After taking a nearly 40% haircut in 2019, Nokia (NYSE:NOK) stock hasn’t exactly impressed investors and financial commentators. As a staunch contrarian, I relish a challenge but this one’s really going to test my ability to justify the practice of catching falling knives.
Everybody sees a future in 5G connectivity now, but Nokia stockholders are absolutely depending on 5G’s success now because the Nokia of a decade ago is ancient history. Can the one-time smartphone leader reinvent itself as a 5G bellwether? And just as importantly, should daring traders pick up NOK shares on the cheap?
A Trying Year (and Decade) for NOK Stock
InvestorPlace‘s own Brad Moon has provided an informative account of Nokia in 2010 versus today’s Nokia, and I highly recommend reading this but I’ll give a quick summary. Suffice it to say that a decade ago, 100 million smartphones — around one out of every three sold that year — were manufactured by Nokia. Moreover, Nokia’s smartphone sales were up 48% year-over-year in 2010.
Then along came Android, and it was the beginning of the end of Nokia’s short-lived reign. Alphabet’s (NASDAQ:GOOGL, NASDAQ:GOOG) Android made strides and Nokia missed the boat. In 2012, Nokia shipped only 35 million smartphones and its global market share plummeted to a mere 5%.
By the end of the decade, Nokia stock investors couldn’t count on smartphone sales to keep the share price afloat. Thankfully, the advent of a new technology could breathe life into this fallen company: 5G, the networking revolution that’s much more than a buzzword. Nokia chief technology officer Marcus Weldon explains how the 5G network will create a faster and more reliable communication network, not only for humans but for machines as well:
When you start thinking about automation, robotics, autonomous vehicles — anything where the machine has to move or perform a function that is very precise — then you need this very low latency, and that’s the essence of 5G. 5G is also designed to be very reliable. When I talk to you, if the call drops, we’re a bit annoyed, but it’s not the end of the world, we’ll just redial. But obviously, that doesn’t apply to an industrial process, which is sort of mission critical, so 5G is both low latency and very reliable.
5G Is the Key
If anything’s “mission critical,” though, it’s Nokia’s success in parlaying the 5G movement into sustained profits. The future remains unpredictable, but so far, Nokia has a pretty good head start in garnering 5G market share. By the end of November, Nokia wowed the industry and surprised critics by securing 50 5G deals worldwide.
5G contract number 50 was inked with Spark New Zealand, underscoring the truly global scope of this exciting technology. Nokia Mobile Networks president Tommi Uitto put it thus:
I am thrilled to see Nokia 5G equipment chosen to power 5G initially in Spark’s heartland areas. We are committed to keeping New Zealanders at the cutting edge of technology and are confident they will benefit from Nokia’s global reach, expertise and agility.
Don’t get too excited, though, as Nokia isn’t the frontrunner in the 5G race. By the time Nokia garnered 50 contracts, Huawei already had 60 while Ericsson (NASDAQ:ERIC) was clearly in the pole position with 76. Still, Nokia remains an early and avid player in the 5G game and there may be an outside chance that the company can close the gap between itself and the two aforementioned competitors.
The Takeaway on Nokia Stock
Whether Nokia’s 5G-powered second act moves the share price north remains to be seen, and I’m not yet prepared to recommend a position in NOK stock. The best I’m hoping for at the moment is a better year than 2019. That’s not a lofty goal, but Nokia’s 5G dreams are all that shareholders have left to bank on.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
