Nokia (NOK) - Huawei or Microsoft (MSFT) Deal Viewed as Pipe Dream

Shares of Nokia (NYSE: NOK) moved higher this week on reports of M&A interest from Huawei and Microsoft (Nasdaq: MSFT). In the view of analyst Maynard Um of Wells Fargo, neither deal seems likely.

"Yesterday, the Financial Times indicated that Huawei 'would consider buying Nokia' in the hopes of becoming a leader in the smartphone market though Huawei later indicated there were no concrete plans We believe a Huawei tie-up is highly unlikely given the different operating system commitments, cultural hurdles and potential regulatory impediments," said Um.

Commenting on rumored Microsoft talks, Um isn't surprised they broke down. Management at the software giant recently indicated it was seeking to expand its devices and service strategy, but Nokia wouldn't necessarily boost market share for Microsoft.

"While Nokia's close relationship with Microsoft would make it more of a fit, Nokia's smartphone business is still half the revenue of its feature phone business, based on our estimates. And although there would be some obvious benefits such as intellectual property, maps, brand, and distribution, the question is what value Microsoft would put on a feature phone business that is seeing increasing competitive pressures and a smartphone business that has yet to ramp."

"Remain skeptical Nokia could help achieve meaningful market share. We are not convinced that a combination would result in a material market share boost for Microsoft (Nokia still derives significant portion of its devices revenues from feature phones). An acquisition of Nokia might not hurt the company's P&L, but it would likely hinder hopes for multiple expansion given the lower gross margin profile," added the analyst.

Wells Fargo has a Market Perform rating on Microsoft. Wells Fargo has a Market Perform rating on Nokia.

For an analyst ratings summary and ratings history on Microsoft (NASDAQ: MSFT)click here. For more ratings news on Microsoft click here.

Shares of Microsoft closed at $34.59 yesterday, with a 52 week range of $26.26-$35.78.

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