Finland-based Telecom Giant Nokia Corporation (NYSE: NOK)
shares have been stagnant and underperforming the benchmark S&P 500 index (NYSEARCA: SPY)
trading under its February highs. The 5G rollout is underway thanks to Apple Inc. (NASDAQ: AAPL)
introduction of their new iPhone 12 outfitted with 5G capacity
on the Verizon network (NYSE:VZ)
. Gen-X-ers still remember Nokia as a one-time dominant player in the cellphone industry in the earlier 2000s with the built-in walkie-talkie feature. After flaming out from competition, the company has transformed itself completely into a 5G player. Now that 5G wireless is becoming more mainstream, shares are ready to breakout of a multi-year range. Prudent investors may consider monitoring shares for opportunistic pullback levels to gain exposure as 2021 is set to be the dawn of the 5G experience.
Q2 FY 2020 Earnings Release
On July 31, 2020, Nokia released its fiscal second-quarter 2020 results for the quarter ending June 2020. The Company reported an earnings-per-share (EPS) profit of EUR 0.06 excluding non-recurring items versus consensus analyst estimates for a profit of EUR 0.03, beating estimates by 0.03. Revenues fell (-10.6%) year-over-year (YoY) to EUR 5.09 billion falling short of analyst estimates for EUR 5.19 billion. Free cash flow grew to EUR 265 million versus (-EUR 1 billion) YoY ending the quarter with approximately EUR 7.5 billion in cash. The impacts of COVID-19 affected China sales by EUR 300 million, which were shifted forward rather than actual lost sales. The Company estimates total impact of COVID-19 to be (-EUR 500 million) for the quarter. These are again sales shifted forward rather than canceled or lost.
Conference Call Takeaways
Nokia CEO, Rajeev Suri, provided color on the quarter in the conference call. The majority of the (-11%) YoY revenue drop was attributed to the effects of COVID-19 and “significant drop” in China. The measures to reduce volume of low-margin services also played a role. Shipments of Powered by ReefShark grew to 25% of revenues and expected to reach 35% by year-end. Nokia is in the leadership position with next-gen technologies for vRAN, Cloud-RAN and Open RAN differentiated by the breadth of its massive MIMO and 5G small cells portfolios. At the end of Q2, the 5G win-rate is 100% outside of China and low 90% including China. The Company continues to develop new intellectual properties maintaining the top 2 position in 5G essential standard patents. The Nokia Enterprise division saw 18% YoY quarterly sales growth with margin expansion in the energy, logistics and manufacturing sectors. The Company has over 180 private 4G and 5G deals and 83 new Enterprise clients year-to-date. North America sales were down (-4%) YoY due to supply issues from COVID-19. The Company raised FY 2020 EPS guidance in the range of 0.20 to 0.30 versus 0.22 consensus estimates and up from its prior 0.23 EPS guidance.
China Huawei’s Loss is Nokia’s Gain
The U.S. ban on China-based telecom equipment giant Huawei’s products citing national security concerns is a boon for Nokia and competitor Telefonaktiebolaget LM Ericsson (NASDAQ: ERIC). On Oct. 2, 2020, Nokia announced it had reached 100 commercial 5G deals. Enterprise clients making up 12% of its 5G clients. The Company closed 17 new commercial 5G deals in Q3 making up a total of 160 commercial 5G engagements including paid trials. Nokia currently has deals with 34 live 5G networks.
On Oct. 9, 2020, Nokia wins 5G network contracts with Orange and Proximus to build 5G networks in Belgium. The U.S. supplier ban on China’s Huawei was the opening for Nokia to takeover. Huawei had been a supplier to Belgium for over a decade. On Oct. 13, 2020, Nokia announced Chunghwa Telecom small cells deal for 5G coverage in Taiwan. Momentum is on Nokia’s side as 5G becomes mainstream. Prudent investors should consider opportunistic entries levels before the shares accelerate.
NOK Opportunistic Pullback Levels
Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for NOK stock. The monthly rifle chart has a bullish stochastic mini pup that remains dormant until the monthly 5-period moving average (MA) breakouts above $4.40 which would target the monthly upper Bollinger Band (BB) at the $6.27 Fibonacci (fib) level. The weekly stochastic made a full oscillation down through the 20-band oversold levels as it is attempting to cross up towards the 20-band. The weekly rifle chart triggered the market structure low (MSL) when it broke out through $3.24. The oversold weekly stochastic can provide opportunistic pullback levels at the $3.67 fib, $44.80 fib, $3.75 fib, $3.41 fib and the $3.23 weekly MSL/fib. The Company update on Q3 deals didn’t move the stock much so expectations may still be low for the official Q3 earnings release in November. Traders can watch ERIC price action for clues on NOK as the laggard especially during earnings season.
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