Ahead of Nokia’s (NYSE:NOK) first-quarter earnings report — scheduled for Thursday — Nokia stock has been showing lots of momentum. Shares have gone from $2.43 in late March to $3.50.
Yet Nokia stock is still off about 40% over the past year. The fact is that the company’s efforts with 5G have been far from smooth.
So yes, as for the current quarter, the Wall Street consensus for Nokia is muted. Earnings are expected to come in at 1 cent per share, compared to a loss of 2 cents in the same period a year ago. As for revenues, analysts are looking for $5.75 billion, up only 0.7% on a year-over-year basis.
OK then, so let’s take a look at some of the highlights for the quarter:
- The company signed a five-year deal with Central China Holdings, a top real estate group, for networking infrastructure and analytics systems. The goal is to provide strong home connectivity, such as for remote working, e-learning and entertainment.
- Nokia completed its acquisition of Elenion. Elenion develops optical systems that help with 5G, cloud platforms and enterprise networking.
- Nokia has entered a partnership with U.S. Cellular to increase capacity in various markets. This should help the company handle heavy demand.
- The company announced the release of Nokia AVA 5G Cognitive Operations, which is a comprehensive AI service offering. It essentially helps customers transition their networks and business operations so as to help with network management, virtualization and network slicing.
- Nokia announced a collaboration with chip giant Intel (NASDAQ:INTC). The focus is on developing systems for 5G radio. Keep in mind that the companies have already partnered on other areas, such as the Intel Atom P5900 chip.
The 5G Opportunity
When it comes to 5G, the market potential is definitely enormous. The world’s largest mobile carriers, such as Verizon (NYSE:VZ) and AT&T (NYSE:T), have invested huge sums in network infrastructure.
Then there are tech operators like Apple (NASDAQ:AAPL) that are building devices and software to leverage 5G.
While all this is good news for Nokia, there have certainly been notable challenges. First of all, the competitive environment has been tough. Consider that rival Ericsson (NASDAQ:ERIC) has built a strong technology stack and has been snagging customers.
Next, Nokia has had some major missteps. The company initially bet on field-programmable gate arrays (FPGAs), but they were just too expensive. As a result, Nokia has moved over to system-on-a-chip (SoC) integrated circuits. But unfortunately, this has meant that the company has lost valuable time.
Bottom Line on Nokia Stock
Nokia is among a small number of companies that can supply end-to-end 5G equipment at scale. It is also important to note that the company has amassed an impressive intellectual property portfolio.
There are more than 3,000 patent families for the European Telecommunications Standards Institute (ETSI). Then again, the company continues to invest substantial sums in research and development. Last year, expenditures came to 4.4 billion euros.
So then what about Nokia stock? Well, the company has been getting leaner and has improved its technology focus. I also think it was smart to bring on Pekka Lundmark as the CEO. His prior stint was as chief at Fortum, a top energy company in Finland. Fortum saw strong shareholder returns during his reign.
But it will take some time to get things back on track. What’s more, with the impact of the coronavirus pandemic, spending on 5G may slow down. In other words, it’s probably better to hold off on the stock until after the company reports its numbers.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s. As of this writing, he did not hold a position in any of the aforementioned securities.
