Nokia and the Open Source Path

Nokia isn't too big to fail, but may be too politically sensitive to let fail

If it weren’t for the growing distrust of China, Nokia (NYSE:NOK) and Nokia stock would be in a world of hurt. The Finnish telecom equipment company suspended its dividend last year. The company still isn’t making enough to bring it back.

nokia sign on top of building (nokia stock)
Source: RistoH / Shutterstock.com

Nokia also made a big mistake in choosing the wrong central chip for its processing equipment. It has turned over its C-suite, bringing in corporate diplomat Pekka Lundmark as CEO.

Shares fell this week on rumors that Verizon Communications (NYSE:VZ) was dropping it, with JPMorgan Chase (NYSE:JPM) cutting its rating on the stock.

Even a Verizon statement rebutting the rumors didn’t stop the selling. Shares were due to open July 8 at $4.17, down almost 10% from their July 7 opening of $4.60.

What’s Going on With Nokia Stock?

Nokia was pushed out of the phone business by Apple (NASDAQ:AAPL) and has been a carrier equipment company since then. It bought the husks of Lucent and Alcatel, once the industry’s primary switch makers. It now calls itself a wireless infrastructure play.

The problem is it’s not a very good one. Nokia and Sweden’s L.M Ericsson (NASDAQ:ERIC) are the primary competitors to China’s Huawei in the race to sell 5G radios and base stations. The Trump Administration is desperate for the Scandinavians to win. Attorney General William Barr went so far as to suggest the U.S. buy a controlling stake in both Nokia and Ericsson, as though that would fix the chip problem.

Still, the bellyaching is having an impact in the market. Singapore chose Nokia and Ericsson to build its 5G network, mostly bypassing Huawei. Sanctions against Huawei are hammering its smartphone business. New U.S. regulations aim to prohibit Huawei from buying any chips containing American technology.

The Open RAN Connection

But Trump’s actions against China have a sell-by date. Barr and his cronies could be gone by January. Nokia needs a Plan B.

Enter Samsung Electronics (OTCMKTS:SSNLF) and open source. Samsung has been pushing a technology called Open RAN, a vendor neutral system for Radio Access Networks fronted by executives from Intel (NASDAQ:INTC) and Vodafone (NYSE:VOD)

Nokia has now agreed to support Open RAN, building a suite of interfaces on top of existing products next year. This separates the radio from distribution of its signals. In practice, it means commodity servers can play in the wireless equipment space.

The move is being cheered by carriers who want an alternative to Huawei. But there’s a risk that companies like Intel and Samsung get into what had been a highly proprietary market. Nokia is the first major supplier to take that risk.

Moving toward an open technology could also bring a buyer for Nokia. Last year Samsung, Cisco Systems (NASDAQ:CSCO), and Oracle (NASDAQ:ORCL) were all said to be kicking the tires on Nokia.

The Bottom Line

Nokia isn’t too big to fail, with a market cap of $24.4 billion. But it may be too systemically important to fail. Nokia stock may also be too politically sensitive to buy.

All this intrigue puts a bid under the stock. As I wrote last month, the new CEO is a business diplomat. It’s his job to navigate the political minefield.

The existence of that minefield gives you a reason to buy Nokia stock. Its market cap and 2019 sales volume are nearly equal. That’s low for a company on the cutting edge of tech.

The losers here are customers. Carriers are holding off on equipment decisions, waiting to see how things shake out. Handset makers must also wait to support 5G until equipment implementing it is installed.

If the open source path is chosen, however, everyone may be a winner. Even current Nokia stockholders.

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. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AAPL.


Article printed from InvestorPlace Media, https://investorplace.com/2020/07/nokia-stock-the-open-source-path/.

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