during the quarter, marking an impressive turnaround from the negative cash flow of $36 million during the previous quarter, and it posted a net loss of $148 million compared to the staggering $4.4 billion it lost during the year-ago period. But CEO John Chen said last week that sales of the Passport haven’t been “satisfying,” and reviews for the new Classic have generally been tepid.

While it struggles to regain its footing in smartphones, however, BlackBerry is making big strides in the connected car market. Its latest victory in that segment came earlier this month, when Ford announced its Ford Sync 3 infotainment system would no longer use Microsoft’s Embedded Automotive OS but instead will use BlackBerry’s QNX platform. The move was reported earlier this year but was unconfirmed until recently, and it underscores the technical difficulties Microsoft has had with its connected-car platform.

QNX, which also powers the BlackBerry 10 OS, is an embedded OS that supports in-dash functions such as navigation and climate control and can integrate with Android and iOS, enabling smartphone owners to control connected car systems via their smartphones. BlackBerry’s OS is also used by BMW, Chrysler, Land Rover and Porsche, to name just a few, and last year it claimed 53 percent of the connected car market, according to IHS. The company has clearly emerged as the dominant player in a burgeoning market that will see dramatic growth over the next five years.

IHS estimates BlackBerry charges only $3 per vehicle to license QNX, so the connected car market isn’t exactly a cash cow for the company yet. But QNX also “has better safety certification than other infotainment OSs,” according to IHS, and increasing demand from auto manufacturers could enable BlackBerry to increase those fees. The looming question, though, is whether BlackBerry can capitalize on QNX’s success in the connected car market to gain traction in the much broader Internet of Things. The platform already has garnered a substantial network of third-party developers, and QNX’s ability to interoperate with Android and iOS devices could prove valuable in the smart home. And QNX could fit for healthcare and M2M markets where security and reliability are paramount.

To fully monetize QNX in those segments, though, BlackBerry will have to offer customized, ancillary products and services atop its platform. And that might require the company to invest heavily to create specialized smartphones and perhaps other devices for specific vertical markets and use cases. That would be a risky strategy for a company that is still trying to become profitable once again. But it’s one that might enable QNX to reach its potential as a source of revenue.