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Nokia’s Outlook for 2014

February 19, 2014 | About:
Muhammad Bazil

Muhammad Bazil

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After a rather dismal fourth quarter, Nokia (NOK) has been lagging in the market and many investors have pulled away. But much of the news coming out these past couple of months are pointing toward a much more successful first quarter in 2014 and the benefits of such optimism are already starting to be felt in increased trade volume over the past few days.

Legal Issues and what they could mean for the company

A tax dispute over Nokia‘s factory in India has resulted in a delay in closing the recent deal between Microsoft (MSFT) and Nokia. As part of the larger $7 billion dollar sale of the company’s handset division to Microsoft, the transfer of all pertinent assets needs to be completed within 45 days to meet the first quarter deadline agreed to by both parties involved. The Indian government is asking for € 250 million in taxes it claims Nokia still owes on the factory.

If the issue is not resolved in time, Nokia will have to continue operating the factory as a contracted business for Microsoft during an extended transition period. Such a situation could mean unplanned for additional costs for Nokia. However, in an official statement released by the company, Nokia announced that it has full confidence the deal will be carried through in time despite the ongoing tax disputes occurring in India.

Nokia has also finally reached a resolution in the lengthy patent struggle against Taiwan-based competitor, HTC (TW: 2498). The two have agreed to drop the lawsuits and collaborate in a mutually beneficial business arrangement. Although full details of the deal have not yet been announced, Nokia has stated that HTC will pay royalties on all patents from the company. Furthermore, Nokia’s patent portfolio will grow with the inclusion of HTC’s LTE patents. The two companies will also begin collaborating on future technologies.

Such an arrangement proves the potential of Nokia’s position as a licensing and patent company and could also lead to greater growth than would a simple win in court against HTC. Nokia’s patent licensing accounts for at least 13% of the company’s earnings. With this recent news about HTC and the positive outlook for Nokia’s lawsuits with other competitors, it is safe to say that this will continue to be one of the company’s strongest growth areas. We will have to wait until the release of next quarter’s financial reports to see exactly what sort of impact this deal with have on Nokia but investors can definitely expect some good news in that regard.

Nokia’s Android phone confirmed

The long anticipated—and long thought to be merely rumored—Nokia smartphone using the Android operating system is confirmed. The official release date is not yet known, however, it could be as early as sometime this month.

Engineers at Nokia had been developing the phone long before the Microsoft deal was even on the table. As Microsoft still has a ways to go before it can make its Windows software compatible with the low-cost phones, using a modified version of Google’s (GOOG) successful operating system will work as a temporary fix.

Until now, Android has dominated the low-end smartphone market almost exclusively so the implementation of a transition phase using a version of the operating system could prove to become a route for a smooth entrance into the market, giving the soon-to-come Windows phones a better chance to succeed.

Conclusions

The Nokia stock has rallied as much as 9% in light of the recent news coming out, particularly in regard to the deal reached with HTC. It is now officially out of the range of high volatility and can only be expected to rise further. With the Microsoft deal finally coming to close (assuming the tax dispute in India does not manage to hamper its progress) and the increased revenue from royalties on its patent portfolio, especially from HTC, there is no shortage of things to look forward to in the first quarter report. 2014 is shaping up to be a fantastic year for the company. Even for those who are hesitant about Nokia as a long-term investment, it has, at the very least, high potential for a quick return in the short-term.

About the author:

Muhammad Bazil
Muhammad Bazil is a financial journalist and editor for a variety of websites, public policy organizations, and book publishers. He has written hundreds of published articles and blog posts on topics including budgeting, credit management, real estate and investing. His articles have been featured on the homepage of Yahoo!, MSN and numerous local news websites.

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