Beyond their brand names, Nokia Inc. (NYSE:NOK) and BlackBerry (NASDAQ:BBRY), at a macro level, are more similar than dissimilar. From previously dominant positions they are fighting for an infinitesimal and shrinking remaining piece of the smartphone market controlled by Apple (NASDAQ:AAPL) and Samsung. They underappreciated the importance of internal disruption, confused market share for leadership, sat on their laurels and ultimately both afflicted by the same ills that eroded their dominance. More recently, their stocks have been kept alive by analysts, loyalists and commentators who insist on seeing the tree for the forest. The bottom line is that until they identify a niche like they previously did and fill it with great products they will continue to be chickens in a fox household.
Nokia and BlackBerry peaked at different times but bled themselves to roughly the same points in key areas. R&D expense, for one, as a percentage of revenue stood at about 13% for both companies at the end of 2012. Their revenue growth trajectory even though initially different also now looks similar except that while Nokia has been on a dive since 2009, BlackBerry's first annual drop was in 2011 but rapidly accelerated into 2012 (see table below). Net income per the table and chart below also bled at similar rates and ended up trending in the same direction.
Basic EPS followed the same pattern as revenue and net income and projected to almost be at the same point by the end of 2013.
The stock prices also moved together and seemed to have been coordinated in their movements. The diagram is adequately illustrative of how closely these two stocks have mirrored each other. Over two years they have returned -73% and -61% for BlackBerry and Nokia respectively. On their one and two year charts below there is more than one instance of unexplained synchronized movements for both companies. Overlaying the charts with key events including product launches still did not provide any obvious reasons including changing analyst opinions which occurred at different times for both companies. I could only surmise that the market perceives Nokia and BlackBerry in the same way hence the synchronized movements. With both of them fundamentally trending downwards I could also not adequately explain why the stocks have been as volatile as they have been lately. The businesses are fundamentally the same and neither have done anything outside of generating sentiments (positive or negative) to warrant the attention and volatility.
Why the similar treatment?
In the aftermath of the iPhone and consequent emergence of Android/Samsung consumers and the stock market have bundled other smartphone manufacturers into "the rest." The iPhone caught everyone flatfooted and shifted the cell phone away from Nokia and BlackBerry's competencies of talk and email. They both have had areas of individual brilliance (PureView Camera on the Lumia 920, BB10) but sustaining innovations when breakthroughs are required are not enough to swing the pendulum back in your favor. Their products have had timid market acceptance and their adoption has not been at the expense of the current market leaders. If they have, they have clearly not done so in noticeable amounts. They both continue to cater to a loyal and shrinking global customer base that requires them to sell down rather than up. They need to change the conversation so Apple or Samsung's success is not interpreted as an indictment to their fate.
Nokia and BlackBerry are battleground stocks not suitable for traders uncomfortable with volatility and unpredictability. Their products are not adequately exciting and their market share is not currently defensible. The barriers to entry into the smartphone market have been greatly reduced and the growth rate is bound to mature. Maturity and more capable competition will lead to lower prices, lower margins and ultimately a need to consolidate the market to edge out the weaker players. This means Nokia and BlackBerry have a chance to make a difference or get swallowed up but they have to move quickly. The impending Q10 for BlackBerry and Lumia 928 will provide a short term lift but will fade off again like other rallies. With no clear sustainable upside catalysts to these stocks, regardless of their prices, they do not provide any real value or growth prospects. The only way to continue to invest in them is if:
- You have an edge
- You plan to trade them actively
There is a quote in Bloomberg Businessweek about Samsung that says, "Samsung makes every kind of handset in every market in every size and at every price. They are just not stopping to thing. They're just making more phones." If this is not ominous enough Apple is yet to unleash that next product everyone seems to be expecting. LG is gaining market share in the U.S. and in Europe and the HTC One has received a lot of positive reviews in addition to the impending HTC Facebook phone.
The tech market likes an upset and it is begging for one at the moment. If I were to bet on an upset from either Nokia or BlackBerry I would chose Nokia. Its partnership with Microsoft (NASDAQ:MSFT) coupled with Microsoft's relentlessness and desperation to gain traction in the mobile space might pay off. I cannot see why Nokia is not working on tablets or hybrid form factors that it could marry to its well designed and engineered hardware. There is only going to be room for one more and I struggle to see BlackBerry becoming that third alternative over Windows phones which Nokia currently has a stranglehold on.