Nokia's Bane Could be Boon for RIM

Nokia's widely speculated transition to a new operating system would benefit rival Research In Motion as it provides an opportunity to expand in international markets.

Market analysts are widely speculating that Finish mobile giant Nokia (NYSE: NOK) will adopt either Google's Android or Microsoft's Windows Phone 7 as its smartphone operating system (OS) to regain its market share in the United States, which is the biggest market for smartphones.

We increasingly believe that Nokia is likely to pursue a new OS strategy for smartphones, moving away from Symbian/MeeGo and toward a third party software platform such as Android or Windows Phone 7, Credit Suisse analyst Kulbinder Garcha wrote in a note to clients.

If this happens, regardless of the adoption of the OS, disruption for Nokia seems to be very likely due the transition period required to adopt an operating system and would benefit rival Research In Motion (NASDAQ: RIMM).

As shown by the past experiences of Motorola and Sony Ericsson, the industry will not wait, as competitors will continue to evolve, management turns over and carrier promotions shift.

During this transitory period, which could last anywhere from 12-18 months, the analyst estimate that Nokia's global smartphone share of 28 percent in the fourth quarter of 2010 could trough at 16 percent to 18 percent, presenting a sizable opportunity for Apple, Android vendors and RIM.

Although RIM has been focusing on expanding its distribution in emerging markets particularly Asia Pacific through a number of agreements with carriers and distributors, the company currently has only 6 percent smartphone share in the APAC region.

Nokia, on the other hand, has significant exposure to Asia Pacific with around 48 percent smartphone share in the fourth quarter of 2010. Although Nokia's share here has already come down meaningfully to 76 percent in 2009 from 79 percent in 2008/2009, the analyst believes this could still fall further.

Similarly, regions like Middle East & Africa and Central/Eastern Europe, where Nokia have meaningful smartphone share could continue to see severe declines over the period when Nokia is transforming its smartphone strategy.

This, in our view, will present an opportunity for smartphone vendors including RIM, which are starting from a low base of share, have strong carrier relationships and offer lower-priced smartphone devices, Garcha said.

Garcha believes that a period of potential disruption for Nokia in the company's core international markets (Western Europe and Asia Pacific), could result in an incremental 5 million units in each 2011/2012 for RIM and would drive fiscal 2012 earnings of $8.10 a share for the Ontario-based company.