Poor Samsung arbitration result, worse than deals company has signed in the past
The headline arbitration-related ongoing payment of €130m indicates a
royalty rate of ~15bps. Including payments already recognized in the year,
Samsung’s royalty payment to Nokia could total 20bps. However having
signed much higher rate deals with Apple and, we believe, Huawei in the past,
it does seem to us that the arbitration result is negative for Nokia.
of the outcome of its patents licensing arbitration with Samsung (covered by
JJ Park) and the associated five-year extension of its patent licensing
agreement with Samsung from 1 Jan 2014. These details include: i) this
settlement and the extended patent licensing agreement covers part of the
Nokia Technologies’ patent portfolio until the end of 2018. Nokia is
indicating that it will continue to discuss with Samsung regarding its other
relevant intellectual property portfolios; ii) including this settlement and the
associated catch-up amount from 1 Jan 2014 to 30 Sep 2015, Nokia expects
Nokia Technologies (patent & technology licensing division) net sales of
~€400m in 4Q15 and ~€1,020m for FY15; and iii) Nokia is indicating that
including this settlement, Nokia Technologies’ underlying sales run-rate was
~€800m at the end of 4Q15. Further, Nokia is indicating that it expects to
receive at least ~€1.3bn of cash in 2016-2017 related to its settled and
ongoing arbitrations in Nokia Technologies, including the announced
arbitration outcome with Samsung.
* Arbitration outcome below expectations: Nokia Technologies’ underlying
revenue run-rate prior to the announced arbitration outcome with Samsung
was ~€670m. Thus, Nokia's indication of the new annualized revenue runrate
of ~€800m post the Samsung settlement implies a net increase of
~€130m. This amount suggests a result of approx. 15 bps though we
understand there is some Samsung payment included in the €670m so the
total Samsung royalty seems to be perhaps 20bps which is well below what
Nokia achieved in past deals with Apple and the un-named party in 1Q15
which we believe was Huawei. The 20 bps is well below expectations as
SME Direkt consensus (date 17 Nov 2015) for Nokia Technologies revenue
in 2016 was €911m, which implies there could be a cut to 2016 consensus of
as much as €110m unless new deals are signed in 2016.