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Nokia’s patent settlement with Samsung disappoints investors

Nokia was the victor in an arbitration court, with a settlement that could generate patent revenues of €200m a year from Samsung. However, analysts had hoped for as much as €250m, and their disappointment drove Nokia’s shares into their steepest one-day decline since April 2015, wiping €4.3bn off the Finnish firm’s market value.

An arbitration court of the International Chamber of Commerce settled the amount of additional compensation Samsung needs to pay to Nokia, though full financial details were not disclosed. The estimate of the revenues from the settlement was made by Sebastien Sztabowicz, an analyst at Kepler Cheuvreux, who had also predicted the higher figure.

Another analyst, Janardan Menon of Liberum Capital, told clients that the award was “well below consensus and broader expectations in the market”, and a sign that it was increasingly hard for companies to extract royalties from handset makers, as the market was slowing. This would be bad news for Nokia, which has set ambitious targets for boosting the revenue it gets from its formidable patents portfolio, especially now it is free of its own handset division. That situation has sparked warnings from European competition regulators that Nokia must not become a “troll”.

Nokia’s patent licensing business now has an annual revenue run rate of about €800m. It said the Samsung settlement would increase sales in the business to about €985m in 2015, and it expects to see €1.25bn more from 2016 to 2018.

The firm’s Technologies division, which develops and manages the IPR, reported fourth quarter sales of about €400m and full year 2015 sales of about €1.02bn. The unit generated about 20% of the company’s €475m of operating profit in Q315, with an operating margin of 58%, compared to 13.6% for Networks.

The Samsung dispute has been running for years but the two companies entered binding arbitration in 2013 to settle the compensation levels, to cover a five-year period from 2014.

“The use of independent arbitration to resolve differences in patent cases is a recognized best practice, and we welcome the additional compensation payable to Nokia under the extended agreement,” said Ramzi Haidamus, president of Nokia Technologies, in a prepared statement. “We look forward to further collaboration with Samsung and others in additional licensing opportunities in the mobile communications market and beyond.”

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