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BlackBerry’s Optimism about Licensing Device Software and Brand

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Oct. 4 2016, Updated 8:05 a.m. ET

Joint venture with Indonesian mobile operator

In fiscal 2Q17, BlackBerry (BBRY) entered into a licensing agreement and joint venture (or JV), known as BB Merah Putih, with Indonesia-based PT Tiphone. Tiphone is an affiliate of Indonesia’s largest mobile carrier, Telkomsel.

According to this agreement, BB Merah Putih will “manufacture, distribute and promote BlackBerry-branded devices running BlackBerry’s secure Android software and applications” in Indonesia.

This is BlackBerry’s first brand licensing deal. Although the devices will be manufactured in Indonesia, it is still unclear whether devices will be produced by BB Merah Putin or outsourced entirely to third-party manufacturers.

John Chen, BlackBerry’s CEO, stated that this JV, including the affiliate, accounts for almost 50% of Indonesia’s mobile market.

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BlackBerry to provide device software

BlackBerry (BBRY) has discontinued its internal hardware development, outsourcing it to multiple third-party vendors. The company is now looking to provide state-of-the-art security and device software, receiving a fixed royalty for each handset sold by the JV. The newly formed Software Licensing business aims to generate revenues from licensing the software features that the company uses for its smartphones to other device manufacturers.

BlackBerry believes its expertise in developing software and security features could drive revenue in the next few quarters, improving profitability in the Mobility Solutions business segment. Chen stated, “Overall, we believe this is a very viable model as we are getting lots of interest around the world for bringing BlackBerry brand device to market with the security and user experience we all know we are known for.”

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