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Will Lower Revenues Dampen Nokia's (NOK) Earnings in Q4?

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Nokia Corporation NOK is scheduled to report fourth-quarter 2019 results on Feb 6, before the opening bell. In the last reported quarter, the company posted a negative earnings surprise of 14.3%, missing the Zacks Consensus Estimate by 1 cent. Nokia topped the Zacks Consensus Estimate for earnings twice in the trailing four quarters, the positive surprise being 81.6%, on average.

The Finnish telecom gear maker is expected to have recorded lower aggregate revenues on a year-over-year basis due to macroeconomic, industry and competitive dynamics. Its Mobile Access business was impacted by increased competition in some accounts as rivals, including Ericsson and Huawei, seek to take share in the early stage of 5G. Some customers have reevaluated their vendors in light of security concerns, creating near-term pressure for Nokia to invest in order to secure long-term benefits.   

The company’s top line in the quarter under review was impacted by the timing of completions and acceptances of certain 5G projects, based on the evolving readiness of the ecosystem and the staggered nature of 5G rollouts in lead countries. Nokia has reached 63 commercial 5G contracts, with 18 live networks, around the world. Its 5G technology has been contracted by all four nationwide operators in the United States, all three in South Korea and all three in Japan. Against this backdrop, let’s find out how things have shaped up prior to the announcement.

Factors at Play

Nokia’s gross margin in the to-be-reported quarter is likely to have been impacted by product mix, a high cost level associated with its first generation 5G products, profitability challenges in China, pricing pressure in early 5G deals, and uncertainty related to the announced operator merger in North America. Some of the key developments are mentioned below.

During the quarter, Nokia was selected by KDDI Corporation, a leading Japanese telecommunications operator, as a primary partner to upgrade its 4G network to 5G. The company’s Nuage Networks SD-WAN 2.0 solution was implemented by OmniClouds, a leading cloud service provider and migrator, to optimize cloud connectivity for enterprise customers throughout Europe, Middle East and Africa. Nokia declared more than 2,000 patent families to the European Telecommunications Standards Institute as essential for the 5G standard.  

The company partnered with Telia Company, a leading telephone and mobile network operator in the Nordics and Baltics, to bring its 5G Fixed Wireless Access (FWA) solution to customers across Finland. Nokia made several additions to FWA portfolio that offers more flexibility to deployments. The enhancement includes new FastMile 5G Gateway and new FastMile 4G gateways. Nokia and Hutchison 3 Indonesia completed the first 5G end-to-end live network trial in Indonesia.

Nokia and Orange Polska launched 5G testing in the city of Lublin, as part of the next stage of network trials in the country. It inked a contract with TIM Brazil, a leading telco and the Brazilian subsidiary of Telecom Italia, to provide IoT services to TIM’s enterprise customers.

Spark New Zealand picked Nokia radio access network technology for its roster of preferred suppliers for 5G rollout. Nokia deployed private wireless networks for more than 120 customers across multiple industries and geographies, helping its enterprise customers take advantage of Industry 4.0 innovation.

Despite collaborations and service enhancements, the Zacks Consensus Estimate for total revenues for the December quarter stands at $7,513 million, implying a decline of 4.2% from the year-ago quarter’s reported figure. Consequently, adjusted earnings per share are pegged at 14 cents, indicating a fall of 6.7% from the prior-year quarter’s reported figure.

What Our Model Says

Our proven model doesn’t predict an earnings beat for Nokia this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Nokia’s Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -4.88% as the former is pegged at 13 cents and the latter at 14 cents.   

Nokia Corporation Price and EPS Surprise

Zacks Rank: Nokia currently has a Zacks Rank #4 (Sell).

Stocks to Consider

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Silicon Motion Technology Corporation SIMO is slated to release quarterly results on Feb 6. It has an Earnings ESP of +5.88% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Manitowoc Company, Inc. MTW is scheduled to release results on Feb 6. The company has an Earnings ESP of +32.14% and sports a Zacks Rank #1.

Post Holdings, Inc. (POST - Free Report) has an Earnings ESP of +5.47% and sports a Zacks Rank of 1. The company is set to report results on Feb 6.

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