Nokia Corporation (NYSE: NOK) closed Q1, 2021 with increased revenue. For investors, this was a total surprise. Experts expected it to remain at 5.65 billion USD, but in fact, the revenue turned out to be 500 million USD more. As a result, the stock price increased by 10% at a certain point.
In this article, I will try to explain to you the reasons for the increase in the company’s revenue and whether there is a chance for further growth.
Nokia Corporation is a Finnish transnational company that takes first place in the production of mobile, fixed, and broadband networks. In the 2000s, the company was the leader of the market of mobile phones but gradually lost its share of the market, giving the leadership to Samsung.
Collaboration of Nokia and Microsoft
To improve its position in the market, Nokia took up active cooperation with Microsoft Corporation (NASDAQ: MSFT). For this reason, the company had to stop using the Symbian OS and switch to Windows Phone. This decision deteriorated the company’s positions even further, so it had to sell its mobile business to Microsoft.
In 2016, Nokia decided to get back to the market of mobile phones and signed an agreement with HMD Global Oy; the latter is now producing smartphones under the brand Nokia, while the company itself has immersed into the development of the next generation of 5G wireless networks. Now the moment has come to gather the ripe fruit of their work.
Sanctions against Huawei
In the 5G market, a serious rival to Nokia was a Chinese company called Huawei, but Donald Trump interfered by imposing sanctions on Huawei and thus clearing the horizon for Nokia and other companies.
In May 2019, Trump introduced the emergency mode for the protection of telecommunication networking systems of the USA and put Huawei on the blacklist. Practically, this meant American companies were not allowed to buy Huawei products.
Next, the British government made operators disuse Huawei equipment. Then the “countering movement” was joined by India and Sweden; as a result, the whole of the world business cut down on any work with Huawei. The market share of Huawei decreased noticeably, and its rivals, including Nokia, came to the scene. This was the reason for such an increase in Huawei’s revenue.
Nokia’s April contracts
Nokia keeps developing actively in the market of wireless 5G systems. In April, we heard about new contracts signed by the Finnish company almost every other day.
Nokia’s clients include companies from all over the world. For example, Telefonica Spain signed a contract for modernizing its IP network, which will help it increase the number of clients and provide the services of the wireless 5G system.
The US NewCore Wireless announced its collaboration with Nokia in unwinding a wireless network for rural and remote areas. This will allow people to work from home during the pandemic and will help decrease unemployment in such regions.
Claro Chile chose Nokia for equipping the Gold Fields Salares Norte mine with a high-performance wireless 5G network. Work in the mountains requires reliable networks that function equally well over broad territories on the surface and deep in the shafts. Nokia’s solution unites thousands of workers, cars, sensors, and devices in one huge networking system. This will enhance safety on site, which is especially important for mining.
The KATCH Network company also wanted to contract with Nokia. KATCH provides telecommunication services in the Aichi prefecture (Japan). Together with Nokia, the company plans to equip plants with industrial-level autonomous wireless networks.
Chunghwa Telecom chose Nokia for broadening the 5G network in Taiwan. With Nokia equipment, Chunghwa Telecom plans to provide its services to 80% of the population and increase the number of its clients by 20%.
On April 19th, Nokia signed a contract with a South-Korean mobile operator LG Uplus; the Finnish company will help its counterpart unwind 5G networks indoors.
China Mobile is also Nokia’s client. On April 13th, we heard that the Finnish company will help in unwinding the cloud service by China Mobile.
And this is not a full list of Nokia’s clients. If I had enumerated all the contracts, this article would have been 2 times longer. Clearly, such Nokia’s activity in Q1 will reflect in its revenue in subsequent quarters.
Rivalry with Samsung
Since sanctions were imposed on Huawei, Nokia has been grasping the market of wireless networks actively, but rivals are there and awake, so the company did lose a contract with a very large client.
In September 2020, we heard that Nokia lost a contract for supplying new 5G equipment to the US largest cellphone operator Verizon Communications Inc. (NYSE: VZ). The sum of the contract was 6.64 billion USD, and it was won by Nokia’s rival – the Korean Samsung Electronics.
This disappointed the investors of Nokia, and the company’s shares started a swift decline. 2 months later, they cost 65% less.
Nokia lost the contract, still, such large clients as Verizon always work with several providers to diversify risks, and Verizon keeps working with Nokia, though not on such scale as with Samsung.
Investors believe in the company again
In November 2020, Nokia shares cost 3.20 USD, and the price still attracted investors because the company kept working actively in the 5G market; a loss of just one contract could not put an end to a world-large company.
The shares started growing step by step, and in January 2021, they reached 4.20 USD, bringing investors 1 USD per each bought share. They might have continued growing but one random event that had nothing to do with the company’s business at all.
Reddit and Nokia
Reddit community members rushed at buying the shares of GameStop (NYSE: GME) when they found lots of short positions in this share and decided to make shortists close their trades, which would provoke increased demand for GameStop shares from sellers this time. And they succeeded. 15 days later, the company’s shares cost 490 USD, while the starting price was 20 USD. Inspired Reddit users rushed at other shares with high Short Floats.
In the community, things got absolutely chaotic: those who had bought the shares and held them were also supporting their growth. And as long as the number of community members increased to several million people in a short time, somebody just needed to mention a ticker – and others starting buying the shares to find out what they bought only later.
Nokia was one of such companies. Its Short Float was below 2%, so the GameStop scheme was inapplicable here.
However, for no good reason at all, Reddit users paid attention to this company and started buying its shares. As a result, three days later, the stock price grew by 130%, after which, a natural decline followed. And those investors who bought the shares for the long run decided to take the profit, which made the stock price drop below 4 USD.
Now Reddit participants pay no attention to the company, and its shares are again becoming popular among long-term investors. The shares secured above 4 USD and kept trading in a narrow range until the company published its report.
Nokia’s quarterly report
In Q1, the revenue of the company grew by 14% compared to the same period of last year, reaching 6.2 billion USD. The EBITDA grew by 380%, and the net profit reached 315 million USD. After losing Q4, 2020, Nokia managed to make a profit again.
The growth of revenue was explained by the growth of 5G equipment sales and a decrease in administrative expenses by 18%. After such an unexpectedly good report, the company’s CEO Pekka Lundmark promised to do everything to make Nokia a 5G leader.
Huawei got under sanctions less than a year ago yet Nokia’s reports are already revealing the effect of this event. Active work of the Finnish company in the market of wireless networks will definitely reflect in its revenue this year, and we will see the growth of the revenue several times.
In the stock market, investors live on expectations. They will include future growths in the price and buy the shares. This means the shares have a chance for further growth.
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