BlackBerry (NYSE:BB) and Nokia (NYSE:NOK) each rose from the ashes over the previous decade. Each corporations deserted the smartphone market as their gadgets had been marginalized by Apple iPhones and Alphabet Android gadgets, they usually each pivoted towards totally different markets to outlive.
BlackBerry expanded its enterprise software program enterprise, discontinued its first-party smartphone enterprise 5 years in the past, then licensed its model to third-party smartphone makers. Nokia bought its handset division to Microsoft in 2014, purchased its rival Alcatel-Lucent in 2016 to develop its core telecommunications tools enterprise, and began to license its model out to different smartphone makers that very same yr.
BlackBerry and Nokia’s radical transformations stored their companies alive, and their shares have steadily risen. Over the previous 5 years, BlackBerry’s inventory rallied almost 40% as Nokia’s inventory superior about 20%. However is both of those tech shares nonetheless price shopping for at present?
BlackBerry faces vital challenges
BlackBerry’s income rose 15% in fiscal 2020, which ended final February, however most of that progress got here from its buy of the cybersecurity agency Cylance, which was subsequently built-in into Spark, its unified suite of safety software program and companies. It additionally generated increased licensing income from its patent portfolio and smartphone licensing agreements.
Nevertheless, its income declined 14% in fiscal 2021 because it lapped the Cylance acquisition and struggled with slower auto gross sales all through the pandemic. BlackBerry’s QNX, which is a part of its Web of Issues (IoT) portfolio, is the world’s hottest embedded OS for related automobiles. QNX had been a serious progress engine for BlackBerry previous to the pandemic, however its gross sales plunged throughout the pandemic as automakers shipped fewer automobiles.
That decline continued all through the primary six months of fiscal 2022. Its income fell one other 25% yr over yr as the worldwide chip scarcity throttled shipments of latest automobiles and IoT gadgets. BlackBerry expects these headwinds to wane within the third and fourth quarters, however analysts nonetheless count on its income to say no 21% for the total yr.
BlackBerry generated a slim GAAP revenue again in fiscal 2019, nevertheless it turned unprofitable once more in fiscal 2020. Its web loss widened considerably in fiscal 2021 however narrowed once more within the first half of fiscal 2022. Analysts count on it to stay unprofitable this yr.
BlackBerry’s inventory is not low cost at eight occasions this yr’s gross sales, and it nonetheless faces three vital challenges. First, its QNX enterprise will probably stay underneath strain till the worldwide chip scarcity ends. Second, Spark faces vital competitors from different cloud-native and hybrid cybersecurity corporations like CrowdStrike and Palo Alto Networks. Lastly, its natural progress continues to be weak because it beforehand relied closely on acquisitions and patent lawsuits for progress, and it lacks a transparent path towards profitability.
Nokia’s turnaround appears to be like extra viable
Nokia has struggled to combine its acquisition of Alcatel-Lucent over the previous 5 years. As an alternative of investing in new 5G applied sciences, Nokia centered an excessive amount of on chopping prices and integrating Alcatel’s enterprise. The escalating commerce battle additionally lower Nokia off from huge contracts in China.
Nokia ultimately suspended its dividend in 2019 to unencumber additional cash for its 5G enlargement, nevertheless it had already fallen behind its Swedish rival Ericsson (NASDAQ:ERIC). As an alternative of staying aboard to repair these points, Nokia’s CEO Rajeev Suri abruptly resigned final yr.
Nokia’s income rose 3% in 2019 however declined 6% in 2020 amid its 5G setbacks and its losses of Chinese language contracts. Nevertheless, its income rose 4% yr over yr within the first half of 2021 as its new CEO, Pekka Lundmark, centered on strengthening its lagging cloud and networks enterprise. It additionally stabilized its 5G enterprise and offset its lack of Chinese language contracts by pulling clients away from China’s Huawei and ZTE in non-Chinese language markets.
Nokia’s adjusted earnings fell 4% in 2019, rose 18% in 2020, then surged 167% yr over yr within the first half of 2021 as its gross and working margins expanded in opposition to the pandemic’s affect a yr in the past. Analysts count on its income and earnings to rise 5% and 28%, respectively, for the total yr.
These are strong progress charges for a inventory that trades at simply 15 occasions ahead earnings. Nokia hasn’t reinstated its dividend but, nevertheless it might definitely accomplish that — and entice a whole lot of revenue buyers — if its income proceed to rise.
The apparent winner: Nokia
Nokia made some huge errors over the previous 5 years, nevertheless it’s getting its enterprise again heading in the right direction because the 5G market expands. It is also constantly worthwhile, and its inventory is pretty low cost.
BlackBerry is not doomed but, however its core companies are sluggish, and it is relying too closely on the auto sector’s restoration to stabilize its enterprise. These challenges make it a a lot weaker funding than Nokia proper now.
This text represents the opinion of the author, who might disagree with the “official” advice place of a Motley Idiot premium advisory service. We’re motley! Questioning an investing thesis — even one in all our personal — helps us all assume critically about investing and make choices that assist us change into smarter, happier, and richer.