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Nokia Corporation (NOK) is a global company that deals 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, Nokia Corporation 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. Nokia corporation has 125 155 employees throughout the world (The Wall Street journal, 2008).
To boost their business globally and to remain competitive in the face of stiff competition in technology, Nokia corporation of late started divesting businesses that have no value to the company’s strategic vision of their mobile world. The company wants to bolster its shareholder value by focusing on the core business and competence sections that can yield more revenue and growth. Nokia Corporation recognizes the challenges that litter the mobile devices industry. In its endeavor to have the best technology, that satisfies customer desire, the company has in the recent past acquired corporations with sophisticated technologies and proficiency (Gamble, & Thompson, 2011).
The company aspires to create a mobile world that suite all individuals communication need. This is clearly envisioned in the company’s vision, which is “A world where everyone can be connected.” The company’s current chief executive cum Chairman is Stephen Elop. Nokia Corporation has been registering impressive financial results in the past decade. The company has been on an impressive profit gains. However, things have not been smooth in the past few years notably last year, which is 2010. The company recorded total revenue amounting to $ 16 billion thus making a loss of about 13%. The company attributes the loss to low sales globally because of stiff competition (The Wall Street Journal, 2008).
Analysis of Historical Performance
The company has registered impressive results since it fully 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 doing well. The data on the company’s website shows that Nokia products dominated the Asian market by about 40%. The corporation used to register impressive results in Africa with 50% market dominance in Africa. The European and north American markets were quiet challenging for the company, but 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 2008, 2009, and 2010. The company has been performing averagely well in almost all the categorize. However, Nokia Corporation is quick to add that globally the mobile industry is facing various challenges occasioned by the constant changes in network infrastructure equipments. The prices of these equipments and other related costs have been dropping significantly as a result in changes in advancing technologies and competition particularly from Chinese vendors (Gamble, & Thompson, 2011).
Even with competition and change in technology, Nokia Corporation managed to pull through and still maintained profit margins right from the previous three years. In the year 2008, the total income was $ 58.4 billion. In 2009, however, the company faced serious competition in mobile devices division and its sales globally plummeted. The company registered a net income of $ 53.7 billion. Things changed in the following year making the company to record impressive sales, and total net income for 2010 increased to $ 52.2 (Robinson, Greuning, Henry & Broihahn, 2008).
Compared to Korea’s Samsung electronics mobile division, Nokia seems to be indeed 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 singularly impressive results during the year 2009, but the net income still could not be compared to Nokia. In that year, that is 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 especially in smart phone devices. Recently the company has entered an agreement with Microsoft’s windows to have their smart phones use windows platform. Nokia sales went down mainly because initially they were 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 to in their attempt to improve customer satisfaction and increase the value of their share. In 2009, the company has increased its working capital. This is because the corporation wants to zero in on ventures that add value to the revenue base. Nokia also want 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 through either acquisition or joint venture. The company’s total assets from 2008 have been on a steady raise. In 2008, the company has fixed assets, noncurrent asset, and other liquid assets totaled 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. 32 billion. The drop in 2009 was occasioned by the challenges that the company faced in their supply chain. There were issues in the sourcing of raw materials. There were conflicts in areas that the company used to source most of their supplies but corrective measures have already been taken (Gamble, & Thompson, 2011).
Telecommunication& mobile devices division
Figure above shows the Return on Asset (ROA) portion of the DuPont analysis
ROE = NPM * TAT * A/E = ROA * A/E
Analysis of Nokia corporation’s revenue, net income, working capital, and total assets for the period ranging from 2008 to 2010, show that the company profit margins are decreasing. The company seems to be making loses especially resulting from their core business, 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 balance sheet. The company has been investing in research and data services to boost their revenue. Such a move will take sometime time before they start paying back. 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 need to lower their carbon emission to significant levels. The company was forced to acquire new manufacturing plants that are environmentally friendly. This explains why during the period of 2009, the company profit margins were lower in relation to 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.
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 completion arise from other international player 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 demands. In the years leading to 2008, the company used to register impressive sales despite the fact that some of the revenues were lost as a result 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 expect a more 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, the present value of total income seems to be in tandem with historical data. These mean 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 their profit margins and reduce overheads in the new future. This will lead to low cost of production and eventual low cost of the corporation’s product on the market. The launch of the first Nokia windows products is expected to boost the company’s sales revenue by about 20%.
The company’s prospects compared with other firms that deal in the similar businesses still rates Nokia as the company that has a bright future. When one compares Korea’s Samsung 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 according to price water house 2008 shows that the estimation of Nokia’s price earnings per ratio is near its target and there is no doubt that the company 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 shows that starting from 2011 onwards the company is likely to make profits that can be compared to profits made during earlier 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 directly linked to the company’s earnings. This trend continued until in the first quarter of 2008, 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 2008-2009 financial years. What this means to potential investors like High Technology Corporation is that Nokia corporation stable dividends are expected. The fundamentals of Nokia Corporation have not been weakened by global unfavorable business conditions (The Wall Street journal, 2008).
Considering the fact that the company has invested in new technologies significantly, there are high prospects for high revenue growth. To counter the effects that the industry at large is facing, Nokia corporation went ahead to acquire latest technologies. This would see the company significantly minimize their production costs. 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 the price earnings per share and return on equity seems to conform to the historical data. This hints to the fact that, soon the company will realize fluctuations in share price.
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 the historical values. This implies that returns on earnings returns and earnings are likely to remain stable in the foreseeable future. In the past, investors estimated Nokia price earnings per ratio at 12. This is still the current ration of the corporation; therefore, this means that either share price increase or decrease will be profoundly influenced by the happenings in the investor sentiment.
As things stand now, the industry may not fundamentally 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 near future. Advanced analysis reveals that in line with Morgan Stanly (2008) inference of Nokia’s price earnings per ration to be close to its peer price per earning rations. These ruled out chances of any significant over or under evaluation of the company’s shares.
What Nokia has been experiencing from 2007up to 20010, are the obvious constraints in the industry at large. There has been low demand for the company’s products thus dwindling 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 the fact that the management has the potential to scale up production without necessarily having to raise the concerned costs. This is particularly intriguing to anyone who wants to invest in the company. There are clear indications that the company will continue making profits.
Financial performance Evaluation
Looking at the firm’s capital spending, beta values, and stock growth among other pertinent issues, the company is undoubtedly headed towards the right direction. The company’s future looks impressive. If one compares data from Nokia Corporation and other industry player like Motorola. The company has been scaled down its production overheads. In general, capital spending has been reduced significantly, as the company adopted new ways of production. The company has also put in place an efficient supply chain management to make sure that the cost of multiplying effect is brought down (The Wall Street journal, 2008).
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 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, the company has been tremendously cutting down their operational cost. At the same time, the bond rating has been raising steadily. The company wants to efficiently address bond-rating issues by appropriately responding to market requirements.
The company believes that its strategies of scale, superior logistics, leading brand, product portfolio, and low cost will give the company an edge over others from the challenging market. In summary, the company has a bright future. Ones the measures put in place to mitigate the market challenges and reduce the cost of production; the company will most certainly record revenues that any other 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 favorite on the market. These 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 and Suggestions to the Company Management/Conclusions
Since Nokia corporation has sound stock growth, and limited overheads any merger with a sound investor is advisable. Nokia Corporation is free 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 preference of Nokia’s brand. 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, Africa and the Middle East region. What this means is that the company’s future lies in the economic developments of these regions. Looking at what is likely to happen in the European economies, the company should focus more on the Middle East and African economies. 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. If one careful analysis 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 much as the management put in place sound policies, the company has recorded low revenues for the last three years because of the unfavorable economic happenings and challenges in customer preferences. It is also necessary to note that the sales trend is not only 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 an apparent development strategy and pertinent skills for its execution (The Wall Street journal, 2008).