Amazon Should Buy Nokia
Halina is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Last Friday, many news organizations reported that Amazon.com, Inc. (NASDAQ: AMZN) is looking to enter the smartphone marketplace by releasing its own device. The company would collaborate with Foxconn to build the hardware, much as it did while building the Kindle e-reader. Incidentally, Foxconn also provides the hardware for Apple iPhones. The Amazon smartphone would function on the company's own Android-based operating system. Once released, the new device would place Amazon in direct competition with other smartphone manufacturers like Samsung, Apple and Google, giving it sure footing in a market that will only continue to expand.
There are some hurdles that need to be overcome before Amazon can go full steam on its smartphone plans, however. For starters, Amazon must avoid the patent infringement issues that have been plaguing Apple and Google. Patent licensing, especially from patent heavyweights like Nokia (NYSE: NOK) is one way of avoiding expensive litigation. Another way to avoid patent issues is to just buy Nokia outright.
Nokia is a veritable patent powerhouse, holding a whopping 30,000 patents and 10,000 patented technologies. A lot of the company's revenue is generated strictly from patent licenses and royalties; in fact, Nokia's first quarter earnings report predicts that the company is set to make $500 million from these items alone. Furthermore, the company produces some remarkable handsets, including its recently released Lumia 900 smartphone, which was even touted by Apple's Steve Wozniak as feeling more like a "friend and not a tool."
Nokia is also in trouble. Once the leading handset device maker in terms of units sold, the Finnish company quickly lost ground when sleeker Blackberries showed up on the scene. And then came the innovative iPhones and Androids, which essentially wiped out Nokia's profits altogether. Nokia has tried to get back in the ring with its Lumia 900, but how can selling only 2 million Lumia phones in the first quarter of 2012 compare with the 35 million iPhones sold in the same period? Furthermore, Nokia then decided to offer $100 rebates on its Lumia phones because of small technical issues, essentially wiping out a good portion of its profits. By 2011, the company had posted a $1.2 billion loss. By 2012, Samsung had become the leader in the total number of mobile devices sold and Nokia was announcing layoffs of up to 10,000 workers. At this point in time, Nokia's stock price stands at $1.81 per share, well below its late 2007 high of almost $40 per share (coincidentally, Apple released its iPhone in 2007).
However, Nokia is still a powerhouse in terms of its brand name, feature phones, 3D mapping technology, distribution capacity and patents. If Matt Gordon, the new General Manager of Patent Acquisitions and Investments at Amazon, made a move to acquire Nokia, Amazon would be able to build its smartphones using Nokia's reknown technology expertise. There also wouldn't be much worry over patent infringement. As an added bonus, the company would derive a good chunk of its income from Nokia's licensing agreements. Perhaps most important of all, Amazon would gain a strong brand name for its smartphones, something that was lacking and may have resulted in the lackluster sales of its Kindle tablets.
Currently, Nokia's market value stands at about $3 billion, excluding its roughly $4 billion in cash and equivalents. Should Amazon purchase the company, it could make back some of its investment costs by spinning off the Siemens-Nokia Networks portion for $1 billion or more. With Nokia's patents earning a side income of their own (from companies like Apple, no less), it wouldn't take long for Amazon to make up the remaining $2 billion. Amazon would also save itself a good amount of cash by not having to buy patents or deal with patent-infringement lawsuits.
Will Amazon Be Able to Buy Nokia?
Whether or not Amazon acquires Nokia depends on whether Microsoft (NASDAQ: MSFT) will step in with a bid of its own. After all, Nokia's handsets run on the Windows OS platform. Late last year, Microsoft asked to see Nokia's books; however, perhaps not impressed with what it found, the company went no further with any talk of a "merger and acquisition."
There is also the matter of whether Nokia is amenable to being bought out at this point in time. In its June 14th report to the SEC, Nokia announced no plans to merge or be acquired by other corporations. The company did, however, state that it would be slimming down its operations; for example, Nokia will be divesting itself of Vertu, its luxury mobile phone business. A new leadership team has been put in place and a new operating expense target set for Nokia's Devices and Services department. Nokia is also hoping to work with Swedish company Scalado AB on improving Lumia's imaging capabilities.
The question of whether or not Nokia will be able to turn itself around now hinges on whether the company can make itself a strong contender in the smartphone arena. Reports abound that Nokia is burning through its cash reserves at a very fast rate and may even go into default. However, with a new management team in place, the company could find ways to establish its "global mobile ecosystem for smartphones", which is techspeak for "find new marketplaces." Only time will tell if this wounded giant becomes part of another giant or becomes history.
halina23 has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com and Microsoft. Motley Fool newsletter services recommend Amazon.com, Microsoft, and Nokia. 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.