With Nokia It Feels Like "2 Steps Forward, 1.9 Steps Back"

Nokia’s (NOK) share price is about the same as when I last wrote about this telecom equipment vendor, but there has been a fair bit of drama in between, with the shares going over $6.50 early in 2019 before a big sell-off into and through first quarter earnings. Along the way there have been optimistic sell-side pieces on the prospects for Nokia to benefit from Huawei’s troubles, but also some bearish pieces on Nokia’s tech roadmap relative to Ericsson (ERIC), concerns about whether Samsung could emerge as a more disruptive force, and whether Nokia will ever be able to execute on a consistent basis.

Of all those concerns, the execution issues concern me most, and first quarter results reminded everybody of just how consistently inconsistent this company has been. While I do think Nokia is relatively well-positioned in 5G and can look to gain some share on the back of Huawei’s troubles, the stock really needs a steady pace of financial improvement in the underlying business. Although I do think these shares could trade into the high single-digits if and when EBITDA margins move into the mid-teens and revenue growth picks up on 5G deployments, I think a fairer risk-weighted fair value range is in the $5.25 to $6.50 area for now.

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With Nokia It Feels Like "2 Steps Forward, 1.9 Steps Back"

Nokia On The Edge Of The Ramp

The last few years haven’t been all that much fun for Nokia (NOK), or its shareholders, as this telecom equipment company found itself sandwiched between more aggressive competitors and more conservative customers, and stuck in a place where customers have scaled back investments in older network technology but haven’t yet started spending on 5G. Now, though, the company appears to be just at the starting edge of a ramp-up in network spending that should drive meaningful cash flow generation in the coming years.

I don’t believe 5G will be transformational for Nokia in the sense that the company will suddenly see breakout revenue growth, but I do believe the company’s end-to-end solution could drive some share and revenue upside. I also believe there could be more long-term opportunity in the optical networking and IP routing businesses from recently-introduced technologies. Given all of that, I think Nokia is worth considering into the $6’s.

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Nokia On The Edge Of The Ramp

Nokia Digging In Ahead Of 5G Deployments

Despite a sharp decline after troubling third-quarter earnings, Nokia (NOK) is more or less back where it was the last time I looked at this company, and now we’re all about six months closer to meaningful deployments of 5G equipment (likely to begin in 2018, ramp up in 2019, and really start getting meaningful in 2020). At the same time, the company still has worthwhile opportunities in “ancillary” markets like analytics/automation and enterprise webscale deployments.

Even with the boost that 5G deployments should provide, I do not believe Nokia will deliver all that much long-term growth. Sure, plenty of third-party sources quote figures in the hundreds of billions of dollars for “needed” investment in capacity, but that ignores the realities of the price pressures on companies like Nokia and Ericsson (ERIC), the rise of competitors like Huawei, and the “do more with less” innovations that allow providers to get more out of their installed base.

That doesn’t mean I’m negative on Nokia. I think the shares are still undervalued today, with a possibility that expectations for 5G deployments could improve with time, not to mention potential outperformance from technology licensing and non-traditional/ancillary markets.

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Nokia Digging In Ahead Of 5G Deployments

Opportunities In 5G And New Services Don't Seem Fully Factored Into Nokia's Price

An open mind is a valuable asset in investing – in my own experience, it's hard not to start the research process without at least some preconceived notions (after all, something prompted you to start the process...), but keeping an open mind at least lets you respond to new information. That's relevant to me in the case of Nokia (NYSE:NOK), as I went in assuming it was not too likely that this very well-known networking equipment company would be undervalued as the market looks ahead to the start of the 5G rollout in a couple of years.

And yet, Nokia may still be worth a look. The shares are widely followed (around 30 sell-side analysts cover it), and the 5G story is no secret, but the market doesn't seem to think that Nokia will manage to get (or keep) better margins in the years to come despite good progress here since the Alcatel deal. These shares are down more than 10% over the past year and up only marginally in the last year, but breaking out into double-digit FCF margins again in four to five years would support a fair value at least 10% above today's price.

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Opportunities In 5G And New Services Don't Seem Fully Factored Into Nokia's Price

Seeking Alpha: Ever-Volatile Ciena Doing Well In 100G

Optical equipment company Ciena (NYSE:CIEN) has been a pretty good stock for traders, as the market runs hot and cold on the shares in response to capex expectations from Verizon (NYSE:VZ) and AT&T (NYSE:T) and intermittent concerns about competition. Through this process, Ciena has done well for itself in the 100G space, and winning a spot at the table with Verizon for its 100G metro deployment was a solid, if widely expected, win. Looking ahead there should be plenty of 100G sales, as carrier deployments will go on for a while, and Ciena arguably doesn't get enough credit for its success with Web 2.0 companies like Google (NASDAQ:GOOG) and Facebook (NASDAQ:FB).

Credit from the market is a tough thing to evaluate, though, and I don't believe the market is significantly undervaluing these shares today. Sustained double-digit FCF margins would support a fair value in the high $20's, but Ciena has never been able to do that and there are risks that the overall market growth will disappoint the bulls. Given those risks, a mid-$20's fair value is probably more realistic today but I'm favorably biased on this stock and I think Ciena could surprise with additional wins and better margin leverage.

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Ever-Volatile Ciena Doing Well In 100G

Seeking Alpha: Ciena Goes Back Into The Penalty Box

When I cooled on Ciena (NYSE:CIEN) six months ago, my concerns were largely about valuation and the risk that market expectations were getting a little hot for a company that still had some real challenges in boosting margins (not to mention competing with the likes of Huawei, Alcatel Lucent (NYSE:ALU), and Infinera (NASDAQ:INFN)). I didn't expect a 23% fall, though, and the reaction to Ciena's disappointing fourth quarter guidance seems a bit much.

To buy Ciena today I think you need to have confidence that the upgrade cycle is going to last at least five years, that non-traditional customers (like Web 2.0 companies) will continue to represent a growth opportunity, that Cisco's (NASDAQ:CSCO) efforts to move down the stack will only go so far, and that Ciena can leverage the Ericsson (NASDAQ:ERIC) partnership to improve its OUS share and its overall margins. That's a lot to digest, and I don't want to suggest that you have to accept all of that to be more bullish than the Street, but if Ciena can reach (and keep) a double-digit FCF margin and generate long-term revenue growth in the mid-single digits, these shares are getting interesting again.

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Ciena Goes Back Into The Penalty Box

Seeking Alpha: After A Solid Rebound, Ciena Isn't Quite As Appealing

Back in mid-December, I thought Ciena (CIEN) looked like a good buy-the-dip opportunity. Even with the post-earnings pullback on Thursday, the shares are still up about 15% since that piece, nearly tripling the return the S&P 500. I am bullish about the company's partnership with Ericsson (ERIC) and its prospects for growing its global 100G share. At the same time, though, that is going to be a long-term process and I don't see as much undervaluation in the shares as I did three months ago.

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After A Solid Rebound, Ciena Isn't Quite As Appealing

Investopedia: If Alcatel Can Keep This Up, The Turnaround Can Work

These are still very early days, but if the second quarter is any sign, Alcatel-Lucent's (NYSE:ALU) latest restructuring efforts may bring this company (and stock) back into relevancy. There is still plenty than can go wrong, but the carrier spending environment is looking better by the month, and will likely put some significant tailwinds into Alcatel's sales. While I definitely missed out on the early jump in these shares, a pathway to $3.50 (or higher) for the shares is at least worth talking about today.

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Investopedia: Nokia Buys Out Siemens, Are Phones Now On The Block?

There was never really a question as to if Nokia (NYSE:NOK) and Siemens (NYSE:SI) would unwind their 50/50 partnership in Nokia Siemens Networks. Siemens had made it quite clear that they were considering all options for monetizing their stake and continuing their own plan to streamline operations. What's more, it was becoming increasingly clear that there was minimal third-party interest and that going the IPO route wasn't likely to realize full value. Curiously, though, Siemens has chosen to sell its stake in the venture to Nokia at a pretty undemanding valuation.

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Investopedia: Could Alcatel-Lucent's Restructuring Boost Ericsson Further?

At the risk of sounding like I'm looking to bash Alcatel-Lucent (NYSE:ALU), I have been thinking more about the company's recently-announced restructuring efforts and wondering if they will help the company as much as they may help the company's rivals. The “law of unintended consequences” is real, and though there are sound motives for the company's moves, it nevertheless could backfire. To that end, I have to wonder if Ericsson (Nasdaq:ERIC) and Huawei are poised to reap the most benefit from Alcatel's self-improvement plans.

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Investopedia: Will A New Alcatel-Lucent Plan Lead To Better Results?

Stop me if you've heard this before – Alcatel-Lucent (NYSE: ALU) has a bold plan to cut costs, refocus the business, and return the company to profits and prosperity. To be fair, the new CEO does deserve a chance to show if his plan can/will work, and the broad strokes outlined today make sense. Even so, this is Alcatel-Lucent and the telecom equipment industry we're talking about, and success is far from guaranteed.

Cut Costs, Cut Businesses
 The centerpieces to the new plan are deep cost cuts and a sharp focus on businesses where Alcatel-Lucent can compete effectively in the coming years.

While the company had been targeting about EUR 500 million in cost cuts by 2015, that target has been doubled. Management intends to achieve this by increasing its direct channel focus with sales and marketing and reducing the scope of its R&D. That's an interesting move, particularly given how many Alcatel-Lucent bulls try to point to the company's patent estate as a store of future value. While it makes ample sense to reduce the scope of R&D (translating those patents into real products and real revenue streams has not gone well), I wonder how it will go over with shareholders.

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Investopedia: Alcatel-Lucent Looking At Long Road, But Not Starting From Scratch

To get a sense of just how badly wrong the Alcatel-Lucent (NYSE:ALU) story has gone, consider that the combined company has never produced a full year of positive free cash flow since the 2006 merger. What's more, while the company still has very relevant share in areas like edge routing, rivals like Ciena (Nasdaq:CIEN), Huawei, and ZTE have been taking share, while companies like Nokia Siemens Networks get their acts together.

That's all pretty well known, though, and part of the reason the stock sits below $1.50 today. With a new CEO, new products, and new market opportunities, perhaps Alcatel-Lucent has new life to offer shareholders.

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Investopedia: Another Revision Doesn't Make It Easier To Like Juniper

I thought that 2013 could be the year where long-suffering stocks like Ciena (Nasdaq:CIEN) and Juniper (NYSE:JNPR) earned a little love from the Street. So far that hasn't been the case, though Cisco (Nasdaq:CSCO) and Ericsson (Nasdaq:ERIC) have shown some signs of life.

The real question for Juniper remains what it has been for some time now – can the company take/regain share from companies like Cisco and Alcatel Lucent (NYSE:ALU) in routing, gain share in switching, and stabilize the security business? Although carrier spending has been looking and sounding a little better, another downward revision in Juniper's guidance makes it harder to step up and take a chance with this stock.

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Investopedia: Nokia Still Straddling Fault Lines

Roughly 18 months into his tenure as the CEO of Nokia (NYSE:NOK), Stephen Elop hasn't yet proven much of anything about the future of this former mobile device leader. The company has done a better-than-expected job of cutting costs and its Nokia Siemens Networks joint venture is looking a lot better, but the company continues to lose mobile device share at an alarming rate. While the company's ongoing existence as a going concern is arguably not an issue, there's a great deal more to do before the company can be considered a real turnaround stock.

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Investopedia: ADTRAN Looks To Rebound From A Pretty Miserable 2012

It's almost cliché to talk about how bad of a year 2012 was for communications equipment vendors dependent on American and European carrier spending. With core broadband access product sales down 13% in 2012, ADTRAN (Nasdaq:ADTN) definitely found itself among the laggards, with shares down more than 30% over the past year and well below the S&P 500.

But 2013 is a new year, and hope springs eternal in the hearts of tech investors. While investors should not discount the competitive risks from rivals like Calix (NYSE:CALX) and Alcatel Lucent (NYSE:ALU), there is reason for at least cautious optimism that carrier infrastructure deployments will lead to better results for ADTRAN. At a minimum, it certainly doesn't seem like the Street has priced this stock for particularly breathtaking performance.

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Investopedia: Oracle Dials It Up In Telecom

Oracle (Nasdaq:ORCL) doesn't do things halfway, and when the company announced its acquisition of Acme Packet (Nasdaq:APKT) it looked like only the beginning of the company's strategy to exploit the large telecom vertical. Now we know that the company really is serious, as it has followed the Acme Packet deal with an announcement that it intends to acquire networking vendor Tekelec from its private equity owners.

A Complimentary Deal With Interesting IP Ramifications
Right off the bat, acquiring Tekelec makes quite a bit of sense. Tekelec is a telecom equipment vendor that specializes in products that handle mobile traffic. In particular, the company focuses on areas like network signaling, policy control, and subscriber data management. Combined with Acme Packet's network control products/technology, Oracle will offer a cohesive hardware/software line-up in network control for large carrier customers like Verizon (NYSE:VZ) and AT&T (NYSE:T).

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Seeking Alpha: BroadSoft Broadsides Investors

Growth stocks have a relationship with Wall Street not unlike that between mobsters and their "clients" - namely, "give us the growth … or else." Unfortunately for BroadSoft (BSFT) investors, the company had little choice but to go with "or else" with its guidance for 2013. As revenue growth appears to be flattening, the biggest question now is whether it's a pause or the warning sign that the BroadSoft growth story isn't what investors thought it was. While I'm inclined to believe that this is a pause and not a stop, investors need to appreciate the above-average risk and volatility in this name.

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BroadSoft Broadsides Investors

Seeking Alpha: Alcatel-Lucent - The Rope Is Getting Tighter

When I last wrote on Alcatel-Lucent (ALU) a quarter ago, longs certainly didn't appreciate my skepticism on this company's near-term prospects. Nevertheless, the stock has dropped almost another 40% since then, and now questions are popping up regarding whether the company can cut enough costs to remain a viable contender.

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Alcatel-Lucent - The Rope Is Getting Tighter

Seeking Alpha: Alcatel-Lucent: Still Building On Loose Sand

Waiting for a true, sustained recovery in carrier spending is starting to feel like waiting for Godot. Although there have been a few bright spots this quarter, Juniper (JNPR) and Ericsson (ERIC), even those are "yeah, but..." stories. With Alcatel-Lucent (ALU) it's even worse, as the company is falling short not only in sales, but may also be losing hard-won margin leverage.

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Alcatel-Lucent: Still Building On Loose Sand

Investopedia: Nokia Still Has Miles To Go

It says something about a company (and its stock) when the market is apparently willing to hand out plaudits on the basis of "things were less terrible than we thought." It's hard to say that Nokia (NYSE:NOK) is really on the way back, but maybe this fading mobile phone leader has at least found the path to take.

Stepping Over a Low Bar 

Sell-side analysts didn't expect a lot from Nokia, but the company at least delivered that much. Revenue was up 11% sequentially for the fourth quarter, though down 21%. Both the "device" (that is, phones) and networks business saw basically the same 11% sequential growth (networks was a little stronger), but the year-on-year drop for devices was still pretty steep, down almost 30%. (For related reading, see Research In Motion Sliding Toward The Cliff.)

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