Better Comeback Play: RIM or Nokia?

With this Wednesday's release of the BlackBerry 10, the time has come to decide which is the better comeback play between Research In Motion (NASDAQ: BBRY  ) and Nokia  (NYSE: NOK  ) . Where Nokia has been quietly -- maybe too quietly -- building momentum, RIM is going all in with the new release. RIM's stock is up nearly 130% in the last six months, although shedding some heading into Wednesday, and while the immediate reaction may not be the correct one, the BB10 is the ballgame. Each of these companies was once a juggernaut in its own right -- RIM in smartphones and Nokia in the entire mobile device spectrum.

The story is shaping up to be a true "tortoise or the hare" race for third place in the smartphone kingdom, but it is unclear if that assertion proves true or if RIM can rocket ahead and survive. Beyond the drama being staged for Wednesday is the question of which stock makes sound investment sense. Even if RIM has a fighting chance in this race, there is a real argument that it has run too far too fast and is ready for a fall. Let's consider.

Nokia is spreading its wings
Not long ago, Nokia announced that it had sold 4.4 million Lumia smartphones in the quarter, a solid increase from the 2.9 million it sold in the third quarter. The smartphones that run on the Microsoft's (NASDAQ: MSFT  ) Windows platform are a critical product line for both companies. Nokia abandoned its own Symbian OS in favor of the partnership with Microsoft. A solid Windows-based product is a critical part of Microsoft's push back into the limelight.

The sales figures build on the momentum the Lumia line received when China's largest wireless provider adopted the Lumia 920t as one of its flagship offerings. Based on both the signing of this deal and the solid operating results, Nokia has returned to profitability and believes it will stay there for each quarter of 2013 and beyond. It is also seeing the benefits of various cost-cutting measures it has put into place. Overall, the company is back on solid footing and on a trajectory to perform into the future.

RIM's shooting star
If you can forgive the myriad mixed metaphors, the takeaway is that the release of the BB10 is the single most important event for RIM in the foreseeable future. IDC analyst Ramon Llamas said, "This is RIM betting the farm -- it's that big, it's that important." Llamas also noted that CEO Thorsten Hein, who will be introducing the product personally, is essentially betting his entire career on the success of the new device.

The company is coming off of six consecutive quarters of declining sales and falling market share. The positive price action in the stock is largely speculative and appears to be driven by institutional buying. The real concern for the rest of us is that if this turns into another case of "buy the rumor, sell the news," regardless of the reception the BB10 receives, the stock could get hammered. Preparation for such an eventuality may explain the stock's weakness during Monday morning's trading, just ahead of the release.

On the other hand, there are a great many business professionals who are only one or two smartphones away from their last BlackBerry. The challenge that RIM faces is to get those users who once faithfully relied on their BB to even consider a new one when it becomes time to upgrade again. This need is likely central to the company's decision to make a major push into the ad market, including the announcement that it will be running ads during the next Super Bowl.

And the winner is...
There is a strong argument that everyone from consumers to the wireless carriers would like to see a legitimate third option. The combination of high subsidies and sweeping influence would largely be alleviated by the entrance of a legitimate third choice  that the carriers could push in stores. Consumers would benefit because in a duopoly, the players are more interested in beating each other than serving their customers.

While I, as a former BB fan, would love to see the BB10 survive, Nokia feels better positioned at this point on multiple fronts. The Microsoft partnership gives the company a huge amount of support, not just financially but in terms of exposure. The third option must be a legitimate ecosystem provider and the breadth of influence that Microsoft carries is hard to rival, particularly by the beleaguered likes of RIM.

From an investment perspective, there is a serious risk that after RIM's run, the stock may get hammered as shareholders take profit to reduce risk. Nokia has not run as far, but the slow and steady approach of the company and the stock is more appealing for my investment capital. RIM may become interesting again in the future, but as things stand, Nokia is the better rebound play right now. 

 

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.


Read/Post Comments (10) | Recommend This Article (3)

Comments from our Foolish Readers

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  • Report this Comment On January 28, 2013, at 8:53 PM, TimKnows wrote:

    Oh well, I hoped to find something here, just some old data and zero mention of the amazing Z10. Nokia doesn't have a Z10 or BB 10 OS so they aren't in the race. Watch their sales halt when the Z10 hits the market.

  • Report this Comment On January 28, 2013, at 8:59 PM, sagistar73 wrote:

    Its astonishing the lack of analysis on projected sales versus share price, debt, cash flow etc. Microsoft partnership is the worst thing that Nokia has going for it, their fates are tied to Windows 8 in a fiercely competitive arena that rewards innovation and design - both of which Microsoft is not known for. Microsoft can afford to lose this battle, but not Nokia.

  • Report this Comment On January 28, 2013, at 9:14 PM, marv08 wrote:

    Let's pick up on some of these points:

    "Each of these companies was once a juggernaut in its own right -- RIM in smartphones and Nokia in the entire mobile device spectrum."

    The iPhone in 2007 made all of RIM's smartphones dumb phones overnight. Nokia has not done laptops, netbooks, tablets, mobile gaming devices (well, they did one netbook, but it was a complete failure)... they were never covering "the entire mobile spectrum". They did have huge feature phone sales in addition to smartphone sales though.

    "The story is shaping up to be a true "tortoise or the hare" race for third place in the smartphone kingdom,..."

    Just to be truthful here... Samsung's Bada OS was outselling Windows Phone for most of 2012. They are not even in line for the "third place".

    "Not long ago, Nokia announced that it had sold 4.4 million Lumia smartphones in the quarter, a solid increase from the 2.9 million it sold in the third quarter."

    Nokia was selling 4 million Lumia smartphones in the second quarter 2012. So, the actual increase was 10% in six months. Just as a reference point: the smartphone market itself grew approx. 57% in these six months. So, FACT, Lumia's market share declined!

    I am not a RIM customer and I have no intention of becoming one. I also do not own any stock or options. Still: RIM has more subscribers than WP has actual sales, and for all of 2012 they outsold MS-powered devices by miles. IF BB10 is any good, and I won't give an opinion on that before it is shipping, and IF the new devices are any good, dto., ... they will have the number three spot for sure, while MS/Nokia will still have a long way to go to even see number four.

  • Report this Comment On January 28, 2013, at 9:38 PM, Arthur1111 wrote:

    Since Sep:

    Investors who chose Apple lost 36%

    Investors who chose RIMM made 160%

    RIMM wins by 196%. The Fools need to explain why they elected to favor Apple instead of RIMM before anyone pays attention of nonsense articles such as this one.

  • Report this Comment On January 28, 2013, at 9:56 PM, digitally404 wrote:

    To keep it blunt,

    RIM is going to be your best bet this year.

  • Report this Comment On January 28, 2013, at 10:28 PM, vv234 wrote:

    InfoThatHelp,

    Your analogy is very interesting but I happen to agree with you. Let's wait and see if this mobile war will play out just like the "Gulf War".

  • Report this Comment On January 28, 2013, at 10:52 PM, techy46 wrote:

    Nokia - quit wasting my time!

  • Report this Comment On January 28, 2013, at 11:31 PM, KaKLR wrote:

    To Arthur1111,

    I like the way you choose selective points in a stocks' value. Why don't you move your point from last Sept to 2008 and tell us the magic number you come up with then.

    Logic like this almost says - wow - they went public with shares at 1.00 - it's worth 17 today - wow - 1700% ....

    And the other comment - "think of RIM as Iraq" - why not just "think of RIM as Chinese?"

  • Report this Comment On January 28, 2013, at 11:35 PM, TimKnows wrote:

    InfoThatSucks - will need medical health in 2013. Nokia will stop selling smartphones in America until MS packs up and takes WP8 with them. All things MS will fail in 2013.

  • Report this Comment On January 29, 2013, at 7:02 AM, RandomMeaning wrote:

    RIM has been rising recently based on hope, nothing new has been announced to serve as an actual support. The sell on the news part is already starting. As a company, RIM has the potential to be a small player in boutique corporate security. Which could be a good business to be in if they keep their costs low and profits solid. Unfortunately, instead of concentrating on strengths, they are trying to make a play for the whole market. They are going to spend a lot of time and money following that dream but it might bankrupt them in the process. The other players are just too well funded for RIM to do more than flare up for a quarter or two, then sputter in the long haul.

    While RIM is in danger of self-inflicted wounds, Nokia is actually in more danger from its supposed partner. Microsoft has already thrown Nokia under the bus several times but the killing blow is likely to arrive when Microsoft announces "Microsoft Windows Phone 09 Windows Edition Made by Microsoft" as their signature product and end of lifes Windows Phone 08 leaving Nokia in a dead end alley with a dump truck bearing down on them.

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