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Nokia (NOK) Secures Deal to Upgrade KDDI's Network to 5G

Zacks Equity Research

Nokia Corporation NOK said that it has been chosen by KDDI Corporation, a leading Japanese telecommunications operator, as a primary partner to upgrade its 4G network to 5G. Remarkably, the Finnish telecom equipment maker currently has 48 global 5G commercial contracts, including live networks in the United States, Latin America, Europe, Korea and Australia.

With Nokia’s cutting-edge radio access solution, AirScale (which supports both 4G and 5G operations), KDDI will launch 5G services in 2020, as the operator intends to meet the increasing consumer and industrial demands for the future of connectivity. The 5G network will support KDDI across cmWave and mmWave frequency bands and can be deployed in distributed and centralized architectures.

Concurrently, the deal reinforces the long-term (more than two decades) relationship between the two companies. Nokia is an existing supplier to KDDI across multiple technologies, including radio, fixed network and mobile core network. The latest network will be deployed across Japan and will deliver enhanced Mobile Broadband to consumers and enhanced Machine Type Communication facilitating various new applications for businesses.

Nokia is well positioned for the ongoing technology cycle, considering the strength of its end-to-end portfolio. It has been witnessing robust progress in its focus areas of software and enterprise while augmenting its footprint in the race to 5G roll out. This should help the company position itself for 5G leadership, and reaffirm commitment to full-year 2020 non-IFRS operating margin between 12% and 16% and non-IFRS earnings per share in the range of €0.37-€0.42.

The company’s installed base of high-capacity AirScale product, which enables customers to rapidly upgrade to 5G, is growing fast. It is driving the transition of global enterprises into smart virtual networks by creating a single network for all services, converging mobile and fixed broadband, IP routing as well as optical networks with the software and services to manage them.

In addition, Nokia is expanding its business into targeted, high-growth and high-margin verticals to address opportunities beyond its traditional markets. Meanwhile, risks, which include trade-related uncertainty and challenges in the Chinese market, persist.

The company is witnessing healthy underlying momentum in software and enterprise, which augurs well for its licensing business. It is yet to be seen whether coveted solution offerings to industry frontrunners can help Nokia make a turnaround in the upcoming days.

Nokia’s shares have lost 10.1% compared with the industry’s decline of 3.8% in the past year. The company topped earnings estimates thrice in the trailing four quarters, delivering an average positive surprise of 89.3%.

Nokia currently has a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader industry are PCTEL, Inc. PCTI, Viasat, Inc. VSAT and T-Mobile US, Inc. TMUS. While PCTEL sports a Zacks Rank #1 (Strong Buy), Viasat and T-Mobile carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PCTEL surpassed earnings estimates thrice in the trailing four quarters, the average positive surprise being 146.4%.

Viasat surpassed earnings estimates in each of the trailing four quarters, the average surprise being 230.6%.

T-Mobile surpassed earnings estimates in each of the trailing four quarters, the average surprise being 17.9%.

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