Nokia’s return to Blue-Chip technology status could finally happen

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Nokia (NYSE:NOK) is a leading company in the telecommunications equipment industry. Its network business derives revenues from the sale of wireless and fixed hardware, software, and services. Nokia’s technology segment licenses patents to cell phone manufacturers and collects royalties on Nokia branded cell phones. And NOK’s stock is international – the Finland-based company operates globally, with most of its revenue coming from communications service providers.

a background with the Nokia logo (NOK) with a mobile phone with the Nokia logo on its screen in the foreground

Source: rafapress / Shutterstock.com

For investment veterans, they may remember that in 2000, during the dot-com boom, NOK’s market cap was a incredible 70% of the Helsinki Stock Exchange.

Nokia has two main businesses: first, Nokia Networks, a supplier of network infrastructure equipment to global wireless and wireline operators. And second, Technologies, its patent / IPR licensing activities.

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After many years of disappointing results, Nokia may finally be on track to generate sustainable returns that will once again consolidate the company as a premier technology company. Nokia lost the battle of smartphones against Apple (NASDAQ:AAPL) and Samsung. But the future of 5G and the mobile infrastructure related to this build could be the roadmap Nokia is looking for.

Recent results for NOK share

Nokia’s second quarter 2021 results looked strong across all segments. Net sales increased 9% year on year to 5.3 billion euros. Gross margins increased 2.7% to 42.3% and operating margins increased 4.5% to 12.8%.

President and CEO Pekka Lundmark wrote in the second quarter results: “Next We now expect a comparable operating margin between 10% and 12% for the full year 2021, compared to our previous range from 7 to 10%.

The company has a three-pronged strategy called Reset, Accelerate, and Scale.

The reset involves:

  • Mobile networks

  • Cloud and network services

Speed ​​up transactions with:

  • Network infrastructure • Sales growth + 20% in Q2 *

  • Gain market share • New product launches in H2

  • Cloud and network services • More than 150 customers for 5G Core • More than 340 private wireless offers compared to 250 at the start of the year

The scale includes

Contest for NOK Stock

The telecommunications and networking equipment industry faces fierce competition from a number of major players. The company declares:

“We face intense competition in all aspects of our business and in all markets for our mobile products. The mobile device markets are increasingly segmented, diverse and commoditized. We face competition from an increasing number of participants in different user segments, price points and geographies, as well as layers of the mobile product using different competitive means in each of them.

These competitors include iconic names such as Ericsson (NASDAQ: ERIC), Cisco (NASDAQ:CSCO) and Samsung.

Finances have yet to materialize

But as always with mature businesses, Nokia’s success hinges on sustained profitability and the ability to generate solid returns on capital. It is a company that dates from 1865. The use of modern methodologies for evaluating price versus sales or price versus gross margin used for today’s money losing businesses is not going to fly.

Nokia’s EV / EBITDA ratio is estimated at 11x for fiscal 2022, according to consensus estimates, which isn’t too outrageous by the current standard.

And with positive net cash of 3.7 billion euros, positive and increasing free cash flow, a strong management team, a strong focus on R&D and a productive legacy patent portfolio – Nokia should be able to to continue his upward march towards the creation of himself. a first-rate technological stock.

As of the publication date, Tom Kerr does not hold a position in any of the stocks mentioned in the article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.

Tom Kerr has worked in the financial services industry for over 25 years. He is currently a Senior Portfolio Manager at Rocky Peak Capital Management. Previously, he was Director of Investments and Director of Research of SGL Investment Advisors, and held several positions in other investment-related organizations. Mr. Kerr also contributed to the writing of La Rue.com, RagingBull.com and InvestorPlace.com. He is a CFA charter holder and earned a BBA in finance from Texas Tech University.

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