When Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) released its latest earnings report, Wall Street was pleasantly surprised. One bright area was margins for the company’s Networks division, which also performed very well overall. Analysts at Morgan Stanley want to know more about the company’s patent strategy, however.

Nokia estimates increased

In a report dated July 28, 2014, analysts Francois A. Meunier and Andrew Humphrey said the €.50 share price move after When Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s earnings results suggests that its long-term margins will rise 200 basis points. That would mean margins would be around 11%, compared to the previous estimate of 9%. They say the reason Nokia beat in margins is because the company eliminated its lower margin contracts, like those in Latin America. Other reasons include less European exposure, which they believe is due to a loss of market share, and a better mix. Nokia saw strong sales of its Evolve Packet Core / IMS products in the quarter.

They continue to see Nokia Networks as being more challenged than competitors over the long term. However, the company’s margins aren’t declining as much as they thought they would. Nonetheless, they’re skeptical on the margin beat, saying they believe Wall Street has taken the margin beat and run with it and that “extrapolating one quarter into perpetuity… requires quite a leap of faith.”

What about When Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s patents?

The Morgan Stanley team notes that Nokia didn’t really have anything to say about its patents division. The segment’s revenues were about in line with expectations. Currently Nokia is in negotiations with Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) regarding patent licensing terms. We have heard that Samsung will be paying approximately $300 million each year to competitor Ericsson, so they think Nokia might be able to secure a similar number.

They add that on the positive side, there’s less cross-licensing than there is with Ericsson, but on the negative side, whatever the arbitrator calculates could be different than for Ericsson and also Samsung’s volumes could be lower by then.

Chasing When Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) for patents?

The analysts say some investors may continue to be interested in Nokia purely as a patent play. They think the next catalyst for Nokia stock is capital markets day in November. On that day, Nokia bulls will be looking for long-term financial guidance on patents. No details on the revenue rate with Samsung are expected before the case is resolved next year, however.