Nokia’s (NYSE:NOK) Investor day update is anything but promising. The company forecast tepid growth of barely above zero percent. Margins will improve, as will return on invested capital (‘ROIC’). The weak outlook suggests downside pressure on shares next.
Nokia forecast mobile networks will grow by only 1% from 2020-2023 CAGR. The fast-growing area of cloud and network services is leaving Nokia behind. Nokia forecast a CAGR of 2% in this segment. Conversely, the full year 2023 outlook for free cash flow is "clearly positive." For FY2021, management posted a "positive" outlook.
Nokia will cut 10,000 jobs to meet the weak growth estimates. This suggests strong negative pressure from China-based competitors. Without market share stability or growth in China, Nokia cannot grow at a decent pace.
In its press release, it cited “5G and resulting technologies at their core and creating opportunities for CSPs, enterprises, and webscales.” The 4G to 5G next-generation upgrades are positive drivers for Nokia. But investors are losing patience. Cisco (NASDAQ:CSCO) and Ericsson (NASDAQ:ERIC) are compelling 5G investments, too.
Investors will also have to wait at least a year before Nokia starts paying dividends again. ERIC and CSCO stock offers a good dividend, signaling management confidence in positive free cash flow.
Hold NOK stock for now. The turnaround will take more than a year to play out.
