Shares of Nokia (NOK 1.51%) 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.
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.
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 0.52%) 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.