Nokia Corporation (NOK - Free Report) recently announced that it has secured a €500 million loan from the European Investment Bank (“EIB”) to accelerate its R&D efforts on 5G technology. The financing is supported by the European Fund for Strategic Investments — a key element of the Investment Plan for Europe or the Juncker Plan, named after European Commission President Jean-Claude Juncker who first announced the plan in November 2014.
Per the terms of the transaction, Nokia will employ the amount to boost its 5G development activities, which is believed to be the next-generation of mobile telecommunications. The move supports the company’s emphasis on R&D and innovation in order to produce enabling technologies for innovation and growth in Europe. 5G technology will likely enable faster speeds, massive connectivity and reliable networks for customers.
Nokia is transforming the way people and things communicate and connect with each other, which includes seamless transition to 5G technology, ultra-broadband access, IP and Software Defined Networking, cloud applications and Internet of Things. The company is continually expanding business into targeted, high-growth and high-margin vertical markets to address growth opportunities beyond its traditional primary markets.
Last month, Nokia announced a $3.5 billion deal with U.S. mobile carrier, T-Mobile US, Inc. (TMUS - Free Report) to manufacture 5G enabled devices — the world's largest 5G agreement, to date. Importantly, the United States and China have moved fast with 5G, making it essential for the European companies to enter this competition. By 2025, 1.2 billion people worldwide are expected to have access to 5G networks. To fend off the dominance of foreign players, the EIB had earlier this year inked a €250 million loan deal with Nokia's Swedish rival, Ericsson (ERIC - Free Report) .
The EIB loan, which extends the company’s debt maturity profile, has an average maturity of approximately five years after disbursement, which can take place at any time during the next 18 months.
Over the past three months, shares of Nokia have lost 4.1% against growth of 10.4% for the industry. Therefore, it remains to be seen how this debt financing helps the company to augment its cash flow in the coming quarters and boost share price performance.
Nokia currently has a Zacks Rank #4 (Sell). A better-ranked stock in the industry is Ribbon Communications Inc. (RBBN - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Ribbon Communications has a long-term earnings growth expectation of 12%. It beat earnings estimates in each of the trailing four quarters, the average being 168.1%.
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