Is Nokia Going To Connect People Again?

March 7, 2015

The plot

Rumor has it that Sony (SNE) is looking to sell the Xperia unit (original source: Reuters). Tomi Ahonen in his Communities Dominate Blog , argued that Nokia (NOK) could be one of the most suitable buyers for the Sony smartphone unit.

Tomi Ahonen estimated that the Xperia unit could be plausibly valued at 4.5 Billion, given the last deals in the Mobile phones industry (i.e. Motorola to Lenovo and Nokia to Microsoft (MSFT)). Additionally, he stated that the deal blocking Nokia from returning to the smartphone business will run out in the end of the year. Therefore, buying the Sony unit, running it until the end of the year and then rebrand it “Nokia” could be a good solution for Nokia.

Why Sony?

So if Nokia were to return to smartphone market place, why choose Sony Xperia unit as its entering door? First of all, Sony makes wonderful products since ever. Presently, it has serious difficulties in having profits, but this has more to do with marketing than anything else. Additionally, the Xperia unit has worldwide presence, with a portfolio 100% smartphones (no feature phones). It would be a great match for Nokia own heritage as a top mobile phone producer.

Does a return to origins makes sense for Nokia?

I believe that from a business perspective the answer is a clear yes! The Nokia brand is still worth a lot in the mobile space. Even if the Nokia-Microsoft years tarnished the brand, a significant number of consumers would be willingly happy to try phones made by an independent Nokia. A clear indication supporting this argument is the demand for the Nokia N1 tablet. The first Nokia experiment in consumer electronics since selling the mobile phones unit to Microsoft caught the attention of a significant number of consumers, even considering the fact that Nokia was never a top player in the tablet marketplace

From a financial perspective things are not so clear. Nokia has a lot of liquidity with a current ratio around 1.88, almost doubling its current liabilities. However, the company already has a 2.5 leverage ratio. This means that if the company decided to raise, let’s say, 4.5 Billion in the debt market this would bring the leverage to 3. By comparison, we can see that other stable companies in the tech sector have lower leverage ratios.

Source: www.talkmarkets.com