The party continues in Helsinki... up by 2,7% at this point. It does look like irrational excuberance. But on the other hand, news are really good. Last Friday Nokia told that the sales of 6100-line phones have exceeded company expectations and several European countries have spot shortages. Earlier they commented that Chinese production has to be expanded, because Asian sales of the phones are unexpectedly high. And it's not like Nokia had low expectations, they were extremely bullish when they launched the product line last February.
I think that the highest profits of any new product come around second or third quarter after launch, when volumes are high, but price erosion hasn't hit yet. So the biggest impact of the 6100 line may come in the second or third quarter. Moreover, high-priced new top of the line models, 8810 and 9110, will start to ship on third quarter. They may be niche products, but they have profit margins up to 50%. I think they may boost Nokia's operating profit in the fourth quarter a bit, especially as at that point Ericsson has only its old models to compete with.
So selling now might be a bad idea, no matter how unhinged Wall Street may look like right now. The biggest advantage Nokia has over Ericsson and Motorola will come apparent only next fall/winter when the expensive upscale phones and the new entry in the cheap & nasty category, 5110, hit the streets. I think the 5110 will be a no-brainer in the entry level segment of mobile phones... it will have substantially better features than Ericsson/Motorola cheapies, which are basically incorporating 2-3 year old technology. No doubt the competitors will hit back in early 1999, but next fall should be Nokia's party as far as handhelds are concerned. All of the new models from 5110 to 9110 are based on the third generation digital technology introduced in the 6110 line of phones, and the enthusiastic reception to the 6110 phones should augur well for the other models as well.
Moreover, the infrastrucure renessaince seems to continue. Yesterday's Turkey deal was yet another example of Ericsson's competitive problems in the GSM 1800 market. Nokia is clearly the world's number one GSM 1800 manufacturer and the market is shifting from GSM 900 to GSM 1800. Last year's infrastructure deal bonanza is now starting to show up in sales figures... 1998 is the first year ever when Nokia is strong in both handsets and network sales. Within two weeks Belgium should decide whether it picks Motorola or Nokia as its TETRA provider. This is a huge deal; after winning half a dozen consecutive European TETRA deals, Nokia is poised on locking up the entire continent. Motorola is pretty much back against the wall... it hasn't been able to make even one TETRA sale in Europe. It will probably bid extremely aggressively to get a toehold. If Nokia wins this, it's gonna be another booster under the stock price.
I think early 1999 might be the time to consider selling, when Ericsson hits back with its new phone models and Motorola possibly introduces its second generation models. At that time Nokia's edge in network sales might be dissolving, who knows. But right now, when the impact of Nokia's technological lead is just starting to unfold, is a pretty risky moment to sell. Judging from recent analyst comments market was *not* expecting Nokia to boost its global market share in phones from 21% during 1998. If the company picks up a couple of points, it's all upside.
Tero |
