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No. of Recommendations: 25
All,

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 
war(s).

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. 

Competition

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
development.

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 www.freedgar.com for financial data as well 
as www.nokia.com. 

A good set of articles is available at:

www.usnews.com/usnews.issue/991213/pc.htm

and

http://www.wired.com/wired/archive/7.09/nokia.html

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%
ERICY N/A (OCF<0)

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.

Recommendation

Make Nokia the next Rule Maker port entry.

Regards and comments welcome,

jgc
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No. of Recommendations: 1


Why does Nokia get a point for Solitariness?

I see more Motorola phones in a given day than Nokia.

And how about inevitability?
I'm about as techie as one gets, and I don't have a cell phone. Haven't gotten to the point of really needing it, let alone it being inevitable. And if I ever do, it's certainly not inevitable that it'll be a Nokia.

Heck, whatever phone the lowest cost service supports is what I'll probably use, and I'd imagine most cell phone users feel the same way.

-USABull
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Thanks to all the people who have been posting on NOK. As Peter Lynch says, buy what you know, like and use. I recently traded in my old heavy Nokia for a lighter more versatile upgraded model, 5120. Everyone I know and see has one. I live in Israel and I think we hold the world's record for most amount of minutes per year on cell phones. Anyway, where ever you go around the Mediterranean area cell phones are everywhere. I've also noticed increasing numbers of tourists from the Far East here with their cell phones.

My question is this -- I can't find the 10K or 10Q for NOK. When I looked up Nokia in both the freeedgar.com and the fool site, all that was listed was "Beneficial Ownership" SC 136/A.

Thanks in advance for any links to the figures.

ch chip
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I see more Motorola phones in a given day than Nokia.

But thats not ture in the rest of the world. Nokia is a global company. In Europe I would say that at least 50% of the phones I see are Nokia with 50% of the remainder ericsson. the rest (bosch, motorola, phillips, alcatel, siemens, various japanese) are occasional only.

And how about inevitability?
I'm about as techie as one gets, and I don't have a cell phone.

But I bet you have a pager yes? I was like you - never had a cell-phone nor wantred it. Then I got one. You'll find its just more useful. I don't know anyone who has a cell phone who will give it up!

DD
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My question is this -- I can't find the 10K or 10Q for NOK. When I looked up Nokia in both the freeedgar.com and the fool site, all that was listed was "Beneficial Ownership" SC 136/A.

chip,

Check out the Nokia web site:

http://www.nokia.com/investor/index.html

-Rubic
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DirtyDingus says:

But I bet you have a pager yes? I was like you - never had a cell-phone nor wantred it. Then I got one. You'll find its just more useful. I don't know anyone who has a cell phone who will give it up!

I'll give mine up, but then again it hasn't worked right since I dropped it down the stairs for the third time.

What I'd love to see is all cell phones containing a phone and a pager so that companies (like the one I work for) find it affordable and useful to buy (or lease or whatever) such devices for their employees so that when said employees receive a page, they can call back at their discretion. Carrying both is a hassle, no company is going to make a widespread policy of issuing both, and dumping pagers for cell phones is not practical.

Just my babblings on the matter.

Scott
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What I'd love to see is all cell phones containing a phone and a pager so that companies (like the one I work for) find it affordable and useful to buy (or lease or whatever) such devices for their employees so that when said employees receive a page, they can call back at their discretion.


When I was in the US (up until September) I had a cell phone that was also a pager. We used Nextel (which sucked coveragewise) but I believe I could have got the same service with Sprint PCS and other operators. FWIW the nextel rental for a group of people worked out to be about as cheap as the monthly pager rental.

You can absolutely get the same service here in Europe - its called SMS and is there by default with GSM phones. Again the problem is getting the operator to support the service at an affordable price and I haven't found out if my current provider (Itineris i.e. France Telecom) does this.

DD
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USABull,

Well DD covered a lot of this in his replies, but, here are my additional thoughts:

Why does Nokia get a point for Solitariness?

I see more Motorola phones in a given day than Nokia.


They are the biggest phone provider in the world at this time. Additionally, they are way ahead in developing new devices, services, protocols and appliannces. Hence, I believed they were pretty solitary. Especially in the GSM dominated areas of the world (most of it).

And how about inevitability?
I'm about as techie as one gets, and I don't have a cell phone. Haven't gotten to the point of really needing it, let alone it being inevitable. And if I ever do, it's certainly not inevitable that it'll be a Nokia.


DD mentioned this but, I am the same as you actually, no cell phone, no pager, no palm pilot, and I am a long time engineer as well.

That said, wireless, is inevitable. NOK does far more than phones. Wireless office LAN. They do it, you will see it sooner than either of us thinks most likely. Wireless service devices that service providers need. You already "see" them indirectly thru the phone usage (annoying as it can be) of others. Wireless protocols like bluetooth that will enable all sorts of wireless devices such as the wireless earpieces for mobile radios (police firefighters etc) I worked on in my last consultancy, will also be something you see a lot of (depending on how/when you get pulled over or burn your house down ;^).

Finally, phones. I suspect that in 5 or so years the services will be so cheap and easy that even you and I will have succumbed. Additionally, in many areas of the world, especially underdeveloped ones, you will see a move straight to wireless since it can be cheaper in those areas. I suspect that cost advantage will move to the US as well as infrastructure is not replaced. Think of the cable TV vs non-cable transition in the US over the last few decades (from 0 to most folks pretty quickly).

The point I most want to make. Most folks see Nokia and think phones, but, Nokia is far far far more than just phones.

Heck, whatever phone the lowest cost service supports is what I'll probably use, and I'd imagine most cell phone users feel the same way.

Ah, but, service is different than the phone. You may, in future, have a phone. The service provider you use may well use Nokia equipment. The services you do buy may well be based on protocols based on WAP and/or bluetooth in which Nokia has a development lead. Hence, the phone you have, even if it;s the cheapest, or if it's CDMA, GSM or whatever, may well be a Nokia phone. Just some thoughts to consider.

Hope that helps clarify my position, cheers,

jgc
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geoffchase wrote:
I am the same as you actually, no cell phone, no pager, no palm pilot, and I am a long time engineer as well.

That said, wireless, is inevitable. NOK does far more than phones. Wireless office LAN. They do it, you will see it sooner than either of us thinks most likely...

I suspect that in 5 or so years the services will be so cheap and easy that even you and I will have succumbed. Additionally, in many areas of the world, especially underdeveloped ones, you will see a move straight to wireless since it can be cheaper in those areas. I suspect that cost advantage will move to the US as well as infrastructure is not replaced.



I think you're right.

That I don't have a cell phone (or a pager, or any other wireless device for that matter) simply reflects the fact that the need hasn't reached "critical mass" for me yet. It's not cost-effective for me yet.

Someday, I fully expect that it will be.
Someday, I suspect that wireless connectivity may be the defacto method of connectivity for voice AND data. Someday, I suspect that the things you talk about taking place in "5 or so" years will indeed take place.

Someday.

However, IMHO, "Solitariness" and "Inevitability" are about today.

Being a Rule MAKER is about today.

-USABull


ps. This does not, in any way, shape, or form, mean that I do not believe that Nokia is fine company, and perhaps a fine investment. I just don't think it's a Rule Maker. I didn't, and still don't, think Yahoo is one either. However, I still own it.

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