Nokia (NYSE:NOK) finally ended a long-running patent dispute with Samsung, but investors in the Finnish company had been hoping for a much better deal.
The two companies entered binding arbitration in 2013 to settle compensation Samsung must pay for Nokia's phone patents over a five-year period beginning in 2014. An arbitration court of the International Chamber of Commerce settled the amount but didn't provide exact financial details.
Nokia said the settlement would increase sales of its patent business to roughly $1.1 billion in 2015, and it expects to see $1.4 billion more from 2016 to 2018.
"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."
But Wells Fargo Securities said the settlement falls 15 percent short of expectations and bodes poorly for pending and future arbitration deals regarding Nokia's patents.
"In general, we believe this outcome is disappointing as expectations were much higher and sets a lower precedent for future arbitrations (currently in arbitration with LG although the concern is more likely to be Apple)," Wells Fargo analysts wrote in a research note. Wells Fargo raised its earnings per share estimates for Nokia in 2016 but lowered its valuation range to between $5.80 and $6.40 "given peer group devaluation."
Nokia shares plummeted more than 12 percent following the announcement. Shares of Samsung were up about 1 percent.
Patents have become a key component of Nokia's business following the sale of its handset manufacturing business to Microsoft in 2014. Investors are also concerned about potential integration problems as Nokia and Alcatel-Lucent begin to work as a single unit.
- see this Nokia press release
Nokia and Alcatel-Lucent to commence merged operations starting Jan. 14
Apple to pay Nokia to settle patent dispute
Nokia sees North America sales slump in Q3, but promises faster cost-savings from Alcatel-Lucent deal