Finally, Nokia (NYSE:NOK) is so cheap that if the company was to go bankrupt today, its shares would be worth more than they are now. If we look at the company's balance sheet, we see why.
As of right now, Nokia's market value is $10.7 billion. In the latest quarterly report, Nokia had cash of $1.82 billion in addition to short term investments of $8.24 billion. The company's total account receivables sum up to $6.19 billion. In addition, the company's current inventory is worth $2.35 billion. The company's current total assets, according to its last SEC filing are worth $22.62 billion. If the company was to go bankrupt, everything would be up for a sale. This includes things like Nokia's plants, buildings and equipments, which are worth a total of $1.76 billion. If we add all the company's assets, cash and investments, we are looking at a total of $33 billion.
On the other hand, the company is not free of liabilities either. The company owes $4.9 billion and most of this amount (i.e., $3.8 billion) is long term debt. All Nokia's debt and liabilities total up to $22 billion. When company's total liabilities are subtracted from its assets, we have a balance of $11 billion.
However, this is not all. The company's assets of $33 billion don't include its patent holdings. Nokia has invested more than $62 billion in the last 20 years to build its patent portfolio. The company currently earns about $700 million a year from its patent royalties. Nokia's patent portfolio includes 10,000 patents, some of which are very important for building a mobile device.
We don't know how much Nokia's patent portfolio is worth today, but we can have some idea. For example, Google acquired Motorola for $12.5 billion mostly for its patents, and Nokia holds many more patents than Motorola did. If we assume that Nokia's patents are worth another $7 billion, which is a conservative estimate (i.e., $700,000 per patent), we are looking at about $2 per share for patents alone.
If all Nokia's assets were liquidated to pay off all its liabilities, the company would have $11 billion plus at least $7 billion of patents. This would translate into $4.86 per share. Of course, when a company goes bankrupt and tries to liquidate all its assets, it usually doesn't get full value for these assets unless the company is acquired by another company, in which case it may even get a premium. Even if Nokia goes bankrupt and liquidated all its assets with a discount of 30%, we are still looking at $3.40 per share. It's still much higher than today's share price of $2.88.
If we look at the company's share price, it is safe to assume that market thinks Nokia will go bankrupt within a couple years. At the moment, "the market" doesn't think Nokia has any chance of survival and bankruptcy is already baked in the price of the company. If the company becomes profitable and survives during this period, its value will skyrocket.
Buying Nokia at $2.88 today is like buying Bank of America (NYSE:BAC) for $4.90 last year, or buying Ford (NYSE:F) for $1.60 in 2009. If the company survives, you have so much to win. All Nokia has to do is become profitable, and stop burning its cash. As soon as Nokia is able to post positive cash flow, its market value has nowhere to go but up.
Nokia has been cutting costs, moving its operations to areas where labor is much cheaper, getting full support of giants like AT&T (NYSE:T) and Microsoft (NASDAQ:MSFT), and I believe that the company will survive. It may show loss in the next quarter, however I expect Nokia to turn to profitability before the year ends. If all goes wrong, Microsoft might even acquire Nokia as Nokia is Microsoft's only chance at getting a large market share in the smartphone and tablet market.
Disclosure: I am long NOK.