What happened
Shares of Nokia (NOK +9.62%) were heading toward a market-beating return in October but the Finnish telecom networking systems expert stumbled at the goal line. A disappointing third-quarter earnings report led to a big sell-off near the end of the month, resulting in a 13.8% loss for the full month, according to data from S&P Global Market Intelligence.
So what
Nokia's third-quarter earnings held steady year over year at $0.06 per diluted share, measured in local currencies. Revenues fell 7% to $6.3 billion. The bottom-line result was in line with the expectations of European analyst firms but sales came in 3% below analyst estimates.
The company also issued modest guidance for operating margins and top-line sales in the fourth quarter, and management offered a sobering analysis of the market for telecom infrastructure upgrades in 2021.
Image source: Getty Images.
Now what
Nokia CEO Pekka Lundmark said that his company has made "good progress" in many ways but it isn't enough. Nokia lost a part of the lucrative 5G system contract with Verizon (VZ 1.35%) to South Korean electronics giant Samsung (OTC: SSNLF), and Lundmark would rather lose more deals than succumb to margin-destroying price wars for large 5G contracts.
"We expect next year to be a challenging, a year of transition with meaningful headwinds from North America, as I have already mentioned, and further investment requirements in 5G," Lundmark said on the earnings call. "I want to be very clear that I believe the potential of Nokia is substantial, but delivering on that promise will not happen overnight."
Investors hated that long-term focus because it comes with the potential for short-term pain. Personally, I think that Nokia is making a wise and sustainable business decision here. The stock looks downright cheap right now, trading at just 9 times free cash flow and 32% below its annual highs.
