The smartphone industry has been the highlight of technological developments in 2012, with some of the players reaping abundantly, while others have struggled to barely cling on their market shares. While evolving giants Samsung Electronics Co., Ltd. (LON:BC94) and Apple Inc. (NASDAQ:AAP) have dominated in almost all charts, Nokia Corporation (NYSE:NOK), and Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM) have been forced to scavenge for the pieces, as they continue to lose their market shares to their peers.
Both Nokia Corporation (NYSE:NOK) and Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM) face various challenges, other than the undeniable junior comparison to market leaders, Apple Inc. (NASDAQ:AAPL) and Samsung Electronics Co., Ltd. (LON:BC94). Nokia’s fall from grace continues, as it is expected to record a market share of about 5%, by the end of 2012, with this figure declining further in 2013 to about 2.5%. Interestingly, Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM) carries similar estimates for both 2012 and 2013, though there is 0.2 percentage points difference between its 2012 estimate of 4.9% and Nokia’s estimate of 5.1%.
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The two smartphone makers are, slowly surrendering in the battle, as pressure from Porter’s five forces continues to build intensely. Additionally, the macroeconomic environment is not as friendly as before, while consumers are becoming more precautionary in their purchase decisions, due to the ensuing high cost of living, against a deteriorating economy.
Nokia Corporation (NOK)
Credit Suisse Group AG (NYSE:CS) analysts believe that there is still some value in Nokia’s brand, which is estimated at about EUR 1 billion from 10.7 billion in 2011, whereas its Intellectual Property Rights, have an estimated value of EUR 6.3 billion.
Nokia Corporation (NYSE:NOK)’s net asset value is estimated to be approximately EUR 8.2 billion, as compared to its market capitalization of about EUR 8.00 billion. Additionally, EUR 4.2 billion of its market cap is in the form of net cash, which means that the enterprise value is well below the $4 billion mark, less than 50% of the Net Asset Value.
Nokia Corporation (NYSE:NOK) ditched its Symbian O.S. in favor of the windows phone O.S., but according to analysts; the game is not playing to Nokia’s advantage, as Microsoft Corporation (NASDAQ:MSFT)’s Windows Phone O.S. has failed to gain traction, at least, for now. Credit Suisse analysts do believe that this could yet happen, but after some time. Nonetheless, the fierce competition emanating from other industry players is also eating on Nokia’s market share.
Analysts note that Nokia’s mobile phone division is likely to suffer the same fate, as its smartphone division, due to encroachment of middle class smartphones in Nokia’s strongholds, the emerging markets. Additionally, Samsung feature phones are also attracting a large number of buyers from this market, one that Nokia would have hoped to use to help salvage its business in the emerging markets.
The analysts are of the opinion that Nokia Corporation (NYSE:NOK), is in a good position in terms of liquidity, due to the EUR 4.2 billion in net cash flows at its disposal. However, Credit Suisse analysts believe that much of this cash will be used during the restructuring process, and the company will possibly close with approximately EUR 3.8 billion, which the analysts feel is not very impressive.
Research in Motion (RIM)
Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM) has limited options with regards to its restructuring plans, with its total assets value well below its market cap, which could suggest some level of overvaluation. According to the analysts, RIM’s timing for the launch of their new BB10 cannot help the company escape from its current quagmire of misfortunes. Nearly all the major players in the industry have already refreshed their smartphone models, but Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM), could only think of a Feb 2013 deadline, which means, the new BlackBerry 10 (BB10), will not be launched this year.
RIM has a net asset value of $3.1 billion, as compared to its current market capitalization of $4 billion, and an enterprise value of about $2 billion. If Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM) was to shut down today, then the cost of shutting down its hardware business would amount to around $8 billion, which already means that option is not viable.
Furthermore, Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM) has some significant balance sheet obligations, with accrued liabilities of about $1.9 billion, and purchase obligations of approximately $4.9 billion.
On the other hand, a sale of balance sheet assets would amount to about $3.75 billion, while the RIM BlackBerry brand is estimated to be worth about $1.2 billion. Net cash is at $2.3 billion, while its services business is estimated to be worth $2.9 billion. RIM’s Intellectual Property Rights are valued at about $1.1 billion, by Credit Suisse analysts.
In conclusion, the analysts believe that the Net Assets value for each company is questionable, as both companies struggle in a very dynamic market. The IPR values are deemed to be below industry competitors, especially Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM)’s, and hence begging the question; Who would be interested in buying them, and for how much?