"positive financial impact" on Nokia's second-quarter results.
The settlement comes at a time when Nokia needed a boost. Nokia had its debt rating cut to the lowest investment grade from Fitch just last week, has lost its market dominance to Apple and Android-running devices, and is undergoing a painful transition to a new operating system.
The agreement settles all outstanding patent litigation between the two. The companies also agreed to withdraw complaints against each other with the International Trade Commission over the use of intellectual property.
Nokia, has been in the handheld business earlier than Nokia, had claimed that Apple's iPhone smartphone and iPad tablet infringed on its patents. Nokia said its pioneering innovations are being used by Apple to create key features in its products in the areas of multi-tasking operating systems, data synchronization, positioning, call quality and the use of Bluetooth accessories.
"We are very pleased to have Apple join the growing number of Nokia licensees," said Stephen Elop, president and chief executive officer of Nokia, in a June 14 statement. "This settlement demonstrates Nokia's industry leading patent portfolio and enables us to focus on further licensing opportunities in the mobile communications market."
"Apple and Nokia have agreed to drop all of our current lawsuits and enter into a license covering some of each other's patents, but not the majority of the innovation that makes the iPhone unique," the Cupertino, Calif.-based Apple said.
Bloomberg News relates Sami Sarkamies, an analyst at Nordea Bank AB in Helsinki, said in a note to clients the initial payment will likely be in the range of hundreds of millions of euros related to about 200 million Apple devices delivered to date.
According to the Financial Post, RBC Capital Markets analyst Mike Abramsky estimates royalty rates of approximately 0.75% to 1.5% per iPhone, iPad and iPod Touch shipped globally. That may equate to a payment between US$800-million and US$1.6-billion in the third quarter.
Transition stage for Nokia
Nokia four years ago sold more mobile phones than all the other handset-makers combined. From a 50% market share, Nokia phones are now only being bought by one out four cellphone users, as smartphones run by Google's Android operating system and Apple's iPhones continue to gain following.
Nokia said several weeks ago that it might not book a profit in its core cellphone business for the second quarter.
Nokia Chief Executive Officer Stephen Elop is readying a line of phones based on Microsoft's Windows Phone 7 operating system to replace the Symbian line. However, Nokia has received an added pressure as the new batch of phones products are only expected to be in place well into 2012, and issues remain whether consumers will embrace the Windows-based devices.
Windows-based smartphones have yet to gain following. Google's Android system, has already grown to become the largest smartphone operating system with 36 percent of units sold in the first quarter, compared to only 27.4% for the Symbian, and 3.6% for Windows-based devices, according research firm Gartner Inc.
In April Nokia announced that it would transfer its Symbian software activities, including about 3,000 employees, to Accenture. In addition, Nokia also said it plans to reduce its global workforce by about 4,000 employees by the end of 2012, with the majority of reductions in Denmark, Finland and the UK.
"Strategy transitions are difficult. We recognize the need to deliver great mobile products, and therefore we must accelerate the pace of our transition," said Nokia's CEO said in April. "Our teams are aligned, and we have increased confidence that we will ship our first Nokia product with Windows Phone in the fourth quarter 2011."
Monetizing from IPR
Nokia for now could focus on monetizing on its arsenal of patents.
Nokia said that during the last two decades, it has invested EUR43 billion in research and development and built one of the wireless industry's strongest and broadest IPR portfolios, with over 10,000 patent families.
Nokia could push harder to secure licensing and royalty income from new entrants in the smartphone market, Rod Hall, an analyst at J.P.Morgan, said in a research note, according to reporting by the Financial Post. "The patent license agreement with Apple highlights the strength and breadth of Nokia's patent portfolio in the wireless communications market," Hall said.
The outcome of the Apple-Nokia dispute could also have major implications for Google's Android operating system and the manufacturers using it because Android and Apple's mobile software are similar, meaning Android may also be using many of the same technologies in question, Florian Muller, an intellectual-property consultant in Starnberg, Germany, told the Wall Street Journal.
Nokia will release its second quarter results on July 21, 2011.
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