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June 14, 2011 4:05 pm

Nokia wins the battle but faces a long war

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Nokia’s patent victory over Apple on Tuesday was hailed as a rare victory for the ailing Finnish mobile phone maker against its booming US rival.

Yet, the agreement by Apple to pay Nokia for intellectual property used in the iPhone, was also a painful reminder of missed opportunities for Europe’s best-known technology group.

By accepting that its iPhone owes some of its success to Finnish knowhow, Apple has proved that Nokia’s failures in the smartphone market cannot be blamed solely on technological inadequacies.

On the contrary, Nokia engineers were at the forefront of early smartphone innovation and the group has a barrage of valuable patents to prove it.

However, despite having had all the ingredients at its fingertips, Nokia failed to create a device as sleek and user-friendly as the iPhone, whose launch in 2007 heralded a new era of internet-connected handsets offering a dazzling array of online services.

Four years later, Nokia’s share price has lost three-quarters of its pre-iPhone value and the group is haemorrhaging market share not only to Apple but also to the growing range of devices using Google’s Android operating system.

Nokia’s settlement with Apple will provide some temporary relief. The companies have not disclosed financial details but analysts estimate the Finnish group could receive hundreds of millions of dollars a year from royalty payments on every iPhone sold. In addition, Nokia will receive a one-off back-payment to cover missed royalties from the past.

Stephen Elop, Nokia chief executive, hinted there could be more such deals to come, remarking that resolution of the Apple dispute would allow Nokia to “focus on further licensing opportunities in the mobile communications market”. Mr Elop has repeatedly stated his intention to use Nokia’s formidable intellectual property portfolio “more strategically”, prompting speculation over a possible challenge against the makers of Android smartphones, such as Samsung, HTC and Motorola.

Analysts say that, if successful, such claims could deliver the double benefit of fresh royalty revenues for Nokia and increased costs for its Android rivals.

However, while patent victories could help temporarily dull the pain for Nokia investors, they will not solve the group’s long-term problems if it continues to be defeated where it really matters: in the mobile phone shop.

Earlier this week, Nomura forecast that Samsung Electronics of South Korea would overtake Nokia to become the world’s biggest smartphone maker by volume in the second quarter, with Apple on course to surpass Nokia in the third quarter.

Nokia is racing to develop a new range of smartphones using Microsoft’s Windows phone operating system in a bid to claw back lost ground. But a shock profit warning last month showed that the group’s existing range of much-criticised Symbian devices were declining at an accelerating pace.

Tuesday’s deal with Apple harks back to a lost era when Nokia was still the leading pioneer of mobile technology. Mr Elop has blamed cultural and management failures for the subsequent loss of edge. He now faces a huge challenge to restore Nokia to the forefront of industry innovation rather than living off past glories.

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