Nokia (NOK) is Shaping Up to Be Another RIM (RIMM), And That's Not Good...
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Okay, it's finally been said so we're going with it: Nokia (NYSE: NOK) and Research In Motion (Nasdaq: RIMM) are both running on borrowed time.
Astute investors may notice recent market data which has showed Google's (Nasdaq: GOOG) Android and Apple's (Nasdaq: AAPL) iOS dominating the smartphone scene. Data from StrategyAnalytics showed Android controlling 51 percent of the smartphone market globally, following by Apple with a 24 percent share. Symbian, which is used is Nokia smartphones, has a 12 percent share while RIM's BlackBerry maintains a 9 percent share.
Otherwise, the average Joe off the street might simply notice the lack of BlackBerry and Nokia phones floating around. Their friends are using an Android or Apple device, no doubt, with the rebellious ones sporting a BlackBerry at best.
However, Wednesday's warning by Nokia indicated the low-end smartphone market -- which it had been banking on -- is dropping out. Nokia's Lumia smartphones, which run on Microsoft (Nasdaq: MSFT) Windows Phone, have shipped about 2 million since debuting last November. That's not too shabby but considering Nokia shipped 80 million devices in the first quarter and Apple shipped nearly 40 million iPhones in the same period, the numbers are far below expectations.
The debut of Nokia's Lumia 900, the company's 4G offering on AT&T's (NYSE: T) network, came with a slew of glitches which prompted Nokia to offer a $100 gift card. With the Lumia 900 going for $99.99 with a new contract, the device then becomes free for consumers. Less free will be Nokia's margin expansion, as giving away smartphones is generally considered "bad business" by most outlets.
Nokia also launched the Lumia 900 on Easter Sunday, a move which makes sense because stores are... closed?
Both RIM and Nokia are placing bets on new operating systems later in 2012, with RIM's BlackBerry 10 and Nokia's adaptation of Windows 8 mobile to happen. Both are also expected to be profitable for the balance of 2012: Nokia is currently slated to post earnings of 14 cents per share while RIM will report EPS around $1.96. However, Nokia's estimates by the Street are sure to be updated with the recent announcements; RIM is expected to report a decline for its 2013 EPS to $1.79.
As mentioned, time is a-ticking for the duo and regaining market share won't be easy. In the U.S. and Europe, Google and Apple are certainly innovating new systems and emerging markets will become more and more saturated with lower-cost, locally-made devices.
For its part, Nokia has begun outsourcing work to Asia and is setting up shop in EMEA regions, akin to moves RIM announced earlier in the week (RIM is planning a flagship store in Dubai, UAE, opening up within the next 12 months). Those moves will help Nokia and RIM improve margins, though margins can be 99 percent and if no sales happen, then it won't matter.
Focusing on Nokia for one last second, there is the matter of a dividend payout. Nokia doles out about 4.5 cents per quarter, which, due to the low stock price, is currently yielding a kingly 4.4 percent annually. The dividend costs Nokia about $1.5 billion each year and here's the kicker: free cash flow for 2012 is only expected to be at $300 million or so. Even halving the dividend would cause some investor concerns, leaving some with no choice but to hit the exits.
Solution? Nokia and RIM merge. It'll be the least expected thing, like a dog and cat becoming best friends or a smoking-hot supermodel giving a full-on impromptu oral dissertation on Dostoevsky's Crime and Punishment and how the symbolism presented in the text is a more significant theme to the novel than Raskolnikov's idea that he is a "superman."
Reason behind the merge: Nokia makes great handsets (anyone see another OEM coming up with a cyan case?) while BlackBerry 10 should be a knockout. In any case, the merger shouldn't prevent a new company from utilizing Microsoft's Windows Phone 8 because Nokia already has an agreement in place. And why not do two operating systems? Samsung does it all the time and continues to place high in global handset sales lists.
Low handset sales and continual burning through cash will have Nokia taking the same Robert Frost-like path: strategic alternatives.
Nokia shares are down again on the session, while shares of RIM are trading higher.
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Astute investors may notice recent market data which has showed Google's (Nasdaq: GOOG) Android and Apple's (Nasdaq: AAPL) iOS dominating the smartphone scene. Data from StrategyAnalytics showed Android controlling 51 percent of the smartphone market globally, following by Apple with a 24 percent share. Symbian, which is used is Nokia smartphones, has a 12 percent share while RIM's BlackBerry maintains a 9 percent share.
Otherwise, the average Joe off the street might simply notice the lack of BlackBerry and Nokia phones floating around. Their friends are using an Android or Apple device, no doubt, with the rebellious ones sporting a BlackBerry at best.
However, Wednesday's warning by Nokia indicated the low-end smartphone market -- which it had been banking on -- is dropping out. Nokia's Lumia smartphones, which run on Microsoft (Nasdaq: MSFT) Windows Phone, have shipped about 2 million since debuting last November. That's not too shabby but considering Nokia shipped 80 million devices in the first quarter and Apple shipped nearly 40 million iPhones in the same period, the numbers are far below expectations.
The debut of Nokia's Lumia 900, the company's 4G offering on AT&T's (NYSE: T) network, came with a slew of glitches which prompted Nokia to offer a $100 gift card. With the Lumia 900 going for $99.99 with a new contract, the device then becomes free for consumers. Less free will be Nokia's margin expansion, as giving away smartphones is generally considered "bad business" by most outlets.
Nokia also launched the Lumia 900 on Easter Sunday, a move which makes sense because stores are... closed?
Both RIM and Nokia are placing bets on new operating systems later in 2012, with RIM's BlackBerry 10 and Nokia's adaptation of Windows 8 mobile to happen. Both are also expected to be profitable for the balance of 2012: Nokia is currently slated to post earnings of 14 cents per share while RIM will report EPS around $1.96. However, Nokia's estimates by the Street are sure to be updated with the recent announcements; RIM is expected to report a decline for its 2013 EPS to $1.79.
As mentioned, time is a-ticking for the duo and regaining market share won't be easy. In the U.S. and Europe, Google and Apple are certainly innovating new systems and emerging markets will become more and more saturated with lower-cost, locally-made devices.
For its part, Nokia has begun outsourcing work to Asia and is setting up shop in EMEA regions, akin to moves RIM announced earlier in the week (RIM is planning a flagship store in Dubai, UAE, opening up within the next 12 months). Those moves will help Nokia and RIM improve margins, though margins can be 99 percent and if no sales happen, then it won't matter.
Focusing on Nokia for one last second, there is the matter of a dividend payout. Nokia doles out about 4.5 cents per quarter, which, due to the low stock price, is currently yielding a kingly 4.4 percent annually. The dividend costs Nokia about $1.5 billion each year and here's the kicker: free cash flow for 2012 is only expected to be at $300 million or so. Even halving the dividend would cause some investor concerns, leaving some with no choice but to hit the exits.
Solution? Nokia and RIM merge. It'll be the least expected thing, like a dog and cat becoming best friends or a smoking-hot supermodel giving a full-on impromptu oral dissertation on Dostoevsky's Crime and Punishment and how the symbolism presented in the text is a more significant theme to the novel than Raskolnikov's idea that he is a "superman."
Reason behind the merge: Nokia makes great handsets (anyone see another OEM coming up with a cyan case?) while BlackBerry 10 should be a knockout. In any case, the merger shouldn't prevent a new company from utilizing Microsoft's Windows Phone 8 because Nokia already has an agreement in place. And why not do two operating systems? Samsung does it all the time and continues to place high in global handset sales lists.
Low handset sales and continual burning through cash will have Nokia taking the same Robert Frost-like path: strategic alternatives.
Nokia shares are down again on the session, while shares of RIM are trading higher.
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