BlackBerry's (NYSE: BB) transformation into a provider of security software and services is working out. The company's strategy of exiting the highly competitive smartphone market has reaped rich rewards in the form of massive margin gains, leading to improved profitability and stock gains of more than 40% so far this year.
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BlackBerry's software and services revenue jumped 26% year-over-year during the fiscal second quarter, and it now supplies almost 79% of the company's total revenue. Looking ahead, BlackBerry has the potential to push its software and services revenue higher as it has been aggressively targeting the lucrative automotive market.
Automotive security is a big opportunity
Vehicles connected to the internet create the need for strong cybersecurity measures. In 2015, a couple of hackers demonstrated how they could hack into a Jeep Grand Cherokee, toying with the car's electronics and even the transmission.
So, automakers need to protect their cars to prevent situations that could (1) kill or injure people and (2) hurt the adoption of connected and self-driving cars. Therefore, it won't be surprising to see the automotive cybersecurity market gain rapid traction in the coming years, as sales of connected cars increase from 5.1 million units in 2015 to an estimated 37.7 million units by 2022.
BlackBerry wants in on this market.
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BlackBerry recently struck a strategic partnership with Qualcomm for the development and production of automotive platforms for next-generation vehicles. This is a non-exclusive agreement that allows BlackBerry to fuse its QNX software platform with Qualcomm's hardware for use in virtual cockpits, vehicle telematics, digital instrument clusters, and infotainment systems.
Additionally, BlackBerry will now support Qualcomm's Snapdragon modems with over-the-air software updates. Therefore, both companies are going to cover a variety of aspects in connected cars, and it is not surprising to see Qualcomm selecting BlackBerry's QNX software for its automotive platform.
In January 2017, BlackBerry updatedits QNX software to deliver advanced security features for automotive use. For instance, the updated software will protect users against malware attacks, system malfunctions, and cyberattacks. But this isn't BlackBerry's only win in the automotive space of late.
In September, automotive components supplier Delphi announced that it will use BlackBerry's QNX operating system to develop an affordable autonomous driving solution.
Delphi has chosen BlackBerry's platform so that it can improve both system performance and security levels in self-driving cars. This contract could be a big deal for BlackBerry as Delphi plans to offer this solution, which it is developing in collaboration with Intel and Mobileye, to car manufacturers and taxi service providers from 2019.
So, BlackBerry could find its way into Intel's impressive self-driving car development alliance, which includes automakers such as BMW, Fiat Chrysler, as well as autonomous technology specialist Waymo. Moreover, BlackBerry already has an impressive client base in the automotive industry. Its QNX platform has been powering digital instrument clusters and infotainment systems across big brands such as Audi, Jaguar, Range Rover, and Ford, so it has the channels in place to sell its security solutions.
For instance, Ford signed an agreement with BlackBerry last year to expand the use of the QNX software to include its security technology and audio processing in its cars. Therefore, it won't be surprising if more of its customers include the company's security software in their vehicles, providing a ready end-market for the company to tap.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ford. The Motley Fool owns shares of Qualcomm. The Motley Fool recommends BMW and Intel. The Motley Fool has a disclosure policy.