Nokia Stock Continues to Slide As Huawei Scores a 5G Win, Q4 Earnings Loom

Finnish telecommunications company Nokia (NYSE:NOK) will report its fourth-quarter earnings on February 6. As the big day approaches, the market seems concerned about the results. The company’s third-quarter earnings came in below analysts’ average estimate, sending NOK stock plummeting 24% in a single day.

Source: RistoH /

Although the shares have subsequently stayed well below the $5 level they were trading at prior to the Q3 disaster, they had started to creep up slightly at the beginning of 2020, peaking at $4.20 in mid-January.

However, it’s been all downhill since then for NOK. News that the U.K. will allow China’s Huawei to build 5G infrastructure for mobile operators in that country is not helping Nokia.

After NOK stock closed at $3.88 yesterday,  are the shares worth buying? Or will its Q4 earnings, combined with the specter of Huawei winning more 5G contracts, cause the stock to fall further?

It’s All About 5G

Next-generation 5G wireless networking is key to Nokia’s success. Last year, the company was racking up 5G infrastructure contracts, but the costs associated with the new technology cut into its profitability. That impacted Nokia’s margins and was a big reason why the shares were punished after the company reported its Q3 earnings.

On Jan. 9, the company announced that it had signed 63 commercial 5G contracts worldwide. NOK stock gained nearly 5% in several days on the news. Nokia noted that its technology had been adopted in key markets:

“Nokia is the only network supplier whose 5G technology has been contracted by all four nationwide operators in the U.S., all three operators in South Korea and all three nationwide operators in Japan.”

The U.K. market received little mention in that press release, and the reason for that was soon evident. Several weeks later, it was reported that the U.K. would allow its wireless vendors to utilize Huawei’s technology to develop their 5G networks. Huawei’s technology will not be used to develop  government and “critical” networks, and its equipment will be restricted to carrying 35% of total network traffic. However, the news sent a shiver down the backs of the owners of NOK stock.

Now the door is open for other countries who may have, like America, been banning the Chinese company to reverse course and allow Huawei to develop their 5G networks. That competition could cost Nokia 5G contracts and will put pressure on the prices it can charge.

What About Phone Sales?

Nokia was once the global leader in mobile phone sales and was the leader at the beginning of the smartphone era. The company’s refusal to adopt Android — the smartphone operating system owned by Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google — cost Nokia dearly. NOK eventually exited the smartphone business altogether.

However, in 2016 the company inked a deal with a Foxconn spinoff to put the Nokia name back on smartphones. Also on tap were releases of modernized versions of classic Nokia feature phones. Under the deal, Nokia would reportedly collect licensing fees of $11 to $23 per device.

But don’t look for that venture to pad NOK’s Q4 profits. According to figures from Counterpoint Research (via Nokiamob), shipments of Nokia-branded smartphones tumbled 41% year-over-year in Q4, while sales of feature phones rose a modest 1%. 

But on a positive note, because of its wireless patent portfolio, Nokia will receive about $3.50 from the sale of each and every 5G smartphone. That bodes well for a year when 5G is going to be everywhere and Apple (NASDAQ:AAPL) is expected to launch its first 5G iPhones. 

The Bottom Line on NOK Stock

Despite the unexpected development of Huawei gaining access to the U.K.’s 5G infrastructure market, the continuing global rollout of 5G will remain a big revenue driver for Nokia. The launch of 5G is also expected to pay off handsomely for NOK in the form of licensing fees as consumers upgrade their smartphones to 5G-capable models. 

The idea of Nokia “roaring back” this decade hasn’t quite panned out thus far, but it’s still early. As InvestorPlace contributor Chris Lau pointed out, announcing a few new, big 5G contracts and strong Q4 results may be all that’s needed to propel NOK stock toward the $5.00 to $6.00 range.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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