Nokia: Bargain of a Lifetime - Barron's

Handset makers took a beating last week amid weak earnings from Palm (PALM), and after Research In Motion's (RIMM) FQ2 earnings outlook came in below expectations. Nokia (NOK) and Apple (AAPL) fell in sympathy - 1.1% and 3% respectively.

Nokia has been hit by multiple analyst downgrades in recent weeks - and Barron's Plugged In editor Mark Veverka can't understand why. He thinks fears that the escalating cost of food (rice) in key emerging markets like China and India are overblown, suggesting some analysts fail to understand just how pervasive mobile communication is in developing lands, or the key role Nokia plays.

Shares trade near their 52-week low, and fetch just 9x 2009 earnings -- vs. 26x for AAPL and 32x for RIMM. Strong iPhone sales will only further entrench 3G, driving Nokia's sales higher.

Nokia said last week it is spending $410M to buy the shares of mobile software developer Symbian it doesn't already own. What it plans to do with Symbian caught a lot of insiders off guard. Nokia said it will donate Symbian's S60 platform to a newly-formed open-source foundation, the Symbian Foundation, whose members (SNE, ERIC, MOT, DCM, T, STM, TXN VOD) span the mobile market. The move should enable the Nokia-lead consortium to accelerate product development, and rival Google's Android-based Open Handset Alliance.

"If you believe in the long-term power of the mobile Internet," Veverka says, "Nokia looks like the bargain of lifetime."

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On Thursday, Credit Suisse downgraded Nokia to Neutral. It thinks Nokia's 49.4% stake in the smartphone market is unsustainable given pressures from RIMM, AAPL and HTC.

But earlier last week, Nokia uber-maven Tero Kuittinen turned positive on Nokia. Tero was one of the only analysts who spotted the market share erosion in Nokia’s European heartland when he went negative on the stock back in January. Tero notes the company just started shipping new, radically improved €70 and €90 models, which should help it extend its low-end market share leadership this summer. As SA poster Notable Calls puts it: "No one, I mean no one knows Nokia better than Tero."

Comments

[Egg]

"Bargain of a lifetime?"

How old is that analyst Veverka??? Is he too young to remember when NOK traded at ~$3 in the mid-90's, or even sub $15 just a few years ago.

He may think it's a good buy now, but good gawd, no reason for him to use silly (easily refuted) hyperbole to make his case.

[richjoy]

Thanks Egg...I like your style.

We do need to hold analysts accountable for hyperbole. You might have also added that 9x earnings is not necessarily cheap...and certainly not "Bargain of a lifetime" cheap.

[borisb]

Lower end cellphones are commoditized and this is chewing into Nokia's income statement. While RIMM and AAPL are fierce at the high end. Also global consumers already in a squeeze, know the prices are dropping each year, and simply delay purchases. Nokia might end up in the Motorola situation.

[ChandlerLutz]

Interesting article. Even though Nokia is trading at 9 times 2009 earnings I don't know if it's really that great of bargain. There is an operating system in the mobile market between strong competitors like Microsoft, Google, Apple and RIM who are making huge bets in this area. I don't know if I Nokia has the know-how or resources to compete with these firms. As Microsoft showed us in the desktop market, making the gas that fuels the boxes is a much better option...That is not the Nokia's advantage right now

[DrTCB]

Nokia has been the Don of the EU based GSM Mafia since the mid-1990s. It first tried to discredit CDMA and subsequently tried to defeat ITU/WARC approval of CDMA as the basis for 3G cellular coms. More recently, it has whined and dragged its feet in multiple court cases claiming Qualcomm charges exhorbitant royalties for its CDMA IP. Meanwhile, LG, Samsung and a host of Chinese handset developers/manufacture... have been preparing to send NOK back to its heritage busness: making boots for Finnish fisherman. The Asian handset industry will do to NOK what Sony, Panasonic, Yamaha, et.al. did to Revox and other Scandanavian consumer electronics manufacturers 30 years ago...

[Wefwef]

Nokia might be reasonable value in euros but with $ there's a massive currency risk included. Nokia's climb in NYSE has been mostly on EUR over USD advancement in the past 2 years. If and when US gets back on its feet watch Nokia slide steeply down on dollar terms.

I agree on the view on Asian manufacturers, they're quietly grabbing massive market share while Nokia struggles in the headlines. LG and Samsung are the new ho

[Dan Walker]

I am a bit cautious of any article which is predicated on the phrase "fears that the escalating cost of food (rice) in key emerging markets like China and India are overblown". Those rising costs are not done rising, yet.

[wallawallabingbang]

Nokia is the MiSFiT of handset stocks. No dramatic growth prospects. The market is theirs to LOSE. Dumped it.

p.s. Isn't Mark Veverka the shameless hitman who started the bullcrap about Jobs' health?

[buyitcheap]

The handset business is lousy - NOK is just a Europroxy for MOT. Better play seems to be the transport guys - who biggest players in the BRIC countries? is international/global telecom better played via a fund or ETF (i.e. DGG)? Thoughts welcome - Happy 4th of July to all.

[kotika98]

> Strong iPhone sales will only further entrench 3G, driving Nokia's sales higher.

I guess, this is a "what doesnt kill you will make you stronger" kind of argument for nokia, haha...

[carlivar]

Hmm iPhone or some crappy Nokia phone? That's almost a rhetorical question.

[iago]

Tero might be knowledgeable about Nokia. But his views over the past few years (see old thestreet.com transcripts) on Nokia are hardly objective, and historically overly celebratory of anything they do..

[Toni]

Egg said it all. First post.

[melante]

Sure guys, you'd all run to buy GM, that's a bargain of a lifetime!!

[mark mchugh]

More and more I find Barron's only to be useful in the smallest room in my house.