BlackBerry Intends To Separate Internet Of Things Business In 2024 – Forbes

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Deal Overview
On December 11, 2023, BlackBerry Limited (NYSE: BB, $3.26, Market Capitalization: $1.9 billion), a leading provider of security software and services to enterprises and governments, announced its plan to separate the IoT and Cybersecurity businesses to operate as fully standalone divisions. Hence, the Company will no longer pursue its original plan of IPO of its Internet of Things (IoT) business. Simultaneously, the Company also officially announced the appointment of John J. Giamatteo as its new Chief Executive Officer and as a member of its Board of Directors. Richard (Dick) Lynch, who has served as interim Chief Executive Officer since November 4, 2023, will continue as Board Chair.
BlackBerry Price Performance Spin-Off Details and Top 5 Shareholders
Earlier, we had published a Spin-Off Announcement report in October 2023, in which we discussed the Company’s plan to carve-out its IoT business via an IPO into a separate publicly-traded company, with a launch targeted in the first half of the next fiscal year (1HCY24). However, following a reassessment of the outcome of Project Imperium (which commenced on 5/1/23), the BlackBerry Board has decided to separate the IoT and Cybersecurity businesses to establish them as standalone divisions. The Company’s IoT business consists of BlackBerry Technology Solutions (BTS), BlackBerry Radar, and BlackBerry IVY, a market leader for high performance, safety-critical foundational software in automotive and other verticals. On the other hand, BlackBerry (RemainCo) will continue to run its Cybersecurity business, which consists of BlackBerry Spark®, BlackBerry SecuSUITE®, BlackBerry AtHoc®, and Licensing & Other businesses. The separation process will include separating and streamlining 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. BlackBerry is in the final stages of selecting a consulting firm to bring expertise and additional resources for an independent ground-up assessment to assist in the separation and rightsizing process.
Deal Rationale
BlackBerry Limited, once synonymous with smartphones, now focuses on software and services for Cybersecurity, endpoint management, and secure communications. The Company plans to penetrate the mass market for its Cybersecurity solutions while continuing to make inroads into the lucrative IoT opportunity by forming strategic partnerships with auto manufacturers. However, BlackBerry has faced several roadblocks that prevented the Company from executing the plan perfectly. BlackBerry stock has remained under pressure for some time (since the last 2 years, the stock has underperformed ~68% compared to NASDAQ NDAQ 100). As noted in our earlier note, in response to this underperformance, the Board of Directors initiated a review of its portfolio of businesses (named “Project Imperium”) on 5/1/23, and the Board considered various strategic alternatives to enhance shareholder value, which included the possible separation of one or more of BlackBerry’s businesses. Morgan Stanley MS and Perella Weinberg Partners were financial advisors to BlackBerry for the strategic review. Noteworthy to mention, Reuters reported that private equity firm Veritas Capital had offered to buy the entire BlackBerry on 8/25/23; however, details of the offer were not made available.
It is worth noting BlackBerry operates in the IoT and Cybersecurity, which are high-growth markets, with IoT expected to have a Total Addressable Market (TAM) of $3.3 trillion by 2030 and Cybersecurity expected to reach $2 trillion by 2025. Furthermore, McKinsey noted that the convergence of these two markets (IoT and Cybersecurity) may increase IoT’s market size by as much as 50%. Notably, BlackBerry’s IoT business has recently become its core growth driver. BlackBerry’s Chairman of the Board, Dick Lynch, noted that the full separation of BlackBerry’s IoT and Cybersecurity businesses is expected to open up a number of strategic alternatives that can unlock shareholder value. Management is focused on moving quickly to complete reorganization to further enhance both businesses’ focus on their respective markets and their capacity for fast, flexible decision-making. Hence, BlackBerry believes that a separately traded IoT entity will enable shareholders to more clearly evaluate the performance and future potential of BlackBerry’s principal businesses on a standalone basis while allowing each business to pursue its own distinct strategy and capital allocation policy. The separation creates two companies well-positioned for the long term, each with strong management teams with long-standing customer relationships and proven track records, leading portfolios of advanced technologies delivering higher revenue growth and margin expansion.
Key Data
3Q24 Results review
The Company reported mixed results on 12/20/23, with a miss on revenues and a beat on Adj. EPS versus the consensus. 3Q24 revenue increased 3.6% YoY to $175 million, driven by revenue growth in IoT (+8% YoY) and Cybersecurity (+8% YoY) businesses. Adj. EBITDA improved to $18 million in 3Q24 compared to negative Adj. EBITDA of $22 million in 3Q23 mainly due to lower debentures fair value adjustment expenses. Ultimately, BlackBerry reported Adj. EPS of $0.01 in 3Q24 compared to negative Adj. EPS of $0.05 in 3Q23. On a segmental basis, Cybersecurity revenue grew 8% YoY to $114 million in 3Q24, mainly due to an increase of $20 million relating to product revenue in Secusmart, partially offset by a decrease of $11 million in product revenue in BlackBerry Spark. IoT revenue grew 8% YoY to $55 million in 3Q24, primarily due to an increase of $6 million in BlackBerry QNX royalty revenue and an increase of $1 million in professional services, partially offset by a decrease of $3 million in BlackBerry QNX development seat revenue. On the other hand, Licensing and Other revenue fell 50% YoY to $6 million in 3Q24, primarily due to a decrease of $6 million in revenue from the Company’s intellectual property licensing arrangements.
4Q24 Outlook
BlackBerry guided for 4Q24 ending February 29, 2024, with total revenue in the range of $150 – $159 million. On a segmental basis, revenue expectations are as follows: IoT revenue: $62 – $66 million, Cybersecurity revenue: $83 – $88 million, and Licensing & Other revenue: ~$5 million.
Other Updates
• On November 17, 2023, BlackBerry announced the partial extension of convertible debentures, fully repaying $365 million of the 2020 debentures and issuing $150 million of short-term debentures on substantially identical terms.
• On November 17, 2023, BlackBerry secured a significant, multi-year deal to provide the full suite of cybersecurity solutions to the Government of Malaysia.
• On October 16, 2023, BlackBerry launched a Generative AI-powered cybersecurity assistant to increase efficiency and reduce fatigue for CISO teams.
• On October 16, 2023, BlackBerry announced enhancements to BlackBerry SecuSUITE® for the Government, including encrypted video and group audio calls.
• On October 12, 2023, the Company announced that the Government of Canada had expanded its trusted partnership with BlackBerry with a multi-year agreement to serve the Government of Canada’s federal employees.
• On October 11, 2023, the United States Department of Homeland Security awarded a new PENS contract to BlackBerry, utilizing BlackBerry® AtHoc® critical event management (CEM) solution.
Company Description
BlackBerry Limited (Parent)
Based in Waterloo, Ontario, BlackBerry provides intelligent security software and services to enterprises and governments worldwide. Incorporated in 1984, the Company was formerly known as Research In Motion Limited and changed its name to BlackBerry Limited in July 2013. The Company leverages AI and machine learning to deliver innovative solutions in Cybersecurity, safety, and data privacy solutions. It is a leader in endpoint security, endpoint management, encryption, and embedded systems. BlackBerry secures more than 500 million endpoints, including over 235 million vehicles. The Company has multiple products and services from which it derives revenue, structured in three businesses: Cybersecurity, Internet of Things (IoT), Licensing, and others. The Cybersecurity business consists of BlackBerry Spark®, BlackBerry® SecuSUITE® and BlackBerry® AtHoc®. Licensing and Other consists primarily of the Company’s patent licensing business. On May 11, 2023, the Company completed the previously announced patent sale with Malikie Innovations Limited and sold certain non-core patent assets for $170 million in cash on closing, an additional $30 million in cash by no later than the third anniversary of closing and potential future royalties in the aggregate amount of up to $700 million. In FY23, the Company reported a total revenue of $656 million.
Internet of Things (IoT) Business (Spin-Off)
The IoT business comprises BlackBerry Technology Solutions (BTS), BlackBerry Radar, and BlackBerry IVY. The principal component of BTS is BlackBerry QNX, a global provider of real-time operating systems, hypervisors, middleware, development tools, and professional services for connected embedded systems in the automotive, medical, industrial automation, and other markets. In addition to BlackBerry QNX, BTS includes BlackBerry Certicom® cryptography, key management products, and the BlackBerry Radar® asset monitoring solution. BlackBerry Radar is a family of asset monitoring and telematics solutions for the transportation and logistics industry. Moreover, the IoT business has partnered with Amazon Web Services, Inc. (AWS) to develop and market BlackBerry IVY, an intelligent vehicle data platform leveraging BlackBerry QNX’s automotive capabilities. BlackBerry IVY allows automakers to access a vehicle’s sensor data safely, normalize it, and apply machine learning at the edge to generate and share predictive insights and inferences. The IoT business reported a total revenue of $206 million in FY23.
Organization Structure

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