After its Huge Pop, Is Nokia Still a Better Buy Than RIMM?
Jan 11th 2013 8:15PM
Updated Jan 12th 2013 1:05AM
In the minds of many investors, Research In Motion and Nokia share a number of similarities. Both smartphone makers are taking dramatic steps in their respective efforts to return from the brink: Nokia by hitching its wagon to Microsoft's Windows Phone 8, and RIM, by targeting the enterprise market with the Jan. 30 release of BB10. RIM also has plans to release as many as six new phones over the course of 2013, all running its new OS.
The similarities don't end with new, strategic business objectives, either. Both Nokia and RIM took steps to address management concerns, with new Nokia CEO Stephen Elop, and new RIM CEO Thorsten Heins, both taking over the reins of troubled companies. And both, at least so far, are making the right moves.
Nokia's big day
After Elop announced solid preliminary sales results for its Windows Phone 8 Lumia, investors couldn't get enough. Before the day was over, Nokia's share price had jumped about 20%, adding to what had already been a stellar six-month run. The reasons for all the positive sentiment were many, and should make Nokia's official, Jan. 24 earnings call an interesting one, to say the least.
Of the nearly 80-million phones sold in Q4, 4.4 million of them were Lumia units, exceeding even Nokia's expectations. Though all the hoopla surrounding the announcement concerned the Lumia results, Nokia's newish Asha line of phones also performed admirably, totaling 9.3 million units sold in Q4.
The variety of price points that Nokia offers its phone customers is something that even Apple is said to be considering, to the chagrin of many iFans. (This was recently discussed in more detail in this podcast hosted by several Fool analysts). And why not? Owning the domestic smartphone market is good, but to generate significant, worldwide growth, particularly in countries that don't subsidize the iPhone's steep cost, Apple needs to offer its customers low-price alternatives.
Take Samsung as an example: Its variety of smartphone alternatives is what's driven it to the top of global phone sales, surpassing Nokia as leader of the pack. Variety and different price points is something Google provides with its line of Nexus phones, and is certainly a key driver behind its solid sales results, irrespective of the crowded smartphone market.
But Nokia's announcement wasn't all about Lumia's, Asha's, or its own Devices and Services unit becoming profitable. Nokia Siemens Networks continues to perform well, in large part because of Nokia's cost-cutting initiatives taking hold, which should result in better-than-expected margins of 13% to 15%, according to the press release.
Let's not forget RIM
In spite of today's little hiccup involving RIM's European, Middle Eastern, and African customers trying to access their data services through its partnership with Vodafone, investors are continuing to focus on one thing: BB10 and its pending release. By most accounts, RIM's Dec. 20 fiscal Q3 earnings announcement was a success. Yes, revenues and operating income were down compared to the prior year, as expected. But RIM was able to eke out a small profit for the quarter, and improve upon what was already a solid balance sheet, adding almost $700 million to its coffers.
Lower revenues and total units sold in Q3 were also expected, as customers anxiously await the release of BB10. Not surprisingly, scuttlebutt surrounding BB10 is running rampant. Techradar.com tests each of RIM's new BB10 features, including BlackBerry Flow, Hub, Peek, and its easy-to-use work and home modes. Like most early reviews, the final verdict from techradar is positive, and BB10 looks like it's going to be a winner. And RIM better knock BB10 out of the park because, unlike Nokia or Google, which have multiple, disparate revenue streams, RIM has most everything riding on the success of its new OS, and the phones to follow.
RIM's new phone lineup, which includes two scheduled for introduction on Jan. 30, with four more to follow throughout 2013, is ideal. According to RIM CMO Frank Boulben, "We intend over time [to] transition the portfolio to have a full range of devices." Offering customers multiple price points is the right strategy, and should help RIM's sales in international markets, where subsidies are not the norm.
Is RIM a better value than Nokia?
As it stands now, with Nokia's meteoric rise in share price on Jan. 10, and RIM's nearly 5% pop today, determining which is the better value between the two is a legitimate question. It's worth noting that RIM's share price is up 65% in the past six months -- a healthy run of its own. Though not equal to Nokia's 133% appreciation during the same six-month period, RIM shares haven't exactly languished, either.
When it's said and done, both RIM and Nokia have a lot to offer investors. However, the differences between the two haven't changed. RIM's share price -- and its livelihood -- rely on early, and total, adoption of BB10, plain and simple. It sounds as if all signs point to "yes," regarding BB10's acceptance, but everything's riding on what is now still an unknown quantity.
Nokia, on the hand, is already in the smartphone market offering several alternatives. It has a strong, profit-generating Siemens business unit, and a patent portfolio generating $650 million annually, before counting RIM's payments from the recent patent litigation -- and pays shareholders a 5.7% dividend yield. Long-term? Don't let the recent pop in Nokia shares scare you, it remains a great buy for the mid- to long-term Fool.
Nokia, like RIM, has been struggling in a world of Apple and Android smartphone dominance. Motley Fool analyst Charly Travers has created a new premium report that digs into both the opportunities and risks facing Nokia to help investors decide if the company is a buy or sell. To get started, simply click here now.
The article After its Huge Pop, Is Nokia Still a Better Buy Than RIMM? originally appeared on Fool.com.Fool contributor Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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