The Return of Nokia
Long-term subscribers will be familiar with Nokia. It was originally recommended back in May 2018 for – its 5G portfolio.
THe investment thesis was playing out exactly as predicted.
But then the management team withheld material information from investors.
In the Q3 2019 earnings release, management drastically lowered profit guidance--- and suspended the dividend to--- “increase R&D expenditures.” I put that in quotes because it was an excuse management used.
The problem is that management had to already know this would happen at the time of the previous earnings call… when Nokia delivered great results.
Companies know their approximate cash position at least two years out.
Companies know their research and development (R&D) budgets years out.
Companies know their competitive position in the market.
Management had to know it was facing pricing pressures during the previous earnings call.
But to boost share prices, the company let consumers think it had a fantastic quarter three months prior… all the while planning on slashing the dividend and reducing pricing to lower operating margins.
Put more simply, instead of coming clean when it should have, the management delayed the announcement in hopes of a miracle.
XXXXXXX worked as a technology executive for the better part of two decades, most of that with publicly traded companies. A professional executive management team would have been transparent with investors ahead of time. Instead, the management team lied to us by omission.
Nokia’s board of directors obviously felt the same way. The board replaced both the chief executive officer (CEO) and chief financial officer (CFO) for this transgression.
On August 1, Pekka Lundmark began as CEO. And Marco Wirén began as CFO on September 1.
Nokia paid a steep price for its poor judgment. The company is now trading at one of the lowest levels it has seen in 20 years. And that is why the excitement this second time around.
The timing for the investment couldn’t be better, as Nokia is turning the corner on its 5G offerings after its operational “hiccup.”
And now we can get into Nokia at a price nearly 20% cheaper than when we sold it last year.
end of Chapter One---
