Nokia (NYSE:NOK) stock has become a call on the global economic war. If the West and China were not at loggerheads, Huawei would be wiping the floor with Nokia stock and Ericsson (NASDAQ:ERIC), the other big western supplier of 5G gear.
But nationalism is giving Nokia a second chance at big carrier contracts. The job of new CEO Pekka Lundmark is to massage that opportunity and keep buyers from regretting it.
The call is clear in news Nokia will be the exclusive vendor for Asia Pacific Telecom’s new 5G network in Taiwan. Taiwan has been fighting a Cold War for decades with Beijing, which refuses to recognize it’s not just a Chinese province.
A Justified Jump in Nokia Stock?
Nokia shares have nearly doubled their value from the pandemic lows. Nokia stock opens for trade August 6 at $5. That’s a market cap of $28 billion on about $23 billion of annual revenue, very low for a tech company.
But Nokia isn’t a tech company. It’s an equipment company, a hardware vendor. Specifically, it sells wireless infrastructure, the kind of things your phone company must buy to bring you 5G service.
Once fully built on all available frequencies and configurations, 5G is a gold mine for vendors like Nokia. The market is expected to be worth $47.75 billion by 2027, growing at 67% per year.
Nokia beat estimates on its June quarter earnings, the last under outgoing CEO Rajeev Suri. Revenues were down 11% from a year earlier, profits down 3%. But Nokia ended the quarter with $1.55 billion in cash, three times what it had a year ago. Analysts called that a beat and have since sent the price up from $4.45/share at the time the announcement.
Meet the New Boss
The new boss, Lundmark, is nothing like Suri. He can talk in fluent buzzword. His diplomatic skills were honed at Fortum (OTCMKTS:FOJCF), a Scandinavian energy company with operations in both Germany and Russia, as well as Poland and India.
Lundmark is adept at talking around and above political divides. The Trump Administration has made Nokia its champion, even suggesting a U.S. company buy it. But Nokia is still selling into China. Chinese retaliation would be bearish for investors.
Lundmark must navigate between the economic giants, selling Nokia as a “third way” forward. That’s one reason you’re seeing stories suggesting shares could soon double and that it’s going to renew its dividend. Price targets are rising as analysts calculate what its latest contract wins will do to its bottom line.
But 5G won’t remain a three-way race. As part of its neutrality efforts Nokia is supporting OpenRAN. It’s a vendor-neutral method for building Radio Access Networks. It will weaken the control Nokia patents, bought with Lucent and Alcatel in the middle of the 2010s, have over the market.
This could bring a host of new competitors, including Intel (NASDAQ:INTC) and Cisco Systems (NASDAQ:CSCO), into the wireless infrastructure market. Nokia will need lower costs and sound technology leadership to make it in this new world.
The Bottom Line
The economic war will end. The ultra-nationalist phase of the market will end with it.
So will carriers’ dominance of the market. The integration of WiFi 6 into 5G, the possibility of offices and factories having their own internal 5G networks, means the market is changing under Nokia’s feet.
It will take more than just diplomatic skill to take full advantage. If Nokia renews its dividend and can maintain it, you’re getting a bargain at $5/share. But Nokia has better things to do with its money than hand it to you.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.