It is not often that the most interesting battle within an industry is waged between two relatively minor participants, but as things stand, that is exactly how things are stacking up in the smartphone wars. This is not to say that the competition under way between Apple (NASDAQ: AAPL ) and Google (NASDAQ: GOOG ) lacks any draw, just that this clash of titans has remained fairly predictable for some time. One layer down, however, the fight for third between Nokia (NYSE: NOK ) and Research In Motion (NASDAQ: BBRY ) possesses both more color and more potential for speculative returns. Perhaps the draw of the third-place battle comes from the reality that the loser faces the very real likelihood of extinction.
Setting the stage
In order to provide a reasonable backdrop against which to consider Nokia and RIM, it will be useful to briefly consider the fight at the top. According to a recent study released by Kantar Worldpanel ComTech, iOS ended October back at "the number one spot in the US. It now has a 48.1% share of US smartphone sales compared with Android which has 46.7%." While this is an important figure, it considers sales and not users. This means that for the measured period, in the midst of the hype of the iPhone 5 release, Apple has been outselling Android by a narrow margin. Research firm IDC reports that on a global basis, Android now commands 68.1% of global market share compared to only 16.9% for iOS.
The numbers speak for themselves. The real takeaway for this discussion is that over the past 12 weeks, only 5.2% of smartphones sold in the U.S. were not running on one of the top two platforms. Likewise, only 15% of the global market is not commanded by these two players. With just the scraps to fight over, the decisions made by both Nokia and RIM are critical.
Those other two players
The week of Thanksgiving saw dramatic gains for both Nokia and RIM, each of which has given something back since. Since the beginning of November, however, Nokia is up 45.3% as of the writing, and RIM is up 50.6%. The initial catalyst for Nokia was a collection of reports that the company's Lumia 920, which runs on Microsoft's (NASDAQ: MSFT ) platform, has sold better than expected. Nokia also received an upgrade from sell to buy.
While some have been skeptical that the apparent shortages of the Nokia device are supply related -- because Apple has never pulled that card -- the Lumias are selling stronger, particularly in Europe. Since the initial surge, the announcement of a partnership between Nokia and China Mobile sent shares running higher again. The alliance is a major coup for the company, having the potential to separate it from even Apple.
The catalyst for RIM was a positive review of a beta version of its new OS that is expected to be released early in 2013. Andrew Orlowski recently reviewed the system, giving it high marks: "Once you've got used to it, and that the Hub is the home screen, BB10 is by some distance the most brutally efficient multitouch interface I have used so far. It makes the others look like hard work." While Mr. Orlowski recognizes the lengths RIM needs to travel to return to relevance, let alone dominance, his review is encouraging. If the BlackBerry 10 hardware is on par, RIM has put a solid piece of equipment in the ring with Nokia and Microsoft.
This clash pits two very different players with very different starting points against each other. RIM was once the untouchable juggernaut in the smartphone arena. This is a mixed blessing as the company struggles to survive. In one sense, it was not so long ago that some of us had BlackBerrys we were keen on. My iPhone 4S was my first departure from RIM and came when it was apparent that the company was falling dangerously far behind. The other side of this argument, however, is that once a company has held and lost the top spot, it becomes even more difficult to change perceptions.
In one sense, Nokia is coming from a similar place of dominance, having once been the leading wireless manufacturer on the planet. In a more important sense, however, Nokia is an upstart with the Microsoft platform at its core. Not only has Microsoft made a massive push to catch up on the app side of the race, the company has made an across-the-board surge toward rebirth with Windows 8, the Surface tablet, Xbox music service and more. The cross-integration that Microsoft is able to offer, into which Nokia neatly fits, may provide what's needed to win this fight.
It's too early to call a winner in the battle for third, but there is an advantage to owning shares of both companies. The most likely scenario is that the winner will experience a huge infusion of growth that will drive the stock much higher. What may be lost of the loser should be more than covered by the winner's advance. It is, of course, possible that one, or both, may be acquired, or that Apple and Google will simply crush each. While RIM and Nokia are best for the speculative portion of your portfolio, each of these names has appeal at current levels.
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