What Happened?
Today, Research in Motion (NASDAQ: RIMM) announced its intent to acquire the QNX Software Systems unit from Harman International (NYSE: HAR). The deal, the terms of which were not disclosed, is expected to close in 30 to 45 days.
However, to place any additional information released regarding the deal in context, it was only 6 years ago when Harman acquired a privately owned QNX Software Systems for $138M – or greater than 5 times QNX’s revenue at the time.
VDC’s View
So what impact could this announcement have on QNX and the broader embedded OS market?
In the Automotive Market –
It is no secret that, in recent years, an increasing amount of an automobile’s differentiation and appeal to consumers has been driven by its infotainment stack. However, consumers’ expectations for functionality have expanded beyond sophisticated user interfaces and advanced graphics. Now, we are seeing the demand for ubiquitous connectivity trump previous differentiators in favor of wireless broadband services capable of interacting with the cloud.
Moreover, it is becoming increasingly important for these consumer-facing embedded operating systems to become extensible and flexible platforms that users can customize with their own choice of third-party applications. QNX’s CAR Platform already took aim at these trends, as shown through the LTE concept car that they developed with ng Connect.
Enter RIM – RIM already boasts an ecosystem of developers, applications, and devoted smartphone users. As with Microsoft’s evangelization of the “three screens,” RIM has the potential to boost their brand recognition and loyalty beyond corporate smartphone users if they can enable a tighter integration and streamlined user experience between these connected devices. Similarly, QNX can potentially enhance the value proposition around its own CAR Platform if it can showcase seamless integration with RIM’s products and compatible applications.
However, the move could still inject some uncertainty and risk around the long-term prospects of its revenue base. Not only are they now becoming a much smaller piece of a much larger organization, but Harmon represents a significant portion of QNX’s revenue from the automotive sector, as well as compared to its overall revenue. Although Harman and QNX have maintained that new business between daughter and parent company had been externally bid and that many of QNX’s contracts with Harman were established prior to their 2004 acquisition, we expect that some of QNX’s competitors (ie: Microsoft and Wind River) will now begin to more aggressively pursue business with Harmon.
Beyond Automotive –
This planned acquisition is only the latest in a flurry of activity in the embedded market over the last year, with other OS markets stalwarts Wind River Systems and MontaVista Software also being acquired. However, in our eyes, this acquisition draws parallels to a much smaller scale move made by Mentor Graphics, the acquisition of Embedded Alley.
Why? VDC believes that Mentor Graphics acquired EA to quickly ramp up on in-house expertise around Linux and, more specifically, Android. At one point,
So not only will RIM be acquiring the expert personnel and software assets around QNX’s Neutrino that it could use revamp its own smartphone OS, but this acquisition will also provide RIM with access to QNX’s clients and relationships that could foster business in new application classes.
For example, industrial automation and control, which has always been a strong vertical market for QNX, presents a key opportunity for RIM. Just yesterday, Microsoft announced that its Windows Mobile 6.5 operating system would be moved to under the control of the Windows Embedded Group. This move is significant because, although Windows Mobile was quickly losing share as a smartphone OS and required a drastic redesign and relaunch, WinMo has maintained a significant level of adoption as the leading OS in ruggedized PDAs and handheld terminals for industrial applications.
Leveraging QNX’s existing relationships at IAC manufacturers, RIM could look to displace some WinMo accounts and capture a larger portion of the OEMs overall development budgets. Meanwhile, VDC expects that QNX, detached from Harman, can accelerate its plans and efforts to revitalize its business within non-automotive sectors. A tightly integrated Neutrino and Blackberry OS offering could become an enticing option to any OEMs uncertain about the long-term prospects of Windows Mobile 6.x as a standalone embedded product offering.
Whereas some of the initial press coming out RIM specifically alludes to solutions for the automotive sector, it is clear that this announcement has the potential to affect the embedded market at large. Moreover, with Google and Apple continuing to gain smartphone market share in addition to making strides in other device classes, RIM needed to make a move to protect its future prospects for growth as its competitors push their devices and brands into new audiences and markets.
Stayed tuned as VDC looks to comment further on this announcement.
To read more about VDC's views on the recent embedded and ESL market shake ups, please visit the other postings linked below.
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