Telecom infrastructure veteran Nokia (NOK +1.11%) reported second-quarter results in the middle of the night for us Americans or early Thursday morning in the Finnish time zone this company calls home. The company met or exceeded Wall Street's consensus estimates despite some unusual business headwinds, but share prices still fell as much as 7% on the news.
Nokia's second quarter by the numbers
|
Metric |
Q2 2018 |
Q2 2017 |
Year-Over-Year Change |
|---|---|---|---|
|
Revenue |
$6.21 billion |
$6.48 billion |
(4.2%) |
|
Net income |
$162 million |
$508 million |
(68%) |
|
Adjusted earnings per diluted share |
$0.04 |
$0.09 |
(62%) |
Data source: Nokia. Average Euro to dollar exchange rates per quarter gathered from Oanda.
Analysts had been expecting Nokia to report earnings of roughly $0.04 per share on sales in the neighborhood of $6.17 billion. The company essentially met both targets, though with a slight upside to the consensus revenue projection.
Nokia's management held firm to their handpicked selection of full-year and long-term guidance targets. As a reminder, that means an adjusted net margin for the important networks division somewhere between 6% and 9% in fiscal year 2018. By the year 2020, Nokia hopes to have climbed above the top end of that range and maybe as far as 12%.
In this report, the networks segment's adjusted operating margin stopped at just 1.5%.
The calm before the 5G storm
Investors are punishing Nokia's stock today because the company's largest and most important division isn't pulling its weight. The acceptable earnings stem from solid results in the smaller technology segment.
In a prepared statement, Nokia CEO Rajeev Suri reminded investors that the first half of 2018 was always expected to show soft results.
"Nokia's Q2 2018 results were consistent with our view that the first half of the year would be weak followed by an increasingly robust second half," Suri said. "Pleasingly, I am able to confirm that we expect to deliver 2018 results within the ranges of our annual guidance."
The second-half acceleration should spring from an increased interest in 5G wireless systems, where international standards bodies are currently putting the final spit shine on their requirements and recommendations. Sales are slow right now because major customers are holding off on network infrastructure investments until the 5G future slides into view.
"Our view about the acceleration of 5G has not changed and we continue to believe that Nokia is well-positioned for the coming technology cycle given the strength of our end-to-end portfolio," Suri said. "We expect market conditions to improve further in the second half, particularly in Q4, Nokia's seasonally strongest quarter, and as 5G accelerates significantly."
Image source: Nokia.
Is Nokia a buy today?
Suri's predictions for the budding 5G market should sound familiar if you have paid any attention at all to this game-changing technology trend. From head-to-head Nokia rival Ericsson (ERIC 0.44%) and cell tower operator American Tower (AMT 0.45%) to back-end networking specialist Juniper Networks (JNPR +0.00%), 5G is the wave of the future. All of these companies are taking some financial lumps at the moment as telecoms around the world nail down their 5G implementation plans, but they are all poised to come back strong over the next few quarters.
The worst may already be behind Nokia. The stock is trading essentially where it was 52 weeks ago, having climbed back from a deep trough over the winter. Nokia's stock is among the cheapest of the 5G hopefuls, trading at just 1.3 times book value or 15.7 times forward earnings estimates.
Nokia isn't exactly a screaming buy today, but the stock should recover nicely when those 5G orders start to flow in. Keep an eye on the Finns.
