Crowds were going wild for $NOK in January and the mania lasted for three days before Robinhood halted the trading. $NOK boss fight was about to start after $GME, $AMC, $BB, had shown the way. In one day the share price peaked from $4.73 to $9.79. Buyers refused to listen bears explaining that the 5.6 billion share count was too high to move $NOK. Instead they kept buying hitting 1.2 billion volume in a day before trading was halted.
Global leader in 5G networks
To keep it short Nokia is currently a network company. Main competitors being Huawei, Ericsson and Samsung. You can still buy Nokia branded mobile phones and other products under their licensing agreements, but the core is in the networks (fixed and wireless). Heart of the R&D is an iconic Bell Labs. Key words to current Nokia are 5G, edge cloud, AI, IoT etc.
Share count vs Market cap
Nokia share count is 5.6 billion and market cap $31 billion (9/17/2021). During the meme action people figured out that the market cap 26.4 billion in January is what really counts, and this proofed to be right. It really doesn't matter if there are 5.6 billion shares at the price of $4.73 or 1.12 B shares with the price of $23.65 – exactly the same market cap.
As a comparison this year $GME and $AMC market caps peaked $37.3 B and $36.9 B respectively. However, $NOK didn't have a huge short position for leverage but instead it was and still is a value play with EUR 3.7 billion net cash and solid profitable cashflow. It is an undervalued quality stock in the blink of a turnaround. To give some perspective Nokia market cap was in January 2021 one tenth of Cisco's.
Renewed product portfolio is second to none in the industry
Let's face it, Nokia had problems with 5G product portfolio development after it acquired Alcatel Lucent in 2016. Company simply didn't have enough resources to focus on 5G product line while they were busy to merge ALU and Nokia 4G product portfolios. So, they ended up taking a shortcut by using programmable FPGA chips in their products instead of more efficient and cost friendly SoC chips.
Eventually Nokia focused to SoCs in 2019 and it took two years to catch the competition with new Reefshark based products using SoCs. In July 2021 the huge workload was pretty much done and at the end of this year over 70% of shipped products will be based on SoC's and the new deals will be more or less all part of the renewed product portfolio.
Now that Nokia has catched up the gap to the competitors in product competitiveness it is adding even more firepower to the R&D efforts which can be seen as a good sign. Main target is to be the best network company in the industry and according to the management we will see some new exciting product launches still in this year.
Main competitor still banned by US government
US has been accusing Huawei about close connections to Chinese communist party and sees it as a possible security threat. Therefore, it has been warning other countries to avoid using its products and about a year ago even banned Huawei to buy much needed 5G chips. Naturally the company bought as many chips to stock as it could but it’s now running out of parts (much worse situation compared to January 2021).
Their mobile handset business is currently sinking (no new 5G phones at all), and it seems that for base stations it must start using less sophisticated and more energy consuming components manufactured by Chinese suppliers. So, they will be able to deliver products but at what cost?
There have been articles stating that Chinese government should compensate energy costs to operators in order to make the new products more appealing. Pretty much the same strategical approach which Huawei has been successfully using in the past decade stealing market share from Nokia and Ericsson by selling products even under the price of components. All this has been possible because Chinese government has been subsidizing the company generously. Sad side effect has been that even there are a handful network providers left in the industry it has been hard to make any profit. Now it seems that US ban is changing the game and market share is flooding to western rivals which can start raising their prices and margins to reasonable levels.
Overall the global situation is much different than it was a couple of years ago. It’s too risky for operators to focus purely on buying less secure underpriced Chinese products as their own government or consumers might turn against them. For operators it’s more important to do business with reliable and ethical partners. Nokia is a good choice as it has been named by Ethisphere as one of the 2021 world's most ethical companies.
Competent management with can do attitude
Pekka Lundmark is the current CEO following Stephen Elop and Rajeev Suri. He did a much-needed strategy review in the company about a year ago and since then the progress has been convincing. Nokia buried its end to end strategy, business unit heads are now fully responsible of profit & loss and the decision making is not anymore scattered around the organization. All businesses are seeing growth and the change is already visible in the financial numbers even the three-year strategy execution is only in its first phase.
Pekka has also totally changed the company's comms policy. Nowadays Nokia is very transparent with its comms. It prefer to set lower targets and give surprise profit raises instead of promising the moon from the sky in the first place. The new policy might seem pessimistic to some but to be honest the overpromising strategy didn’t work well either and shareholders along with analysts lost the faith to the company. We might argue that the current undervaluation is indirect consequence of bad comms and it simply takes a few solid quarters to convince otherwise.
COVID and future technologies supporting 5G ímplementation
COVID boosted the network usage globally and we are seeing growing demand for better networks with higher capacity and lower latencies. However, behind the scenes there is much more happening. Companies and research labs are inventing killer apps and products to best use 5G networks. For example, VR and AR could potentially be something to wait for.
Big problems with VR/AR have been the storage, power consumption, and processing power. 5G will solve the problems by pushing these away from the PC and into the edge cloud. Imagine the next Facebook where people will get a totally new sense of immersion with VR/AR. When this happen the consumers and companies will be begging for growing 5G availability with more bandwidth and lower latency capabilities.
Private wireless use cases and smart city solutions are key parts to lead the next technological revolution with significant productivity gains and will grow the demand for high quality networks. Lufthansa, many ports and mining companies are already taking advantage of early wins to beat the competition.
Oh boy, oh boy when the first significant use cases for masses pop up. The demand for high speed networks will skyrocket and I bet that the few relevant network companies will not sell their products and services cheap now that Chinese are not anymore disrupting the markets.
What analysts are saying?
Analysts focusing on the company are much more optimistic than the market currently. Last week Goldman Sachs raised their target to 6.10 EUR.
Closing price (September 17): $5.50 (4.70 EUR)
Target price: High $8.27, Median $7.12, Low $5.75
Buy: 17, Overweight: 3, Hold: 9, Sell: 0
Peculiar trading activity this week
Nokia stock has been arrogantly used to rinse option players every now and then by market players. It seems that max pain levels for option players have been reached time and again. Actually, this happened past weeks as well when the share price was pushed from $6.29 (peak after Nokia raised their guidance for 2021) to $5.50 without any negative news. Someone adjusted the robots well as the closing price on Friday was precisely $5.50 (maximum gains for bankers). Only medicine to stop this kind of activity would be to grow the faithful owner base so it would be more difficult for market player to move the share price. Eventhough in the longrun these kind of short-term movements are meaningless.
With these levels, next week will be a great buying opportunity for long-term investors who see the underlying potential in this hidden gem. Not even meme phenomenon is needed to reach the double digits in $NOK share price in the coming years.
Disclaimer. I’m Nokia owner with solid position of shares. I see the stock as a great value play in a long run but I’m not a financial advisor so buy with your own risk.
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