I remember Nokia Corporation (NYSE:NOK). That was the company that had really nice cellphones. Revenue and earnings growth was spectacular, as cellphones were catching on all over the globe. From December of 1997 to April of 2000, Nokia stock was a ten-bagger.
And never saw those prices again. Yeah, Nokia stock eventually bottomed at $12 in 2004 and hit $40 in 2008, and then cratered again to $2 in 2012. It is now at $5.77.
Needless to say, NOK stock fell because Apple, Inc. (NASDAQ:AAPL) got into the biz. Nokia has since transformed itself and broken up into three divisions: Ultra Broadband Networks, IP Networks and Applications, and Nokia Technologies.
It still has phones that HMD Global ships, and over 70 million of them did ship last year. NOK stock benefits from licensing and royalty fees on these.
Nokia’s Revenue Streams
Nokia stock is now driven by revenues from a host of endeavors, including mobile networking solutions, services for telecommunications operators, and enterprises, radio access network solutions, Internet protocol multimedia subsystem/voice over LTE, and other virtualized software infrastructure solutions.
Other areas where Nokia is strong is in fixed networking solutions, fiber-to-the-home solutions, digital home devices, public switched telephone network transformation, and ultra-broadband network design, deployment and operation.
Finally, Nokia moved aggressively into software solutions, the Cloud, Internet of Things, security, and analytics platforms, as well as submarine networks and radio frequency systems.
What Nokia has going for it now is that 5G wireless infrastructure looks to roll out a whole year earlier than expected. The faster the world migrates from 4G to 5G, the better for Nokia, which is relying on this segment, which is big but also declining.
With AT&T, Inc. (NYSE:T) telling us that they will deliver 5G later this year, this could be the boost that Nokia needs.
But of course, the big play is China. China Telecom made a deal with Nokia to see if China Mobile can upgrade its services using 5G. If it does, China said it plans to spend over $400 billion on 5G infrastructure. You can bet Nokia is hoping for exactly this situation to develop.
Meanwhile, Japan’s NTT DoCoMo asked Nokia for 5G equipment.
The Bottom Line on Nokia Stock
The trick is not to get overexcited by the capacity need for 5G, because Nokia is not the only player here. There are plenty of providers and competition, and as 5G becomes a reality, they will compete against each other, and revenues will be squeezed.
I think Nokia’s future rides on 5G, at least as far as growth is concerned. The base business is reliable. IP licensing is pretty stable and that means cash flow is consistent. Yeah, there’s room for growth over the next couple of years, but that’s not the growth engine for Nokia going forward.
What does this mean for the stock? What happens after 5G? Let’s say everything is super and 5G makes tons of revenue. Then a long-term Nokia trade is a good idea. Holding Nokia stock as an investment doesn’t have much of a thesis behind it.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
