Battle of the Duds: RIMM vs. Nokia
Jun 15th 2012 7:35PM
Updated Jun 15th 2012 7:56PM
Research In Motion's (NAS: RIMM) fall from grace is a cautionary tale for technology companies at large. In addition to hiring investment bankers to help it undergo a strategic review of the business, RIM has also nominated financier Timothy Dattels to its board. While management may think they're directing the company toward a turnaround, RIM is only backing itself into a very dark corner.
A technical disaster
When is this company going to understand that it needs to revolutionize something other than its management or, in this case, its board?
At this point, it appears RIM is bent on staying the course. The Canadian company is executing plans for its new operating system that's known as BlackBerry 10 -- a decent effort. However, this is a battle that they can no longer win. Aside from the upgraded operating system being wildly overdue, this "Hail Mary" attempt will likely fall flat under pressure from industry giants, like Apple (NAS: AAPL) and Google (NAS: GOOG) .
The Mac maker now sells more iPhones in Canada than RIM sells Blackberrys. (Not to mention, the loads of enterprise customers Apple has snagged from the troubled company.) Meanwhile, Google is activating more than 900,000 Android devices a day. With competitors rolling out one popular device after another, it's hard to imagine RIM's upcoming BlackBerry 10 getting any attention at all.
Apple's new iPhone 5 is expected later this year and there's a seemingly endless supply of Android-powered smartphones hitting the market each quarter. Eventually, RIM will face the iTunes music and accept that its BlackBerry devices are quickly become irrelevant.
Still, one thing is clear: the mobile industry is red hot. In fact, according to a report by PCWorld, smartphone sales are expected to reach $230 billion before the end of the year. Yet, RIM continues to struggle.
More bad news
The once iconic BlackBerry maker is laying-off thousands of employees, as a result of its fading market share and deteriorating profits. If this sounds familiar, that's because RIM isn't the only embattled handset maker on the block these days. Mobile giant Nokia (NYS: NOK) is also bleeding customers.
In a similar way that RIM rushed to BlackBerry 10, the Finnish company's move to Microsoft's (NAS: MSFT) Windows platform isn't enough to win back share of the smartphone market. Nokia also decided that it will cut 10,000 employees before the close of 2013. Shares of Nokia have fallen more than 50% this year, with the stock trading around $2.40/share.
As if the situation isn't bad enough, Nokia's woes also threaten Microsoft's hopes of boosting its 4% stake in the mobile industry. The two tech companies forged a strategic partnership to launch PC phones in what has, so far, been a middle-of-the-road debut of Microsoft's new Windows mobile platform.
That said Microsoft, on its own, is a great stock. Ultimately, the software giant will have to find alternate ways of getting ahead in the mobile market. Nokia and RIM, on the other hand, have a much bigger problem. RIM and Nokia don't have rich ecosystems of applications, like those of Apple and Google. Apple has its App Store, and Google has its recent launch of a new marketplace that it calls Google Play.
Wait, did you say value play?
Many investors fixate on the seemingly cheap prices of RIM and Nokia, despite the mounting losses at these companies. That's a mistake. A $10 share price for Research in Motion may seem like a bargain until you consider the underlying problems facing the business. It's true, however, that both of these dying companies have solid patent portfolios.
For RIM, however, I think it's too late. The BlackBerry maker should have agreed to start licensing its software last year when it was approached by Samsung, HTC and others. While there continues to be enormous growth in the mobile market, I certainly don't see RIM making it out alive. If I had to choose the lesser evil, it would be Nokia, although I wouldn't hold my breath for a turnaround at either of these companies.
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At the time this article was published Foolish contributor Tamara Rutter owns shares of Apple. Follow her on Twitter, where she uses the handle: @TamaraRutter, for more Foolish insights and investing advice. The Motley Fool owns shares of Microsoft, Google, and Apple. Motley Fool newsletter services have recommended buying shares of Google, Microsoft, and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft and Apple. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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