When it comes to Nokia (NYSE:NOK), the company has a long history of change. That said, the result of the many years of alterations was that by 2000, Nokia stock had a market capitalization of over $100 billion. It seemed that the company was invincible.
Yet, it would not last.
Apple’s (NASDAQ:AAPL) iPhone and Alphabet’s (NASDAQ:GOOGL, NASDAQ:GOOG) Android would ultimately wreak havoc on the company. Because of this, Nokia wound up selling the mobile business for $7.5 billion to Microsoft (NASDAQ:MSFT) in 2014, and then moved into the mobile networking industry — which came with the $16.6 billion purchase of Alcatel-Lucent.
Unfortunately, this pivot has had mostly disappointing results; Just look at the returns for shareholders. Since 2014, Nokia stock has gone from $8 to just over $4.
Some Silver Linings
Now it’s true the company has some key advantages. First of all, it is one of the few networking operators that has global scale, as well as a massive patent portfolio — which has become a nice source of licensing revenues.
Next, Nokia has been striking some interesting partnership deals. Just look at the one with Microsoft, which involves cooperation to integrate Artificial Intelligence (AI) and the Internet of Things (IoT). This could certainly be a nice growth driver.
However, the biggest opportunity for Nokia stock is 5G. According to research from International Data Corp, the spending on the equipment for this technology will go from $528 million in 2018 to $22 billion by 2022.
Sounds good, right? Definitely. For example, NOK has snagged 63 commercial 5G contracts. Some of the customers include AT&T (NYSE:T), SoftBank, Verizon (NYSE:VZ), T-Mobile (NASDAQ:TMUS) and Vodafone Italy.
The Issues with Nokia Stock
However, despite this, there are some nagging problems, as growth remains lackluster and profits negligible. In fact, during the latest quarter, Nokia provided horrible guidance.
For the full-year, the company is forecasting earnings of 0.18 euros to 0.24 euros, down from the prior guidance of 0.25 euros to 0.29 euros. Then, as for 2020, the expectation is for 0.20 euros to 0.30 euros, down from the prior forecast of 0.37 euros to 0.42 euros. As a result, the company announced the suspension of the dividend.
What happened? Well, there are various reasons. Note that the sales cycles are long, and the competition is intense, and in China, domestic operators like Huawei have major advantages. Ericsson (NASDAQ:ERIC) has also proven quite strong in western markets.
Furthermore, there are legacy segments for Nokia that are under much pressure. For example, there continues to be weakness in areas like fixed access, optical networks and radio frequency systems.
But for the most part, the technology strategy has been the biggest drag. Not only have there been delays with rollouts, but the focus on field-programmable gate arrays (FPGAs) has proven to be the wrong choice. It’s true that the technology allows for more flexibility, but it has also resulted in much higher expenses. So, it has meant that Nokia has lost ground.
After all, Nokia is now going through the process of revamping its technology with system-on-a-chip (SoC) integrated circuits.
Bottom Line NOK Stock
Now, all this is not to imply that the situation is hopeless. But it does likely mean that Nokia will need even more time to get back on track.
And Wall Street has little patience for this because there have been too many disappointments. So for now, there should be no rush to consider Nokia stock.
Tom Taulli is the author of the book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.