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At the request of my buddy TMF Grape in his great column last night I decided to hunker down and try to hit a home run for the Nokia Home team for consideration of Nokia as the next Rule maker. The following has everything except the spreadsheet which disqualifies me for the signed book. Phil see if you can get me one anyways if you don't mind OK?????

LETS GET READY TO RUUUUUMMMMBBBBLLLLEEEE!!!!!!


Since I am probably the only analyst alive who doesn't know how to use Excel or spreadsheets in general . I will disqualify myself for the autographed Rule maker book for I wouldn't know how to post the Rule Maker Spreadsheet if my life depended on it. What I will do is give a new Fisher “15 point Analysis” of my favorite stock Nokia for my home team. Then I will try to explain Qualitatively the Rule maker Criteria step by step!!! I just bought a new Sonny Rollins CD and am putting in the player as we speak and will not stop until I am done. So here goes a complete analysis for the Nokia Home team !!!!!

Fisher “15 Point” Analysis (January 3, 2000)

Point 1 = Does the company have products or services with sufficient market potential to make a sizeable increase in sales for at least several years?

Nokia is a 600 pound gorilla in the area of coming out with products where they will dominate. The secret to Nokia's success is that they are working with all the available technologies and make phones which will work on CDMA, TDMA and GSM networks. To give you an example the 7100 series called the WAP phone will be available in all technologies by June 2000. It will be available in the TDMA 7160, CDMA 7170 and GSM 7190.
As for sizable increases in sales, the first production run of the 7190 in Europe and Asia is already sold out and the demand is running at close to a 2 to 1 ratio to supply. In 2003 Nokia will be introducing its 3G phones which will allow the caller to have the ability to see who they are talking too. This will allow boyfriends to make sure that their girlfriends are always well groomed on the make up front ,which will be a big boom for Estee Lauder stock. Just a small tip for the future from Uncle Mycroft and his crazy abstract strategies.

Point 2 = Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when currently attractive product lines have largely been exploited?

Nokia's main goal is to make their previous version phones obsolete so as to create new sales by cannabilizing previous models. It has been a pattern which allows 40% of new sales to come from existing customers upgrading to newer models. This I see as an endless cycle for innovations will constantly come out and newer models will be the “Must have Item”. The amazing thing to see is that these new models cost twice as much as the current ones, so Nokia has acted as a drug dealer does. They gave out phones at dirt cheap prices to get you addicted and then they hit you with the latest and greatest models and wham you end up paying $400 for it. I am a Nokia junky and I just had to go out and buy the 8860 which hit me for $895. Everywhere I go people freak out when I pull out my phone and want one real bad. So Nokia should have no trouble with the $400 7100 series.

Point 3 = How effective are the company's research and development efforts in relation to its size?

Nokia has consistently used 9% of revenues and have dedicated them to Research and Development. It is the best run R&D operation that I know of. They are constantly building new research facilities and having big shots like the CEO of Intel being the guest speakers at their openings , thus showing the world who Nokia is talking to or buddy ,buddy with!!!

Point 4 = Does the company have an above average sales organization?

The sales organization of Nokia again is the best in the world, for it is not just Nokia representatives who push the phones but a whole army of Service providers and Store salespersons. Nokia has set up a unique sales system where everyone wins. Here is an example;

Nokia phones go from the Nokia sales force to the service provider. Along with these phones Nokia supplies the accessories to the Provider at cost, thus giving all the profits from the accessories (which run as high as 1200%) to the service provider. Thus he wins and uses those profits to expand and build the infrastructure, towers etc. The salesperson who works for the company wins then for besides getting a $20 commission for selling a Nokia phone , he or she also gets 15% of all accessory sales. Since Ericcson ,Qualcomm and Motorola have no accessories , there is no incentive for the salesperson to push them. My friend this month sold 110 phones , 108 Nokias and 2 Ericy's . Why “ Man , I get a 15% on every accessory I sell !!”
Need I say more. Everyone wins for Nokia has a complete strategy for taking care of everyone on the food chain!!!


Point 5 = Does the company have worthwhile profit margins?

Expect the profit margins to dramatically increase after 2000 but the TTM Profit margin according to the Yahoo profile for the company is 13.2%.
Not bad when MOT has a 2% and ERICY has a 5.2% margins.


Point 6 = What is the company doing to maintain or improve profit margins?

Very simple answer they are releasing higher margin products with 10 times the features and twice the cost. Thus building demand as a “Must have” product!!!

Point 7 = Does the company have outstanding labor and personnel relations?

Nokia was just ranked as one of the top 100 companies to work for in the world today. Need I say more!!!

Point 8 = Does the company have outstanding executive relations?

The management of Nokia are made up of 4 division heads who then report to Jorma Ollila the CEO. They are each given the title of president and are more then qualified to be CEO themselves if need be.

Point 9 = Does the company have depth to its management?

I am writing this from memory so I will not describe all the managers step by step, I will just say that the CEO Ollila has three Masters degrees and leads an All star team, which pioneered the use of the mobile phone as a global phenomenon , they are real experts in each of their divisions.

Point 10 = How good are the company's cost analysis and accounting controls?

The numbers speak for themselves, three years in a row they come up with R&D spending exactly at 9% of revenues and have been highly accurate in forcasting the future growth of the company except for the year 2000 where they underestimated the growth rate. Well if you are going to make a mistake it might as well be on the upside, Right!!!! By the way Nokia's management is expecting a 40% growth rate this year!!!

Point 11 = Are there aspects of the business, somewhat peculiar to the Industry involved, which will give the investor important clues as to how outstanding the company may be in relation to its competition?

As I mentioned before, the company has a great relationship with the service providers and makes them a lot of money in accessorry sales and helps them to pay their workers well, thus bringing top knotch people into the sales arena, thus creating a top notch global sales force which in turn spreads the Nokia product lines by pushing them . They also come out with beautifully designed phones unlike the “bars of soap” which ERICY comes out with !!!

Point 12 = Does the company have a short range or long range outlook in regards to profits?

When I presented my first 15 point analysis to the Rule makers in July;

http://members.aol.com/rcooked/nokia.htm

I could see Nokia's future clearly for atleast 5 years out. Now I am happy to say that just 5 months later I can see it atleast ten years out. Now if a lonely Qualitative Analyst can see clearly the strategy of the company going out 10 years then just imagine what the Company is seeing. When a new phone comes out , it was designed 5 years prior. That should tell you something!!!

Point 13 = In the foreseeable future will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing shareholders' benefit from this anticipated growth?

Nokia is buying back huge chunks of its stock and is using very little debt going forward for their free cash flow is just huge to say the least.

Point 14 = Does the management talk freely to investors about its affairs when things are going well but “clam up” when troubles and disappointments occur?

Nokia is the most shareholder friendly company on the planet. On their website;

http://www.nokia.com

We have atleast 10,000 pages of information on everything that you could possibly want to know about the company. I have been going through it now for some 8 months and have just gotten to the point where I have seen a lot of it. Nokia has also dedicated a Vice President whose job is just to manage the website. Is that shareholder friendly or what!!!!

Point 15 = Does the company have management of unquestionable integrity?

The management talks freely to shareholders and to the analyst community and is so well respected by Wall Street that they ask the CEO for permission to raise their estimates. Where have you ever seen that!!!!


QUALITATIVE ANALYSIS OF THE RULE MAKER CRITERIA

Dominant Brand

Nokia without a doubt has the worlds dominant brand of Mobile phones and has close to a 40% market share. This share will be growing over time as Nokia releases some 10-15 new models every year and just crushes the hell out of the competition. In the USA I would say they have a 60% Market share!!!!

Repeat-Purchase Business

The stated goal of Nokia is to achieve 40% of all new sales should come from repeat business from existing Nokia phone owners. So far for the last 3 years they have meet or surpassed that goal!!!

Convenience

Since Nokia is the leader in phone sales in all the available technologies it is able to make each of its phones available to all people everywhere. I was in Athens , Greece in November and one can not go a mile in Athens without seeing a Nokia Sign or store somewhere, this lesson they have learned from Coca-Cola . Nokia should be in some 220 countries within the next ten years. With companies like Sonera leading the way in the ex-Soviet Union and especially in Turkey where the penetration rates are from zero-2% , there is tremendous room to grow, Sonera which owns 50%+ of most of the Ex-Soviet providers has decided to go GSM in those areas and is bringing mostly Nokia phones to those areas as they are from Finland and are bias towards Nokia.

Expanding Possibilities

Since Nokia's driving force is R&D they are constantly coming out with newer and newer technologies and are pure innovators with companies like Sonera, Intel, Lucent, Csco, and Texas instruments helping them, not a bad bunch of friends to have huh!!!!

Do my friends know about the company??

They sure do for I gave out 15 Nokia phones for Christmas !!!!

Is worldwide expansion believable stuff???

1 billion handsets sold by the industry by the year 2003, two years ahead of schedule!!!

Your Familiarity and Interest

I use my Nokia phones as my lifeblood for communicating with my friends. I am accessable 24 hours a day. I have a Nokia handsfree kit in my car which turns off the stereo when the phone rings. When I am not home the phone forwards my calls to my Nokia 8860. When I am driving the car and listening to my John Coltrane or Santana loudly my 8860 then forwards my call to my car phone, which shuts my stereo off and allows me to talk into a speaker or a privacy handset if I so choose. I can now get stock quotes on my Nokia so I am not bound to the house at all times. I broke down the other day as a nail went in my tire. Because I had my Nokia I was able to call my towing company and stay in communication with them no matter where I am.

Sales Growth of atleast 10% Year over Year

1996 = $7.7 Billion
1997 = $10.14 Billion (32%)
1998 = $15.05 Billion (48%)

Gross Margins above 50%

This is the reason that the Rule makers didn't buy the stock when I recommended it in July when it was $70 a share. I disagree with this being used as a criteria. As long as profit margins are good then everything should be fine, atleast that's what Philip Fisher believes. This point lost the Rule Maker portfolio 115 point on the upside as it was the contributing factor for not considering it in July!!!

Net Profit Margin above 7%

Sales 1998

79 billion Finnish Markka

Net Income 1998

10 Billion Finnish Markka

Net Profit Margin

12.6%

Cash No less then 1.5x Total Debt

I am to tired at this point to go track down short term debt and since I won't qualify for the autographed book anyways, I can make my own rules!!!!

Cash to Long term debt ratio = 2.81%

Efficient Use of Cash

Again to damn tired to look these up. I am a Qualitative Fisher Analyst anyways so I will leave this stuff to my buddy TMF GRAPE to figure out!!!
I hate crunching numbers, I rather work on the strategy and my crazy abstract formulas!!!!! It's worked so far right!!!!

Conclusion

I will be so bold and state here today that Nokia within the next ten years will be the largest company on earth passing GE and Microsoft. I believe that for this company will combine the Internet, the PC and with its valued added format provided by Sonera's PKI technology will also be a wireless Credit Card. I think that it was a Rule Maker in July and think it is one even more now!!! I am sorry but I am Pooped and my Sonny Rollins CD has gone through its third playing, time to put in some Miles Davis and sleep !!!

Good night and God Bless Nokia , Don't miss the Nokia Suger Bowl !!!!!!

MYCROFT
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