BlackBerry on a familiar road as it fends off QNX software rivals

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A familiar pattern may be playing out for BlackBerry Ltd.'s commanding position in the automotive software market: Its QNX operating system is a clear market leader in advanced car software, but a number of rivals are threatening to catch up to its early lead.

To stay ahead of the competition, QNX is reaching deeper into car technology, focusing on the development of software that will be needed for everything from advanced driver-assistance systems to more fully-fledged self-driving cars.

On Wednesday, QNX Software Systems Ltd. announced a new "hypervisor" that would allow manufacturers to manage dozens of smaller software systems – to run everything from brakes to power windows – inside one BlackBerry-secured system. It's the latest move to shift the company beyond its reliance on the infotainment screen business.

Growth in BlackBerry's software business has been the lone bright spot over the past three years as it watched more than $1-billion in annual hardware revenue disappear. QNX's work with car manufacturers, about 70 per cent of QNX's total business, makes up a large part of that story.

Last week, Toyota Motor Corp., one of the world's largest car companies, announced it was switching its EnTune infotainment system away from QNX over to an open-source standard called Automotive Grade Linux. Starting with the Camry in 2018, Toyota is planning on moving all its vehicles over to AGL.

"We had a small amount of business with them, it's not anything major," said John Wall, who heads the QNX division for BlackBerry. Mr. Wall criticized AGL's open source structure, contrasting the foundation that runs its development with his own "professional software company."

"My belief is it is very difficult for AGL to enter a safety-certified arena. Open source is always inherently less secure," Mr. Wall said. "They picked a great name, Auto Grade Linux makes it sound like it's something different."

One outside analyst, however, said Toyota's switch to AGL will have a long-term impact on QNX.

"It is a significant announcement that will impact QNX. AGL is going to be a force to be reckoned with in the next 5-10 years," said Egil Juliussen, director of research and principal analyst for automotive technology at IHS Markit.

QNX has about 50 per cent market share now, with various flavours of Linux collecting another 20 per cent, Mr. Juliussen said.

He predicts QNX's share will shrink as more of the car market adds in-dash screens. QNX accounts for 15 million to 20 million "units" in cars today, in a market that shipped 93 million cars last year. By 2020, when car shipments are predicted to pass 100 million a year, IHS expects all but the lowest-end vehicles will ship with infotainment units.

BlackBerry doesn't break out numbers on QNX's performance, but analysts such as Steven Li of Raymond James peg the division as adding about $110-million in revenue, or about 8 per cent to the company's $1.3-billion in revenue for fiscal 2017. Crucially, QNX is part of the software growth story, and represents 17 per cent of BlackBerry's roughly $635-million in software revenue.

Mr. Li and Mr. Juliussen agree that QNX is on a path to transition from its current mainline business of powering in-dash screens to providing more advanced systems.

Mr. Wall would not confirm how many auto partners are developing with the new hypervisor – "multiple" is as far as he would go – but said the long production cycle of car makers means it could be 2020 before significant numbers of new cars leave the factory packed with more QNX software.

Mr. Li projected BlackBerry could begin earning as much as $130-million a year in those new systems by 2020, even as it loses as much as 30 per cent of its infotainment business.

The increasing competition in auto, with solutions backed by such well-heeled rivals as Google Inc., Intel Corp. and China's Baidu aiming to grab its customers, means QNX now faces a situation remarkably similar to BlackBerry's painful experience in the smartphone market. But analysts are betting that BlackBerry has learned the lesson of its history.

The Waterloo, Ont., company's stock price rose last week on a bullish report from short-seller Citron Research that suggested the company was ripe for takeover, not least because of QNX's growing role in the auto market. But that case does not require QNX to own the market, merely to be a significant player in it. "You cannot expect [BlackBerry] to power all cars. As long as [it] sticks to course they will be OK," said Citron's Andrew Left.