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No. of Recommendations: 4
Dear Friends,

Back in July I posted on the Rule Maker Companies Board a Philip Fisher "15 Point Analysis" of Nokia.
Philip Fisher for those who don't know is the mentor of Warren Buffet and my idol. I base 90% of my work on his Qualitative Methods, He is the father of Qualitative Analysis. The "15 points" analysis can be found in Fishers Book , "Common Stocks and Uncommon Profits".

Well Friends here is my complete Fisher Analysis of Nokia;

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?

This is a definite yes, The company operates in over 100 countries world wide and has almost 40% market share of the worlds Mobile Phone market. I estimate that in the year 2003 they will be in 200 countries and have close to a 50% market share, for just this year they are releasing 12 new models worldwide. Besides being the world leader in Mobile Phones it has just entered the HDSL market with its Partner Covad who just gave Nokia a $150 million order. Besides that Nokia is heavily investing in Wireless Lan and is one of the worlds largest Satellite Receiver suppliers coming out with a receiver that can receive up to 2000 channels. Thus when Bill Gates sends up all those Satellites , Nokia will be there to receive them. Now they are also a world leader in Telecommunication Base stations for GSM networks worldwide. They will make sizable increases in the years to come for they will soon be bringing WAP or Wireless Application Protocal to the Cell Phones of the world. Which will allow one to do online banking, get stock quotes, send emails etc. Nokia predicts that WAP enabled phones will make up 15% of all new phones that will be sold in the near Future. Soon the Internet will be on your Nokia Cell Phone. In certain countries in Africa the Dowry that is now given to a new son-in law and that is most cherished is the Nokia Cell Phone. Need I say more!!!!

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?

Again yes, Nokia has a firm policy that they will cannibalize existing products in order to introduce newer and more advanced models. Nokia Spends 9% of Sales on R&D and is determined to introduce as many new phones to the market on a continuous basis . It is thus following the Intel, Microsoft pattern of constantly upgrading a full generation before the competition can catch up and a full two generation before knock off artists can make the cell phone a commodity. The company is determined to make phones for all markets and its newest 3210 phone introduced in Asia and Europe this month has some 40 language functions on it. It doesn't hurt to have Lucent and Texas instruments and Intel design your processors.

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

Again I state that Nokia spends 9% of it's Sales on R&D and has done so for the last three years. The company is so well run that they have budgeted 9% and 9% they achieve . Their R&D is not just technical in nature but is also involved in creating phones that are works of art as well . When you compare the Line of Nokia phones to the competition , you find that they are far superior in every way. In appearance and performance, this is the result of R&D and proper planning. The phones that are coming out today where designed some 5 years ago like the new Analog 282 flip phone. Just imagine what we will have in the next five years.

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

When determining whether a company has a good sales organization, one has to go out into the field and use Fisher's Scuttlebutt Method. In other word's get out of the chair and ask around , salespersons, the competition, wholesalers etc.. Well in my three month adventure I went to different malls and cellular phone dealers and asked how Nokia was doing. I concluded that they have a top notch distribution system and a great sales force. In one store I ran into a salesman for cellular accessories from some other company and I asked him if he was a Nokia representative. His answer was “I wish!!!!” When I followed up he told me that the job of a Nokia Sales Rep is the #1 job that everyone shoots for they have an excellent benefits package and are very well paid. I would say with all your products selling like hotcakes, one would be happy also. From the latest conference call I also determined that management has everything under control when the CEO stated that there would be no shortages for the next 6 months of phones or accessories.

Point 5 = Does the company have worthwhile profit margins?

Nokia has a very respectable profit margin of 13% which is well above the industry average. QCOM which sells chips for CDMA phones also has a 13% profit margin which is amazing for the profit margins on the chips alone are atleast 20%+++. So Nokia is doing excellent for the industry that its in.

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

The Company is way ahead on this point as they have determined that the real profits on the phones don't come from the phones themselves but come from the accessories that compliment them. From Faceplates to Car Kits to handsfree kits, these products must have a tremendous mark up. On My 6185 I paid $169 for the phone and then went on to buy the extended long life lithium battery (8 hrs talk time, 345 hours stand by time) for $145, the Carkit with handset for $200, the faceplate for $25, that handsfree kit for $39, leathercase for $29 , beltclip for $10. So I ended up spending $617 for the phone. The great part is that I bought all the accessories from the 1-800 Nokia Accessories Hot Line. So they get the full retail price and ship it to me free in 3 days. They have learned what the Japanese have been so successful at in selling their cars . You sell the car to the customer cheap and then clean up by charging an arm and a leg for the parts. But Nokia accessories are top quality so the customer doesn't mind paying. When I'm in my car and I get a phone call, The phone automatically shut off my car stereo. No other phone does that according to the dealer who installed it in my car.

Part #7 Does the company have outstanding labor and personnel relations?

Nokia is ranked in many surveys as one the top ten companies to work for in the world. Finland is very business friendly but they demand tremendous benefits be given to citizens at their companies. I met an American Nokia Rep and he told me that he lives like a king.

Part #8= Does the company have outstanding executive relations?

From what I have been able to determine the management is highly organized and each person on the team knows his or her place. Nokia has one CEO and four Presidents each responsible for his particular division. It is the best management structure I have ever seen in my 25 years in the stock market. The great thing is that most of the management started with Nokia when they were very young and were brought up through the ranks. The reason I am so happy about this company is that the top management has an average age of about 47 years of age, which means that I will have this crack team in place for atleast 18 years. That is a very important factor when one wants to hold a stock for two decades or more.

Part #9 = Does the company have depth to its management?

Each President in the company is an expert in his division. When you hear them in Broadcasts from the Nokia website you can tell that they are ten times smarter then you and that they know there stuff cold. During the Conference Calls after earnings are released one can clearly see that the Analysts are overmatched by this management and that the Analyst come out looking like schoolchildren. When you hear an Analyst ask if it is alright for him to raise the estimates for next quarter, you know he dearly respects the management. Analysts love this company!!!!!!!!!

Part #10 = How good are the company's cost analysis and accounting controls
Precision Cost controls. Every bean is counted. Only one other company I know does a better job and that is SGP because they are very good on the tax front.

Here is a post that I did last week on Nokia's excellent Cost Controls;

http://boards.fool.com/Message.asp?id=1190244000258000&sort=postdate

and here is one on our competition for the last quarter;

http://boards.fool.com/Message.asp?id=1190244000259000&sort=postdate

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?

Leader in global Market Share, Worlds most famous phone trademark , incredible distribution system and sales force. The rest of the competition barely sells any accessories for their phones thus are not open minded to the opportunities available. We'll be Rambo in sales with 12 new phones coming out in the next three months. Outstanding labor relations as they are hiring 25% more employees in the last year while all of their competition is reducing their employee base by 25%. As it turns out Wall Street gives the competition the thumbs up for firing their workers while disliking the idea of hiring workers at Nokia. When will Wall Street learn that the best companies in the world with the best track records are the ones who are constantly hiring not firing workers. SGP,AIG,KO they never fire workers and their record stands clear.

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

The company has an extremely long range outlook. They have stated that they expect the world wide sales of mobile Phones to reach 1 Billion by the year 2003, therefore this shows that they are planning accordingly. The new WAP technology which they have decided to give the software free to developers is a plan which will not bear real fruit for atleast two years. Also they also have a division called Nokia Ventures which is set up for the future products of the company. Most companies would not have such a division for it loses money every quarter, but Nokia is confident in knowing that this is where their products of the future will come from.

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?

Since this company chooses to develop new products internally rather then buying it on the market, I doubt that they will be issuing stock similar to the dilutive practices of lets say a Qualcomm which will issue some 6.9 million shares in a public offering and has some 37 million shares which are diluted and are not included in the Basic EPS.
Nokia's management believes in controlled risk and is very conservative but very aggressive in attacking opportunities when they arise.

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?

From my experience with the company I feel very confident that they have the interest of the shareholder in mind. The detail that they pump out everyday on their website. http://www.nokia.com is just amazing. It is hands down the best and most informative website that I have seen of any company. It is an endless maze of information which would take someone months to go through it. The investors relation section is outstanding also in that one can read all the annual and quarterly reports going back to 1994. For a Foreign company they are just too open as they don't have to be if they don't want to. I am happy for they are proud of what they are doing and want the world to know it.



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

From what I have been able to determine they are extremely honest and give out tremendous amounts of information to the shareholder. I have yet to find a problem concerning this front. And may I tell you I tried very hard to find just one case.

We are lucky at the fool to have one of the best Fisher Analysts working for the Fool, TMF Grape or Phil Weiss. He is a master of Fisher and I have learned a lot from him. For those interested in reading his writings on Fisher just go to the following posts;


Part 1

http://www.fool.com/CashKing/1998/CashKingPort980915.htm

Part 2

http://www.fool.com/CashKing/1998/CashKingPort980916.htm

Part 3

http://www.fool.com/CashKing/1998/CashKingPort980917.htm

Part 4

http://www.fool.com/CashKing/1998/CashKingPort980918.htm

MYCROFT

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No. of Recommendations: 0
MYCROFT - Your post on Nokia and the many others you have provided here represent the very essence of what is so fantastic about the Fool Boards. Great, useful information, unselfishly shared. Thanks for all the time and effort you put in to educating the rest of us who are entering new waters. You, sir, are truly inspiring and have made it onto my list of Favourite Fools!

Thanks for the Wireless Board, and thanks to all posters who have helped immeasurably in bringing me up to speed on this incredibly exciting technology.

Ted
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No. of Recommendations: 0
MYCROFT,

Thanks for sharing all of your research with us. Your Fisher Analysis of NOKIA was outstanding! You made a very compelling case for NOKIA but I have a dilemma. My limited investing has been influenced by Ben Graham and I can't get past NOKIA having a P/E of 41 and an expected growth rate of 25%. Is it your opinion that the 25% growth rate is just the product of the Wise and that NOKIA will shatter this forecast? Or did Phillip Fisher dismiss PE ratios as of secondary importance? Were there any ratios that Fischer gave great credence too and how does NOKIA compare to them?

I look forward to your reply

Regards,
Greg
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Dear Greg,

It is important to understand that when you buy Nokia you are buying a supreme company which is like Park Avenue, Beverly Hills and Monte Carlo all wrapped up in one. I admire you being a Ben Graham fan as I do a lot of Extreme Value investing using his methods. I have talked to many people who are salepersons in the Nokia lines and they are selling like crazy. Its PE is 41 that is true and it is not cheap at the present moment but if you forcast it out 5 years then it is cheap. It all depends on your holding period and your ability to handle volatility. Fisher I would Imagine considers PE important as he always concentrates on the price paid, but Management is his most important concern. Nokia is the absolutely the last stock that I worry about for it has as perfect a management as they come. The average age of the top Management is about 48 years of age. Thus when one buys Nokia they have a management that will be in place for at least 17 more years. I would imagine that Fisher owns Nokia for he is seeing very clearly how they are doing against his favorite Motorola. Its scary as to the market dominance that this company has. If you are worried about the valuation then my suggestion to you is to buy a few shares then open a Dividend Reinvestment Plan through Nokia and Dollar Cost Average. Nokia will be around for a hundred years and will make us all rich. I admire your conservatism as it is something that is lacking on Wall Street today. Remember its better to be safe then sorry. People tell me their investment horror stories all the time when they find out I am a Financial Analyst. I hear how people are just losing Massive amounts of money for "they no not what they do". Just today someone told me that he lost his entire investment in Protein.com , Now I can't even find the damn thing listed anywhere. He invested $10,000 on a friends recomendation and lost the whole amount in a few months. Everyone must understand that there are a lot of criminals on Wall Street whose greatest pleasure is stealing the hard earned money from the small investor. The reason that I have choosen TMF to be my ProBono work is because it is my mission to be a helper of the small investor and that is TMF's mission also. No matter how hard TMF tries or how many 1000's of posts I pump out, It all boils down to the small investor doing some research on his or her own. Spend as much time on a new stock as you would on buying a new car. Kick the tires before you buy, as for Nokia it is my largest investment and I sleep well every night knowing that Jorma is my CEO, I wish I could say the same thing about KO CEO Douglas. But thats the way the game operates. It must be remembered that ones fortune is dependant on the management making the right moves, for the Shareholder is 100% dependant on the management to do the right thing. You better be sure they are good if you are a growth investor, for a value investor it doesn't matter as much for you are investing in Assets.

Good Luck to you Greg,

MYCROFT
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No. of Recommendations: 0
Mycroft,

Could you please do the same Fisher Analysis of QCOM and ERICY? That of Nokia has enlighted me quite a lot?

Thanks.

JT


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<Could you please do the same Fisher Analysis of QCOM and ERICY? That of Nokia has enlighted me quite a lot?>

Sorry JT,

You can't just do a Fisher Analysis, It takes months and Months of research and scuttlebutt. I don't know enough about those companies to even try to do a Fisher Analysis of them. It would be nice if there any QCOM or ERICY Pros to give it a shot. I am sure there are enough qualified people out there who can do a good job.

MYCROFT
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JT & Mycroft-

Some good readings on QCOM are contained in Bruce Brown's posts on the QCOM Board.

Bruce is an American Opera singer who lives in Austria most of the year. He is a very astute investor and I follow his posts closely.

FWIW

Harry
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No. of Recommendations: 1
wrote Mycroft2064:
The reason that I have choosen TMF to be my ProBono work is because it is my mission to be a helper of the small investor and that is TMF's mission also.

I want you to know how much I appreciate your efforts, Mycroft. I'm having a hard time keeping up with all the great information coming out in this board, but it is discussions such as this that make it worth the challenge.

I haven't yet invested in wireless (unless you count CSCO), but having Wireless World as a resource (and your contribution specifically) will make it much easier when the time comes.

Thank you!
scottie
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I agree with Mycrofts analysis of Nokia. Their strength in Management is incredible. These guys really know how to combine good technology with awesome business/marketing skills.

I've been thinking that Nokia is a dangerous company to invest in because of their large weight in handsets, but I must admit that I regret that. They have shown great management so far, and now their initiative to invest in Silicon Valley mobile application companies looks great. As you know, tomorrows cell phones will be more like mini-computers, connected to the data network all the time. Who will be the king of the applications? My bet is Nokia.

That's why I'm buying this stock (that I found overvalued at half this price...) today.

(Will try to post a WAP intro tonight.)
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MYCROFT

Thanks for your comments. I'm reminded of Warren Buffet's comment that Ben Graham's philosphy is akin to the man who picks half smoked cigars off of the ground. It might not be the best cigar but you can't beat the price. It might be time for me to add a brand new good tasting cigar to my portfolio.
I think I'll spend the next month perusing the NOKIA web site.
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Sorry JT,
You can't just do a Fisher Analysis, It takes months and Months . . .


Sounds like a Market Opportunity. Hire a bunch of new Econ and Business grads, crank out Fisher Analyses on major/emerging companies, charge a bundle, put "dot com" in the company name, make a fortune, . . .
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<Sounds like a Market Opportunity. Hire a bunch of new Econ and Business grads, crank out Fisher Analyses on major/emerging companies, charge a bundle, put "dot com" in the company name, make a fortune, . . .>

I'm almost sure that you would go out of business faster then you can start it, for most recent grads never even heard of Fisher and if they did, they were never taught the fine art of Scuttlebutt. It takes years of experience to know what to look for as a Fisherite.

MYCROFT
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> most recent grads never even heard of Fisher and if they did, they were never taught the fine art of Scuttlebutt


i agree.

(on the other hand i had heard of Fisher before i graduated, so maybe there's more than we think out there)

even if there were alot of Fisherites in theory, i bet most don't convert it into practice. it's LOTS of work.

greyJester
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Mycroft,
I just wanted to say that I did a recent small time survey of people from all walks of life who happened to have cell phones. Most of them didn't know when asked who made their phones, but I noticed that most of them had Nokias.
Ginny
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<Mycroft,
I just wanted to say that I did a recent small time survey of people from all walks of life who happened to have cell phones. Most of them didn't know when asked who made their phones, but I noticed that most of them had Nokias.
Ginny>

Dear Ginny,

I have a lot of friends who sell phones for a living and they love to sell the Nokia's for they are very user friendly and they come with a ton of accessories which they can also sell the customer. Plus Nokia gives a ton of free shirts to these salespersons which makes them love the Nokia phones even more. When you have salespersons in love with the company then you will see a lot of phones being sold. This is just another example of Nokia covering every angle possible.

MYCROFT
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