Nokia Jumps as Motorola Deal May Shift Makers to Microsoft

Nokia CEO Stephen Elop
Nokia Chief Executive Offficer Stephen Elop. Photographer: Chris Ratcliffe/Bloomberg

Nokia Oyj, the world’s biggest maker of mobile phones by volume, climbed the most in 1 1/2 years in Helsinki trading after Google Inc. agreed to acquire Motorola Mobility Holdings Inc. for about $12.5 billion.

Google, whose Android software powers handsets made by Motorola Mobility and manufacturers including Samsung Electronics Co. and LG Electronics Inc., will win wireless patents it needs to compete against Apple Inc.’s iPhone. The linkup may shift some Android phone manufacturers away from Google to consider platforms such as Microsoft Corp.’s Windows Phone, which was adopted by Nokia this year, said Lee Simpson, an analyst at Jefferies International in London.

“It might start to put Microsoft into focus as an alternative platform now, which could indirectly benefit Nokia,” Simpson, who has an “underperform” rating on Nokia shares, said in a telephone interview.

Espoo, Finland-based Nokia surged 34 cents, or 9.1 percent, to 4.09 euros at the close of trading in Helsinki for its steepest increase since January 2010. The surge pared the stock’s decline this year to 47 percent, valuing the company at 15.3 billion euros ($22 billion). Microsoft added 0.9 percent to $25.32 at 12:37 p.m. in New York.

Takeover Speculation

Chief Executive Officer Stephen Elop, a former Microsoft executive who took over in September last year, is retiring Nokia’s Symbian operating system in favor of Windows Phone as he seeks to arrest a loss in smartphone market share to iPhones and Android handsets.

The linkup with Microsoft has fuelled speculation that the U.S. software company may take over Nokia. Elop said as recently as on June 1 that the speculation was “baseless.”

Google said today it will pay a premium of 63 percent to Motorola Mobility’s closing price last week for the Libertyville, Illinois-based manufacturer. A similar markup would value Nokia at 6.11 euros per share, or 22.9 billion euros in total, based on yesterday’s closing price.

“Nokia as another potential takeover candidate obviously benefits from that hefty premium,” said Sami Sarkamies, a Helsinki-based analyst at Nordea Bank. With Nokia, “there is quite a bit more on the table and yet there is little difference between the valuations of the two companies.”

‘Massive Catalyst’

Nokia’s portfolio of intellectual property could be valued at 1.44 euros a share, or 5.4 billion euros, JPMorgan Chase & Co. analysts led by Sandeep Deshpande wrote in a note today after the Motorola deal. A takeover of Nokia by Microsoft doesn’t become more likely “because the Android ecosystem was the one lacking substantial patent on the wireless side and thus needed ownership of a major patent portfolio,” wrote the analysts, who have an “underweight” rating on Nokia shares.

James Etheridge, a spokesman for Nokia, said in an e-mail that the deal “could prove to be “a massive catalyst for the Windows Phone ecosystem.” Nokia announced its partnership with Microsoft in February.

Bill Cox, a Microsoft spokesman, didn’t return a call seeking comment.

“The main player who can buy Nokia is Microsoft and they practically already own them,” Jefferies’s Simpson said. “They practically took out Nokia’s smartphone strategy for nothing at the start of the year and no one else would be allowed to buy them underneath Microsoft’s nose.”

Android Backers

Nokia will lose its position as the biggest seller of smartphones this quarter for the first time as consumers shift to cheaper handsets running Android, according to analysts at Gartner Inc. Measured by sales to consumers, Nokia had a share of 20.9 percent of smartphones globally in the second quarter. Apple, with an 18.2 percent share, and Samsung, at 15.8 percent, are nipping at Nokia’s heels, according to Gartner.

Android was the biggest smartphone platform by worldwide shipments last quarter with a 48 percent market share, according to researchers at Canalys.

Taoyuan, Taiwan-based HTC Corp., one of the largest manufacturers of handsets based on Android, said a linkup of Mountain View, California-based Google with Motorola will strengthen “the whole Android ecosystem.”

“This is something that is important for Google to do and important for the whole Android ecosystem to do,” HTC Chief Financial Officer Winston Yung said in a phone interview. “We’re happy that Android is taking steps to strengthen its patent portfolio. It will be beneficial for the whole group, the whole camp.”

Representatives at Samsung and LG couldn’t be reached for comment on a public holiday in South Korea.

“It’s not a pretty sight that Google now has its own hardware arm and in a way they will be in competition with their allies,” Nordea’s Sarkamies said.

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