BlackBerry Limited (BB) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for taking the time to join today's call. My name is Tim Foote, Head of Investor Relations at Blackberry. We very much appreciate the opportunity to connect with our shareholders and are delighted that you're with us today. Today's call, or fireside chat, will focus on Blackberry's IoT business. As I'm sure you're aware from our Q1 earnings call and also press release, we recently organized our software and services business into 2 business units, the IoT and cybersecurity business units. These new business units allow Blackberry to be even more focused on the market and the dynamics that each business unit faces, driving growth and with it shareholder value. Tom Eacobacci, BlackBerry's President and COO, will focus his time and expertise on growing the cybersecurity business, while the company has appointed a new President and General Manager to do the same for the IoT business unit. And this is Mattias Eriksson, who you will meet shortly. This new role will drive the IoT businesses strategy, engineering, sales, customer support and field marketing. The IoT business is primarily formed of the QNX-embedded software and the exciting new IVY in-vehicle data platform opportunity, that we're codeveloping and marketing with AWS. QNX is in over 195 million vehicles and IVY is also heavily focused on the auto industry. So there are clear synergies from running these together. Before I introduce Mattias, I'd like to say that whilst we won't be taking live questions today due to time, if you want to log questions in the Q&A box on your screen, we will come back to you later. So let's begin. Mattias, welcome to BlackBerry. I imagine most of the investors on the call will have not heard from you before. So I wonder if you could introduce yourself, please.

My pleasure, Tim, and thanks for the opportunity. I obviously hope I will have the chance to talk to many of you regularly going forward. Let me give you a brief introduction, there are multiple threads we can pick up from there. So my name is Mattias. As you've probably guessed from the name and the accent, I'm Swedish by birth. Left Sweden back in the late '90s to explore the many interesting places of the world. Been in tech my entire career. I started out in strategy consulting, but with a definite focus on the tech industries and in particular, on innovation. I've done a couple of different things across a few different value chains and technology stacks, but I think maybe most relevant for this discussion is the last 10 years that I spent with a company called HERE Technologies. And for those of you not familiar with HERE Technologies, HERE technologies is the leading location platform company for what I would label enterprise-grade B2B location data and services. I held several different positions at HERE, including Head of the Core Division, the Core Data Division, Head of Product, Head of Sales in Asia, et cetera. There are a couple of things that are relevant for this discussion when you look at the connections between HERE and BlackBerry IoT, and let me just give you a couple of examples to kick off sort of the discussion here on. So first of all, HERE and BlackBerry IoT serves many of the same customers and partners inside and outside the automotive and mobility industries. Obviously, the OEMs were a big portion of our customer base. Quite frankly, we had the 3 German OEMs owning us and sitting on our Board, but we served all the OEMs extensively across the globe. In terms of technology and technology trends, BlackBerry IoT and HERE Technologies dealt and are still dealing with pretty much the same trends. And there are quite a few of them, and I'm sure we're going have several discussions around how they're going to play out over the next few years. But just to give you an example here, ranging from edge processing of sensor data via the evolving software architecture across different technology stacks to security and privacy issues related to deploying connectivity everywhere. All of these trends, obviously top of mind for both HERE Technologies and BlackBerry IoT. My team did a lot of work within the evolution of ADAS at HERE Technologies. Obviously, including the next levels of autonomy that everybody has been working on for a while and we ran into QNX in a number of different instances in those 2 spaces. The business also have a couple of characteristics that I think are important to mention. They're overlapping in terms of the global reach and nature. If you look at requirements, how they're driven across the world, if you look at the regulatory environment, if you look at even things like the quest for talent, all big touch points for both HERE Technologies and BlackBerry IoT. And last but not least, which I think is an important topic for the business dynamics, both companies at its heart is providing, what I would call, ingredient components for other companies' proposition. So at HERE Technologies, we had various components of location that supported and enhanced our customers and partners propositions. But we were never sort of the full end-to-end solutions. For BlackBerry IoT, to a large extent, we are a piece of our customers and partners' overall proposition and managing that in the right way is an important component of the overall business dynamic. I am very excited to be here. I was energized by the discussion I had with John and the Board before signing on. And after a couple of months in the job here, I'm even more excited.

That's great. That's great. So -- okay. So you've been on Board, well, what is it now, 2 or 3 months since early May. So whilst you're still relatively new to the company, what are your first impressions of your new IoT business unit?

Time flies, doesn't it, at least when you're having fun. I have a great first impression. This is an exciting multiyear journey that has only begun for us. Like most new executives, you have those first 30, 40 days to get your assessment in place and then you have an iteration with the Board, and I had mine the middle of June. And I don't want to jump the gun on what came out of that, but let me give you a couple of examples from where the discussion went. So if you start on the opportunity side here, BlackBerry IoT is taking in some really large, growing and attractive TAMs. And that's always a good starting point for any business, quite frankly. Secondly, there are several very important tech trends. And we touched upon a couple already, but let me give you a couple of more that are essentially playing into our strengths over the years to come. If you think about how more and more things in the IoT world are becoming software defined, as you think about how more and more compute has been pushed out to the edge, as you think about how connectivity is opening up, quite frankly and unfortunately, the technology stack to attack the various kinds, the need for the capabilities that BlackBerry IoT has internally is just growing and is growing pretty fast. And if you were to summarize sort of in one sentence here what it is that I'm referring to, there's a performance component that is a characteristic of BlackBerry IoT. There is a security and safety component that is a characteristic of the capabilities that we have, and there is also a reliability component. And all of these things are becoming more and more important over the years to come given the trends I just mentioned. And thirdly, I would say we have incredible IP. There is a team with deep expertise and experience. You might have listened into our Q1 earnings release and you heard that in spite of the pandemic and in spite of all the challenges of last year, we got 2,000 patents approved last year. And that is an amazing achievement for a company of the size of this business as it stands. And last but not least, I'm very excited about the customer discussions and the partner discussions I've had so far. It's really a privilege to join a company that has such strong relationships with critical customers across these various industries and technology stacks. And that is a very, very solid foundation to build on for many years to come. Now I add all these things up and back to my first statement, this is a great multiyear opportunity for us.

Excellent. So you kind of touched on that despite the challenges -- I guess you joined at a time when QNX has had a pretty tough year. There's been pressure on vehicle production with plant shutdowns, et cetera, pressure on new designs all coming from the pandemic. And now we got the chip shortage as well. So how positive are you feeling about the prospects of the IoT business unit?

Yes. I mean let's face reality and talk about last year. I think we were not the only company suffering last year. Many of our customers and partners obviously had horrific years last year. They climbed out of the abyss in the last quarter last year. But this year, is still not back to normality. And as I look at the rest of the year here, many of our big customers are still suffering quite significantly from the chip shortage. And we see light at the end of the tunnel, it is very unevenly distributed. Some customers have done significantly better than others, but there are still customers talking about this quarter, our Q2 quarter, as being the bottom for them in terms of the supply chain constraints. We will get out of it. There are a couple of quarters left in this supply chain constraint for most of our big customers. So there's, as I said, light at the end of the tunnel. This change is absolutely nothing related to the long-term prospects of the business. The big multiyear macro trends that I mentioned before. And as I said, there are more than they are just as much in place. Quite frankly, some of them have been accelerated during the pandemic. So looking into the future, this is a short-term -- significant speed bump, but still a short-term speed bump.

Okay. Great. So you've spoken already about some of those trends, those secular trends. And the fact that QNX is the leader in safety-certified embedded software for auto. So how are you thinking about the competitive landscape right now? And what are your priorities for maintaining QNX's leadership position?

Yes. That is a great question. And I think let's start with just stating one thing that is often forgotten, competition in this space is not clear cut. It's not like we only have a couple of competitors that we are dealing with in every bid we make and so forth and we need to focus on them and figure out how to beat them. A big portion of the evolving tech architecture is that there are new players entering. That some of our customers have ambitions on their own to sort of enlarge their footprint in the stack. And very much, this is evolving in sort of a collaborative, cooperative, competitive kind of dynamic. Sometimes you compete, sometimes you collaborate. We obviously have a history of competing with traditional auto vendors, Green Hills, Wind River, and we feel very comfortable with that competition. We have a very strong proposition when we line ourselves up against those competitors. As I look at the evolving landscape here, I think there's a tremendous opportunity for us to work even closely with our customers on the evolving architectures here. Let me give you an example, in the automotive space, we are gaining more and more sockets for different domains in the car. The competition is not necessarily the traditional autos vendors, the competition here is the ambition that the OEM might have to own a larger portion of the stack. And many of our customers have -- over the years, have invested heavily in their own software capabilities, and they're trying to certify Linux and they're trying to cover the entire stack. And the ambition is -- there's nothing wrong with the ambition, but it's a major undertaking on their side. What I think we are able to do here is because of our capabilities and because of their increasing ambition, we are able to collaborate with them to enable them to own a bigger portion of the stack and bring the products faster to the market. So I feel good about the competitive situation. We can never rest on our laurels. We work with some of the brightest in the various industries, and we need to continuously innovate. And one of the reasons I'm confident about our current position is because of the innovation rate that we have. And one example of that would be the staff I just mentioned around the patterns from last year. This is a never-ending story for us, continuing to innovate jointly with our customers.

Yes. Fair enough. So you mentioned there like the more sockets in the car. When I think about my calls with investors, they're always keen to understand what's going on with ASP per vehicle. ASP or ARPU, however you want. So as you mentioned earlier, vehicles are getting smarter, more connected. So we think of that probably meaning more software in the vehicle over time and therefore, more QNX as well. So how are you thinking about ASP per vehicle as you look ahead?

Yes. That is a great question. And obviously, that is a critical focus for us, too, as we look into the future here. The dynamic around the ASP per vehicle has a number of twists and turns on the surface. So if you -- and this actually ties back to the previous question around competition. You go back 5, 6 years, 90% of the QNX business was obviously tied to the integrated IVI stack. And we realized way back that for the consumer experiences in the IVI stack, we were not going to be able to compete with the open source and Android and ecosystem associated with those operating systems. So we started pivoting and we started pivoting to the other domains that had rapidly involving compute capability in the automotive architecture. And because of the competition on the IVI side, and that in that case came from open source and Google, we were actually pushed in the right direction. We were pushed in the direction where our core capabilities, high performance, security, safety, reliability, touching the metal, the chipsets for the various domains actually moved to the forefront of our development road map in a way that might not have happened without that competition on the IVI side. If I tie that back to the ASP discussion, originally, if you have an integrated IVI stack, we obviously, 5 years back, got a little bit more from every car, then you would get if you only have 1 or 2 sockets that do not carry the integrated stack. So over the last 5 years, there have been for us a little bit of a decline in ASP for certain customers. But that is changing, it's changing very rapidly. And it's changing because of this evolving software architecture of the car. So as you've heard multiple times from us, as you push more high performance compute into the domains, as ADAS evolves, as body and chassis evolves, battery management, digital cockpit, et cetera, all of these new computing domains are allowing us to not just win 1 socket or maybe 2, but to get more of them. And that drives the ASP over time for us up. And obviously, that is something that we are tracking very carefully. There are some very good examples in the recent announcement. You have -- obviously, if you have been following us, you've heard our announcements around wins like Volvo Trucks and Scania and so forth. And the ASP for these wins, these design wins are orders of magnitude higher than what we've had previously, and that is precisely where this is going. We are becoming a more foundational component for a larger portion of the overall software platform in various types of vehicles, and we believe that this is a trend that will continue for many years.

Great. Okay. So let's switch gears, excuse the pun, to talk about IVY, it would be remiss of me not to ask you about that. So as investors have no doubt aware, IVY is BlackBerry's Intelligent Vehicle Data platform. So Mattias, how significant do you consider the potential opportunity to be for this?

So IVY is obviously a very significant potential opportunity for us. And we believe that we can participate in a meaningful way. That said, IVY is a long-term opportunity for us. It requires -- if you think about the components that it requires both the cloud back end and the developer support to be in place, and we're obviously working very closely with AWS on that. And then it requires embedded software to go into the car. The car is the richest IoT sensor in the world, there is a crazy amount of data generated every hour in the modern car, and it's growing very, very fast. There are obviously a lot of cars. And you add that together and lots of data growing per car and a lot of cars, you realize that figuring out how to do this in the right way is a very, very significant opportunity. And what makes it maybe an even bigger opportunity than most people realize is that there's both the revenue side in terms of managing sensor fusion at the edge to create new services. But then there's also the efficiency and cost side where IVY actually helps OEMs and potentially Tier 1s to reach the market faster and rationalize in terms of software development and bring less data, not unprocessed to the cloud and so forth. So a lot of good things playing into the IVY opportunity for us. Data monetization with the car has been a hot topic for many years. There are many stakeholders in the value chain, including, of course, the OEMs themselves. But it's a nontrivial problem to solve. And you have a very complex compute environment that is obviously evolving very rapidly. And I am very encouraged by the discussions that we've had -- even with the OEMs that have been hard at work within this area for the last 5 years. There are many problems left to be solved. And we believe in the partnership with AWS, we're bringing some very, very strong capabilities, both in the cloud and developer side and on the sort of embedded software side to the market. Still early days, but a very important problem with very significant potential for us long term. And I can't wait to see how this evolves over the next 12 months.

Yes. So you mentioned there that it's still early days. I mean, it was only December that we made the announcement about IVY. Based on what you've seen so far, how pleased are you with the progress that BlackBerry's been making towards turning this into a real opportunity?

Yes. So it is still early days. I am happy with the progress so far. I always want more. We are on track. But as you realize, if you look at sort of the overall proposition here, this is sort of a multiyear journey again about building this capability and spreading it widely throughout the ecosystem. So there is a sense of urgency. In spite of being on track, there's a sense of urgency internally to move this forward. We have an early Beta announced around October, and we have a first complete release beginning of 2022. We are hard at work at creating some demos and iterating with various partners on POCs and so forth at this point. I'm not ready to announce any specific projects yet, but I'm happy with the progress. We're getting great feedback from a lot of customers. But this is not a short-term solution for us that will be ready to ship at scale when we have the GA release ready in Q1. Lots of work left -- lots of exciting work left. And long term, I think it will pay off for everybody involved.

Okay. Excellent. Okay. So to wrap up, given the time, so what do you see as your main priorities, your main objectives over the next 4 quarters?

That's a good question. And first of all, let's be clear, we are laser-focused on delivering for our customers and partners around the world every day. We -- at the heart of our offering, is mission-critical components related to, again, performance, safety and security, reliability for our customers. We can never lose sight of these multiyear commitments that we make when we have these design wins. On top of that, as you might recall from some of our announcements in both Q4 and Q1, we had very significant design wins, both in Q1 and in Q4. So work is ramping for us. And although this is work that ultimately will only land in the consumer's hand, 2023, 2024 and so forth because it takes that amount of time before it reaches the marketing is deployed in vehicles, there are many, many critical milestones over the next many quarters. So that is priority #1, delivering on our commitments to our customers and partners. Secondly, and I hinted at that in the beginning, I think we can never lose sight of the fact that our customers and partners, they work at the cutting edge of technology several years into the future. Now if you think about the chipset partners that we have, you think about the OEMs, you think about the Tier 1s and any other partner in the ecosystem, they are currently planning several years into the future. And our team need to constantly ingest the feedback that is coming from these leading customers and partners to continue to drive the innovation cycle and stay on ahead of the curve, so that we can deliver on the various ideas that that our customers have for the future of the end product here. And we feel good about the progress. I think we had an amazing year in terms of IP and product releases last year in spite of the pandemic, but innovation is sort of never over. It's a work that is never done. So I would put that as priority #2, continue to drive the innovation engine for our customers and partners. And thirdly, there's probably a cluster around both the strategy and the setup of this business unit. So we obviously have some strategy work ongoing given that this is a new business unit. We have a couple of decisions that we need to make around things we're incubating and things we're making bets on and so forth. There's some work left there over the next couple of months and hopefully, we'll get a lock on that during the autumn. And then given that this is a new business unit, and you come back to your original announcement from John Chen, the reality is that we have 2 very different businesses here. You have the enterprise software business on the cyber side and you have embedded software business on the IoT side. And we've been trying to run them as sort of one entity, and they are different. And because they're different, the way you work and the way you go to market and the way you run innovation and so forth, it needs to be built differently. And there is a little bit of work left over the next couple of months for the team to put that together and optimize and so forth given that this is new setup. So a cluster of things under the heading of strategy and operations related to this new business unit set up. And then let's be clear that there are a number of product launches. We talked a little bit about IVY. Obviously, we are laser-focused on getting that general release out beginning of next year. But there are other products that we haven't necessarily talked that much about yet, but they are also on the list and the team is very much focused on that as we speak. So it's going to be a very busy but exciting next 12 months, lots of things on the table.

That's excellent. Excellent. I'm sure everyone's going to look forward to hearing about it. So thank you, Mattias. Really appreciate your time today. Also I want to say a huge thank you to all our shareholders and everyone else on today's call. Hope you found it a useful call. And we look forward to engaging with you all again pretty soon. So thanks, and goodbye.