With Nokia (NYSE:NOK) stock down 39% from its January highs, many investors have started asking if it’s time to buy into the 5G revolution. 5G is clearly one of the biggest cycles of the decade, and Ericsson (NASDAQ:ERIC) can’t single-handedly build out every Western 5G network. At the same time, Chinese telecom behemoth Huawei is getting shut out of most networks due to security concerns. All of this sets up Nokia for a second chance at 5G.

But wait a bit longer before you buy NOK stock.

There’s still a lot more that could go wrong with Nokia. A bumpy ride ahead should give patient investors an opportunity to jump in at a lower price.

What You Know, What You Don’t

It’s no secret that Nokia’s 5G start has been shaky. The company has been steadily losing contracts to Ericsson. It also got the cold shoulder from one of its biggest customers, Verizon (NYSE:VZ), which chose Samsung (OTCMKTS:SSNLF) for its 5G buildout.

But what investors don’t realize is that Nokia’s biggest blunder could leave the company too far behind to catch up in the 5G race. Nokia fumbled badly by choosing programmable chips, called FPGAs, for its wireless radios.

Although former CEO Rajeev Suri saw it as a key differentiator at the time, FPGAs are far more expensive than ASICs, which are made by semiconductor firms like Broadcom (NASDAQ:AVGO) and Marvell (NASDAQ:MRVL). They also consume more power. For Nokia, this decision has resulted in profit margin erosion and a reputation for inferior 5G equipment.

Now Nokia is making a U-turn. The company has overhauled less than 40% of its equipment to ASICs. The transition won’t be fully complete until the end of next year. That means Nokia still has a long way to go before its costs go down. While the company is still clinging to its 7% operating margin target (already down from 9.7% in 2020), there’s no reason to get comfortable yet.

That’s because profit margins aren’t the only numbers going in the wrong direction. Having already cut 11,000 jobs since 2018, the company plans to cut up to another 10,000. Management says it will pump much of the expense savings into research and development, hoping to reverse a three-year investment decline. But rivals have all been steadily increasing their 5G spending. Leadership has also been a revolving door, with Nokia having hired three different leaders of its mobile networks division over the past 4 years.

The Next Slice of Pie Could Be Much Smaller

The key to Nokia’s problem is that no matter how quickly the company catches up in ASIC chips, its customers are already sailing further away on a new technology: Open RAN (O-RAN). O-RAN is an open on-ramp between your smartphone and the mobile network.

O-RAN is terrifying to Nokia (and Ericsson too). The technology breaks open the on-ramp, allowing operators to slot in new hardware from different suppliers. This kind of architecture threatens to shake up today’s tech oligopoly, offering new companies a chance to get into the game. Because the RAN is the biggest piece of the 5G network pie, representing just under 50% of the total infrastructure market, spending shifts here are extremely important.

O-RAN means Nokia will have to fight harder for an even smaller slice of the 5G revolution. Fujitsu (OTCMKTS:FJTSY, OTCMKTS:FJTSF) and NEC are new entrants boasting success at multi-vendor RAN. Upstart Japanese 5G operator and major O-RAN backer Rakuten (OTCMKTS:RKUNY) is also in the mix.

And the world’s biggest companies are already jumping aboard. Verizon and DISH Network (NASDAQ:DISH) have started testing O-RAN and have made hardware selections. French telecom operator Orange S.A. (NYSE:ORAN) is even more aggressive. Starting in 2025, anything it buys for its network must be O-RAN compliant.

Breaking Up Big Tech

While O-RAN tech is still in early stages, it has a good chance of success — for two reasons.

First, it provides a solution to mobile operators’ biggest headache: How to scale and manage networks against a tsunami of exploding mobile data. In fact, O-RAN’s open architecture looks a lot like cloud computing and server virtualization, which for mobile operators, are technologies whose interoperability and scale yield better performance at a lower cost.

The second reason O-RAN should succeed: It’s backed by a strong political agenda — especially in Europe. With 5G technology largely hailing from the U.S. and Asia, European companies increasingly want to support their own. Telefonica Deutschland (NYSE:TEF) CEO Markus Haas has called for Europe’s 1.8 trillion euro Covid-19 recovery fund to support European O-RAN companies. The E.U. is studying this topic as part of broader digital reforms. The U.K. also formed a task force to advise on interventions to open up the telecom market.

NOK Stock: A Rising Tide Doesn’t Always Lift All Boats

Playing 5G is smart. And there’s good reason to be constructive on Nokia stock. With 5G networks expected to accelerate this year and next, and telecom operators looking for a western alternative to ERIC, the industry has a vested interest in seeing NOK weather the storm.

But the company will have to do more than clear the decks. It needs to start leading the 5G conversation.

NOK stock trades at 7x EBITDA — essentially in line with its 5-year average. With 2021 looking to be a difficult year ahead, the worst isn’t over for the stock. Wait until the shares fall further before jumping into NOK as a comeback play.

On the date of publication, Joanna Makris did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Joanna Makris is a Market Analyst at InvestorPlace.com. A strategic thinker and fundamental public equity investor, Joanna leverages over 20 years of experience on Wall Street covering various segments of the Technology, Media, and Telecom sectors at several global investment banks, including Mizuho Securities and Canaccord Genuity.