Nokia: Patent Portfolio Valuation Range Too Great To Make Nokia A Compelling Buy

| About: Nokia Corporation (NOK)

There has been a lot of Nokia (NYSE:NOK) talk with the stock now trading in the $2 range. It is now down over 60% over the past year as the company continues to have a myriad of issues. The Nokia discussion has now shifted to what Nokia's assets would bring in the open market. Most of the valuation is straightforward but the critical piece is Nokia's intellectual property (IP) portfolio of 30,000 patents.

Analysts have been trying to gauge the value of the patents by looking at comparable transactions, in which valuations have varied widely. In the recent InterDigital (NASDAQ:IDCC) transaction, Intel (NASDAQ:INTC) bought 1700 patents for $375 million, which is about $220k a patent. In the widely quoted 2011 Nortel Networks patent transaction, the company sold 6,000 patents for $4.5 billion which is $750k a patent. In a 2010 transaction, Microsoft (NASDAQ:MSFT) bought 882 Novell patents for $450 million, which is ~$511k a patent. In a 2011 transaction, Google (NASDAQ:GOOG) paid an enterprise value of $9.3 billion for 24,000 Motorola Mobility patents which is ~$390k a patent. Taking the average price paid for a patent of about $470k suggests that Nokia's IP portfolio is worth about $14 billion.

Looking at Nokia's balance sheet, the company had 22.6 billion euros in current assets at the end of Q1 and about 20.8 billion euros in liabilities which makes this a wash (I am ignoring non-current assets as they seem to be insignificant, according to analysts). This suggests that in the case that Nokia liquidates, the only value left for equity holders is the patent portfolio. If Nokia hits the $470k figure that the four comparable transactions received, then that suggests a $14 billion valuation for Nokia and upside of 75% from today's prices. However, if the patents aren't worth that much and are only valued at the lower end of the comp analysis or the $220k per patent InterDigital received, then Nokia is worth $6.6 billion and is overvalued at current prices versus its $8 billion market cap.

Looking at transaction comps for an asset with such a wide range of valuations as patents, suggests a lot of risk at hand. As proven by Kodak's attempt to sell its patents before it declared bankruptcy, selling patents isn't like selling cameras and there is no sure thing. The same applies to Nokia.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.