2020 was supposed to be a comeback year for Nokia (NYSE:NOK). Instead NOK stock has been treading water near $4 per share for the past month. The firm’s movement in the 5G space left investors unimpressed, an ill omen given 5G is the firm’s only major growth catalyst. A tougher-than-anticipated competitive environment means a comeback for the company is unlikely to materialize until much further into the future.
5G Competition Fierce
The majority of Nokia’s revenue comes from selling software, hardware and services to communication service providers. For that reason, most are expecting to see the firm get a bump as the 5G revolution forces providers to update their equipment and build out 5G-capable networks. But it’s not quite that simple.
For one thing, Nokia isn’t the only one out there with 5G offerings. The firm is competing against companies like Ericsson and Huawei to win contracts among service providers. Many of Nokia’s competitors are likely to try to undercut on pricing, which in turn will weigh on margins and revenue.
Huawei Ban Won’t Save NOK Stock
Some will point to the government’s decision to regulate Huawei’s access to America’s 5G network as a catalyst for Nokia moving forward, but as InvestorPlace’s Vince Martin pointed out earlier this month — it’s turning out to have very little impact on Nokia’s forward momentum.
For one thing, with Huawei in the press so much the company has actually seen brand recognition rise. Not only that, but European lawmakers seem ready to disregard President Trump’s calls to keep Huawei from contributing to their own 5G rollouts.
This week the UK announced it was going to work with Huawei to build out its 5G network despite pressure from the US. German Chancellor Angela Merkel said she doesn’t think banning Huawei is the right move as Germany works to roll out a 5G network of its own. The bottom line is that while the US certainly represents a large market, Huawei still has strong footholds elsewhere in the world.
Pushing Back the NOK Stock Pivot
Nokia isn’t necessarily going to lose out completely when it comes to the 5G revolution, but at least initially, the rollout won’t be quite as profitable as the firm — and investors — were hoping. That’s a problem when it comes to NOK stock turnaround, because the firm has been depending on its revenue from hardware sales to communication service providers to diversify its business.
Nokia has been working to expand its licensing business to include sectors like connected cars, consumer electronics and the Internet of Things. In the long-term, that move is a smart one because right now the firm is dependent on upgrade cycles among service providers.
That means that in cases like the 5G rollout, the company benefits from a surge in spending. However in the years that follow, a lull is likely. By adding a range of other industries to its portfolio, NOK will be able to generate a more consistent revenue stream.
Without margin growth and robust revenue, though, Nokia can’t make that transition as quickly as investors had been hoping.
Is it Time to Sell NOK Stock?
With that in mind, 2020 may not be the bumper year investors were banking on. But that doesn’t necessarily mean Nokia is a total failure. The firm is still capable of maintaining its position as a leader in the 5G space and a turnaround, though far more drawn out than expected, is still in the cards.
Still, now isn’t the right time to add NOK stock to your portfolio. It looks like a bumpy road ahead in the near term for the company. Plus, the market has become increasingly skittish in recent days making now a terrible time to bet on struggling names like Nokia. Instead, I’d wait on the sideline — at least until the market becomes more reasonable. In any case, the company likely has further to fall, especially if management continues to overpromise and underdeliver.
If you’re desperate to play the 5G revolution, there are other names out there that look more likely to deliver. Carriers like AT&T (NYSE:T) and semiconductor stocks like Applied Materials (NASDAQ:AMAT) are probably wiser places to look for 5G winners right now.
As of this writing, Laura Hoy was long T.