(AAPL) Apple Eyes Nortel Assets

Apple Inc. (AAPL) recently received The Federal Trade Commission’s (FTC) approval to bid for the intellectual properties of the Canadian telecom equipment manufacturer, Nortel Network.

The nod from the antitrust regulators is a positive for Apple as it has been interested to buy the patents relating to the 4G and Long Term Evolution (LTE) technologies. Apart from Apple, Google Inc. (GOOG) has also been eyeing these technologies.

Given the inherent advantages compared to the conventional 3G technology, 4G has gained tremendous popularity among the mobile companies, as 4G not only speeds up the data transfer rate but also reduces transmission error. The technology is more secure than 3G, and uses Internet Protocol address system similar to Internet.

In the United States, there are two major systems using 4G mobile technology. One is known as WiMax and is backed by Clearwire, a subsidiary of Sprint Nextel Corp. (S). The rival system, LTE, is backed mainly by Verizon Communications Inc. (VZ).

LTE uses radio waves to allow more data to be transferred over the same bandwidth used by 3G equipment. As a result, service providers should be able to get more data transfer out of their existing cells and possibly lower the cost runoff running their networks.

LTE, which is currently under development, allows wireless providers to shift from 3G technologies to 4G networks and equipment using GSM (Global System for Mobile communications) and CDMA (Code Division Multiple Access) types of networks. However, LTE is not expected to be available for widespread use until 2012.

This delay in deploying LTE has made the patents and patent applications with Nortel valuable for mobile companies. Nortel Network Corp., which went bankrupt in January 2009, reportedly has more than 6,000 patents and patent applications, which will be auctioned on June 27, 2011.

Apple’s interest lies in the fact that the delay in LTE deployment from Verizon has affected its plan of launching a 4G enabled iPhone in calendar year 2011. iPhone has been the primary source of revenue growth for Apple over the last few years. In the second quarter ended March 31, 2011, iPhone contributed more than 50.0% of the company’s revenues.

However, Apple has been facing stiff competition from Google Inc’s  Android based handsets and has lost significant market share over the last few quarters. We believe a new upgraded 4G iPhone is absolutely necessary for Apple to boost its falling market share. Hence, a win at the auction will boost its chances of launching a 4G iPhone in the near term.

Currently, Apple has a Zacks #3 Rank, which implies a Hold rating in the near term. For the long term we maintain our Neutral recommendation for the stock.

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