Daily Management Review

Nokia Shares Hit as it Forecast Patent Sales From Samsung


Nokia Shares Hit as it Forecast Patent Sales From Samsung
The financial terms of the deal between Nokia and South Korea's Samsung that settled a lengthy patent dispute between the companies have left the investors disappointed. The settlement deal was announced on Monday.
After the Finnish firm said the Samsung deal would lift patent unit Nokia Technologies' sales to around 1.02 billion euros ($1.1 billion) in 2015, from 578 million euros in 2014, there was a fall of more 10 percent in Nokia shares.
The shares of French network gear rival Alcatel-Lucent fell by 11 percent following news of the Samsung patent deal. Alcatel-Lucent has been proposed to be taken over by Nokia for 15.6 billion euro as the patent business is set to become a smaller part of Nokia is the takeover goes through.
Samsung's stock was up by 1.1 percent.
The dilution of the patents business and worries about integration after Nokia takeover of Alcatel-Lucent have resulted in the fall of the shares of Nokia after the deal was announced last April.
Nokia said that after the Samsung deal the annualized run-rate for its patent unit is now about 800 million euros. This is much lower than the average analysts' forecasts for the unit's 2016 sales of about 900 million euros.
"There have been expectations that Nokia could make more money with their patent portfolio than (rival) Ericsson.. This outcome did not support that... Estimates will be revised," said Nordea analyst Sami Sarkamies, who has a "hold" rating on Nokia.
A patent sales run-rate of about 1.2 billion euros belongs to Sweden's Ericsson which recently signed a license deal with Apple.
A large portfolio of handset patents was retained by Nokia after the Finnish company sold its once-dominant phone business to Microsoft in 2014 leaving it focused on telecoms network equipment.
In order to settle additional compensations for Nokia's phone patents for a five-year period starting from early 2014, Samsung and Nokia had entered into a binding arbitration in 2013.
At least 1.3 billion euros of cash is expected to be received by Nokia during 2016-2018 related to its settled and ongoing arbitrations, including the Samsung award.
At present Nokia is also engaged in a similar dispute with LG Electronics. In the coming years it is expected that talks would begin over a new contract with Apple.
While expressing surprise over the scale of the share price movement given the relatively sizes of Nokia Technologies to its networks business, some investors criticized the way Nokia had communicated the settlement.
"The company should be more explicit, investors are left wondering for example on the Technologies (unit's) actual topline forecast for 2016," said Juha Varis, a fund manager at Danske Capital.
"I'm mostly surprised over the share reaction. Considering the increasing significance of (the) network business for the stock, this is a very strong movement," Varis, whose fund owned 0.08 percent of Nokia shares as of end-December, said.