What: Shares of Nokia (NYSE:NOK) fell 15.1% in Feb. 2015, according to data from S&P Global Market Intelligence. The pain started on Feb. 1, when a long-running patent dispute with Samsung (OTC:SSNLF) was settled largely in the Korean company's favor. Nokia shares fell 12% that day, followed by a slew of analyst downgrades. Even a healthy earnings report couldn't repair the damage later on.
So what: The Samsung settlement added something like 200 million euro to Nokia's top line in the fourth quarter. Being pure intellectual property rights with negligible operating costs, all of that dropped straight to the bottom line and Nokia's operating margins rose from 14.3% to 20.3% year over year. The settlement is expected to add at least 1.3 billion euro of these highly profitable revenues over the coming three fiscal years.
But investors had been hankering for more than this.
Sector rival Ericsson (NASDAQ:ERIC) collects about 1.2 billion euro in annual patent license revenues. Analysts want Nokia's patent portfolio to generate similar sales or maybe even larger. But the new run rate for patent sales, including the Samsung arbitration proceeds, stops at just 800 million euro.
Now what: Nokia continues to negotiate with Samsung, since the legal arbitration didn't cover the Finnish mobility veteran's entire patent stash. The 800 million to 1.2 billion annual revenue boost may not seem important next to Nokia's 15 billion euro in annual sales overall, but it makes a huge difference to the company's bottom line, cash flows, and operating plans.