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After the implosion: BlackBerry's second chance

It’s still painful to contemplate what might have been. Ten years ago BlackBerry was at flood tide, the world’s biggest maker of smartphones with annual sales of $20 billion (all figure U.S.)  The Waterloo firm seemed well on its way to taking over from Nortel Networks as the country’s flagship technology company.

Then, seemingly out of the blue, Apple roared past, sucking nearly all the life from the firm then known as Research in Motion.

Apple’s ascent was nearly vertical. Revenue from iPhone sales topped $142 billion in its most recent fiscal year, ended Sept. 30. Meanwhile, BlackBerry is expected this fiscal year (ending Feb. 29) to generate revenues of little more than $1 billion across all its product lines. Hardly any of it will involve smartphones.

For all of Nortel’s strategic failings, the telecom equipment maker never let an opportunity this big slip from its grasp.

And yet, BlackBerry lives on. It earned billions of dollars in profits before its reckoning with Apple — giving it the wherewithal to pay for a brutal downsizing and radical restructuring. BlackBerry’s head count now stands at roughly 4,000 compared to nearly 18,000 at the peak. About 500 are based in Kanata, the home of QNX, which BlackBerry acquired in 2010.

BlackBerry redirected its expertise in wireless technologies towards corporations, hospitals and government, offering ways of securely linking all the electronics within. Its engineers then targeted the emerging Internet of Things —  which, through 5G wireless technology, will make it possible to transform electronics in the home and car into networks accessible through smartphone apps.

The result of all this effort will be on display Tuesday morning in Las Vegas, at the Consumer Electronics Show. BlackBerry will be showcasing a multi-layered software platform that allows automakers to develop driver profiles, scan vehicles’ software systems for potential maintenance issues, and head off threats from hackers. The new suite of software products will also give automakers the ability to keep software up to date over a car’s lifetime.

It’s the first set of products developed with artificial intelligence and machine learning technology, which BlackBerry picked up a year ago when it shelled out $1.4 billion in cash and shares for California-based Cylance.

BlackBerry’s technology is already embedded in more than 150 million vehicles worldwide, making it a leader in this niche. BlackBerry’s operating system software, built by QNX, guides digital instrument panels, handsfree and entertainment systems, and helps avoid crashes. Audi, BMW, Ford, GM, Honda, Volkswagen — you name it, BlackBerry’s in there, acting as the brain of the machine. QNX software is also central to efforts aimed at developing driverless vehicles.

Now, with Cylance software, the automakers can customize both the electronics contained within vehicles as well as the overall management of the software contained in the fleets of cars they sell.

“The automobile is becoming a supercomputer on wheels,” says Charles Eagan, BlackBerry’s chief technology officer since June 2018. “Securing software in autos is a massive opportunity for us because security is not something you retrofit. You try to design it in from the beginning.”

Eagan knows a fair bit about the power of BlackBerry’s underlying technology — and the importance of combining it with artificial intelligence. A University of Waterloo grad (applied math and electrical engineering), Eagan was a senior R&D executive with QNX from 2005 to 2007, when it was owned by Harman International. Eagan later worked at a series of tech firms before joining BlackBerry in 2011 — the year after it paid $200 million to purchase QNX from Harman.

Eagan led the development effort to forklift the QNX operating system into the BlackBerry 10 handset — the company’s Hail Mary attempt to catch and surpass the iPhone all in one go. He remains proud of what the firm accomplished. “We created the most advanced, secure smartphone ever,” he says, “and we did it in record time.”

But, as the world now knows, it didn’t matter. Apple’s momentum by then was overwhelming. Eagan left BlackBerry in 2015 only to return again in 2018.

Eagan is not one to dwell on the past. Based in Kanata, he is in charge of the company’s recently-created BlackBerry Labs — a unit dedicated to commercializing products that combine technologies from the company’s various divisions. A particular emphasis for the Labs’ 120 engineers will be the Internet of Things, and how to embed Cylance’s artificial intelligence in the company’s other product lines.

The pressure on Eagan is intense. Not only are his competitors many, he’s operating in an industry in which technology becomes obsolete relatively quickly. BlackBerry devotes slightly more than 25 per cent of its revenues on R&D — even more than wireless technology rivals Nokia and Ericsson, which spend about 20 per cent of revenues.

That, and the unusual spending associated with integrating Cylance’s technology, accounted for BlackBerry’s $111 million net loss during the nine months ended Nov. 30, on revenues of $758 million.

The consensus forecast according to Thomson Reuters for fiscal 2021, which begins Mar. 1, calls for BlackBerry to produce a profit of nearly $100 million (16 cents per share) on revenues of $1.2 billion. That’s lower than the firm’s profits from two years ago, but would nevertheless mark the beginning of a revival that received a catalyst this week in Las Vegas.

Just don’t dwell on where the company could be had it bought QNX sooner, and made more equal the early war against iPhone.


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