Finally, one of the most anticipated court cases in the recent history is over with Apple's (NASDAQ:AAPL) victory against Samsung (OTC:SSNLF). While many people will agree with the jury's decision, many will not; however, regardless of whether one agrees with the decision or not, the decision will have ramifications across the entire mobile device industry. In response to the court's decision, many technology stocks moved sharply in either direction on Monday. One of the companies that saw the sharpest rally on Monday was Nokia (NYSE:NOK). In the morning trading, Nokia was up by as much as 11%, and the company's share price closed the day up by nearly 6%. As a result, Nokia saw a price range it hadn't seen since May.
Nokia holds one of the most valuable patent portfolios in the mobile device industry. The company has spent nearly $50 billion in the last 20 years to build its patent portfolio consisting of 30,000 patents. Currently there are 40 companies around the world (including Apple) that pay license fees to Nokia. So far, Nokia's management has been very friendly to other companies about licensing its patents, and it didn't resort to the court as long as it didn't have to. Currently, the license and royalty fees bring Nokia additional revenue of nearly $1 billion per year.
As Samsung and Apple battle it out, many consumers might get tired of both companies and look for a third alternative, namely Nokia and its big brother Microsoft (NASDAQ:MSFT). In the coming weeks, Microsoft will be heavily marketing the Windows 8 and the Windows Phone 8 all over the place as the company will invest a massive amount of money for the marketing efforts. While marketing its products, Microsoft would be well served to remind the customers that the Windows 8 ecosystem is free of any drama or even a possible product cancellation due to the legal issues. Currently Microsoft has ongoing cross-licensing agreements with Apple, and the two companies will not be suing each other anytime soon.
Remember when Google (NASDAQ:GOOG) acquired Motorola in order to save itself from some legal headache due to Apple's patents? Well, most of Motorola's patents are related to the hardware design and Google's hand is weak against Apple when it comes to the patents regarding the designing of the software and the operating system. In this case, Nokia is in safe hands as it continues to outsource its software and operating system to Microsoft. Nokia and Microsoft should definitely use this angle for marketing the new phones running on Windows 8 during the holiday season.
Here is what Carolina Milanesi from Gartner Inc. thinks of the issue:
"I am sure that vendors in the Android ecosystem are wondering how long it will be before they become Apple's target. This might sway some vendors to look at Windows Phone 8 as an alternative, and for the ones like HTC and even Samsung, who have already announced plans to bring to market a WP8 device, how much stronger their investment should be."
In addition, the court ruling might limit, delay or alter some of the production capacities of Nokia's competitors as these companies (including but not limited to Samsung) will be looking for a way around Apple's patent portfolio in order to avoid further legal action. I am not arguing whether Apple's claims in the court are justified or not; however, the recent developments will cause many companies to think twice before launching their next product. At the least, the marketing efforts of Android phone producers will be hurt a little bit.
At the end of the day, Nokia's phones are as good as the phones of the competition if not superior in many ways. If only Nokia's marketing efforts were as good as Apple's or Samsung's, it could have sold many more phones. Marketing is the biggest issue in front of Nokia right now as it doesn't get as much visibility in the media unlike some other companies. The Microsoft - Nokia partnership should definitely leverage the legal battle between Apple and Samsung to market their products effectively.
Furthermore, if certain Samsung products get a banned in the US, this will also help boost the sale of Nokia products. Apple will attempt to get at least 8 Samsung devices banned, and if Apple is successful in its attempt, this will encourage the company to pursue the other Android phone producers more aggressively. Back in the day, Steve Jobs announced that he was ready to spend no less than $40 billion on a "thermonuclear war" with the Android phone. Basically, Apple's war with Android is not over; in fact it is just starting.
Of course, many Android phone makers might simply switch to Microsoft. Currently, phone makers don't have to pay anything to Google in order to build an Android phone, whereas Microsoft charges phone makers license fees to use its operating system. On the other hand, Microsoft's cross-licensing with Apple protects phone makers from a possible lawsuit while Google doesn't offer such protection. If a number of phone makers jump to Windows, this might hurt Nokia's profitability even though Nokia claims 59% of the market share in Windows phones.
Of course, there is no such thing as safe investment. Nokia also has challenges of its own as we speak. The company will have to work hard to return to profitability. If Android ends up losing some market share, Nokia will still have to fight with Apple and the other Windows phone producers for the market share. Nokia's road to recovery will not be easy as it will have to gain a lot of visibility before and during the holiday season. Because Nokia has been cutting costs aggressively, the company will probably need help of its partners to fund some of the marketing efforts. While AT&T (NYSE:T) hasn't been very helpful with Nokia's marketing efforts, Microsoft might be able to make things happen. I believe that Nokia's biggest problem in the smart phone market is the visibility and marketing at this point.
In conclusion, Apple's legal victory over Samsung might be beneficial for Nokia as Nokia can use this opportunity to market its products for being "drama-free"; many consumers might switch to a Windows phone from Android; and Nokia's competitors might see disruptions in their production capacity due to the legal battles. Only time will tell how this will turn out to be. I believe that if Nokia and Microsoft market the next line of Nokia phones effectively, the company can make a huge impact in the smartphone market.
Disclosure: I am long NOK, GOOG, MSFT, AAPL, T. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.