I’ve written several article about Nokia (NYSE:NOK) in the last year. And in each one, I felt that I was recommending the stock because I should. After all, 5G was a tide that would lift all boats and all that jazz. But Nokia stock, while not taking on water, is failing to find any meaningful conviction with investors.
If I had to point to one thing, I’d call it consistency. Nokia has a habit of delivering a good earnings report, than a not-so-good-one. In its second quarter earnings report, Nokia beat on earnings and met expectations on revenue. But in its most recent quarter, the company missed on both the top and bottom lines.
But stating what appears to be an obvious point is one thing. Understanding why is more complicated. Or maybe it’s not.
All In On 5G
There was a somewhat curious comment made on Nokia’s earnings call transcript. Nokia’s chief executive officer, Pekka Lundmark said, “We have decided that we will invest whatever it takes to win in 5G.”
At first blush it sounds like the kind of thing that CEOs say on earnings calls. But while it’s true that the 5G opportunity is still in its infancy, many companies have seemed to be all in on 5G for quite some time. And I’m not suggesting that Lundmark is saying that Nokia has been ignoring the opportunity. The company is quick to reference that it has over 100 5G contracts.
However, those contracts haven’t amounted to much for the company. And Verizon (NYSE:VZ), for one, took notice. In October, Verizon appears to have cut Nokia out of its prior partnership. The company’s 5G radio access network (RAN) business was split between Nokia, Ericsson (NASDAQ:ERIC) and Samsung. However, in the new contract the RAN contract appears to be split between just Ericcson and Samsung.
For its part, Verizon didn’t really say why, nor does it have to. Perhaps some of it has to do with Nokia’s practice of taking proprietary profits from its allegedly open standard RAM technology. But suffice it to say that it was significant news. And it may show that Lundmark was acknowledging more than he’d care to admit. Perhaps, Nokia is too fragmented. It has that appearance.
The one thing that is very clear is that Nokia will be losing revenue from its second-largest market. And that will make it more difficult for Lundmark to invest in technology at the same rate as its peers.
What Does Nokia Do Well?
In a recent article, Dana Blankenhorn described how cloud computing companies may be in a better position to capitalize on the opportunities in 5G. Blankenhorn explained that the opportunities in 5G are about data centers more than carriers.
I’ll let you read the article and decide for yourself, but it gives me a bearish outlook on Nokia stock. Because it seems more likely that no matter how committed Nokia may be to 5G, it may already be too many steps behind the curve.
What Do the Analysts Say About Nokia Stock?
Nokia is drawing the attention of 18 analysts and comes out with a consensus rating of hold. The stock is only given a price target of $4.60. And while the potential for an 18% increase sounds impressive, it seems like a message we’ve heard before.
The simple fact is that there seems to be a lack of conviction by analysts that has yet to translate to investors. Nokia stock is up just 6% for the year. But it wasn’t so long ago that the stock was down 15% for the year.
This brings me back to the conundrum that I see for investors. Analysts don’t have conviction for the company. The company has difficulty articulating what it does to provide that conviction. And in this case, those two statements mean that I can’t endorse Nokia with any conviction.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for over six years. He has been writing for Investor Place since 2019.