Nokia Corp (ADR) (NYSE:NOK) has gotten some media coverage lately, amidst the return of the Nokia phone via a licensing deal, the patent war with Apple Inc. (NASDAQ:AAPL), and now the purchase of Comptel, a Finnish telecom software company.
However, Nokia stock hasn’t been doing well over the past few years. NOK opened on Jan. 1, 2011 at $10.58 a share and now is trading at about $5. Last year, Nokia stock fell 45%. Over the past 10 years, Nokia stock is down 77%, while the S&P 500 rose 62% during the same period.
At first glance, Nokia stock doesn’t look too good. A weak global economy will depress capex, including investment in telecom infrastructure, over the near term. Spending on 4G equipment peaked last year in many markets, while 5G remains a few years off.
But contrarians might find Nokia stock interesting. Telecom, after all, is a very cyclical industry. Telecoms tend to overinvest, like in 1999-2001, and then spend little for a few years. Eventually, investment recovers as telcos begin to install the next-generation mobile technology. This cycle repeats itself every few years.
Let’s look at the bright spots for Nokia.
Nokia’s Performance in Emerging Markets
Nokia performed well last year in China and India, two major markets expected to increase in importance in the future.
Nokia’s performance in China stands out as impressive, given the presence of two local competitors, Huawei and ZTE. Last year, Nokia inked a $1.5 billion deal with China Mobile Ltd. (ADR) (NYSE:CHL), the world’s largest mobile phone operator, to provide the latter with cloud services and technology. In August, Nokia agreed to supply China Telecom Corporation Limited (ADR) (NYSE:CHA), China’s largest landline telecom and third-largest mobile network, with 4G technology.
The consulting firm Analysys Mason expects the telecom equipment market in India to grow 10% to 12% annually over the next few years. With 120 deals in Indian telecoms in 2016, Nokia claims to India’s No. 1 telecom infrastructure vendor. Nokia does business with the three biggest telcos in India: Bharti Airtel, Vodafone Group Plc (ADR) (NASDAQ:VOD) and Idea Cellular. All trust Nokia to help them roll out 4G technology in the country. The importance of India may increase as investment slows in other markets. Even in China, 4G is now maturing, and Fitch sees capex declining 10% for Chinese telecoms in 2017.
Nokia: Diversifying its Business
Nokia broadened its portfolio over the past few years with a string of acquisitions. This reduces risk for Nokia and gives NOK an advantage over its competitors such as Ericsson (NASDAQ:ERIC). Last year, Nokia completed its merger with Alcatel-Lucent, strengthening its position in mobile networks. The deal also makes Nokia a player in fixed networks as well as routers and switches. Now, Nokia is No. 1 in mobile, No. 2 in fixed and No. 2 in switching and routing.