BlackBerry (BBRY) and Nokia (NOK) have been crushed by competition in the last few years as Apple (AAPL) and Google (GOOG) have completely changed the technology industry. Both the companies were too slow to respond to rapid changes in the industry and were hit hard by dropping revenues and profits. They have been forced to make painful changes such as inducting new management, abandoning key products and firing thousands of employees. Both the companies have shown improved performance over the last year as they started adapting to the changed reality. Nokia has completely changed its product line-up with the Asha and Lumia series of phones, while BlackBerry has adopted a fundamentally new operating system BB 10. While concerns remain whether these companies will survive, recent news indicates that these companies are making decent progress. BlackBerry recently announced FQ413 results, which were quite impressive in my view. Nokia has also been winning market share in its traditional strongholds such as India and is coming out with new Windows 8 smartphones. The recently launched Lumia 520 is proving competitive with other Android-based phones in the same price range. I am positive on both stocks given their low valuation and turnaround prospects.
1) Software and Operating System - Nokia has abandoned its operating system Symbian in favor of Microsoft's (MSFT) Windows operating system. BlackBerry on the other hand has developed the entirely new operating system BB 10 and is refreshing its product line-up based on BB 10. The new O/S has received a number of positive reviews and Z10 sales have been pretty good in the first month of its launch. BBRY comes out as a clear winner in this area as Nokia has made itself too dependent on MSFT. While Nokia has committed itself to exclusively sell smartphones based on Windows, MSFT has not reciprocated this gesture. Top companies such as Samsung, LG and HTC are selling phones based on both Android and Windows.
2) Tablets - BBRY indicated that the company will come out with a tablet device later this year. BBRY's PlayBook failed to gain traction in the tablet market though BBRY is still persisting with the PlayBook. BBRY sold 370,000 PlayBooks in the last quarter, which would give BBBY roughly around 2.5% market share of the global tablet market. Nokia has not come out with any tablet product to date and is still in the wait and watch mode. I believe that Nokia needs to come out with a tablet product soon in order to remain a viable player in the mobile devices market.
3) Enterprise Services - BlackBerry manages to earn ~$1 billion in revenues each quarter through its software and service (BlackBerry Enterprise Server) sales. BES is a highly profitable segment for the company and remains one of BBRY's strongest advantages. Nokia does not have a money spinner in the software/services area like BBRY. BBRY is a clear winner in the services area.
4) Balance Sheet Strength - The balance sheet of both the companies are in relatively decent shape. BBRY has managed to retain ~$2.9 billion in net cash despite the marketing spend on Q10 and Z10. Nokia also has a healthy amount of cash though the negative free cash flow is causing concerns amongst investors. The balance sheet of both the companies pale in comparison to the ~$137 billion in cash held by Apple. There is no big winner in this area, though Nokia is slightly ahead in terms of net cash.
5) Smartphone product range - BlackBerry currently only has one product, which uses the new BB 10 operating system while Nokia has Windows 8 products at almost all price points. BBRY has committed to introducing lower-priced smartphones using BB 10 later this year. Nokia has smartphones for all price segments with its "Asha" range of "quasi" smartphones targeting the below $100 segment. Nokia is a winner in this area though BBRY might come close to Nokia by next year.
6) New Products and Marketing - Blackberry's Z10 has made more media headlines than Nokia's flagship 920 smartphones. Mainstream media has come out with innumerable news stories about the success/failure of Z10. Hundreds of reviews have been written about the Z10 and the new BB 10 operating system. Lumia 920 did not manage to create this much buzz when it was launched last year. BBRY is a winner in this area.
7) Stock price performance - BBRY has clearly outperformed Nokia's stock over the last one year giving a return of ~3% compared with the ~41% loss shown by Nokia. In the last three months, the stock outperformance has been greater with BBRY returning ~30% compared with the ~20% loss shown by Nokia. The market clearly believes more in the BBRY story than the Nokia one.
8) Revenue Trend - Nokia is much bigger in size as BBRY is focused on the smartphone segment while Nokia caters to all mobile segments. Nokia has a stronger global distribution and manufacturing network compared with BBRY. Nokia is the second-largest seller of mobile phones in the world with an estimated ~20% market share. BBRY on the other hand is a much smaller company. Both the companies have seen their total sales decrease with BBRY showing a greater decline than Nokia.
BlackBerry has a market valuation of $7.9 billion and trades at a P/B of 0.8x and P/S of 0.7x. Nokia on the other hand has a greater market valuation of $12.2 billion but trades at a lower multiple (P/B of 1.2x and P/S of 0.3x). Both the companies posted losses in 2012, so valuing them using the P/E ratio does not make sense.
BBRY is beating Nokia toward making a comeback in the mobile devices industry. Even the stock market is voting for BBRY more than Nokia, which can be seen by the relative stock performance. BBRY has impressed the market with its most recent quarterly results but the company needs to do much more in order to survive. I believe that BBRY will benefit by being acquired by a bigger technology company. Nokia is also making slow progress as the company is much bigger in size. NOK has been less aggressive than BBRY in introducing new products and taking more risks. However, Nokia has more valuable assets than BBRY (patent portfolio and Nokia-Siemens JV). I believe that both the companies are buys given their current valuation.