Forget Phones for Now and Just Sell Patents
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There does not appear to be an end in sight for flailing Research in Motion (NASDAQ: BBRY), who is bleeding market share. Once the darling of investors, Research in Motion let its product become old, slow, and stale – and now the corporate world is catching on and letting employees use other mobile phone providers.
The only thing saving Research in Motion now is a couple of decision makers holding out until they reach “The last straw” before cutting their smart phone contracts.
Is the same thing happening with Nokia (NYSE: NOK)? Nokia isn’t synonymous with the corporate world like Blackberry, but the company was once the world’s largest handset maker. Since falling from its high perch, Nokia has been taking steps to cut costs and to raise cash.
To cut costs, Nokia has unveiled a new plan to slice 10,000 jobs. The firm does have more than 113,000 employees, but this cut will have significant savings. For assumption sake, let us make the very rough assumption that Nokia will save $50,000 per employee after the cuts (savings = salary + benefits – layoff/unemployment costs).
10,000 jobs x $50,000 = $500 million, or $125 million each quarter
This amounts to a savings of $.037 per share per quarter. It’s a nice start, but the company lost $1.17 per share in the second quarter. Right now, the company needs more cash to make it through the hard times.
On the cash-raising front, Nokia recently sold Qt, its software-development business, to Digia, who will take control of its copyrights, trademarks, and 125 workers sometime this quarter. Nokia bought Qt for $150 million in 2008 from Trolltech, a Norwegian IT firm.
Nokia’s decision to trim Qt, which lets developers build smartphone apps, is a strong move towards Microsoft’s (NASDAQ: MSFT) Windows 8 platform, which is expected to compete against Apple’s (NASDAQ: AAPL) iOS platform in its iPhones and Google’s (NASDAQ: GOOG) open-source Android platform.
Nokia’s decision to kill its Symbian operating platform in favor of Windows 8 was a wise choice, as it will take a tandem effort from both Microsoft and Nokia to steal away market share from Apple and Google. Apple and Google beware! The world’s former largest handset maker is teaming up with one of the world’s leading computer companies.
Also, Nokia announced that it sold a 90% stake in Vertu, its luxury handset business, to Swedish private equity firm EQT. This decision has allowed Nokia to raise cash as it continues to face dire straits.
Finally, Nokia is monetizing its patent portfolio. Nokia sold roughly 500 patents to Vringo, a software-platform provider, in an effort to raise even more cash. But now the interesting part – Nokia’s deal for 500 patents are a drop in the bucket compared to its 30,000+ portfolio of patents.
With Nokia trading as low as the $1.50 range (it now trades around $2.80), there was much talk of Nokia going under or being acquired. Yes, the company did lose tremendous market share to Apple and Google in the smart phone market, but those losses have been hedged by Nokia’s portfolio of patents.
At this stage in the game, Nokia may do well to generate residual profits by focusing on licensing or divesting part of its patent portfolio. In an ideal world the company would launch a joint venture and provide the patents for data transmission or communication management products and let its partner do the heavy lifting of marketing, sales, and business management.
What is a good solution to Nokia's cash problem? Why not pit Apple, Google, and Microsoft against each other to bid up the price of its patents? Or better yet, have the groups join sides to fight over the patents. All of these companies have histories of eyeing patents.
Last year, for example, Microsoft, Apple, and Research in Motion joined sides to outbid Google for Nortel's patent portfolio. They paid $4.5 billion. And Microsoft, Google, and Apple are eyeing Kodak's rich patent portfolio as the company tries to emerge and reorganize from Chapter 11. For the short-term, pitting cash-rich companies against each other could raise much-needed funds.
Overall, I think that Nokia will make it. Its phones have taken a sharp hit, but its strong portfolio of patents and subsidiaries has allowed it to raise cash to make it through the hard times.
As such, I expect Nokia to continue to rise above its book value per share of $2.99. In order to accomplish this, the company will eventually have to turn around its phone operations so that it can boost its awful -10.3% profit margin and -35.65% return on equity. However, with cash per share of $3.28 as of June 30 and more cash in the pipeline, I expect Nokia to be able to turn itself around sometime in 2013.
TakeoverAnalyst has no positions in the stocks mentioned above. ChrisMarasco has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
