It’s been quite a week for Nokia Corporation (ADR) (NYSE:NOK), as not one but two potential suitors have been vying for its attention.
It all started when a Huawei executive told reporters that the Asian handset maker would entertain the purchase of Nokia Corporation (ADR) (NYSE:NOK). Huawei eventually clarified the remarks, explaining that it has no plans to actually buy the Finnish handset maker that once dominated the industry. The executive was merely thinking out loud.
Now sources are telling The Wall Street Journal that Microsoft Corporation (NASDAQ:MSFT) recently held advanced talks to snap up Nokia’s handset business. Notice the past tense. The same sources claim that talks broke down when the two couldn’t come to terms on price given Nokia Corporation (ADR) (NYSE:NOK)’s declining share of the market.
To be fair, Microsoft Corporation (NASDAQ:MSFT) should feel more than a little guilty. Nokia probably wouldn’t be in this downward spiral if it hadn’t hired a Microsoft executive three years ago to be its new CEO. He went on to sign a deal with Microsoft to back Microsoft’s fledgling Windows Phone mobile operating system. The resulting Lumia product has won critical praise, but it hasn’t helped make either company a force in the smartphone space. Nokia would’ve been far better off following Samsung into backing Google Inc (NASDAQ:GOOG)‘s Android.
Nokia Corporation (ADR) (NYSE:NOK) CEO Stephen Elop argued at the time of the deal that Nokia would be receiving billions to do Windows. Nokia lost its handset crown to Samsung, and profits turned to losses. Nokia is expected to bounce back into profitability during the second half of this year, but analysts still see a 10% drop in revenue this year.
Despite Nokia Corporation (ADR) (NYSE:NOK)’s decaying, state it’s easy to see the allure. Nokia Corporation (ADR) (NYSE:NOK) is flush with cash, resulting in an enterprise value of just $7 billion for a company that should still ring up more than $35 billion in sales this year. There’s still plenty of value in its handset business — if it should go on the block — and the same can be said about its patent portfolio.
The Microsoft Corporation (NASDAQ:MSFT) move would’ve made sense, and it’s not the first time that we’ve heard of this shotgun wedding scenario. Rumors of Microsoft buying Nokia were also swirling two years ago. The software giant making a hardware purchase isn’t ludicrous. Google Inc (NASDAQ:GOOG) was successful in buying a patent-rich handset maker without angering other Android partners with its Motorola Mobility purchase. However, Microsoft has avoided buying the ugly and the falling before.