Nokia’s (NOK) Pain is Competitor’s Gain

“There is some pretty grim corporate news out there. Nokia, the world’s biggest mobile phone maker or cell phone maker as you say is announcing big job cuts. 1700 job losses. The bulk of those in Finland, but we do understand both the U.S. and the U.K. are going to be severely affected…

Nokia news: it’s going to layoff 1700 workers and making major cost cuts. Nokia’s pain is its competitor’s gain. Apple, RIMM, Palm, Ericsson, all are treading higher.”

NokiaFox Business Network reported that there is more cost cutting at Nokia (NOK) these days, as the company is dealing with slumping sales. Nokia produced the first handheld mobile phone in 1987, and reached global market share of 40% in 2007. They are still considered an industry leader, but their grip on the industry has slipped a bit in recent years. At least that has been the case in established markets such as the United States and Europe, Nokia’s strategy has shifted to the developing world where it can offer lower cost cell phones to the very rapidly growing customer base. This strategy has hit a stumbling block as the current recession has effected all parts of the world and arguably the developing world the hardest of all. We know that, at the very least, growth in the developing world is not what Nokia had hoped.

The stock is trading at just about even today, as reports of job cutting are not surprising in the least in this market environment. We think that Nokia, like a lot of companies, is using this opportunity to become a more efficient business and is not in any real danger right now. Unfortunately, sometimes these efforts cost jobs, but it is in the best interest of shareholders. Nokia has long been the industry’s top performer in terms of profit margin, and this move should keep that tradition of strong profit margins alive through the recession.

At Ockham, we are maintaining our Greatly Undervalued valuation on NOK at current price levels. The fundamentals, while taking a hit in this downturn, are still quite strong in the grand scheme of things. Up until this year, revenues have grown very rapidly, more than doubling between 2002 and 2007, for example. Earnings are coming down, but the company still plans to make close to $1 per share this year. The yield of more than 4% is attractive, but should things get any worse it could be in danger. Nokia is not going anywhere, and eventually will be able to fetch a much better valuation because of still solid, even if declining fundamentals.

“Nokia’s Pain is Competitor’s Gain”

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