Do you think Telecom Sector, Especially Wireless companies like Nokia will come back?

Frequently Asked Questions Answered by Ali Jaffery
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Do you think Telecom Sector, Especially Wireless companies like Nokia will come back? I generally try to avoid questions about any one specific company, but I do understand that a lot of investors have been burned by the recent Tech Stock bubble, so let me give some perspective. A long long time ago, people in Holland were convinced that Tulips were worth more than gold, a lot of speculation took place before each growing season about which variety will be hot this year.... Until the bubble burst. Why because there were no fundamentals to sustain the high valuations being put on these flowers. Somewhere in history a lot of grandiose plans were made about digging "canals" to link the world oceans, and a lot of public money was raised for these projects. Today I can only think of two such canals, and I am not sure if investors made money in them, more on that latter. Similarly Rail Roads were going to be the best thing since sliced bread. The logic was that US is a big country and you will always need rail roads to transport people and goods. Today Amtrak is fighting for survival and the US government has threatened to shut it down in the next few years if it can not make money. If you recall not too long ago the greatest invention was the Radio, and the first WWW had nothing to do with the internet, it stood for World Wide Wireless. Heard of them lately?. Streaming Media was not invented for the internet, infact we have all had these "big pipes" into our homes for decades. They are called TVs. And incase you were wondering, even though every home has at least one and may be 2 of them, there are exactly "0" being manufactured in the US, the country that invented them. Why because there is no money to be made. In 1936 there was a car show in Detroit (also called the Motor City), and 367 car companies exhibited there latest models. Today there are 2 1/5 US car manufacturers, if you count Chrysler!. Bottom line is do not confuse a good product with good profits. I do not know about Nokia specifically, but let us look at the industry in general. in the Europe telecoms have spent 100 billion Euros on buying the licenses for the new 3G technology. In the US the amount is close to $300 Billion. Telecoms are not mass marketers, they only sell air time. Now they have to find business, willing to make their goods available through the cell phone, collect money and then pay a fraction of it to the telco. How many of these fractions are needed before the telco breaks even on it's license. And license is not the only cost rolling out the new technology, some one also has to pay for the infrastructure. Ah-Hah you say, Nokia only sells equipment, so it should not have to worry about the telco making money. Wrong... France Telecom just spun off Orange, along with it's debt obligations, result is that both Nokia and Ericsson have had to take an almost 400 Million Euro write down on the equipment that they have sold to that company. As far as sector selection is concerned, I will attach a chart outlining the winners and losers in the US market since 1986. I can make a guess but it will be exactly that. Please do not get me wrong. The purpose of this long winded response is to make all the investors stop and think about the profitability in general. Before investing in any company ask your self will you buy this company (whole) if you had the money. Just take the number of shares out standing and multiply it with the latest stock price. This will give you Market Cap. In case of Nokia it is $147.85 Billion, and a Price to earning ratio of 39. Do you think the company is worth as much as this?. Back to Investment Help Center Back to FAQs

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