Nokia Must Consider a R-I-M Merger, Survival Risks For Both (NOK, RIMM, MSFT, AAPL, GOOG, HPQ, ERIC)

Over the last week, 24/7 Wall St. has been working on two different pieces about Nokia Corporation (NYSE: NOK) and Research-in-Motion Ltd. (NASDAQ: RIMM).  Nokia was “Nokia’s No Way Out Scenario” and R-I-M’s was effectively “R-I-M, The New Palm, Four Years Later…”  Unfortunately, bad news comes out of these two companies about as fast as research can be done on each new bad situation. Nokia’s warning this morning is probably just the prelude to another R-I-M warning that investors have learned to get used to.

Investors in these two companies need to be keenly aware of one commonality right now.  These two companies are in a downward spiral that keeps getting worse and worse.  It is time for Research-in-Motion Ltd. (NASDAQ: RIMM) and Nokia Corporation (NYSE: NOK) to consider a “merger of equals” of some sort.  By and large, we do not like mergers but this may be the only shot for these companies to stop the bleeding.  This would create a three-tier platform.  Smartphones via Blackberry and Windows could go under one “pick your poison” roof.  Those two tiers would then allow both companies to combine offerings for the “Dumb-phone” market.

For starters, this brings in the Windows angle for Microsoft Corporation (NASDAQ: MSFT).  There are market rumors from time to time that Microsoft would consider acquiring one of these companies but we just do not see that being the case.  With Apple Inc. (NASDAQ: AAPL) having the iPhone and with Google Inc. (NASDAQ: GOOG) marginalizing the rest of the cellphone market outside of smartphones, it seems that the only way these two companies can stop the bleeding is to use the Nokia-Microsoft ties and the smartphone platform of R-I-M to try to stop the bleeding.

There are some significant issues to consider.  First and foremost, Nokia is Finland’s prize jewel of its economy.  R-I-M is Canada’s top tech outfit.  With international taxation issues, getting a bunch of Franco-English employees to see eye to eye with a bunch of Finns will be no easy task.  It might even be insurmountable, but these companies have to figure something out to make it work.  Fast.

In America, if you don’t have an iPhone or an Android smartphone you are behind the curve.  That is sadly the mentality that is prevalent today.  Business people can now use iPhones much more easily than even a year ago.

When R-I-M last warned, it was down about 14% and was trading around $48.50.  Now shares are down to $43.30 against a 52-week trading range of $42.53 to $70.54.  The market value is close to $22.5 billion.  Nokia just hit a 52-week low of $7.00 against a high of $11.75 over the last year.  Nokia’s market value is close to $26 billion. 

Thomson Reuters has a consensus price target of $57.76 on R-I-M and $9.68 on Nokia.  These are Fantasy-Land targets for now.

We haven’t even mentioned the iPad and Android platform tablets.  Also, Hewlett-Packard Co. (NYSE: HPQ) bought Palm after things got so bad at Palm that the company had to give itself away just to stay alive.  That has not yielded much for H-P to date.  The reminders of Palm and Blackberry here need to be considered.  Palm was first to the scene in smartphones.  Then the business world was drawn to Blackberry, to the point that “Crackberry” was the lingo of the day.  iPhone was the huge disruption for the consumer level, and then Android took over.  Being the trend-setter doesn’t work if you get outgunned by disruptive technologies that are cooler and better.

Is there any angle for LM Ericsson Telephone Co. (NASDAQ: ERIC)?   Maybe, but their stock is currently close to 52-week highs.  We just do not

R-I-M has a management structure and product roll-out team that needs to be revamped.  Nokia is now going to have to sell itself as a 2012 (or even 2013) story.  Neither scenario is a win for investors as Apple and Google keep taking over.  Microsoft could even invest into the idea to drive its Windows efforts for phones.

These companies will not die on the vine as fast as Palm did.  It could take years.  The big issue is that this might be the only way to preserve market share.  Admittedly, this is a long-shot deal. A RIM-Nokia merger might encounter too many problems before getting off the ground.  Still, what choices to these two companies have today? 

JON C. OGG