Wall Street Is Ignoring BlackBerry's Most Exciting Business, Potential Toyota Deal

BlackBerry (BB) stock seems to have dropped sharply after the company's earnings because investors are focusing almost exclusively on a decline in the company's enterprise software revenue last quarter. But Wall Street is inexplicably ignoring the rapid growth of the company's most exciting unit, its BlackBerry Technology Solutions, or BTS division. Most of BTS' revenue is derived from BlackBerry's secure operating system, QNX. The Street is also ignoring a  new deal that BTS made with an unnamed "major OEM," which is probably actually the world's second-largest automaker, Toyota (TM).  .Meanwhile, the decline in the company's software unit is likely largely due to accounting issues, rather than fundamental problems.

One of the most important developments disclosed by BlackBerry during its recent first quarter earnings conference call was largely, if not totally, ignored by The Street. Specifically, BlackBerry announced that it had  received a deal to provide "a digital instrument cluster" to "a major (unnamed) auto OEM." According to BlackBerry, the deal was obtained through its partnership with auto equipment manufacturer Denso. 

In a column at the end of last year, I noted that Denso is partially owned by Toyota. I also predicted that Toyota would "soon buy the  Human Machine Interface platform it developed in partnership with Denso and Intel (INTC)." I believe that the "digital instrument cluster" deal referenced by BlackBerry during its recent earnings call refers to a transaction with Toyota. Of course, a deal with the world's second-largest automaker should have a meaningful, positive impact on BlackBerry's top and bottom lines. 
 
As I also previously predicted, QNX's revenue jumped, rising 30% year-over-year. Additionally, the company previously announced that QNX is now embedded in 120 million vehicles, up from 60 million vehicles three years ago. But Wall Street seems to support the view, promulgated by Bloomberg, that revenue which the company derives from software is "all important," making its QNX business irrelevant. BlackBerry's software revenue dropped 11% year-over-year last quarter when adjusting for the impact of an accounting change, the company said.

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Disclosure:I'm long BB stock. 

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