Those investors who put their money into Nokia in the past ten months have reaped a staggering 24.44% increase on their shares. This turnaround in Nokia's fortunes was pointed out on February 12 by The Economist when in an article entitled 'The giant in the palm of your hand, it asked the question: "Can Nokia, the world's largest handset maker, stay on top?"
This question was answered by Business Week and The Economist in the first week of this month. Thus, stockbrokers anywhere in the world who care to read the world's most authoritative financial periodicals were in a position to forecast Nokia's meteoric rise during the past ten months.
It is not only stockbrokers who should read financial literature but also ordinary investors, who should then be in a position to ask questions to their stockbrokers. Investment decisions are not a one-way affair. There is such a thing as group dynamics.
Decisions must be taken and, once taken, they are to be monitored. Subsequent stands should be made on the basis of information built up by a constant monitoring operation. Malta is today rich enough to indulge in money trading and not just in investment. We are a long way yet from large scale hedging operations. Such trading can provide us in the future with a substantial part of our GNP.
10% drop in one day
On July 27 I wrote in this newspaper on 'Mastering the Nokia money multiplication machine'. This followed a 10% fall in the Nokia share price in one day. I saw this as a buying opportunity. We have since then been amply vindicated because in the next few weeks Nokia recovered much of those 10%.
Here was a sterling money trading operation that was indulged in by only a very few investors in Malta. Why was it so easy to spot this buying opportunity on July 31? The reason can be put in a few words because there is evidence that Nokia will remain the world's largest mobile phone manufacturer and will not lose that scale advantage, which will give it an edge in research and innovation over such a giant producer as Motorola.
A most important method to monitor Nokia, as indeed for any other company is to test the ability of Jorma Olilla, Nokia's chairman and chief executive, to make forecasts. If one is not able to see into the future, one should have no business being a money man.
On January 27 Olilla stated that his firm was now well positioned to compete in an increasingly tough industry. His works have been borne out by results, which augur well for anything that Nokia might do in the near future.
The 'events'
Harold Macmillan, a one time British Prime Minister, used to say that it was "events" which counted and not "words". Let us see how Olilla's optimism on the Nokia share price was vindicated by events, which have been taking place during the past ten months.
During the past year the Nokia giant stumbled. It's market share hovered around 35% for years, and fell to a five-year low of 28.9% in the first quarter of 2004. Nokia has since reversed this decline and it is providing convincing data that it has turned the corner by pulling some fantastic products out of its hat.
The consensus of opinion among the world's mobile phone experts is that the Nokia, which commands research and consequently innovation, has the whip hand as regards the market. It seems that the 10% drop in the Nokia share price at the end of July took place because the market misunderstood that, as regards development and the resources Nokia could devote towards that end were rendered incomparable by the very strength of the marketing power which the new Nokia-designed mobile phones were gaining in the market.
Nokia is a winner at present not just because of abundant financial resources but because of an extremely effective superiority in marketing and design.
Marketing and design
The drop in the Nokia share price at the end of July was as I pointed out due to an ill considered move on the part of world investors. This has been validated by Business Week. It is one thing to make a précis of financial articles and it is another thing to make forecasts, which subsequently materialise.
My stand was that the 10% drop in share price was a buying opportunity. The reason splashed out by analysts was that, in spite of the excellent Nokia half-yearly results in July, it was uncertain what was going to be the return that Nokia would be getting on the new mobile models it would be selling in South East Asia. This stand has been proved incorrect.
This point was clarified by two masterly articles on Nokia in Business Week and by a boxed article in The Economist. This indicated that at present Motorola had no strategic product that could overwhelm the mobile phone market and consequently challenge Nokia.
The Economist indicated as long ago as last February that Nokia's strength in the lower end of the market made it an almost impregnable fortress: "Nokia is, say critics, being pushed down market as its share of revenue declines and it becomes more reliant on low-end handsets."
But, "being strong at the low end does not preclude strength at the high end. Nokia's breath and agility enables it to ride out fluctuations in geographical demand and product mix, and its efficiency makes it difficult for rivals to challenge it at the low end... Chinese manufacturers that have tried to undercut Nokia have had their fingers burnt".
A globalised Nokia
Nokia has achieved perhaps the greatest level of globalisation of all world companies. It does not need tariffs to beat the Chinese competition. It is fighting a clean game and is an honour to the West. Nokia's achievements in creating a new world wireless order were covered in Business Week on October 3.
It is not alone in eying the splintering market. Motorola is also in the game but Nokia is clearly first to turn out phones that switch easily between various technologies. Nokia knows that the time has come for high adventure and affluence for those who realise that one of those inflection points in technological development has arrived.
That is when new mass consumer products are created. We can hardly believe that 20 years ago we did not know about the Internet, the mobile phone and multi-channel television. The time has come for important new alignments between the mobile, Internet and media worlds.
The Economist stated last February and Business Week echoed it again on Monday that strength at the low end creates strength in the upper end. Nokia's Torres underlined the fact that big volumes of low-end phones unleash economies of scale that reduce production costs for even high end models.
Nokia is facing its Motorola competition with confidence and transparency. Both are selling handsets for as little as $25 (Lm9.25). Nokia has disclosed its margins, but Motorola's figures are not disclosed. Such behaviour is giving Nokia a great reputation for integrity. Its recent legal dispute with Qualcom has only received perfunctory press attention, and has had no notable influence on its share price.
The end result seems that Nokia is more successful than the competition in turning out products that cut by half the cost of building and operating wireless networks. It is obvious to anybody what the expected impact is likely to be on its share price.
This article is not an advertisement to invest in Nokia. Its aim is educational. John Azzopardi Vella advised S&P and promoted the Malta Development Fund. At present he is executive Manager with DBR Investments Ltd. E-mail johnazzopardivella@hotmail.com.