Like many tech investments, Nokia (NYSE:NOK) tumbled in March due to the spread of the novel coronavirus. In fact, supply-chain disruptions related to Covid-19 took the price of Nokia stock all the way down below $2.50.
Nokia’s challenges aren’t over, of course. Disruptions in supply and demand won’t be solved overnight, even after a coronavirus vaccine is discovered.
Investors should understand that Nokia’s outlook for the remainder of the year will be somewhat uncertain. Still, value investors can buy and hold Nokia stock if they believe that the company will survive and eventually thrive during this ultra-challenging time for the technology sector.
Mixed Results for the Quarter
Nokia’s first-quarter earnings report provided insight into a company that’s managing reasonably well during the Covid-19 crisis. Unfortunately, Nokia did experience a decline in revenues from January through March.
The company didn’t meet the analyst community’s consensus estimate of 5.1 billion euro in revenues for the first quarter. Instead, Nokia’s revenues fell to 4.9 billion euros.
On the other hand, Nokia only lost 100 million euros during the first quarter, which equates to 0.02 euros per share. That might sound bad, but it’s actually much better than what the analysts were predicting for the quarter. They were expecting a loss of 0.08 euros per share, or 442 million euros in total.
Nokia’s CEO, Rajeev Suri, reported the good news that the company “did not see a decline in demand in the first quarter.” Still, Suri maintained a realistic perspective. “As the COVID-19 situation develops, however, an increase in supply and delivery challenges in a number of countries is possible and some customers may re-assess their spending plans,” he explained.
Suri is right to point out that the challenges will persist for both the supply and the demand sides of the equation. Nokia, a Finnish company, should be thought of as an international supplier in the technology space. And the world isn’t going to return to normalcy quickly, easily or completely as the coronavirus remains deeply disruptive.
Keeping on Track
Many companies have withdrawn their full-year earnings and/or revenue guidance. This might be frustrating for long-term investors, but it’s understandable given the financial ripple effects of the coronavirus.
Yet Nokia boldly chose not to withdraw the company’s full-year earnings forecast for 2020. Instead, Nokia reduced its forecast from 0.25 euros to 0.23 euros. If that turns out to be an accurate forecast, then the fiscal damage will be tangible but manageable.
Inderes analyst Mikael Rautanen seems to remain optimistic despite the challenges that lie ahead. He commented, “As was expected, new uncertainties have been added to the outlook due to the pandemic but solving the company’s internal problems seems to progress on schedule.”
Moreover, Nokia’s CEO points out that the company has an economic moat with a unique 5G angle. “We are the only foreign supplier in China Unicom for 5G core,” asserted Suri. He also pointed out that Nokia secured 10% of China Unicom’s 5G core network order.
Keep in mind that 10% is quite good considering Nokia is Finnish and had to compete with Chinese 5G companies. Hopefully in the future, Nokia can win even more 5G business from China Unicom and perhaps even from other companies like China Mobile (NYSE:CHL) and China Telecom (NYSE:CHA).
In this regard, Nokia’s greatest challenge might be competition from Chinese company Huawei. Still, Nokia seems to be on the right track toward recovery even with stiff 5G competition and coronavirus-related supply-and-demand obstacles.
The Takeaway on Nokia Stock
It’s understandable that Nokia was compelled to reduce its full-year revenue outlook. That’s an unfortunate situation that many companies and their investors are facing now. Nevertheless, Nokia stockholders should rest assured that the company can rise to the challenge and remain competitive in 2020.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
