Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) may have the opportunity to become a patent troll, but analysts at Trefis see nothing but dollar signs. They think the Finnish company could have another $4.5 billion opportunity by expanding its patent licensing business.

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Nokia shares double

Since Nokia announced that it was selling its devices business to Microsoft Corporation (NASDAQ:MSFT, shares of the company’s stock have more than doubled. Trefis analysts have a $7.75 per share valuation on Nokia based on its current €500 million royalty run rate and the uncertainties which still surround Nokia’s future.

They note that Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s decision to sell the devices division is a good one because it enables the struggling company to get rid of what has become a very risky and unprofitable asset. It also gave Nokia a $7.2 billion cash injection.

Upside seen to Nokia

Even though Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) shares have surpassed Trefis analysts’ valuation a bit, they see “significant upside” to their estimate if the company monetizes more of its patent portfolio. In addition, they see upside if Nokia can renegotiate some of its existing contracts at higher rates when renewal time rolls around over the next few years.

Why Nokia’s patents look attractive

Nokia has spent quite a bit on research and development over the last 10 years, building up a portfolio which includes nearly 16,000 issued patents and 4,500 pending patents in the U.S. Outside the U.S., Nokia has more than 20,000 patents, including both issued and pending ones. Most of them are in Europe.

Trefis analysts say in addition to the size of Nokia’s patent portfolio, the patents included within it are also of high quality. They point to a 2011 review from Article-One and Thomson Reuters. That study indicated that Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) owned nearly 19% of standard essential LTE patents.

Nokia to exercise IP strength

Over time, the analysts believe those LTE patents will grow more and more valuable as global carriers transition over to LTE and more and more handsets are able to support 5G. In addition to LTE patents, Nokia also still holds patents for Wi-Fi and older 2G and 3G technologies like GSM, EDGE, W-CDMA and GPRS. The Trefis team said even though these are older technologies, they still see them as being valuable for Nokia because they believe handsets will keep supporting these standards “well into the future.”

According to Trefis, Nokia’s licensing arm can generate €500 million in royalties this year. They’re estimating that about 1.8 billion mobile phones were shipped this year. With an estimated average selling price of about €100, this would generate approximately €1.8 billion in revenue for Nokia this year. That’s a royalty rate of just .25% for each handset, compared to IP competitor QUALCOMM, Inc. (NASDAQ:QCOM)’s royalty rate of 3.2%.

What the future could hold for Nokia

The analysts said the reason Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s rate is so much lower is because it has never used its patents to generate more revenue like Qualcomm has. Nokia’s patents were previously aimed at protecting its devices, but when it gets out of the devices business, the company will be focusing more on licensing its patents without the risk of being countersued by the companies it sues for patent infringement.

They estimate that if the entire handset market increases to approximately $300 billion in the long term and Nokia can reach a 1% royalty rate, it could see $3 billion new royalty revenues. With an 85% EBITDA margin and a 20% tax rate, Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) could add $1.2 billion more into its cash flows from licensing. Under their estimates, this would add $4.5 billion to the company’s valuation, implying a 15% upside to their price estimate.