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The mobile communications industry has experienced very stiff competition between the firms in the recent years. This has mainly been based on the advancement in technology and improved devices to capture the dynamic market needs. The leading firms in the communications industry have heavily invested in research and resources to advance the technology in their devices so as to keep up with the changing trends in the market. Customer needs have also contributed a great deal to the need for continuous upgrade of the mobile devices whereby they expect them to be more than just tools of communication.

The introduction of smartphones in the recent years has driven sales higher with smartphone units sold recording 207.7million units in the last quarter of FY12. According to reports by Gartner, there has been a decline in the worldwide mobile phone sales from 1.767 billion units in 2011 to 1.75billion units in 2012. However, the introduction of smartphones in the recent years and continued development of the technology applied in these devices has driven sales higher with smartphone sales recording 207.7 million units in the last quarter of the FY12. The trends in market needs and customer preferences indicates a possible rise of the total units of smartphones sold in 2013 to hit 1 billion units, however, the units of feature phones sold will continue to decline even in the FY13. Overall mobile phone sales are estimated to reach 1.9 billion units in FY13, which will make a 1.5% increase in sales from the FY12.

The industry has also experienced several drawbacks in recent years with phone imitations by competing companies tarnishing the original companies' image to the public. Production of low quality competing brands with close resemblance to the original make has been a major drawback for the firms, and several trials to correct the menace have proved futile. The rising cost of production has also been a hindrance, and chances of remaining profitably in operations depends on the individual firms` ability to adapt a dynamic technological and market environment which calls for continuous and intensive research. Below is a chart showing the recorded market share of the various firms in the industry based on the number of units sold in FY11 and FY12.

Worldwide Mobile Phone Sales to End Users by Vendor in 2012 (Thousands of Units)

Company

2012

Units

2012 Market Share (%)

2011

Units

2011 Market Share (%)

Samsung

384,631.2

22.0

315,052.2

17.7

Nokia

333,938.0

19.1

422,478.3

23.8

Apple

130,133.2

7.5

89,263.2

5.0

ZTE

67,344.4

3.9

56,881.8

3.2

LG Electronics

58,015.9

3.3

86,370.9

4.9

Huawei Technologies

47,288.3

2.7

40,663.4

2.3

TCL Communication

37,176.6

2.1

34,037.5

1.9

Research In Motion

34,210.3

2.0

51,541.9

2.9

Motorola

33,916.3

1.9

40,269.1

2.3

HTC

32,121.8

1.8

43,266.9

2.4

Others

587399.6

33.6

595886.9

33.6

Total

1,746,175.6

100.0

1,775,712.0

100.0

Source: Gartner (February 2013)

NOKIA's (NYSE:NOK) Uniqueness

The appointment of a new CEO Stephen Elop in 2010 is a great move for the company`s management. The new CEO brings in valuable experience in the industry from his previous post in Microsoft (NASDAQ:MSFT) as head of business. Nokia adopted the strategy to leverage its innovation and strength in growth in order to capture a larger market share in the internet and application experience. The company strives to provide compelling, affordable and localized mobile experiences particular with the dynamic market needs. Through the renewal of their Series 40 platform in QWERTY, touch and type, dual SIM and Nokia services, including maps and browser, the company has a device for each market segment. The continued development for future devices which include the platform, software and apps aimed to bring the modern mobile experience to the customers, is a sure way to remain ahead of competitors in the industry.

The recent partnership with Microsoft in FY2011 is another major move to bring together two global businesses with highly complementary sets of assets and competencies. This will actually raise the rank for Nokia smartphones utilizing the Windows 8 operating system. The integration of the two companies has a positive in the image of the company. The new strategies have been supported by changes in the company`s management approach, which now expedites decision making and improves time to market of products and innovations. The key strategy in the FY12 and FY13 has been investing in and ensuring the company`s financial future is secure. The first and foremost course in this direction is the adoption of the Windows Phone as its primary smartphone platform. The partnership with Microsoft will help to drive and define Nokia`s future by leveraging the expertise in hardware optimization and software customization.

Nokia has received several awards and titles in the recent past which have contributed to increased popularity in the industry. The company was named one of the world`s most sustainable technology companies in 2011 on the Dow Jones Sustainability World Index [DJSI]. Nokia was declared the leading brand in China by Superbrands in 2011 in a survey of the top 50 consumer brands in China. The company was also ranked as the best place to work in Central America and the Caribbean in 2011 for its great culture and work environment. The 2011 Forbes top 10 world`s most sustainable companies ranked Nokia at number four among many other rankings that have earned Nokia a great reputation.

Financial Analysis of Nokia

The mobile industry has experienced major drawbacks in the recent past with rising competition and product integration as the major concerns. As a result, there has been a continuous fall in sales over the recent years, and this has also been the cause for reduced profit margin. In the FY11 and FY12, Nokia recorded a deteriorating financial performance. The company recorded profits before taxes of -1.2% in FY11 and -2.6% in 2012.

Though the company has been able to sustain high sales in the period, there have been increased expenses leading to the increased losses in the period.

(click to enlarge)

Source: Gartner (www.nokia.com)

2012 EURm

2011 EURm

Change %

Net sales

30,176

38,659

-22%

Gross profit

8,390

11,359

-26%

Gross margin, %

27.8%

29.4%

Research & development expenses

4,782

5,584

-14%

Sales and Marketing expenses

3,205

3,769

-15%

Operating profit

-2,303

-1,073

Operating profit (non IFRS)

126

1,825

-93%

Operating margin (non IFRS), %

0.4%

4.7%

Profit before taxes

-2,644

-1,198

Profit attributable to equity holders of the parent

-3,106

-1,164

Net cash from operating activities

-354

1,137

Net cash and other liquid assets

4,360

5,581

-22%

Source: Gartner (www.nokia.com)

The above chart indicates the deteriorating trend of the company`s sales, profitability and current assets. The company has experienced a reduction in the earnings per share and dividend per share as indicated in the figure below. This has been as a result of the reduced profitability of the company`s operations in the recent years. There is also a notable reduction in the number of shares indicating withdrawal of some shareholders from the company as a result of the alarming trend.

(click to enlarge)

2012 EUR

2011 EUR

Earnings per share, basic

-0.84

-0.31

Earnings per share (non IFRS), basic

-0.17

0.29

Dividend per share

0.00*

0.20

Average number of shares (basic, 1000 shares)

3,710,845

3,709,947

Source: Gartner (www.nokia.com)

Conclusion

As much as the industry is experiencing adverse impacts from the challenges facing the firms in recent years, it important to note that various measures have been devised to restore the industry`s profitable operations. The rate of decline has been minimal, which implies that though persistent, it has not been a total disaster that may lead to collapse of firms in the Industry. The various causes can be rectified, and Nokia will find a way to restore its profitable position. The ability of Nokia to maintain a top rank in sales volume is a clear indication that it is still a leading company in the industry. The company still needs to invest much in technological development to keep up with the competition, and the highly experienced management is making efforts to offset the poor financial performance. The adoption of creative and sustainable strategies (case in point is the partnership with Microsoft as made by the management) are likely to help the company rise even higher in the industry. The new product platform is also a competitive edge for the company, helping it remain ahead of its competitors and also ensure security of future business operations. A buy recommendation is therefore advised for a long term investor, as the company holds a lot of potential for growth and hence returns in the future.

Source: Nokia's Growth Is Bound To Come