Nokia Company: Organisation and Profitability

Nokia Company Organisation and ProfitabilityIt completely began for Nokia when Fredrik Idestam create a paper mill back in 1865. He built some radical(prenominal) compvirtuosonty near Nokianvirta River, Finland, the place whose first quintet words gave the caller-up its name Nokia. Between the socio- sparing classs of 1865 and 1967 Nokia was recognized as a vital industrial machine though further elaboration needed a merger with a cable telephoner and a nonher merger with a rubber firm to set up the Nokia Corporation. This was the ascendent of the move to electronics production by the company. The peregrine ph integrity era for Nokia began in 1981 when the first ever international unsettled phone interlocking was built c onlyed the Nordic Mobile Telephone (NMT).Organizational Structure at NokiaAs of October 1, 2009 the organizational social organisation at Nokia was passing mobile and flexible.Nokias organizational structure is horizontal and it allows for greater fle xibility and speedy communication channels amongst antithetical departments. The devices unit fancys after the learning and management of mobile devices portfolio which is targeted at all major consumer segments. The solutions department reckons that it continuously develops solutions w presentby ensuring that a particular mobile device has integ roved contents and personalized work and the tabuput of these trinity components results into a leading mobile phone for the end subprogramr. The solutions unit upstanding kit and caboodle with other departments in close proximity to provide much(prenominal) solutions.The services department creates and designs internet services that conjure up the consumer experience when Nokia phone users act with the web. The main argonas where this unit focuses on include messaging, maps, music, and Ovi developer peckerwoods. This department as well ensures that thither is a consistent increase in different services as the food market evolves. The other significant department is Markets which acts like a tot chain department for Nokia. The unit is also responsible for gross revenue channels, brand and marketing activities for various(a) products and services.The corporate victimization department looks for future ontogenesis opportunities and it also plans for future strategic actions that go forth recrudesce the company a competitive advantage against competitors. This department also provides operational supports to other affectionateness departments much(prenominal)(prenominal) as Devices, Services, Solutions and markets. Nokia siemens Networks is a joint feign with Siemens and it provides network infrastructure which is both better and wireless. This division also provides communication theory and networks service platforms.Finally, the last major division is NAVTEQ this unit is a supplier of detailed glidingal maps and digital map data automobile navigation systems, navigation systems for mo bile devices, internet mapping applications and mapping solutions to g everyplacenment and other chorees. NAVTEQ is an of the essence(p) part of Nokias operations since it provides downloadable maps and other content that will enhance the experience of consumers who use Nokias smart phones.Corporate G everywherenanceThe way ascendency and responsibility is organized at Nokia it shows that the company is exemplary in its climax towards corporate governance. The companys strategic and significant natured decisions atomic number 18 made by the board. These matters capacity include strategic guidelines, approval of currentic plans and decisions on major divestments or investments.The company charter, article of association and Finnish Companies Act determine the roles and responsibilities of all directors and executive members. According to the auditors and company information strict guidelines argon followed in footing of code of conduct and ethical behavior of each(prenominal ) employee. likewise the company complies with all argumentation market requirements of the Helsinki stock market, pertly York and Frankfurt stock exchanges. The company provides all necessary data to governance at NYSE because the at a get off place the rules any firm that complies with its national laws must file any differences that exist amidst its national laws and the laws to be followed to a lower place NYSE.Competitors of Nokia CorporationNokias direct and major competitors include Motorola Inc, Cisco Systems Inc, Research in Motion, LM Ericsson Telephone Co., and QUALCOMM Inc. The company faces stiff competition in the business oriented mobile phone market from RIMs Blackberry series. Nokias E-series phones are accommodate to compete with the Blackberry series. Similarly the company faces challenges from Samsung and Motorola in the touch blanket phone markets and the easyst Android based phones that offer efficient and extremely user friendly interface to cons umers.In the navigations and maps market Nokia, like the traditionalistic manufacturers such as Garmin, TomTom, faces tough competition from the Google and Apple partnership that will make the iPhone the ultimate navigation and smart device for this generation. The difference between this navigation process that iPhone will offer is that consumers wouldnt need to download maps for a price or they would not need automotive navigations systems rather they would use their smart phones as navigation devices at very low rates.For the division 2009, Nokias market share remained flat at rough 38% in the spheric handset market after consumers continue to encourage Apples iPhone in favor of the N series that Nokia is offering. Nokia also faces competition from Ericsson mobile phones in the music phones Sony Ericssons superior voice quality and speaker quality give its phones an edge over Nokias Express music series.Industry Outlook for 2010The expectations of the company for 2010 are con siderably flat in terms of the performance of its various divisions. Overall the mobile device manufacture is expected to increase by about 10% in 2010 in terms of volume compared to 2009. For the course of instruction 2010 Nokia expects its mobile device market share to be flat compared to 2009, a similar sort of expectation also exists for Nokia and Nokia Siemens Networks as the venture secures a minimal increase in euro terms for the mobile and the fixed infrastructure services market.Importance of International Markets to Nokia CorporationIn 2009, out of the total sales from the company Europe accounted for 36%, Chinas share was 16%, Middle East Africa 14%, North America 5%, Asia-Pacific 22% and Latin America 7%. As we can see from these add up that about 59% of sales are sexual climax from the ontogenesis humankind for a company that began operations from Finland that is an important statistics since most of its revenues are coming from international markets especially f rom developing countries.The 10 markets from which Nokia generated the highest amounts of sales revenues are listed below in decreasing order with the highest written first and lowest give tongue to last China, India, the UK, Germany, the United States, Russia, Indonesia, Spain, Brazil and Italy when combined these markets provided 52% of the total sales in 2009. It is important to note here that China and India the fastest maturation economies in Asia are leaders for Nokia sales secondly the list also contains growing markets such as Brazil and Russia.It is important to note here that because Nokias main sales driver is the mobile device market because there are higher sales potential for Nokia in developing countries. This is because countries such as India and China are experiencing large enquire for mobile phones due to the rapid growth and development of infrastructure especially network infrastructure. The rising levels of GDP per capita and in get along levels of people in the developing earthly concern are increase their ability to purchase mobile phones therefore we could see that in the near future major growth would come from developing economies. unknown Exchange exposures Faced by NokiaNokia has businesses all over the world this global presence means that assets and sales, liabilities and loans taken or completed in different parts of the world may be higher or lower in value when translated into the Euro or any home base currency. Because Nokia owns corporeal assets in exotic markets therefore the company has to hedge and protect itself against the potential of currency adjustments in the negative direction.Nokias foreign exchange policy is authentic by the treasury department of the company which looks after the interests of the company such that foreign exchange exposure is minimized and shareholder value is maximized. at a lower place the policy transactions which are considered of material value are weasel-worded against foreign ex change exposures as long as the hedging tool is not uneconomical i.e. the hedging cost is lower or market liquidity is favorable. The company uses derivative monetary instruments such as foreign exchange options and forward foreign exchange contracts to manage hedging and slenderize the exposure. The group has a policy of not hedging 2-year or beyond forecasted foreign currency cash flows. modern Product and Market developmentNokia operates in a highly drastic and technologically changing industry on the consumer side the company also sees the acceptance and change magnitude choose for more sophisticated products therefore the company has to remain on its toes and come up with saucy products and services. The recent financial crisis which was coupled with economic downswing as well saw most industries and companies experiencing reduced profits or even losses.If we look at the table above we see that for the period 2004-08 the ordinary RD use of goods and services as a percen tage of sales was around 11%. This explains how important the development of unfermented products and markets are to companies like Nokia. RD expenditure dipped slightly during 2009 by about 1% compared with 2008 figures because of the decline in sales. The reduction in total revenues during the year 2009 was because the brunt of the crisis or the lowest tailor of the crisis was considered to be the third and fourth quarters of 2009. The major problem approach by Nokia mobile devices sales was the fact that as macroeconomic aggregates plummeted world wide people were laid off, disposal incomes squeezed and purchasing power declined in some regions because of currency depreciation, all these factors led to the decrease in demand for Nokia phones.Despite these tough circumstances Nokia continued to expand product development and introduced unfermented products in the mobile device markets, newfound systems and networks from Nokia Siemens confederacy and navigation phones under t he NAVTEQ division.Capital Structure and Liabilities Management at NokiaThe average staple fiber number of shares during 2009 was 3.705 billion, 2008 was 3.743 billion and 2007 was 3.885 billion. The difference between diluted and basic average number of shares was negligible during all the three geezerhood verbalize above. About 1% of the shares were owned by Nokia Corporation during 2009. There was not much change in the corking structure during the three years aside from a buy-back and cancellation of shares that were owned by the company during 2008 and 2009 respectively.If we closely dismember the net debt to equity ratio for the 5 year period we see that initially in the years 04, 05 06 and even 07 the company had surplus assets over total debt. Though this situation drastically declined during 2008 as the credit mash forced Nokia to borrow money and bridge the gap between its operative outstanding. This factor eroded the asset base advantage the company was memory fo r the previous 4 years before 2008. Another important factor was that short-term borrowings rose substantially during 2008. Short-term borrowings increased from 714 million Euros in 2007 to 3,578 million Euros in 2008.The equity ratio represents the amount of assets represented or funded by the equity holders. From the table above we can see that the assets funded by equity has been on a declining run throughout the five year period. This also explains that as years acquire passed by liabilities have been increasing used as a way of financing assets. Many analysts conceptualize that borrowing is a lesser expensive way of raising cash compared to equity as interest paid reduces effective tax rate secondly creditors do not have a say in the way management runs the business thirdly no dividends need to be paid out. On the other hand equity has its own advantages such as no finance costs in case of failure the claim of common shareholders is last only after other creditors have been paid out. Overall companies are suggested to find an optimum equity and liability combination by working out the WACC at different levels.2007 was considered one of the best years in Nokias history not only did the stock do well plainly the companys other major indicators were in blue jet as well. For instance the return on equity was around 53% during 2007 that is a phenomenal return for shareholders from a company that competes in such a tough competitive environment. The return on equity declined importantly during 2008. As we see from the table that the value declined to 27.5% from 53.9% in 2007. This again explains the fuss the company faced during 2008 in terms of low sales volumes, grim prices and difficult financial conditions.Nokia Corporations shares are listed on the following stock markets NASDAQ OMX, (Helsinki), Frankfurter, and New York line of work Exchange. The company delisted its Swedish Depository Receipts (SDRs) from the Stockholm Stock Exchange. The last d ay of trading of these SDRs was June 1, 2007. Raising capital and loans from foreign capital markets has a number of benefits and a few disadvantages as well. In terms of the benefits firstly by listing stocks in a market such as NYSE a company like Nokia gave itself exposure to one of the most valuable and important stock markets in the world. New York is the financial capital of the worlds largest economy and having the ability to raise funds in such a market builds great reputation for a company apart from substantial capital.Similarly the SDR move into the Swedish Stock Market was a strong move as that would have strengthened the capital structure before the delisting. SDRs provide a substantial capital inflow in lieu of a stable and known cost of capital that gives the firms financial cost structure sustainability and consistency.In terms of the disadvantages economic activities in a foreign country might impact the shareholder value of the whole group. Though this cost is offs et by the point that todays financial markets are so dependent on each other that market risks are almost similar in virtually all countries and their stock markets. The important thing here is that companies like Nokia must be aware of the divvy up cycles and the economic cycles of the world and individual markets and there relationship between each other because that will determine the impact of raising capital in foreign markets.Impact on Market Value as a Result of Strategies in Foreign Exchange Risk, Raising Capital and abject into New MarketsTechnological firms generally have higher risk given over to their stock prices and market values therefore we expect them to do extremely well when the economy is enlargeing and the company is able to come up with consistent and high quality products. The case of Nokia is no different the company has successfully established itself as one of the most reliable and move manufacturer of mobile devices. Steadily over the years Nokia has moved into new markets which have diversified the portfolio of the company hence spreading the risk over different but related markets.Nokias move to enter new markets has been a good way of diversifying business interests in the sense that the company has not only developed new products but it has also moved into new physical markets. Developing new products has its own advantages but moving into new geographical markets can benefit companies from the all important concept of economies of new scale. Going into new markets exposes the company to absolutely new customers hence increasing the total potential customer base of the company.Raising capital in foreign markets also impacts the market value of the company in a positive way. The company, by raising additional capital in new markets, not only increases its ability to spend money on acquisitions, development, and supply-chain but also gives credibility and higher standing to the companys share in the capital markets and makes t he company a strong candidate for a better military rating from agencies.The above graph is the stock price movement of Nokia stock, listed on NYSE, versus the SP vitamin D over a five year period. What is evident here is that systematically the Nokia stock has out performed the SP 500 for most of the time period under discussion. In percentage terms the stock has performed extremely well during the posterior half(prenominal) of 2007 up to mid 2008 even during the tough times of the late 2009 the stock did better than the overall SP index.The above graph is again congressman of the fact that the companys stock performed better than most top company stocks during the boom period of 2007. Credit has to be given to the financial managers of the company since there prudent steps ensured a better than average EPS for the company and later on even better share price performance.Evaluation of the Firms Finance ManagersIn terms of hedging and controlling the foreign exchange risk I th ink the financial managers did a good job by employing a prudent policy of hedging all those cash inflows and outflows which were due inwardly 2 years period. This is a prudent approach secondly if we look at the table below we see that the company has remained profitable contempt the financial and economic crisis that plagued the global markets for the past 2 and a half years.We also see that the company gave dividends in all the last half a dozen years under discussion this also shows consistency and the right expectation of financial managers who rightly understand the need to rollout dividends in order to ensure continuous investments from investors in the near future.The above graph shows that profitability unwell during the 2007 period and steadily declined thereafter this also shows the difficult financial and economic environment that was weathered by the corporate sectors of different economies. The impact of the crises were so great that profits before taxes almost de creased by 50% in 2008 from 2007 profits before taxes.