Thursday, September 22, 2011

Nokia's value is falling

It's been a while since latest post to this blog, I've more or less moved from blogging to Twitter as that medium is much more conversational. This time I just didn't manage to compress my thoughts to 140 chars.

Today, September 21st, Nokia's market capitalization is 15.7 billion euros and stock price has fallen 46% this year (Source: Nasdaq OMX).

Another fact is that Nokia's total cash and liquid assets were 3.9 billion euros at the end of second quarter this year (Source: Nokia's interim report).

It is also a fact that Google acquired Motorola Mobility in August, mostly for its patents, for 12.5 billion dollars (approx. 9 billion euros). According to reports, Nokia's patent portfolio is better than Motorola's both in terms of quantity and quality and for example every iPhone sold generates royalties to Nokia.

How Google actually evaluated Motorola's patents is not known, so we must make a wild assumption. Let's assume that over half of Motorola's value was coming from patent portfolio and because Nokia has more and better patents, we can round sum up a little bit. Let's say Nokia's patent portfolio is worth 7 billion euros, quite possible figure based on Google's Motorola deal. (In fact after Motorola deal J.P. Morgan valuated Nokia's patent portfolio to 5.4B€, but wildest evaluations were close to 20B€).

Now it's time for some math:

Nokia's market capitalization 15.7B€
- Nokia's cash assets 3.9B€
- Nokia's patent portfolio 7B€
= 4.8B€

This calculation shows that without cash assets and patents Nokia's core business is valuated below 5B€, or to put this in different words, only 1/3 of Nokia's value comes from what they do today.

However, Nokia owns 50% of NokiaSiemens Networks, Navteq maps (when Nokia bought Navteq price was 8.1B$), has factories all over the world, sold in last quarter over 100 million devices, more than 1.3 billion people use Nokia devices every day and Nokia is still one of the most recognized global brands. Despite reductions, Nokia has an army of talented people working every day to create new devices that their effective manufacturing and logistics can push through their global sales channel practically to every village in this planet. Yet, that doesn't seem to have much value.

Or maybe investors just don't believe that life as Microsoft's hardware department will be great business.


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