Visit Scandinavia and you will be bombarded with opportunities to buy cute little troll dolls, or puppets or games. They’re a regional mascot, a symbol of the hard life in the region. Or you can just buy Nokia Corp (ADR) (NYSE:NOK) stock. Since losing the cell phone business to Apple Inc. (NASDAQ:AAPL), Nokia stock has slowly transformed into a cell phone patent troll, a company that taxes innovators with lawsuits in markets where it does not compete.
NOK still owns patents from its days of cell phone dominance, called standards essential patents (SEPs). These were previously licensed to other industry players under Fair, Reasonable, and Non-Discriminatory (FRAND) terms.
Nokia has now licensed those patents to what are called “patent assertion entities” (PAEs), companies that exist only to assert patent rights in court. Apple, which won the bulk of the market’s profits with the iPhone, is their target.
After losing a case to a NOK PAE in December, Apple declared all-out legal war on Nokia over the holidays. Its antitrust suit says Nokia has violated previous agreements.
The question for investors is whether Nokia stock will pay a price for attacking an industry it serves.
NOK Stock: A Phone Maker No More
NOK is no longer a phone maker, but it remains a phone brand.
NOK itself now makes and sells mobile infrastructure equipment, having completed the acquisition of Alcatel-Lucent in January 2016.
That business is running at close to break-even, losing 2 cents per share for the September quarter on revenues of about $6.11 billion. It could do well when the industry decides to upgrade to faster 5G services, but it’s still rolling out the earlier 4G gear.
Nokia stock management announced its anticipation of a turnaround with a 29-cent-per-share dividend, paid in June, a yield of nearly 6% on the current NOK stock price of $4.84 per share. That dividend is holding up Nokia stock’s price and it matched 2015’s net income of 30 cents per share, but for the first three quarters, the company lost 33 cents per share so dividend investors need to beware the stated yield of nearly 6%.
Nokia Stock: Inside Baseball?
Nokia is thus attacking Apple on two fronts, seeking to extract its profits in court through the PAEs, while reducing those profits with cheap Android gear.
Advocates of digital freedom like Roy Schestowitz, who writes for Techrights.org, are up in arms over Nokia’s latest moves. He compares the company’s action to past moves by Microsoft, asserting patent rights through third parties to harm market rivals.
Apple’s lawsuit gives it discovery rights against NOK and its PAEs, and the first hearings on the case are expected this spring in Munich, Germany.
The problem for NOK stock investors is that the device business is enormous compared to the equipment business. Apple alone is worth over $620 billion, against the $28 billion valuation of Nokia stock. NOK’s network equipment business, meanwhile, needs to do business now.
Nokia could well find itself without customers if network operators decide to put off upgrades, encouraged perhaps by Apple. Network owners traditionally like to postpone upgrades until consumers, and device makers, create demand for the capacity.
NOK’s patent moves could leave investors holding a very weak hand. They are at least worth considering before you buy Nokia stock.
Dana Blankenhorn is a financial and technology journalist. He is the author of the sci-fi novella Into the Cloud, available at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in AAPL, GOOGL and MSFT.