Nokia Earnings: Sales Strength, Margin Weakness, and an Ominous Statement About Customer Spending

Although it endured similar headwinds, Nokia’s first-quarter results were much better than rival Ericsson’s, all things considered. Nonetheless, Nokia’s stock sold off just as much in response to the first-quarter report. More than margin weakness or the fact that first-quarter sales benefitted from tailwinds that will not persist throughout the year, we attribute the selloff to management stating it sees signs of the economic environment impacting customer spending. Any near-term fluctuations in revenue growth will have little impact on our long-term view. Regardless of timing, we expect Nokia to benefit from 5G and future wireless upgrade cycles but believe its business will remain cyclical. We don’t project much long-term sales growth, on average, but we still think the stock is materially undervalued relative to our EUR 6 fair value estimate.