Long Awaited Android Device Can Push Nokia To New Highs

By Unknown Wednesday, December 11, 2013
A possible reason behind Microsoft's (MSFT) acquisition of Nokia (NOK) was to prevent the Finnish company from releasing popular, hardware capable Android devices once their exclusivity deal expired with the software giant in 2014. Rumors of Nokia developing an android capable device have been running wild among fanboys, investors, and tech enthusiasts for over a year. Recently, it has been revealed (via rumor) that Nokia is still planning to go ahead with its low cost android device, codenamed 'Normandy', with insiders reporting that the project is "full steam ahead". News of this device still being developed should come as a surprise to most investors who are expecting the company to be phoneless by the first quarter of 2014. The metrics of an android phone provide a lucrative opportunity for Nokia, but it will be short lived once the deal with Microsoft closes. Microsoft's fear of a Nokia android device was well warranted, and the device likely served as leverage for Nokia during negotiations with Microsoft. While Normandy's future may be in limbo, it seems clear that Nokia is keen on the revitalization of its phone business once it's permitted to do so in 2016.
News of this device comes at an interesting time for the company, which just received a tax bill from Indian authorities amounting to an outrageous $3.4 billion. Nokia's stock price took a hit during market hours, but recouped its losses after gaining 1.6% to close at $8.05 in after-hours trading. The tax dispute is threatening the timely closing of Nokia's deal with Microsoft, due to several assets currently frozen by Indian authorities which are apart of the deal with Microsoft, including Nokia's Chennai factory which employs more than 8,000 workers. With several international companies in similar tax disputes with the Indian government, including Vodafone (VOD) and Royal Dutch Shell (RDS.A), many eyes are watching this case. The ramifications can be large for both India and Nokia if India decides to play hardball. Nokia will most likely have to adjust its deal with Microsoft and retain ownership of the Chennai plant, which would lead to a sale to another potential buyer, or a possible contracting agreement, while India would be viewed as an unfavorable environment to do business and receive extreme criticism from international governments and businesses. Because of Microsoft's strong presence in India, they may have some influence in persuading India to accept Nokia's offer of $360 million to unfreeze assets. With Nokia requesting its assets to be unfrozen by December 12th, a positive decision from India by then can eliminate investor's worry and spark a buying frenzy.
Nokia's Normandy phone would be a low cost android that follows Amazon's path with the Kindle by adopting a version of Android that has not been approved by Google, meaning some applications and features would be absent from the device. It seems that Normandy and an eventual line up of similar android capable phones were bound to replace the Asha phone line in 2014. Nokia's feature phone division has been consistently losing market share to the recent introduction of low cost android devices, so this was Nokia's form of adapting. While it may be hard for Normandy to stand out in a sea of android clones, Nokia's brand name does hold significant value overseas, which should be able to aid in pulling in a solid customer base.
The continuation of Nokia's phone business would dramatically limit the true revenue potential of their patent portfolio due to cross licensing issues, and if Nokia began selling phones again in 2016, the window would be short-lived for the company to truly monetize off of their essential patents which are utilized in nearly every phone. Nokia's $40+ billion invested patent portfolio will take time to milk, and it may be smart for the company to jump back into the device business as soon as possible since the European Union is intent on opening an antitrust case if the company becomes an aggressive enforcer of their patents and focuses heavily on their standards-essential mobile patents.
The future strategy and potential revenues of Nokia is still not clear, and any negative decision from Indian tax authorities would create selling pressure for the stock and currently poses a risk to the company. But when you couple the potential of a tax dispute resolution with India and a leaked android device that is expected to be released in January of next year, the only move seems to be up. Investors need to remember that while Nokia may be planning to release an android device and 8 inch tablet in the coming months, these devices will no longer be relevant once the deal with Microsoft closes. Just think of it as Nokia going out with a bang, a loud one.
The Wall Street Fox

The Wall Street Fox utilizes fundamental and technical analysis to generate investment ideas. TWSF holds a MBA, and is currently preparing for the Chartered Market Technician (CMT) designation.

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