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In the terms of their new patent dispute resolution, Nokia revealed it will be providing network infrastructure products to Apple — a partnership that one Wall Street analysts could see Nokia significantly grow its IP router business by supplying Apple's datacenters.
Analyst Rod Hall of J.P. Morgan believes Apple could be the top new datacenter customer for Nokia's new webscale IP routers, based on the announced agreement on Tuesday. He sees an alignment with Apple allowing Nokia to leverage its position and branch out into other webscale, cloud and enterprise companies.
The financial terms of the deal between Apple and Nokia remain unclear, with the two sides announcing they have agreed to a multi-year license for mobile patents. Apple will pay Nokia royalties over the term of the agreement, starting with an undisclosed upfront cash payment that should be recognized by the second quarter of 2017.
Hall said investors should expect to hear more on the deal during Nokia's second-quarter results in July. But he believes the value is less than the approximately 500 million per year that Samsung pays to Nokia.
Separately, Wells Fargo Securities analyst Maynard Um predicted that Nokia will be the bigger financial beneficiary of the agreement, though he expects the deal will have a small effect on Apple's earnings per share.
"While the lifting of the litigation overhang is positive for both companies, from a financial perspective, we see this as a bigger positive for NOK while Apple should see some pressure on gross margins (though the EPS impact is small)," Um wrote.
In particular, he called the timing of the announcement "surprising," given that courts were not expected to resolve the cases until the fourth quarter of this year. Um believes the earlier-than-expected deal suggests Nokia received a rate it was satisfied with, without having to gain leverage against Apple.
Um spoke with Nokia, and officials at the company suggested to him that the networking deal could cover both existing products, as well as new ones in its pipeline, all being sold to Apple.
"While Nokia did not disclose any of the terms of the deal, it stressed that this was broader than just a stand-alone licensing deal and includes Apple purchasing networking equipment from Nokia and being a reference customer," he said.