Much like underdog football teams in the playoffs, companies can make some compelling comebacks you can measure in quarters. And Nokia (NYSE:NOK), the Finnish telecom giant, hinted at some strong offense — or at least it held the line — with its first-quarter 2020 report, which reflected modest earnings of one euro cent per share for Nokia stock.
Given that performance, and the announced departure of President and CEO Rajeev Suri, no one on Wall Street would’ve been surprised to see Nokia stock take a time out while the company waited for former Nokia executive Pekka Lundmark to return in September as Suri’s successor.
Except a funny thing happened on the way to that fresh start: The outgoing CEO gifted his company with the goods news of a healthy Q2 performance. Here’s what that looks like: Nokia’s net profit for the April-June period shot up 22%, to $376 million, this despite the challenges all telecoms have faced due to the novel coronavirus.
Victories in 5G
True, sales were down 11% in Q2. But Nokia expects that the majority of sales missed in the quarter due Covid-19’s impact, and a more cautious approach to consumer markets in China, will shift to future quarters.
In large part, growing hunger for 5G technology has played a critical role in Nokia’s gradual comeback. In Q1 2020, robust demand for new 5G telecom equipment gave Nokia investors a reason to smile, even if they continued to twiddle their thumbs. Now it’s thumbs up, as Nokia announced 83 5G deals at the end of last month.
While 5G might just sound like another ho-hum step to succeed 4G, the technology promises to revolutionize worldwide communications on unprecedented levels. You might want to think of it instead as “100G,” writes financial journalist Craig Guillot. Its wireless speeds could reach 100 times faster than current networks. “Lag times simply won’t exist anymore. Mobile phones, IoT devices and apps will work flawlessly and without delay.” (Think of all the Zoom users who won’t have to punch their laptop screens anymore.)
A Major Nokia Rival in Crisis
Even as Nokia stuck with its long-range plans in 5G, one of its biggest obstacles to market share went down in flames. White House backlash against the alleged espionage activities of China’s privately-owned Huawei Technologies — which not long ago the world’s undisputed 5G leader — created an opening for Nokia and other players, including its Swedish rival Ericsson (NASDAQ:ERIC).
European nations also began to penalize Huawei, which was dealt what a geotechnology expert called “a lethal blow” when the U.S. Commerce Department announced on Aug. 17 that it would cut off “Huawei’s access to vital, advanced computer chips essential to its cell phone technology.”
Not long ago, the fates of Huawei and Nokia looked pretty much reversed. Nokia backslid a nauseating 45% between Feb. 11 and March 16, and had to claw back over the next five months just to reach the share price it fetched in Q1 2017. Still, viewed over a shorter time horizon, Nokia stock has doubled since mid-March and is now on an uninterrupted climb.
Nokia Stock Now Poised to Succeed
Analysts have taken notice of the upward performance. The Wall Street Journal reports that currently, more than half of polled analysts (19 of 32) consider Nokia a buy. That’s down from 22 analysts three months ago, but still significant. Yes, it’s hard to ignore those 11 that sit squarely on the fence and call Nokia a hold. But as a whole, the rankings put Nokia’s stock in overweight territory, meaning that market players can feel good about putting their money there.
What’s more, some of Nokia’s not-so-smart smartphone moves that led to financial hardship seem to finally be in the rear view mirror. When the company acquired its smaller French rival Alcatel-Lucent for $16.6 billion in April 2015, Nokia became the second largest mobile equipment manufacturer in the world with an estimated market share of 35%, Forbes reported.
But it didn’t make the coffers any bigger; in fact, Nokia stock has since dropped 35%. But the financial impact of that purchase should no longer affect the company, and could in fact poise it for some long anticipated success,
Nokia investors can move forward, then, with cautious optimism. With Huawei’s unexpected sidelining, two positive quarterly reports, and a new CEO with a track record of success coming on board, there are many reasons to believe that Nokia will finish 2020 — the most difficult of years for businesses everywhere in a while — as a winning team.
As of this writing, Lou Carlozo did not hold a position in any of the aforementioned securities.
