$25 b worth nokia: funny side

Nokia has been in the news for wrong reasons in the past few years. However, more recently it is making headlines for different reasons. 

The positive optimism is evident as the stock price jumped 60% from $4.12 to $6.58 in a month: 

Two recent transactions have made Nokia come back in the reckoning. The first is its (50%) acquisition of network business from Siemens to have full ownership for $2.2 b. The second is its sale of handset business and patent licencing to Microsoft for $7.2 b.

Today after the market has discounted these transactions and considered Nokia as a new business it is trading at $6.58 per share or $25 b. Let's find out if it is worth that much now. Of course, all this is just for some fun because valuation of a technology firm is like looking for a needle in haystack.

The new Nokia will have three separate businesses going forward: 

The network (NSN) business which, if we take the recent transaction as fairly valued (we doubt it), is worth $4.4 b. It is reported that this business will generate about Euro 500-700 per year, in which case, we can value it as a perpetuity at about $6 to 6.5 b at the same expected rate of 12% as reported. 

Here maps business is valued at about $1 b; we don't want to debate this for two reasons: we don't have the full information and we don't see it as a big deal.

Patents (IP licencing) business is expected to generate Euro 500 m based on the above report; considering its average expected life of about 13 years and the same expected rate of 12%, it can be valued as an annuity to get a value of about $4.2 b.

Finally, there is one more business, that is of cash. Nokia reported cash of Euro 9.8 b as of 30 June 2013. If we do some simple arithmetic, now its cash should be Euro 9.8 b less $2.2 b acquisition of NSN from Siemens plus $7.2 b proceeds from sale of handsets and licencing to Microsoft. This gives cash of about $17.7 b. The actual cash payouts may be a bit delayed until the completion of the transactions; but, this should not matter much.

Assuming that its reported debt of Euro 5.4 b remains unchanged, we have net cash for Nokia at about $10.7 b.

We add up these numbers to arrive at valuation of Nokia's equity to be $6.5 b NSN + $1 b Here + $4.2 b Patents + $ 10.7 b Cash = $22.4 b. It is now trading at $25 b.  

Are we missing anything? Of course many things, but we don't know what until we know that in times to come.

Until then let's have more fun.