Smartphones are by far the next-gen choice, having won over a sizable amount of market share from basic mobiles.
Watsa thinks that the BlackBerry Z10 is wildly popular and attracting about 30% to 40% of other smartphone users.
The interesting thing is that Research In Motion Ltd (NASDAQ:BBRY) really has its own market, with its email platform, whereas it appears Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG) are competing more head to head.
People are estimating smartphone shipments of 1.6 billion in 2016. If BlackBerry is able to maintain a 5% market share, then you have to roughly sell 80 million smartphones. They shipped 6 million last quarter, 1 million new phones and they are already profitable. We think the fair value is around 40 something and the time horizon is long-term as always, but we feel very confident in the management team.
Nokia Corporation (ADR) (NYSE:NOK) recently posted grim first quarter results, noting that devices and services sales fell 32% year over year and guiding that same segment’s operating margin to benegative 2% in the second quarter. The total revenues weredown 20% year over year. Nokia Corporation (ADR) (NYSE:NOK) likely does not have the brand recognition to win market share in the high end market, and its low end market is suffering from strong competition. I still think Nokia Corporation (ADR) (NYSE:NOK) will continue to be the bottom feeder in the mobile industry, where Strategy Analytics believes the company has had gross missteps in China:
Nokia led smartphone sales in China with a market share topping 50 percent as recently as two years ago, only to let it slip away after ditching its own Symbian operating system in favor of Microsoft’s Windows. Local rivals such as Lenovo Group Ltd. and China Wireless Technologies Ltd., as well as giants Samsung Electronics Co. and Apple Inc (NASDAQ:AAPL). have left Nokia with a meager 1 percent share.
Apple has managed to see over 40% of its market value destroyed over the last seven months, going from its September 2012 high above $700 to now rebounding off its lows of under $400. The one positive about the pullback has been that the stock now pays a roughly 3% dividend yield, and the payout of earnings is only 26%.
Innovation has long been the key to Apple’s long-term growth, yet, iPhone sales account for 50% of Apple’s revenues, and the company remains heavily tied to the mobile phone industry. Thus, strong performance by Research In Motion Ltd (NASDAQ:BBRY) could put further pressure on Apple.
Earlier this week Apple posted EPS of $10.09, down from the $12.30 Q2 EPS as higher operating expenses offset the 11% revenue rise. Management also guided next quarter (fiscal 3Q) to $7.30 EPS, well below consensus’ estimate of $10.36. The company also cut fiscal year 2013 EPS from $40.47 to $38.32, and cut 2014 from $44.81 to $41.03.
| BlackBerry | Nokia | Apple | ||
| Price to book | 0.8 | 1.2 | 2.8 | 3.5 |
| EV/EBITDA | 3.6 | 2.2 | 5.5 | 13.2 |
Its 0.8 P/B is also near the low end of its five year range of 0.4x to 17.7x. Meanwhile, the company has been an industry leader for generating a strong return on investment, so we know the company can do it:
| BlackBerry | Nokia | Apple | ||
| Return on investment | 22% | 2% | 30% | 16% |
Don’t be fooled
Research In Motion Ltd (NASDAQ:BBRY) still has plenty of room to grow. The company has already battled its way back from near ten year lows close to $6 per share and with its 2.1 current ratio, the mobile phone company has a solid balance sheet and various growth opportunities to further spur its turnaround.
The article Canada’s Warren Buffett Is Riding This Turnaround Higher originally appeared on Fool.com.
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