As recently as December, the battle for third place in the smartphone arena was still fairly open, with Nokia (NOK 0.94%) and Research In Motion (NASDAQ: RIMM) the two contenders. Nokia had already released the Lumia 920, and sneak peeks at the BlackBerry 10's operating system had yielded favorable reviews. In each case, however, neither company was considered a real threat to either Google or Apple; Windows phones and BlackBerrys combined for only 7.3% of global smartphone market share. Over the past several weeks, Nokia has registered several wins and has become a part of the conversation. The question now becomes whether Nokia's success can be a road map back to relevance for RIM, or if Nokia's success is RIM's loss.
Nokia's victories
After a somewhat lukewarm reception for the release of the Lumia 920 running Microsoft's (MSFT 1.70%) Windows Phone OS, Nokia was able to score a major victory by landing a contract to sell the Lumia 920T with China Mobile. China Mobile is the largest wireless provider in China (and largest in the world) and represents a significant consumer pool for the devices. Nokia's first-mover status here is important.
Last week, Nokia reported better-than-expected preliminary results that included the sale of 4.4 million Lumias, up from the 2.9 million sold in the third quarter. Company CEO Stephen Elop said that "solid execution against our strategy enabled us to exceed expectations." The company is expected to maintain profitability throughout 2013.
Finally, Microsoft was included in a Samsung demonstration of its new OLED display technology. The new displays will allow Samsung to create flexible screens that can be wrapped around the edges of various devices, allowing for several new applications. While the initial release of this technology, called Youm, will likely be a Windows-based Samsung phone, increased visibility for Windows benefits Nokia; a Nokia phone utilizing Youm is expected as a close second-wave release.
The Nokia formula
While RIM's return to relevance is not likely to follow a similar path as the one taken by Nokia, it demonstrates that there is room for more than just Google and Apple. One of the critical differences that exists between Nokia and RIM is the former's involvement with Microsoft. A significant part of the increased awareness that the Windows phone has gotten has been from exposure that Microsoft has driven in other areas. The release of Windows 8, advertising for the Microsoft Surface tablet, and enhancements to other Microsoft products have peripherally benefited Windows phones.
RIM and BlackBerry do not have the same partnership options to leverage. RIM's advantage with the BB10 is that the company virtually controlled the smartphone market not very long ago. Many business professionals are only one or two smartphones removed from their most recent BlackBerry. While convincing them to even consider a RIM product again may be a challenge, if the company can accomplish this, it may have a fighting chance.
RIM's position
In a recent review, Andrew Orlowski wrote very favorably of the new system put together by RIM: "Once you've got used to it, and that the Hub is the home screen, BB10 is by some distance the most brutally efficient multitouch interface I have used so far. It makes the others look like hard work." If the physical device that RIM puts this system into can match the elegance of the OS, and if the company can find its own way back into the conversation, RIM may become an important player in smartphones again.
On Friday, the company announced that the new BB10 would finally be unveiled on Jan. 30. The news was enough to drive the stock up nearly 14% through Friday's session. All four of the major U.S. wireless carriers confirmed that they would carry the device when it hit shelves. John Jackson of IDC, who referred to broad carrier support as "necessary, but not sufficient" for RIM's success, said, "There are, I think, good indications that they're going to get a seat at all the tables that matter."
Just because the BB10 will be in every wireless store doesn't guarantee that consumers will seriously consider the phones. The company has a tarnished image to repair, but, as Friday's price action shows, the market is hopeful that the release will be a return to relevance for the company. Ultimately, the stock is likely to display a lot of volatility for the next several weeks ahead of the big reveal. After the device is unveiled, there will still be a lag before the BB10 hits shelves.
The stock is an interesting speculative play at current levels because despite the huge run-up the stock has experienced over the past few months -- shares are up nearly 74% in the last three months -- if the BB10 is well received, there is still a lot of upside to be had. If the device is a flop, RIM is not likely to survive and shares will be decimated rapidly. Keeping these risks in mind is important before taking a position -- long or short -- but the stock is definitely interesting going into the release.
