Nokia Oyj is not merely a provider of telecom equipment and network infrastructure solutions; it is a silent powerhouse in the computer and technology sector, standing tall alongside competitors like Telefonaktiebolaget LM Ericsson.
Nokia Expands its Reach Across Networks
From its roots as a leading mobile phone manufacturer, Nokia has gracefully transitioned into an end-to-end network infrastructure solutions provider. The company’s services now encompass a broad spectrum of networks, including:
- Mobile Networks: Spearheading 5G deployments and beyond, Nokia equips telecom and wireless cellular providers with cutting-edge hardware and software. The company’s role in shaping the 6G landscape, set to revolutionize the metaverse and extended reality, is pivotal. Commercial implementation is expected by 2030.
- Cloud Networks: Delving into cloud infrastructure services, Nokia offers sophisticated solutions like software-defined networking (SDN) and network security, alongside network management and optimization tools.
- Optical Networks: With high-capacity optical transport solutions, Nokia enables seamless data transmission over extended distances. Moreover, its internet protocol (IP) networking routers and switches facilitate data flow across networks.
Nokia Faces Business Normalization Challenges
Adverse macroeconomic conditions have prompted telecom operators to reevaluate their expenditures, impacting Nokia’s financial performance, especially in light of challenging year-over-year comparisons.
In the second quarter of 2024, Nokia reported earnings per share (EPS) of 7 cents, surpassing consensus estimates marginally. However, revenues declined by 21.8% year-over-year to $4.87 billion due to stiff comparisons and the normalization following an exceptional quarter in 2023, falling short of the anticipated $5.13 billion.
Segment Revenue Decline Realities
Nokia recorded revenue reductions across all its segments. Network Infrastructure sales slid by 11% year-over-year, leading management to revise sales projections to a negative 2% to 3%, down from the previously envisioned 2% to 8%. Operating margins are forecasted to fall within 11.5% to 14.5%.
The Cloud and Network Services segment witnessed a 16% year-over-year decrease in sales, a figure compounded by a 3% setback from divesting its device management and service platform. Future sales guidance has been adjusted from a negative 5% to flat, down from a negative 2% to 3%, while operating margins are expected to remain steady at approximately 6% to 9%.
Notably, the Mobile Networks segment experienced the most substantial revenue drop at 24% year-over-year, primarily due to macroeconomic pressures and the normalization in India following robust 5G deployment levels in the same period last year. Management has moderated the decline from negative 19% to negative 14%, with operating margins anticipated to hover between 4% and 7%.
Although the revenue declines in various segments may appear disheartening, it is crucial to recognize that India’s peak 5G infrastructure investments occurred in 2023, resulting in pronounced revenue spikes for Nokia during that period. Instances of rapid ascent often necessitate a more gradual descent to normalization, a phenomenon currently unfolding. Notably, revenues in North America and most other major regions showed positive trends, prompting a stock rebound post the Q2 2024 earnings disclosure, rising from $3.60.
Nokia’s Strategic Move: Integrating Infinera into the Optical Networks Segment
Nokia’s strategic decision to acquire optical network solutions provider Infinera Co. for $6.65 per share, announced on June 27, 2024, signals a significant step in reinforcing its primary segment, Optical Networks. The acquisition is projected to contribute over $1.5 billion in annual sales to Nokia’s revenue stream, with the deal expected to conclude in the first half of 2025.
NOK Stock Displays an Ascending Triangle Pattern
An ascending triangle pattern signifies an ascending price channel characterized by rising upper trendline resistance and ascending lower trendline support. A breakout occurs when the stock surpasses the upper trendline, while a breakdown results from falling below the lower trendline support.
The trajectory of NOK stock post the Q2 2024 earnings announcement portrays an upward trend. The daily candlestick chart highlights an ascending triangle pattern featuring a flat-top upper trendline resistance around $4.54, aligning closely with the consensus analyst target. The ascending lower trendline has effectively cushioned pullbacks at elevated levels as the stock approaches the apex, signaling an imminent breakout or breakdown scenario. The daily Relative Strength Index (RSI) configured at the 54-band. Fibonacci (Fib) pullback support levels are identified at $4.21, $4.01, $3.80, and $3.64.
With an average consensus price target of $4.54, and the highest analyst price target resting at $6.50, Nokia currently boasts two Buy, four Hold, and two Sell ratings from analysts. The stock is valued at 12.11x forward earnings.
Actionable Options Strategies: Bullish investors may find value in leveraging cash-secured puts to acquire NOK at Fib pullback support levels for entry, while exploring covered calls to execute a wheel strategy for income in addition to the 1.83% annual dividend yield.