Is Nokia a Takeover Target?

Nokia's (NYS: NOK) fortunes have taken quite a downturn lately. Its recent line of Microsoft (NAS: MSFT) Windows Phone-powered Lumia smartphones has had underwhelming sales in Europe since its introduction last year. And this year, Nokia plunged headlong into a storm of bad publicity when its self-ballyhooed flagship smartphone, the 4G LTE Lumia 900, was slipped into the pockets of AT&T (NYS: T) customers complete with a complimentary software glitch.

That was closely followed by revelations that Samsung -- among other Asian phone manufacturers -- had wrested control of the emerging world's feature phone market away from Nokia, a 16% drop in the first quarter for the Finns.

All that has contributed to Nokia's precipitous drop in share price, from $5.80 on Feb. 24 to $2.61 on June 4. But from that low, just one week ago, the share price jumped 15.7% at last Friday's market close, including 6.7% on Friday alone.

Why? Because of takeover rumors.

Despite Nokia's smartphone and feature-phone sales shortcomings, it has something that has other high-tech companies drooling: a treasure trove of invaluable mobile technology patents.

Remember when Google (NAS: GOOG) bought Motorola Mobility for $12.5 billion, purportedly for Motorola's patents? Nokia, the once globally dominant producer of cellphones, has been reduced to a market capitalization of $11 billion, and has its own portfolio of thousands of patents. Those patents alone can produce nice licensing income for whichever company owns them -- or help another dig a wider patent moat.

Rating the rumored takeover bidders
"A lot of names have been mentioned as potential bidders," Canaccord Genuity analyst Bo Nordberg told Bloomberg. "I am sure someone is looking at it, but it is not particularly compelling. Even among the analyst community, the feeling is quite skeptical about the outlook for the company."

Nevertheless, here are the names of the potential bidders that have floated to the surface.

First, there's Samsung, the company that took over Nokia's place as the world's top-selling mobile-phone maker. On its face, this seems an unlikely event. The company is the giant among Android-powered phones. Why would it undermine its own smartphone foundation? That might outweigh any advantage it could get from the patents. And Reuters has reported that Samsung has denied such a move. In a statement, Samsung said, "Such reports are purely speculation and are not true." That announcement took some of the air out of that rumor balloon.

Then there is Huawei, the phone builder from China. It has been whispered that Huawei could make a $20 billion bid for Nokia. But again, nothing above a whisper about this possibility.

Microsoft, the company that has pinned its hopes of Windows Phone emergence on Nokia, would have a big downside if it took over Nokia. It would be undercutting Windows Phone sales to other mobile-device makers, the opposite of what it needs to do.

But, Nokia stockholders out there, remember that these are only rumors, though ones that did have the power to move the market last week. Just take them with a generous grain of salt.

The mobile revolution makes for a fast-moving target for investors. To help you find a key player in this revolution, The Motley Fool has released a free report called "The Next Trillion-Dollar Revolution." It details a "hidden" component play inside mobile phones that also is a leader in the exploding Chinese market. Hundreds of thousands have requested access to previous reports like this -- and best of all, it's free!

At the time thisarticle was published Fool contributorDan Radovskyowns shares of Nokia and AT&T. The Motley Fool owns shares of Microsoft and Google.Motley Fool newsletter serviceshave recommended buying shares of Google and Microsoft.Motley Fool newsletter serviceshave recommended creating a bull call spread position in Microsoft. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.