Good afternoon, and welcome to the BlackBerry second quarter fiscal year 2023 results conference call. My name is Brent, and I will be your conference moderator for today's call. During the presentation, all participants will be in a listen-only mode. We will be facilitating a brief question-and-answer session towards the end of the conference. Should you need assistance during the call, please signal a conference specialist by pressing star zero. As a reminder, this conference is being recorded for replay purposes. I would now like to turn today's call over to Mr. Tim Foote, Vice President of BlackBerry Investor Relations. Sir, please go ahead.
Thank you, Brent. Good afternoon, and welcome to BlackBerry's second quarter fiscal 2023 earnings conference call. With me on the call today are Executive Chair and Chief Executive Officer, John Chen, and Chief Financial Officer, Steve Rai. After I read our cautionary note regarding forward-looking statements, John will provide a business update, and Steve will review the financial results. We will then open the call for a brief Q&A session. This call is available to the general public via call-in numbers and via webcasts in the investor information section at blackberry.com. A replay will also be available on the blackberry.com website. Some of the statements we'll be making today constitute forward-looking statements and are made pursuant to the safe harbor provisions of applicable U.S. and Canadian securities laws. We'll indicate forward-looking statements by using words such as expect, will, should, model, intend, believe, and similar expressions.
Forward-looking statements are based on estimates and assumptions made by the company in light of its experience and its perception of historical trends, current conditions, and expected future developments, as well as other factors that the company believes are relevant. Many factors could cause the company's actual results or performance to differ materially from those expressed or implied by the forward-looking statements. These factors include the risk factors that are discussed in the company's annual filings and MD&A. You should not place undue reliance on the company's forward-looking statements. Any forward-looking statements are made only as of today, and the company has no intention and undertakes no obligation to update or revise any of them, except as required by law. As is customary during the call, John and Steve will reference non-GAAP numbers in their summary of our quarterly results.
For a reconciliation between our GAAP and non-GAAP numbers, please see the earnings press release published earlier today, which is available on the Edgar, Cedar, and blackberry.com websites. With that, I'll turn the call over to John.
Thank you. Thank you, Tim. Good afternoon, everyone, and thanks for joining today's call. This was a solid quarter for BlackBerry, delivering revenue in line with expectations and beats on the earnings. I'll start today's review with our IoT business unit. This quarter, IoT delivered strong 28% year-over-year revenue growth. QNX design phase revenue remains the top performer. That is, revenue from developer development seats and professional services. Q1 was the third consecutive quarter that we set an all-time record in this category, and this quarter we almost set another. When we win a new design, this revenue is the first to be recognized, with royalties coming later when the vehicle enters into production.
This strength in design phase revenue is expected to continue given the significant amount of professional services we already have lined up and the pipeline of potential new design wins in the next few quarters. On the production front, we saw an uptick in royalty revenue, but it remains below the pre-pandemic level, mainly due to supply chain headwinds. Gross margin came in at 82%. The strength in design wins was clearly illustrated by Volkswagen, one of the world's largest automakers, selecting BlackBerry QNX for its new VW.OS platform. This platform will be deployed in all brands across the Volkswagen Group, with BlackBerry being trusted to power the safety critical ADAS and autonomous drive applications, where QNX is currently the market leader. This builds on design wins in recent quarters with BMW, Volvo, and a long list of electric vehicle players in China.
BlackBerry continues to win market share in core safety critical domains. A couple of examples included an ADAS design win with Hyundai and a digital cockpit design with one of the world's largest tier one supplier that utilize the QNX Hypervisor. The hypervisor will host the safety critical instrument cluster along non-safety critical infotainment applications, all on the same chip. On the EV front, we won another ADAS design with a Chinese automaker, and BlackBerry QNX is now embedded in seven of China's ten largest CV OEMs. In addition to our strong position in auto, we have significant opportunities in the other verticals too. This quarter, we announced additional support for the aerospace and defense market, with QNX achieving the latest technical standard known as the Future Airborne Capability Environment, or FACE. FACE is a software standard jointly developed by government and industry that establish a common operating environment.
It enables the reuse of software components across different hardware, reducing developer friction and costs. In addition to aerospace and defense, we saw progress in the medical and industrial markets, with wins that included surgical robotics, a retail distribution pick and pack robot, as well as control for a nuclear power plant. Overall, in the quarter, we won 19 new designs, with 9 in auto and 10 in the general embedded market. We successfully added talent to our IoT team this quarter despite the tight labor market. This investment is supported by the large and growing schedule of professional services secured through the recent design wins. By adding headcount, we'll enable additional revenue. The macro environment for auto remains a mixed picture, with varying dynamics across regions and OEMs.
The Chinese market, where BlackBerry has won a number of designs recently, appears to be bouncing back due to the end of some COVID-related shutdowns and the impact of robust stimulus measures. In North America and Europe, however, there appears to be a short-term contraction in silicon chip supply, constraining the ability of OEM to build inventory and meet demand. Going forward, the impact of rising interest rate on consumer financing, together with economic uncertainty created by the possibility creates the possibility of future choppiness. Despite this ongoing challenge, we're delivering strong year-over-year growth and have a solid pipeline of potential new designs in the upcoming quarters. Normally, given the strength of the QNX business, we would adjust our revenue outlook upwards. However, given the macro headwind, we're being prudent and holding our outlook as is.
We expect fiscal year 2023 revenue for the IoT business unit to still be in the range of $200 million-$210 million, as previously stated. On the IVY front, we made good progress. Our product development road maps remains firmly on track with another new release in August that enables support for a greater range of in-vehicle hardware and software. This new release incorporates not only road map features, but also valuable real-time feedback that we're getting from the ongoing proof of concept trials. You may recall that we are currently running a limited number of these trials, including the top OEM and tier ones, and these are progressing well. We continue to receive re-requests for additional trials, and this ongoing demand remains a positive sign that the customer receptivity of IVY.
On the ecosystem side, we were excited to close another investment by the IVY Fund this quarter in a German startup named ComPredict. ComPredict uses AI to enable automakers and fleet providers to utilize predictive maintenance, i.e., using vehicle sensor data to get ahead of the maintenance issues. The predictive maintenance use case are added to many others that IVY is enabling, including usage-based insurance, intelligent EV battery management, in-vehicle payments, and the next generation 911 emergency response, just to name a few. Looking ahead, we expect our product, our next product release in December, and remain focused on IVY design wins, which we currently expect to secure in calendar year 2023. We're also planning to showcase more of IVY exciting capabilities and use cases at CES in January. Please stay tuned for more details on that in the coming months.
Moving on to cybersecurity business unit. Revenue for the quarter was in line with expectation at $111 million. The business also delivered sequential billing growth of 15% to $102 million. Cyber billing for the first half of this fiscal year grew 6% year-over-year. Growth margin was 55%. ARR came in at $321 million. Dollar-based net retention rate was 85%. In the quarter, we closed business with a wide range of customers, but saw particular strength in our core verticals of government and financial services. In North America, we secured business with the Department of Treasury, the Federal Trade Commission, Department of Energy, the IRS, the New York Stock Exchange, and the U.S. Mint.
We also won business with leading military agency, such as the U.S. Army Corps of Engineers, U.S. Central Command, U.S. Marine Corps, and other branches of Department of Defense. Internationally, we secure business with U.K. Her Majesty. I guess we changed that now.
Mm-hmm.
HM Treasury, the UAE Ministry of Presidential Affairs, the New Zealand Parliamentary Service, the Australian Electoral Commission, and the Polish Ministry of Foreign Affairs, just to name a few. In financial services, we won new logos as well as renewals and upsells with leading banks in U.S., U.K., Switzerland, Japan, Israel, Italy, and more. In addition to these core verticals, we recorded a strong quarter for new business in the mid-market. This is a large segment of the market dominated by legacy players, offering legacy solutions, and one where our Cylance product portfolio is resonating well. BlackBerry is very well placed to grow in this market for a number of reasons. The level of cyber risk for mid-market customers is high. Our threat research team identified that SMBs face upwards of 11 cyber attacks per device per day.
SMBs are also often those with the lowest level of insurance against ransomware demands. As our study with Corvus Insurance shown, meaning that they can often ill afford a breach. Customers in this segment particularly like our lightweight agent and how effective our products are at detecting threats. Our AI engine, the most mature in the market, has seen billions of data points, both malicious and non-malicious, and uses machine learning over several years to effectively distinguish between the two. Further, mid-market customers among those with the fewest resources and expertise to staff a 24/7 security operating center and customers like how our managed service offering, CylanceGUARD, helps solve their issues for them. As we described in previous quarter, there has been some headwinds for cyber ARR. However, we expect ARR to return to growth early next fiscal year.
A lot of decision and investment made in the past two quarters are starting to bear fruit, and we see some data points that give us confidence in this outlook. First, we saw the total pipeline of potential opportunity for our Cylance product at the end of Q2 increased by 23% year-over-year, and for new logos, specifically, the increase was 73%. Second, significant progress have been made with the product portfolio in recent quarter and is continuing. For example, recent enhancement to our Protect EPP product have positively impact our false positive rates as evidenced by trusted third-party VirusTotal. Third, on the go-to-market front, we're working to replicate the success we already had, particularly with the mid-market customer. We added a lot of cybersecurity industry experience this year, and we expect to see more traction as these new hires fully ramp up.
Fourth, this coming quarter, we're commencing a program to renew strong relationships with key channel partners and distributors that are well-established players in the cybersecurity market. We also received a lot of positive feedback following the Cylance product rebrand, including a significant increase in both website traffic and new leads. Turning to the overall demand environment for cybersecurity, the rest of the FY 2023 looks fairly solid. As I mentioned earlier, BlackBerry has a strong government footprint and demand in this vertical appears to still be robust. Overall, we're not seeing customers cutting back on the cybersecurity budgets, even in the middle market, given how critical it is to maintain their cyber defense. Therefore, there is no change to the outlook that we have provided previously. We continue to expect the cybersecurity business unit revenue to be broadly in line with fiscal year 2022.
Let me now turn to licensing. Revenue in the quarter came in at $6 million. The sales process for the non-core patent portfolio continues. We understand that the length of time that this has taken is frustrating for shareholders, and we're equally as frustrated, if not more, as we work on it every day. However, we firmly believe that divesting the portfolio remains the best option for shareholder value. While the portfolio is still relatively fresh, the IP that's part of the deal and the business of monetizing it is not related to our core business. At the time we were required to announce the deal, we understand that getting the government approval could take up to 210 days, if not longer, but we were pleased that the process were completed much sooner. Catapult, we're working to conclude the financing in parallel to getting government approval.
Unfortunately, we believe the turmoil in the financial markets created unexpected challenges for the original financing syndicate. However, there has been much interest from other parties wanting to step in to take their place, and Catapult are currently working to lock down their final syndicate. In parallel to this, we're actively working on an alternate where financing is not a contingency, as well as finalizing a plan to restart the monetization engine ourselves, should that be necessary. We will of course keep shareholders posted until a final outcome is achieved. Let me now hand over the call to Steve, who will provide additional colors on our financial results for the quarter.
Thank you, John. As usual, my comments on our financial performance for the second quarter will be in non-GAAP terms unless otherwise noted. Total company revenue for the quarter was $168 million. Total company gross margin was 64%. Our non-GAAP gross margin excludes stock compensation expense of $1 million. Operating expenses for the second quarter were $129 million, and these non-GAAP operating expenses exclude $22 million in amortization of acquired intangibles, a $10 million fair value gain on the convertible debentures, $5 million in stock compensation expense, $4 million from the impairment of long-term real estate lease assets, and $3 million of restructuring expenses.
BlackBerry continues to make carefully considered investments for top-line growth, such as adding additional headcount to the IoT team in response to our strong schedule of professional services from design wins, as well as expanding our reach in the cyber market, as John outlined earlier. The non-GAAP operating loss for the second quarter was $22 million, and non-GAAP net loss was $29 million. The GAAP basic loss per share was $0.09, and the non-GAAP loss per share was $0.05. Adjusted EBITDA, excluding the non-GAAP adjustments previously mentioned, was -$16 million. Now breaking down revenue in the quarter. IoT revenue was $51 million, and cybersecurity revenue was $111 million. Software product revenue remained in the range of 80%-85% of total revenue, and professional services formed the balance. As before, approximately 80% of software product revenue was returning.
Licensing and other revenue was $6 million. Now turning to the balance sheet and cash flow. Total cash equivalents and investments were $699 million at August 31, 2022. Free cash flow was -$26 million, with cash used by operations of $23 million and capital expenditures of $3 million. That concludes my comments, and I'll now turn the call back to John.
Thank you, Steve. Before we open the line up for Q&A, let me summarize the key points for the quarter. Number one, our IoT business unit delivered strong year-over-year revenue growth, in large part driven by ongoing strength from design phase revenue. IVY remains firmly on track with proof of concept trials progressing well, and the team executing on the product development roadmap as planned. Our cybersecurity business unit met revenue expectation, delivering strong sequential billings growth and continue to implement a strategy to grow the business, with ARR expected to return to growth early next fiscal year. Despite the volatility in the macro market, we are maintaining our revenue outlook for both business units and continue to execute against our plan. That concludes my remark. Operator, could you please open the line for Q&A?
We will now begin the question and answer session. To ask a question, please press star one on your telephone keypad. Please make sure also that your line is unmuted. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We request that you limit yourself to one question and one follow-up. Your first question comes from the line of Mike Walkley with Canaccord Genuity. Your line is open.
Hey, Mike.
Sorry. Thanks.
Hey, John. Thanks.
Hi.
Thanks for taking my question.
Sure.
Just wanna delve in a little bit more to the cybersecurity business. You know, the billings commentary, you know, sounds promising. Can you just update us maybe on the UEM side, kind of where we are in that falling off and, you know, the confidence that gives you that AR will start to grow next year?
Yeah. The UEM, as you know, is a very price-sensitive market on the mid and low end. In particular, dominated by one major player in the market, including in site license and so forth. For the higher-end markets, where they absolutely needed better security, you know, we tend to hold on to those businesses well, and in some cases expand on it. We also have, in addition to just the UEM, secure communication and also an opportunity to upsell our UES product to the Cylance product. On a whole for the UEM, we kinda expected ourselves to holding it pretty flat.
We'll have a way to grow the business next year by bundling some more other stuff and new products that come out and features. The final point I'd like to make is Microsoft, for example, their Intune is really a mobile application manager. This is really not a UEM. The customer, they're beginning to recognize that the security side of the equation, they're not fulfilling their requirements. I think there might be a good strong argument for us to either overcome the attack from Microsoft Intune or actually coexist with them in accounts that absolutely needed mission-critical security.
That's kind of our game plan and our current thinking and we feel reasonably good about what I just said in terms of what the market validation has been, especially with big customer.
Great. Thanks, John. As a follow-up question, how is pricing in the endpoint, you know, security market as you go head-to-head with both legacy and some of the other next-generation vendors? With progress on your platform, are you sharing any metrics or giving us rough color on how upsell is going and how maybe some of your new customers are landing with more than just one product from Cylance? Thanks.
I get the first part about the legacy. What is the second part?
It was about platform and the ability to upsell. Is that right, Mike?
Platform.
Yeah, the second one was just.
We've got platform.
You know, how you're upselling, you know, any metrics on customers taking more than one Cylance module?
Oh, I see. I don't have that information handy with me. So either we're gonna have to follow up with you, and you'll have to check with John Giamatteo on that information. The legacy product line, it's interesting. We see actually the most progress we made is against the legacy player, particularly in the mid-market, where the mid-market doesn't really have a CISO, doesn't have a SOX. What we offer, particularly on Guard, which is the managed service, that's very well resonates really well. We're seeing a pretty big strong growth. You know, the numbers are not huge in terms of the actual amount of dollars, but the number of accounts that we're winning are pretty reasonably sizable.
Great. Thanks for taking my questions. I'll pass the line.
Yeah, thank you.
Your next question is from the line of Luke Junk with Baird. Your line is open.
Hello there.
Good afternoon, thank you for taking the questions. My first question may be a little bit of a bigger picture question. John, I'd be curious to get your updated perspective on the auto software competitive landscape in regards to the IoT business. In the last few months here, we've seen both companies that haven't traditionally played in auto looking to make inroads here, and in some cases announcements with customers. Some of the chip companies as well talking a bigger game about auto software. What are your thoughts on both, but especially any comments that you'd be able to offer on your direct engagement with the chip companies and how that's evolved or incrementally grown recently? Thank you.
Okay. That's a good question. QNX is probably the biggest player in the auto embedded software space, particularly in the area of operating system. We by far, you know, touch wood, win the most of the big deal. You know, I will refer you to the last two-three quarters of big win in BMW and Volvo and Volkswagen, and you know, a lot of the electric vehicle player. Because we occupy a pretty unique position on the stack, most people when you talk about big company wants to get into auto software, they tend to be more on the UI side, user interfaces, more on the infotainment side, but seldom on the core side of the stack.
You know, a case in point is the announcement that we won VW.OS. You know, Volkswagen intended to build their own software stack. You know, they intend to work with just a few players, and the chip level up. We are one of the players they picked because of operating system. As far as your question, we feel pretty good about where we focus and the more mission-critical and safety-certified components of our product, and there'll be more that will come out. We have, just in case, you don't remember this, but we have the highest level of ISO certification in safety. No, you know, we feel pretty good about our position.
As far as the question on chipset, you know, the probably the two or three biggest chip player that we work with and very committed to each other for a very long time are Qualcomm. In particular, two of them are Qualcomm and NVIDIA. And as you know, Qualcomm and NVIDIA are well quite dominant in the auto space. So we feel very comfortable in both our partnership and their position in the market and our position in the market that doesn't overlap. So I think, you know, I hate to just being overly. I don't wanna jinx it obviously, but we feel pretty good.
In addition to that, even players like Google, I think a quarter ago or two quarters ago has adopted our hypervisor as their Google Android Automotive. So that will tell you something about the unique position we occupy. We're not really in contradiction to what they offer.
Okay. Thank you for that larger color there. Staying within IoT for my follow-up, you recently announced that you've gained certification in the aerospace market. Can you expand on the strategic approach to that market? Are there any parts of the market that you're focusing on initially? How are you investing and resourcing that initiative, and anything similar that would be worth adding? Thank you.
Yeah, this is a little early for us, but we do have the intent. When we look at the success in our auto market, it's really all rely on the highest level of safety certification. We have a new product that comes out that focus on, you know, high level of scalability. If you think about this, you know, and then we think about, okay, who else, which vertical exhibit the same requirements, so need the same requirements. Medical is one, industrial is one, and we've been doing reasonably well on, you know, what we call the GEM market, general embedded market, which medical and industrial is in there.
We are very interested in the cycle of replacing some of the legacy software in the aerospace, particularly aircraft, area. This is why we want to make sure that we're certified, so that developers could reuse the code. We likely will work through large system integrators, like the Raytheon and others of the world. That's to the extent that I could share at this point.
That's, yeah, understand, and a helpful color to just understand where you're headed. Thank you.
All right. Thank you.
Your next question comes from the line of Paul Treiber with RBC Capital Markets. Your line is open.
Hey, Paul. Hi, Paul.
Hey. Hi, John. Good afternoon.
Good afternoon.
I mean, I just wanted to follow up on your previous comments about auto software. You know, what's changed in your mind in terms of the mentality of these auto OEMs and even Google to adopt QNX as a foundational layer?
Well, first of all, QNX, the operating system had been in the business for over 30 years. You all remember that. I mean, some of us are not old enough to remember that. But it was way back when it was an infotainment company, and it actually belonged to HARMAN. BlackBerry bought it before my time. They bought it, and it was kind of creating an operating system with it. The safety certification has always been the claim to fame, and they won a lot of infotainment. What we have done since the time I arrived is to expand from infotainment into areas of more safety-oriented and security-oriented applications in as it related to a car.
Of course, then in parallel, the world started to move towards the software-defined vehicle. Therefore, the OEMs are taking more control of the design, the stack, the software stack. Okay? They also know that they can't just sit there and replicate an operating system and get it certified. Now, some people try to use the Automotive Grade Linux, AGL, but AGL couldn't get it certified, and it's an open source also with its own business challenges to it. They gradually all came back to QNX. That's the reason why. Having over 200 million cars that uses our software today actively, it represents a pretty sizable market for a lot of other players to ignore.
a player to be ignored. This is why, you know, Google work with us and Qualcomm work with us and NVIDIA work with us and TI work with us and Arm work with us, and it's a long list of players that all uses us as a foundational piece. We'll continue to expand application of different type of features in that foundational piece.
That's helpful. It ties into my next question. Like how do we think about the economics within the foundational layer and what's the strategy to try to maximize economics over long term?
Well, our strategy is obviously use more of our foundational modules in the stack. That's the basic strategy. If you have multiple copies and then as we get deeper into the engine and deeper into the safety side of the equation of a car operation, it will, you know, QNX will be able to demand or command a little bit more ARPU. So you have more copies and higher value copies like hypervisor is have a higher value than infotainment, for example. That's kind of our move up the stack in ARPU and broaden it to be multiple copy in a car is our strategy in general for the business strategy side.
Don't forget IVY, because IVY is our next generation push into edge to cloud. It not only provide security and privacy, it also provide economics because cloud-only solution is too expensive and it's too much data being generated along the operation of a car. Don't forget about that. We feel that we have a pretty good one, two, three punches on the auto space or at least on the IoT side. We're gonna expand it beyond auto, as I said. Today we're very focused on auto.
Just if I can just squeeze in one more, just in regards to the patent portfolio, I mean, I know it's, you're limited in terms of what you can say, but how should we think about, you know, the timeframe, like the clock is ticking in terms of the ability to monetize the patents. You know, as the time goes on, does the value of the patents decrease to you or to a potential buyer, or is there a way to get back damages per se or back royalties?
Yeah.
that the time is less critical?
Yes. There are two data point. You already answered one, which is those that needed our license will have to address the past deployment. It's not just time ticking away and therefore. That's one of the answer to your question. The other one is there is a myth out there about the time. There was an article published, it's factually incorrect. It's factually incorrect through almost the entire article about the number of years left on our portfolio and then the value of that. That is absolutely not true. Because if it had been true, then you wouldn't have the syndicate still, you know, wanting to make this thing happen.
I will just leave it as that. I don't wanna do a, you know, public debate with the writer, but I'm sorry, the writer is absolutely wrong. Even though, you know, this article has been around for a little while, this was reprint by a newspaper that would like to, I guess, sensationalize something that is not true. Anyway, I'll leave it as that. Yes, we could capture the past deployment, and no, it's not that short a life.
Okay, thank you for clarifying.
Absolutely.
Your next question is from the line of Todd Coupland with CIBC. Your line is open.
Hey, Todd.
Oh, hey there.
Hi, Todd. Good evening.
Hey there, good evening. I wanted to ask you about the cyber unit.
Mm-hmm.
You indicated you still expect revenue to be roughly flat year-over-year, but implied in that comment is a seasonal uptick in the fourth quarter. I'm just wondering, is that also still expected in line with prior expectations? I just wanted you to close the logic on that point with growth expected early in fiscal 2024.
Early in fiscal 2024. Okay, Todd.
Well, you commented on ARR growth expected early next year.
Yeah. Oh, yeah, of course. Yes. Yes, of course. It's a little bit of a complicated set of math, but I'll focus on the kind of the high level stuff. Yes, our Q4 pipeline is a lot more bigger than Q3. We believe that therefore my statement about the revenue relatively flat in line with the last fiscal year is a proper statement. Then there will be some billings growth because of that. Then we also take a look at you know, where the headwinds at.
If you look at all the headwinds from all the deals that we expected to either get or renew, and ones that are being attacked, especially the, you know, the mid-market state, we believe that the major part of our headwind is behind us. You know, will be behind us after Q4. Sorry, I should say that because we kinda look through it on a quarterly basis. Therefore, next fiscal year, I don't know whether it's Q1 or definitely, you know, Q2, that we expect the ARR to have a year-over-year increase, and we should continue that trend going forward. Does that answer your-
On that point.
Does that answer your question?
Yeah. Oh, yeah, that's clear. On that point, just remind us what you think the potential growth in cyber is once you start to benefit from improved product bundling and go-to-market.
You saw the three-year plan that we put out, three- and five-year plan for the release on. In fact, you know, I had recently presented to the board. We are not deviating from that at all. You could see that from John G. group, you know, the cybersecurity group. The compounded annual growth should be roughly 10%. That will be what we will focus on getting.
Okay. Thank you very much for the clarification.
Sure. Of course.
Your final question comes from the line of Trip Chowdhry with Global Equities Research. Your line is open.
Hey. Hi, Trip. Hi, Trip.
Thank you. A very solid execution in a brutal environment. Two questions. First, I had this regarding your Volkswagen deal, which is very significant. Can you give me some directional guidance or some metrics, like you won the design, it's a design win. What should we be thinking in terms of, production or revenues once these vehicles go into production? What should we think? Is it 1x, 2x, 3x? The design win revenues. Is production usually more than design wins? Any color on that will be helpful. I have a follow-up question.
Okay. In general, I'll speak to auto because our, you know, our background number are based on the auto. In general, you know, if you look at a cycle of a auto win, somewhere between 7-10 years, what we will see upfront is that probably on an overall. Let's say a deal bring us $1 million. I'm making this up, okay, on total lifetime. Obviously, it's a lot bigger than that, but let's just start with $1 million. I would say the 10% upfront, probably is something that we should expect and could expect on development seats. And then probably, you know, there's some professional services revenue. I would put it again in a range of 5%-10%.
Now, the bulk of the production will come in year normally four, five, six, seven, eight. However, we see that compressing because we're going electrified, right? Electrification. The electric vehicle market turns the product cycle a lot faster, and particularly with the Chinese. The Chinese is turning it around, you know, a cycle of three to five years instead of 7- 10. And everybody else will probably have to keep up. Now, whether they will get to three or five years, who knows? But it will shorten the 7- 10 years. We get a little bit of upfront, which is always nice. And then we get some professional services, and then we will get the production royalty.
Excellent. Now, I was also wondering, you have a very solid offering in terms of IV. Today, you mentioned the hybrid approach that is in cloud and on device, which is viable, I think, very novel, because you don't want the OEM to be penalized for success, because the success means more data. If the whole objective is to put the data into the cloud, you, that is BlackBerry, shouldn't or the OEM shouldn't be like a reseller of AWS. I like that strategy big time. I was wondering, if there's a customer who is like Volkswagen, which is already standardized on OS, are there any plans you may have to make migration or at least experimentation with IV, like just a mouse click away?
Do we have anything like that in plans? That's all from me. Thank you very much.
Yes. It's a good question. I don't wanna turn this into an announcement, but let me just say that it is logical. Let me put it differently. It will be logical for BlackBerry not to take advantage of all the assets. There's a good reason why both IVY and QNX is in the same IoT group.
Very good.
Thank you.
I would now like to turn the call back over to John Chen, Executive Chair and CEO of BlackBerry, for closing remarks.
Thank you. Thank you, operator. Before we conclude today's call, I'd like to remind everyone of our upcoming BlackBerry Security Summit. On October 27th, investors could access the SSC keynote addresses with BlackBerry executives, customer-led case studies, interactive talk on cybersecurity innovation, and best practice from BlackBerry research and intelligence team and more, all virtual and all on demand. Investors could register for the event on the investor page of our blackberry.com website. I wanna thank you all for joining our call. I'm sorry, it is always late in the East Coast, and I surely appreciate it. Thank you, and see you next time.
This concludes today's call. Thank you for your participation. You may now disconnect.