Nokia Stock Gets Slammed Again

Since late September, Nokia (NYSE:NOK) stoke was gaining some momentum, with the share price going from $5 to $6. But on the news of NOK stock and its third quarter results, the gains have been wiped out.  The shares are off about 18% or so.

a backdrop featuring the Nokia (NOK) logo with a mobile phone featuring the Nokia logo on its screen in the foreground
Source: rafapress / Shutterstock.com

This pattern is typical for Nokia. Despite the restructurings and the promise of the 5G market, nothing really seems to work.

So when what happened in the latest quarter? Well, the revenues and adjusted earnings were mostly in line with expectations. But of course, the big problem was the guidance. For the current year, the operating margins are forecasted to be at 9%, compared to the prior estimate of 9.5%.

But the weakness will not be temporary. Nokia also believes that there will be challenges for 2021. The operating margins are expected to be between 7% to 10%. Yet Wall Street was looking for 10%.

In fact, Nokia rescinded its outlook for the next three to five years! It had called for operating margins of 12% to 14%.

True, the Convid-19 pandemic is having an impact. But there also remains intense competitive pressures across the globe. For example, the company recently lost a bid for a large contract with Verizon (NYSE:VZ) to Samsung (OTCMKTS:SSNLF) — which was a huge setback.

However, Nokia has still been quite busy as the 5G market continues to grow. Here are some of the notable highlights for the quarter:

  • Telia selected Nokia for a 5G rollout in Finland. The five-year deals involves modernizing legacy systems across 7,500 sites. Before this, Telia signed deals with Nokia in countries like Denmark, Estonia, Finland, Lithuania, Norway and Sweden.
  • Nokia announced a five-year strategic collaboration with Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) for the Google Cloud service. This will involve the migration of Nokia’s IT infrastructure to the cloud. By doing this, there should be lower costs as well as improvements in areas like AI (Artificial Intelligence).
  • BT, the largest telecom operator in the U.K., extended its long-term relationship with Nokia. This will include equipment and services for 5G, such as for both indoor and outdoor coverage.

Now to get Nokia stock back on track, the company has announced yet another major restructuring. This one, though, is not about cutting back costs and laying off employees. Instead, the focus is on changing the organizational structure of the company into four main business. Each will have their own profit-and-loss responsibilities and will be tasked with becoming market leaders in their categories.

According to CEO Pekka Lundmark: “Our goal is to better align with the needs of our customers, and through that increase accountability, reduce complexity and improve cost-efficiency. Going forward, we will have a more rigorous approach to capital allocation and will invest to win in those segments where we choose to compete.”

Bottom Line On Nokia Stock

There’s little doubt that the 5G market will see long-term growth. Companies like Apple (NASDAQ:AAPL) and Google are investing heavily in building devices and apps that capitalize on the technology.  And yes, there will be quite a bit of marketing to gin up consumer interest.

As for Nokia, the company does have some key advantages. It has a full-suite of products that can scale. The company also continues to generate substantial cash flows.

But again, the market is highly competitive. And despite the breadth of Nokia’s product line, there still needs to be much more R&D. For the most part, the company is playing catchup.

Thus, for investors looking for a play on 5G, Nokia stock is probably not the best option right now. It’s instead better to look at companies that have proven to demonstrate stronger momentum like Ericsson (NASDAQ:ERIC).

On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Tom Taulli (@ttaulli) is an advisor/board member for startups and author of various books and online courses about technology, including Artificial Intelligence BasicsThe Robotic Process Automation Handbook and Learn Python Super Fast. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.


Article printed from InvestorPlace Media, https://investorplace.com/2020/10/nok-stock-gets-slammed-again/.

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