The timing of a patent infringement settlement between Apple and Nokia announced earlier on Tuesday could indicate that the settlement was favorable to Apple, according to UBS Investment Research analyst Maynard Um. In a research note obtained by The Mac Observer, the analyst told clients that Apple might have been able to leverage recent rulings from the U.S. International Trade Commission (ITC) to negotiate a more favorable royalty license with Nokia that could have an accretive effect on the company’s forward earnings.
Early Tuesday morning, Apple and Nokia announced that they had settled all ongoing patent infringement complaints between the companies, and that the two mobile giants were entering into a cross-patent licensing agreement, with Apple paying a one-time fee for past infringement, as well as ongoing royalties.
The patents Nokia owns are ones the company has long been able to collect royalty payments for, and Maynard Um pointed out that GAAP rules required Apple to account for that as a liability until the dispute between the two companies was resolved.
He furthermore argued that since the agreement was announced after a March ruling from the ITC that Apple had not been violating Nokia’s patents — a ruling that was not final and was under partial review — the timing could indicate that Apple had been able to leverage that ruling to negotiate a reduced licensing agreement with Nokia.
The bottom line is that Mr. Um believes Apple could see a one-time benefit to its earnings that represents the difference between the amount set aside under GAAP rules and the amount negotiated in Tuesday’s agreement. He also believes that Apple could see a US$.06 per share ongoing benefit to earnings.
Mr. Um maintained his “Buy” rating on Apple’s stock, as well as his $510 price target.
Apple’s shares closed higher on Tuesday, ending the day at $332.44, up $5.84 (+1.79%), on moderate volume of 11.9 million shares trading hands.
*In the interest of full disclosure, the author holds a small share in AAPL stock that was not an influence in the creation of this article.