The Market Is Missing Nokia's Enormous Potential [View article]
Thank you for all of your comments.
Overall I must stress that while I consider this a very interesting opportunity, it will probably take a year or two to play out. It is definitely not a short term trade, and the news flow may get worse over the next 3-6 months. I think we won't know which of my scenarios is playing out until Q4 and the release of the next suite of phones.
That said I do believe that MSFT and NOK are likely to revive Nokia's fortunes. As many contributors noted, there are always changes in the tech world, and MSFT and NOK both have good track records. And given that both carriers and developers are on their side I think the chance of Nokia establishing 10%+ share in smartphones is higher than 50%.
But we must also focus on the downside risks. I just don't see the doomsday scenario (of Nokia burning through all of their cash as their devices business falls to nothing) happening. If that started someone would buy Nokia for the break up value. And given that GOOG paid multiples of NOK's current valuation for MMI, the acquisition price should be well above the level that NOK currently trades at. FYI GOOG is paying - 3.6x tangible book value, and NOK is trading at 1.6x TBV - 0.65 EV/Sales, NOK is on 0.15x. - Approximately the same amount of MMI's R&D spend over the past 5 years ($9.5bn) for the EV. During this time NOK has spent $30bn....
So it is a very interesting investment to me. But only time will tell how it pans out.
The Market Is Missing Nokia's Enormous Potential [View article]
I have not explicitly modelled future dividend payments. However if Nokia continues to pay the dividend the share value is reduced by the tax you lose on the dividends you receive. If Nokia stops the dividend then you don't lose the tax, but there will be volatility around any announcement about a dividend cut. I must stress though that I am not trying to model Nokia's future value with a lot of precision - I believe that is not useful as any output will almost certainly be wrong. I am however trying to get a sense of what Nokia is worth under different scenarios, and so far it seems the firm is worth a lot more than the current share price!
An Apple Investor's Case For Buying Nokia: #3 In Smartphones Is Achievable With Microsoft's Backing [View article]
Thank you for the very interesting and well written article.
I obviously agree with your sentiment on Nokia, given what I published on this topic a couple of weeks ago. However I would like to see a well argued bear case for the stock if anyone has one.
My view is that the white knights (Microsoft, carriers and especially patents) provide a lot of downside protection over the medium term, so a bear case from current levels has to predicated on Nokia burning through the cash first and then selling out at bargain basement prices. My problem with that view is that Nokia has real value with its patent portfolio - based on the Motorola transaction EV could be 2-4x current levels (see my article) - so other players would likely get interested first. And these potential players (Apple, Google, Huawei etc) all have enough scale and cash to do the deal.
So what is the bear case for Nokia from here?
PS: With this question I mean the bear case for the stock on a value basis over the next 1-2 years, not some comments about Symbian being a dying platform etc etc - thanks
What Company Needs To Buy Nokia Or Research In Motion? [View article]
I think you're asking the wrong question. No one needs to buy these companies, or any companies for that matter. The question is, is it a good investment decision to buy? At current levels and rapidly getting cheaper NOK is a good buy. They have great patents, a great brand and someone (even the current management team) may turn the company around, using Windows 8 as a platform. Google bought Motorola for 0.7x EV/Sales. Nokia is trading on about 0.13x EV/Sales, or 25% of the price MMI was bought at. Many of the usual suspects would have difficulty getting a deal done, but the cheap valuation may just encourage them. Food for thought.
This would make a lot of sense for Samsung as they would then dominate the non iOS smartphone market. They could even retain the Nokia brand for Windows phones and keep Samsung for Android. But I agree with techy46 that the competition authorities would probably block the deal (the key word above is dominate...) and Microsoft may also block the deal (we don't know the contents of their agreement with Nokia). Apple wouldn't be too happy but I doubt they could do much about it other than complain to the competition folks.
Most commentary I have seen have written this whole idea off rumours from bored traders/hedge fund speculation etc. However this does seem a little premature, and further indication that most people don't understand this stock. Nokia is a great investment at these levels (see my May 15 note link below), so it would make sense for someone to buy them. The question is who. My best guess is a company like Huawei, which has the cash (2010 profit was $10bn); would benefit from Nokia's brand for their move into devices; could monetize the patent portfolio; and could use the NSN business well.
So I wouldn't write off the rumours as being complete nonsense - we just don't know.
The Market Is Missing Nokia's Enormous Potential [View article]
Overall I must stress that while I consider this a very interesting opportunity, it will probably take a year or two to play out. It is definitely not a short term trade, and the news flow may get worse over the next 3-6 months. I think we won't know which of my scenarios is playing out until Q4 and the release of the next suite of phones.
That said I do believe that MSFT and NOK are likely to revive Nokia's fortunes. As many contributors noted, there are always changes in the tech world, and MSFT and NOK both have good track records. And given that both carriers and developers are on their side I think the chance of Nokia establishing 10%+ share in smartphones is higher than 50%.
But we must also focus on the downside risks. I just don't see the doomsday scenario (of Nokia burning through all of their cash as their devices business falls to nothing) happening. If that started someone would buy Nokia for the break up value. And given that GOOG paid multiples of NOK's current valuation for MMI, the acquisition price should be well above the level that NOK currently trades at.
FYI GOOG is paying
- 3.6x tangible book value, and NOK is trading at 1.6x TBV
- 0.65 EV/Sales, NOK is on 0.15x.
- Approximately the same amount of MMI's R&D spend over the past 5 years ($9.5bn) for the EV. During this time NOK has spent $30bn....
So it is a very interesting investment to me. But only time will tell how it pans out.
Thanks again for the debate
The Market Is Missing Nokia's Enormous Potential [View article]
However if Nokia continues to pay the dividend the share value is reduced by the tax you lose on the dividends you receive. If Nokia stops the dividend then you don't lose the tax, but there will be volatility around any announcement about a dividend cut.
I must stress though that I am not trying to model Nokia's future value with a lot of precision - I believe that is not useful as any output will almost certainly be wrong. I am however trying to get a sense of what Nokia is worth under different scenarios, and so far it seems the firm is worth a lot more than the current share price!
An Apple Investor's Case For Buying Nokia: #3 In Smartphones Is Achievable With Microsoft's Backing [View article]
I obviously agree with your sentiment on Nokia, given what I published on this topic a couple of weeks ago. However I would like to see a well argued bear case for the stock if anyone has one.
My view is that the white knights (Microsoft, carriers and especially patents) provide a lot of downside protection over the medium term, so a bear case from current levels has to predicated on Nokia burning through the cash first and then selling out at bargain basement prices. My problem with that view is that Nokia has real value with its patent portfolio - based on the Motorola transaction EV could be 2-4x current levels (see my article) - so other players would likely get interested first. And these potential players (Apple, Google, Huawei etc) all have enough scale and cash to do the deal.
So what is the bear case for Nokia from here?
PS: With this question I mean the bear case for the stock on a value basis over the next 1-2 years, not some comments about Symbian being a dying platform etc etc - thanks
What Company Needs To Buy Nokia Or Research In Motion? [View article]
At current levels and rapidly getting cheaper NOK is a good buy. They have great patents, a great brand and someone (even the current management team) may turn the company around, using Windows 8 as a platform. Google bought Motorola for 0.7x EV/Sales. Nokia is trading on about 0.13x EV/Sales, or 25% of the price MMI was bought at.
Many of the usual suspects would have difficulty getting a deal done, but the cheap valuation may just encourage them.
Food for thought.
Nokia (NOK) jumps 5% premarket on an unconfirmed rumor it could be a takeover target for Samsung. [View news story]
Most commentary I have seen have written this whole idea off rumours from bored traders/hedge fund speculation etc. However this does seem a little premature, and further indication that most people don't understand this stock. Nokia is a great investment at these levels (see my May 15 note link below), so it would make sense for someone to buy them. The question is who. My best guess is a company like Huawei, which has the cash (2010 profit was $10bn); would benefit from Nokia's brand for their move into devices; could monetize the patent portfolio; and could use the NSN business well.
So I wouldn't write off the rumours as being complete nonsense - we just don't know.
My May 15 article
http://seekingalpha.co...