The past week saw quite a few developments in the mobile sector. Apple’s (NASDAQ:AAPL) stock fell below $500 for the first time in close to a year on concerns that iPhone 5 sales may come in below expectations when the company releases holiday quarter earnings next week. Nokia’s (NYSE:NOK) 50:50 JV with Siemens, Nokia Siemens Networks, also had more good news to report following its announcement of Q4 margins guidance beat last week. The wireless infrastructure vendor touted another LTE win in the U.S., announcing the completion of U.S. Cellular’s second wave of LTE launches this week. Meanwhile, Research in Motion (RIMM) is up more than 25% over the past week as optimism surrounding a turnaround gets stronger ahead of the BB10 launch later this month.
After peaking at $700 in September 2012, Apple has declined by almost 30% in four months and is now trading below $500 for the first time in almost a year. A big reason for the current dip has been multiple press reports about Apple cutting component orders for the iPhone 5, which have fueled concerns over a possible slowdown in iPhone demand. Considering that the iPhone is the single biggest driver for Apple and accounts for over half of the company’s value by our estimates, the intense market nervousness is understandable. However, while cutting orders may mean that Apple is starting to see competitive pressures on iPhone demand, it is not necessarily the only reason why Apple may have wanted to slow the production.
Firstly, Apple could have placed a huge manufacturing order for the iPhone 5 initially, anticipating supply chain bottlenecks and that the smartphone may have been difficult to manufacture with good yields initially. As yields improved over time, however, Apple may have decided to cut orders to avoid channel overfill and manage its working capital better. Secondly, coming off a potentially strong holiday quarter, iPhone demand is naturally expected to see a slight slowdown in the next quarter. Thirdly, there has been speculation that Apple could release a new iPhone every six months instead of its usual yearly cycle. If so, it would make sense to cool down manufacturing in the quarter ahead of the new phone’s launch. (see Sticking With Apple’s $700 Price Estimate In An Uncertain Market)
After spending weeks consolidating at the $12 levels, RIM is seeing a renewed surge in buying interest as investors are turning bullish about the prospects of the new BB10 platform ahead of its launch later this month. The BlackBerry maker has jumped close to 25% over the past week as confidence grew that the BB10 devices will be getting the all-important carrier support necessary for the new platform to take off. After Verizon (NYSE:VZ), AT&T (NYSE:T) and T-Mobile, it was Sprint’s (NYSE:S) turn to announce that it will be carrying the upcoming BB10 devices, helping RIM complete a sweep of the four national carriers in the U.S. Earlier, RIM had announced that around 150 carriers across the world are testing out the new BB10 devices in their labs, and that they will be made available soon after BB10 is officially released on January 30.
However, while it is crucial that BB10 receive all the carrier support necessary for RIM to execute a tough turnaround, this alone doesn’t ensure that BB10 will be accepted by customers. The initial reviews of the platform have been positive (RIM has offered sneak peeks at its new OS), and the company is looking to launch six new BB10 devices at various price points in order to get the best shot at capturing customer as well as developer interest this year. But in a smartphone market largely dominated by the iOS and Android, carving out a niche for BB10 could prove exceedingly tough. More so now that the market seems to be getting even more competitive with Windows Phones’ apparent resurgence during the holiday season. Keeping this in view, we maintain our $12 price estimate for RIM stock, about 10% below the current market price. An upside/downside to our price estimate completely hinges on the kind of success and market share gains that BB10 sees in the coming months. (see RIM Bounces 14% On Optimism Ahead of BB10 Launch)
While the spotlight has been mainly on Nokia’s smartphone business of late as the company negotiates a tricky turnaround with its Windows Phone-based Lumia series, its oft-ignored telecom joint venture with Siemens seems to be finally turning the corner. Nokia Siemens Networks (NSN), the 50:50 JV between Nokia and Siemens, recently issued positive guidance for the fourth quarter 2012, announcing that its operating margins (non-IFRS) will exceed its previous guidance on the higher end by at least 100 basis points. This continues the good show NSN has put on in recent quarters with a good number of LTE wins in the Asia-Pacific, where Japan and Korea are driving a bulk of the LTE spend currently. What’s more, as the LTE transition continues in full swing, NSN has managed to snag a couple of important 4G deals with T-Mobile and U.S. Cellular in the U.S. as well – a region where NSN’s 4G prospects have been pretty dismal until recently. (see Nokia Gets A Boost As Its Infrastructure JV Returns To Strength On LTE Wins)
Disclosure: No positions.