Just Like That, Nokia Is the Hot Kardashian Again

It's been quite a week for Nokia  (NYSE: NOK  ) , as not one but two potential suitors have been vying for its attention.

It all started when a Huawei executive told reporters that the Asian handset maker would entertain the purchase of Nokia. Huawei eventually clarified the remarks, explaining that it has no plans to actually buy the Finnish handset maker that once dominated the industry. The executive was merely thinking out loud.

Now sources are telling The Wall Street Journal that Microsoft (NASDAQ: MSFT  ) recently held advanced talks to snap up Nokia's handset business. Notice the past tense. The same sources claim that talks broke down when the two couldn't come to terms on price given Nokia's declining share of the market. 

To be fair, Microsoft should feel more than a little guilty. Nokia probably wouldn't be in this downward spiral if it hadn't hired a Microsoft executive three years ago to be its new CEO. He went on to sign a deal with Microsoft to back Microsoft's fledgling Windows Phone mobile operating system. The resulting Lumia product has won critical praise, but it hasn't helped make either company a force in the smartphone space. Nokia would've been far better off following Samsung into backing Google's (NASDAQ: GOOGL  ) Android.

Nokia CEO Stephen Elop argued at the time of the deal that Nokia would be receiving billions to do Windows. Nokia lost its handset crown to Samsung, and profits turned to losses. Nokia is expected to bounce back into profitability during the second half of this year, but analysts still see a 10% drop in revenue this year. 

Despite Nokia's decaying, state it's easy to see the allure. Nokia is flush with cash, resulting in an enterprise value of just $7 billion for a company that should still ring up more than $35 billion in sales this year. There's still plenty of value in its handset business -- if it should go on the block -- and the same can be said about its patent portfolio.

The Microsoft move would've made sense, and it's not the first time that we've heard of this shotgun wedding scenario. Rumors of Microsoft buying Nokia were also swirling two years ago. The software giant making a hardware purchase isn't ludicrous. Google was successful in buying a patent-rich handset maker without angering other Android partners with its Motorola Mobility purchase. However, Microsoft has avoided buying the ugly and the falling before.

A couple of years ago, a Wall Street analyst was convinced that Mr. Softy had marching orders to buy the then-hot BlackBerry (NASDAQ: BBRY  ) if the shares should ever fall below $50.

"I'm fairly certain they have a standing offer to buy them at $50 (a share)," Canaccord Adams analyst Peter Misek told Reuters five years ago.

BlackBerry's stock did fall below $50. It fell well below $50. Microsoft never cracked open its wallet. By the time it got cheap enough to buy it, just wasn't worth buying. The same thing can be happening here, even though Nokia -- at the right price -- would make sense for more than just Microsoft or Huawei. Unfortunately for Nokia's present stakeholders, that right price is apparently a discount and not a premium to today's sticker.

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Comments from our Foolish Readers

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  • Report this Comment On June 20, 2013, at 9:02 PM, HelpIsHere wrote:

    Thanks to MS, Nokia will die off now.

  • Report this Comment On June 20, 2013, at 9:13 PM, bugmenot wrote:

    nokia fell behind technology

    it made dumb phones when everyone was making smart phone

    and now china are making smart phones for 3rd world country, the phones are getting better

    phones are commodities and anyone can make them,and price will have a major fall soon,even apple and Samsung are finding it hard to sell phones in America its a saturated market

  • Report this Comment On June 20, 2013, at 11:28 PM, techy46 wrote:

    Nokia will divest NSN assets before restarting dialogue with Microsoft. MS needs D&S and Location Services so it's almost everything except NSN. It's a $24-28 billion deal. MS can keep Nokia on the hook by continuing or increasing the $1 billion a year WP transition payments.

  • Report this Comment On June 22, 2013, at 1:04 AM, ctyank99 wrote:

    WalMart has the Lumia 521 online again!! http://www.walmart.com/search/search-ng.do?ic=16_0&Find=...

  • Report this Comment On June 23, 2013, at 11:42 AM, roseldlcruz wrote:

    To LONGNOK,

    Is NOK a better investment now? Stop saying AAPL & BBRY are dead cats while NOK is relying on MSFT buyout to survive and the talks bogged down, even Huawei said they will not buy NOK.

    Good luck to your investment!

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