After its Huge Pop, Is Nokia Still a Better Buy Than RIMM?

In the minds of many investors, Research In Motion (NASDAQ: BBRY  ) and Nokia (NYSE: NOK  ) 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.

 
 
 
 
 

Read/Post Comments (12) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 11, 2013, at 11:32 PM, techy46 wrote:

    Nokia has the better business model relying in Microsoft software engineering and saving all those resources to focus on device features and service to distingusih their smart phones. Nokia can offer their devices with their own apps and those of Microsoft and other 3rd parties. Developers will flock to W8 and WP8 ecosystems as the number grow larger and larger, NOkia's Elop made a great decision and can always put Android on his WP devices if he needs to match HTC or Samsung in that arena but it's not likely any time soon.

  • Report this Comment On January 12, 2013, at 1:00 AM, garifolle wrote:

    I don't not know why this discussion about one or the other.

    Buy both!

  • Report this Comment On January 12, 2013, at 2:58 PM, cool8man wrote:

    Nokia seems like the safer pick. Nokia is free to focus completely on hardware and apps while Microsoft does the heavy lifting on the OS, ecosystem and advertising. RIM has to do everything itself. Nokia has already delivered cutting edge hardware (camera and screen technology) with the Lumia series and is holding onto significant market share on low end devices with Asha. Nokia also has ancillary businesses which are doing very well. Also due to the investments that Nokia has put into their camera and mapping technology and other apps if Nokia were to adopt other platforms their stock would be worth more than RIM's.

    Barring a surprise breakout hit from BB10, there seems to be much more potential for Nokia. If BB10 flops, and January is a terrible time to launch a new OS, I believe RIM is finished.

  • Report this Comment On January 13, 2013, at 8:55 AM, RandomMeaning wrote:

    Something interesting about Nokia's recent report that Microsoft supporters are glossing over (or perhaps they are unaware of) is that the Asha OS is Symbian, not Windows. In other words, a lot of Nokia's success is arriving in spite of severing their own head by turning over all of their OS R&D to Microsoft, not because of Microsoft's support.

    In fact, it's quite possible that Nokia would not have suffered their massive loss of market share and profits if it had concentrated on continuing development of their own OS's. Considering the massive losses Nokia has suffered while waiting for Microsoft to get around to launching their Windows Phone 08 efforts, they could have hardly done much worse.

    Of course, it's far too late for that so we have to settle for what is happening now instead of what could have been. Here are some questions which Nokia was unwilling to answer:

    What was the mix of older Lumia models versus newer one?

    What did Nokia have to agree to land the deal with China Mobile? Any builder can sell through carrier as long as they are willing to cut a deal. Considering China Mobile was clearly in the driver's seat, what will this cost Nokia now and in the future?

    In relation to RIM, Nokia might have the advantage since they have Microsoft's paying support. Then again, Microsoft has knifed Nokia in the back a few times already and there is a certainty that Microsoft will compete with their "special partner" directly by selling a Microsoft cell phone. Since Microsoft has learned all they could from their partnership with Nokia, what need will they have for propping up a competitor in the future.

    In the end, maybe that was what this was really about: learning from the dominant player and destroying them from within. The part that didn't play out as planned was Microsoft's OS filling in the holes left by Nokia. Google took over the dominant market share instead. Maybe Microsoft can partner with Google . . .

  • Report this Comment On January 13, 2013, at 4:05 PM, theflew wrote:

    @RandomMeaning

    Asha is different than Symbian that Nokia runs on their higher end devices like the N808, N8, etc. Those ran S60 versus S40 on the Asha line - totally different. The tech market had no faith in S60. No matter what Nokia did it would be considered old. It was the same issue Palm had and RIM has. Palm tried, but what they released wasn't enough, though there were some good things.

    RIM really has to hit the ball out the park in a couple of weeks. Otherwise their message is going to be lost in new iPhone rumors, Samsung Galaxy rumors and Nokia Lumina rumors which have already started.

    RIM has no music store, video store, book store so they are going to have to partner which the others don't.

  • Report this Comment On January 13, 2013, at 4:59 PM, RandomMeaning wrote:

    @theflew

    I agree on your points about RIM. I even agree with your points concerning Nokia in that Symbian would not have been competitive at the high end. Would their Meego and or Maemo OSs have succeeded? We'll never know for sure.

    From what I have read the Meego phones were doing quite well in spite of Elop limiting their distribution and availability. I find it hard to believe that they could have done much worse than what has happened. At least then they would have some control over their own future.

    Now they are almost entirely dependent on Microsoft but Microsoft doesn't really need them any longer. That's a very bad position to be in for Nokia. I am very concerned for Nokia, a company which I was had great respect for prior to wasting their opportunities as the leading cell manufacturer, hiring Elop, and cutting off their own head by outsourcing the brains of their phones. The past few years have proven how well that has worked out.

  • Report this Comment On January 13, 2013, at 5:20 PM, rangelife wrote:

    Does Samsung have its own music and book store? No? So is that the only way for a smartphone company to succeed? Seems not!

  • Report this Comment On January 13, 2013, at 6:40 PM, stapleboy wrote:

    Great link coolheat. I saw that as well. It's gone viral.

    I also saw a survey that showed that 92% of people will be buying a BB10 when they purchase their next phone.

    That is massive .... probably why the shares rocketed higher on Friday. Hopefully, some of the shorts covered, because if they didn't, they are going to loose everything.

    FYI, I will be ditching my iPhone and getting a BB10. It's the cool factor now.

  • Report this Comment On January 13, 2013, at 10:51 PM, ctyank99 wrote:

    RIMM is done! Kokia (NOK) is a much better company and much better stock!

  • Report this Comment On January 13, 2013, at 10:51 PM, ctyank99 wrote:

    RIMM is done! Nokia (NOK) is a much better company and much better stock!

  • Report this Comment On January 14, 2013, at 12:06 AM, RandomMeaning wrote:

    coolheat, I get that this is what you are payed to do but you are over selling RIM and setting up an expectation that anything less than instant domination by RIM is a failure. I don't think that's what your corporate masters intended.

    On the other hand, if all you're doing is trying to get the share price to spike high enough to feel comfortable selling off your stake, you're spitting into the ocean. Bragging about something that has yet to prove itself while disparaging those who have proven successful year after year does nothing to sway those who already know the data. Those easily influenced by such tactics are not the ones likely to be searching for their answers in the comments section.

    Don't get me wrong, I am pleased that RIM has had the courage to move forward with their own OS rather than selling out to Google or Microsoft but you're making it sound like it's the Second Coming It's not. It's just another smart phone with it's own capabilities and limitations. A lot of limitations when compared to the greater market. Bluster and bravado while haranguing everyone isn't going to change that.

    By the way, Scoble isn't exactly someone to brag about quoting. He wasn't even that big a deal when he worked for Microsoft. It's kind of like quoting Woz. People love him for his willingness to give an odd sound bite but his big moment was decades ago.

  • Report this Comment On January 14, 2013, at 8:44 PM, stapleboy wrote:

    $38.00 ? Is that all you give it?

    Someone was saying that this is a $225.00 in 18 months stock. That is why it is rocketing higher day after day. It will be up to $25 in a very short period of time.

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