While the recent release of BlackBerry's (BB -0.69%) BlackBerry 10 and Z10 smartphones were not officially a flop, the news that the device would not hit U.S. shelves until March should qualify as a quasi-flop. At a time when the company is in make-or-break, do-or-die, and every other menacing-sounding state of affairs imaginable, missteps are fairly akin to flopping. The question then becomes one of determining who gains from BlackBerry's failure. While the two big titans should see some benefit, the real winner is Nokia (NOK -0.81%) and, to a lesser extent, Microsoft (MSFT 0.37%). The BB10 has not been classified as a failure yet, and seems to have great potential; but if you believe that every gaff leads closer to the end, Nokia gets even more interesting while we wait to see the Z10 in stores.
The BlackBerry release
While both the software and hardware to be included in the new BlackBerry did receive praise from a number of sources , the overarching story of the release was the delay in bringing the device to stores in the U.S. Eric Jackson of Ironfire Capital LLC said:
The biggest disappointment was the delay in the U.S., that it will take so long before the devices get going there.
The company has made clear that it will invest the marketing dollars needed to fully hype the product, but if it is not available for sale, the effort may go largely unnoticed in the bottom line.
Nokia's upside
Not long ago, I argued that Nokia was a better rebound play than BlackBerry based on a number of factors. Nokia recently announced strong sales of its Lumia line of smartphones, and that the company had returned to profitability; additionally, the company believes it will remain profitable in each quarter of 2013 and beyond. The company also secured a critical relationship with the largest wireless carrier in China.
The smartphone landscape has become a veritable duopoly over the past several years, having two primary effects on the industry. At the consumer level, when the only real competition has been between two players, innovation has seen limited direction. This is somewhat undercut by the fact that Android-based manufacturers compete with each other; but on an OS level, if you have one opponent to beat, you focus on that task rather than general advances.
The secondary issue that has evolved from the duopoly in the smartphone market is that carriers have been limited in their ability to negotiate. There is a fair argument to be made that the combination of high subsidies and powerful controls would be alleviated by a legitimate third player in the market . If the carriers can turn to a real third option, it should open the market up significantly.
The Microsoft angle
While Microsoft is well-diversified across many business lines, the success of its smartphone business serves various strategic objectives. Perhaps the most important is that it serves to drive the expansion of the Microsoft ecosystem. This benefits not only the company's efforts to support the sale of smartphones, but supplements the strength of tablet sales. With the pending release of the new Surface Pro tablet on February 9, continuing to expand the ecosystem is important.
Another significant benefit to Microsoft of Nokia becoming the stand-alone third option is that it should help the company sell more copies of Windows and Office. Microsoft needs to be able to represent to corporate IT managers that it has the ancillary products, meaning a solid smartphone and a solid tablet, needed to justify sticking with the Windows platform. As Microsoft becomes more and more entrenched in the enterprise space with new devices, it should ultimately benefit the overall sales effort being made.
Making it investable
One significant issue I see with BlackBerry stock right now is that it will likely remain in limbo until the official U.S. release. While initial sales statistics from other venues may be minor catalysts, the U.S. is still the gold standard for the smartphone market -- as they say, "if you can make it here, you can make it anywhere." March is a long time to wait for a stock that had run nearly 130% from its recent low to tread water. Closer to the release, the stock may get interesting again, but I would avoid it in the absence of a clear positive catalyst.
Turning to Nokia and Microsoft, the lack of thoroughly good news for BlackBerry is great news for each of those companies. Nokia appeared to be the better comeback play before the unveiling, and looks even stronger now. I am very bullish on Microsoft's future, and positives for Nokia benefit Mr. Softy, as well. An allocation to both Nokia and Microsoft makes sense at current levels.
