A Huawei executive suggested this week the Chinese telecom-equipment maker could be interested in acquiring Nokia, only for head office to later insist it had no plans for a tie-up. It then emerged Microsoft Corp. MSFT -1.45%recently held talks with the ailing Finnish company about buying its handset business but they faltered over price, according to The Wall Street Journal. Nokia's shares initially rose around 4% on both stories. But neither Huawei, nor Microsoft, looks likely to ride to Nokia's rescue.

Folding Nokia into Huawei, which has quickly become the world's fourth-largest maker of smartphones, has some logic. Combining Nokia's know-how in hardware design and its relationships with wireless operators with a low-cost player like Huawei could be powerful. But handset mergers are littered with disappointments, such as the Sony 6758.TO -0.10%-Ericsson joint venture dissolved in 2011 after a decade of underwhelming results. There's also a chance governments would block a deal, especially if it included telecom-equipment vendor Nokia Siemens Networks: Huawei is effectively barred from working for U.S. companies.

A Microsoft tie-up would also have its kinks. Nokia is the dominant producer of handsets using the Windows Phone operating system so Microsoft's ambitions in the mobile market are increasingly tied to the Finnish group's success. But Microsoft actually needs other handset makers to adopt Windows Phone if it is to raise its share above the current 3.3% of the global smartphone market. Buying Nokia could further deter handset makers from using the Windows system if they see Microsoft as a direct competitor.

That leaves long-suffering shareholders to take a view on what Nokia is worth on its own. After all, Nokia still had €4.5 billion ($5.98 billion) in net cash at the end of the first quarter, suggesting little immediate pressure to sell.

The shares look like a good value on some measures. Nokia trades on an enterprise value of 0.21 times sales compared with handset makers on 1.0 times, notes Liberum Capital. But that reflects the severity of the pressures on Nokia's business. Super-cheap Android smartphones in emerging markets are replacing regular phones faster than expected. Sales of Nokia cellphones fell 31% in the first quarter. Meanwhile, Nokia has just 2.8% of the global smartphone market when it needs at least 5% to achieve economies of scale and reliable component pricing from suppliers, says RBC Capital.

Instead, consider Nokia's sum of the parts: On that basis, Nokia is already trading 25% above a €2.15 share price valuation based on Barclays BARC.LN -3.75%estimates. While deal talk might be cheap, Nokia is not.

By: Docmemory
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