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  • slate_it slate_it Jul 19, 2004 12:31 PM Flag

    Fortune Mag Article - 7/18/04

    Skeptics also contend that Nokia has placed way too much emphasis on selling low-priced, entry-level phones and hasn't devoted enough attention to developing higher-margin products for the mid- and high-end segments of the marketplace, to which an increasing number of European and U.S. consumers are now migrating. Meanwhile, to halt its market share slide, Nokia has been cutting prices of late. The upshot has been to lower average selling prices and, more important, operating margins in the mobile-handset business. The latter fell in the first quarter to 26%, from 29% the year before.

    In short, there are good reasons for Nokia's stock drop: In the parlance of cellphones, the company seems to have been in a long drift "out of range."

    All of which makes the following argument surprising: The sharp selloff in Nokia stock is a serious overreaction. At the current share price, Nokia trades at a multiple of about 16 times this year's projected earnings and 14 times estimated 2005 earnings, well below the level of both of its major competitors. And that's just one reason many observers say Nokia represents a real buying opportunity for investors right now. "They have a ton of cash, a very good brand name, and they're a powerhouse in this space," says Ed Snyder, co-founder of Charter Equity Research in San Francisco, which focuses exclusively on the wireless industry. "There's little doubt they're going to bounce back."

 
NOK
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