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BlackBerry Gains as Ford Said to Pick QNX Over Microsoft

BlackBerry Ltd. shares surged after its QNX software was said to be favored by Ford Motor Co. for its next-generation Sync system.

Ford (F), struggling with in-car technology flaws, will no longer use Microsoft (MSFT) Corp.’s Windows for Sync, instead basing the system on QNX, according to people briefed on the matter. Using QNX will be less expensive than licensing Microsoft technology and will improve the flexibility and speed of the next Sync system, the people, who asked not to be identified because the decision hasn’t been made public, said Feb. 22.

BlackBerry shares jumped 7.6 percent, the most since Jan. 22. Ford was little changed at $15.18, and Microsoft slid less than 1 percent to $37.69.

Ford’s decision highlights the value of QNX for BlackBerry, the smartphone maker that lost 95 percent of its value from mid-2008 to November and saw the collapse of a proposed $4.7 billion buyout. Ford has more than 7 million vehicles on the road with Sync using Microsoft voice-activated software to make mobile-phone calls and play music.

The QNX operating system “is the standard right now,” said Matthew Stover, an analyst at Guggenheim Partners in Boston. “QNX is a well-known, understood OS. It’s proven.”

BlackBerry is already a supplier of technology and engineering to Ford, among other automakers, and QNX technology is already in use in Ford vehicles on the road today, said Paul Leroux, a QNX spokesman. He declined to confirm Ford’s decision and wouldn’t say whether it would produce more revenue for BlackBerry. Susannah Wesley, a Ford spokeswoman, and Peter Wootton, a spokesman for Redmond, Washington-based Microsoft who works for Waggener Edstrom, also declined to comment.

QNX Asset

Since becoming BlackBerry’s CEO on Nov. 4, John Chen cited software such as QNX and the BlackBerry Messenger service as assets he will look to capitalize on. Predecessor Thorsten Heins spoke often during his tenure for the potential of QNX to play a role in machine-to-machine settings such as cars interacting with parking meters.

“This is really the crown jewel in BlackBerry’s crown and could make the rest of the company shine as well,” Thilo Koslowski, auto analyst for researcher Gartner Inc. in Santa Clara, California, said yesterday.

The switch may help Ford, the second-largest U.S. automaker, address customer complaints about malfunctioning technology systems and touch screens that have hurt it in surveys by J.D. Power & Associates and Consumer Reports.

Dearborn, Michigan-based Ford has said the quality of its vehicles has been “mixed” each of the past three years and fell short of its plan to improve those results in 2013. CEO Alan Mulally was said to be a candidate to become Microsoft’s chief until early this year,

Connected Cars

Improving Sync is crucial for Ford to draw car shoppers who are increasingly looking to be connected at all times. In-vehicle technology is the top selling point for 39 percent of auto buyers, more than twice the 14 percent who say their first consideration is traditional performance measures such as power and speed, according to a study by the consulting firm Accenture released in December.

Ford and Lincoln ranked Nos. 26 and 27 out of 28 brands in Consumer Reports’ annual auto-reliability survey released in October. While the Lincoln luxury line matched the industry average in J.D. Power’s Initial Quality study in June, the namesake finished 27th out of 33 brands.

QNX Users

Technology companies are competing to win business from automakers as in-car technology becomes an increasingly important selling point. Google Inc. announced an alliance with General Motors Co., Honda Motor Co., Hyundai Motor Co. and chipmaker Nvidia Corp. in January to bring the Android operating system to cars. Apple Inc. is working with Bayerische Motoren Werke AG, Daimler AG’s Mercedes-Benz, Nissan Motor Co. and others to introduce its iOS operating system to cars with devices such as the iPhone.

BlackBerry’s QNX Software Systems can be found in cars made made by Volkswagen AG’s Audi unit and BMW, according to its website. QNX and Microsoft are the main suppliers of automotive operating system software, according to researcher IHS iSuppli.

BlackBerry, at the time named Research in Motion Ltd. (BB), bought QNX Software Systems for $200 million in 2010. In addition to its presence in cars, QNX technology is used to manage nuclear-power plants and by the U.S. military for unmanned aerial drones. Its customers include Cisco Systems Inc., General Electric Co. and Caterpillar Inc.

‘Funeral Ceremony’

The switch would be a significant blow to Microsoft’s automotive software business because Ford is by far its biggest customer, said Gartner’s Koslowski. Microsoft also has software in Kia Motors Corp., Fiat SpA models, Nissan and BMW models, according to its website. Getting into the Ford system will expand QNX’s industry leading position for automotive entertainment operating systems, which Koslowski said he estimates is as high as 70 percent.

“I look at this right now as a funeral ceremony for the Microsoft automotive operating system, this is last rites in a lot of ways,” said Guggenheim’s Stover, who rates Ford the equivalent of a hold. Microsoft struggled because the economics of what they were trying to do with cars “are totally different” than computers and smartphones, he said.

The operating system in the car entertainment system has become more of a commodity, and now added functions are more important, Koslowski said. QNX has done a better job of integrating compatibility with other operating systems such as those from Apple, Google and included emerging Internet standards, he said.

“You have to look at it more from a perspective of how much functionality do I get for what price and really move your investment budgets to other areas that become much more strategic for creating differentiation,” Koslowski said. “The industry is realizing it has to do a better job to create a unique experience for its customers.”

To contact the reporters on this story: Craig Trudell in Tokyo at ctrudell1@bloomberg.net; Jeff Green in Southfield, Michigan at jgreen16@bloomberg.net

To contact the editor responsible for this story: Sarah Rabil at srabil@bloomberg.net

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