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Nokia to Drive TIM Brazil's IoT Services for Enterprises

Zacks Equity Research

Nokia Corporation NOK communicated that it has inked a contract with TIM Brazil, a leading telco and the Brazilian subsidiary of Telecom Italia, to provide IoT services to the enterprise customers of TIM Brazil. Financial terms of the deal remained undisclosed. Nokia’s share price fell 1.4% in Friday’s trading session to eventually close at $3.52.

Going forward, the companies will also work on unlocking new IoT solutions that can be applied in various industries to help enterprises undergo digital transformation. As part of the deployment, the Nokia IMPACT IoT platform, which simplifies the process of bringing and scaling multiple applications onto a single platform, will provide IoT device management and service capability exposure.

The Brazilian market is considered to be the largest IoT market in Latin America, with extensive adoption of IoT technologies projected to add $200 billion to the country’s economy by 2025. With Nokia’s Worldwide IoT Network Grid (WING) managed service, TIM and its enterprise customers across industries will be able to capture IoT opportunities rapidly.

Notably, Nokia’s first WING deal in Latin America enables TIM to leverage new business models to tap this opportunity and generate additional revenue streams. WING will enable local and multinational companies to benefit from global IoT services. It features a distributed architecture that maintains all user data in-country, such as in Brazil, to remain compliant with data sovereignty and privacy laws.

In the last reported quarter, Nokia’s net sales increased 4.2% year over year to €5,686 million. The performance was driven by improved industry demand and competitiveness of its end-to-end portfolio, coupled with growth across four out of six regions and all customer types. While sales increased in Asia-Pacific, Europe, Latin America and North America (up 14%, 6%, 6% and 7%, respectively), it declined in Greater China and Middle East & Africa (down 21% and 7%, respectively).

Due to margin pressure and additional 5G investments, Nokia lowered its 2019 and 2020 guidance. For 2019, the company expects non-IFRS earnings per share of €0.21 (+/- 3 cents), which was previously projected between €0.25 and €0.29. Non-IFRS operating margin is anticipated to be 8.5% (+/- 1 percentage point), clipped from earlier forecast of 9-12%.

For 2020, non-IFRS earnings per share are expected to be €0.25 (+/- 5 cents), previously anticipated €0.37-€0.42. Non-IFRS operating margin is likely to be 9.5% (+/- 1.5 percentage point), trimmed from previous estimate of 12-16%.

Shares of Nokia have lost 39.5% against the industry’s growth of 22.6% year to date. The company topped earnings estimates twice in the trailing four quarters, delivering a positive surprise of 81.6%, on average.

However, the Finnish telecom network equipment maker is witnessing healthy underlying momentum in its focus areas of software and enterprise, which augurs well for its licensing business. It has launched more than 15 live 5G networks with customers, including Sprint, Verizon Communications, AT&T and T-Mobile in the United States; Vodafone Italy and Zain in Saudi Arabia; as well as SKT, KT and LGU+ in Korea.

Nokia currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the industry include Qualcomm Incorporated QCOM, Ubiquiti Inc. UI and PCTEL, Inc. PCTI. While Qualcomm and Ubiquiti sport a Zacks Rank #1 (Strong Buy), PCTEL carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Qualcomm has long-term earnings growth expectation of 14%.   

Ubiquiti has long-term earnings growth expectation of 9.4%.   

PCTEL surpassed earnings estimates in each of the trailing four quarters, the surprise being 150.6%, on average.

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