So Much For BlackBerry Killing Nokia

| About: Nokia Corporation (NOK)

For months, we kept hearing that BlackBerry (NASDAQ:BBRY) was going to become the killer of Nokia (NYSE:NOK). Some authors and analysts kept saying that BlackBerry's operating system was going to be "the third guy" after Android and iOS while Nokia would slowly bleed to death. Because BlackBerry is a much smaller company than Nokia (with fewer business units) it was assumed that BlackBerry's turnaround would be quicker and less painful than Nokia's. It seems like this is not happening, though.

BlackBerry definitely failed to impress the investors with its last quarter. The company reported a loss of $84 million for the quarter, which is an improvement over the $518 million loss reported by it in the same quarter last year. Compared to last year, the revenue was up by 9% to $3.1 billion. The analysts were expecting the company to post a small profit instead of a loss, which triggered a sell-off, shaving a quarter of the company's share price in the process.

BlackBerry sold 6.8 million smartphones including 2.7 million Z10 and Q10. The analysts were looking for anywhere between 3 and 4 million unit sales for Z10 and Q10 combined. Furthermore, the company lost 4 million subscribers of data and security services which moved the number of subscribers from 76 million to 72 million. To make the matters worse, the company expects another loss in the next quarter. While this doesn't signify the company's death in any way, it is very clear that BlackBerry's struggles will not be ending anytime soon. Sure, Nokia has its own problems and issues; however, it has a better chance of survival, especially with Microsoft's (NASDAQ:MSFT) help.

Both Nokia and BlackBerry are strong in particular markets. BlackBerry is said to be particularly strong in the U.K., Canada and some Middle Eastern markets. Nokia is pretty strong in many parts of Europe including Finland, Italy, Germany and Spain. Recently, Nokia has been gaining some strength in Asia and North America as the company's cheaper phones are selling well. Nokia has a large number of phones that fit a variety of budgets and usages, whereas BlackBerry doesn't offer as many products. This allows Nokia to have a speedier recovery in markets where people don't earn as much as they do in North America and the Western Europe. In select markets, BlackBerry is launching Q5, a cheaper alternative; however, some analysts believe that the company is too late in the game.

As I mentioned in some of my past articles, comparing Nokia to BlackBerry doesn't make sense because the two companies address different markets, offer different products and have different business models. On the other hand, the two companies compete with each other for market share in the smartphone market while fighting for survival at the same time. Nokia is expected to gain market share at a rapid rate in many countries; while it is difficult to say the same about BlackBerry.

According to Kantar Research, Windows Phone's market share in German grew from 4.1% to 6.1% between April of 2012 and April of 2013 while BlackBerry's market share fell from 1.6% to 0.4% during the same period. In Great Britain, Windows Phone's market share jumped from 4.0% to 8.4%, BlackBerry's market share fell from 13.6% to 5.6%. Keep in mind that this is one of the strongest markets in the world for BlackBerry. In France, Windows Phone's market share jumped from 2.5% to 6.2% at the expense of BlackBerry whose market share fell from 6.4% to 3.7%. In Italy, Windows Phone's market share rose from 6.7% to 10.5% while BlackBerry's market share fell from 5.2% to 2.0%. We see the same trends in many other countries including but not limited to the US and Australia.

In BlackBerry's defense, the company is still rolling out its new products in many markets and it may be able to stop losing market share and stabilize things towards the second half of the year. Then again, by now, it is clear that BlackBerry will not be Nokia's killer like some authors suggested a few months ago.

Don't get me wrong. When Nokia announces its quarterly results next month, it may announce a loss, too; however, this is not about announcing positive or negative earnings in the short term. This is about confidence. Currently, Windows Phone is the fastest growing smart phone operating system in the world and there is a lot of momentum for it. BlackBerry lacks the momentum and it needs a strong stimulant for it to grow again.

I am long Nokia and I have a small number of BlackBerry shares. I want both companies to succeed. On the other hand, I want to be logical too. In the beginning of the year, when BlackBerry shares jumped from $12 to $18, a lot of authors here were saying that it would be $60-70 before we know it. That never happened. Again, a lot of people claimed that Nokia would be $10-12 per share before the summer, which also didn't happen. Even though I covered Nokia with tens of articles and BlackBerry with a few articles, I never gave price targets. These companies are still trying to turnaround their businesses and -believe it or not- it takes a long time to turn a multi-national, multi-product corporation around.

I won't be adding to my BlackBerry shares at the moment but if Nokia has a correction like BlackBerry is having right now, I will add to my Nokia shares.

Disclosure: I am long NOK, MSFT, BBRY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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