Nokia (NYSE:NOK), the former handset maker turned telecom equipment supplier, has been steadily losing ground to China’s Huawei. The reason is basic. Huawei’s gear costs less. Is there any hope for Nokia stock?
It looks like it. Huawei is a dirty word in Washington, where President Donald Trump’s administration suspects it’s a front for China’s government. That gives Nokia, which bought Alcatel-Lucent for $16.6 billion in 2015, including the former Bell Labs, a diplomatic opening.
That opening is why it chose a corporate diplomat to be its next CEO. Pekka Lundmark seems to be coming in September from out of left field — specifically an energy company called Fortum (OTCMKTS:FOJCF).
But look closer. Lundmark could be just what Nokia stock needs.
A Corporate Diplomat
Fortum, founded in 1998, is a utility that runs nuclear, hydro-electric and co-generation plants across northern Europe. Like other energy companies it was hit by falling prices amid the novel coronavirus pandemic. But it has recently gotten halfway back to its 2019 high by prioritizing its dividend.
Fortum primarily operates across the Nordic countries, as well as in Russia, Poland and India. In Germany it owns half of Uniper, an energy company based in Dusseldorf. It also has solar operations in India.
Building, trading and managing these assets requires a deft diplomatic touch. That’s what Lundmark brings to Nokia. More precisely, he brings it back to Nokia. He was an executive there in the 1990s, when it was building the cellphone dominance it later lost to Apple (NASDAQ:AAPL).
It’s Time for Nokia to Sell 5G
Under Rajeev Suri, Nokia worked to develop its 5G product line. Under Lundmark, it will try to sell that line around the world.
There are opportunities. China Unicom (NYSE:CHU) gave Nokia 10% of its business, after Nokia missed out on the business of China Mobile (NYSE:CHL). Nokia also provides optical connections to 13 cloud data centers in China, having recently signed contracts with Baidu (NASDAQ:BIDU) and Tencent Holdings (OTCMKTS:TCEHY).
These are the kinds of openings Lundmark needs to widen, while taking advantage of American suspicion of Huawei in federal contracts.
Can Investors Have a Dividend?
Nokia shares opened June 17 at $4.42, a market capitalization of $25.1 billion. Sales for the first quarter came to about $5.45 billion, down just slightly from a year earlier. The company lost about $110 million, 2 cents per share.
This should be the time in the business cycle where Nokia makes money. Phone companies around the world are ramping up their purchases of 5G gear. Nokia had almost $7 billion of cash in March. The company reports results in euros, currently worth $1.12 each.
InvestorPlace’s Mark Hake wrote in February that Nokia’s December results delivered $1.5 billion in free cash flow. He thinks a dividend should be coming. Lundmark’s appointment, his track record at Fortum and his diplomatic skills, all promise a dividend is coming.
The Bottom Line on Nokia Stock
The appointment of Lundmark promises a transition for Nokia, from designing 5G gear to selling it. His track record indicates he can sell it.
This is what makes Nokia stock worth your time. Despite Covid-19, companies around the world are still buying 5G gear. They advertise its speed to consumers. They like its wide range of available spectrum. And they’re also building out the Machine Internet, putting sensors, wireless connections and software into every device found in homes, offices, factories, and the urban infrastructure.
For years Nokia has promised to deliver 5G and its benefits. Lundmark now must sell that, manage its installation and deliver better results to Nokia shareholders.
He looks like a good bet to do that.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AAPL.