On Jul 7, 2015, we issued an updated research report on Nokia Corporation (ADR) (NYSE:NOK). Strong demand for 4GLTE network across the globe coupled with continuous contract wins are factors driving growth for the company.
Except for one quarter, Nokia delivered positive earnings surprises in all quarters last year, with an average beat of 10.87%. Meanwhile, the company reported first-quarter 2015 financial results wherein the bottom line was on par with the Zacks Consensus Estimate while the top line surpassed the same.
Recently, Nokia Networks (NSN) entered into a definitive agreement with Alcatel-Lucent for its full acquisition for a total consideration of Euro 15.6 billion (approximately $16.6 billion). Notably, the deal is expected to close by mid-2016, subject to regulatory approval. The merged entity can effectively capitalize on the emerging Internet-of-thing (IoT) platform and offer triple-play voice, video and data solutions globally.
Substantial demand for 4GLTE network installation across emerging nations like China and the rest of the world coupled with high capital expenses associated with network restructuring in India, Korea and Indonesia may open up additional opportunities for the company.
Nokia has been eyeing the lucrative Indian market. The company has cut deals with 34 operators last year along with a multi-year agreement with Vodafone India, covering 19 circles. Further, Nokia landed a four-year network equipment supply deal with India’s leading telecom operator Bharti Airtel.
Meanwhile, the NSN segment continues to face stiff competition from players like Huawei and Ericssion. These companies command a superior position in the telecom infrastructure market with a high number of contract wins in China. Hence, to remain competitive, Nokia continues to invest in research, which we believe will impact margins moving ahead. Moreover, dividend payments coupled with the pending acquisition of Alcatel-Lucent will dent the cash balance of the company substantially.
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