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Improving Traction in the End Markets Makes Nokia an Interesting Investment

August 18, 2014 | About:
rusticnomad

rusticnomad

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Nokia (NOK) seems to be improving as its recent results indicate. The company has managed to lower its losses as compared to last year. Further, Nokia is focusing on various aspects to improve its profitability. It is working on five priorities. Nokia is engaging itself in gaining a better understanding of all its three businesses to move rapidly from the strategy phase to the execution phase. Nokia is also making changes to its business structure and is focusing on its operational performance.

Gaining good traction

Nokia is facing certain challenges in its network business. However, Nokia is not much worried about the weakness as it knows that it is due to seasonal weakness. But, the company is not satisfied with the rate at which it is growing. After seeing top line challenges in the previous quarter, it wants to get over the sluggish conditions and become more profitable. Seeing the growing demand for its products, Nokia is enhancing its operational efficiencies to deliver a better performance in the future.

There are many opportunities for the company that are expected to benefit it in the long run. Nokia has recently won a five-year project with Vodafone. This is exciting news as a partnership with Vodafone will undoubtedly enhance Nokia’s customer base in the future. Further, the LTE platform is capturing the market at a good pace. In this segment, Nokia has entered in LTE contracts in regions such as the U.K., VimpelCom in Russia, Taiwan Mobile, TELE Greenland and Avantel in Colombia. In order to further support its offerings, Nokia plans to invest in strategic deals that will strengthen its long-term prospects.

Nokia sees good momentum in its core business, as it is seeing good traction for its mainstream products. Its mobile broadband unit is seeing robust growth with good LTE sales and is expected to continue yielding good results in the future as well. In addition, Nokia is also expanding its product portfolio to explore new markets. The company is focusing on small business systems and making moves to add value to these small markets.

Challenges and more

Nokia, however, saw some weakness in Europe due to weak sales. But, there are many unannounced contracts that the company has in the pipeline. Nokia expects these contracts to help it stabilize its sales in Europe. However, Europe was the key region where Nokia’s HERE business saw good growth. This happened as a result of the conversion of a contract to a perpetual license. The automotive segment is improving, and with the shift of the market toward automatic driving, this will certainly give chances to Nokia to expand its addressable market.

Nokia is making good investments in some key areas in the short term, such as connected cars and cloud based services to reap benefits in the long term. Nokia will be strengthening its R&D to explore more profitable ventures for further profitability. To improve R&D, the company is leveraging automation in its map creation process.

Nokia has also undertaken a capital structure program, which it is conducting through the analysis of capital structure that is essential to support its strategies. It is expected that this capital structure program will improve Nokia’s balance sheet by bringing enough cash for further value creation.

Conclusion

Nokia is pleased with its financial stability, and its three core businesses are running smoothly. The company’s management stays optimistic about a better performance in the future on the back of good improvements in all segments and the LTE rollout, making Nokia an interesting buy for the long run.


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