What Analysts Have to Say About the Nokia Deal

By Chris Lange Updated Jan 13, 5:43AM EST · Published Jul 14, 10:55AM EDT

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What Analysts Have to Say About the Nokia Deal — © courtesy of Nokia Corp.

Nokia Corp. (NYSE: NOK) has made waves in the market following news of the extension of its licensing agreement with Samsung. At the same time, the company is looking to make even more from Apple Inc. (NASDAQ: AAPL). As a result, one key analyst decided to weigh in on Nokia.

The company recently announced that it extended its IPR licensing agreement with Samsung. Merrill Lynch believes that this new agreement relates to Samsung licensing Nokia’s nonstandard-essential patents that were not covered by the arbitration ruling earlier this year.

Based on Nokia comments in the release, the brokerage firm estimates the new agreement is equal to about 10 basis points of Samsung’s handset revenues. Merrill Lynch further estimates that including the arbitration ruling on standard-essential patents, Nokia now receives total royalty payments from Samsung of around 50 basis points of its handset device revenues. This is well above Nokia’s current average royalty rate of the handset industry of an estimated 30 basis points, and it implies further upside long term from expanding its licensing base.

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Nokia expects the deal to increase its recurring revenue run rate in Technologies. On a like-for-like basis, this implies a 3% increase to the current group EBIT run rate. Merrill Lynch highlighted that it already expected a similar revenue uplift for Technologies by the fourth quarter of 2016 (mostly from brand licensing and the Withings consolidation). Yet after the Samsung agreement, the brokerage firm has more confidence in its above consensus Technologies revenues for 2016.

Merrill Lynch expects that most of Nokia’s 2017 and 2018 Technologies revenue uplift comes from an assumed increase in payments from Apple. This renewal agreement is still outstanding, and Nokia would expect it to be renegotiated at favorable terms and for increased royalty revenues to Nokia, versus the current agreement, in the next six months.

The brokerage firm has a Buy rating with a $6.60 price objective for Nokia. A couple other analysts also made calls on the stock:

JPMorgan reiterated a Buy rating.
BMO Capital Markets reiterated a Positive rating.

Shares of Nokia were trading up 1% at $5.95 Thursday morning, with a consensus analyst price target of $7.09 and a 52-week trading range of $5.01 to $763.00.

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About the Author Chris Lange →

Chris Lange is a writer for 24/7 Wall St., based in Houston. He has covered financial markets over the past decade with an emphasis on healthcare, tech, and IPOs. During this time, he has published thousands of articles with insightful analysis across these complex fields. Currently, Lange's focus is on military and geopolitical topics.

Lange's work has been quoted or mentioned in Forbes, The New York Times, Business Insider, USA Today, MSN, Yahoo, The Verge, Vice, The Intelligencer, Quartz, Nasdaq, The Motley Fool, Fox Business, International Business Times, The Street, Seeking Alpha, Barron’s, Benzinga, and many other major publications.

A graduate of Southwestern University in Georgetown, Texas, Lange majored in business with a particular focus on investments. He has previous experience in the banking industry and startups.