Did Nokia Win the Battle Against Apple, But Lose the War?

Jun.22.11 | About: Nokia Corporation (NOK)

By Tony D’Altorio

A long-running dispute between two mobile phone giants – Nokia (NYSE: NOK) and Apple (Nasdaq: AAPL) – is over.

During the battle, each company had accused the other of stealing smartphone technology and infringing on patents.

But both companies reached a settlement last week. Apple will pay Nokia a one-time amount, estimated between $300 million and $600 million, to cover the 111 million iPhones sold since it came to market in 2007. Apple will also provide ongoing royalty payments for Nokia technology, which could easily be worth several hundred million dollars more.

This legal victory is important for Nokia…

  • It provides the company with much-needed cash. The settlement will support Nokia during a tumultuous period as it faces rapidly declining market share and stiff competition from Apple’s iPhone and phones powered by Android, the operating system from Google (Nasdaq: GOOG).
  • The victory also pointed out that Nokia does have an industry-leading patent portfolio in smartphone technology: A key reason takeover rumors continue to swirl around the company.
  • It also opens the door for more revenue opportunities for the company, including possible licensing agreements covering its smartphone technology.

However, the victory also points out something else…

Nokia’s Lost Opportunity in the Mobile Phone Industry

And that is… Nokia blew its chance for continued dominance in the mobile phone industry.

After all, Apple is acknowledging that its iPhone owes at least some of its success to Nokia’s technology. Surely Nokia’s shareholders must be asking why Nokia’s management didn’t implement the technology into its own phones.

And it looks like Nokia’s engineers were at the forefront of smartphone technology – the patents prove it. So the company can’t blame technology for its current shortcomings. The company had everything it needed for continued success.

Apparently, the company’s previous management team assumed no one could challenge their dominance in the industry. They forgot the company’s own humble beginnings and how it came to rule the mobile phone world.

That negligence led Nokia to where it is today. Its stock has lost three-quarters of its value since 2007. And Nokia’s rapidly losing global market share to iPhones and Android-powered phones.

Nokia’s Royalty-Based Future

The company’s current management team doesn’t seem much stronger than its predecessor. It’s as if Nokia’s CEO, Stephen Elop, is still working for his former employer, Microsoft (Nasdaq: MSFT).

He forged a deal with Microsoft to make Windows Phone 7 the primary operating system for Nokia phones. And now there are the rumors about Mr. Elop selling the entire mobile phone business to Microsoft. This would leave little left of Nokia.

However, Mr. Elop must be given his due for his stated intention to use Nokia’s intellectual property rights on smartphone technology “more strategically.”

This immediately leads to speculation that Nokia, after its success with the Apple lawsuit, is getting ready to go after Google and the makers of Android smartphones like Motorola Mobility (NYSE: MMI).

Perhaps he can successfully turn the company into one based chiefly on royalties… because it’s quickly becoming irrelevant as far as smartphone sales go. Nokia is due to fall behind Samsung in mobile phone sales by volume in the second quarter and it’s scheduled to slip behind Apple in the third quarter.

And it’s still up in the air whether its move to develop smartphones based on Microsoft’s Windows operating system can win back lost ground.

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