3 Reasons To Stay Long Nokia

Summary

• The United States still has a low average mobile internet speed. This bodes well for Nokia’s 4.5G LTE Advanced Pro infrastructure roll-out business.
• Xiaomi has signed a network equipment supply and patent licensing agreement with Nokia. Other top Chinese phone manufacturers might follow soon.
• Amazon is subsidizing a Nokia Android phone as part of its Prime Exclusive incentive program. Amazon has 80 million Prime subscribers.
• Nokia needs Amazon’s marketing muscle to fortify its brand. A stronger brand power is  necessary because Nokia is trying to become a legit vendor of connected health tracking devices.

The number one reason to stay long Nokia (NYSE:NOK) is because its gigabit 4G LTE and 4.5G wireless network infrastructure services have a long-term tailwind in the United States. I expect Americans to eventually demand their wireless carriers to improve their mobile networks. Nokia will benefit when tier-1 wireless carriers in America start upgrading their wireless networks to be at par with the rest of the world.

As per the latest report of OpenSignal, the United States badly needs a better infrastructure for its nationwide mobile internet network. Yes, the mighty United States touts 86.5% LTE coverage, making it the world’s no.4 in terms of 4G signal availability.

Unfortunately, for Americans, the United States actually has a very low nationwide average 4G speed. It’s only 14.99 Mbps. This average LTE speed in the U.S. is a lot slower than Hungary’s 42.61 Mbps, and Croatia’s 35.19 Mbps. Croatia is a war-torn country and it has faster LTE speed than the United States!

(Source: OpenSignal)

Taking Control Of America's Wireless Network Infrastructure Industry

Nokia will only have to compete with Ericsson (ERIC) in vying for the next wireless infrastructure projects of AT&T (T), Verizon (VZ), T-Mobile (TMUS), and Sprint (S). As far as I know, Huawei is still banned from providing their LTE infrastructure services in the U.S.

China’s state-owned Huawei has conquered the world when it comes to networking hardware and smartphones. However, Nokia will still flourish in 4G and 5G mobile network infrastructure because some countries still do not trust Huawei.

AT&T and other tier-1 carriers in the United States will eventually have to improve their networks to retain their customers’ loyalty. The U.S. carrier which offers the fastest average nationwide LTE speed will ultimately become the favorite of U.S. mobile data subscribers.

One disgruntled AT&T mobile subscriber can write to a U.S. senator or congressman. An angry letter whining about the 14.99 Mbps average LTE speed in America could be a master publicity coup for an ambitious congressman.

The U.S. telcos can afford to improve their wireless infrastructure networks. They are just being complacent because nobody is applying political pressure. AT&T and Verizon are the world’s largest telecom companies and yet America has slower average LTE speed than Croatia!

It might be prudent for Nokia or Ericsson to hire a veteran Washington lobbyist to gain the attention of an ambitious congressman. A congressman could make enough noise to make AT&T or Verizon notice the sad state of America’s mobile network quality.

Nokia and Ericsson offer gigabit LTE or 4.5G LTE Advanced Pro. I firmly believe the 4.5G LTE Advanced Pro is the next catalyst for Nokia. Nokia and Ericsson (and wireless carriers) need to first deploy 4.5G LTE Advanced Pro technology to smoothen the upgrade path toward a 5G network roll-out.

As of December 2016, Nokia has persuaded many carriers and successfully negotiated 110 deals to deploy 4.5G LTE Advanced Pro. The Ultra Broadband (which includes the wireless network infrastructure services) business segment is Nokia’s iPhone. Any catalyst that might improve this segment's top line growth is worth appreciating here at Seeking Alpha.

(Source: Statista)

The Second Reason Why You Should Stay Long NOK

Just like Apple (AAPL) and Samsung (OTCPK:SSNLF), China’s Xiaomi has recently signed a multi-year patent licensing deal with Nokia. Xiaomi and Nokia have also agreed to cooperate in exploring business opportunities in Augmented Reality, Virtual Reality, Internet of Things, and Artificial Intelligence. Nokia will also supply networking equipment for Xiaomi’s data centers.

Reuters said Xiaomi was the first Chinese phone manufacturer to ink a patent licensing deal with Nokia. It goes to show that some Chinese firms respect the Intellectual Property of Nokia. Hopefully, Huawei, Vivo, and Oppo will follow the example set by Xiaomi.

The more phone manufacturers which recognize and pay for the standard essential patents of Nokia, the better it is for NOK shareholders.

The Third Reason

Nokia is trying to make a comeback as a vendor of consumer electronic products. Its focus right now is to provide connected health smart devices. It bought Withings last year and rebranded its products to Nokia.

Connected health monitoring gadgets are Nokia’s initial push for Internet of Things. The company’s stock is never really getting any serious push from bulls if it remains focused on networking hardware and IP products. Internet of Things is the current darling topic for investors. Nokia making a splash on health-focused Internet of Things might just raise the curiosity of hedge fund managers.

(Source: NOKIA)

Amazon’s (AMZN) decision to offer a subsidized Nokia Android phone as part of its Prime Exclusive incentive program might help promote the Nokia brand in America. Amazon’s estimated 80 million Prime subscribers are a large audience toward promoting the Nokia trademark.

Nokia needs more people to be aware of its legendary brand for quality, trustworthy, consumer electronic products. Going forward, Amazon and Apple agreeing to sell Nokia-branded consumer electronic products is also a small but still important tailwind for NOK.

Conclusion

The United States is not the only developed country that has sub-par mobile internet speed. Nokia’s networking equipment business will turn to an up cycle once wireless carriers around the world start adopting the new gigabit or 4.5G LTE-Advanced Pro standard. This is the preparatory step toward the real gold mine in 5G.

China already expects to spend $411 billion to build 5G networks from 2020 to 2030. For the meantime, 2018-2019 is likely going to see a ramp up in 4.5G wireless network upgrades. Nokia is not banned in China. Huawei cannot do business in America. On the other hand, NOK has won several LTE contracts in China. NOK is a keeper because no country has found it necessary to ban Nokia.

I therefore reiterate my buy rating for NOK. The imminent shift toward 4.5G LTE Advanced Pro is an obvious catalyst. My bullish outlook for Nokia is also due to the very positive confidence signal it has been getting from some hedge fund managers. More often than not, shadowing the investing choices of opportunist hedge fund managers often lead to profit.

(Source: TipRanks)

Analyst’s Disclosure: I am/we are long NOK, AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.