By Rob Landley (TMF Oak)

We wouldn't even be discussing an investment in Nokia (Nasdaq: NOK) if the stock hadn't historically performed well enough to catch our attention, and the financials weren't in excellent shape. The Rule Maker buy report on Nokia contains an index of several Rule Maker articles that can walk interested parties through the numbers.

But numbers are only part of the story. The first two questions I ask about any company are "Is this a good business to be in?" and "Is this company the best way to invest in that business?"

Nokia makes wireless digital communications equipment. Its "bread and butter" products are cell phone handsets. This is a good business to be in. In the world's largest single market, the United States, per-capita cell phone use is still a fraction of what it is in Finland, with plenty of room to grow as Sprint (NYSE: FON), AT&T (NYSE: T), Qualcomm (Nasdaq: QCOM), and a dozen others compete to put PCS phones in the hands of customers. Even existing cell phone customers are contributing to the sales volume by exchanging their old phones for newer models, especially to convert from analog to digital technology.

Internationally, cell phones are a godsend in countries that aren't wired yet with land lines. It's much easier to put in transmission towers than to dig trenches across the country and tear up the streets in crowded urban areas trying to run a wire to every single home. In many areas of Russia, digital cell phones are already far more common than land lines, and this pattern is being repeated in China, India, and elsewhere.

Another natural area of expansion for Nokia is wireless Internet access. The "wireless Web" of today's handsets is just an early stab at taking the Internet with us wherever we go. Transmeta, Intel (Nasdaq: INTC), IBM (NYSE: IBM), Gateway (Nasdaq: GTW), America Online (NYSE: AOL), and even Microsoft (Nasdaq: MSFT) are all scrambling to provide "Internet access devices," and already partnerships with Nokia are emerging.

Today the cutting edge is near 3Com's (Nasdaq: COMS) Palm Pilot, and Nokia licensed PalmOS for use in its handsets last year. Soon you'll be able to buy a wristwatch that can read your e-mail out loud through speech synthesis, and take dictation in reply via voice recognition. (A prototype device could be built today with a power-saving ARM or Crusoe processor, IBM's Microdrive, off-the-shelf voice recognition and speech synthesis software running under Linux, a rechargeable lithium battery, and a wireless antenna in the wristband.) The potential market for this sort of technology is immense.

Nokia's main competitor today is Motorola (NYSE: MOT), which used to own the cell phone market when everything was analog but got blind-sided by the switchover to packet-based digital technologies like PCS. By the time Motorola completed the transition, Nokia was firmly entrenched. Today, the two compete head-on.

From an investment standpoint, the main difference between Nokia and Motorola is that Nokia is a pure play in wireless communications, while Motorola is primarily a microchip manufacturer in a field crowded by everyone from Intel to IBM. While Motorola has re-established itself as a viable digital wireless communications equipment supplier, the annual results from Motorola's entire wireless division can easily be lost in the noise of a single multibillion-dollar infrastructure investment in new semiconductor fabrication facilities. Wireless is Nokia's lifeblood, but merely a hobby to Motorola.

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