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How Nokia Could Benefit from Licensing Deals with Apple and Xiaomi

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NOK’s licensing deal with Apple

Nokia (NOK) and US-based (SPY) technology (QQQ) giant Apple (AAPL) signed a licensing agreement in May 2017 after settling their patent disputes. Nokia had initially accused Apple of patent infringement in 11 countries, including the United States and Germany. Nokia wanted Apple to pay for the technology Apple used in its smartphones and tablets.

According to the terms of the agreement, Nokia will supply network infrastructure products to Apple. Apple, in turn, will restart the sales of Nokia’s digital health devices in its online and retail stores.

Last year, Nokia acquired Withings to enter the connected health space. However, the firm will face competition from Apple (AAPL), Fitbit (FIT), Xiaomi, Samsung, and Garmin (GRMN) in the wearables market.

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Behind the deal

The financial terms of the Nokia-Apple deal were undisclosed. Nokia stated that reaching an agreement with Apple has saved considerable operational expenses for the firm. Nokia expected to spend ~100 million euros annually related to the Apple litigation.

Nokia has now received around $2 billion from Apple as cash payment that has further strengthened its (NOK) cash position. Nokia claims to have a wider business collaboration with Apple, which could improve Nokia’s IP Routing, Optical Networks, and Digital Health business revenues in the long term.

The value of this agreement will be reflected as patent licensing net sales in Nokia’s Technologies segment and as net sales in other business verticals.

Agreement with Xiaomi

Nokia’s agreement with Xiaomi is smaller than the Apple deal. Nokia believes Chinese smartphone vendors offer the biggest licensing opportunities. Nokia CFO (chief financial officer) Kristian Pullola stated: “Similar to the Apple deal, the Xiaomi agreement is broad and strategic in nature, including network equipment and collaboration in a range of strategic projects.”

Nokia divested particular patents to Xiaomi in 2Q17. Nokia expects to realize licensing income from Xiaomi from the start of fiscal 4Q17. 

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