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Warning:  long post ahead!


In the tables below you will find my Rule Maker 
criteria calculations for the cellular communication 
giants Qualcomm and Nokia.  I have compared them to 
each other, as well as both Motorola and Ericsson.  I 
decided to do this analysis because of the sudden run-
up in Qualcomm stock, and the many positive comments 
on this board recently about Nokia.  Enough with the 
talk, lets get to the numbers:


NOTE::  The figures for Ericsson are in Swedish 
currency, and those for Nokia are in Finnish currency.


Table #1:  QUALCOMM 

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

                 Qualcomm (QCOM)                                    Motorola        Ericsson         Nokia
                 Current Period Year-ago PeriodYear-over-Year    Current Period  Current Period Current Period
                  1Q99 (12/98)   1Q98 (12/97)      Growth         4Q98 (12/98)    4Q98 (12/98)   4Q98 (12/98)
Income Statement . . .
  Sales                     941            786      19.7%                  8,337         59,042         25,877
  Cost of Goods S           642            554      15.9%                  5,899         34,078         16,294
  Net Income                 49             37      32.4%                    159          4,745          3,474
  Shares Outstand        74,219         74,126      0.1%

Balance Sheet . . .
  Cash & Equivale           237            654     -63.8%                  1,624         18,233         17,188
  Current Assets          1,663          1,624      2.4%                  13,531        125,532         46,460
  Short-term Debt           281             81     246.9%                  2,909              0          4,528
  Current Liabili         1,007            669      50.5%                 11,440         66,941         26,476
  Long-term Debt              3              7     -57.1%                  2,633         13,068          1,530
                                                                                1              1              1
Margins & Ratios . . .                                                                                         Competitors' Average
  Gross Margins            31.8%          29.5%      2.3                    29.2%          42.3%          37.0%     36.2%
  Net Margins               5.2%           4.7%      0.5                     1.9%           8.0%          13.4%      7.8%
  Cash-to-Debt              0.83           7.43    -88.8%                    0.29           1.40           2.84      1.50
  Net Cash                 -47.0          566.0      N/A                  -3918.0         5165.0        11130.0    4125.7
  Fool Flow Ratio           1.96           1.65     19.1%                    1.40           1.60           1.33      1.44


                  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                  3
Optimism                       1                                Net Margins                    3
Legitimacy                     1                                Shares Outstandin              2
Inevitability                  1                                Cash-to-Debt                   0
Solitariness                   0                                Fool Flow Ratio                0
Humor                          0                                Expansion Potenti              2
  Subtotal                     5                                  Subtotal                    13

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

                   Total Score               22  Fourth Tier


TABLE #2:  NOKIA

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

                  Nokia (NOK.A)                                     Motorola        Ericsson       Qualcomm
                 Current Period Year-ago PeriodYear-over-Year    Current Period  Current Period Current Period
                  1Q99 (12/98)   1Q98 (12/97)      Growth         4Q98 (12/98)    4Q98 (12/98)   4Q98 (12/98)
Income Statement . . .
  Sales                  25,877         15,857      63.2%                  8,337         59,042            941
  Cost of Goods S        16,294          9,722      67.6%                  5,899         34,078            642
  Net Income              3,474          2,018      72.2%                    159          4,745             49
  Shares Outstand       586,650        576,583      1.7%

Balance Sheet . . .
  Cash & Equivale        17,188         12,247      40.3%                  1,624         18,233            237
  Current Assets         46,460         32,293      43.9%                 13,531        125,532          1,663
  Short-term Debt         4,528          3,293      37.5%                  2,909              0            281
  Current Liabili        26,476         18,376      44.1%                 11,440         66,941          1,007
  Long-term Debt          1,530          1,348      13.5%                  2,633         13,068              3
                                                                                1              1              1
Margins & Ratios . . .                                                                                         Competitors' Average
  Gross Margins            37.0%          38.7%     -1.7                    29.2%          42.3%          31.8%     34.4%
  Net Margins              13.4%          12.7%      0.7                     1.9%           8.0%           5.2%      5.1%
  Cash-to-Debt              2.84           2.64     7.5%                     0.29           1.40           0.83      1.06
  Net Cash               11130.0         7606.0     46.3%                 -3918.0         5165.0          -47.0     400.0
  Fool Flow Ratio           1.33           1.33     0.4%                     1.40           1.60           1.96      1.65


                  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                   0                                Fool Flow Ratio                0
Humor                          1                                Expansion Potenti              2
  Subtotal                     6                                  Subtotal                    13

2) Financial Loca Points (0-2)                                  4) Monopoly Statu Points (0-4)
Mass Market Habit              0                                Gross Margins                  2
Gross Margins                  0                                Net Margins                    4
Net Margins                    2                                Net Cash                       4
Cash-to-Debt                   2                                Fool Flow Ratio                2
Fool Flow Ratio                0                                Convenience                    2
Your Interest                  2                                  Subtotal                    14
  Subtotal                     6
                                                                5) Your  Enjoymen              1

                   Total Score               40  Second Tier



As the scores above suggest, Nokia should be worth 
watching over time as a second tier Rule Maker.  If 
they can lower their flow ratio and improve their 
gross margins, then they could start moving up into 
serious rule maker territory.


As always, post any comments and questions.

Fool on!

the LanceMan
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Dear Lanceman,

The following is to add to your wonderful work. It 
deals with Buffetts Owners Earnings ratio.

Owners earnings = Cash Flow - Capital Expenditures

YEAR		NOK		 ERICY 		 QCOM 		MOT
1994		455.31		434.45		-22.14		-235.20
1995		575.14		593.71		-38.84		-520.43
1996		679.85		903.48		-138.40		575.40
1997		1214.54		1442.26		11.58		794.54
1998		1978.58		1481.25		-54.35		-667.22
1999E		2472.50		1600.00		117.98		361.20
2000E		3074.00		2020.00		244.80		542.00
GROWTH RATE	37.48%		29.19%		NA		NA


As you can see from these results that NOKIA is a 
Killer Company. What the table doesn't show is that
NOK beat Value lines estimates by 20% this quarter
while ERICY quarterly earnings missed the mark by 
33%. Qualcomm and MOT as can be seen can not compare
and it would be hoped that Qualcom can meet their 
estimates for its a long way down if they don't. 
NOKIA's Owners Earnings growth rate should be in the
neighborhood of 40%+ with their 96% increase in EPS
over last years first quarter. Great management, great
products, great future. Would make a great addition to
The Rule Maker Portfolio. I think that it will be a 
monopoly in the coming years. 

MYCROFT
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In Nokia's case, I think you're even being too conservative. The Valueline numbers came out before the recent earnings report, and by VL's next NOK update, they will doubtless revise eps, etc. upward.

I don't see that cap expenditures would change in this case, but cash flow probably would. The growth estimate of 25% in OE from '98 to '99 seems absurdly low now.
Even at a long term OE growth of 25%, the current intrinsic value comes out to around $217.
If you start with a more realistic 40% for this year, and reduce the next nine years to 10% growth each, the intrinsic value still comes out to about $86 now.

Using this analysis, this appears to be a heck of a deal now, compared to the other big companies out there.
T
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