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Canaccord Genuity on Apple, Nokia, and Hertz


Commentary on Apple's patent win, CEO, and stock split, plus Nokia's $1 billion surge in market cap and Hertz's $2.3 billion acquisition.

The following are excerpts from Canaccord Genuity analysts' commentaries.

Apple (AAPL) Keyword: Willful.

Late Friday, a federal court jury ruled in favor of Apple, finding Samsung (SSNLF) had been guilty of infringing on six Apple patents on more than a dozen devices and awarded Apple $1.05 billion in damages. The jury ruled Samsung's infringement of Apple's patents was willful in that the parent company induced subsidiaries to infringe.

Samsung's response to the verdict: "It is unfortunate that patent law can be manipulated to give one company a monopoly over rectangles with rounded corners, or technology that is being improved every day by Samsung and other companies." Samsung said it plans to appeal its loss to Apple.

Canaccord Genuity Tech Analyst Michael Walkley believes that following the decision, Apple has an even stronger competitive market position ahead of its iPhone 5 and other anticipated product launches. He believes this verdict could lead to Samsung delaying near-term product launches. Additionally, he sees other Android OEMs such as HTC, Sony (SNE) and LG reviewing this patent verdict and potentially altering and delaying planned Android smartphones and tablets.

Friday also marked the one year anniversary of Tim Cook's appointment as CEO of Apple. Shares are up ~87% since he took the reins. Walkley had this to say about Cook at the time of his appointment: "We believe new CEO Tim Cook is well qualified for the role as he has led Apple as interim CEO on two occasions during Jobs' medical leaves of absence. Mr. Cook is a universally regarded as a strong leader and supply chain expert, and we believe he is well suited to lead Apple to significant growth over the next few years due to Apple's leading iOS developer and application ecosystems and differentiated products. Further, we believe Apple has a deep and talented executive team in the areas of supply chain management, hardware/software design, and product marketing."

It hasn't been all smooth sailing for Cook -- last month Apple reported Q3 2012 results below Walkley's and consensus estimates. Walkley believes the weaker September quarter guidance includes softer iPhone sales due to the iPhone 5 transition. Walkley maintains his belief that Apple is well positioned for strong FY 2013 growth driven by new product launches across its portfolio, including iPhone 5 this fall and iTV in F2013.

Separately, rumors have Apple considering a share split to improve its inclusion in the Dow Jones Industrial Average Index (^DJI). Credit Suisse published five facts about the likelihood and implications of the event: i) Changes to the Dow are not trading events, because there is not a material amount assets benchmarked to the index; ii) Apple almost certainly needs to implement a share split to be seriously considered, since the index is price-weighted, and at its current price Apple would make up over 25% of the index; iii) The Dow is currently underweight tech compared to more sensibly constructed indices and has lagged the S&P 500 this year in performance; iv) The index generally implements changes due to a corporate event trigger. The upcoming Kraft Foods (KFT) spin-off may fit the bill; and v) The company with the smallest market cap in the index is Alcoa (AA).

Nokia (NOK): Opportunity Knocks?

Nokia added nearly a $1 billion in market cap during Monday's trading session after a landmark patent ruling against rival Samsung Electronics sent shares higher on speculation that Nokia may have an opportunity to grab much-needed market share. A federal court in Silicon Valley ruled late Friday that South Korean rival Samsung had copied key features of the iPhone handset and the iPad tablet and awarded Apple $1.05 billion in damages.

Commenting on the news, an analyst at Saxo Bank stated, "The Apple/Samsung ruling is positive for Nokia as this has the potential to change the competitive landscape [for the] short to medium term," adding, "Nokia has been struggling to get their smartphone foothold as Apple and Samsung dominate the market." Additionally, The New York Times noted that Nokia has gone against the grain and based its new smartphone line not on Google's (GOOG) Android, but on Microsoft's (MSFT) Windows phone software. That operating system is substantially different from Apple's. However, sales of phones using the software have been slow, imperiling Nokia's turnaround efforts.

Hertz (HTZ): Would You Like to Add Rental Insurance at $8 Per Day?

Following two years of talks, Hertz has agreed to purchase rival Dollar Thrifty in a deal worth about $2.3 billion that will put roughly 95% of the US car rental market in the hands of three companies. Hertz and Avis (CAR) have both kicked the tires on Dollar Thrifty, with disagreements over price and doubts around regulatory approval serving as roadblocks for a potential deal.

Avis could still make a bid for Dollar Thrifty as the current agreement with Hertz has no break-up fee and allows Dollar Thrifty thirty days to find another offer. Hertz is planning to buy Dollar Thrifty for $87.50 per share in cash, representing a premium of 8% over Dollar Thrifty's Friday closing price of $81 and almost double a $1.2 billion offer from Hertz in April 2010.

Dollar Thrifty CEO Scott Thompson commented, "Hertz has made a compelling offer to our stockholders that reflects the strength of our business." In an effort to secure regulatory approval, Hertz has agreed to sell its budget brand, Advantage, to Franchise Services of North America and Macquarie Capital.

Editor's note: For more information on Canaccord Genuity, click here.
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No positions in stocks mentioned.
Canaccord Financial and its affiliated companies may have a Corporate Finance or other relationship with the companies mentioned and may trade in any of the Designated  Investments mentioned herein either for their own account or the accounts of their customers, in good faith and in the normal course of market making. The authors have not received, and will not receive, compensation that is directly based upon or linked to one or more specific Corporate Finance activities, or to coverage herein.
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