Nokia's Bottom Line Focus Will Prevail -- Barron's

 |  Includes: GOOG, NOK
by: SA Eli Hoffmann

Excerpt from our One Page Barron's Summary (receive it weekly by email by signing up here):

TECHNOLOGY TRADER: Nokia Will Be Back in Style by Tiernan Ray

Highlighted companies: Nokia Corp. (NYSE:NOK), Motorola Inc. (MOT), Qualcomm Inc. (NASDAQ:QCOM), Verizon Communications Inc. (NYSE:VZ), Sprint Nextel Corp. (NYSE:S)
Summary:Both Nokia Corp. (NOK) and Motorola Inc. (MOT) were battered last week by drops in Q3 earnings. Comparing the two in a nutshell: MOT has the cutting-edge edge, while NOK wins the numbers game. Barron's contention: Shareholders care about profits more than chic: Motorola has led the battle to produce thinner, more stylish phones; Nokia has repeatedly missed the latest trends, sidestepping the costly R&D battle for slim, and dropping prices instead. Nokia is the low-price leader in cell-phones ($117) vs. $131 for MOT and $154 for Samsung [SSNLF.PK]. It seems the battle to produce the slimmest phone isn't helping the latter two's bottom lines; both have been forced to slash prices on their ultra-slims. R&D has eaten into MOT's profits (11% vs. NOK's 15%). Consumers seem to like cheap phones: 40% of Nokia's sales are for phones priced under $63. Nokia is taking steps to trim costs, having built 5 new facilities worldwide, enabling them to cut shipping costs. Nokia is phasing out its agreements Nokia vs Motorola 22 10 06with Qualcomm Inc. (QCOM), which will further cut costs, but may hurt it in the U.S. where QCOM technology is heavily used by Verizon Communications Inc. (VZ) and Sprint Nextel Corp. (S), numbers 2 and 3 among the cellular operators. But the cost-gains in the far-bigger Chinese market will likely outweigh any U.S. hit. Despite all this, Nokia's valuation is exceedingly low. Even if projected earnings growth were halved (to 8%) and it commanded a P/E of 15 (current is 13), shares should be worth $21, not the current $19.35. Barron's conclusion: "The dip in Nokia could be short-lived. The company dominates its industry, has shown an ability to withstand shifts in fashion and is positioned for growth in many of the world's fastest-growing and largest markets, including China and India. Eventually, Nokia investors will ring up nice gains."
Quick comment: Our Barron's excerpt Google and Apple Shine, But Tech Looks Weak -- Barron's links to a rich array of recent Seeking Alpha commentary covering both Nokia and Motorola. See also: Looks Like Nokia's Margins are Getting SqueezedMotorola Has Really Turned Itself AroundWhose Phones Are They? Nokia's and Motorola's Features Challenge the Wireless ProvidersNokia and the Standards Battle in ChinaNokia and Qualcomm Battle It Out For 3G DominanceHe Said, She Said: Why Can’t Qualcomm and Nokia Just Get Along?SmartPhones: Don't Believe the HypeNokia Q306 Earnings Call TranscriptMotorola Q306 Earnings Call Transcript • ETFs: streetTRACKS Morgan Stanley Technology (NYSEARCA:MTK) has NOK as a top-10 holding (3.38%), Broadband HOLDRs (NYSE:BDH) (19.51%), Wireless HOLDRs (NYSEARCA:WMH) (13.83), iShares Goldman Sachs Networking (NYSEARCA:IGN) (10.24%), iShares Goldman Sachs Semiconductor (IGW) (9.59%), PowerShares Dynamic Telecom & Wireless ETF (PTE) (5.02%), PowerShares Dynamic Hardware & Consumer Electronics (PHW) (4.98%) are among the ETFs that have MOT as a top-10 holding.

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