- BlackBerry Ltd. got a brand-new look, sans hardware, since its last earnings.
- With the closure of its smartphone division, many believed the end was near for BlackBerry.
- But one big growth driver could change that perception and justify its focus on software.
Canada-based BlackBerry Ltd. (NSDQ:BBRY) announced as part of its latest earnings release, that it would become a pure software solutions company, discontinuing its handset business. This made investors apprehensive about BlackBerry’s survival. BBRY stock hasn't done much in the last one year either. With BlackBerry focusing all its energy on software, where could the next growth engine come from? Could it even take BlackBerry remotely close to its good old glory days? Well, BlackBerry might just have found the answer.
BlackBerry’s Software and Services segment came to the company's rescue in its last earnings, delivering 89% revenue growth to touch $154M. Though the software segment's growth appears impressive, this growth is accentuated by relatively weak comparable numbers from the same quarter last year. Now that BlackBerry is only a software solutions company, how can it differentiate itself from already established software companies and carve a niche for itself? Its core competence - security- can be leveraged. With this core competency, Medtech cybersecurity is one such field where BlackBerry could make a strong impression.
Why BlackBerry Can Be A Pioneer in Medtech Cybersecurity Software
In a recent report, BlackBerry’s Chief Security Officer David Kleidermacher discussed their advances in Medtech cybersecurity. Medtech cybersecurity is a field related to medical devices connected to the internet and the security of data on these medical devices. BlackBerry considers healthcare systems as one of its top customers. Kleidermacher has helped to develop a standard which could improve the security of products from insulin pumps to implanted cardiac devices.
IBM had dubbed 2015 “the year of the healthcare breach.” Medical device cybersecurity had also come into the spotlight in that year, and for all the wrong reasons. Meanwhile, BlackBerry has worked with diabetes device manufacturers for starters, “simply because these had the biggest initial concern and insulin pumps had been hacked into before”, as Kleidermacher put it. He claims this standard can be used with devices of any sort.
At present, there are not many commercial players actively working in this field, though the FDA and the Association for the Advancement of Medical Instrumentation (AAMI) have their own guidelines. The new standard, called DT SEC, which meets this requirement is managed by a non-profit organization. Kleidermacher states that several manufacturers of diabetes-related devices have come to BlackBerry to make their devices more secure. Although these standards don’t make devices fool proof, they give the customer more confidence to use them.
The United States remains the largest medical devices market in the world, with a market size of around $148 billion, and it is expected to reach $155 billion by 2017. Kleidermacher estimates that the cost of evaluating a device using the DT SEC standard will come to around 0.1% of the device’s overall development cost, which naturally varies based on the complexity of the product and other factors. If BlackBerry makes deep inroads here, then it could become a market leader in Medtech cybersecurity software in times to come, given its core competency. And given the size of the industry, this could be a money spinner for BlackBerry.
Success in Medtech Cybersecurity Will Create More Opportunities
According to a PWC report, by 2020, the market for Internet-connected health care products is expected to be worth an estimated $285 billion in economic value. Connectivity makes devices vulnerable to hackers and criminals. Security breaches are becoming more common and costly these days. According to Bloomberg Business, criminal acts against the healthcare industry have increased more than two times in the past five years, totaling $6 billion per year in costs.
Mr. Kleidermacher believes that the current practice, which puts the onus on medical device companies, has room for improvement. This creates a whole new revenue stream for BlackBerry. However, all this would also depend on how things pan out here and what stance the regulatory boards take. As believed by Kleidermacher, this could be fast-tracked if all the stakeholders take a more positive stance on this, with their standards being adopted on a large scale.
BlackBerry's success level here would give them a huge boost in other IOT device industries. The IOT devices industry is expected to grow from $ 130.33B in 2015 to $883.55B by 2022, at a CAGR of 32.4%. BlackBerry's standards could potentially be used with devices of any sort, creating more opportunities for the company.
BlackBerry is still not in the position it would like to be in the software and services segment to effect a complete turnaround. BlackBerry's present services aren't differentiated enough (nor are the entry barriers high enough) to ward off competition. But the security standards which it has developed could be a unique proposition. Security, which has historically been BlackBerry’s core competence, combined with an early mover advantage, could make it a market leader here. Given the size and growth of Medtech as well as the IOT industry, this strategic play may change the fate of BlackBerry. BlackBerry stock is still a risky long-term bet, but it could be worth considering, for those with a risk appetite.
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