Has NOK Stock Bottomed?
Nokia Corporation (NYSE:NOK) may no longer make mobile phone handsets, but it still profits from its technology. Nokia made more than a billion dollars in 2015 from its patents alone. Nokia has sold off the riskiest part of its business and expanded to enhance its new strategy. Yet, Nokia stock has suffered, dropping as much as 12% on Monday.
Investors have disapproved the International Chamber of Commerce’s (ICC) decision over the Samsung file. Stripped from its mobile business, which Nokia sold to Microsoft in late 2013, the company draws 90% of revenue from making and selling telecom devices under NSN – Nokia Networks and Services. More revenue comes from a veritable treasure of patents accumulated over time.
The divestiture to Microsoft caused Nokia stock to double in value in late 2013. Nokia stock hit its lowest point in July 2012. It fell to $1.42, as investors feared the company would no longer be able to close the gap against such competitors as Samsung and Apple. Those fears have gone and the stock no longer carries that risk.
For those investors wanting to get a piece of the Finnish technology giant, this is the time to buy Nokia stock. The ICC has ended the dispute between Nokia and Samsung over a licensing agreement with a verdict favoring the Finnish group. Nokia will now receive compensation under a contract, renewed for five years and starting on January 1, 2014. (Source: “Nokia patent sales forecast from Samsung deal hits shares,” Reuters, February 1, 2016.)
Contract in Question Covers Just Part of Nokia’s Patent Portfolio
Holders of Nokia stock can celebrate the fact that the company has held on to its intellectual property, even if it sold its mobile business to Microsoft. Meanwhile, thanks to the ICC’s arbitration, Nokia’s 2015 sales from its patent unit could exceed $1.0 billion. (Source: Ibid.)
It earned some 400 billion euro (approximately US$425 billion) in the fourth quarter alone. This is exceptional, given it made 578 million euros in 2014. (Source: Ibid.)
Nokia is one of three patent holders in the mobile phone industry, slated to gain from intellectual property disputes. Qualcomm and Ericsson are the others. In a statement, Nokia said the ICC’s verdict would have a favorable financial impact.
Nokia said that in the light of the ICC’s arbitration in the case, it is looking at a settlement of 1.3 billion euros in cash from 2016 to 2018. Nokia still has a similar dispute with LG Electronics and it could sign a new contract with Apple in the coming years. (Source: “UPDATE 3-Nokia patent sales forecast falls short after Samsung deal,” CNBC, February 1, 2016.)
Nokia says it is in discussions with Samsung over the use of other parts of its intellectual property portfolio. Apparently, investors decided this was not enough. Nokia has welcomed the agreement. But analysts had expected the ICC to award the company in the order of 250 million euro per year, rather than the announced 200 million euros a year. Nokia defended the verdict, noting the agreement covers only part of its portfolio. (Source: “Nokia patent sales forecast from Samsung deal hits shares,” Reuters, February 1, 2016.)
True, analysts expected revenue of 900 million euros, rather than 800 million euros, and that may also have affected NOK stock’s chute on February 1. Nokia trails its main rival, Sweden’s Ericsson. The latter announced 1.55 billion euros in revenue from intellectual property rights. Then again, Ericsson owns many of the patents governing Bluetooth technology. (Source: “Evolution of Technology: Bluetooth, the once and future king,” IPWatchdog, May 10, 2015.)
Worries Over Nokia-Alcatel Merger Warranted?
Moreover, many investors wonder whether Nokia and Alcatel-Lucent’s merger has been successful. Since Nokia announced the Alcatel-Lucent merger last April, it lost a quarter of its market capitalization.
Nokia’s takeover bid has passed regulators and as of January 14, Nokia and Alcatel-Lucent have operated as a single group. Its total value is about 25 billion euros. The next step, according to Nokia CEO Rajeev Suri, is for the two companies to move to achieve full integration. The Finnish giant plans to roll out a seven-billion-euro program to optimize its capital structure and return excess capital to shareholders. (Source: “Alcatel-Lucent & Nokia Integration on Track, Shares Up,” Yahoo! Finance, January 11, 2016.)
The new Nokia-Alcatel shares, no longer traded in the United States, will be the giant of European telecommunications. The company has projected annual revenue of 26 billion euros (about US$27.0 billion). (Source: Ibid.)
Investors may not have seen the gains they were expecting, but it may be a case of excessive greediness.
The new Nokia, first stripped of cell phones, has produced results and investors have more reason to be bullish than bearish. The February 1 sell-off offers an opportunity to get into NOK stock at a nicely discounted price. There are integration concerns, but the risk, given the French government’s agreement and support, has already dropped compared to last year.
For those willing to take a calculated risk, Nokia stock could be worth a closer look.