Nokia (NYSE:NOK) stock is on a nice little run as of late. The Finnish telecom equipment company is up 35% so far this year, including a 15% pop in Nokia stock since the company announced second-quarter earnings.
Nokia’s advancement comes despite the debilitating effects of the novel coronavirus, and despite the company’s failure to win 5G business in China.
But brighter skies are ahead. Nokia raised its outlook for the rest of 2020. And despite the China setback, I think Nokia is positioning itself to take advantage of the global rollout of 5G technology – a pretty exciting advancement that I think will be a game changer for many telecom companies.
Nokia Stock at a Glance
Nokia reported second-quarter earnings on July 31 that included net profits of 311 million euros ($368.7 million), an increase of 21% from a year ago.
The increase in profits came even while sales fell 11%, to 5.1 billion euros. Nokia said the drop in sales was a result of the Covid-19 pandemic, which weighed sales to the tune of 300 million euros.
The other major factor that impacted sales was competition in China. Nokia’s primary competitors in the telecom equipment space are Swedish company Ericsson (NASDAQ:ERIC) and the Chinese company Huawei.
No doubt, Huawei enjoyed a lopsided home-field advantage in negotiating contracts in China. Nokia says its sales in China fell 41% in the quarter. It cited a “high level of competitive intensity” and its own “prudent approach” to making deals in China.
Those are buzzwords for a company that came out on the losing side of a deal. But CEO Rajeev Suri, while speaking to analysts, did his best to put a positive face on the news.
“We have both a favorable product mix, more capacity, less deployment services, as well as regional mix with more North America and less China. While some of this will likely continue in the near term, we would expect it to be slightly less pronounced compared to the just-ended quarter.”
Sales in the company’s Networks’ segment fell 10% on a year-over-year basis; Nokia Software sales were down nearly 12%; Nokia Technology segment sales were down 11% and sales in the company’s Group Common and Other segment were down 20%.
On the plus side, Nokia says it ended the quarter with an improved cash position, holding 1.6 billion euros in net cash, which was up from 1.3 billion in the previous quarter. Free cash flow in the second quarter was also improved, at 265 million euros, compared to -1 billion euros in the same quarter a year ago.
Looking Ahead for Nokia
While Huawei was an unmovable obstacle for Nokia in winning 5G contracts in China, it’s a big world. And Huawei isn’t super-popular outside of Beijing’s influence.
The U.S. government has been anti-Huawei for a while now and is pressuring its allies to shun the Chinese telecom equipment company. That could help Nokia get more market share in western nations, although Ericsson will be a formidable opponent. InvestorPlace’s Josh Enomoto lays out this case in detail.
And it’s not as if Nokia has been sitting still. The company said last week, it signed 83 commercial 5G deals around the world so far and has 32 live network deployments in hand.
Why 5G Is So Important
I’m really looking forward to the deployment of 5G wireless technology because I think it’s going to change how we use the internet.
Remember, 5G technology is 100% faster than 4G speeds. It will allow mobile devices to work as fast and efficiently as broadband cable modem speed.
Just imagine – you’ll be able to watch sports on any device without worrying about buffering. Online sports betting will be easier and faster – that will benefit companies like DraftKings (NASDAQ:DKNG) and companies like Penn National Gaming (NASDAQ:PENN). Movie studios and video game companies will put out better products and will be able to incorporate virtual reality.
And in health care, 5G technology will make it easier for your doctor or nurse to make appointments and diagnose ailments without you going to the office.
There’s no doubt that when you think about it, 5G technology will be one of the biggest advancements in telecom in years. Creating the networks and the infrastructure for 5G networks is a huge business, and Nokia’s going to be a big part of that.
The Bottom Line on Nokia Stock
Nokia has been around for a while, but the stock is cheap compared to where it was two decades ago. You can pick up Nokia stock for about $5 a share, while in 2000 it was more than $50.
Now Nokia has a new boss coming in. Suri led Nokia for six years, but is handing the reins to Pekka Lundmark, who worked at Nokia from 1990 to 2000 and has spent the last two decades running an energy company, a heavy equipment provider and at a startup-focused venture capital firm.
He comes into the CEO’s office knowing exactly what’s a stake. In a blog post, he wrote:
“We stand at the cusp of the Fourth Industrial Revolution with 5G set to transform entire industries from health care to manufacturing, changing how we work and live, and giving us the opportunity to create economic prosperity and new jobs while caring more for our planet and improving the lives of people.”
He’s right. Having someone with a venture capital background, with broad leadership in a number of fields, will help Nokia with its 5G rollout.
If Lundmark can make Nokia a more nimble and aggressive company while pursuing 5G agreements, Nokia stock has a better-than-average chance of breaking out of longtime slump.
Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders. As of this writing, he did not hold a position in any of the aforementioned securities.