It would be an exaggeration to say that Nokia’s (NYSE:NOK) business depends entirely on one client. Yet, without the patronage of Asian telecom giant China Mobile (NYSE:CHL), Nokia stock simply doesn’t offer as much value for the shareholders.
To make matters worse, China Mobile’s business that could have gone to Nokia is instead going to Nokia’s competitors. Thus, the company is losing vital market share to Huawei, ZTE (OTCMKTS:ZTCOF) and Ericsson (NASDAQ:ERIC).
What Nokia’s stakeholders should demand from the company is a specific plan to regain market share in China’s telecom market. So far, it seems like Nokia stockholders have heard rhetoric but not much in the way of action on that front.
It’s a problem that could weigh on the share price for the remainder of 2020 and possibly even longer.
A Closer Look at Nokia Stock
With a quick glance at the vital stats surrounding Nokia stock, we definitely get a mixed picture. In the plus column is an excellent forward annual dividend yield of 5.44%. That’s definitely an incentive for income-seeking investors to buy and hold the stock.
Trailing 12-month earnings per share of approximately negative 19 cents is not very encouraging, however. The lack of business from China Mobile may be a contributing factor in this regard.
As for the price action of Nokia stock, you can pick almost any time frame and discern a clear downtrend. We know in hindsight that the stock price went too high and was due for a crash in 2000 at $56 per share and then again in 2007 at around $40 per share.
Today, the bulls should be grateful just to recover the $5.70 level attained in the summer of 2019. If the shareholders want to have a real shot at substantial returns, they’ll definitely want to see Nokia build out its business in China and elsewhere.
A Market Dominator
If any Nokia stockholder fails to appreciate the sheer magnitude of China Mobile, perhaps a few statistics will drive the point home. As the leading provider of telecommunications services in China’s mainland, China Mobile is a true dominator in its market (the following figures are true as of Dec. 31, 2019):
- Provides services in all 31 of mainland China’s provinces
- World’s largest customer and network base among telecommunications operators
- 456,239 employees
- 950 million mobile customers
- 187 million wireline broadband customers
- Annual revenues of 745.9 billion RMB (approximately $106.59 billion)
Clearly, having China Mobile as a client is a game changer, and so is losing that client. China Mobile’s business is so important that losing it is basically tantamount to losing mainland China. Recovering from such a loss would be quite challenging from a financial perspective.
A Major Strikeout
Unfortunately for Nokia’s stakeholders, the company struck out in its bid to renew its business contracts with China Mobile. We’re talking about potentially $5.2 billion worth of Phase 2 5G base station contracts not being awarded not to Nokia.
Instead, the business was apportioned to Nokia’s direct competitors Huawei (57.2% awarded according to the number of base stations), ZTE (28.7%) and Ericsson (11.5%). Altogether, this comprises “the majority of [China Mobile]’s targeted buildout this year.”
Any objective observer would conclude that Nokia completely struck out here. The spin doctors at Nokia, however, don’t seem to see it that way:
“We are aware that China Mobile has announced its 2020 5G NR CP2 central bidding results. Nokia has been operating in China for 40 years and our commitment to China remains the same. We still expect to be a sizeable player in China well into the future…”
With zero China Mobile 5G contracts in hand, it’s going to be difficult to make Nokia’s shareholders care about the company’s 40-year track record or its “commitment” to China.
What’s needed now is not rhetoric, but a reason to believe that Nokia will remain a “sizeable player” in China. The stakeholders want action, not words, and their patience may wear thin soon.
The Bottom Line on Nokia Stock
This year is still only halfway over and there’s time for Nokia to regain its market share in China. Without the 5G contracts from China Mobile, though, it’s going to take more than spin doctoring to keep Nokia stockholders on the long side of the trade.
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.