Why Is Nokia Stock So Cheap?

The legendary phone maker’s recent ‘stellar’ performance wasn’t in wireless.

Andrew Willis 17 February, 2023 | 4:30AM
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Why is BlackBerry Stock so Cheap? Watch last week's episode here.

Andrew Willis: Did you know that Nokia (NOK) started as a paper mill? The Finnish company has been adapting and innovating since 1865, producing products from boots, to tires and televisions to mobile phones and more recently, 5G telecommunications equipment.

Investors shouldn’t be looking to the skies for Nokia’s longest growth runway from here, however. Equity analyst Matthew Dolgin says we most recently saw a stellar performance in the wireline business. The segment, which serves fibre and other fixed-line customers, now makes up 40% of sales, while wireless 5G build-outs are peaking in markets like the U.S.

Cyclicality, competition and inflationary headwinds remain for Nokia, but as it continues its legacy of adapting to changing business environments, we shouldn’t lose sight of its changing sum of parts. No point discounting its research division, or those technology licences that according to the firm are still used in nearly all mobile devices today.

For Morningstar, I’m Andrew Willis.

bulls Bulls Say

  • The capabilities of 5G will bring a new market of customers and a longer and more expansive cycle of network spending, as enterprises deploy private networks and use Internet of Things functions.
  • Nokia is taking cyclicality out of its business by moving more into cloud services and “as-a service” offerings that will keep greater revenue streams intact even when customers are not buying new products or upgrading networks.
  • Nokia’s intellectual property portfolio will be even more valuable with 5G, as devices other than handsets will now need licenses for its technologies.

bears Bears Say

  • Nokia’s customer base is concentrated among sophisticated communications service providers and equipment manufacturers, which yield significant buying power, limiting Nokia’s pricing power.
  • Open RAN will further erode pricing power by allowing networks to run on generic hardware and multisourced software, taking away proprietary components from vendors.
  • The relatively short life spans for communications technology requires Nokia to continually push on R&D and come up with the best technologies to maintain its market share.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Nokia Oyj ADR3.62 USD-2.43Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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