(Source: driftingfocus/flickr)
Company has $22B USD in assets, but is unlikely to be willing/able to sell them for different reasons

Nokia Oyj. (HEX:NOK1V) was once number one in the phone market.  Number one in smartphones sold.  Number one in total phones sold.  But in 2010, the company was faced with a dilemma.  Its smartphone operating system, Symbian, was growing at a steady pace.  But overall, it was being outpaced in growth by Google Inc. (GOOG) Android and Apple, Inc.'s (AAPL) iOS.  Nokia feared that clinging to Symbian could spell a slow death.  So the company's board made a bold gambit and turned to former Microsoft Corp. (MSFT) executive Stephen Elop for a change of pace.

Mr. Elop in January 2011 gave an impassioned speech labeling Symbian as a "burning platform".  Those words proved prophetic, though it’s open to debate whether he created a self-fulfilling prophecy.  Nokia went on to proclaim Microsoft's Windows Phone as the platform of the future, leaving Symbian in an awkward spot.  Whether Symbian's subsequent tumultuous plunge was due to Nokia's abandonment or to customers' turning to better products in the form of Android and iOS is a hotly debated issue.

I. Now, Certainly, the Platform is Burning

But the facts are what they are.  Today Nokia still is one of the top-five smartphone manufacturers, it still has over $22B USD in assets, and it has seen some promise from early Windows Phone efforts.  But at the same time the company is hemorrhaging cash at an alarming pace and has seen smartphone sales plunge amid as the company slowly made its OS transition at a frustratingly lackadaisical pace.

Reuters is reporting that the situation at Nokia is bad enough that Microsoft may be forced to take more drastic action (in addition to current payments) to "bail out" its struggling partner.  Microsoft has made no secret of the fact that it considers the phone market to be a long term money loser for it, but that it's willing to pour billions from its $60B USD horde of cash into this pit.

burning platfrom
Microsoft may be forced to douse partner Nokia's "burning platform" in
a healing stream of cash. [Image Source: Mobus]

The new report quotes a "veteran technology banker" as commenting, "I don't see Microsoft owning Nokia, but it would definitely provide financing to the tune of a couple of billion dollars."

Another banker was cited as stating that Microsoft was unlikely to purchase Nokia, but was likely to either take an equity stake or offer a generous inter-company loan.  A third banker was quoted as stating that other top phonemakers aren't terribly interested in vying with Microsoft for a controlling interest in the Euro giant who recent saw its credit downgraded to junk.  Comments the third source, "I don't see it as a target for private equity either. It is still too expensive and too volatile.  You would have to be prepared to catch a falling knife."

The financial veterans say that Microsoft has strong vested interests in keep Nokia's assets off the auction block.  Not only does the firm provide Microsoft with a key smartphone hardware partner, but its intellectual property could prove a threat to Microsoft if it fell into the right hands.

II. Rich Assets Unlikely to be Sold for Different Reasons

The company's phone patent portfolio, is very strong -- particularly given it is less reliant on the kind "fair, reasonable, and non-discriminatory" (FRAND) patents that pack the portfolios of such phone making giants as Samsung Electronics Comp., Ltd. (KSC:005930) and Motorola Mobility Inc. (MMI).  FRAND patents are a lovely premise -- industry players cooperating for the betterment of customers and science/technology -- but in the harsh realities of today's hyper-litigious legal atmosphere, they're essentially relegated to junk status.  Thus Nokia's strong collection of non-FRAND IP makes it a dangerous player.

Nokia reportedly forced another non-FRAND powerhouse, Apple, into a favorable licensing deal.  And while Apple is oft blamed for starting the global phone "Patent Wars", an allegation supported by its late CEO Steven P. Jobs' virulent anti-Android rhetoric, it was arguably Nokia who started the war, suing Apple in October 2009.

The phonemaker represents a key threat IP-wise to Apple and the Android alliance.  But it could also prove a godsend to Google, if its IP were to be put on the auction block.  That would be a nightmare scenario for Microsoft, who allegedly has a rather weak smartphone portfolio, but which has shaken down a number of top Android device makers in what multiple Android allies claim is a brilliant bluff (Microsoft refuses to reveal what patents it is threatening to sue Android phonemakers over until after they license).

Android statues
Microsoft would likely rather pay Nokia off than allow its patents to be sold to rival Google.
[Image Source: AndroidModo]

Aside from IP Nokia has two major assets it could sell off -- its Navteq map services unit and its stake in the Nokia Siemens Networks (NSN) joint venture it holds with Germany's Siemens AG (ETR:SIE).  The latter is the more likely of the two to be sold, but doubts of the likelihood of a sale burn bright, given the collapse of a previous sale offer from private interests.  As for Navteq, a sale is very unlikely, say experts, given Nokia's resolute stand that it will not sell the unit, which it views as a core pillar of its product differentiation.

III. Did Mr. Elop Start the Fire?

Some investors hint that it was a mistake to bring Mr. Elop and Microsoft into the house.  States John Strand, founder and CEO of Danish consultancy Strand Consult, "Elop was not hired as a boss for a burning platform.  He put the platform on fire."

Perhaps he's right, but the facts are about as ambiguous as possible -- when Mr. Elop took over Symbian was growing in unit sales, but seeing its market share burn away.  Again it's impossible to say whether everything that's happened since -- plunging sales, the sluggish transition, etc. -- is solely Mr. Elop's fault.  

Stephen Elop
Nokia CEO Stephen Elop [Image Source: Mark Vlander/Getty Images]

But it's also hard to completely absolve the tech veteran of some degree of culpability.  His precise measure of guilt in Nokia's mess is a hot topic among analysts, but their analysis should be recognized as nothing more than educated opinion.

Whatever set the fire; it's certain that Nokia has now been badly burned.  And if there's one thing the analysts seem to agree on, it's that a Microsoft intervention may be vital and necessary for Nokia's survival.

Source: Reuters

"Folks that want porn can buy an Android phone." -- Steve Jobs

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