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If you’re over 30, you remember Nokia (NYSE:NOK) stock as a phone play.
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Before the Apple (NASDAQ:AAPL) iPhone and Alphabet (NASDAQ:GOOG) Android made phones into handheld internet clients, Nokia was the mobile phone standard.
Nokia is still setting mobile standards, but now it’s on the other side of the line. Nokia now makes equipment for mobile carriers, having acquired the old wire phone infrastructure players along the way.
I have expressed frustration with the company, especially its on-again, off-again relations with open source. But in 2021 5G has finally made Nokia a winner. The shares are up over 45%, having gone from $4 each to over $5.50 just since March.
Whether the advance can continue into 2022 depends on CEO Pekka Lundmark, one of Europe’s best business diplomats.
Nokia sales are up just 6% in constant currency through the first nine months of 2021. Operating profit is up 82%, even accounting for restructuring changes. The third quarter numbers were termed stronger-than-expected .
Profits from both mobile and wired infrastructure equipment are lagging, according to the report. The star is “Nokia Technologies,” which develops consumer products and licenses the brand.
Reporters who haven’t looked at the financials have written off HMD Global, launched 5 years ago by former Nokia employees, but HMD has found a niche for Nokia at the low end of the market.
For instance, the company is now assembling phones in Bangladesh. An outfit called TD Tech, 51% owned by Nokia, is also in talks to sell Huawei-designed phones.
The client strategy is thus to find low-cost niches in the global market and make deals to serve those markets at the lowest cost.
While phones deliver the profit, most analysts want to talk about Nokia’s network design wins, many of them at the expense of China’s Huawei.
Nokia had supported a proposal called OpenRAN designed to limit the proprietary advantages of rival L.M Ericsson (NASDAQ:ERIC).
European companies want the open source savings of OpenRAN, but the U.S. government has been resisting to keep Chinese companies on its Entity List, especially Huawei, from winning the market.
The practical result is that Nokia is carving up the 5G equipment market outside China alongside Ericsson and Samsung (OTCMKTS:SSNLF).
Ongoing chip shortages are slowing the work, but that could just be delaying profits into next year. Analysts now expect Nokia to earn 41 cents/share in 2022. This means investors are now paying just 13 times forward earnings for NOK stock. There are just two analysts following NOK stock at Tipranks, but their average price target is 22% ahead of where the stock is currently trading.
By straddling the two sides of the economic Cold War, Nokia has racked up some impressive design wins, even within China.
CEO Lundmark, who came on board a year ago, had previously worked for a Finnish energy conglomerate called Fortum, winning deals in both the Russian-dominated east and in western Europe. As I wrote when he was appointed, his diplomatic skills have proven invaluable.
Continued international tension, especially on the technology front, is now bullish for NOK stock. Investors like our Muslim Farooque are starting to notice, calling it a winner in the 5G race. The stock is starting to outperform the market.
Technology peace would be bearish for the Nokia equipment business. It would push suppliers toward the lower-cost offerings made possible by open source. But Nokia might compensate for that weakness with its strength in selling low-cost Android phones.
Winning in technology, it seems, isn’t all about technology.
On the date of publication, Dana Blankenhorn held a long position in AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. Write him at firstname.lastname@example.org or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.
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