Forget Phones. BlackBerry Is Pushing Software for Driverless Cars

KANATA, ONT. -- BlackBerry Ltd. is betting its future on a business that makes software for next-generation driverless cars.

Having abandoned production of its once-ubiquitous smartphones, the Canadian company recently refocused its mission around QNX, a core unit whose technology provides a foundational layer for car entertainment and information systems. BlackBerry aims to double its QNX engineering staff to about 1,000 in the coming years and spend $76 million to create a center for self-driving car technology in Ottawa.

BlackBerry is entering a highly competitive field, with some of the world's biggest tech companies investing in autonomous-vehicle research. Still, the company's QNX push has yielded some early results, including tie-ups with Ford Motor Co. and Aptiv PLC, the General Motors Co. spin-off formerly known as Delphi Automotive PLC. A possible deal with Tata Motors Ltd.'s Jaguar Land Rover unit is in the works.

In September, the company launched a marketing campaign with billboards in Silicon Valley and Detroit showing a car with the tagline "Is Your Car BlackBerry Secure?" hoping to persuade people its technology can protect autonomous vehicles from hacking.

Over the long term, "the auto sector is our best chance at revenue growth," BlackBerry Chief Executive John Chen said in an interview. Mr. Chen will deliver a keynote address next month at the North American International Auto Show in Detroit.

BlackBerry's push into the auto market likely will be highlighted when the company reports its third-quarter fiscal 2018 earnings on Wednesday.

The company has struggled to find its foothold in recent years after being hobbled by competition from phones made by Apple Inc. and Samsung Electronics Co. BlackBerry once counted 80 million phone subscribers using its email service, according to the company. Its customer base evaporated after employers began allowing workers to use personal devices, and its market capitalization plunged from a peak of C$79.5 billion in 2008 to C$3.24 billion in late 2013.

The number of handsets BlackBerry sells via third-party manufacturers -- the company stopped making its phones last year -- is now so small that research firm Gartner Inc. measured its share of the global device market at 0.0%. Its other main business, software management for phones, currently makes up the bulk of its revenue but analysts say it is appearing to plateau.

A successful turnaround pinned to QNX could make BlackBerry attractive to a potential buyer, said Todd Coupland, a technology analyst with CIBC World Markets. But "it will first need to announce more self-driving wins to legitimize its position in the market," he added.

One potential sign that the software initiatives might be working: The company's share price is up 52% this year.

If the stock continues to rise, BlackBerry's two biggest shareholders, Pasadena, Calif.-based Primecap Management Corp. and Toronto-based Fairfax Financial Holdings Ltd., could support a potential sale, which would allow them to recoup an investment that has long performed poorly, people familiar with the matter said. The two shareholders collectively own about one-quarter of the company's shares.

In recent years, interested suitors such as Samsung and Oracle Corp. have been drawn to BlackBerry's large library of mobile, encryption and QNX patents, the people said. However, Mr. Chen has rebuffed several quiet takeover overtures as inadequate and BlackBerry's major shareholders have backed him, they added. A spokeswoman from Oracle declined to comment, and Samsung didn't return phone calls or emails seeking comment.

For instance, Fairfax Financial's 12% stake, which includes stock and convertible debt, has an average of cost, excluding debt, of about $16 a share, according to one of the people. Takeover overtures in recent years have fallen well below the investor's cost, the person said, but the gap has narrowed as Mr. Chen's pivot into the auto market gains traction. BlackBerry shares are trading around $11.

There are nearly a dozen companies developing operating systems in the auto sector that compete with QNX, according to a recent report by CIBC World Markets. Apple, Alphabet Inc.'s Waymo division and Tesla Motors Inc. use their own operating systems for their driverless cars. Toyota Motors Corp. opted to use open-source technology for some of its future software plans.

BlackBerry's QNX software handles the complex code needed to analyze data that driverless cars absorb through sensors and help a car's computer prioritize what parts of a vehicle should be running in real-time. It also will allow a car to continue functioning even if one of those systems stops working, an ideal feature for self-driving cars, Blackberry said. In addition, the system shields a car's computer from malware, rogue software and distributed denial of service attacks, the company said.

BlackBerry bought QNX from Harman International Industries Inc.,, which was acquired earlier this year by Samsung, in 2010 to help bolster its handsets' operating system with its BB10 devices. The company sought to include enough features to draw interest away from iPhones and Android-supported phones. The new BlackBerry devices failed to catch on and the company shifted its engineering resources back to its QNX division as car makers started developing software.

Today, the QNX unit operates out of a modest three-story building in a suburb of Ottawa occupied by hundreds of engineers, with piles of car parts strewn about. A garage contains several high-end vehicles, such as a Lincoln MKZ and a Mercedes-AMG CLA45 coupe, equipped with the latest driverless technology for testing.

Some of BlackBerry's customers said that QNX provides them with a competitive edge because the software already adheres to safety standards for use in the automotive sector, a result of the company's investment in this area.

"For us, that was the decision-maker," said Aptiv's chief technology officer Glen De Vos in an interview. Aptiv has plans to launch its own autonomous driving solutions by 2019 and partnered with BlackBerry in September.

--Chester Dawson contributed to this article.

(END) Dow Jones Newswires

December 19, 2017 09:14 ET (14:14 GMT)