BlackBerry Ltd at Robert W Baird Vehicle Technology & Mobility Conference (Virtual) Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Luke Junk - Baird - Analyst : Great. Well, with that, why don't we jump into the conversation? And I want to start more at a base level just to frame the opportunity and BlackBerry's position in the market. So if we could just start very simply with talking about the company's auto position within IoT, and then from a software standpoint, just where exactly you sit in the software stack. And do you think there are misconceptions about the actual product that you have? John Wall - BlackBerry Limited - SVP and Co-Head, BlackBerry Technology Solutions - Products, Engineering and Operations Yeah, I don't know if there's misconceptions. It's definitely -- it's a complicated stack, and there are a lot of players at different levels. Where BlackBerry QNX plays is really at some of the very lowest layers. We are the interface between the chip and the applications. We make the operating system. The best analogy is, think of your PC. You have Windows as the interface to run all your applications. QNX builds that Windows-type interface, but for mission-critical applications where safety and security are paramount. So we have an operating system. We have a hypervisor. A hypervisor is what allows you to virtualize CPUs and run multiple operating systems. So we really are -- what we call ourselves is the foundation of the software within the vehicle. We think of ourselves as plumbers. We're what's behind the walls, what's under the floors. It's not necessarily what you see, but it has to work. It has to work all the time, and it has to be the foundation of safety within the vehicle.

Question: Luke Junk - Baird - Analyst : So can we talk about just how you fit into the broader landscape? So if we look at auto software, it's an opportunity that I think is certainly accelerating at a very fast pace. If we look at a macro level, this is a market, I think, that could triple between now and 2030. If we look at the underpinnings of what's coming, be it software-defined vehicles and whatnot, mid-decade, there's a lot of exciting things coming. That, of course, is going to attract other players into this space. So if you could just talk about the competitive landscape where BlackBerry and QNX have a leading market position and how you compare versus other embedded systems players and your perspective on folks that are trying to bring Linux into this market as well, specifically the importance of safety certifications. John Wall - BlackBerry Limited - SVP and Co-Head, BlackBerry Technology Solutions - Products, Engineering and Operations Yeah. So I think you defined it quite well. There's the traditional competitors that are the RTOSes that have been in this market for a very long time, whether it's industrial automation, avionics, et cetera. We believe we compare very favorably to them from the perspective that we have the safety pedigree, we have the security pedigree, but we've really focused on the high-performance compute, the next-generation processors that are coming out. It's very important that as a foundation of the automotive software within vehicles that we have products that scale with the next-generation hardware that's coming out. And what we're starting to see, especially you alluded to it, you talked about centralized compute, we're starting to see more and more processing power that's similar to the cloud, eight cores, 16 cores, whether it's from Qualcomm, NVIDIA, Renesas. We're really moving to this really high performance, multiple core systems. So we've really positioned our product to take advantage of that and to really scale one-to-one as these processors increase in course. We think we have an advantage in this area over the traditional players. Now, from the perspective of Linux, Linux is already coming from that world and has a very good footprint in high-performance compute. The advantage that we have there is we have years and years of safety pedigree that is very difficult to achieve. We have very strong control of our software. All the components that go into our software are built by QNX, by engineers at QNX. And if people understand what's required to do safety, very intimate knowledge of all the components of the operating system is very, very important. Linux has the advantage of being community-based and being driven very quickly by the community. And it's a great advantage. I mean, it moves the product very quickly, but it's also a disadvantage when you try to collect artifacts and the knowledge behind trying to safety certify it. Things move very fast, whereas when you're trying to safety certify a product, you need a certain level of base that is relatively static. If you make changes, you have to make very targeted changes. And that's the way our company operates, and that's our pedigree. So we believe we have an advantage in that area as well over Linux. So it really depends. There are different reasons why we believe we have an advantage over Linux than there are over some of the traditional players.

Question: Luke Junk - Baird - Analyst : And given that trend, and as you mentioned, pretty much all OEMs globally, I would say, are moving towards domain centralization and centralized compute, and software, as a result, is just becoming much more important to the OEMs, can we talk about the push and pull between a supplier like BlackBerry QNX and the OEMs? It seems like the pendulum is shifting back in your favor. Maybe if you can discuss some of the recent developments on that front. And should investors expect more of these types of announcements to come? John Wall - BlackBerry Limited - SVP and Co-Head, BlackBerry Technology Solutions - Products, Engineering and Operations Yeah. I think if you look back in the days when we had a dominant footprint in infotainment, when we were part of Harman and then part of BlackBerry in the early 2010s, the relationship was very much QNX was a Tier 2. We sold to Tier 1s; Tier 1 sold to the OEM. But even back then, there was still a lot of focus on the OEMs having control of software, at least as it pertained to infotainment. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 15, 2023 / 4:25PM, BB.TO - BlackBerry Ltd at Robert W Baird Vehicle Technology & Mobility Conference (Virtual) If you think back, Audi created a group called e.solutions that was developing their infotainment systems. Ford developed SYNC and SYNC 2. So there was a strong view of owning software even back in those days. And so that helped us -- even if we weren't dealing contractually directly with the OEM, we had relationships with the OEMs and it might be a directed buy. I think, today, more and more, our relationship is directly with the OEM. We're licensing directly to the OEM. And from our perspective, that allows us a much better chance to upsell and cross-sell because we are talking to the OEM directly. We understand some of their needs in other areas. The OEMs are starting to consolidate their software teams across multiple domains, which gives us a lot better visibility. It gives us a lot better insight into what we need to produce at our product level to be able to satisfy the requirements of the OEM. So I think that the way the industry trends are going right now of the OEM wanting to take more control of software is a very big advantage for us. And Tim talked about record design wins this year. Well, more than half of those record design wins are direct OEM engagements, which that would've never been the case five, six years ago.

Question: Luke Junk - Baird - Analyst : Speaking of another critical piece and maybe pivoting the conversation a little bit here is BlackBerry IVY. So this is something that's becoming more real right now. If you could just maybe describe IVY for the uninitiated, Tim, and especially the roles that BlackBerry and Amazon respectively play with that software. And then if you can just bring us into the present in terms of recent developments insofar that you just announced at CES, in fact, your first design win for IVY. John Wall - BlackBerry Limited - SVP and Co-Head, BlackBerry Technology Solutions - Products, Engineering and Operations Yeah. So the concept behind IVY is how do we facilitate the exploitation of data from the vehicle? And by that, I mean, how can the OEM monetize the data that the car is producing through applications or through analytics in the cloud. And so the genesis of IVY was how do we present a common API to the car? Knowing that the car today is different if I'm buying it from GM or if I'm buying it from BMW or if I'm buying it from Ford, the underlying architecture is different. They don't speak the same language. So the idea was that IVY would be an edge processing middleware that would take data from the vehicle, do a certain level of processing on that data to provide insights and then provide a normalized API to the cloud or to the application level. And the idea would be if we got enough OEMs to adopt this, we would start to see a commonality in how the data is treated by the car makers, which would grow an ecosystem of developers. If a developer knows that they can write an application that can target more vehicles, it's more volume, it's more interesting, and it could start to grow an ecosystem for the car. The same can be said for smart cities. If the cars are talking a common language, it's a lot easier for a smart city to be able to take that data and utilize that data for something that provides insights that are valuable to the residents of that city. So it's a co-development with AWS. The portion that QNX or that Blackberry is responsible for is the interface within the vehicle. This is our expertise, how to talk to the vehicle-level buses, how to talk to the vehicle-level signals, and to be able to gather those signals and bring them together to provide some insights. AWS, of course, you could think of them as the northbound interface. They're the ones creating the API. They're the ones creating the ecosystem part of this. And so it was really a marriage made in heaven, where obviously Amazon, being the big company they are, can drive an ecosystem, can drive an API. And Blackberry had the expertise at the lowest levels and to be able to bring that together.

Question: Luke Junk - Baird - Analyst : Okay, well, let's talk about what this means for the business ultimately. So if we look, as you mentioned, the design award activity in the first half of the year is already above prior annual numbers. If we look at what's in the revenue for IoT right now, that business is going to grow mid to high-teens in the current fiscal year that you're about to wrap up here. Can we just talk about how the growth is going to evolve from here? So growth right now, not necessarily being driven by the royalty piece, it's license and pro services. As that rolls forward in fiscal '24 and fiscal 2025, how should investors expect the business to ramp just qualitatively?

Question: Luke Junk - Baird - Analyst : Okay, great. And then we've got a couple of minutes left here. I want to ask in for my last question, a bigger picture question and take advantage of the fact that we've got you here, John. So one of the things that we hear from investors is you've talked about this idea of wrapping cyber, which is the other business at Blackberry Cybersecurity, around IoT and around auto in the future. And just, John, you're close to customers, what's your perspective on the longer-term opportunity to bring cybersecurity into the world of auto? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 15, 2023 / 4:25PM, BB.TO - BlackBerry Ltd at Robert W Baird Vehicle Technology & Mobility Conference (Virtual) John Wall - BlackBerry Limited - SVP and Co-Head, BlackBerry Technology Solutions - Products, Engineering and Operations Yeah, I mean, I think it's a huge opportunity. The reality of it is, today, the automakers do a very good job of paying attention to cybersecurity. But most of that is really in terms of services, companies providing expertise to make sure that everything's locked down, everything -- you've closed all your ports, you've not left any doors open. I think where the opportunity in the future lies is where we actually have things like intrusion detection and other technologies that will play a more active role within the vehicle to ensure there's nothing strange going on on the bus. I think that's largely untapped. I think there's a lot of companies working towards that. But nothing's really broken through and really been adopted in a general way. So I think the opportunity is still very large. And I think the OEMs are still very, very interested in being able to move this forward and have even more security within the vehicle when I -- active security versus just locking everything down and making sure that your hygiene is good from a security perspective. Obviously, that's important. But I think there's opportunity moving forward for companies like Blackberry, obviously, that have a very strong pedigree in cybersecurity. I think this is going to be very important moving forward, especially as we start moving towards a software-defined vehicle, as we start having more commonality within the vehicle that potentially will offer more of an attack vector.