Raymond James on Symbian / Nokia / Intrinsyc

Here is a thoughtful research piece put out this morning by the Raymond James Equity Research Group. Nokia (NOK:NYSE) is on an M&A roll lately, as it tries to turn itself into a software company. The Symbian clean-up transaction is highly relevant to Wellington Financial Fund II Portfolio Co. Intrinsyc Software of Vancouver (ICS:TSX):

“Event

Nokia (NOK?NYSE) yesterday announced it is acquiring the remaining 52% stake in Symbian it does not own. In conjunction, Nokia is creating the Symbian Foundation with plans to make the Symbian O/S royalty?free.

Action

We are reducing our target price to $0.65 (previously $1.00). This now reflects a 2.5x F2010 Soleus revenues (previously 5x) ? more in line with what Nokia paid for the 52% stake in Symbian. Given Intrinsyc shares already declined 9% yesterday, we are keeping our OUTPERFORM rating.

Analysis

Not much has changed in the short term. It’s a complicated scenario which we expect will not unfold until the Foundation starts operating in 1H09 when members should be able to use Symbian royalty?free. Meantime, we still view Intrinsyc?s Soleus as providing a very effective way for handset manufacturers to differentiate their handsets cost effectively and with the fastest time to market. Longer term, this follows Google?s (GOOG?NASDAQ) lead to provide Android for free. The eventual commodization of the mobile O/S means Soleus needs to find other ways to compete (e.g., adding other services on top of the O/S) to still justify customers paying a license fee for Soleus. We believe Intrinsyc will address that in its future road map.

We note this develoment might also result in more engineering services revenues for Intrinsyc?s
Symbian practice ? but that would not command the high multiple Soleus would. Based on the limited financial details we have been able to find on Symbian, we estimate Nokia paid between 1.9x?2.2x 2008E revenues.

Valuation

Intrinsyc currently trades at 1.0x C2009E revenues. Comparable mobile software companies trade at 2.4x C2009E revenues.”

MRM
(disclosure – our Fund II holds warrants in ICS)