The Finnish company Nokia (NYSE:NOK) is caught in the middle of the escalating tension between China and the United States. And that may spell trouble for NOK stock. For the better part of five years, Nokia stock has been in a long-term decline. Most of this was due to the company taking the very necessary step of reinventing itself.
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And 5G looked like it was going to provide the catalyst the company needed. However, just as the company’s fortunes looked to be changing, the emerging global tensions with China present a threat and an opportunity and the question is which one will affect NOK stock the most?
The World Is Coming to Grips with the China Price
In 2008, I read The China Price: The True Cost of Chinese Competitive Advantage. The book was written by Financial Times correspondent Alexandria Harney. It went into great detail describing the competitive edge that China was generating from its factory economy. The book was a first-hand expose on things that, at the time, were somewhat controversial.
I’m typically not a person who puts much stock in long-term predictions. But I have to admit, this book caused me to rethink some of my pre-conceived notions. In fact, I remember editors rejecting sales letter proposals because my point-of-view was too contrarian for their tastes.
Suffice it to say, I might want to dust off those proposals. Because the political climate today is very different. The United States and the world are beginning to understand how much the China price is exacting. And today the United States and China are openly hostile toward the other. What has started with an inconvenient, but ultimately benign trade dispute has escalated.
I’m not wading into the origins of the novel coronavirus. That is a story that is above my pay grade and expertise. The major issue that affects Nokia as it relates to China is intellectual property. And that leads us to Nokia’s problems with Huawei and China Mobile (NYSE:CHL).
Nokia Is losing business from China Mobile
On the one hand, Nokia is losing business from China Mobile. David Moadel wrote about the business that China Mobile is taking away from Nokia. One of the selling points for Nokia bulls was that it was winning 90% of its 5G contracts including those in China.
But right now, as Moadel writes, investors may be more concerned about the company’s ability to win back China’s business. Particularly, since the business that’s not going to Nokia is going to its competitors including Huawei and Ericsson (NASDAQ:ERIC).
Huawei’s Loss May Be Nokia’s Gain
Thomas Yeung wrote how Boris Johnson recently announced a ban on all new Huawei 5G equipment. The ban goes into place on Dec. 31, 2020. Furthermore, Digital Secretary Oliver Dowden is ordering all U.K. mobile providers to remove all Huawei equipment by 2027.
And Jamie Johnson wrote that both France and Singapore have recently awarded business to Nokia and Ericsson instead of Huawei.
Of course, Huawei is saying they may retaliate against both Nokia and Ericsson if the EU follows through on its actions.
Is Now a Time to Buy NOK Stock?
The issues that have emerged between the U.S. and China have existed for a long time. And now that the genie is out of the bottle, this is likely to be the story of the next decade. I suspect many companies will find themselves caught in the middle. And right now, that description seems to fit Nokia.
But the question for investors in NOK stock is which narrative should they put more stock in? The narrative in which a combative China looks to freeze out companies that look to restrict trade. Or the opportunities that the company may gain from those restrictions.
This would be an easier decision if Nokia had a sizable dividend. Unfortunately, the company cut its dividend in 2019 so value investors are not getting much reward for waiting on the stock. A positive earnings report may send NOK stock higher, but I would still be very cautious about diving into this opportunity.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for Investor Place since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.
