Tech Swoons Today: Selling Off Nokia on RIM's Earnings Is a Mistake

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The drama surrounding negotiations around spending cuts and tax raises in the United States has largely seen a muted market reaction so far this month. It's hard to believe, given the level of media coverage, but coming into today the Dow Jones was actually up 2.2% on the month! However, those gains are being turned back today as Republicans cancelled a vote over the so-called Plan B, which would have raised taxes on higher earners.That move raises concerns a deal won't be reached before the end of the year.

The end result is the tech-heavy Nasdaq (NASDAQINDEX: ^IXIC  ) is off 1.35% today. Let's take a look at some big movers in today's tech sell-off.

Today's tech movers

Company Today's Move 1-Month Performance
Nokia (NYSE: NOK  ) (4.5%) 20.5%
Facebook (NASDAQ: FB  ) (2.9%) 9.3%
Research In Motion (NASDAQ: BBRY  ) (19.8%) 10.5%

Source: Yahoo! Finance. Price changes as of 1:40 p.m. EST.

All of these companies are seeing losses today well beyond the market average. However, each company's stock has seen rallies well beyond the general market across the past month. The bottom line is that on days of large market movements, stocks riding recent momentum will usually see outsized sell-offs. Such an explanation largely explains why Facebook is declining today. There's little news specific to the company, but its a stock with quite a bit of growth priced into it that's been rallying recently.

Is Research In Motion in trouble?
In the case of Nokia and Research In Motion, there's a double whammy for investors. Not only is the market in general selling off, but Research In Motion's earnings last night disappointed investors. Both Research In Motion and Nokia have been soaring recently on optimism their newer efforts can turn back market share losses in recent years and make them part of a viable third-place mobile operating system. A fear that Research In Motion is struggling can have ripple effects, spooking investors that Nokia will struggle as well in its bid to help propel Windows Phone to a more competitive position against Android and Apple's (NASDAQ: AAPL  ) iOS.

If you're a Nokia investor, I wouldn't read too much into Research In Motion's huge sell-off. The issue isn't necessarily concerns with Research In Motion's sales last quarter, as investors have largely written off BlackBerry sales levels until the release of the company's new operating system. Instead, the issue at hand is that Research In Motion signaled last night there would be continuing pressure on the "services" fees it collects for each BlackBerry handset user. In the past, such fees have generated about $60 a user per year. Last quarter, 36% of the company's revenue came from these high-margin fees. If the company starts collecting far less in services fees on future phone sales, its business model and turnaround story falls apart fast.

Nokia and Research In Motion: different turnaround tales
That's bad news for Research in Motion, but it says little about Nokia. Unlike Research in Motion, Nokia isn't charging a monthly fee for access to security and infrastructure services. It's model is largely "sell a phone, collect revenue on that phone sale." Looking at Research In Motion's plunge today and coming to the conclusion it's a bad omen for Nokia ignores the underlying problems causing today's sell-off.

Instead, if you're a Nokia investor, watching the progress of new Lumia lines and the company's ability to get carrier traction and promotion is far more important in coming months. Storylines like the 920T getting promotion on China's largest carrier, China Mobile, as counter-programming to the iPhone give me more hope in a Nokia turnaround than one for Research In Motion. That's not to say Nokia still doesn't have immense challenges in front of it, but there's little doubt in my mind the company has much more going for it than Research In Motion.

Nokia's been struggling in a world of Apple and Android smartphone dominance. However, the company has banked its future on its next generation of Windows smartphones. 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.

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10/21/2016 4:00 PM
BBRY $7.37 Down -0.11 -1.47%
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