Seeking Alpha
Long only, deep value, growth at reasonable price, carmakers
Profile| Send Message|
( followers)  

Last weekend, an interview of Richard Kerris, the VP of Worldwide Developer Relations at Nokia (NOK) was published on the internet. The interview had several encouraging points for Nokia investors. First of all, Nokia's Lumia model will not be limited to AT&T (T) anymore as it will shortly be available to Verizon (VZ) and Sprint (S) users too. This is encouraging as the phone's American exposure can easily more than double with addition of these two carriers. And this was not the only positive development either.

In the interview, Mr. Kerris acknowledged that the company was having tough days and the hardships would continue for a while. However, he was very confident about the future of the company as he is aware of the future products and plans of the company. Many times, when a company is going fast on the highway of bankruptcy, the company's management denies accepting that the company is in bad shape and refuses to take action. For example, Eastman Kodak ignored the issues surrounding the market until after it was too late. Same is true with GM (GM) in 2008 and probably Research in Motion (RIMM) too. These companies simply didn't even know what hit them. Nokia is different from these companies as it has the ability to see the threats and have a sense of urgency to turn things around. Since it decided to jump from the Symbian operating system to the Windows, the company has launched a number of high quality products which don't really look like products of a failing company. Honestly, not many bankrupt companies created products as good quality as Nokia in their last years of business, which implies me that Nokia is not going out of business anytime soon.

Mr Kerris pointed out that the PureView technology would be available in Lumia phones very soon. PureView technology allows mobile phones to take very high quality photos, similar to those taken by cameras. The quality of pictures taken with this technology is far beyond those taken by Apple's (AAPL) iPhone or Samsung's Galaxy. When one considers how millions of smart phone users use their device to take pictures and share them on social media applications such as Facebook (FB) one can't help but notice the importance of a technology like PureView. This alone can be a game-changer for many smart phone users.

I like how Nokia is actually attempting to go one step further than the competition and differentiate itself from the crowd. This is probably why Microsoft (NASDAQ:MSFT) picked Nokia as a partner, and this is also why AT&T will be spending $250 million to advertise the Lumia phones in the third quarter of this year. Nokia's differentiation from the competition is not limited to being able to take high quality photos either. The company's Nokia Map technology is so good that it will be a part of Microsoft's new tablet and Ford's navigation system (F) in addition to Lumia phones.

Mr. Kerris said that Nokia made more additions to its 30,000-strong patent portfolio in the last year than any other year in its history. This proves that most of Nokia's patents are not obsolete and many of these patents actually relate to very recent technologies. It is also amazing that the company was able to add more patents than ever to its portfolio in a year it's experiencing a huge turmoil due to reorganization efforts. I don't know many companies on the highway of bankruptcy that can keep adding high quality patents to their portfolio in their last few years. Again, this is a sign that Nokia is here to stay and not go anywhere anytime soon.

Mr. Kerris put another argument to rest when he said that Nokia's revenue from patent royalty and license fees were just south of $1 billion annually. Earlier there were rumors indicating that the company was making between $500 million and $800 million annually from its patent portfolio, however this is the first time the number actually got confirmed by a Nokia insider. Applying a P/E ratio of 10 to Nokia's patent portfolio would value the portfolio just under $10 billion, which is a 35% premium to the company's current market cap. Keep in mind that Nokia can increase the fees collected by approaching the companies that are infringing its patents but have yet to apply for a license. Last week, Nokia approached Google (GOOG) and Asus and asked them kindly to pay the bill.

Here are a couple more innovations by Nokia according to Mr. Kerris: The company is working on a bendable screen and complete wrap around the display. This will ensure that the users will have a camera-feel when they are using their Lumia to take photos. The users will have more control over the process of taking a photo and they will get better shots. The display will be literally flexible for zooming in and out functions. This is something even Apple couldn't think of.

There is one more technology that will come with future Lumias and I find this one amazing and very innovative. The phone will be able to recognize when one is home and when one is at work. When one enters home, the phone will hide all work related displays automatically such as work e-mail and other business content. In addition, when a child holds the phone, the phone will be able to "detect the small hands and lock settings and email accounts."

Innovation like this, coupled with Nokia's high quality products should lead the company's turnaround. Yes, there are a number of Chinese and Korean companies that sell smart phones for cheaper than Nokia, however Nokia's phones are built to last for years whereas many of those Asian companies' phones barely last a year before they have to be replaced.

I believe in Nokia's chances of turnaround as the company continues to innovate and recreate itself with the latest technology. When I look at products of Nokia, I don't see products of a company that's about to go bankrupt. At this point, Nokia is so cheap that any tiny sign of turnaround for the company would turn into huge upside for the company's stock price.

Disclosure: I am long NOK, AAPL, T, VZ, MSFT, GM, GOOG, F.

Source: Lumia Is Coming To Verizon And Sprint Along With New Features