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Technology Stocks : Nokia (NOK)
NOK 6.035-9.1%3:59 PM EST
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To: Peter Tatray who wrote (1929)5/21/1999 6:40:00 AM
From: tero kuittinen  Read Replies (2) of 34857
 

I wouldn't worry about media slant as long as your investment horizon is several years. Many high tech execs have good tans and better hair stylists than Jorma Ollila. They sure make bigger claims. But I'd rather go with market share gains with a silent CEO. I don't really agree with this concept that all companies have to learn to whip analysts into a frenzy. We have seen with Iridium and Alcatel what happens when optimistic projections are not met - the damage can be horrific. The short, giddy peaks that these two companies enjoyed by making overtly positive forecasts only benefited people who bailed out in time.

And actually, Nokia does play its own game. They have engraved the 25-35% growth estimate for 1999 into Wall Street mentality by repeating it over and over again. They have also brushed aside expectations of maintaining the 24% handset margins. That's the groundwork. We'll see the end game during the second half of this year. That's when 8-10 major new models arrive in the three major digital standards.

It means the first luxury model for AT&T Nokia has ever delivered, opening a new high-end niche just as AT&T gears up to adding a million subs during the Xmas quarter. It means large scale deliveries of the first sub-150 gram internet phone in the GSM market. It means a new entry-level model aimed at teens, 3210, delivering picture messaging and arriving just a month or two after Ericsson launched the T18. The T18 is a response to 5110 - meaning that Ericsson has just 8 weeks to compete with 5110 before Nokia's next generation appears.

The real picture of Nokia's segmentation strategy and product cycle speed will emerge in the second half. The company has nothing to win by putting the CEO on some business channel to talk about "modular product development as the new paradigm of high tech manufacturing" or "leveraging design advantage in targeting specific consumer groups".

We saw the same cycle before Nokia's 61xx series product launch. Nokia flatly refused to project huge sales or rising margins. Wall Street drove down Nokia's P/E ratio in nervous anticipation. Every four quarters after that came as a shock. It was those earnings shocks that propelled Nokia's share price up throughout 1998. And that's the lunch Nokia would have eaten in January 1998 if they had caved into pressure and hyped the future earnings.

Here's a Nordic gut reaction; if you see a mobile handset manufacturer talking openly about raising margins by 5-6 percentage points and dropping heavy hints about massive market share gains - run a mile.

Tero
debry.com
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