Nokia Oyj (ADR) (NYSE:NOK) is about to tread rocky waters considering Swedish rival Ericcson brought out its 5G price war push earlier than the Street had anticipated- about two plus years early, in fact. Will the Finnish telecom giant be able to confront this latest curveball with the lofty operating expenses it needs without sacrificing margin growth?
Charter Equity analyst Edward F. Snyder says no, finding that the Swedish rival has caught Nokia both “unprepared” as well as “distracted,” leaving the NOK team to either meet or outclass pricing- or bear the brunt of the consequences in terms of conceding market share.
Believing the sudden arrival of 5G price battles does not bode well for the giant, the analyst downgrades from a Buy to a Market Perform rating on NOK stock without listing a price target. (To watch Snyder’s track record, click here)
Snyder argues, “The strong financial results on the back of higher licensing revenue that compelled our upgrade last quarter got run over by Ericsson’s push in China. Using its lead in radio systems, Ericsson is offering 5G-ready equipment to Chinese carriers in order to capture a disproportionately large share of their big 4G expansions. To make matters worse, it’s pricing more aggressively to ensure wins. So where the company and most analysts believed price wars in the roll-out of 5G wouldn’t show up for at least two more years, they began in September. This puts Nokia in a tough spot given it’s wrestling through the Alcatel-Lucent merger, has a more disparate equipment base to upgrade, isn’t as advanced in radio systems and has more widely dispersed R&D operations.”
“There aren’t any new products or markets that could offset declines in its largest business,” the analyst concludes on a cautious note, finding that even with solid licensing execution bumping up royalty revenue by close to 50% year-over-year, ultimately, this is simply “not enough to offset deterioration of the cellular network systems market.”
In stepping to the sidelines, Snyder joins the majority of an apprehensive Wall Street, with TipRanks analytics indicating NOK as a Hold. Out of 5 analysts polled by TipRanks in the last 3 months, 1 is bullish on Nokia stock while 4 remain sidelined. The stock’s consensus target price stands at $4.83.