If you asked ten investors what Nokia Oyj (ADR) (NYSE:NOK) does, and odds are good that half of them won’t be able to come up with anything more than “used to make smartphones.” The other half might say Nokia stock is an investment in networking and communications hardware.
Both answers are technically correct, although the latter is arguably more correct than the former. Neither answer, however, does justice to what Nokia is going to become over the course of the next five years.
While NOK stock has been losing ground since 2014 in step with lackluster results from the company itself, Nokia has a surprisingly better future. See, if the 5G revolution is going to happen as has been touted, Nokia is going to be one of its foundational players.
The 5G Rundown
For the unfamiliar, 5G wireless connectivity is short for “fifth generation,” (as opposed to 4G, 3G, etc.). Though currently being tested by some providers like Sprint Corp (NYSE:S) and Verizon Communications Inc. (NYSE:VZ), it’s not yet a commercially available product in a meaningful way. It is coming, though, and it’s going to be huge. 5G connections are expected to as fast as 100 Mbps (megabits per second). That’s fast — faster than the average speed of at-home broadband in the United States.
For users, that connection’s speed will feel about three times as fast as 4G connectivity, though the signal will be able to carry far more than three times the data a 4G service can. Indeed, Nokia recently noted in a report that 5G transmissions can carry 40 times the amount of data that a 4G signal can.
It’s that leap in the amount of data capacity that will make feasible the advent of the Internet of Things, the digital wireless delivery of media content, and interestingly enough, the computer code needed to make virtual reality something consumed like television is watched now.
This is where Nokia has put the bulk of its time and attention for the past several years, growing a monster that’s about to be uncaged.
OZO Reality
Most NOK stock holders probably don’t know it, but Nokia’s OZO Reality is an entire arm of the company aimed at ensuring the company is the building blocks of whatever virtual reality transmissions are to become.
The company has a hand in every aspect of the technology. OZO Creator and OZO Live provide the image-processing and event-recording platforms, respectively, needed to create VR content and package it into a digital format. OZO Deliver allows a provider to deliver an optimized, low-bandwidth message to users, while OZO Player SDK facilitates the playback of a recorded virtual reality experience.
All of these are to be showcased (some for the first time) at this year’s NAB show, going on right now. The OZO platform addresses the key question so many content-makers are asking … how do we “do” virtual reality?
5G, Internet of Things
Of course, the ability to make and deliver VR content is meaningless if there’s no way to deliver the mountain of data needed display it for an end-user. Nokia’s thought of that as well, figuring out ways to make high-speed internet even higher-speed internet … wireless or otherwise.
The 5G First initiative is, in layman’s terms, a turn-key solution that allows a service provider to get into the 5G business, with all the bells and whistles. It’s expected to be ready for deployment by the second half of this year, and barring anything changing in the meantime, will serve as the foundation for the first widespread commercial use of 5G connectivity.
With such an infrastructure in place, the all the hype and hope for the Internet of Things can become a reality.
The company isn’t just taking a passive approach to that market, however. Nokia is already building the infrastructure many companies don’t yet realize they need. It’s been building an IoT network for Singapore’s wireless provider M1 that’s expected to be up and running by the midpoint of the year.
And last month, it and Facebook Inc (NASDAQ:FB) successfully delivered a test signal through 11,000 kilometers of fiber-optic cable laid across the ocean floor. The transmission’s capacity was two-and-a-half times greater than the technology’s specs had called for, opening the door to a whole new means of sending massive digital messages at high speed.
Though Facebook’s interest in the submarine connection points to its own virtual reality ambitions, Nokia is likely already eyeing it as another product it can add to its VR suite of tools.
Bottom Line for Nokia Stock
Point being, it’s been tough to be excited about owning NOK stock for a while now; it was tough to even get a clear idea that it wanted to be anything more than a run-of-the-mill networking hardware provider. It’s been doing much more R&D than most investors realize, though.
It’s still difficult to be blindly bullish on Nokia. Calling the company a good bet on the advent of 5G is like calling Merck & Co., Inc. (NYSE:MRK) a good bet on the growth of the pharmaceutical industry.
Both companies would still need to do something other companies aren’t doing as well for any of the effort to matter. Thing is, Nokia really is one of the few outfits building the tools needed to turn 5G and virtual reality and the Internet of Things into something commercially practical.
It admittedly takes guts to step into Nokia stock on the bigger-picture premise, but at the very least Nokia stock has earned a spot on your long-term watchlist. Perhaps we’ll find out more concerning Nokia’s ambitions when the company reports earnings this Thursday.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
