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Technology Stocks : Nokia (NOK) -- Ignore unavailable to you. Want to Upgrade?

To: Wyätt Gwyön who wrote (4246)	4/18/2000 8:50:00 AM
From: t2	Respond to of 34857

"Reach Out and Touch Nokia" individualinvestor.com Reach Out and Touch Nokia Analyst: Will Frankenhoff (4/18/00) Now is a good time to pick up shares of high quality companies whose stocks have sold off with the rest of the market. One ideal candidate: Nokia (NYSE: NOK - Quotes, News, Boards), the world?s largest supplier of wireless phones. Investors seem to agree. In fact, one indication that investors deem it a high quality stock is the fact that shares of Nokia have fallen a mere 20% even as the Nasdaq has declined 32% since the close of March 27. In comparison, competitors such as Motorola (NYSE: MOT - Quotes, News, Boards) and Ericsson (NASDAQ: ERICY - Quotes, News, Boards) have fallen by 32% and 24%, respectively. The reason for its relative strength: Nokia?s very strong position within the wireless phone market as well as its contribution to building out Global Standard for Mobile (GSM) infrastructure. The first reason for liking Nokia is the overall outlook for growth in the wireless communications market. Analysts predict that 425 million mobile phones will be shipped in 2000, rising to a billion units by 2003, implying a compounded annual growth rate in excess of 30%. In addition, so-called ?smart? phones ? ones that are essentially combinations of telephones, e-mail readers, Web-browsers, etc. ? will reach 50 million by 2002. Since Nokia?s main focus has been on the high-end segment of the cell phone market (i.e. Nokia?s cheapest phone sells for $115 over the Internet in Russia compared with Ericsson?s price of $95 and Motorola?s price of $80), it is logical to believe that it stands to benefit more than its competitors, especially Motorola which is not as well regarded in Europe. Nokia also holds the largest share in the wireless phone market, garnering a 29% market share in 1999 and is expected by some analysts to eventually grab more than 40% of the global market. In comparison, both Motorola and Ericsson hold market shares in the low-mid teens. The difference in operating margins among the Big Three is also significant. Because of its focus on the high-end segment of the cell phone market, Nokia consistently records an operating margin in the 19-21% range while Ericsson posted an operating margin of 5.7% in the fourth quarter of 1999 and Motorola posted an operating margin of 1.5%, albeit somewhat due to component shortages and a reliance on cheap pre-paid phone sales in Europe. A further example of the disparity in operating efficiency is the fact that both Motorola and Ericsson are targeting operating margins of 10% for their cell phone businesses by the end of the year, a target which Motorola has already warned might not be achievable. In contrast, this target would represent a 50% decrease for Nokia. The strength of Nokia?s wireless phone business (which management estimates will account for close to 83% of operating profits in 2000) is buttressed by the anticipated growth in the GSM infrastructure marketplace that is expected to grow by 25% a year through 2004. Third generation (3G) wireless network build-out should also fuel Nokia?s growth in this area, especially since it recently signed an agreement to partner with Cisco Systems (NYSE: CSCO - Quotes, News, Boards) to offer a complete packet-centric infrastructure offering. Of course, at $46 or so, there is no doubt that shares of Nokia are expensive when compared to Motorola, as they trade at 49 times consensus 2001 estimates of $0.93, almost double Motorola?s 26 multiple of 2001 earnings, expected to come in at $4.24 per share. However given the disparity in operating margins, Nokia?s growing market share in high-end phones and its positioning in terms of network infrastructure build-out, we believe Nokia certainly warrants a premium over Motorola and could see shares of Nokia trading at 70 times 2001 estimates, or $65 per share. That said, we also like Motorola due to expected expansion in margins and its relatively low valuation. Of the Big Three, the company we like least is Ericsson. Sure, it?s a good company, but we believe it is overvalued. Ericsson, at around $76, is trading at about 49 times fiscal 2001 estimates of $1.52, which are in-line with Nokia?s. Yet it racks up significantly lower operating margins. Bottom Line: If we had to rank the companies in order of preference, it would be Nokia, Motorola and then Ericsson. All three are quality, long-term plays, but a line has to be drawn somewhere.

To: Wyätt Gwyön who wrote (4246)	4/18/2000 9:54:00 AM
From: tero kuittinen	Read Replies (3) \| Respond to of 34857

OK - so it's real. And apparently Q hasn't even formed the consortium yet - even though the 3G license deadline is next month. I'm running out of snappy one-liners here. Hard to be sarcastic about this holy crusade against Japanese operators - it's like trying to mock Dan Quayle. It can be done, but not without looking like you're kicking a sick puppy. Can't wait for the conference call... it should be epic. Machiavelli himself couldn't have timed the Saturday leak with more vicious precision. It forced Qualcomm to issue this press release the same day they are announcing the 1Q. I think DDI knows a thing or two about the art of war. Tero