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Morningstar | Nokia Looks to 5G Rollouts for Growth

Nokia's revenue primarily originates from selling telecommunication hardware, software, and services to communication service providers. CSP equipment spending provides robust growth during generational wireless upgrade cycles followed by spending lulls. 2018 welcomed the start of the next CSP spending surge that should provide Nokia with tailwinds as 5G networks proliferate. 5G's promise of connecting billions of wireless devices at incredible speed across more spectrum bands, along with more use cases than 4G, may offer Nokia more upside than previous wireless generations. However, we do not view Nokia's core market as moaty because CSPs typically multisource equipment and possess purchasing power over their vendors.We believe Nokia has a fundamentally strong strategy to remain a leader in its competitive environment. Its networks business has the rare ability to offer end-to-end network hardware, software, and service solutions. We believe Nokia's core operation should benefit from 5G network infrastructures requiring more hardware to cover the increased quantity of spectrums bands. Since 5G's fastest data speeds are short wavelength, Nokia's small-cell antenna systems may be desirable products to properly propagate 5G. In our view, Nokia's solutions could appeal to a wider client base as industries integrate "Internet of Things" devices into their networks. We expect healthy demand for Nokia's software and service offerings as software-defined networking becomes commonplace and customers desire solutions to optimize increasingly complex networks.Nokia's technology segment creates revenue through licensing critical communication patents and receiving royalty payments through HMD's Nokia-branded smartphone sales. Nokia has license agreements with leading 5G handset manufacturers, and the company has stated its intention to pursue licensing in industries such as automotive and consumer electronics. We are encouraged by Nokia's intention to broaden industries served with its licenses, and we think 5G networks and Internet of Things device propagation offer Nokia a chance to be less reliant on CSPs' generational network upgrade spending.