Editor’s Note: This story has been corrected with Nokia’s correct home country.
With apologies to Lin-Manuel Miranda, markets do discriminate between the sinners and the saints. Nokia Oyj (ADR) (NYSE:NOK) is seen by Wall Street as a classic sinner. Once it dominated mobile telephony, now it’s done, buddy can you spare a dime?
Nokia came out of that wreckage with more than a few dimes, which it invested in mobile’s back-end infrastructure. It bought out the old “big three” of telecom gear — Siemens, Alcatel, and Lucent — over a three-year span and now controls much of the technology for 5G networking, as well as older patents.
But the big bucks aren’t coming just yet. For the latest quarter, announced before trading opened Feb. 1, it used about $250 million in patent payments from its Chinese rival, Huawei Technologies, to beat street estimates.
Patents Today, Equipment Tomorrow
For the quarter, Nokia achieved revenue of about $8 billion, 6.668 billion Euros. Its profit was up 6% from a year earlier, to 709 million Euros or about $850 million. U.S. investors also got the benefit of the Euro’s recent rise against the dollar.
Management claimed a 2% gain in equipment sales, measured in constant currency, but acknowledged a 4% drop in that figure when currency fluctuations were accounted for. It estimated earnings for 2018 will come in between 23 Euro cents and 27 Euro cents — about 27-30 cents per share if the present dollar-Euro exchange rate holds, more if the Euro keeps rising.
This was enough to send the shares up almost 10% in premarket trading, to $5.28, and went higher yet after the open. That’s important, because many Wall Street brokers won’t touch a stock trading at under $5 per share. The company’s market cap is now over $31 billion.
Among InvestorPlace writers, Nokia has become a battlefield stock. Will Healy insists you should buy it, despite its old-timey name, while Vince Martin sees it needing oomph. Josh Enomoto calls it a coin toss and says it needs a new story.
Well, here’s one.
Wait For It
Returning to our first paragraph, I think you can buy Nokia, but if you want big profits you’re going to have to wait for it.
While there is a lot of talk about 5G networks revolutionizing telephony and the internet, standards remain undefined and most mobile carriers are still absorbing the cost of 4G. But when they do go to 5G they’re likely to see two main choices, Nokia and Huawei, and the U.S. companies look likely to choose Nokia, preferring Finnish imports to Chinese ones.
Analysts expect the 5G infrastructure market to be worth $33.72 billion by 2026 as both wired and wireless infrastructure players rush to support it, breaking down the walls separating the two industries. Annual growth for the market will be 50% per year during the next decade, compounded.
Nokia, with its patent portfolio and ongoing research efforts, is going to be a big player in the space, so young investors with patience can get in now and look up a decade hence to find they’re doing quite well.
That’s not the way older investors should play it. If you’re 63, like me, you only want to trade Nokia, intrigued perhaps by the 19 cents per share in dividends it paid out last May, or the 28 cents per share it paid out the previous June. If it hits 19 cents again this spring, you’re looking at a 3% yield at the current price.
Beyond that, I expect Nokia to remain range bound until the hype over 5G starts turning into products, two years from now. That’s when mainstream investors should plot their buying strategies.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
