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Nokia and Samsung Expand Patent Cross License Agreement

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Positive impact on net sales from 3Q16

In July 2016, Europe-based (EFA) Nokia (NOK) and Korea’s (EWY) Samsung (SSNLF) agreed to expand their patent cross license agreement. Nokia stated that annualized net sales related to patent and brand licensing is expected to grow at a run rate of approximately 950 million euros by the end of 2016. Nokia also expects it to positively impact sales from 3Q16.

Ramzi Haidamus, president of Nokia Technologies, said, “With intellectual property portfolios from Nokia Technologies, Nokia Networks and Alcatel-Lucent, Nokia has a wealth of technologies relevant to mobile devices and beyond.” Haidamus added, “We welcome this expanded agreement with Samsung which recognizes the strength of our assets, and we continue to pursue new licensing opportunities across a number of diverse industries.”

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BMO capital restates ‘outperform’ rating on Nokia

Soon after Nokia announced the expansion of its intellectual property license deal with Samsung, BMO Capital’s Tim Long restated his “outperform” rating on the stock with a price target of $7. This represents a 19.4% upside potential compared to Nokia’s last closing price of $5.86 on July 22, 2016.

Strong profitability in 1Q16

Nokia’s (NOK) IP Networks and Applications business includes its IP/Optical Networks and Applications and Analytics business groups. The profitability in this space was strong with YoY (year-over-year) gross margins increasing by more than 500 basis points. The operating margin in this business doubled in 1Q16.

Sales in the IP/Optical Networks segment increased 4% YoY to 1.1 billion euros.

Nokia has a market cap of $33.3 billion. In comparison, peer companies Oracle (ORCL) and Microsoft have market caps of $169 billion and $447 billion, respectively.

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