Nokia Corporation (NOK) is a global company that engages in the manufacture of mobile devices. The company also deals in the business of converging internet and communications. Nokia Corporation was founded in 1865 with its main occupation being trading in rubber, pulp and manufacture of cables. Today, the company has its headquarters in Keilalahdentie, in Finland about 1h 30 minutes drive from the capital Helsinki. The company is the world-leading manufacturer of mobile devices operating in 120 countries. On average, Nokia corporation has 125 155 employees throughout the world (Graham, & Campbell, 2009). The company aspires to create a mobile world that serves every individual’s communication need. This is clearly envisioned in the company’s vision, which is “A world where everyone can be connected.” With the current chief executive, Stephen Elop, Nokia Corporation has been registering impressive financial results in the past decade. The company has been on an impressive profit gains year in year out. However, things have not been good in the past two financial years notably last year (2011). The company recorded total revenue amounting to $ 16 billion. This translated to a loss of about 13%. The company attributes the loss to low sales globally because of stiff competition (Graham, & Campbell, 2009). The Corporation has of late embarked on divesting businesses that have no value to the company’s strategic vision of their mobile world. This is meant to boost its business globally and to remain competitive in the face of stiff competition in technology. The company wants to bolster its shareholder value by focusing on the core business and competence sections that can yield more revenue and spur growth. Nokia Corporation recognizes the challenges that litter the mobile devices industry. The company has in the recent past acquired corporations with sophisticated and proficient technologies. This is part of the company’s strategy to have the best technology that satisfies customer desire.
Performance Analysis In Relation To the Company’s Mission and Vision
The company has registered impressive results since it ventured in mobile device production. The company’s market performances for the ten years save for the last two years was quite impressive. In the previous years, the company enjoyed market dominance. All of its market segments were generating revenue as projected. Records available on the company’s website show that Nokia products dominated the Asian market by about 40%. The corporation used to register impressive results in Africa with 50% market share. The European and North American markets were quiet challenging for the company. Even though, the company managed to maintain above 20% market dominance in the face of stiff competition from other players like Apple and Motorola.
In the last three years, that is 2009, 2010, and 2011. The company has been performing averagely well in almost all categories. However, The Corporation is quick to add that globally, the mobile industry is facing various challenges occasioned by constant changes in network infrastructure equipments and consumer preference. The prices of these equipments and other related costs have been dropping significantly leading to changes in advancing technologies and competition particularly from Chinese vendors.
Even with stiff competition and rapid change in technology, Nokia Corporation managed to pull through and still maintained strong profits as indicted in financial records. In the year 2008, the company’s total income was $ 58.4 billion. In 2010, however, the company faced serious competition in mobile devices division and its sales plummeted globally. The company registered a net income of $ 53.7 billion. Things changed in the following year, the company recorded impressive sales; total net income for 2010 was $ 52.2 (Robinson, Greuning, Henry & Broihahn, 2008).
Compared to Korea’s Samsung electronics mobile division, Nokia seems to be the world leader in mobile phone devices. In the 2008, Samsung recorded a net income $11.6 billion. This was excessively low, compared to Nokia’s $ 59.7 billion. Samsung recorded very impressive results during the year 2009, but its net income still could not be compared to that of Nokia. In that year, 2009, Samsung net income from the sale of mobile devices was $16.3 billion. Still this is way below what Nokia recorded in the same year, which is $ 46.9 billion. Despite the fact that, Nokia was not doing well on its software platform especially in smart phone devices, its sales went up. Recently the company has entered an agreement with Microsoft Corporation to have their smart phones run on windows platform. Nokia sales went down mainly because the company was not keen on using other software to improve their Smartphone applications.
Nokia corporation’s total assets for the year 2008 were estimated to be $ 42.9 billion. There has been a significant improvement in this area. The company has continued to acquire new assets in their attempt to improve customer satisfaction and bolster share value. In 2009, the company increased its working capital by 5%. This was because the corporation wanted to zero in on ventures that add value to its revenue base. Nokia also wanted to comply with the corporate regulations of Finnish government that require that shareholders deserve to earn a reasonable income from their investments (International monetary fund, 2006).
This has seen the company invest extensively in new technologies either through acquisition or through joint venture. The company’s total assets from 2008 have been on a steady raise. In 2008, the company had fixed assets, noncurrent asset, and other liquid assets totaling to $ 40.3 billion. There was a significant drop in 2009, but in 2010, the company bounced back to record total assets amounting to & 53. 32billion, this translated to 3% growth. The drop in 2009 was occasioned by the challenges that the company faced in its supply chain processes. There were issues in the sourcing of raw materials. There were conflicts in areas that the company used to source most of their supplies. Measures were put in place to mitigate the situation, but the response has been sluggish.
|Nokia corporation||Samsung electronics||Telecommunication& mobile devices division|
|ROE(Return on equity)
NPM(Net Profit Margin)
TAT(Total Asset Turnover)
Figure above shows the Return on Asset (ROA) portion of the DuPont analysis
ROE = NPM * TAT * A/E = ROA * A/E
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Nokia Financial Performance
Analysis of Nokia corporation’s revenue, net income, working capital, and total assets for the period ranging from 2008 to 2010, shows that the company profit margins are decreasing. The company seems to be making loses especially in the core business area, which is mobile devices division. Although, the company has been forced to engage in other value addition products, this could not be reflected in the company balance sheet. However, what became apparent was that in, as much as, the company invested in research and data services to boost its revenue, profits were, yet, to be realized. The company is yet to accrue any significant profits from the sale of the same. Instead, the company has been forced to raise its operating costs (Robinson, Greuning, Henry & Broihahn, 2008).
This was occasioned by among other things, high cost of fuel, and the requirement by the Finnish government that firms should low their carbon emission to significant levels to comply with environmental regulations. The company was forced to acquire new manufacturing plants that were environmentally friendly. This explains why during the period of 2009, the company profit margins were low compared with data from previous years in similar sections. The same was registered in the value of the company’s share. In 2009, the company paid the list dividends ever since it ventured in mobile device manufacturing. The company paid its shareholders modest dividends in the subsequent years because reinvestments.
Considering the company’s expansion strategy and its partnership with global brands like Microsoft and Siemens, the company would most likely channel most of their revenues in new products to march competition from other international players like Samsung and Apple. The new inventions in Smartphone division almost got the company an aware and before the company could finalize on the deal with symbian that could have seen Nokia products, especially mobile devices ride on symbian’s technology, other industry players were almost a head.
This explains why the company recorded low sales in almost all of its popular brands. In the years leading to 2008, the company continued to register impressive sales, despite the fact that, it lost much revenue because of Chinese counterfeits. The counterfeit market cost the company millions of dollars, but this could not affect the firm’s profit margins, as was the case in 2009. Future investors can look forward to stable profits and dividends. Looking at the measures that the company has undertaken to turn things around, it is evident that the future will be profitable (Robinson, Greuning, Henry & Broihahn, 2008).
In addition, the company’s present value of total income seems to be in tandem with historical performances. This, therefore, means that the fundamentals of the company are still intact, and that what the company has been experiencing is normal in an industry like these. Nokia Corporation is expected to boost its profit margins and reduce overheads in the new future. This will lead to low cost of production and eventually lower its cost products on the market. The company further aspires to register voluminous sales in all its segments. The launch of the first Nokia windows products is expected to boost the company’s sales revenue by about 20%.In an industry like information technology; it is extremely difficulty for any company to grow its revenue by just investing in one product. This explains why the company has diversified its investments. In the recent past, the company has divested in areas that were not strategic to their core business. At the same time, the company has acquired new products that will add value to its business. This means that increase in Nokia’s share price will most likely have an impact on revenue. Any prospective investor should collaborate with this company without any doubt because there are clear signs of positive turn around.
The company’s prospects compared with other firms that engage in similar businesses still rates Nokia as the company with bright future. When one compares Korea’s Samsung electronics with Nokia for instance, Nokia has a more bright future than Samsung, even thought, as it stands now, Samsung records more revenues than Nokia, empirical data shows that the trend will soon change and there is no doubt that Nokia will still stand out unrivalled in mobile devises division (Robinson, Greuning, Henry & Broihahn, 2008).
Further analysis reveals that findings in 2008 showed that the estimation of Nokia’s price earnings per ratio is near its target and there is no doubt that the company’s future is bright. As the industry approaches its peak, it is obvious that sales will plummet to some extent, but in the end, everything will bounce back. Equilibrium will be achieved between cost of production and return on equity. Already preliminary analysis show that starting from 2012, onwards the company is likely to make profits that can be compared to profits made during infant stages of the mobile devices industry.
Evaluation of Return on Equity
Careful examination of Nokia Corporation’s dividend policy reveals that the corporation’s dividends are directly linked to the company’s earnings. It emerged clearly that for the duration of expansion, the company used to pay more dividends to shareholders than before expansion. This trend continued until, in the first quarter of 2009, when the company’s yields per share dropped significantly. What is of interest, though, is that despite the drop in the company’s yields per share, the company paid high dividends at the end of the 2009-2010 financial years. What this means to potential investors like High Technology Corporation is that with Nokia Corporation, stable dividends are expected. The fundamentals of Nokia Corporation have not been weakened by global unfavorable business conditions that weakened most businesses (Graham, & Campbell, 2009).
The prospects for high revenue growth are expected in the near future considering the company’s move to invest in new technologies. To counter the effects facing the industry at large, Nokia Corporation has acquired latest technologies that will add value to its products. This would see the company minimize their production costs significantly. According to Bocij & Chaffey (2003), the company will soon launch new products in the market; this is expected to raise the company’s price earnings per share. Nokia’s current worth of price earnings per share and return on equity seems to conform to historical data. This hints to the fact that soon the company will realize fluctuations in share price because of the euro-zone crisis.
The above fact is peg on the following logic; the first one is that Nokia Corporation has minimal chances of increasing its return on capital beyond historical values. Organisation for Economic Co-operation and; Investment, Global Forum on International Development (2002) points out that this implies that returns on earnings and earnings per ration are likely to remain stable in the near future. In the past, investors estimated Nokia price earnings per ratio at 12. This is still the current ration of the corporation; therefore, it means that either share price increase or decrease will be greatly influenced by the happenings in the investor sentiment.
Recognizing the fact that, as things stand now, the industry may not attain significant growth rates. Chances of increase in share price remain deem, Nokia Corporation’s performance has remained largely stable in the recent past. This tells any future investor that there is no reason to expect specific unfavorable developments in the faceable future. Advanced analysis reveals that Nokia’s price earnings per ration are closely tied to its peer price per earning rations. These rules out chances of any significant over or under evaluation within the specified period.
What Nokia has been experiencing from 2007 running to 2011, are the obvious constraints in the industry at large. There has been low demand for the company’s products. This has weakened the inventory ratio significantly. Looking at the preliminary analysis the company is headed for recovery, the prospects for growth are high since historical inventory and asset turnover ratios are likely to rise. There are also positive developments in selling, administrative, and general expenses that have been on a constant decline in the wake of the company’s growth in the last decade. The rations affirm to the fact that the management has the potential to scale up production without necessarily having to raise the concerned costs. This is particularly interesting to anyone who wants to invest in the company. There are clear indications that the company will continue making profits as long as all factors remain constant.
Nokia Executive Strategy
Employee performance is quite essential in an organization of this nature. Employee performance is directly related to motivation. This, therefore, means that managers have to develop suitable reward schemes to boost the performance of their staff. In relation to Nokia Corporation, the company needs to apply conventional management theories that would ensure that personal contribution is recognized and rewarded. A good remuneration package coupled with surprise incentive will spur motivation among employees. Employees must be made to realize that they are part of the dream and, therefore, must work towards it. Employees working in software development department must own their talents as stipulated in the intellectual property legislation. This would motivate employees to work diligently and thus improve efficiency. Appropriate reward strategy will reduce production costs because few employees would be needed to produce desired results.
Looking at the firm’s capital spending, beta values, and stock growth among other pertinent variables, one can easily conclude that the company is headed towards the right direction. The management should apply both low-cost and differentiation strategies to increase its market share. Differentiation strategy would help the company diversify its products and thus increase sales. If you compare data from Nokia Corporation and other industry player like Motorola, Nokia has an edge over Motorola, even though; future developments in the industry are likely to reduce the company’s revenue. Low-cost strategy would help the company scale down production overheads and boost efficiency at the same time. In general, low-cost strategy will reduce capital spending and enhance production. The company must adopt new ways of production that minimizes costs. An efficient supply chain management system must be put in place to make sure that the cost of multiplying effect is brought down remarkably The Wall Street journal, 2008).
According to Graham, & Campbell, (2009), the company is operating in safe margins. Even in the wake of stiff competition, remedy measures have been taken to address the challenging market environment. The company has embarked on an aggressive program to minimize its cost base. It is worth noting that the corporation has already stopped the use of external contractors, consultants and other professionals. This move has seen the company reduce its capital spending by 5%, as it can be confirmed from 2009 financial statement, the company has been cutting down its operational cost. At the same time, the bond rating has been raising steadily. The company wants to address bond-rating issues by responding to market requirements appropriately.
The company believes that its strategies of scale up production, superior logistics, leading brand, product portfolio, and low cost will give the company an edge in the challenging market. In summary, the company has a bright future. Once the measures are put in place to mitigate the market challenges and reduce the cost of production. The company will definitely record revenues that any other company will not be able to record. The change in consumer demand, which caused the company to record low sales have been addressed comprehensively. The company is optimistic that its brands will remain products of choice on the market. This coupled with measures to reduced operational expense will leave the company with more revenues like those that were realized in the last quarter of 2005.
Future Developments in regard to Acquisition and Merger Strategies
Since Nokia Corporation has sound stock growth and limited overheads, any merger with a sound investor is advisable. Nokia Corporation is at liberty to enter into any partnership with an investor with similar business strategies. However, the company is cautioned against ratifying any deals that may jeopardize their strong customer base. As historical data shows, mobile devices industry is constantly changing. The company, however, has managed to retain their high sales because of customer loyalty. The company should enter new deals with a clear vision of their strategic policies (The Wall Street journal, 2008).
It is apparent from the historical data, that the company enjoys market dominance in Europe, Middle East, and Africa. This, therefore, means that the company’s future lies in the economic developments taking place in those regions. Looking at the current happenings of in the euro-zone, the company should focus more on the Middle East and African for new markets. European economies are likely to contract if what is happening in Greece is anything to go by. Taking into account that the mobile devices industry has evolved tremendously, it is advisable for Nokia Corporation to enter into partnership with firms that have a proven record in areas that Nokia is lucking.
Market research shows that customers are interested in innovative products. Careful analysis of the companies that have been competing Nokia in the last five years like Apple and Samsung, one thing comes out clearly. It points out to the fact that successful partnerships are the way forward. It should be noted that in, as much as, the management has put in place sound policies, the company has recorded low revenues in the last three years because of the unfavorable economic happenings and challenges in customer preferences. It is also important to note that this sales trend is not unique to Nokia, but the industry at large has been affected by the same conditions. Nevertheless, Nokia Corporation is a lucrative investment to an investor who is ready to have a conservative stock with an exposure to international economical cycles in their portfolio. Nokia corporations seem to have a clear expansion strategy and relevant skills for its implementation (The Wall Street journal, 2008).
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Bocij, P., & Chaffey, D. (2003). Business information systems: technology, development, and management for the e-business. London: Financial Times/Prentice Hall. IMF. (2006). World Economic Outlook Globalization and Inflation. Retrieved from http://www.imf.org/external/pubs/ft/weo/2006/01/index.htm
Robinson, R.T., Greuning, V.H., Henry, E., & Broihahn, A.M. (2008). International Financial Statement Analysis. John Willey & Sons. Hoboken: New Jersey.
Graham, J. R. & Campbell R. H. (2009). The Theory and Practice of Corporate Finance: Evidence from the Field. Journal of Financial Economics, 60, 187-243.
Organisation for Economic Co-operation and; Investment, Global Forum on International Development. (2002). New horizons for foreign direct investment. Chicago: OECD Publishing.