Nokia (NOK 0.29%) isn't finished yet. Microsoft (MSFT 0.45%) will complete its purchase of Nokia's devices and services later this quarter, but the Finnish company is already tackling the next stage of its evolution.
Late last week, smartphone maker HTC agreed to pay Nokia licensing fees for some of its mobile intellectual property. The two companies had been in litigation over smartphone technology, which could have kept some shipments of HTC LTE devices from reaching the US. As with many of these deals, the monetary details weren't disclosed, but the agreement shows a glimmer of Nokia's future path.
Nokia's chief intellectual property officer, Paul Melin, said in a statement that, "This agreement validates Nokia's implementation patents and enables us to focus on further licensing opportunities."
Nokia's intellectual property prospects come from its accumulation of 30,000 patents over the years. The company owns about a quarter of critical 2G and 3G communication patents, which are estimated to be worth at least $5 billion.
In the past, Nokia licensed some of its patents to other companies, but going forward, it'll ramp up its licensing efforts as intellectual property becomes a key revenue generator.
Aside from increasing its efforts to license patents and technologies to additional companies, Nokia is also in the middle of renegotiating a major patent deal with Samsung. Back in November, the companies agreed to extend the licensing deal, which would have ended last month. Samsung started paying additional compensation to Nokia in January, but the exact amount of the deal won't be disclosed until everything is finalized in 2015.
Foolish thoughts
Though its networking service will be a big part of the company as well, Nokia investors really need to watch how well the company benefits from its patent portfolio. Nokia is estimated to hold about 16.5% of all seminal (strong) 2G and 3G patents. While that's a very strong position in the IP market, Nokia will have to prove that it can negotiate lucrative licensing deals that will increase revenue.
When the Microsoft and Nokia deal was announced, Nokia's interim CEO, Risto Siilasmaa, said this about the company's intellectual property rights:
At the same time we will continue to build our patent portfolio – we have around 10,000 patent families comprising around 30,000 patents and 1,200 patent families declared essential. We have a current annual IPR run rate of $500 million.
Nokia's chief financial officer, Timo Ihamuotila said in an earning call last month that the $500 million could increase to about $818 million this year, once the Microsoft deal closes.
As Nokia just closed a licensing deal with HTC and is working on increasing its payments from Samsung, investors should be pleased with the company's current IP progress. While its patent portfolio alone may not be enough to get some investors excited about the stock, it is a strong component of the company that could continue to increase annual revenue down the road. Analysts at Morningstar project Nokia's Advanced Technologies IP licensing will have 11% average annual growth going forward. As the HTC and Samsung deals prove, Nokia's patents and licensing business is a big part of the company's future.