A Tale of Two Tech Companies

9 mins read
A Tale of Two Tech Companies

Two high-profile tech companies have recently made headlines — for very different reasons.

One has decided to enforce its patents and demand royalties from infringing companies. The other announced it will slash thousands of jobs.

Which one appears stronger?

As our macro specialist, Eric Fry, explains below, the answer might surprise you.

Today, Eric will give you all the details on these two tech companies and their recent moves. As part of this, the conversation will touch upon the massive investment opportunity in 5G.

From Eric:

This truly is a once-in-a-generation opportunity to invest in the beneficiaries of 5G … a brand-new “information highway” that is 100 times faster than the one we use today.

As you’ll read below, one of these two companies appears especially promising as an investment poised to benefit from this 5G revolution.

I’ll let Eric take it from here.

Have a good weekend,

Jeff Remsburg

 

 

Tech Enforcer vs. Tech Slasher: Only One Is the “Strong Man”

By Eric Fry

On Tuesday, one technology company announced that it’s cutting between 5,000 and 10,000 jobs — 11% of its workforce — over the next two years.

That same day, another tech company said it’s going to “increase transparency” by enforcing its patents and demanding royalties from smartphone makers that use its technology.

At first glance, it sounds like the job slasher is coming from a position of weakness. After all, companies often initiate layoffs when they’re on their heels and flailing around trying to boost their share price.

And the news from the patent enforcer makes it sound like the company is getting tough and collecting much deserved revenues.

But we all know that demonstrations of strength or weakness often end up signifying just the opposite.

We’ve all seen parents at the neighborhood playground screaming at their kids in order to enforce “rules,” while clearly having no idea what they’re doing. The kids are in charge.

And you’ve likely “slashed” expenses yourself — no dinners out for a few months — in order to gear up for something much bigger and better … say, a trip to Bali. That’s not weakness.

I believe that’s exactly what is happening here.

So today, let’s take a look at both of these bits of tech company news.

And at whom the real “strong man” is …

 

The Tech Enforcer

The patent enforcer is China’s Huawei Technologies.

Huawei can claim 3,007 5G patent “families,” according to the researchers at GreyB. And Huawei says it’s going to charge companies like Apple Inc. (AAPL) and Samsung Electronics Co. Ltd. $2.50 per 5G-connected smartphone.

The company already expects to rake in $1.3 billion from patent licensing between 2019 and 2021. And if it can enforce those 5G patents, that number would multiply impressively.

That’s a pretty big “if,” however. In the past, Huawei has been lax on enforcing its patents, so my initial reaction to the news was “good luck with that.”

Patent litigation, in the best of circumstances, takes years to resolve and enforce. And that’s assuming Huawei has a legit case in the first place.

Moreover, Huawei is enforcing its patents because it has lost so much business over the past few years due to global politics. This non-move may be all it has left.

While the United States has been keeping an eye on Huawei since 2012, the movement against it really started building on last summer, when President Trump designated the leading manufacturer of 5G equipment as backed by the Chinese military.

Then on June 30, the U.S. Federal Communications Commission officially named Huawei as a national security threat. Since then, the United Kingdom and many other Western nations have banned Huawei and other “high-risk” 5G equipment vendors from their networks.

The chief concern is that Huawei is tied to the Chinese government. Huawei founder Ren Zhengfei was a technician for the People’s Liberation Army before starting the company, and the Chinese government has invested billions in Huawei, which is one reason for its success.

Clearly, the United States doesn’t want Huawei involved with the construction of its communications networks — particularly its growing 5G networks.

And so, Western nations and companies have all started looking for other 5G technology suppliers.

Enter that “weak” job-cutting company …

 

The Tech Slasher

I’m talking about Finland-based Nokia Corp. (NOK). Nokia CEO Pekka Lundmark signaled this job cut months ago, as part of his plan to overhaul and focus the company on 5G opportunities. As much as job cuts hurt those affected during a pandemic, this is a planned move, not desperation.

Nokia may end up adding more 5G-focused employees than these plans slash.

While Nokia recently reported a mildly disappointing quarter, it offered promising signs on the 5G front … and I expect Nokia to deliver increasingly visible successes as we move further into 2021.

Parsing through the fourth-quarter results, a few bright spots jump out immediately.

In the 5G market, Nokia continues to expand its global footprint at a steady clip. The company currently has 195 commercial 5G engagements, including paid trials and 45 live 5G networks.

Nokia’s “live networks” tally trails behind some of its competitors, but it is growing, nevertheless.

Plus, Nokia now has 1,350 declared 5G-essential patents, along with patent expansions into related technologies like IoT solutions. This hefty patent portfolio will not automatically translate into future profit growth, but it could … as the billion-dollar revenue flow from Nokia Technologies demonstrates.

Additionally, after the end of the fourth quarter, Nokia inked two major deals.

First, Nokia struck a recent “multibillion-dollar” agreement with T-Mobile to help expand the mobile provider’s 5G network.

Nokia has also signed major deal with Google Cloud to codevelop cloud-native 5G core technologies for Communications Service Providers (CSPs) and Enterprises. And it’s working with Microsoft Corp. (MSFT) to create secure and seamless cloud connectivity of Internet of Things devices, and with Amazon Web Services to help big firms get more out of various cloud-based applications.

If Nokia can engineer the turnaround it is attempting and demonstrate that it is on a track toward robust growth, investors will reward the stock with a much higher valuation. I remain optimistic about Nokia’s prospects over the next two years … as the global 5G rollout gains momentum.

This truly is a once-in-a-generation opportunity to invest in the beneficiaries of 5G … a brand-new “information highway” that is 100 times faster than the one we use today.

Nokia’s recent moves further underscore my central thesis for investing in the 5G sector: Because 5G enables so many different cutting-edge technologies, and renders them truly operable, no major company or country can afford not to invest in 5G capabilities.

In the brand-new issue of Fry’s Investment Report, I made my latest 5G-related recommendation.

Click here to find out how to join us there.

Regards,

Eric Fry