Microsoft (MSFT) Unlikely to Buy Nokia (NOK) Until (Maybe) 2013. Here's Why...
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Price: $394.79 -3.49%
Overall Analyst Rating:
BUY (= Flat)
Dividend Yield: 0.8%
Revenue Growth %: +15.0%
Overall Analyst Rating:
BUY (= Flat)
Dividend Yield: 0.8%
Revenue Growth %: +15.0%
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Here's a few reasoning why Microsoft (Nasdaq: MSFT) probably won't acquire Nokia (NYSE: NOK). Not now, anyway.
With the recent downfall in Nokia stock and its ongoing Windows Phone partnership (non-exclusive) with Microsoft, making it one of the few major OEMs to eschew adapting Google's (Nasdaq: GOOG) Chrome, many have wondered why Microsoft doesn't just buy up Nokia. After all, it paid $8.1 billion for Navteq back in 2007 and $8.5 billion for Skype last year.
First, they'll probably want to see how Nokia fares upon the launch of Windows Phone 8 later in the year. Though Nokia is likely to see a drastic drop in demand over the next several months due to incompatibility between the current and new versions of Windows Phone, this gives it time to focus on prepping a solid mobile device for later in the year. (Note to Nokia: It's okay to drop the numbering scheme for your mobile devices, which is tougher for consumers to remember than, say, "Fury," "Lightning," or "Lumia X.")
Second, Microsoft will want to see how Google's $12.5 billion acquisition of Motorola Mobility pans out. Motorola was previously a major player in the mobile realm in the early and mid-2000s, but fell off a little as it failed to create a smartphone winner following the introduction of Apple's (Nasdaq: AAPL) iPhone in 2007. If Google, which is also mainly a software and service giant, sees some success with Motorola, Microsoft might consider acquiring an OEM for itself.
Third, Microsoft is making a tablet, which is less complicated than creating a smartphone. Smartphones have bits-and-pieces related to communications not to mention needing to get clearance from federal communication authorities, something it has little experience in doing. Microsoft also doesn't want to deal with carriers (the Surface tablets will start off as Wi-Fi only), which would demand subsidies in order to sell devices. Lack of exposure directly in this area is keeping Microsoft content with partnerships. Plus, though Nokia has a solid global distribution network, other OEMs might avoid partnering should Microsoft start cranking out its own smartphones.
Finally, the patent issue. One of the primary reasons Microsoft would grab Nokia is for its thousands of technology patents related to mobile devices and other segments. Microsoft recently shelled out $1.056 billion for over 800 patents from AOL (NYSE: AOL. Let's assume "over 800" means about 810 patents. That's $1.3 million per patent on average. With Nokia holding well over 10,000 patents, it's current market cap of $8.2 billion may not fully reflect this.
Instead, Microsoft could make a grab for Alcatel-Lucent (NYSE: ALU). This study here, done in April, shows Alcatel with more mobile patents than Nokia. The kicker is that Nokia is the OEM patent leader (page 13) and Alcatel looks like its all but given up on patent development. Still, for $3.5 billion, you're looking at a 57 percent discount to Nokia's market cap. But, with Alcatel, Microsoft doesn't get an mobile device maker, just added padding to its mobile infrastructure patent portfolio.
Finally, who made Microsoft's tablet? If it works well, is solid, and well received, go with that OEM if the price was right. Nokia itself has said in the past its looking to move operations to Asia in order to cut costs. That in mind, Microsoft has enough connections and purse-string-pulling-capability to coerce several upstream and downstream Taiwanese manufacturers to allocate more floor space solely to Microsoft.
Overall, whether or not Microsoft will bid for Nokia shouldn't be an issue until late-2012 or going into 2013. Until then, Nokia has said it has enough resources to keep it moving along (though dividend investors might want to keep an eye on cash generation-to-payouts, as the juicy 18 cent annual dividend may get halved when all is said an done).
In early trading, Nokia shares are down nearly 4 percent in early trading (bringing its market cap below $8 billion). Microsoft is about 0.8 percent better.
With the recent downfall in Nokia stock and its ongoing Windows Phone partnership (non-exclusive) with Microsoft, making it one of the few major OEMs to eschew adapting Google's (Nasdaq: GOOG) Chrome, many have wondered why Microsoft doesn't just buy up Nokia. After all, it paid $8.1 billion for Navteq back in 2007 and $8.5 billion for Skype last year.
First, they'll probably want to see how Nokia fares upon the launch of Windows Phone 8 later in the year. Though Nokia is likely to see a drastic drop in demand over the next several months due to incompatibility between the current and new versions of Windows Phone, this gives it time to focus on prepping a solid mobile device for later in the year. (Note to Nokia: It's okay to drop the numbering scheme for your mobile devices, which is tougher for consumers to remember than, say, "Fury," "Lightning," or "Lumia X.")
Second, Microsoft will want to see how Google's $12.5 billion acquisition of Motorola Mobility pans out. Motorola was previously a major player in the mobile realm in the early and mid-2000s, but fell off a little as it failed to create a smartphone winner following the introduction of Apple's (Nasdaq: AAPL) iPhone in 2007. If Google, which is also mainly a software and service giant, sees some success with Motorola, Microsoft might consider acquiring an OEM for itself.
Third, Microsoft is making a tablet, which is less complicated than creating a smartphone. Smartphones have bits-and-pieces related to communications not to mention needing to get clearance from federal communication authorities, something it has little experience in doing. Microsoft also doesn't want to deal with carriers (the Surface tablets will start off as Wi-Fi only), which would demand subsidies in order to sell devices. Lack of exposure directly in this area is keeping Microsoft content with partnerships. Plus, though Nokia has a solid global distribution network, other OEMs might avoid partnering should Microsoft start cranking out its own smartphones.
Finally, the patent issue. One of the primary reasons Microsoft would grab Nokia is for its thousands of technology patents related to mobile devices and other segments. Microsoft recently shelled out $1.056 billion for over 800 patents from AOL (NYSE: AOL. Let's assume "over 800" means about 810 patents. That's $1.3 million per patent on average. With Nokia holding well over 10,000 patents, it's current market cap of $8.2 billion may not fully reflect this.
Instead, Microsoft could make a grab for Alcatel-Lucent (NYSE: ALU). This study here, done in April, shows Alcatel with more mobile patents than Nokia. The kicker is that Nokia is the OEM patent leader (page 13) and Alcatel looks like its all but given up on patent development. Still, for $3.5 billion, you're looking at a 57 percent discount to Nokia's market cap. But, with Alcatel, Microsoft doesn't get an mobile device maker, just added padding to its mobile infrastructure patent portfolio.
Finally, who made Microsoft's tablet? If it works well, is solid, and well received, go with that OEM if the price was right. Nokia itself has said in the past its looking to move operations to Asia in order to cut costs. That in mind, Microsoft has enough connections and purse-string-pulling-capability to coerce several upstream and downstream Taiwanese manufacturers to allocate more floor space solely to Microsoft.
Overall, whether or not Microsoft will bid for Nokia shouldn't be an issue until late-2012 or going into 2013. Until then, Nokia has said it has enough resources to keep it moving along (though dividend investors might want to keep an eye on cash generation-to-payouts, as the juicy 18 cent annual dividend may get halved when all is said an done).
In early trading, Nokia shares are down nearly 4 percent in early trading (bringing its market cap below $8 billion). Microsoft is about 0.8 percent better.
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