What happened
Shares of Nokia (NOK +1.94%) were up 9.4% as of 10:51 a.m. EDT on Tuesday after the company announced it would revise its previous guidance upward for 2021. In a press release, Nokia says it saw "continued strength in the business" during the second quarter.
The gains come on top of stellar performance year to date, as shares have far outpaced the broader market averages.
NOK data by YCharts.
So what
Management's previous guidance had called for full-year net sales between 20.6 billion euros and 21.8 billion euros, or approximately $25 billion at the midpoint. In 2020, Nokia reported net sales of 21.9 billion euros ($26.9 billion). The company said it would provide more details on its updated guidance on July 29.
The news comes while Nokia is riding a healthy upgrade cycle as 5G networks expand. The company delivered a strong first-quarter earnings report that showed a pickup in demand for its network infrastructure business and mobile networks segment. Reported sales were up 3% year over year, but after adjusting for currency changes, sales growth looked even better, coming in at 9% year over year.
Image source: Getty Images.
Now what
The upgrade cycle to 5G is giving this communication services provider new life. But this is an intensely competitive market, with Samsung, Huawei, and Ericsson (ERIC +1.89%) among a host of smaller competitors vying for contracts. However, CEO Pekka Lundmark is optimistic about Nokia's path to improving its profitability, while taking advantage of 5G demand.
"We are progressing well with our three-phased plan to achieve sustainable, profitable growth and technology leadership laid out at our Capital Markets Day in March," Lundmark said. Nokia expects positive free cash flow in 2021 and an operating margin of 7% to 10%.
Lundmark believes that the peak of the 5G cycle will last twice as long as 4G, putting Nokia in a stronger position for growth. Still, investors should tread with caution, since competition for this opportunity could pressure pricing and margins down the road, making this a temporary growth spurt.
