Nokia Corporation (ADR) (NOK): Uses of Potential Excess Cash

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Nokia Corporation (ADR) (NOK): Uses of Potential Excess Cash
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Goldman Sachs hosted Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) CFO and IR for Investor meetings in Europe. Discussions were predominantly centered on two key topics: a) strategic re-orientation assuming closure of the proposed Microsoft transaction, including uses of potential excess cash; b) IPR income.

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Takeaways from Goldman’s Nokia event

1) Nokia Corporation (NYSE:NOK) (BIT:NOK1V) intends to communicate the outcome of its strategy evaluation (for the three residual businesses and possible synergies between them), as well as an evaluation of the optimal capital structure after the closing of the proposed Microsoft Corporation (NASDAQ:MSFT) transaction (the company still targets this for 1Q14).

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(2) Nokia Corporation (NYSE:NOK) (BIT:NOK1V) indicated it would like to strive for an investment grade agency bond rating. This would likely entail a goal of net cash, as well as likely require 30%-40% of NSN’s annual sales as gross cash (€3.5-4.5 bn, on analysts’ NSN forecasts). Initial focus will be on a) meeting 2014 debt obligations (€1.75 bn), and b) potentially to re-introducing a regular dividend.

(3) Continued investment is likely to be a pillar of Nokia Corporation (NYSE:NOK) (BIT:NOK1V)’s strategy, in Goldman’s view. Nokia commented that “scale is important, but not at any cost”.

(4) The Advanced Technologies business (CTO office and intellectual property rights) might benefit from: a) Microsoft payments in context of the licensing agreement under the proposed transaction, b) the full integration of NSN’s patent portfolio, c) potential IPR savings to other ecosystem participants, and d) a continued strategy of licensing essential and non-essential patents retained by Nokia Corporation (NYSE:NOK) (BIT:NOK1V).

(5) HERE (Nokia’s mapping and location services business), is focused on re-igniting growth, driven principally by Automotive customers in the very near-term. Only the outcome of the strategic review will conclude on whether this asset is considered as a key pillar to Nokia Corporation (NYSE:NOK) future strategy.

Implications

Goldman analysts are Not Rated on Nokia Corporation (NYSE:NOK) (BIT:NOK1V). Commentary was supportive of a) Goldman’s analysts NSN op. margin ests. (7%-9% in 2013-17), and b) Research Firm’s expectation for Advanced  Technologies revenues to rise from c.€500 mn 2013 to c.€850 mn by 2017.

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