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What a BlackBerry Flop Means to Nokia

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While the recent release of BlackBerry's (NASDAQ: BBRY  ) 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 (NYSE: NOK  ) and, to a lesser extent, Microsoft (NASDAQ: MSFT  ) . 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.

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 (9) | Recommend This Article (3)

Comments from our Foolish Readers

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  • Report this Comment On January 31, 2013, at 9:35 PM, ml508 wrote:

    BB isn't dead, just getting it right before putting the OS10 into consumers' hands. This is a good sign, a policy not always followed by other Big Names. And the value of the OS10 isn't in how many games it plays, it's in whether those business calls go through without being hacked, tapped or destroyed. In the world outside the US, the BB works, and much better than those games machines people like to carry. The people who write the reviews seem to like those games more than we in the workforce do, dare I say...

  • Report this Comment On January 31, 2013, at 11:55 PM, techy46 wrote:

    Too little, too late with no real advantages and differentiators.

  • Report this Comment On February 01, 2013, at 5:15 AM, lumaca81984 wrote:

    "Too Little Too late"

    I've read this word everywhere, it's just boring!

    You need to explain something.

  • Report this Comment On February 01, 2013, at 6:32 AM, dongennl wrote:

    "Strong Lumia Sales"?? peanuts

  • Report this Comment On February 01, 2013, at 10:00 AM, Salvatore65 wrote:

    The only reason it is delayed in the US is due to carriers testing..Unbelievable how carriers can delay a device like this after having more than enough time to test it. I guess Canadian carriers are superior at testing devices.

  • Report this Comment On February 01, 2013, at 10:11 AM, eidsonb wrote:

    I love how the same people cut and paste the same message over and over in these boards. They seem to have taken a position and are trying to make it so.

    How anyone can call BB10 a "flop" is beyond me. Its an awesome forward looking OS built to carry BB for the next several years as opposed to teh same iOS that has been released now on 5 phone models.

    The delay is not BB's fault but the carriers and the US Imperial Federal Gubment's.

    BB has committed 1.4 B Us Dollars to marketing. The phone is just begining.

    Why anyone would want a Windows Phone based on a bomb of an OS, Windows 8 is beyond me.

    Waiting till ATT anounces the Z10 and Q10 so I can update.

  • Report this Comment On February 01, 2013, at 1:24 PM, 12368818 wrote:

    According to the Verge and other sources, Nokia may launch these devices as early as February at MWC:

    Lumia Eos (PureView camera phone)

    Lumia Catwalk (international flagship phone)

    Lumia Laser (Verizon flagship phone)

    Windows RT tablet (with added battery in the cover)

    Reasons why Nokia is more likely the third horse in the race than BlackBerry:

    1) Competitive prices (with those prices Nokia has already returned to profitability in the recent quarter).

    2) Ecosystem (Windows Phones, Windows tablets, Windows PCs, Xbox games, Xbox Music, Microsoft Office, SkyDrive and so on).

    3) Nokia´s exclusive innovations in Lumia phones

    (PureView camera technology, HD+ sensitive screen technology, advanced mapping platform Here and City Lens, free music with no adds, offline turn by turn GPS, rich sound recording etc).

    4) China Mobile and China Unicom are subsidizing Lumia 920/Lumia 920T for a 2-year or 3-year contract starting from 0 or 1 yuan.

    Beside price competition, Nokia has already partnered with the two biggest operators in China

    (China Mobile and China Unicom together have about 90% of all subscribers in China, and China is now the biggest smartphone market in the world because of the huge population).

    5) Nokia has been just voted as the most trusted brand in the world´s second largest country India, where Nokia´s Asha phones are also selling very well.

    6) Nokia Siemens Networks (NSN) has advanced and competitive technology to build LTE networks.

    When now Dows and S&P have hit all time highs, there are barely any cheap stocks than Nokia.

    Nokia which has come down 90% from its highest is a stock to consider,

    because it is extremely cheap and the reward can be one of the biggest in NYSE for the future.

    Nokia is a stock with great upside opportunity and why:

    1) Nokia´s bankruptcy is already remote.

    Nokia has increased net cash to about $5.7 billion.

    Nokia´s worst loss has been $290 million a quarter in 2012.

    Even with this kind of loss, Nokia could still deal by its own net cash for at least 4 years!

    2) Nokia won´t have to deal with that kind of loss in the future and why

    A. Nokia has cut cost expenses. The layoff in 2012 starts to be fully effective in 2013.

    B. Now Nokia has to pay royalty to Microsoft, but Nokia has patent incomes.

    C. Nokia has managed to make the important tough work for the basis of its new platform WP.

    Nokia has already sold over 15 million Lumia phones up to date (9.9 million units from Lumia debut till the end of September 2012 + 4.4 million units in the last quarter of 2012 + January 2013).

    D. Nokia has now a high end phone that can make "halo effects" and be compared to Apple´s and Samsung´s most high-end phone, the Lumia 920.

    The demand of this phone is still high in many countries around the world. The 4Q12´s Lumia sales did not include the sales of Lumia 920 in many countries, such as India, Asia-Pacific, UAE, Latin America, and many other countries around the world yet, because the phone was arriving these countries only starting from January 2013.

    Even in Europe, many countries start to get this phone starting 1Q13, for example the Netherlands announced the phone arriving in January.

    And China Mobile received only first lot of Lumias 920T around Christmas, the second and third lot and further have arrived China, and the phone is still selling out.

    E. China Mobile deal. When now, both China Mobile and China Unicom are subsidizing the Lumia 920 heavily, the 2-year or 3-year contract is starting from

    0 or 1 yuan, and considering only less than 1/5 of Chinese people are using highest-end smartphones,

    this will result into a huge number of 2-year or 3-year contract users for Nokia in China! Besides, 3G penetration in China is still very low, there is a huge opportunity there. Additionally, among the highest end phones, Nokia Lumia 920 is significantly much cheaper than for example iPhone 5 and Galaxy Note II. Nokia has an advantage in both the price competition and the biggest carriers´ backing in China!

    F. Nokia Siemens Networks (NSN). During these few months NSN has won many 3G and 4G contracts in many countries.

    According to NSN, they have network equipment that can boost the speed of 4G many times faster. This shows that, beside PureView camera technology, HD+ sensitive screen technology, advanced mapping platform HERE and City Lens, Nokia has also top innovations in building 4G LTE networks.

    G. MWC is coming soon. There are still more to come from Nokia.

    According to The Verge, Nokia will launch PureView camera phone, and also Lumia Catwalk (code name) and Lumia Laser (code name) for Verizon.

    According to CEO Stephen Elop, Nokia is also planning a lot of interesting things with Verizon.

    Nokia is likely launching tablet as well, even with some loyal fans of Nokia around the world buying some of Nokia´s tablets, this will be a good gain for Nokia.

    Nokia will launch more Lumia phones in the coming months to attract different consumer demands. More lower price-point,

    mid-range and high-end WP8 Lumias are to come.

    In 1Q13, beside Lumia 920 and Lumia 820 which are making their way to more markets and with better supplies, Nokia is also attracting the mass markets with budget WP phones Lumia 620 and Lumia 505.

    F. Asha phones. Asha phones are now selling almost 10 million units a quarter.

    Asha phones are affordable and competitive. Asha phones have now more and more smartphone features.

    Apart from features like Facebook, Twitter etc. Asha phones

    have internet access and access to thousands of Nokia´s most popular apps.

    Nokia has also brought an app called "Nearby" into Asha phones. Nearby is almost the same as City Lens in Lumia phones which is exclusive and unique in mapping and location data.

    There is still plenty of room for Asha phones to grow, because the price is competitive (cheapest android is right now about $100, while Asha is only about $70 without any contract).

    Apart from the features and price mentioned above, there are important and good selling points in Asha phones against cheapest androids, for example 40 free most popular games!

    Asha phones are still profitable for Nokia, because the OS is from Nokia itself, Nokia does not have to pay royalty for it.

    3) While bankruptcy is remote, Nokia´s stock price is still heavily undervalued.

    NYSE tech stocks are usually 2x book value, Nokia is still way much below that.

    According to Morningstar´s valuation, the sum of parts of Nokia (NSN, Navteq, feature phones, smartphones and patent portfolio)

    is worth much more than Nokia´s stock price right now, not to mention Nokia´s $5.7 billion net cash added to that value!

    Two years ago NOK was still about $15, now the stock is only over $4, the reason is that the stock has been over sold.

    Nokia is the most short sold stock in both Helsinki and New York! The shorts are still over 20% in Nokia´s total share number which is approximately 3.75 billion shares.

    This is a huge number, considering Apple´s short interest is only around 1% and Samsung´s around 2%. When Nokia is here to stay, the shorts need to be covered and the stock will skyrocket from these levels.

    Nokia Apple Intel Microsoft Cirrus Logic

    0.32 3.0 2 3.0 3.76

    Note that Nokia is currently selling at 0.32 price/sales ratio. This means that if the company manages to restructure and return to normal profitability, the stock has the potential to become a 10x bagger (even from today's price levels) - assuming the market will value Nokia 3.0x sales like Apple or Microsoft. But even a price/sales ratio of 2, like Intel has, means a 6x bagger from these levels.

  • Report this Comment On February 01, 2013, at 3:21 PM, LynxSS77 wrote:

    I've had my Nokia Lumia for a month now and am very impressed with its capabilities.

    I work at primarily a Mac company, all developers and engineers, including myself, have MacBook Pros and virtually everyone has an iPhone. This Lumia just does many things better than the iPhone, I can tell it's set up with the business user and productivity in mind. It should handily take off from any BB stumble.

    Between showing off the outstanding camera features and its native Skype integration (which we use for everything at the office) and great notifications through live tiles etc along with the famous Nokia Lumia hammer test video I've already swayed several coworkers to switch to Lumias from their beloved iPhones. One coworker who has a smashed iphone from a drop right now is a bit of an audiophile and going to switch just on the strength of the music, dolby output, noise canceling and built in full blown equalizer alone.

    My Wife prefers the games on her cluttered Galaxy S III though, so there is some drawbacks. For getting stuff done Lumia shines, for playing games and wasting time Andriod and iOS are better

  • Report this Comment On February 01, 2013, at 6:21 PM, EddieLomax wrote:

    The strong sales that Lumia made are remarkable not for volume (4.4 million is not a lot in a quarter, although they didn't launch until 1/2 way through).

    But its more the fact that they sold high end phones in large numbers.

    Blackberry need to be able to do the same, right now they are selling feature phones that are less smart then a Nokia Asha. Its easy to sell buckloads of them, but they won't make the profits they need to keep their organisation going on low end alone.

    I'd agree on this article, while I don't underestimate the power of marketting right now their hardware is uninspiring (like the WP7 ones to be honest they had nothing special apart from looks and a light polarizer - I own one :) ).

    And their OS looks very similar to iOS and Android, personally I don't think they'll convince people to pay top prices.

    For Nokia though I'd seriously tempted for some shares, they at least seem to have this years product releases all planned out, and the Lumia 620 really could be the star of the show if they build enough of them.

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