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Feb 1 2000 8:57AM ET
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Unstoppable Nokia's Run Seen Continuing
by Frances Hong
Technology Reporter
Nokia Corp.?s {NOK} stock is ringing off the hook.
Since hitting a 52-week low about a year ago, the Finnish
telecommunications company's stock has more than tripled, and
industry watchers say it can only go higher.
Nokia 52-Week Stock-Performance Chart
Nokia reported fourth-quarter earnings of 72 cents a share,
compared with estimates of 67 cents a share. Nokia also
announced a four-for-one stock split and a buyback program for up
to 2 million shares.
With demand for mobile phones at an all-time high and the wireless
sector running wild, can the world?s top mobile-phone maker
continue its rapid growth? For 2000, analysts expect the firm?s
top-line growth to be upwards of 35 percent.
"This is a world-class company that is doing extremely well," says
Raymond James & Associates analyst Todd Koffman. "They have
the most-compelling product line in the handset market and the
most-profitable manufacturing operation. That?s a combination of
tremendous scale and great products."
In terms of operating margins, Nokia is getting about 20 percent, vs.
7 percent for Motorola Inc. {MOT}, according to Chase H&Q analyst
Edward Snyder, who has a "buy" rating on Nokia, with a 12-month
price target of $200.
What is interesting about the phone business,
Snyder says, is how complicated it is today
compared with a few years ago.
"The complexity shows up in the cost, but
technology continues to improve, and the guys
with scale and strong research and
development will be the most-effective
and profitable," he says.
Nokia, which has an estimated worldwide
market share in handsets of just over 30
percent, analysts say, has been effective in pushing out the latest
and greatest in mobile phones.
The company, which is expected to replace its popular 6100 line
sometime this year, has been picking up market share from
companies, such as Audiovox Corp. {VOXX}, Lucent Technologies
Inc. {LU} and Philips.
"The small guys can?t keep up with developing hot, new phones.
They start losing money, exiting the phone business or pulling
back," Snyder says. Who benefits? Leaders with scale, such as
Motorola and Nokia.
Indeed, the "big three" -- Nokia, Motorola {MOT} and Ericsson
{ERICY} -- will continue to keep investors smiling over the next
several years because of strong demand.
Motorola 52-Week
Stock-Performance Chart
Ericsson 52-Week
Stock-Performance Chart
By the end of 2002, Nokia forecasts about one billion people
worldwide will be using cell phones. That?s up from 450 million
users today. If you have recently upgraded your phone because of
new technology, that is evidence the replacement period is churning
at a faster rate -- currently about every two years.
To be sure, maintaining the lead won?t be easy.
For one thing, Nokia must contend with top competitor Motorola.
Although second to Nokia, the Schaumburg, Ill.-based company is
in a turnaround phase and will give the market leader a run for its
money.
"Motorola has adopted a marketing strategy similar to Nokia and is
rolling out families of phones that will be attractive to consumers,"
says First Union Securities analyst Mark Roberts. "Motorola is the
threat to watch."
Although CDMA (code division multiple access) technology won?t
make a huge impact on Nokia?s earnings or revenue, analysts say
the company needs to grab market share in this segment.
After all, CDMA is the fastest-growing in the digital-wireless group,
says A.G. Edwards & Sons analyst David Heger. Companies that
excel in CDMA include Motorola, QUALCOMM Inc. {QCOM} and
Samsung.
QUALCOMM 52-Week Stock-Performance Chart
Despite its high growth and success, Snyder says Nokia does have
a "few flies in the soup," when it comes to CDMA and Internet
phone products.
"Those phone sales have underwhelmed, vs. overwhelmed," Snyder
says. "Neither have done well, but it?s more of a visibility problem."
But Raymond James & Associates does expect Nokia?s popularity
to increase in the first half of 2000 as its 7100 WAP phones hit the
U.S. market.
What this means, says Koffman, is that early adopters of wireless
will upgrade to higher-price Internet-enabled phones.
"Knowing Nokia, they probably have something up their sleeves,"
says Deutsche Banc Alex. Brown analyst Brian Modoff. "They tend
to do a better job of rolling things out." |
