Interesting observation comes from FossPatents, a blog that follows patent wars in the smartphone industry. A guest post made by Peter Rudder connects dots between Nokia’s recent share buybacks and the patent war Nokia is fighting against Apple.
In short, in June last year Nokia announced plans to buy back up to 575 million shares. The interesting thing is that Nokia’s buyback started a month before the start of the Apple patent war, when the share price was at a 3-year low. And, from November 16 to March 17 Nokia bought back 93.1 million shares, worth €416 million. The point is, companies buy back shares when they expect very good news. Nokia started the patent war against Apple very aggressively, filling a lot of suits in a number of countries, which could suggest that Nokia wants to score a favourable deal with Apple as soon as possible. After all, Nokia lost €150 million in annual revenue from Apple, and expects to pay €100 million of yearly litigation costs. The company is risking a lot of potential income by doing this. You can find some thoughts from the article down below or head for the full article at FossPatents here.
Even with poor Networks sales and a gloomy outlook from the market, Nokia went ahead with its ambition repurchase program, seemingly unfazed; why? Analysts had already priced in these revenue figures into their models, and concluded that Nokia’s share price wouldn’t recover until there was tangible evidence that Networks sales could improve. From this, one could conclude that either Nokia believed it could quickly deliver these results to the market, or that it had an ace up its sleeve that could deliver value to shareholders another way. Sure enough, just over a month later, Nokia announced a slew of patent suits against Apple.
The timing of the share repurchases and the announcement of litigation against Apple soon after, seems to suggest that Nokia is confident in its ability to quickly resolve the patent disputes and renegotiate its contracts on more favourable terms. This could possibly entail larger yearly royalty payments and a large sum paid as compensation for the alleged infringement, similar to the resolution of the Ericsson v Apple case in 2015 (Financial Times article; paywall).