No. of Recommendations: 2
Warning ... Long Post Ahead!
Panhale's recent Rule Maker Ranker posts on Nokia
reminded me that I had also done one on them for third
quarter and had neglected to post it. I also used the
same competitors that he had used on his second post
(MOT and QCOM). I would liked to have used ERICY as
well, but the format of their quarterly results makes
it almost impossible to translate into our spreadsheet.
I guess we just have to wait for the annual numbers to
add them to the mix. Now on with the numbers:
Financial AnalysiCompany Being Evaluated Competitor #1 Competitor #2 Competitor #3
Nokia Qualcomm Motorola
(NOK) (QCOM) (MOT)
Current PeriodYear-ago PerioYear-over-Year Current Period Current PeriodCurrent Period
99Q3 98Q3 Growth 99Q4 99Q3 <Date>
Income Statement . . .
Sales 5,223 3,500 49.2% 1,060 7,688
Cost of Goods S 3,282 2,122 54.7% 621 4,601
Net Income 662 481 37.5% 136 91
Shares Outstand 1,185 1,176 0.8%
Balance Sheet . . .
Cash & Equivale 3,455 2,342 47.6% 1,614 3,527
Current Assets 9,963 6,860 45.2% 2,978 16,015
Short-term Debt 469 521 -10.0% 115 1,495
Current Liabili 6,059 4,024 50.6% 876 11,898
Long-term Debt 285 174 63.7% 1 3,598
1 1 0
Margins & Ratios . . . Competitors' Average
Gross Margins 37.2% 39.4% -2.2 41.4% 40.2% 40.8%
Net Margins 12.7% 13.7% -1.1 12.8% 1.2% 7.0%
Cash-to-Debt 4.58 3.37 36.0% 13.91 0.69 0.99
Net Cash 2701.4 1646.8 64.0% 1498.0 -1566.0 -34.0
Fool Flow Ratio 1.16 1.29 -9.7% 1.79 1.20 1.50
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 1
Legitimacy 1 Shares Outstandin 2
Inevitability 1 Cash-to-Debt 2
Solitariness 0 Fool Flow Ratio 2
Humor 1 Expansion Potenti 3
Subtotal 6 Subtotal 14
2) Financial Loca Points (0-2) 4) Monopoly Statu Points (0-4)
Mass Market Habit 0 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 2
Your Interest 2 Subtotal 12
Subtotal 7
5) Your Enjoymen 1
Total Score 40 Second Tier
Nokia loses points in my analysis in the following
areas:
1) Solitariness - With competitors such as Qualcomm,
Ericsson, and Motorola, I honestly can't say that Nokia
is the clear-cut category king.
2) Mass Market Habit - I just can't see someone buying
new cell phone equipment once a year or even more
frequently. I'm sure there are some that do, but I
don't think this represents the vast majority of their
market.
3) Gross and Net Margin trend - Both figures slightly
declined from the figures they posted in 98Q3. When
comparing the numbers from 99Q3 to those for the first
nine months of 1999, the decline doesn't look quite as
severe (38.2% to 37.2% for gross margins, 12.9% to
12.7% for net margins), but it still represents a
disturbing trend. Is this a one quarter hiccup, or a
warning of things yet to come? Stay tuned.
4) Margins vs. Competitors - While Nokia's margins
have slipped slightly, those of its competitors have
been on the rise. Qualcomm numbers are climbing quite
nicely as a result of its CDMA licensing revenues,
which represent 90% of the company's profits in the
most recent quarter. I fully expect this trend to
continue for QCOM. I'm no expert on Motorola, but I
was surprised at the improvement in their financials
from my last analysis at the end of 1998. If their
competitors continue to post numbers like these, I
believe NOK will have a tough time earning points in
this category.
5) Convenience vs. Competitors - Just as in the
Branding category, I have a hard time saying that NOK
is the best in its industry. Therefore, I can't give
it more than two points here.
Now before I give everyone the idea that I am "bearish"
on Nokia, I must admit that I am a big fan of this
company and a current participant in their DRP. I
believe that their position in the DSL arena as an
equipment supplier should really begin to start paying
HUGE dividends in the next few years as people begin
moving away from standard dial-up access to broadband.
For more information on their position in this growing
market, check out the following link:
http://www.dsl.nokia.com/press.htm
Something tells me that the numbers for NOK will
improve before the next earnings release, plus the
inclusion of ERICY as a competitor should help their
overall score as well. In any event, I plan on
keeping a close watch on this company in the near
future.
Fool On!
the LanceMan
