The recent earnings from Nokia was/should be a real shocker to industry watchers .

Is it really time for a wake-up call to  the 5G flag-bearers ?

Nokia ADRs falling more than 20% in one day. This is a company that has reiterated and showed every indication that they are in an upswing .

The key driver for the upswing expected was the 5G investment by telecom service providers globally. This was expected to  bring in new-product /device revenues late in 2019 and throughout 2020 and into the future.

The numbers are dramatic, given the fact that Nokia reiterated its earnings guidance even last quarter.

Key earnings summary

• Nokia has reduced their 2019 earnings guidance by ~ 20% (New range is in 0.18-0.24 Euro compared to earlier guidance of 0.25-0.29 Euros)
• Nokia has dramatically cut their guidance for 2020 (new range for 0.20-0.30 Euros, compared to 0.37-0.42 Euros)
• They have suspended the dividend for the rest of the year. Very surprising given that Nokia had spent the past year conveying that they were committed to grow the dividend.

Source : Nokia Earnings Transcript ( Slide 22 )

Is  Nokia earnings an indication of the 5G hype?

Does this drastic effect mean anything for the broader telecom industry .

Is this a Return of “old Nokia” of cost overruns, margin pressures and lack of visibility on earnings?

While this may be a precursor to the 5G hype but i do not think its time for an alarm, atleast for now.

And for a couple of reasons:

• 5G investments are still at pilots/ PoC stage for most service providers. Many countries like India, Indonesia, Singapore etc have not even announced the spectrum so many of the 5G investments are anyways expected beyond 2021 only. 2020 may be more a Pilot /Headline game where we see many operators announcing their 5G roadmaps.
• Most of the other “infrastructure” players in this sector (vendors like Ericsson and Tower infra players like Crown Castle) consistently reiterating their optimism about order flow from 5G investments.

Current Valuation of Nokia

The valuation is definitely more appealing now. If Nokia hits the 2020 forecast of US$0.28 in earnings, then their forward  PE at $4 .  Nokia ADR’s closed yesterday at $3.9 a share so their PE stands at around 14 which looks attractive.

But with this earnings guidance and sudden /drastic reversal of dividend policy, will be tough for investors to regain the confidence in Nokia .

( Disclaimer : I do trade Nokia both from Stock and Options positions in my personal portfolio  but I do not have a position on Nokia and do not intend to open in the next 48 hours )