Why Apple, RIMM And Nokia Could Lose Smartphone Share To Samsung

|
Includes: AAPL, BB, MSFT, NOK, SSNLF
by: Stock Croc

The smartphone market is already worth billions, but it is expected to reach $150 billion as early as 2014. Add in things like the lucrative app industry, tablet sales and even accessories that most of these companies produce and the market value becomes much bigger. Research In Motion Limited (RIMM) and Apple Inc. (NASDAQ:AAPL) were the big players in the market, but now there are other companies blazing a new trail. It’s an industry that loves the current star and quickly punishes companies that can’t keep up the pace. In our opinion, Samsung (OTC:SSNLF) could be the next big winner as AT&T (NYSE:T) stands behind it.

When it comes to evaluating tech companies there is so much more to look at other than the numbers and past performance. A large factor in finding good investments is looking at new and upcoming products. If you think that a company is moving in the right direction in terms of developing the latest and most desirable products, then it is a good place to start looking.

In my opinion RIMM has dropped the ball in recent years and investors are getting tired of the constant disappointments. Co-CEO’s Mike Lazaridis and Jim Balsillie have failed to maintain their innovative edge while missing several opportunities to get ahead and performing miserably when trying to catch up. My confidence in this company was initially questioned when they failed to capitalize on a glorious marketing opportunity back in January 2009, when President Obama refused to give up his BlackBerry. During this time Balsillie was still trying in vain to buy an NHL franchise while Lazaridis seemed too disconnected from the technical operations at his company. Furthermore, RIMM began producing products that seemed as though they were rushed through development. AAPL, on the other hand, focused on their sole smartphone and managed to develop a huge app market which won over many BlackBerry users. RIMM was slow to get going with app development and when they started, the delivery was far inferior. Now the company is having difficulties with their Playbook, a tablet system to compete against Apple’s iPad and other Droid tablet systems. Canadian stores have been offering large discounts to move them out. The ploy has worked so far as it has achieved the goal of selling out almost entirely, however, the customers who purchased the Playbook for regular price aren’t happy. This also does nothing to alleviate the problems RIMM faces with a lack of apps and service interruptions that have troubled the company and its users in recent months. I think the combination of these events has RIMM in a huge hole that will take six months to a year to correct. I don’t see the stock going up significantly any time soon.

Nokia Corporation (NYSE:NOK) has always been a big player in the phone market. It has a strong presence in the mid-range handset market and up until recently the company has been dominant in overall mobile communication device sales. The problem with NOK has been a weak performance in smartphone sales. The Q3 results posted by the company were very disappointing with a $94 million loss. The difference between NOK and RIMM, however, is that NOK has been implementing big changes in order to turn their company around. Restructuring along with a new development path has led NOK to introduce a new wave of smartphones that will work on the Windows 7 operating system. It is the company’s effort to alleviate the 39% drop in sales. It may have a dominant share in low end or dumb phones, but the trend shows growth in the smartphone industry will be needed to survive.

For a while AAPL was the dominant company in smartphone sales and technology. Its market share is now feeling the pinch from Droid phones like HTC and the new Samsung Galaxy which is drawing rave reviews. The company has been producing great products with tons of apps, but in the game of “what have you done lately” it is other companies that are getting the attention. People are beginning to turn away from their iPhones for something they feel is better or more affordable. What Apple has going for it is a strong reputation for desktops, notebooks, iPods and the iStore. Overall sales are up and AAPL has a strong following that is hard to crack. As a company the numbers look good.

Looking at the numbers, we see that APPL remains strong and has continued to post strong figures while both RIMM and NOK have been disappointing.

Trades Around

Target Price

Market Cap (billions)

Estimated Value (billions)

E.P.S. (Yr. Ago)

E.P.S. (Est.)

Revenue (Yr. Ago) (billions)

Revenue (Est.) (billions)

Return on Equity

AAPL

$370

$503

$342.3

$322.5

$27.68

$34.52

$108.2

$138.9

41.7%

RIMM

$17

$26

$9.02

$8.32

$6.34

$4.71

$19.91

$19.81

33.5%

NOK

$6

$6.70

$22.39

$16.83

$0.81

$0.36

$56.28

$52.70

2.2%

I have little confidence that RIMM will turn things around in the near future. I don’t think it will be another Nortel, but right now things are a mess and some drastic changes need to happen in order to bolster consumer satisfaction and investor confidence. The company has allowed itself to fall too far behind and will be unable to regain ground any time soon. I expect more rough times before there is any significant increase in stock price. NOK is in the midst of a turnaround, but the stock is definitely a risk. It is a good effort to partner with the established software giant Microsoft (NASDAQ:MSFT), but whether the new products will be the start that’s needed to get the company back on track in the smartphone market remains to be seen. Samsung (OTC:SSNLF) has already proven itself to be a competitor. AAPL on the other hand, does not impress me with its current smartphone progress. The company does have a large and strong organization with a loyal following, though.

Samsung has experienced 18.6% revenue growth over the past year from its products in the DRAM, Flash, LCD monitor and device markets. Its 21% market share in the handset market could see significant growth as Nokia cedes further market share. Additionally, in Apple's lawsuit against Samsung I think that Samsung will have the best positioning. Apple sued Samsung for patent infringement, claiming that the Samsung Galaxy copied stylistic components of Apple's products. However, most of Apple's claim rests on design patents that do not go to the core of a product's functionality. In other words, design patents do not have the same rigor (and therefore value) of patents that utility patents command. Indeed, Samsung has redesigned its smartphone to get around Apple's claims in the E.U.

Thus, with holiday seasons in full swing, my money is on Samsung for the next quarter. After that, I’ll need to re-evaluate.

Disclosure: I am long OTC:SSNLF.