Free Custom «Financial Analysis: Nokia Corporation» Essay Paper

Introduction

Nokia Corporation is to a global business that mainly deals with the manufacture of mobile phones, internet connection devices and offers software services. Currently, the mobile manufacturer giant has extended its business to involve manufacturer of other products, such as, communications equipment used in the service network and converging internet. Nokia Corporation began as medium sized in 1865. At that time, the company’s main objective was to produce pulp, trade in rubber, and the manufacture of cables. With time, Nokia grew exponentially and transformed into a global brand. Currently, Nokia Corporation has its global headquarters in the city of Keilalahdentie near Helsinki in Finland. The corporation is the world leader in the manufacture of mobile phones with a number of branches in over 120 countries. Available statistics from the corporation’s website indicate that the company has over 125155 employees spread in different parts of the world. Nokia Corporation used to record high profits during the infant stages of mobile phone technology. The corporation had innovative technologies that produced mobile products that satisfied their customers’ communication demands. This paper analyses Nokia’s financial performance with emphasis on the performance of the company’s shares.

 

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Industry Analysis

Technology industry is extremely dynamic and transforms rapidly. Most successful industry players such as, Apple and Samsung have had to adjust their business in a timely manner to meet the ever-changing consumer demand. The market has been changing at a fast pace. Statistics show that most mobile phone manufacturers had lucrative business in late 1900s and early 2000. However, with advancements in technology, the trend changed. Most mobile devices manufacturers noticed that they had to add value to their businesses by investing in value addition products and divesting those that were not profitably.  In order to be competitive in the global market, Nokia Corporation had to engage in diversification of its businesses and restructuring its operations. This move was meant to add value to the company’s total market share and grow the corporation’s market share at the same time. The company’s major objective is to achieve its vision by solely focusing on its competence sections and core business in order to acquire more revenue and achieve growth in terms of market share. This is in line with the numerous challenges that the company faces in the mobile industry (Slack & Mike, 2011). The company, therefore, wants to offer the best products to its customers to satisfy their needs fully and in order to realize this vision; Nokia Cooperation has attained corporations that offer proficient technologies. This desire to achieve the best for the consumers of its products is clearly capture in the vision of the company, which states “A world where everyone can be connected”.

Historical Performance

Nokia Cooperation has realized impressive performances since its advent into the mobile devices production. Over the last decade, with the exception of two years, the company has recorded remarkable results and this has culminated in the confirmation of its position as the world leader in the mobile industry. It has enjoyed market dominance over its main rivals and it has adapted to the technological advancements well enough. This is reflected in the company statistics which shows that the company’s total market share stands at 40% worldwide The company has controls half the total market share in the African continent. However, the company faces the fiercest competition for the market share in the European market and the American market (Williamson, et el, 2003). The main rivals in these continents are Apple manufacturers Limited and Motorola but the company still tops these regions with a total market share of 20%. The average annual performances of the company over the past five years in all the continents has been remarkable due to the ability of the company to adjust the constant changes witnessed in the network infrastructural equipment. This is largely due to the invasion of the Chinese companies into the mobile industry, which has resulted in the sharp decline in the prices of the products. The company has also lost a large of its market share to the Chinese companies because they tend to offer affordable products to the same customers (Bhatikar, et el, 2002). 

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Despite the myriad of challenges that the company faces and especially from the Chinese vendors, it has still maintained the profitability levels that it achieved in the past few years. For instance, the total income for the company in the year 2008 was$ 74.7. However, the company recorded a decline in the profits earned in the year 2009 by attaining a net value of $ 53.6 billion. Subsequently, the company adjusted well to the stiff competition and managed to record income value of $ 55.2 billion in 2010.

Nokia Cooperation compares favorably well with Samsung electronics mobile company which is situated in Korea. In accordance with the total annual income that was recorded by both companies in the year 2008, Nokia cooperation averaged $73.7 billion in revenues accrued while Samsung only managed a mere $ 18.6 billion. In the following year, the company’s annual revenue was still superior to that of Samsung as it recorded $ 72.9 billion against $21.3 billion. The company managed to surpass the revenue attained by its main rivals despite the fact that its performances in the smart phone industry were not favorable. In order to solve this problem, the company entered into a partnership with Microsoft to allow the Nokia smart phones utilize the windows platform owned by Microsoft. The annual sales initially went down because the customers were not keen of using the newly improved smart phones but gradually recorded impressive results as the consumers adapted to the changes.

The total assets of Nokia cooperation in the year 2008 were approximated to be $53.9 billion and this was a significant improvement from the revenues that were realized in the previous year. Nokia Cooperation has continued to gain new assets to in their effort to get better customer satisfaction and augment their total market value of their share. The company raised its working capital in the year 2008 in order to realize their vision of being the world leader in the production of mobile phone devices. The company also wanted to act in accordance with the commercial set of laws of the Finish government that required that shareholders be worthy or even, handed income from their outlay in the company.

The consequences of the new set of laws proposed by the Finish government were reflected by the management’s decision to invest expansively and extensively in new technologies through the acquisition process. This has resulted in a steady increase in the total revenues of the company since the year 2008. From the financial records available from the company’s website, the total fixed assets and noncurrent assets of the company, and other liquid investments were estimated to be to $ 58.2 billion. The company’s annual revenue in the following year dropped significantly but the trend reversed back to positive profits in the year 2010 in which the total assets totaled to $51 .9 billion. The considerable drop noted in 2009 was due to the challenges that the company encountered in the supply chain. This was occasioned by the emerging conflicts with the main suppliers of the company. Measures were proposed and implemented by the management team but the general response proved to be sluggish in the initial years but gradually become better in the subsequent years.

Nokia Corporation Share Analysis In Relation To Industry Players

The financial analysis of Nokia Cooperation from the year 2008 to the year 2010 shows that the total revenues accrued, the total net income, the working capital, and total assets have  decreased to margin levels. This trend seems to stem from the production of the mobile devices, which is the main objective of the firm. The company has, therefore, been compelled to engage in other forms of production apart from the production of mobile phone devices in order to alter this negative trend. The company has, therefore, set aside a considerable quantity of capital resources to invest in research and data collection services. The company is implementing all these long-term decisions. Based from the financial analysis of the company’s performances, the payback period has not yet been realized and, therefore, the company is still operating at a negative value. This is reflected in the increase of the operating costs that the company is incurring.

The negative trend that the company realized in the years ranging from 2008 to 2010 was mainly due to among other things: the Finish strict regulations that required the company to lower its carbon emission to insignificant levels. The rising costs of fuel and the entry of new firms into the already competitive industry and the increased costs of the raw materials. The regulations implemented by the Finish government meant that the company had to acquire new sets of manufacturing equipment that could emit low carbon gases into the environment. This considerably raised the costs of the company, which was reflected in the unfavorable results that it achieved during this period. The profit margins as a result were lower in relation to the previous years.

In relation with the other companies that are involved in the manufacture and production of mobile devices and provision of converging internet facilities, the company remains a market leader. The company therefore, enjoys a number of advantages as a market leader that other companies cannot. Some of these advantages as a market leader include the capability of the company to set the market prices of the mobile products that they engage in. This, therefore, means that the company does not suffer the effects of pricing pressure. The other companies have to align themselves to position the market leader has taken. In terms of the extreme competition occasioned by the entry of a number of competitors, the company still manages to accrue various advantages such as its ability to buy raw materials in large quantities (David, 2001). This implies that the company is able to enjoy the benefits of the economies of scale. Due to its enormous size, the company is also able to offer high quality products to its consumers. The company also offers a variety of products to its consumers as a result of its position as a world leader in the manufacture and provision of mobile devices.

Conclusion and Recommendations

Nokia Cooperation has managed to remain a competitive force in the mobile industry despite the numerous challenges that have emerged. Its ability to adapt with the advancement in technology remains unrivalled and this is the core reason as to why the company continues to maintain its profitability levels. The major reason that made the company to record negative results in the years ranging from 2008 to 2010 were the enactment of the unfavorable rules and regulations by the Finnish Government. For instance, the company was compelled to purchase new manufacturing equipment in order to align itself with the requirements of the government. The directive was that all the companies that were involved in the manufacturing industry should utilize equipments that emitted minimal gases into the environment. This consequently raised the operating costs of the company culminating in the losses that the company realized during this time. Looking at the corporation’s performance of the years, I would say that any investor is free to invest in the company’s shares. The corporation has emerged from the turmoil that affected its business and is now headed for a bright future (Abraham, 2007).  

Another notable cause of the negative trend was the increase in the costs of raw material by suppliers. This was because of the entry of mobile device manufacturing companies especially those owned by Chinese vendors. The new companies offered better prices to the suppliers and they preferred them to Nokia cooperation. The company lost a number of customers to these new companies because they offered similar products at affordable rates. The total market share of the company in the African continent also decreased as a result. This trend was marked in the year 2009 in which the total profits attained by the company reduced significantly from the previous year.

Despite all challenges that the company has encountered, it has managed to adapt itself better to the rigorous demands and stiff competition. This is replicated in the financial analysis of the company’s results, which explicate that the company is ahead of its main rivals in the total revenues accrued on annual basis.  The company also collaborated with Microsoft cooperation in bid to offer efficient products to its customers. This move was instigated by the production of more efficient smart phones by Samsung Electronics. The company initially made low returns because of their partnership with Microsoft Cooperation but the returns gradually began to increase in the subsequent years following their partnership. In general, the corporation’s future is viable for any kind of venture.