Mobile phone veteran Nokia (NOK -1.86%) needs a lifeline. Apple (AAPL -1.57%) could use some of what the Finnish company has to offer, and has money to burn. It seems obvious, right? These two should just get a room and start planning a wedding.
Well, maybe not. Fellow Fool Eric Bleeker already presented several reasons why Cupertino might not be interested in buying Nokia, even at today's low, low prices:
- Apple put too much blood, sweat, and tears into its new Maps app to be seriously interested in Nokia's Navteq mapping tools.
- Steve Jobs was never into huge mergers, and Tim Cook seems no different. Apple's largest buyouts ever hovered around $400 million, including the storied NeXT deal that brought Jobs back and last year's Anobit Technologies buyout. Nokia's enterprise value is a hefty $4.1 billion today, before adding any kind of buyout premium. That's just not how Apple rolls.
- Finally, Eric argues that Apple might want some of Nokia's mobile technology patents, but that a stand-alone patent buy would make more sense than buying the whole company.
I'm here to dig deeper into the patent question. You see, Apple does have a history of spending big money on patent assets.
When Canadian telecom equipment maker Nortel went bankrupt, Apple was the largest stakeholder in the consortium that spent $4.5 billion on Nortel's patents. Apple's check to Nortel's debt holders works out to $2.6 billion.
So Apple bidding for a foreign patent portfolio is not out of the question.
Nokia's patents could also turn out useful in Apple's legal battles against the Android army. Specifically, they would give Apple some 3G and 4G technology mud to sling back at Samsung, which likes to assert its own 3G standards-essential patents against Cupertino. As a reminder, most of Apple's offense so far has been based on "look and feel" design patents, while countersuits mostly center on the patented technologies that make a tablet or cell phone tick.
Where's the beef?
So far, so sensible. By picking up Nokia's patent portfolio and leaving the rest behind, Apple would get a high-quality weapon at a discount. And nobody would ask Tim Cook to sell low-end "feature phones" or maintain telecom infrastructures under the Nokia Siemens umbrella.
But those patents would not be cheap. Let's focus on the 4G LTE portion of Nokia's patent holdings. According to data from independent research firm iRunway, the Finns own about 290 patents related to the current state of the art in high-speed data networks, or 2.3% of the total 4G patent space. iRunway classified 27 of these as "seminal" patents, meaning that they may or may not be declared essential to 4G standards, but it would be very hard to make a proper 4G device without infringing on these patents.
By contrast, consider the case of VirnetX (VHC -2.40%). The company sports a $1.2 enterprise value based on about 45 wireless technology patents. Some of these have been declared essential to 4G standards, though the iRunway study didn't find any of them to be "seminal." You could argue that Nokia's patents are more important than VirnetX's, and I'm sure some will flip that argument around, but let's just call them even for this value exercise.
In other words, the open market's price tag on VirnetX is about 30% of the entire Nokia bundle. Yet, even if we assume that the rest of Nokia is totally worthless, the Finns sit on about six times the 4G assets that VirnetX boasts. Either Nokia's patents are worth far more than the company's current market value, or VirnetX is ridiculously overvalued -- or maybe both. In my opinion, technology patents are overvalued in general right now. But the market gets final say, and either way, I don't see Apple coughing up several billion dollars for another dip in the wireless patents fount.
One more thing
So I think that a patent deal between Apple and Nokia is unlikely. An outright buyout would be a total shock. Add up all the reasons described above, and then consider the fact that an ex-Microsoft (MSFT -0.54%) executive runs Nokia these days. Can you imagine the culture clash that would erupt if Apple took over the reins? Redmond and Cupertino are polar opposites in many ways, and Nokia CEO Stephen Elop must have brought some of Microsoft's values to Finland.
Going back to Elop's hiring, I always thought that Microsoft was grooming Nokia as a takeover target. Apple might start a bidding war, but more to drive up Microsoft's final buyout price than to actually get anything for itself. I still stand by that theory.
In the end, I don't see Apple grabbing any part of Nokia. The idea doesn't fit with Apple's money management history, and Microsoft looks like a far more likely final destination.