BlackBerry has axed plans to divide its cybersecurity and Internet of Things (IoT) business units into two different companies, opting instead to operate each as divisions under the company umbrella rather than taking public its IoT arm as a subsidiary.
The rejiggered moves will pivot the two-division framework into more of a reorganization than an overhaul, the company suggested.
“The process will include the separation and streamlining of BlackBerry’s centralized corporate functions into business-unit specific teams, with a view to each division operating independently and on a profitable and cashflow-positive basis going forward,” the company said in a statement.
That will include some cost-cutting, which more often than not turns into layoffs. Indeed, BlackBerry said it was in the “final stages” of selecting a consulting firm to assist in the separation and “right-sizing process” but offered no further details.
BlackBerry's Reorg: What it Means for MSSPs
The split may be a boon for BlackBerry-aligned managed security service providers who can benefit from both entities, certainly with the venerable security business but particularly for the IoT business. The company expects IoT revenue to grow sequentially in the third quarter of fiscal 2024 and in the fourth quarter of fiscal 2024, IoT revenue will be higher than in any previous quarter.
As for the two divisions, the company’s initial thinking, arrived at after a months-long strategic review, concluded that two independent companies would allow each to pursue a clear cut strategy and capital allocation approach, enabling shareholders to separately evaluate the performance of each unit on an self-sustaining basis.
At the time, Morningstar pumped up the plan, predicting mid-teens growth for the IoT business over the next 10 years.
“We believe BlackBerry’s IoT business is the highest-value portion of the firm, and investors will find it an attractive investment as a stand-alone software stock. Meanwhile, the enterprise cybersecurity business has been struggling for some time, in part due to problems with its go-to-market approach, in our view. Still, we think both businesses can find better execution and valuation as separate entities.”
The IoT Business Opportunity: Growth Driven by Automotive
But BlackBerry subsequently abandoned the idea, perhaps wanting to keep the burgeoning IoT auto market under its hood, a segment by some estimates is expected to triple in size from 2020 through 2030. BlackBerry’s software is already in some 235 million vehicles and secures some 500 million endpoints.
Its IoT revenue is generated predominantly through software licenses, commonly bundled with support, maintenance and professional services. The IoT business consists of BlackBerry Technology Solutions (“BTS”), BlackBerry Radar and BlackBerry IVY. The principal component of BTS is BlackBerry QNX, a global provider of real-time operating systems, hypervisors, middleware, development tools, and professional services for connected embedded systems.
According to Allied Market Research, the global IoT in automotive industry generated $102.3 billion in 2022, and is anticipated to generate $760.3 billion by 2032 for a CAGR of 22.6% from 2023 to 2032. Indeed, “The process will include the separation and streamlining of BlackBerry’s centralized corporate functions into business-unit specific teams, with a view to each division operating independently and on a profitable and cashflow-positive basis going forward,” the company said in a statement.
The Cybersecurity Business: A Revenue Decline
For Q2 2024 ended August 31, 2023, BlackBerry reported total company revenue of $132 million, IoT revenue of $49 million, cybersecurity revenue of $79 million and licensing and other revenue of $4 million. As compared to the same period last year, cybersecurity revenue tumbled from $111 million and IoT revenue slid 4% from $51 million.
Cybersecurity ARR (the annualized value of all items that generate recurring revenue) was approximately $279 million as at August 31, 2023 and decreased compared to $289 million as of May 31, 2023 and decreased compared to $321 million as at August 31, 2022.
Meanwhile, BlackBerry appointed John Giamatteo as its new chief executive and gave him a seat on the company’s board of directors. Richard Lynch, who has served as interim chief executive for the last five weeks, will continue as board chair. Giamatteo has served as the president of BlackBerry’s cybersecurity business unit since October 2021.
“The Board and I are fully aligned on the next steps needed to unlock the value within BlackBerry, and work on this effort will proceed at full speed,” he said.
