In the wake of Nokia Inc.’s (NOK) dismal forecast for its network business, some analysts are downgrading the stock, caught off guard at the magnitude of its target for sales next year.
During the company's analyst meeting held in Barcelona, Spain, Nokia warned equipment sales will slump 2% next year. That sent shares of the telecom equipment maker down and prompted analysts to downgrade their ratings, including BMO Capital Markets, which changed its rating to market perform from outperform and lowered its price target to $4 from $6 a share.
No Way Back Up for Nokia Shares?
In a research report covered by Barron’s, Tim Long of BMO said he was “way off on how bad the communications equipment market would be this year.” According to Long, he thought a decline in revenue would be “tolerated” given the stock did OK when revenue was dropping during Nokia’s restructuring in 2013, but that assessment is proving wrong. “We see no catalyst for rebound, and believe the stock will remain in a trading range until revenue declines stabilize,” wrote Long. That's even with Long saying the synergies from acquiring Alcatel-Lucent are turning out as well as he thought.
On Tuesday, Nokia spooked Wall Street and analysts when Nokia CEO Rajeev Suri offered up the 2% decline in 2017 guidance, which is in line with the broader market. From that year to 2021, Nokia said it expects equipment sales from telecom companies to grow at a compound annual basis of a dismal 1.2%, though Nokia did say it’s doing better than rival Ericsson. "Nokia is not Ericsson. They are in crisis. We outperformed them in every area," Suri said at the meeting, according to Reuters. (See also: Nokia’s Shares Dive on Weak Forecast.)
Sales Drop 6% in Third Quarter
That comes on the heels of third-quarter results in which Nokia reported a 6% decline in sales. The company said a slowdown in wireless network equipment will hurt its revenue for the current quarter. Nokia and other wireless network companies are facing a decline in demand in large part because the market for 4G equipment has reached its growth level, and 5G isn’t expected to start rolling out until 2020. Merrill Lynch also slashed its investment rating on Nokia in the wake of the analyst meeting to neutral from buy.