E Is Nokia Going To Connect People Again?

Photo credit: Are Sjøberg

The plot

Rumor has it that Sony (SNE) is looking to sell the Xperia unit (original source: Reuters). Tomi Ahonen in his Communities Dominate Blog , argued that Nokia (NOK) could be one of the most suitable buyers for the Sony smartphone unit.

Tomi Ahonen estimated that the Xperia unit could be plausibly valued at 4.5 Billion, given the last deals in the Mobile phones industry (i.e. Motorola to Lenovo and Nokia to Microsoft (MSFT)). Additionally, he stated that the deal blocking Nokia from returning to the smartphone business will run out in the end of the year. Therefore, buying the Sony unit, running it until the end of the year and then rebrand it “Nokia” could be a good solution for Nokia.

Why Sony?

So if Nokia were to return to smartphone market place, why choose Sony Xperia unit as its entering door? First of all, Sony makes wonderful products since ever. Presently, it has serious difficulties in having profits, but this has more to do with marketing than anything else. Additionally, the Xperia unit has worldwide presence, with a portfolio 100% smartphones (no feature phones). It would be a great match for Nokia own heritage as a top mobile phone producer.

Does a return to origins makes sense for Nokia?

I believe that from a business perspective the answer is a clear yes! The Nokia brand is still worth a lot in the mobile space. Even if the Nokia-Microsoft years tarnished the brand, a significant number of consumers would be willingly happy to try phones made by an independent Nokia. A clear indication supporting this argument is the demand for the Nokia N1 tablet. The first Nokia experiment in consumer electronics since selling the mobile phones unit to Microsoft caught the attention of a significant number of consumers, even considering the fact that Nokia was never a top player in the tablet marketplace (source: xda-developers).

From a financial perspective things are not so clear. Nokia has a lot of liquidity with a current ratio around 1.88, almost doubling its current liabilities. However, the company already has a 2.5 leverage ratio. This means that if the company decided to raise, let’s say, 4.5 Billion in the debt market this would bring the leverage to 3. By comparison, we can see that other stable companies in the tech sector have lower leverage ratios.

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Comments

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Andreas Hopf 4 years ago Member's comment

A few ten thousand Foxconn'ed N1 tablets mean next to nothing. In any case, Nokia would have to re-emerge as Android brand, in a cesspool of competitiveness, spyware, malware and Google dependency. Also, all sophisticated Nokia design and engineering talent has left. I seriously doubt consumers will buy badge-engineered Sony devices, the Sony brand being severely tarnished as well. Nokia needs its cash to operate successfully in the network business, where competition with Ericsson and Alcatel-Lucent is fierce, while Huawei and ZTE are breathing down all three European vendors' necks.

Nelson Alves 4 years ago Author's comment

I agree with you on the cash as you can see in the article. The cash they have is not enough for a serious acquisition. But the joint venture with Sony is a realistic possibility.

Yes, a big part of the mobile staff has left, but as I say in the article, Finland has produced lots of skilled people for the mobile sector. Additionally, many former engineers would be interested in coming back to Nokia if the company started a credible project.

Possibly, a comeback would be based on Android. I agree with you on that, but it doesn't mean that it would be bad. But I see your point there.

About the N1, there were Nokia Lumia phones that sold worse, so maybe the N1 isn't that meaningless.

Finally, as you say Chinese telecom vendors are squeezing margins in the sector, Nokia has to find growth opportunities in adjacent areas.

Thanks for your comment.