It’s been yet another disappointing year for Nokia (NYSE:NOK). While 5G remains a strong growth catalyst, the company has yet to find a way to profitably benefit from it. For the year so far, NOK stock has gone from $3.95 to just a little over $4. The market capitalization is currently at $22.5 billion.
It seems that Nokia has been in a long-term restructuring mode. This started about a decade ago when the company failed to adapt to the new realities of the smartphone business. Apple (NASDAQ:AAPL) and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) had relentlessly dominated the opportunity.
Nokia would eventually transition out of the smartphone business and focus on being a developer of sophisticated telecom equipment. A big part of this strategy was to pull off acquisitions, such as for Alcatel-Lucent.
But for the most part, the business has been challenging. The technology is constantly changing and the competitive environment is intense.
So then, what now for NOK stock? Might there be a value opportunity? Could the new year be when the company finally gets into gear?
Well, let’s take a look:
The 5G Market Opportunity for NOK Stock
The phrase “game changer” gets thrown around a lot in the technology world. But in the case of the 5G market, the description is spot on. The technology will truly transform the world.
The speeds are as much as 100 times faster than 4G systems and there is much less latency. Because of all this, our smartphones will allow for more immersive experiences, such as by playing a game with a virtual reality headset.
But 5G is more than just about consumer experiences. The technology is also going to be a big deal for the enterprise. AI applications, for example, will get much easier since more processing can be off-loaded to the cloud. As a result, we will see highly automated warehouses, smart supply chains, hyper-scale cloud computing, remote medical procedures and so on.
And yes, Nokia is positioned nicely for this promising future. The company has an end-to-end platform that has global scale. Nokia also has the benefit of an extensive patent portfolio, which will be a lucrative source of long-term recurring revenues.
But despite all this, there are still some nagging problems – and they will likely weigh on NOK stock. First of all, the company’s R&D focus has been somewhat lacking. This has meant that Nokia has not been as successful when competing against tough rivals like Ericsson (NASDAQ:ERIC).
Even new entrants intothe market have put pressure on the company. Just look at Samsung Electronics (OTCMKTS:SSNLF). The company was able to snag a $6.6 billion 5G deal with Verizon Communications (NYSE:VZ). Keep in mind that this telecom giant has been a long-time customer of Nokia.
Next, there is potential disruption with new approaches. Perhaps the most threatening is the Open RAN Policy Coalition, which has gotten the backing of mega tech operators like Facebook (NASDAQ:FB).
The focus is to evolve open standards that will ultimately reduce costs. But for Nokia, this will likely lead to lower contract values. Let’s face it, there will likely be less interest in proprietary technologies.
Finally, Nokia has proven to be an organization that has been inconsistent. This is certainly evident in the choppy financial results. In the latest earnings report, the company indicated operating margins would fall below expectations this year and for 2021.
Bottom Line on NOK Stock
Even with the problems, NOK stock will probably not see major drops. If anything, there is a good bet that the dividend will be reactivated next year, which will certainly be a boost.
On other hand, the gains for NOK may not necessarily be impressive either, at least when compared to the 5G opportunity. In other words, it seems that investors will need to be patient with this one, as the company continues to refine its technology.
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 the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the author of courses on topics like the Python language and COBOL.