Why Goldman Sachs downgraded Nokia
Analysts at Goldman Sachs recently downgraded their rating on Nokia (NOK) stock to a “sell” from a “neutral,” according to a note cited by CNBC. The downgrade was based on analysts’ view that Nokia faces strong competitive headwinds from Ericsson (ERIC) and Samsung (SSNLF) in the business of selling telecommunications equipment. Network equipment sales contribute the majority of Nokia’s revenue, so weakness in this business could constrain Nokia’s ability to deliver the performance and returns investors want.
Nokia’s network revenue rose 7.0% year-over-year to $7.0 billion in the fourth quarter of 2018, contributing 90% of the company’s total revenue in the period.
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The battle for 5G contracts
Nokia, Ericsson, and Samsung are battling it out for telecommunications network equipment orders, and the competition has intensified in recent months as operators have started deploying their 5G networks. All of these vendors have won 5G contracts with major mobile operators in the United States, one of the largest markets for telecommunications equipment.
Verizon (VZ), America’s top wireless operator, launched its 5G network in select cities last year using Samsung’s equipment. On its part, AT&T (T), America’s second-largest mobile operator by subscribers, is procuring 5G equipment from all three of these vendors. T-Mobile (TMUS), America’s third-largest operator by subscribers, signed Nokia and Ericsson for 5G contracts worth $7.0 billion in total last year.
Nokia turns up the heat on Huawei
While Nokia may be facing growing competition from Ericsson and Samsung, especially in the US market, the company doesn’t look cornered. Last year, Nokia won billions of dollars’ worth of telecommunications equipment contracts from Chinese operators, and the Wall Street Journal reported this month that the company had found a way to take customers from Huawei, the world’s top supplier of telecommunications equipment.