If you were looking for the latest Pavlovian concept in mobile
connectivity, look no further than 5G. Just the mention of it is enough
to get some mobile users salivating at the notion of higher speeds and
greater bandwidth availability. It's not just a way to watch more
YouTube videos faster, though, as it's also bringing some exciting new
potential to smart city concepts, the Internet of Things (IoT) and much
One name that's not frequently associated with the 5G race
however, is Nokia (NYSE: NOK), and for incoming CEO Pekka Lundmark,
trying to gain ground on this front will be job one, and a tall order at
A Path to 5G Victory for Nokia?
Nokia starts from a position of comparative weakness. Its salad days
are seemingly behind it, and its former status as the place to go for
nigh-unbreakable phones has been diminishing since the iPhone first
showed up over 10 years ago.
Now, however, the company has a new CEO—Rajeev Suri, who's held the
slot since 2014, has announced his departure—and that coupled with a
whole new connectivity platform suggests that there could be a path to
victory for the beleaguered company here. Lundmark's insertion is
already seen as a positive development; several analysts have declared
this change in management a great step forward for the company.
Lundmark is just the beginning; the company is facing intense competition
for 5G access, and is already making moves toward securing market share
previously thought lost. Worse, it's facing that competition on the
back foot; it's already been seen losing ground to both Ericsson
(NASDAQ: ERIC) and Huawei, and this amid intense backlash aimed at
Huawei from a range of nations.
However, reports note that Nokia hasn't let the sunset on it; the company now has 68 commercial 5G contracts
worldwide. This includes the big four operations in the United States:
Verizon (NYSE: VZ), AT&T (NYSE: T), and both T-Mobile (NASDAQ: TMUS)
and Sprint (NYSE: S), while they're still separate. Nokia still is a
bit behind its major competitors herein, with Ericsson having 81 such contracts and Huawei having 91.
Shoring Up the Stock Price
One of the biggest problems at Nokia is its dwindling share price.
Back when Suri stepped in, the share price was already nothing great,
trading around the $7 per share range. It's currently down from
yesterday's close, trading at $3.64 as of this writing. It's lost nearly
half its value from 2014, and don't even ask about its all-time high of
around $60 per share...last seen at the turn of the millennium.
Worse, Nokia itself isn't particularly optimistic. It not only
stopped paying dividends, but it also cut its overall outlook and noted
that profitability probably wasn't happening until sometime next year.
Yet even here, this could be good news. Without the dividend to
payout, the company now has fresh capital to work with, and reports
suggest it's already eyeing new merger and acquisition activity to give
it fresh lifeblood. Recent analysis from JPMorgan suggests that a connection to Samsung (KRX: 005930) could be in the cards, though this is more possibility than probability.
So How Does Nokia Win Here?
The news, on the whole, isn't good for Nokia. The company is coming
off a beating in its stock price, and it didn't have all that much to
lose to begin with. The announcement of retracted dividends and a weak
outlook on profitability in the whole year isn't likely to keep
investors around. It's competing with several other firms to build 5G infrastructure,
and it's staging that competition with reduced resources. It's going to
war with last war's strategies and a collection of popguns.
Focusing on those places that have spurned Huawei, therefore, might
be the place to start. Courting the US is a particularly smart idea,
especially following word from Attorney General William Barr, who broached the idea that the US should more actively back Nokia—along with Ericsson—to develop its 5G operations.
There is a path to victory in 5G for Nokia, but it's all uphill and
there are plenty of thorn bushes, surprise gullies, and a few rabid
badgers thrown in for variety. It's going to have to stage a serious
come-from-behind win to get anywhere in this market, and though it's
doing its level best so far, the chances of success are low.