<Unlike competitors like Ericsson (Nasdaq: ERICY) , Nortel (NYSE: NT) , and
Lucent (NYSE: LU) , Nokia has not taken a crucial step toward 3G: making
peace with Qualcomm (Nasdaq: QCOM) . These companies, and several courts,
have established that Qualcomm owns critical chunks of W-CDMA, even though
the company was not an active developer of the standard.
The other companies have established their royalty agreements and will be able
to move to the next step unfettered. But Nokia has yet to come to terms with
Qualcomm, which means the company is either setting itself up for a monstrous
legal battle, or risking having to pay more for the technology. Either way, by
delaying its agreements with Qualcomm, Nokia is risking losing its leading position
in the industry to its better-prepared rivals.
Finally, I can't really complain much about Nokia's financial policies, but there is
one thing that sounds odd, if not worrisome. On its investor relations website
FAQ, the company has this question: "Nokia has had positive operating cash flow
the last several periods. What does Nokia do with this cash?" The answer is to
invest the funds in T-bills and Treasury bonds. This answer seems strange to
me. Wouldn't the company be better served by investing the money into its
business? Perhaps they think that hefty Euro 1.8 billion research budget will
always be enough and they don't need to worry about any more investments.
Or, perhaps they feel that investing in their business won't yield more than the
6% that they get from the government securities.
Like I said at the beginning, Nokia has had a great couple of years both as a
company and an investment. Will it continue to turn in incredible results? I'm not
so sure about that, especially considering some of the risks the company faces
in the next couple of years. If nothing else, look at the company's current
strategy of locking in low returns on very safe government securities instead of
investing more in their own business.>
The Bull Rebuttal ¯ Knockin' Nokia
Nokia Price (6/20/00): $60 3/8
Should you invest in the leader in cellular handsets? It's your call. Shares of Nokia
(NYSE: NOK) have tripled over the past year -- is it still worth dialing into?
fool.com
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