What Do Nokia's Recent Acquisitions Tell Us?

| About: Nokia Corporation (NOK)


Nokia now has plenty of cash to spend on new initiatives.

The company's recent acquisitions tell us a lot about the company's new direction.

The company will be focusing more on "big data" to differentiate itself from the competition.

Ever since Nokia (NYSE:NOK) sold its mobile devices unit to Microsoft (NASDAQ:MSFT), people wondered what Nokia would do with its cash. It looks like Nokia is putting its money into work by acquiring smaller companies that will fit with its new business strategy. Last Thursday, Nokia announced that it was acquiring Medio and SAC Wireless and this announcement was followed on Friday by acquisition of a solution from NICE Systems. These three acquisitions fit fairly well with the company's new strategy and they are likely to serve the company well in the future. These acquisitions also provide hints about where Nokia is headed next.

The acquisition of Medio

Medio is a tiny company with only 60 employees and the company's strength comes from its focus on real-time predictive analytics. Nokia's mapping business unit HERE has been working on delivering contextual maps and this acquisition will play a major role in this goal.

Medio helps companies like T-Mobile, Disney and Verizon in identifying high-value customers using predictive analysis. If companies know who their high-value customers are more likely to be, they can focus more of their resources towards these customers and reduce their spending on customers that are less likely to result in high profits. Think of it like credit scores. When banks are issuing loans, they look at lenders' credit-worthiness and risk profile to determine the appropriate interest rate and course of action. This is done to minimize the risk and maximize the gains for the lender. Medio's predictive analysis works in a similar fashion.

Nokia will probably use this predictive technology in a different way. The company acquired Medio for its mapping segment called HERE, indicating that the company's technology will be used in Nokia's maps. One way Medio's technology can be used in maps is to offer personalized search results. For example, if one person consistently goes to Mexican restaurants, the map could show Mexican restaurants on top of the search results when this person searches for a restaurant in a new town. The system could draw a map of one's behavior to predict what kind of stuff they might want to see on their maps when they conduct searches. In addition to helping Nokia's mapping business, Medio will continue to conduct its ongoing operations and serve its existing customer base. This may result in additional revenues for the company.

The acquisition of SAC Wireless

SAC Wireless focuses mainly on infrastructure and network deployment solutions. This acquisition will add to the product and customer portfolio of Nokia's network business. SAC Wireless is unique from other wireless infrastructure providers because this company allows its customers to customize their network deployments and have more control over the process. As operators gain control over the process, they will feel more comfortable with dealing with any issue that may arise during product deployment.

The services offered by SAC Wireless are self-performing and they may be involved in any stage of the process from initial deployment to final upgrades. The company is involved in designing, constructing, designing, maintaining and servicing networking solutions in many settings including but not limited to hospitals, universities, stadiums, malls, commercial buildings and government institutions.

Nokia's network installation and maintenance business should see an increase in its global market share. This is where a great majority of Nokia's revenues come from after the sale of the mobile devices business segment to Microsoft. SAC Wireless will add new products, services, offerings and customers to Nokia and this should boost the company's revenues both in short term and long term.

There are still a large number of operators around the world that are in the process of upgrading their networks to 4G standards. Some of these operators are in installing stage and many are in planning or designing stages. As SAC Wireless offers operators more control over the process, Nokia should benefit from this. Nokia should also benefit from cross-selling products and services between the two companies. In addition, SAC Wireless offers Distributed Antenna Systems (DAS) for both indoors and outdoors facilities and this is one of those things Nokia could add to its portfolio.

Nokia Networks has a very strong presence in the global network infrastructure deployment market but the company's presence in the US market is not as strong. The addition of SAC Wireless will help Nokia with the US market, which is the biggest 4G market in the world. This acquisition shows that Nokia is determined to expand itself in the US market and become a major player in this particular market. Currently, Nokia's network business is doing well in Europe and it is establishing itself in Asia where many local companies attempt to compete on pricing. Nokia did not disclose how much it spent on SAC Wireless, so it is not possible to conduct fundamental analysis to determine whether the company is getting a good deal out of this acquisition; however, it is certainly getting a nice addition to its product portfolio in the network infrastructure business.

The acquisition from NICE Systems

Nokia did not acquire all of NICE Systems (NASDAQ:NICE), but it bought a package of 3-D geo-location solutions from it. NICE Systems was founded by former military personnel of Israel and it helps airports, banks and other facilities with security matters through collecting data with a number of sensors and devices. Using NICE's geo-location solutions, Nokia will be able to help mobile operators in identifying traffic trends and mobile network performance. This will allow the operators to plan better in their future projects. Nokia will be opening a new office in Israel and this office will work in cooperation with NICE Systems to develop better tools and systems using the existing 3-D solutions.

Three dimensional modeling is utilized to create accurate network performance to networks that are managed by multiple vendors. This technology is great for complex networks where a large number of technologies are being used and it is difficult to pinpoint and track each technology's performance. Nokia will combine its existing technologies with what it purchased from NICE Systems and differentiate itself from the competition.

Nokia's future is becoming more visible

After selling its mobile devices business to Microsoft, Nokia now has more than $10 billion in net cash when the company's entire market cap is about $28 billion. There has been lack of clarity about how Nokia would use its cash and things are getting a little clearer now. Many people expected Nokia to buy some big company like Alcatel-Lucent (ALU) or deliver a big one-time dividend, but Nokia is investing its money on small bits and pieces of products and solutions that can be integrated into its whole system. Nokia will probably continue buying small companies that will help in differentiating itself from the competition. Nokia realizes the value of "big data" and most of the company's recent acquisitions fit this theme of harvesting multi-levels of data and analyzing this data in a way that will help customers from different industries. This is what made Google so great and Nokia is following Google's path in a way.

Nokia realized that it cannot earn money by selling phones anymore and the company is going where the money is. Throughout its history, Nokia has always evolved in different ways in order to stay competitive, and it seems like the company's evolution will be continuing on. Currently, Nokia's latest investments makes things clearer about what the company wants to do with its technology and things are starting to look exciting for Nokia investors.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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