What To Expect From BlackBerry’s Software Unit In 2017

2017 will be all about software for BlackBerry ( BBRY ), as the firm shuts down its hardware operations to focus on brand licensing, while its service access business becomes increasingly irrelevant, amid user attrition from its legacy smartphone platforms. Below we take a look at what to expect from BlackBerry’s software-focused businesses going into next year.

Trefis has an $8 price estimate for BlackBerry , which is roughly 15% ahead of the current market price.

Enterprise Mobility Management And Security

BlackBerry’s software and services revenues stood at $486 million for the first nine months of FY’17 (fiscal years end in February), marking a 29% increase on a year-over-year basis. Enterprise mobility management remained the key driver of sales, with ~9300 new enterprise subscriber additions over the first nine months of the fiscal year. The EMM market is expected to grow from $1.76 billion in 2016 to over $4.5 billion by 2020 , driven by mounting electronic security concerns and an increasing shift from PCs to mobile devices, which are often employee-owned. BlackBerry could outgrow the market, given that it recently took steps to unify its various enterprise mobility and security offerings under the “BlackBerry Secure” umbrella, enabling it to provide end-to-end security solutions, while helping customers lower total cost of ownership (related: What BlackBerry Aims To Achieve With Its Latest Security Offering). Moreover, roughly ~80% of BlackBerry’s software and services revenue, excluding patent licensing and professional services, are now recurring after the firm transitioned to a licensing model for its EMM software. This should result in revenue growth as recent subscriber adds are monetized.

Emerging Businesses Can Gain Traction, But Competition Likely To Be Intense

The relative revenue stability in the enterprise software space is giving BlackBerry headroom to expand its other software-oriented businesses such as connected vehicles and Internet of Things. The company recently signed an agreement to work directly with Ford Motor Company to expand its use of BlackBerry QNX and security software. The deal, which effectively makes BlackBerry a Tier-1 supplier to the auto behemoth, could pave the way for  more deals with auto manufacturers going forward (related: Why BlackBerry’s Software Deal With Ford Is Promising). BlackBerry is also betting big on the car of the future, launching an Innovation Center for Connected and Autonomous Vehicles, with plans to hire over 600 engineers for this effort in the near term. While the final product may be a few years away, competition in the space is likely to be intense, with deep-pocketed Silicon Valley players such as Apple ( AAPL ), Tesla ( TSLA ) and Google (NASDQ:GOOG, GOOGL) investing heavily in their own respective platforms.

BlackBerry’s IoT business is also slowly coming to fruition. The company’s Radar solution, which caters to the fleet management market, saw some business development activity this year, winning contracts with trucking firms including Caravan Transport Group in Canada and Titanium Transportation in the U.S. , while carrying out a few other pilot deployments. However, the fleet management market is very fragmented, with competition only likely to get more intense with wireless behemoth Verizon doubling down on the space with its $2.4 billion purchase of market leader Fleetmatics earlier this year. Larger players are likely to benefit from greater economies of scale and better network effects, posing a threat to BlackBerry.

Looking For Greater Transparency In 2017

While the growth in BlackBerry’s Software business is unlikely to make up for the loss of revenue from the smartphone and SAF businesses, the greater mix of high gross margin software revenue should help BlackBerry improve its profitability. That said, there are some concerns relating to a lack of transparency for the software unit. Although software is likely to account for roughly two-thirds of BlackBerry’s 2017 revenues, per our estimates, BlackBerry has not been breaking down its various software-related revenue streams, leaving some uncertainty from a forecasting standpoint. Moreover, we will be looking for the company to provide other metrics such as subscriber figures, average revenue per subscriber and churn rates, which are typical of firms providing SaaS products with recurring revenues.