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Stock Analysis: Feb. 15, 2001 Joel Bauman

Stock Analysis: Feb. 15, 2001 Joel Bauman. Nokia Oyj (NOK). Company Overview. Leading worldwide supplier of mobile phones and a leader in the supply of mobile, fixed and IP networks. Listings on six major exchanges. Founded in 1865 in Finland as a paper milling co.

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Stock Analysis: Feb. 15, 2001 Joel Bauman

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  1. Stock Analysis: Feb. 15, 2001Joel Bauman Nokia Oyj (NOK)

  2. Company Overview • Leading worldwide supplier of mobile phones and a leader in the supply of mobile, fixed and IP networks. • Listings on six major exchanges. • Founded in 1865 in Finland as a paper milling co. • First entered telecommunications in 1960 • Streamlined company during 1990s to focus on telecommunications.

  3. Company History Continued • Cellular network since 1981 • First transportable phone, 1984: weighed 4.8 kilos • Divesting successfully since 1992 • 1995,96: sold off cable and tv industries • Went public in 1995 (on NYSE) • Pioneered GSM (global system for mobile comm. As of 1997, 59 agreements in 31 countries

  4. Trendy Handsets • Emphasis on personal technology of personal communication: DESIGN • Innovated large graphic display, ringing tones, colored covers, battery signals, etc. • Simplicity and Style: Highly standardized products good for production, too • Significant economy of scale--at least 2 times that of nearest competitor (MOT) • 18 new phone models in 1999 alone

  5. Acquisitions • At least 4 major divisions: Internet Communications, Networks, Mobile Phones, Communication Products • All of which have been gobbling up companies increasingly in past 3 years, for enhancing IP networks & telephony, broadband • 15 acquisitions, 6 divestures • Some have been expensive: $335M for Network Alchemy

  6. Financial Overview • FY 2000, sales rose 54% to EUR30.38 billion. Revenues reflect order inflow in Nokia Networks and increased sales of Nokia Mobile Phones. • Net income rose 53% to EUR3.94 billion. Earnings reflect higher operating margins. • Total of 60,000 employees; little outsourcing • In 1999, sold products in over 130 countries

  7. Wireless Warriors

  8. Prospects for 2001 • Revised forecast = 23-36 % growth, rather than projected 45% growth in 2000 • Continued product launches: GPRS (2.5G) by 3rd quarter (rudimentary internet); 3G a year later; R&D continues at 8.5% sales • Some outsourcing to cutback on costs (800 jobs recently cut in Texas--compare with MOT and ERICY) • Stock target price: $42 (revised from $55)

  9. Branding • Ranked the #5 most valuable worldwide brand in 2000 at $38.5B. (KO #1, MSFT #2, IBM #3, INTC #4, GE #6, F #7, DIS #8, MCD #9, T #10) • Up 86% from 1999 ($20.6B); ranked higher than AT&T (#10) and Motorola (#49) • Popular and recognizable ring • Sugar Bowl game sponsorship

  10. Networking • New network contracts within the past two weeks alone include ventures into Bolivia (GRPS--general packet radio service) and Hong Kong (TETRA--Terrestrial truncated radio system). Also, Venezuela. • First nationwide TETRA system implemented in Finland--will gradually replace existing radio networks--good for government/military purposes • Nokia Telelcommunications changed its name to Nokia Networks a couple of years ago.

  11. Market Share • Currently 32% of all handsets sold • Twice that of Motorola and 3 times that of Ericsson • Plans to increase share to 35% by end of year, if not higher, even though sales esimates expected to decrease from 550M to 500M units. 1 billion handset sales by the end of 2002.

  12. Recent Analysis • 12-Feb-01 Wit SoundView upgrade: from Buy to Strong Buy • 30-Jan-01 Raymond James downgrade from Strong Buy to Mkt Perform • Salomon Smth Brny downgrade: from Outperform to Neutral • 23-Jan-01 Dresdner Klnwrt Bnsn downgrade from Reduce to Sell • 19-Jan-01Mrgn Stnly Dn Wttr downgrade: from Outperform to Neutral • 18-Jan-01 JP Morgan initiated: at Buy • 5-Jan-01 Dain Rauscher Wessels initiated: at Buy Aggressive • 19-Oct-00 Chase H&Q upgrade: from Buy to Strong Buy • 18-Oct-00 First Union Sec downgrade:from Strong Buy to Buy • 13-Sep-00 Sands Brothers initiated: at Buy

  13. Current Recommendations • Despite downgrades, 23 out of 26 analysts recommend NOK as either a strong or moderate buy. • No one recommends sell --taken from Yahoo! Finance “research” option

  14. Stock Chart

  15. NOKIA CORP (NYSE:NOK) - More Info: News , Msgs , Profile , Research , Insider , Options Last Trade2:33PM · 29.70 Change+1.47 (+5.21%) Prev Cls28.23 Volume15,438,700 Div DateApr 10, 2000 Day's Range28.5 - 29.75 BidN/A AskN/A Open0.00 Avg Vol13,619,545 Ex-DivApr 11, 2000 52-week Range26.4900 - 62.5000 Earn/Shr0.76 P/E37.14 Mkt Cap139.2B Div/Shr0.19 Yield0.68 Stock Quote

  16. 1 Year Relative Performance

  17. 1 Year Relative Performance

  18. Valuation

  19. Valuation Continued Return Equity = Effectiveness of management in using retained net income and turning it into additional net income.

  20. Why Buy? • At a P/E of 37, NOK seems to be heavily undervalued compared to the rest of the Telecom sector, which has an average P/E of 100 • Bottom Fishing? 52 week low occurred yesterday during trading.

  21. Review • Industry leader and pioneer • Strong sales, earnings growth • Global expansion • Two-pronged attack: mobile phones and networks (fixed, mobile, and IP) • Keen sense of consumer and business trends • Possibly undervalued company due to investor anxiety over recent growth warnings

  22. Caution • Warned that will not meet first quarter growth expectations--but is 35% so bad?!? • Penetrance rate in Europe = 60%, much higher in Scandinavia • Growth from replacement phones not as fast as anticipated--data traffic (2nd gen) phones unnecessary if applications and networks not up to date • New competition from Siemens, Sony

  23. The Future • Short term: Aggressive take over of market share from Motorola, Ericsson; only one left standing in 3 years • Concentrate on network infrastructure until data traffic becomes realistic option. • Long term: commitment to broadband solutions, wireless data applications, increasingly user-friendly mobile devices and third-generation mobile telephony

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