Why Nokia Corp (ADR) (NOK) Stock Needs More Than Innovation to Thrive

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When it comes to the stock price, Nokia Corp (ADR) (NYSE:NOK) has been mostly about frustration. But so far this year, there is actually some momentum, as Nokia stock has logged a gain of 14% to $5.50.

Why Nokia Corp (ADR) (NOK) Stock Needs More Than Innovation to Thrive

Yet this could prove to be more of a temporary thing. Keep in mind that the rally seems to be more about the considerable buzz from the upcoming Nokia 3310 phone.

Granted, the strategy is actually clever — appealing to the nostalgia for vintage technology. Hey, I used to have a 3310 and loved it (at the time)!

The motto on the Nokia website is: “The icon is back.” But the 3310 is reimagined, with a battery that can last up to a month on standby, 2 MP camera with a LED flash, support of up to 32 GB and a curved window surface. You also can choose different colors and yes, there is the classic game — Snake.

As for the price tag? It’s a measly $50.

While all of this is cool, there are still some issues emerging. For example, there isn’t a messaging app like Facebook Inc’s (NASDAQ:FB) WhatsApp. This is important since many people in foreign markets must pay for SMS.

Another problem is that the Nokia 3310 is only available on 2G networks. Even in developing nations, this type of technology is being phased out, which could limit the market potential for the device.

Impact on Nokia Stock

But even if the new phone is a blockbuster, it probably will not provide a sustainable lift for NOK stock. Keep in mind that the company gets a royalty from a separate company, called HMD Global Oy. And so far, the rate has not been disclosed.

But given the price point on the device, the fee probably is no more than a couple bucks — and this is being very generous. So if the company sells 5 million units, this may mean only about $10 million in sales (although, it would be at hefty margins).

To put things in perspective, last year the company posted revenues of $25.75 billion. But only $1.24 billion came from the Nokia Technologies segment. In other words, over 95% of the business comes for the networking and broadband segments. In other words, a $10 million or $20 million pop will not move the needle much.

Oh, and the nagging issue with NOK stock is the dreadful performance of the core business. In the latest quarter, the revenues from the networks division sunk by a grueling 14%; even with the merger with Alcatel-Lucent, it’s tough to compete in the market with fierce rivals like Motorola Solutions Inc (NYSE:MSI), Mitel Networks Corp (NASDAQ:MITL) and Telefonaktiebolaget LM Ericsson (NASDAQ:ERIC). But the biggest threat is likely from the low-cost Chinese operators like Huawei Technologies Co. and ZTE Corp.

Another major problem is that the transition to 4G networks has mostly run its course and the move to 5G will likely take a couple years. So in a sense, NOK stock is in limbo.

Here’s what Canaccord analyst Michael Walkley had to say: “While we believe Nokia is well-positioned for strong market share gains as the wireless industry transitions to 5G technologies, we do not anticipate meaningful 5G carrier investments until 2019.” He currently has a “hold” on Nokia stock, with a price target of $5.

Bottom Line on NOK Stock

Despite all this, it is still encouraging that NOK is thinking creatively and trying new ideas. In fact, the company has built interesting products in fast-growing categories like Virtual Reality. There was also the acquisition of Withings, which is a pioneer in the connected health market. Some of the products include digital weighting scales, activity trackers and baby monitors.

But again, such moves will really not have much of an impact. For investors in Nokia stock, the focus needs to be on networking and broadband. And unfortunately, there is not much to get excited about these businesses right now.

Tom Taulli runs the InvestorPlace blog IPO Playbook and is the author of various books, including Taxes 2017: Saving A BundleFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/nokia-corp-adr-nok-stock-needs-more/.

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