Struggling handset manufacturer Nokia Corporation (NOK) is planning to divest a part of its huge patent portfolio. We believe that this is a desperate move by the company to improve its fading cash position.
Nokia’s impressive patent portfolio is the only jewel left in its crown. It has a strong portfolio of 30,000 patents and around 10,000 patented innovations in its arsenal. The company has the strongest patent portfolio in the wireless industry and has spent almost $62 billion in the last two decades in research and development.
Furthermore, the company has patent licensing agreements with around 41 mobile handset manufacturers who use its patents. The company receives a healthy royalty from this licensing agreement.
Presently, Nokia Corporation is in dire straits, losing in every front. It remains severely challenged owing to stiff competition, primarily from Apple Inc’s. (AAPL) iPhone, and an array of other smartphone manufacturers using Google Inc’s. (GOOG) Android platform.
Recently, the company has lost its title as the world’s biggest mobile manufacturer to Samsung Electronics. Moreover, at the end of first quarter 2012, the company had $6,334 million in net cash and marketable securities, down 24% year over year.
In an effort to tide over this difficult situation, the company is trimming its work force by 10,000, which would help Nokia Corporation to reduce $2 billion in cost by the end of 2013. Additionally, the company is also selling its luxury phone unit Vertu to Swedish private equity firm EQT.
We believe by selling its patent portfolio, the company attempts to improve its liquidity, so that it can invest in the location based services for Lumia series of smartphones, acquisition of companies which can develop software for them and for innovation of low range touch screen phones.
This is the third time in almost a year that Nokia Corporation is reducing its patent portfolio after selling 450 patents to Sisvel in January, this year, and another 2000 patent to Canada’s Mosaid Technologies in September last year. According to some analysts, Apple Inc. could be a prospective buyer of Nokia’s patents, which can turn out to be beneficial for the company as it tries to remain afloat by making money through the sale of its huge arsenal of patents.
Recommendation:
We retain our long-term Underperform recommendation on Nokia. Currently, Nokia has a Zacks #3 Rank, implying a short-term Hold rating.
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