In Focus

Unscrambling Nokia Corporation

Putting Nokia through the Chicks' Dozen
by Chick Jana

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 looks as if 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's Industry is Wireless Communications & Communication Equipment. 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 filed, 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 new Nokia every year 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.

The below numbers were taken from NOKIA'S INCOME STATEMENT at Marketguide.com.

6. Gross Margins
Remember we want these above 50%, well these slipped a little---we'll keep an eye on them! GM = 40% (Numbers taken from Nokia's financial statements dated 6/31/00.)

(Sales - Cost of Goods Sold) / Sales

(6050.1 - 3643.1) / 6050.1 = 2407 / 6050.1 = .3978 = 40%

7. Net Margins
We want these above 8%; Nokia passes with flying colors. NM = 13.62%

Net Income / Sales

824.3 / 6050.1 = .1362 x 100 = 13.62%

NOKIA's BALANCE SHEET at Marketguide.com.

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

(885 + 2258) / 230.6

3143 / 534 = 13.6x more cash than debt

9. Flow Ratio

(Total Current Assets - Cash*) / (Total Current Liabilities - Short-Term Debt)
*Cash, including Short Term Investments
(10,096.2 - (885 + 2258)) / (6688.9 - 710.8) = 6953.2 / 5978.1 = 1.16