Is BlackBerry's T-Mobile Offer a Sign of Desperation?

Abraham Lincoln once said, "When you reach the end of your rope, tie a knot in it and hold on." This is exactly what BlackBerry (NASDAQ: BBRY  ) is doing by offering T-Mobile customers $100 off a new unlocked new phone. This tactic allows BlackBerry loyalists to take that phone to another network if they choose while getting a cheaper upgrade in the process. The hope is that it will build customer loyalty for the handset vendor while keeping the subscribers on BlackBerry. A stable handset subscriber base would allow businesses like QNX to provide the next leg up in growth by partnering with companies like Apple (NASDAQ: AAPL  ) .

BlackBerry's share price is likely to be in limbo until the company can produce profit growth again and this appears to be a multistage process. Last quarter, the company successfully reduced its operating expenses shrinking the losses significantly. This is a good first step, but it's only a first step. BlackBerry desperately needs to stem the subscriber losses while finding new ways to produce revenue growth.

QNX might provide a step up in revenue growth
QNX is one of the most promising sources for growth opportunities. BlackBerry's QNX is essentially the embedded business of auto electronics. To date, this hasn't been a huge revenue generator but as auto entertainment systems offer more features, the opportunity to make standardized features available to multiple vendors increases its value. QNX has two big advantages right now: (1) it is the first mover, and (2) it is independent. Microsoft (NASDAQ: MSFT  ) was originally the vendor of choice at Ford and proved to be a big hit with the public. Ford's Sync was named No. 4 of the top 10 most brilliant gadgets of 2007 according to Popular Science. It should have been a big hit with the auto manufacturer as well since the components cost approximately $30 but were resold as a $395  add-on. This doesn't take into account Microsoft's licensing fees, which may have contributed to the reasons that Microsoft was displaced at Ford by BlackBerry's QNX. That was in addition to the lack of functionality and poor voice recognition. If you are an auto vendor, would you want to risk frustrating your customers over this?

Smaller stature is a benefit for QNX
The drawback to BlackBerry as an investment is that it's no longer the dominant vendor. However, when you are supplying infrastructure to an industry that you participate in, the lack of scale is an advantage. Samsung doesn't want to plug into an iOS-based system and Apple doesn't want to plug into Android. QNX can manage the workload without being a threat to either of the two architectures. Maybe this is why Apple's CarPlay runs on top of QNX.

Apple has the software already in place and doesn't need to deal with the component integration. It can self-brand the entertainment system while directly integrating with automobile components, and if they change, it's not Apple's problem. From a consumer standpoint, this is a huge win. Instead of fumbling around for your iPhone to touch the home button, you can press a button on the steering wheel to activate Siri while keeping your hands at 10 and 2. Instead of a tiny four-inch screen, you can now have a much larger display for Maps, Messages, or Music. BlackBerry's QNX simply acts as the middleware layer sitting between the applications like voice calling and the hardware like the microphone and the speakers.

Favorable litigation against NXP removed a large cost overhang
BlackBerry finally won the lawsuit brought by NXP in the state of Florida. The lawsuit originally covered six patents, which was later dropped to three, but sought unspecified damages, including triple damages for patent infringement. The last thing BlackBerry needed was another large expense, and Steve Zipperstein, BlackBerry's chief legal officer, said in a statement that his company was pleased with the jury's verdict, which included a finding that the patents asserted by NXP were invalid. If the patents are deemed invalid, it would seem to finally close the case. The Netherlands-based NXP was spun off from Philips Electronics NV in 2006.

BlackBerry's turnaround seems to be moving at a glacial pace, but it is moving in the right direction. The company is making small steps forward in trying to please handset customers, it's QNX business is positioned well for auto integration, and expenses keep coming down. The large revenue growth opportunity is still eluding the company, but it is doing the right things to stay in the game.

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