How Is Nokia’s Licensing Business Faring?

by Trefis Team
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Nokia’s (NYSE:NOK) licensing business has been in the news over the last few months after Apple agreed to pay the company €1.7 billion (~$2 billion) upfront to settle outstanding patent licensing disputes. Although patent royalties have accounted for a very small portion of Nokia’s overall revenues historically, IP licensing revenues have very high margins, making them important to the company at a time when the broader wireless infrastructure market is going through a downturn. Below we provide a brief overview of Nokia’s licensing operations and what could lie ahead for the business.

Trefis has a $6 price estimate for Nokia, which is in line with the current market price.

See our complete analysis for Nokia

Nokia’s patent portfolio is comprised of over 26,000 patent families, which originate from three distinct organizations – namely Nokia Technologies, Nokia Solutions and Networks and Alcatel Lucent. The company holds a significant share of essential patents relating to GSM, 3G radio and 4G LTE technologies, many of which were developed back when the company dominated the mobile handset business. Besides this, other noteworthy patents relate to Wi-Fi and video standards as well as technologies that reduce the need for hardware components in a phone, improve radio reception and enhance battery life.  As a bulk of Nokia’s patents are standard essential patents – which are vital to the implementation of industry standards – they need to be licensed on fair, reasonable, and non-discriminatory (FRAND) terms. While this means that Nokia may not be able to gain a significant bargaining advantage with its licensees (over 100 licensees currently), they should provide the company with a relatively steady source of revenues.

Nokia has been executing relatively well on the IP side in recent months. In July, Apple paid Nokia €1.7 billion (around $2 billion) to settle all litigation related to their intellectual property dispute. In addition to the one-time payment, Nokia will also earn ongoing royalties, and collaborate with Apple in some health-related projects. This is very positive, as the settlement comes at a time when licensees, including Apple, have been trying to minimize the cost of their third-party intellectual property via litigation. For instance, Apple is currently embroiled in a legal battle with Qualcomm (NASDAQ:QCOM), which it accuses of charging excessive patent licensing fees. Separately, Nokia has also signed a patent cross-licensing deal with Xiaomi Technology – marking the company’s first deal with a Chinese manufacturer. While the size of the deal is likely small, it could open up new avenues for Nokia in the massive Chinese market.

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