I'm not going to pretend that being perceived as "unbiased" is important in my articles. It just doesn't matter in financial writing - not to me. But it seems as if "not taking sides" is preferred by some investors. Of course this is as long you don't take "the other side."
What I mean by this is, investors don't mind that a writer "rides the fence" as long as he or she is not seen as "bashing" their company. This has been my recent experience while discussing the status of beleaguered tech giants Nokia (NOK) and BlackBerry (BBRY).
The fact that I've shown such conviction is not appreciated. I'm told that I should be "more fair" in my analysis of Nokia. Remarkably, even other writers have complained that I've been too hard on Nokia, while insisting that I've spoken too "glowingly" about BlackBerry. But what exactly does that mean? There's a famous quote that says, "numbers don't lie."
To that end, I've provided the numbers. I don't have an investment interest in either company, but the numbers have shown that these two companies are on different trajectories. Yet, somehow or another, BlackBerry and Nokia are always grouped together. Whether it's to describe their dominant rise and equally swift fall, or it's in an attempt to explain the "feel good turnaround story" that they can both become.
While there's nothing inherently wrong with that, it seems that (some) investors refuse to accept the reality that only one of them can truly recover. It's a matter of simple economics. Not only are they battling for the market share not already owned by Apple (AAPL) and Google's (GOOG) Android devices, but they are fighting for what little profitability that's left.
On Wednesday, this constant comparison was brought to light once more as both BlackBerry and Nokia were grouped together again in a Barron's article. This time, Alexander Peterc, analyst at Exane BNP Paribas, said to sell BlackBerry, while citing the company's weakening service business.
Perterc was concerned that BlackBerry's recent earnings results revealed service revenue, although arrived steady at 36% of sales, or $972 million, dropped 12% year over year. Essentially, the service business dropped from $1.1 billion in Q4 2012. This is even though service revenue had only accounted for 27% of sales in Q4 2012.
While Perterc has a right to focus on the service side of BlackBerry's business, especially since services yield the highest profit margins, I think this issue is a bit overblown. I don't think this situation really hurts BlackBerry's long-term prospects. Management has shown that it is ready for what's ahead. However, this didn't stop Nokia investors from jumping for joy.
I've received emails stating how wrong I've been for being bullish on BlackBerry. While these emails cited Perterc's report, Nokia investors ignored other comments from Perterc, including the following:
"Nokia and BlackBerry are similar in several ways: both were recognised leaders in the mobile industry until the emergence of the 'modern' smartphone (iPhone and Android); both had to shed antiquated operating systems in their late and painful transformation, ultimately abandoning hopes of leadership; both have lowered their ambitions to the modest goal of becoming the 'third ecosystem' of choice for consumers and operators."
However, it didn't end there. While outlining other similarities between the two companies, Peterc pointed out their respective struggles in sustaining "legacy" profit streams. He said:
"Nokia and BlackBerry share another striking similarity. Both are funding their makeover attempts from unsustainable legacy profit pools. Basic phones accounted for 2/3 of Nokia D&S gross profit in 2012. In 2013e, this proportion falls to a still-high 47%. Basic phones are now a market in terminal decline (around -20% annually at present), under pressure from increasingly affordable Android smartphones. Nokia's position is under most threat in the higher end of the basic phone segment (feature-phones and Asha full-touch devices), which is instrumental to profit generation in Mobile Phones."
Here again, Peterc raises some good points. But I don't agree with his assessment of the long-term situation. He's painting both BlackBerry and Nokia in the same light, while I've argued based on their recent earnings report, including a 20% revenue drop for Nokia, which also fell 27% sequentially - these two are not the same.
What's more, last week, following Nokia's launch of its Lumia 925 phone, the stock dropped as much as 7%. The Street seemed broadly unimpressed by the device. Although the stock rebounded 3% shortly thereafter, it was then followed by another 4% drop. While I don't want to put too much weight on the near-term trading pattern of the stock, I'm nonetheless unimpressed by Nokia's long-term outlook.
As long as Elop is at the helm and Nokia remains so dependent on Microsoft (MSFT), Nokia's upside will continue to be limited. The fact that shares of Nokia are down 8% on the year while all of the major indexes are in record territory is a perfect example. If the company has not been able to participate in one of the best bull markets we've ever witnessed, when's it ever going to happen, especially when Apple and Samsung have been underperforming?
Perhaps more importantly, we need to ask - are BlackBerry and Nokia fighting? In fact, I don't think it's even close as to who is winning this fight - if you can call it that.