Sonim Technologies vs. Nokia: Which Ultra-Rugged Mobile Phone Manufacturer is a Better Choice?

Nokia Corporation (NOK), which is headquartered in Espoo, Finland, and Sonim Technologies, Inc. (SONM) in San Mateo, Calif., are well-known ultra-rugged phone manufacturers worldwide. NOK is engaged in the network and Internet protocol (IP) infrastructure, software, and related services market. It serves communications service providers, governments, large enterprises, and consumers. SONM manufactures and designs mobile phones and accessories, primarily for wireless carriers, and sells ruggedized phones, barcode scanners, and accessories through international distribution channels. The company serves transportation and logistics, construction, manufacturing, facilities management, energy and utility, and public sectors.

Ultra-rugged phones enjoy a much longer life cycle than regular consumer smartphones. Because the COVID-19 pandemic required businesses to change their operations, ultra-rugged phones played a significant role in several industries' adaptation. And with the integration of better user interfaces and 5G, the demand for these phones is expected to continue rising. The North American rugged phones market is expected to grow at 6.7% CAGR to $1.43 billion by 2027. So, both NOK and SONM should benefit.

While SONM’s shares lost 40% in price over the past six months, NOK has surged 47.2%. NOK is a clear winner with 7.2% gains versus SONM’s negative returns in terms of their past three months’ performance. But which of these stocks is a better pick now? Let’s find out.

Click here to checkout our 5G Industry Report for 2021

Latest Developments

This month , NOK was selected to roll out United States Cellular Corporation’s (UScellular) (USM) standalone 5G core network, with its portfolio of hardware, software, and services expected to be completed by the end of 2022. UScellular will unlock the full potential of 5G for its customers, delivering the high speeds and low latencies that will power new applications, such as virtual and augmented reality. This collaboration should  enable NOK to gain more momentum in the North American standalone 5G core market.

On September 13, 2021, SONM launched the XP3plus flip phone. With strong battery life, the waterproof XP3plus features a larger display, additional programmable buttons to improve productivity, and a new intuitive user interface with dynamic soft keys. Upgraded based on  customer feedback over the years, SONM expects this XP3 plus flip phone to witness great demand in the near term.

Recent Financial Results

For its fiscal second quarter, ended June 30, 2021, NOK’s net sales increased 4.3% year-over-year to €5.31 billion ($6.21 billion). The company’s gross profit has been reported at €2.18 billion ($2.55 billion), up 12.2% from the prior-year period. Its operating profit came in at €484 million ($565.55 billion) for the quarter, representing a 184.7% rise from the prior-year period. NOK’s net profit has been reported at €351 million ($410.14 million), up 254.5% from the prior-year period. Its EPS increased 200% year-over-year to €0.06 ($0.07). As of June 30, 2021, the company had €7.25 billion ($8.47 billion) in cash and cash equivalents.

For its fiscal second quarter, ended June 30, 2021, SONM’s net revenues decreased 43.2% year-over-year to $11.95 million. The company’s operating income came in at $2.65 million, down 46% from the prior-year period. SONM’s loss from operations declined 2% year-over-year to $6.49 million. While its net loss decreased 5.8% year-over-year to $6.69 million, its loss per share declined 54.5% to $0.10. The company had $6.90 million in cash and cash equivalents as of June 30, 2021.

Expected Financial Performance

Analysts expect NOK’s EPS to increase 32.1% year-over-year in the current quarter, ending September 30, 2021, 22.1% in the current year, and 3.6% next year. Its revenue is expected to grow 3% year-over-year in the current quarter, marginally in the current year, and 2.8% next year. The stock’s EPS is expected to grow at a 17.8% rate per annum over the next five years.

In comparison, SONM’s EPS is expected to remain negative in the coming quarters of the current year and next year. However, its revenue is expected to grow 11.9% year-over-year in the current quarter, decline 14.2% in the current year, and rise 35% next year. Analysts expect the stock’s EPS to grow at a 25% rate per annum over the next five years.

Profitability

NOK’s trailing-12-month revenue is almost 484.6 times what SONM generates. NOK is also more profitable, with a 14.7% EBITDA margin versus SONM’s negative returns.

Also, NOK’s ROA and ROTC values of 3.9% and 7%, respectively, compare with SONM’s negative values.

Valuation

In terms of non-GAAP forward P/E, NOK is currently trading at 15.33x, versus SONM’s negative 1.65x.

In terms of trailing-12-month Price-to-Book, SONM’s 3.16x is 59.6% higher than NOK’s 1.98x.

POWR Ratings

While SONM has an overall D grade, which translates to Sell in our proprietary POWR Ratings system, NOK has an overall B grade, equating to Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.

NOK has a B grade for Sentiment, which is consistent with its favorable analyst estimates about its earnings growth. NOK’s revenue is expected to increase marginally in the current year. However, SONM’s C grade for Sentiment reflects its slightly lower analyst estimates about its earnings growth. SONM’s revenue is expected to decline 14.2% in the current year.

In terms of Quality, NOK has been graded a C, which is consistent with its slightly lower-than-industry profitability ratios. NOK has a 14.6% trailing-12-month EBITDA margin, which is 0.3% lower than the 14.7% industry average. However, SONM’s F grade for Quality is in sync with its negative EBITDA margin.

Of the 55 stocks in the B-rated Technology - Communication/Networking industry, SONM is ranked #53, while NOK is ranked #19.

Beyond what we’ve stated above, our POWR Ratings system has also rated NOK and SONM for Value, Momentum, Stability, and Growth. Get all SONM ratings here. Also, click here to see the additional POWR Ratings for NOK.

The Winner

The deployment of 5G technology incentivizes companies to manufacture 5G-enabled ultra-rugged phones to capitalize on the growing demand across various industries. So, both NOK and SONM should benefit from the industry tailwinds. However, higher profitability, lower valuation, and better financials we think make NOK a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Technology - Communication/Networking industry.

Click here to checkout our 5G Industry Report for 2021

NOK shares fell $0.02 (-0.35%) in after-hours trading Monday. Year-to-date, NOK has gained 47.31%, versus a 20.23% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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