A Foolish Treat Nokia
By Peter Psaras (TMF Mycroft)
October 24, 2000
Ladies and gentlemen, it's Halloween time again and that means we are knee-deep into the fourth quarter. If I were trick-or-treating in the stock market, I would hope that I would be handed a share or two of Nokia (NYSE: NOK).
Nokia, for those who don't know, is the world's No. 1 mobile phone producer and is expected to produce 180 million phones in the year 2001. Those keeping count will notice that the production of 180 million is equal to...
493,151 phones a day
20,548 phones an hour
342 phones a minute
6 phones a second
I bought the stock in June 1999. At the time, they produced 78.5 million units. Since it's Halloween, let's get a little scary and figure out what kind of two-year growth rate that will amount to. That's a 51.42% annualized growth rate per year.
This Halloween Nokia will just scare the heck out of their two largest competitors, Motorola (NYSE: MOT) and Ericsson (Nasdaq: ERICY). I have found out, with the help of my Philip Fisher scuttlebutt,that Nokia has declared a market share war on the ntire mobile phone manufacturing industry. The quarter that just passed brought Nokia's market share in global mobile phone sales to 27.9%. That number is more than Motorola's and Ericsson's market share combined.
It is my opinion that you will see Nokia break the 30% market share number by first quarter 2001 and then move up to 40% to 50% eventually. This definitely paints a scenario of gloom and doom for the competition. What is even scarier is the arrival of third-generation (3G) networks in 2002 and 2003.
What 3G will allow the user to do on their 3G phones are such things as:
Download and watch videos
See the person that they are talking to and vice versa
Use the Internet
Watch television
Pay bills and thousands of other services (banking, investing, etc.)
You can find a presentation on 3G on Nokia's site. Just click "Agree" and click "Next" after viewing each screen
Nokia not only makes the mobile phones, but also makes the networks that they run on. It is one of the top two dogs in this area, with Ericsson. So as an investor in Nokia you not only get the world's No. 1 mobile phone maker but also one of the largest communication network providers. In the area of 2.5 G or GPRS (general packet radio service), Nokia is No. 1 and is working toward becoming No. 1 in 3G as well when it becomes active.
Nokia will soon be releasing the 7190 and 7160 models, which will bring the world of WAP (wireless application protocol) to the North American shores. If Casper the Ghost were interested in seeing how his stocks were doing or needed to transfer money to pay his bills electronically, he could do so on this new phone. He could also use the Navi Roller and type out short messages to his fellow ghosts, and they could answer him without the need to ever make an actual call. So people watching a horror movie in a theater can still receive messages from their friends and communicate with them without the phone actually ringing.
"How's the movie going?"
"Great, Dracula just sucked the blood out of someone's neck."
That's an example of a Short Message Service (SMS) conversation.
Here are some statistics that will show you how fast SMS is growing,
SMS per month
March 1999 -- 1 billion
October 1999 -- 2 billion
December 1999 -- 3 billion
March 2000 -- 4 billion
July 2000 (forecast) -- 5 billion
December 2000 (forecast) -- 7.5 billion
So as the table shows we're talking some amazing numbers. From March 1999 to December 2000 we are talking a 650% growth rate in SMS per month. There will be tremendous opportunities for service providers to make some serious cash.
Nokia will also be introducing Bluetooth to the world. Bluetooth is Star Trek-type technology that will allow devices that are within 10 meters of one another to use Bluetooth to communicate with each other, without having to point at one another
A person with a Bluetooth phone can walk up to a Coca-Cola vending machine and order a Coke without using any change. Just hit a number that's on the machine and the soda will be dispensed. The charge for the soda will go on the person's phone bill. Thus service providers will be trick-or-treating themselves to unlimited possible uses of their networks. They in essence will turn the Nokia phone into a credit card.
I envision a company such as American Express (NYSE: AXP) buying a wireless phone service provider someday. Some sort of communication device using Bluetooth will replace the credit card. Here is a video showing a possible
scenario using Bluetooth. Just hit "Watch The Video" and turn those speakers on high! The crew of the ship is communicating with each other using Bluetooth.
Hopefully I will have a carbon copy of that yacht someday. The boat will have a crew of Motley Fools and will say "Nokia, Thank You" on the side if the scenario that I have painted here comes true.
Nokia is branching out into other areas of the wireless world and have these products also coming out to scare their competition.
Mediascreen
RoofTop
SyncML
Media Terminal
Mediamaster
The last one can access 2000 channels!
For those interested in delving deeper into reading my research on Nokia, read my "Philip Fisher 15-point Analysis of Nokia" that I posted when I first started at The Motley Fool back in June. Just replace the July release of the 7100 with an October release. The rest is still current and I stand by it wholeheartedly.
I would pay very close attention to the date of January 30, 2001. That's when Nokia will release its fourth-quarter results. I think they'll be a barnburner and send shortsellers looking for cover.
I leave you with a quote from my idol Benjamin Graham from his book The Intelligent Investor, which I believe to be the greatest quote in the history of investing. It is something which I live by and gets me through the tough times.
"Have the courage of your knowledge and experience. If you have formed a conclusion from the facts and if you know your judgment is sound, act on it --even though others may hesitate or differ."
A Trick or Treat represents the opinion of one Fool and in no way should be taken as the opinion of either the Motley Fool, Inc., the company in question, or representative of anyone or anything other than that specific Fool's thoughts.
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