Unscrambling Monday's Egg

Unscrambling Nokia (NYSE: NOK)

Putting Nokia Corporation through the Chicks' Dozen
by Chick Jana

Since the Chicks are getting ready to vote on whether to purchase a stock in a new company or re-invest in one of our current companies, I thought I'd take my Nokia through the Chicks Dozen. (It's "my Nokia" because I'm responsible for reporting on it.) If you want to see how Nokia compares to our other holdings, take a look at Chick Cheryl's post summarizing the numbers for each of the companies we own. Here's my updated Chicks Dozen on Nokia:

1. Buy What You Know  What do I personally know about Nokia? Hmmm... let's see, I've owned a Nokia phone since 1995. Each year I go into my local mobile phone dealer and upgrade to the nicest model I can get depending how much time I've spent talking on their air (what a great incentive to talk more). Suffice to say, I've owned 5 different models over the past 5 years and have never had anything go wrong with them. I love my Nokia phones.

2. K.I.S.S.  Keep it Simple Sister -- Nokia is a supplier of data, video and voice network solutions, mobile and fixed access solutions, and broadband and IP network solutions. It also manufactures mobile phones and is a pioneer in digital multimedia terminals for digital TV and interactive services.

How simple is that? Hmmm. it seems they're into a little more than just mobile phones. Yes, along with the equipment (phones), they also own the technology: the way in which the phones are able to communicate to one other. It also looks as if they're pioneering their way into digital TV.

3. Industry Nokia overlaps into two different (but similar) industries: Wireless Communication and Communication Equipment. (I really didn't know this until I wrote this Dozen.) They're in both industries. Not only are they supplying you with your phone, they're supplying you with the ability to call via wireless technology. So the next Dozen item is tricky.

4. Leader in Its Field  Some of Nokia's biggest competitors in the wireless communications industry are Sprint, Nextel and AT&T. Its competitors in the communication equipment industry are Qualcomm, Inc., L.M. Ericsson and Motorola. So in order to see if they're the leader in their field, we'll need to check both industries.

Nokia's past quarter financial statements are running ringy-dingies around its wireless and equipment competitors... well okay, 2 out of its 3 equipment competitors. The only competitor that's giving them a ring, I mean, run for their money is L.M. Ericsson, an equipment competitor. But in the overall dozen, Nokia beats them as well. (The statistics below do not include L.M. Ericsson.)

• Nokia's revenues were 3 times more than all its competitors.
• Their gross margins are 3 1/2 times more than its competitors.
• Nokia's net margins are 13.8%, all of its wireless competitors are in the red, and Nokia's holding it's own against the equipment competitors.

5. Repeat Profitability  Did I say I've owned a Nokia for the past 5 years? Yes, that's repeat profitability. Every time a user picks up a phone and uses it, that's repeat profitability. Whether it is the actual phone or the phone service, it's a monthly charge. So again, I'm a repeat, along with everyone else that owns a Nokia phone.

Note: The numbers below were taken from Nokia's Income Statement, 12/31/00.

6. Gross Margins

Remember we want these above 50%. These slipped a little; we'll keep an eye on them! GM = 36%. Numbers Taken from Nokia's Balance Sheet, 12/31/00.

(Sales - Cost of Goods Sold) / Sales

(8145.3 - 5213.2) / 8145.3 = 2407 / 8145.3 = .3599 = 36%

7. Net Margins

We want these above 8%; Nokia passes with flying colors. NM = 12.96%

Net Income / Sales

1056.3 / 8145.3 = .1296 x 100 = 12.96%

8. Cash to Long Term Debt

We would like our companies to have at least as much cash as they do debt. Nokia does well here with having almost 6 times more cash than debt.

Cash* / Long Term Debt

*cash, including short term investments

3669.9 / 151.8 = 24x more cash than debt

9. Flow Ratio

(Total Current Assets - Cash*) / (Total Current Liabilities - Short-Term Debt)

*Cash, including Short Term Investments

(11,845.9 - 3669.9/ (7539.9 - 937.9) = 8176 / 6602 = 1.24 

10. Increasing Growth

Revenues for FY 2000 = 26,650.0

Revenues for FY 1999 = 17,346.9

26,650 - 17,346.9 = 9,303.1

9,303.1/ 26,650 = .3490 x 100 = 35%

That's a great yearly growth, wish I could grow my personal revenue 35% a year!

11. Strong Management and History  Nokia has a stellar historical record and its management is pretty darn good too. Here's little overview on Nokia's history. They have been around a since 1865? Oh my, now there's a history.

How about Nokia's management? Any newspaper or magazine article that comes out about them raves about how great they are. Jorma Ollila is the CEO and according to Businessweek, January, 2000 issue, Jorma Ollila was one of the top 25 Business Executives for 1999. He can be seen frequenting CNBC and other mainstream shows pitching the vision and the technology of Nokia.

I believe an indication of how successful a company, and its products are, is in direct correlation to how long it's employees stay with a company. Management teams at large companies are notorious for hiring and firing which creates a lot turnover and turmoil within a company. If you have a management team that sticks around for a while, you're bound to have employees that stick around as well. They get to know the industry, the customers and the products very well and each year. Thus, all employees get better at their jobs. Well check this out. Nokia's management has been around since 1985. Take a look; really, it's quite impressive.

12. Buy on Sale

52-Week High: 62.50

52-Week Low: 20.55

52-Week Average: 41.50

Current stock price: 33.70

So there it is, Nokia's Chicks Dozen. It still meets 11 out of 12 this quarter, just like last quarter. Not bad, but I'll be keeping an eye on their Gross Margins. Keep checking back... or check out the Chick Laying Nest Eggs Message Board for a Nokia related post and see if we decide to reinvest in one we already own or purchase some stock in a new company.