Nokia OYJ: Financing the WP Strategic Plan Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Company Overview:

The company Nokia was formed by Fredrik Idestam as a paper company named after the river Nokianvirta, where it was situated. It then grew to become a well-known multinational mobile phone manufacturer in the world. The main business of Nokia Corporation were mobile, internet and other communication devices in over 150 countries of the world, with approximately annual sales of around $42 billion from all over the world in the year 2010. Nokia’s main functions were Location and Commerce (L&C), Nokia Siemens Network (NSN) and Devices and Services (D&S). Nokia was enjoying around 28.9% of total market shares in the communication industry and was considered as the market leader.

The company has a long history and it wasn’t like that before since it started business as paper manufacturing company. It took over 146 years to reach at this point. The journey from a paper mill to electronic path started in between the era of 1865 to 1967, with the merger with a cable company and a rubber firm. Till 1991, the Nokia Corporation was ideally placed to become a founder of communication evolution. As the European market for communication devices became derestricted and cellular networks became global, Nokia was well positioned to become a first mover in its related industry. By the end of 1991, management of the Nokia Corporation decided to focus more on the mobile business. In 1992, Nokia decided to focus on its telecommunications business and that was considered as the most important strategic decision ever taken by the management of the company.

Overview of the Case:

Nokia OYJ was a complete multinational and global information technology and communications corporation in Finland. The main businesses were portable IT devices and mobile phones. The business also comprises of games, messaging through its Ovi stores, media, digital navigation services, map information and other internet related services through its completely owned subsidiary Navteq. Nokia Corporation also has a joint venture with Siemens, for the purpose of carrier related mobile and fixed networks.

It was the year of 2012, when another problem was faced by Nokia Corporation and it was related to the financing decision. The company was facing decline in the performance in terms of the revenues and market shares, so the company decided to go for further advancement in the mobile technology and the problem of way of financing was the main concern for the management of Nokia Corporation.

Problem Statement:

In the previous 5 years, the company which was already leading the industry of mobile phones faced counterattacks by its big rivals in the industry in the form of introduction of smartphones by the name of iPhone by Apple and mobile phones operating by Google’s Android Operating System.

After that incident, the low priced mobile phones market was also under great pressure by other rivals like Hong Kong Telecommunication (HTC) and Samsung and LG. To counter this problem, the management of Nokia Corporation decided to correct the company’s course of action and announced its deal with the Microsoft Corporation in 2011, and considered it as the strategic plan. In this plan, Microsoft Corporation would serve as the Nokia’s primary mobile operating system in the smartphones.

But just after the announcement of the plan with the Microsoft, the management who was more hopeful to bring the market share to its 5-year previous positioned, the market became more concerned about the deal as the market raised the question of the credibility of the Microsoft Corporation as the provider of the smartphone operating system provider.

As the deal required the financial induction to start, the management of Nokia Corporation searched over the way of financing. The company had generated net loss in the earnings in the month of July, followed by a decline in the grades of the credit ratings in the eyes of the investment authorities of the company in the next month. That created a question over further acquisition of loans from the investment authorities.

The option of equity financing was also under great uncertainty as the prices of the company’s stock were very low against the previous 5-year share prices and issuing stocks to generate funds would bring more dilution in the Earnings per share of the company.........................

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Nokia deal provides an opportunity to study fiscal policy in a broader strategic changes. In recent years, Nokia, the world's leading mobile phone manufacturer, has seen its market share and profits eroded by competing products such as Apple's iPhone and handsets featuring Android operating system Google. In February 2011, Stephen Elop, the newly appointed president and CEO of Nokia, today announced a broad strategic plan and partnership with Microsoft, to correct the course of the company and improve its competitive position. Analysts believe the next two years as a period of great uncertainty for the company. Financial Officer Nokia should reconsider the financial policy of the company in light of the plan and to consider its impact on the potential need for external financing, and an appropriate mix and cost of debt or equity financing, which may be used to increase the funds. Nokia, like many technology companies, is often performed by high cash balances to maintain financial flexibility, but in 2008 and 2009 in response to the global financial crisis, he dropped the money to historically low levels and experienced some of its debt downgraded major rating agencies . Students must evaluate the trade-off between maintaining cash reserves and the need for external financing, and work through the implications of the projected funding needs for external funds from debt or equity. "Hide
by Susan Chaplinsky, Felicia C. Marston Source: Darden School of Business 25 pages. Publication Date: July 13, 2011. Prod. #: UV5656-PDF-ENG