Patents boost to offset weak networks for Nokia

July 25, 2017  By Jussi Rosendahl

HELSINKI (Reuters) - Telecoms gear maker Nokia is likely to see a boost to quarterly earnings on Thursday from a recent patent licensing deal with Apple that offsets weak demand in its main equipment business from network operators.  However, investors have grown more nervous on the stock since loss-making Swedish rival Ericsson slashed its forecast on the global network market last week.

In a Reuters poll of analysts, Nokia's networks sales are seen falling 3 percent in the second quarter from a year ago, while revenues from its technologies unit, including patent royalties, are seen up 40 percent following the deal with Apple.   The average forecast for Nokia's second-quarter operating profit is 447 million euros ($520 million), up 35 percent from a year earlier.  Network gear vendors have struggled in recent years as telecom operators' demand for faster 4G mobile broadband equipment has peaked, and major upgrades to next-generation 5G equipment appears to be years away.  In recent quarters, Nokia has been outpacing Ericsson thanks to its acquisition of Franco-American rival Alcatel-Lucent.   Nokia said in April its business momentum was improving. By contrast, Ericsson said last week it saw the wireless network market falling by a "high single-digit" percentage this year versus earlier guidance of a 2-6 percent decline.  Shares of Nokia have fallen 3 percent since then.

"(Ericsson) results and revised outlook raise some concern for Nokia given previous expectations for some stabilization in the market," Wells Fargo analyst Maynard Um said in a research note. He rates Nokia stock as "market perform".

Apple and Nokia settled their patent dispute in May with a broad agreement in which Nokia will get bigger patent royalties from Apple but will also supply network infrastructure products to the U.S. company, and collaborate with it in digital health business.  The companies have yet to give financial details on the deal.  Once the world's biggest mobile phone maker, Nokia was caught out by the rise of smartphones and ended up selling the handset business to Microsoft in 2014, leaving it with the networks and a portfolio of technology patents.

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