Aug. 27, 2012, 10:33 a.m. EDT
Apple court victory rallies hard-hit Nokia shares
A chance to grab market share — but perhaps just a short-lived one
By Barbara Kollmeyer, MarketWatch
MADRID (MarketWatch) — A landmark patent ruling against rival Samsung Electronics Co. sent shares of Nokia Corp. soaring Monday, on the view that the Finnish handset maker may have an opportunity to grab much-needed market share.
Nokia NOK +8.44% FI:NOK1V +7.87% rallied more than 11% at one point in European trading hours, but most recently pulled back to nearly a 7% rise on the session. U.S.-listed shares rose an equal amount.
A federal court in Silicon Valley ruled late Friday that South Korean rival SamsungKR:005930 -7.45% SSNLF +5.36% had copied key features of the iPhone handset and the iPad tablet and awarded Apple Inc. AAPL +2.10% $1.05 billion in damages.
A lawyer’s take on Samsung verdict
Intellectual property attorney Bill Panagos discusses the precedent set for patent law and what it could mean for emerging technology.
Shares of Samsung suffered a 7.5% drop in Asian trading on Monday, wiping more than $12 billion off its market capitalization. Apple’s shares rose 2.1% in early Wall Street trading. Samsung shares slump after Apple patent ruling
“The Apple/Samsung ruling is positive for Nokia as this has the potential to change the competitive landscape [for the] short to medium term,” said Peter Bo Kiaer, strategy and equity analyst at Saxo Bank, in emailed responses to questions.
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“Nokia has been struggling to get their smartphone foothold as Apple and Samsung dominate the market with HTC Corp.TW:2498 -1.90% as a runner-up,” said Kiaer.
Nokia shares had gained 4% on Friday after South Korea delivered its own verdict on Samsung-Apple patent lawsuits.
A panel said Apple violated two Samsung patents, while Samsung had violated one of Apple’s, and both companies were ordered to halt sales of products that infringed on those patents in South Korea. Read: Apple, Samsung tie in Korea verdict
Bouncing off the lows
Shares of the Finnish company have fallen 27% this year, though they have bounced off July lows.
Gains have also coincided with a period of general relief for European stocks. The Stoxx Europe 600 index XX:SXXP +0.38% , of which Nokia is a constituent, rose for 11 weeks before hitting a bump last week.
NOK1V 2.69, +0.20, +7.87%
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Nokia, which has been undergoing a strategy overhaul, reported heavy losses for the second quarter in July, on the heels of a first-quarter warning, as shipments of its Lumia high-end phone failed to compensate for sagging sales of older products. The Lumia smartphone, the center of so many investor hopes, is based on Microsoft Corp’s. MSFT +0.75% Windows Phone.
“It’s very difficult to value Nokia, but in my book, I would say Nokia needs to deliver hard facts, hard figures in terms of surprisingly high Lumia volumes at decent [average selling prices] to support or defend the shares, because the stock is up 60% since the second quarter report,” said Mats Nystrom, analyst at SEB Enskilda Research, in an interview last Friday.
Many expect Nokia will also unveil new devices at Nokia World, its annual event scheduled for Sept. 5-6 in Helsinki, with some analysts citing prospective market-share rises linked to that event as well.
Analysts at Barclays, rating Nokia as equal weight, said in an Aug. 17 note that Nokia will likely not see a recovery before sell-through data emerge on the WP8 late in the fourth quarter. They said investors want evidence of demand for the Lumia phones, given prior false starts, and the pending launch of the iPhone 5. They also see cash burn accelerating in the second half.
A breed apart
As for the California verdict’s benefits, Kiaer said that unlike Samsung’s devices, Win8 and the Nokia phones are not close to Apple’s own designs, therefore “not in the line of fire.”
“Apple is fighting Samsung, but also Android as this is the biggest competing operating system. It is now possible that Apple will turn up the heat on HTC as Android is their operating system as well,” he said. Google Inc. GOOG -1.24% developed the Android operating system.
Reuters
Sami Sarkamies and Daniel Djurberg, senior technology analysts at Nordea, said in a research note on Monday that the ruling is positive for Nokia and Microsoft but that it’s unlikely to change the landscape overnight and not even dramatically in comparison with the situation today.
In the longer term, they said, original equipment manufacturers will likely shift investments to other platforms — with Windows Phone as a “clear beneficiary.”
By the same token, while the ruling may make life a bit easier for the Windows Phone, Samsung can be expected to work its way through these problems via design changes, likely rendering the impact short-lived.
Downsizing remains a big problem for the company, Kiaer said, with operational leverage “at its worst. Nokia has had five consecutive quarters of losses and this puts a strain on management and employees” alike.
“A larger volume of shipments could provide a lift in earnings to bridge the current transition to a slimmer company,” he said. “This is one of the reasons why investors see the bad outcome for Samsung as a positive.”
Barbara Kollmeyer is an editor for MarketWatch in Madrid.
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