Nokia (NYSE: NOK) was the undisputed king of the mobile phone market until a few years back, but now both Apple (AAPL) and Samsung Electronics (NASDAQOTH: SSNLF.PK) are competing with each other for this position. The company is struggling to remain in the race by launching the Lumia series and target the growing Windows phone market. Despite these efforts, it has slipped from the 8th to the 10th position in the Smartphone market. The Global Market share of Nokia has dropped from 19.7% to 14.8% in the first quarter of 2012 and 2013 respectively. Samsung is currently leading the market with a share of 23.6% while Apple is not far behind securing the 3rd position with a share of 9%.
The mobile market has declined 9.5% and 3.8% in North America and Latin America respectively as reported by Gartner. Nokia reported a decline of 20% year-over-year in the net sales of $7.6 billion in the first quarter of 2013 and has an operating loss of $197 million, down 89% from $1.7 billion a year ago. Device sales continued to decline and were reported at $3.8 billion, down 31% as compared to a year ago. However the increased Lumia sales have to some extent offset the decline in feature phone sales. The mobile phone volume of the company dropped 21% year over year while the volume of smartphones dropped 8% sequentially and 49% year over year. It shipped a total of 6.1 million smartphones in the first quarter of which 5.6 million were Lumia devices, up from 4.4 million over the previous quarter. The company is expecting a further increase of 27% in the shipment of Lumia Series in the current quarter.
Sale of Patents
Nokia sold 125 patents to Pendrell (NASDAQ: PCO), an integrated intellectual property investment, advisory services and asset management firm in March 2013. These include Memory technology patents, covering a wide range of foundational memory technologies for electronic devices.
Nokia has invested almost 15 years in developing IP which cover secure digital (SD) cards, embedded flash and universal flash storage capabilities. The global market share of these memory technologies is estimated to be more than $12 billion in 2013, and the market value of the SD cards alone can exceed $21 billion in 2018. According to recent reports the smartphone industry spent around $20 billion in 2011 for acquiring the patents.
A few major patent acquisitions are given as follows:
No. of patents
The average value per patent is approximately $4.02 Million. The company owned a total of 10,000 patents last year out of which 125 patents were sold to Pendrell. The remaining 9875 patents can fetch billions for the company. This shows that at the current level, there is little downside to Nokia because the company's patents alone can fetch its market capitalization.
The patent war still continues between the world's largest technology corporations. Nokia and Samsung both are considered as mobile patent kings. A patent is a government license that gives its holder exclusive rights to process or design a product to warrant the holder has a guaranteed source of income enabling the holder to be able to charge a second party for using any part of their design, which ensures the patent holder with revenues even if their own products are not selling.
The growing smartphone market will benefit Nokia through Lumia sales. The window smartphones market share is 5.6% up 1.8% over the last year, but far behind from the 41.4% covered by iOS or 51.7% covered by Android. Lumia 1025 and Lumia 925 will definitely improve revenue growth as in the last quarter Lumia sales also showed massive improvements.
Investing in Nokia is still risky, because it is facing an uphill battle. New Nokia Lumia Phones have good features, and the street is projecting a rise in Lumia sales. Despite discouraging EPS and increasing competition, Nokia has the potential to bounce back. The security concerns with Android are rising. According to a recent report by BBC, the master key to Android phones has been discovered. This can give cyber thieves open access to almost any Android phone. Due to limited downside, protection from valuable patents and Lumia's growth, I recommend investors to go for Nokia.
Additional disclosure: Equity Whisper is a team of analysts. This article was written by our technology analyst. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.