Nokia Wants To Be Bought

May.24.13 | About: Nokia Corporation (NOK)

Nokia (NYSE:NOK) has looked like dead money for a long time now.

At its peak, in 2007, this was a $40 stock. Back then, your mobile phone was just a phone, not really an Internet client. That was Symbian, the real-time operating system Nokia developed, and nearly everyone used it.

Nokia's fall during the smartphone era has been truly brutal. Stephen Elop was brought in to arrest it, and his strategy of tieing the company to Microsoft (NASDAQ:MSFT) Windows Phone is seen by many as a disaster. When he was hired, in September of 2010 this was still a $10 stock. Now it's fighting to keep $3.50, but that's a vast improvement over the 2012 low of $1.80.

So there's a division in the Nokia ownership base. There are long-term shareholders who are out 85% on their investment and see no way back. There are somewhat shorter-term investors who are down 65% during the Elop era and question the strategy. Then there are those who bought at the lows of 2012 and are happy campers.

The Windows Phone Elop is depending on to save his job is the Lumia line, which sold 5.6 million units in the first quarter. This sounds great, until you realize that one-third of those sales aren't on Windows 8, and that the total market was 426 million units, according to Gartner. In other words, Windows is getting 1% of the mobile market.

Given that reality, the only possible way to get more for shareholders is to sell the company, and that means monetizing its patents, acquired while it was riding high. FossPatents writes that Nokia is now trying to do just that, throwing new patents on old lawsuits in an attempt to get the HTC One, which AT&T (NYSE:T) had been dressing up as the "Facebook Phone," given an import ban.

So far, that hasn't happened. Courts are not looking kindly on such requests generally, except in Germany. Even where patent violations are proven, the result is monetary damages, damages that are often pretty easy for violators to pay. For Nokia to spark a bidding war for its patent assets, it needs a big win.

Should it get one, however, there are two bidders waiting to pounce. Google (NASDAQ:GOOG) is the ultimate target of Nokia's suits, and paid $12.4 billion for Motorola, which has not given it half the protection Nokia's patents might. Then there is Microsoft, which needs Nokia in order to have a Windows Phone OEM partner with heft and would really hate to see those patents in the hands of the company it most hates and fears in the mobile market.

What this tells me is that there is a firm floor under the Nokia stock price, which currently delivers a valuation of $13.5 billion. You may not get much right away, but at some point either Nokia makes a breakthrough in the phone market or it gets taken out at a price well north of where it is.

Disclosure: I am long GOOG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.