Nokia Corporation’s (NYSE:NOK) comeback story is nothing short of extraordinary. The company has evolved from one of the world’s top mobile-phone makers to a significant player in the telecom-equipment world. It controlled 16% of the latter market’s sales in 2019, compared to Huawei’s 28% share and Ericsson’s (NASDAQ:ERIC) 14. Nokia is now in prime position to ride the 5G wave and help Nokia stock to soar.
In a previous article, I talked extensively about how Nokia now focuses on three core areas: networks, navigation, and technologies, all of which have fueled its 5G business. However, there are a couple of recent, potentially bullish developments that were left out of my last article. Let’s look at these developments.
The End of an Era
Once Nokia sold its smartphone business in 2014, the company was in dire need of a fundamental makeover to survive in the market. Nokia announced a change in leadership and appointed Rajeev Suri, who was then its head of network equipment, as its CEO.
India-born Suri had worked at Nokia for 20 years and had led Nokia Solutions and Networks (NSN) since October 2009, turning it profitable. After assuming control of the firm, in his letter addressed to Nokia’s employees, he talked about how “the Nokia I grew up in is no more.” He felt it was important for the company’s employees to understand the fundamental shift in its business model towards a more rapidly evolving networks sector.
The strategy proved to be a massive success as Nokia grew its revenues by 54% from 2014 to 2019. It was also during this time that the company acquired Alcatel-Lucent in 2015, becoming one of the three major global mobile-equipment manufacturers in the process.
However, recently Suri announced that he was stepping down as CEO. He will be replaced by former Fortum (OTCMKTS:FOJCF) CEO, Pekka Lundmark. Lundmark has amassed a wealth of experience working with top companies specializing in everything from homeware to power plants. His primary focus at Nokia will be to maximize its 5G capabilities and continue the great work done by his predecessor.
Fortum is a Finnish utility company that operates and maintains nuclear, hydro-electric, and co-generation power plants, along with providing energy-related services across Northern Europe. Perhaps a more critical point for Nokia’s investors is that the company has a healthy dividend yield of 6.1% and recently reiterated its dividend payout.
Therefore, Lundmark could potentially make increasing Nokia’s dividends a significant goal. Nokia has a dividend yield of 1.4%, However, it could do better.
Huawei’s Woes Present an Opportunity
Last year, U.S. politicians alleged that Huawei’s 5G networks could potentially be hacked by Chinese spies, giving them access to sensitive information. Since then, several countries have either banned or restricted the use of Huawei’s critical network systems, including Australia, New Zealand, U.K., and Germany. In retaliation, the Chinese government could limit the expansion of Nokia, Ericson, and other foreign companies in China and favor Huawei in the 5G race. However, this tech war could potentially help Nokia’s business in overseas markets outside of China.
Recently, Orange, France’s top telecom company, stated that it would only award its 5G contracts to Nokia and Ericson. Additionally, India could also ban Huawei amid its military encounters with China
Therefore, Huawei’s woes could provide Nokia with long-term opportunities overseas. Beating Ericsson, though, remains a challenge, as that company continues to make strides in different markets. Recently, Ericsson’s subsidiary, Ericsson Nikola Tesla, won an exclusive 5G contract in Croatia, providing it with a great entry point into the Eastern European market.
The Final Word on Nokia Stock
After a Rosenblatt analyst incorrectly speculated on July 7 that Verizon (NYSE:VZ) would obtain 5G radio-access-network solutions from Samsung, replacing Nokia, the latter company’s stock fell. I expect the stock to ultimately rally and trade around analysts’ average target of $4.66.
Nokia’s new CEO is likely to put more emphasis on the company’s dividend and ensure that its stockholders are adequately rewarded. Additionally, the Huawei debacle presents an excellent opportunity for Nokia to expand its market share overseas. Therefore, I think the stock is still a buy.
As of this writing, Muslim Farooque did not hold a position in any of the aforementioned securities.
