Where is Nokia Corp (ADR) (NOK) Headed?

Nokia Corp (ADR) (NYSE:NOK) had yet another disappointing quarter as earnings fell short of the Street estimates,  as the company was hurt by sluggish mobile network sales. A bearish outlook for the current quarter was the last thing investors expected, as it confirms fears about the company’s prospects.

The stock has come under immense pressure in the recent past as the Finish Company has failed to detail how it plans to shore up earnings. With investor confidence at all-time low, the stock could clock a new 52-week low. The stock is currently trading at a tight range of between $5.25 and $5.31.

What Is Hurting Nokia?


A challenging environment on the sale of traditional network equipment, is Nokia Corp (ADR) (NYSE:NOK)’s biggest headwind. Customers holding back on tabling new orders, continues to hurt the company’s core business. Stiff competition from new players such as Huawei Technologies has made it difficult for the company to generate substantial returns from the once lucrative business.

Huawei’s impact on the network equipment business is already being felt as it continues to expand rapidly into Asia, Europe, and Africa. Nokia remains the most affected as the Chinese company is offering competitive prices all in the effort of winning customers.

Telecom Companies Cutbacks

Competition pressure is not the only headwind Nokia Corp (ADR) (NYSE:NOK) is grappling with at the moment. Telecom providers worldwide are increasingly cutting back on upgrade and expansion costs, piling more pressure on an already suppressed market.

Given that the rollout of new generation wireless networks is almost complete in key markets, the company’s network equipment business could register more decline going forward. The business recorded an 8% decline in sales in the recent quarter with the company warning that the trend will continue.

The network business recorded a 17% decline in sales in North America with sales in Europe falling 3% compounded by a 6% decline in Latin America. A point of concern for investors is that the decline in mobile network sales continues, despite the Alcatel Lucent SA (ADR) (NYSE:ALU) acquisition. There was hope that the acquisition would help boost sales.

Concerned with the threat posed by the slowing mobile network business, Nokia Corp (ADR) (NYSE:NOK) has devised new measures it hopes will help offset the impact of the declines.

Cost Cuts

CEO Rajeev Suri has already expressed his disappointment to the surprise revenue decline in the first quarter. Just like other companies grappling with similar challenges, the executive says they are planning an overhaul of the company’s operations as part of an ongoing restructuring process.

Cutting thousands of jobs is top of the agenda as part of a cost saving drive. Most of the cuts will target areas where there is an overlap with Alcatel Lucent SA (ADR) (NYSE:ALU) business. Nokia is also in the process of consolidating its real estate footprint having already closed down some sites. By reducing overlapping personnel and consolidating real estate footprint, the company expects to save up to €900 million by 2018.

Nokia Corp (ADR) (NYSE:NOK) is not only relying on cost cuts to shore up earnings. Shifting attention to future-oriented technologies is already in full swing. The cloud and the internet of things are some of the new areas of interests that are expected to generate new opportunities for growth. The acquisition of Withings for €170 million also underlines how serious the company is about returning to the consumer electronic market.

Bottom Line

There is no doubt that Nokia Corp (ADR) (NYSE:NOK) faces an uncertain future given the market conditions in the mobile network business. Stiff competition compounded by a competitive pricing environment all but continues to elicit doubts about the company’s long-term prospects.

The management admitting that the firm will continue to suffer at least in the short term is something that should continue to spook investors. Until Nokia Corp (ADR) (NYSE:NOK) shows that its new areas of focus can offset weakness in the core business, the stock would likely continue to edge lower in the market.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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