Stock Analysis: Feb. 15, 2001Joel 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.• First entered telecommunications in 1960• Streamlined company during 1990s to focus on

telecommunications.

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

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

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

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

Wireless Warriors

Q4 2000 Numbers NOK MOT ERICY

Revenues 9.284B $7.736B $8.327B

Gross Income 3.342B $3.135B $1.927B

Net Income 1.204B $0.199B $0.228B

Gross Margins 36.0% 40.5% 23.1%

Net Margins 13.0% 2.6% 2.7%

R&D Budget 764M $815M $1365M

R&D Percent 8.3% 10.5% 16.4%

Market Capitalization $139.2B $42.44B $77.06B

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)

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

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.

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-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

Recent Analysis

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

Stock Chart

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

1 Year Relative Performance

1 Year Relative Performance

Valuation

NOK MOT ERICY

Share Price $29.51 $19.44 $9.81

2000 EPS $0.73 $0.84 $0.17

2001 EPS $0.88 $0.83 $0.25

Dividends $0.19 $0.16 $0.06

Yield 0.68% 0.84% 0.61%

P/E (2000) 40.4 23.1 57.7

P/E (2001) 33.5 23.4 39.4

5 Yr Earn Grow 26.8% 18.5% 24.9%

PEG (2001) 1.25 1.26 1.58

Valuation Continued

NOK MOT ERICY

Share Price $29.51 $19.44 $9.81

Price/Book 14.92 2.23 8.60

Price/Sales 4.86 1.15 2.47

Current Ratio 1.47 1.22 1.32

Debt/Equity 0.14 0.57 0.05

Return on Assets 24.34% 3.05% 9.35%

Return on Equity 47.67% 6.59% 25.76%

Return Equity = Effectiveness of management in using retainednet income and turning it into additional net income.

Revenue Comparison

0

5

10

15

20

25

30

35

40

1997 1998 1999 2000

Year

Billi

ons o

f Dol

lars

NOK

MOT

ERICY

Earnings Per Share Comparison

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1

1997 1998 1999 2000

Year

Earn

ings

Per

Sha

re in

Dol

lars

NOK

MOT

ERICY

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.

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

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

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