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Seppo Sahrakorpi
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PhD in Physics. Developing new models for stock trading and valuation. Predicting future accurately is surprisingly difficult. Contrarian investment philosophy. I am in particular interested in undervalued technology stocks with multiple x upside potential and limited downside risk. I am... More
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  • Partial Transcript Of Nokia's Press Conference, September 3rd 2013 1 comment
    Sep 8, 2013 9:08 AM | about stocks: NOK

    Official webcast recording (but no transcript) of Nokia's (NOK) press conference on September 3rd 2013, including the Q&A part, is available on Nokia's press site.

    The key part by Chairman Risto Siilasmaa starts at 1:55 (transcription by the author):

    "...Rationally, it is clear that the smartphone market is undergoing fundamental change, and in this market Nokia has done great in creating innovative products. However, the industry is becoming a duopoly with the leaders building significant financial momentum at a scale not seen before, while many established players have disappeared or faced difficult choices.

    Even as people who try Lumia usually quickly fall in love with the device, it does require a significant investment to drive large numbers of people to try a new experience. These investments are now significantly higher than ever before. Where do those required investments come from?

    With all these dynamics, it is evident that Nokia alone does not have the resources to fund the required acceleration across mobile phones and smart devices. Especially as we have great opportunities in our other businesses as well. We cannot expect other device vendors to significantly invest as Nokia has grown to dominate the Windows Phone ecosystem.

    Microsoft does have the resources but they lack a business model that allows them to gain an improved return on significant incremental investment. If Microsoft would have to invest $20 to sell one more device, and would earn $10 in license fees as a result there is no incentive to invest.

    The Nokia Board has been evaluating and analyzing all imaginable strategic alternatives since Microsoft announced a deeper focus on the hardware business in June 2012 by introducing the Surface tablet heralding a tectonic shift in the broader Windows ecosystem. During these past months of analysis Nokia has learned that in today's market the best opportunity for the device business to prosper is to be tightly aligned with the operating system and the associated ecosystem, and cloud services.

    After Steve Ballmer called me in February 2013 to have an open dialog around a possible acquisition we greatly intensified this work. Before engaging in structural discussions with Microsoft we insisted on a in-depth joint review of the current business relationship. We had to first fully understand whether there was a way to change the current partnership in a manner that would allow both companies to separately win in the smart devices market. We spent significant time to working out potential incremental improvements before concluding that it was acceptable to engage in a discussion regarding a transaction.

    The Nokia Board and its Subcommittees have convened almost 50 times since the beginning of this year. Most of that extra effort has been focused on understanding how to maximize value creation for Nokia shareholders around our devices business. During the months of exhaustive review and analysis we gained a clear understanding of different alternatives, and more importantly of the expected economic value to Nokia shareholders.

    With this we decided on the right path forward. Nokia's Board of Directors decided to enter into a transaction whereby Nokia will sell substantially all of our Devices and Services business. And we will license patents to Microsoft. The Nokia Board of Directors believes that this transaction creates significant economic value to our shareholders. We expect it will be significantly accretive to earnings, it will clearly strengthen our financial position and it will provide a solid basis for future investment in Nokia's continuing businesses.

    For our employees in Devices and Services who would transfer to Microsoft they will have a stronger financial backing to be successful in the mobile marketplace. And Finland becomes a core base for Microsoft in Europe. It is worth stressing that as a result of the agreement today instead of one Nokia there will be two global technology companies in Finland both financially stronger and capable to invest in the future. This can be an important accelerator in the broader Finnish economy.

    For all these reasons we came to the conclusion that this transaction creates more value for Nokia than could otherwise be realized..."

    This transcript is an appendix for a Seeking Alpha article that has been submitted by the author for review by the editors.

    Disclosure: I am long NOK.

    Stocks: NOK
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  • Great work Seppo, as usual. Thanks!
    9 Sep 2013, 08:28 AM Reply Like
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