Nokia Expects Third-Quarter Boost From Licensing Deal with Samsung
Shares in Nokia (NOK) - Get Report advanced after it said it will expand its patent licensing agreement with South Korea's Samsung, following an outcome of the arbitration between the two companies announced in February this year. Nokia shares recently jumped 5.03% to €5.32 ($5.58).
The Espoo, Finland-based communications company expects the expanded agreement to start providing boosts to the net sales of Nokia Technologies from the third quarter of 2016. The company also said that with the agreement, Nokia Technologies' annualized net sales related to patent and brand licensing should grow to a run-rate of about €950 million ($1.05 billion) by the end of 2016.
The announcement comes as Nokia Technologies, which saw a 27% year-on-year net sales decline in the first quarter of fiscal 2016, looks to drive and renewal in existing patent licensing businesses. While it did not provide the details of the expanded agreement, it will likely offset the "disappointing outcome of the arbitration" between Nokia and Samsung announced in February, an analyst said.
"The initial arbitration award is believed to have only covered standard essential patents related to 3G and 4G technologies," Liberum Capital analyst Janardan Menon. "However, the expanded agreement is likely to cover non-essential patents related to smartphones, as well as other product segments such as IoT [Internet of Things] and networks."
Menon said that the agreement will not only boost royalty but also help Nokia's relationship with Apple (AAPL) - Get Report, as well as with Chinese vendors, with which it currently does not have any smartphone-related licensing agreements. He estimates Nokia's total Samsung royalties to go well above €300 million per year.
"This should also help Nokia get a similarly favourable agreement with Apple, when their agreement expires at the end of this year," Menon said. "With the massive expansion in Apple's volumes since 2011 and the inclusion of non-standard patents reflected in the expanded Samsung agreement, the next agreement with Apple could bring about a significant further jump in Nokia's licensing revenues."
Nokia is scheduled to announce earnings results for the second quarter of fiscal 2016 on August 4.
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