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No. of Recommendations: 25

Warning: long post ahead. Additionally see Mycrofts
Fisher analysis of Nokia a few posts back up the board.

I'd like to toss my current DD topic and likely next
buy into the ring for consideration as a new RM port 
stock. The choice?? Nokia (NOK). 

What they do (very briefly)

Best known as a maker of mobile handsets (cell phones)
that are ubiquitous. What you might not realize about
this is that they make both GSM and CDMA (the two 
major 2nd generation protocols) handsets. They also 
make GPRS and HCSD and EDGE phones which are gen 2.5
protocols that are similar to, based off of, GSM the
standard popular in Europe, Asia and most everywhere
that isn't Japan or the US, though they are there too.

What you might not know is all the other wireless 
products they make. Here are some:

1. wireless LAN products. Picture an office of 
computers with no wires thru all the walls. I think
this will be very very big and they are just starting
to release data on these upcoming products.

2. Wireless phone system solutions. This is the equip.
a provider will use to provide wireless service. They
do this for GSM, GPRS, and WCDMA (a gen3 or G3 
protocol) among others. This shows IMO their ability
to win regardless of the outcome of the standards 

3. WAP (Wireless Access Protocol) products. This is 
software that works with their handsets (firmware) to
allow access to the internet (e.g. yahoo) sites and
data. The direct access to internet sites will IMO be
a big thing for both phone and (see #4 below) users.

4. The nokia communicator. A small keyboard based
portable wireless device. Think of it as a wireless
mini laptop. It can be used to access the internet or
email etc etc.. This is the first of many such 
products IMO as not all users will want a small cell
phone LCD display for their data.

5. They are a founding/leading member of the bluetooth
and symbian protocols for wireless data access. This
gives them a headstart on many companies as the 
standards are becoming widely accepted by major 
companies worldwide, especially in the chip making 
side where RM'er Intel is supporting it as is 
competitor Motorola to name two. 


I used QCOM, Ericsson (ERICY) and Motorola (MOT). I
dont think they have competitors of any real note 
in several areas. ATT could be a competitor as they
are ramping up wireless products and service tech

An additional fact that is useful here is that Finland
is the most "wireless" country in the world and are
really pioneering the use of wireless devices. They 
use phones for banking transactions, buying cokes from
a machine and numerous other every day transactions.
This gives Nokia an advantage as they are the maker
and resident in a national testing lab for new products
and services that is well ahead of the curve wiht
regard to the rest of the world. A very big 
advantage IMO.

Some other info sources

I used for financial data as well 

A good set of articles is available at:


A long multipage overview of Nokia in Septembers
"Wired" magazine. Both links have good overviews of
wireless products and services being sold and developed
by Nokia.

Ranker: Score = 46

Financial AnalysiCompany Being Evaluated                        Competitor #1   Competitor #2  Competitor #3

                   Nokia (NOK)                                Ericsson (ERICY)    Motorola       Qualcomm
                 Current Period Year-ago PeriodYear-over-Year  Current Period  Current Period Current Period
                     Aug-99         Aug-98        Growth           Sep-99          Oct-99         Aug-99
Income Statement . . .
  Sales                   5,239          3,510     49.2%                 6,007          7,688          1,004
  Cost of Goods S         3,292          2,128     54.7%                 3,596          4,922            598
  Net Income              1,080            714     51.3%                   319             91             98
  Shares Outstand 1,185,263,000  1,175,843,000     0.8%

Balance Sheet . . .
  Cash & Equivale         3,232          2,258     43.1%                 2,502          3,527            448
  Current Assets          9,608          6,615     45.2%                16,481         16,015          1,693
  Short-term Debt           452            502    -10.0%                 4,733          1,495            101
  Current Liabili         5,843          3,880     50.6%                13,700         11,898            751
  Long-term Debt            275            168     63.7%                   698          3,114              2
                                                                              1              1              1Competitors
Margins & Ratios . . .
  Gross Margins            37.2%          39.4%    -2.2                   40.1%          36.0%          40.4%      38.9%
  Net Margins              20.6%          20.3%     0.3                    5.3%           1.2%           9.8%       5.4%
  Cash-to-Debt              4.45           3.37    31.9%                   0.46           0.77           4.34       0.64
  Net Cash                2505.0         1588.0    57.7%                -2929.0        -1082.0          344.7    -1222.1
  Fool Flow Ratio           1.18           1.29    -8.3%                   1.56           1.20           1.92       1.56

                  Continue Here

Ranking Rule Makers

1) Brand          Points (0-1)                                3) Financial Dire Points (0-3)
Familiarity                    1                              Sales Growth                   3
Openness                       1                              Gross Margins                  1
Optimism                       1                              Net Margins                    3
Legitimacy                     1                              Shares Outstandin              2
Inevitability                  1                              Cash-to-Debt                   2
Solitariness                   1                              Fool Flow Ratio                2
Humor                          1                              Expansion Potenti              3
  Subtotal                     7                                Subtotal                    16

2) Financial Loca Points (0-2)                                4) Monopoly Statu Points (0-4)
Mass Market Habit              1                              Gross Margins                  0
Gross Margins                  0                              Net Margins                    4
Net Margins                    2                              Net Cash                       4
Cash-to-Debt                   2                              Fool Flow Ratio                2
Fool Flow Ratio                1                              Convenience                    4
Your Interest                  2                                Subtotal                    14
  Subtotal                     8
                                                              5) Your  Enjoymen              1

                   Total Score               46 Second Tier

Ranker Summary

Where Nokia loses real points is on Gross margins. 
Everything else is pretty good, though they could 
reduce debt some. They lose 5+ points on gross margins.

A mitigating factor is their increase in this quarter
of R&D expenses which increased 59% compared to sales
growth of 49% year to year. This is an increase of
20% faster than sales growth. IMO this will pay off
in the late going, particularly given their lead in
seeing the wireless future develop before their eyes
in Finland (and developing that future there too). 
Certainly they would get an extra few points just by
cutting back on research to match sales growth.

Here are the Operating Cash Flow (OCF) MArgins which
are OCF/total-revs in percentage form.

NOK   17%
QCOM  5.8%
MOT   7.5%

Only the rapid improvement in financials for MOT kept 
them from a 48 ranker score as MOT dramatically
improved their flowie and other financials for the
quarter analyzed.

Finally, other rankers have been run recently. The most
recent is panhales 9 month ranker which gave NOK a 
score of 50 versus just MOT and QCOM tho ERICY is not
a strong financial competitor.

Summary Recommendation

Nokia is a leader in developing wireless applications 
(WAP based etc) as well as wireless appliances across
a broad range (not just phones) of uses, as well as
providing wireless service solutions. Nokia scores 
46-50 on the ranker and is only held back by gross
margins which should improve as sales grow and
R&D levels out somewhat. Right now they invest more 
in R&D as a % of sales than their competitors.

However, their biggest advantage that will carry them
sucessfully through the next 10 years in a RM manner
is their head start in developing wireless devices and
more importantly, devices for a wireless culture, over
their competitors. Like a rule breaker they have a 
headstart to be called a first mover but like a rule
maker they dominate their competitors. They are 
everywhere in every market and will continue to be 
there regardless of what the 3rd generation (and 
beyond) wireless standard looks like.


Make Nokia the next Rule Maker port entry.

Regards and comments welcome,

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