Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s Advanced Technologies division has become an important contributor to its profits. JPMorgan analysts Sandeep Deshpande and Chetan Udeshi say that the Finnish company’s IP monetization would increase significantly as it negotiates deals with key parties Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) and Apple Inc. (NASDAQ:AAPL). JPMorgan has an Overweight rating on the stock with €8 price target.
Nokia focused on deals with Samsung and Apple
The Korean electronics giant and the iPhone maker together generate about 60% of the smartphone industry’s revenue. So, Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) is focused on these two giants. The other handset makers are likely to follow the deals with these companies. The analysts say that all agreements are likely to be cross-licensing deals. That’s because many of the companies to be licensed have their own IP as well, which Nokia may or may not use.
Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s IP agreements are for about five years. The Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) deal ended in 2013, suggesting that it came into effect in 2008. So, 2007 was the reference year on which the last negotiation was based. After the two parties go through the patent netting process and agree on royalties, their revenues are netted and the royalty is applied to the netted revenue. In 2007, Nokia’s revenue was 2.2x reference revenue of Samsung. Reference revenues were only networks and handsets, so only Samsung’ networks and handset revenues were considered.
Nokia can get up to 36 times more royalty from Samsung this time
In the previous deal, the Finnish company was the receiving party. But its revenues were more than double the revenues of the paying party. So, Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) was required to pay only a small IPR royalty. But the scenario has changed today. For the new deal, 2013 will be the reference year. In 2013, Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s relevant revenues have declined to only 0.06x that of Samsung. Therefore, Samsung’s revenues have gained 36.5x compared to Nokia. Going by the theoretical calculation, the Lumia phone maker should receive about 36 times the royalties it received in the previous deal if the royalty rate remains the same. Even if Nokia gets only 20x what it received in 2007, that would be a substantial increase.
On the other hand, Apple Inc. (NASDAQ:AAPL)’s relevant revenue with Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) has gained 20x since their last deal in 2010. So, the company stands to receive a hefty sum during its next negotiation with the iPhone maker sometime in 2016. Moreover, Nokia now owns 100% patent portfolio of NSN. And the recent win over HTC shows that it has court-proven non-essential patent portfolio.
Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) shares were down 2.06% to $7.59 at 12:28 PM EDT.