BlackBerry has scrapped plans to split its cybersecurity and Internet of Things (IoT) businesses into two separate companies, instead preferring to run each as divisions under the company umbrella rather than taking its IoT arm public as a subsidiary.
According to the corporation, the reorganized steps will turn the two-division framework into more of a restructuring than an overhaul.
“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,” according to a statement released by the firm.
This will entail some cost-cutting, which will almost always result in layoffs. Indeed, BlackBerry stated that it was in the “final stages” of picking a consulting firm to assist in the split and “right-sizing process,” but provided no other information.
What BlackBerry’s Reorganization Means for MSSPs
The split may be advantageous for BlackBerry-aligned managed security service providers, who can benefit from both businesses, particularly in the venerable security market. The business anticipates that IoT sales will increase sequentially in the third quarter of fiscal 2024, and that IoT revenue will be higher than in any preceding quarter in the fourth quarter of fiscal 2024.
Concerning the two divisions, the company’s initial thinking, reached after a months-long strategic review, concluded that having two independent companies would allow each to pursue a clear cut strategy and capital allocation approach, allowing shareholders to separately evaluate the performance of each unit on a self-sustaining basis.
Morningstar talked up the idea at the time, expecting mid-teens growth for the IoT business over the following ten years.
“We believe BlackBerry’s IoT business is the most valuable part of the company, and investors will find it appealing as a stand-alone software stock.” Meanwhile, the enterprise cybersecurity market has been struggling for some time, owing in part to issues with its go-to-market strategy, in our opinion. Nonetheless, we believe that as distinct organizations, both firms can achieve higher execution and valuation.”
The IoT Business Opportunity: Automotive Growth
However, BlackBerry later abandoned the concept, possibly to keep the expanding IoT auto sector under its hood, a segment that some estimate would triple in size between 2020 and 2030. BlackBerry software is already installed in over 235 million vehicles and secures approximately 500 million endpoints.
Its IoT revenue is mostly derived by software licenses, which are frequently coupled with support, maintenance, and professional services. BlackBerry Technology Solutions (“BTS”), BlackBerry Radar, and BlackBerry IVY comprise the IoT business. BlackBerry QNX, a global provider of real-time operating systems, hypervisors, middleware, development tools, and professional services for linked embedded devices, is the main component of BTS.
According to Allied Market Research, the global IoT in automotive industry would earn $102.3 billion in 2022 and $760.3 billion by 2032, representing a CAGR of 22.6% from 2023 to 2032. really. “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,” according to a statement released by the firm.
Revenue Decline in the Cybersecurity Industry
BlackBerry announced overall company sales of $132 million for the second quarter of 2024, which ended August 31, 2023, IoT revenue of $49 million, cybersecurity revenue of $79 million, and licensing and other revenue of $4 million. When compared to the same period previous year, cybersecurity revenue dropped from $111 million to $51 million.
Cybersecurity ARR (the annualized value of all products that generate recurring revenue) was approximately $279 million on August 31, 2023, down from $289 million on May 31, 2023 and $321 million on August 31, 2022.
Meanwhile, BlackBerry named John Giamatteo as its new CEO and assigned him to the company’s board of directors.
Richard Lynch, who has served as temporary CEO for the past five weeks, will remain on the board. Since October 2021, Giamatteo has been the president of BlackBerry’s cybersecurity business unit.
“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 told reporters.
