Nokia vs Motorola

1. Section 1 ; Group 2
FT 12113 Anuja Dash
FT 12102 Abhay Bohra
FT 12189 Pramod Ravishankar
FT 12127 Harendra Singh
FT 12168 Tushar Arora
FT 12104 Abhilash Mohapatra
Section 1 : Group 2 4/8/2012 1

2.  Motorola and Nokia are both big players in the Cell Phone
manufacturing.
 Motorola is the company that invented the cell phone. Motorola
DynaTAC 8000X was the first cellphone launched in 1983 where as
Nokia 1011 was the first cellphone launched by Nokia in 1994.Still today
Q1 2010 the share of Motorola by volume was 3% whereas Nokia share
was 37.4%.
 Nokia has grown to become market leader whereas Motorola steadily
lost ground. Our Objective is to find out what went wrong with Motorola
and what went correct with Nokia.
 Nokia dominance is because of its management capital structure
decisions or technology decisions or operations decisions.
Section 1 : Group 2 4/8/2012 2

3. Section 1 : Group 2 4/8/2012 3

4. Motorola
Total Long Term Debt Total Equity Research & Development
Date Share price
2010 5.25 94.75 1,479.00 63.49
2009 2.86 97.14 1,591.00 54.32
2008 3.39 96.61 2,358.00 31.01
Nokia
Total Long Term Debt Total Equity Research & Development
Date Stock Price
2010 22.77 77.23 5,288.00 7.74
2009 25.30 74.70 5,345.00 8.92
2008 5.71 94.29 5,418.00 11.10
Section 1 : Group 2 4/8/2012 4

5.  In Both Motorola and Nokia Capital Structure there is no
preferred stock. Motorola has less than 5 % debt in capital
structure whereas Nokia uses more debt around 20% .
 Nokia has increased debt from 5 % to 22.77% of in capital
structure.
 We did regression analysis with capital structure and share
prices we could find that around 30% of sales is explained by
capital structure. Also we did regression analysis on R& D
spending and share prices. Around 95% of share prices are
explained by R & D spending.
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6. Liquidity measures Nokia Motorola
Year 2007 2008 2009 2010 2007 2008 2009 2010
Current ratio 1.54 1.2 1.18 1.22 1.78 1.63 1.6 1.58
Quick ratio 1.39 1.08 1.07 1.07 1.47 1.28 1.24 1.3
Cash ratio 0.62 0.33 0.3 0.29 0.69 0.66 0.63 0.64
NWC to total assets 0.27 0.1 0.13 0.11 0.28 0.24 0.23 0.22
Interval measure days 323 270 274 280 315 310 305 302
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7.  After doing the ratios above we can say that the CR of Motorola are greater than
the CR of Nokia for both years 2007 and 2010 since the CL of Motorola is lower
than the CL of Nokia. We can say the ability of Motorola to pay bills over short
term without stress is better than Nokia in that.
 The Quick ratio of both companies Motorola is still greater than Nokia for both
years 2007 and 2010 because the inventories of Nokia constitute a large part of
their CA. Motorola is considered for sure better for creditors than Nokia because it
seems that it can pay debt easily
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8. Section 1 : Group 2 4/8/2012 8

9. Asset utilization Nokia Cor. Motorola, Inc
Year 2007 2008 2009 2010 2007 2008 2009 2010
Inventory turnover 11.52 13.04 13.4 13.24 6.72 5.6 5.6 5.6
Day’s sales in inventory 31.684 27.99 27 26.32 54.3 65.22 65.22 65.22
Receivable turnover 4.56 5.41 5.46 5.52 5.83 7.27 7.27 7.27
Day’s sales in receivable 80.06 67.42 67.44 58.42 62.63 50.21 50.21 50.21
NWC turnover 4.95 12.42 13.12 13.12 3.77 4.47 4.47 4.47
Fixed asset turnover 26.7 24.46 24.24 23.96 14.77 12.35 12.35 12.35
Total asset turnover 1.36 1.29 1.24 1.23 1.05 1.08 1.08 1.08
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10. Motorola inventory turnover ratio was less than Nokia in the
years 2007 and 2010 respectively. This means that Nokia has
better sales than Motorola
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11. Section 1 : Group 2 4/8/2012 11

12. Financial Leverage Ratios Nokia Corporation Motorola, Inc
Year 2007 2008 2009 2010 2007 2008 2009 2010
Total Debt Ratio 0.54 0.598 0.56 0.602 0.56 0.66 0.67 0.69
Debt Equity Ratio 1.17 1.397 1.43 1.39 1.25 1.93 1.97 2.01
Equity Multiplier 2.17 2.397 2.42 2.44 2.25 2.93 2.9 2.97
Long Term Debt Ratio 0.01 0.05 0.052 0.06 0.21 0.3 0.32 0.36
Interest Earned Ratio 102.61 31.296 28.24 27.45 1.21 0.4 0.46 0.41
Cash Coverage Ratio 120.61 38.78 36.258 34.96 3.69 2.25 2.4 3.16
Times interest earned ratio and cash coverage ratio measure a company’s
ability to cover its interest obligation. For both year, Nokia’s ratios exceed
Motorola’s ratios, this implies that Nokia covers its interest obligations
better than Motorola.
Section 1 : Group 2 4/8/2012 12

13. 0.8
0.7 0.69
0.66 0.67
0.6 0.598 0.602
0.56 0.56
0.54
0.5
Axis Title
0.4 Nokia Total Debt Ratio
Motorola Total Debt Ratio
0.3
0.2
0.1
0
2007 2008 2009 2010
 We notice that Motorola is more in debt than
Nokia
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16. Profitability Ratios Nokia Motorola
Year 2007 2008 2009 2010 2007 2008 2009 2010
Profit margin 0.14 0.078 0.08 0.09 -0.0013 -0.141 -0.189 -0.212
Return on assets 0.191 0.101 0.99 0.106 -0.0014 0.152 -0.002 -0.0026
Retrun on equity 0.42 0.242 0.24 0.18 -0.0031 0.446 0.4 0.32
Section 1 : Group 2 4/8/2012 16

17. Nokia profit margin decreases significantly . Whereas for Motorola the
profit margin shows bad values and actually risky ones because in
2010 the negativity in Motorola Profit margin increases! In other words
for every 1 $ in sales Motorola did it is not generating a profit.
Section 1 : Group 2 4/8/2012 17

18. In 2010 Motorola is the better company
in the creditors and investors point of
view because the higher the ROE the
better it is for them. Nokia and Apple
ROE decrease from 2007 to 2010.
Section 1 : Group 2 4/8/2012 18

19.  Strengths
◦ Strong brand name
◦ Customers trust Nokia
◦ Global distribution network
◦ Largest sales
◦ Strong finances
◦ User friendly products
◦ Products have better sale value as compared to other
brands
◦ Durable products
◦ Wide variety of products suiting every type of customer
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20.  Weaknesses
◦ Some products are not user friendly
◦ Few service centers in India thus affecting after sales
service.
◦ Variety for the lower class people is to the minimum.
 Opportunities
◦ Good opportunity to increase sales and market share
◦ Can target new market and attract more customers in
present market by introducing new varieties of products
and a wide range of prices
◦ Strengthen its brand image further
◦ Can bring innovativeness to its products.
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21.  Threats
◦ Emergence of other mobile companies like Sony Ericson,
Samsung, etc which give tough competition to Nokia's
mobile phones.
◦ Competitors could provide cheap products, more features
and wide variety, latest style and more sales.
◦ Nokia shouldn't underestimate its competitors and
strategically plan responses to its competitor’s advances
and act accordingly.
◦ Rapid growth of WLL network is a threat because Nokia
provides CDMA cell phones so its products can go toward
the down fall with the rise of WLL network.
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22.  Strengths
◦ Good brand name in developed countries and getting itself
established in developing countries as well.
◦ Leader of innovations
◦ Wide range of products
◦ Wide customer base and satisfied customers
◦ Affordable prices
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23.  Weaknesses
◦ Non user friendly products
◦ Less penetration
◦ Some products were found faulty
◦ Low employee training and less education of its employees
◦ Low brand awareness
◦ Declining sales
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24.  Opportunities
◦ Widen its range and capture more market share and
increase sales
◦ Improvise its products to remove faultiness
◦ Design user friendly products to increase customer base
◦ Increase brand awareness through extensive marketing
 Threats
◦ Dominant competitors
◦ Competitors offer better products in some aspects and
have better sales and satisfied customers.
◦ Consumer’s perception is not good about its products.
Section 1 : Group 2 4/8/2012 24

25. Nokia Motorola
Earnings Before Interest &
Taxes:EBIT 2950054000 80000000
Total Assets 52485209000 6204000000
Net Sales 56943158000 11460000000
Market value of equity 22260000000 7260000000
Total liability 31176295000 4472000000
Current assets 36416200000 3119000000
Current liability 33188446000 3846000000
Retained earnings 14086207000 0
Z-Score 2.15 2.72
As per the Z Score, it is not high enough to predict success,
nor is it low enough to predict bankruptcy.
Section 1 : Group 2 4/8/2012 25

26.  Motorola has lost its market share while Nokia
gained market share .This phenomenon has
nothing to do with their capital structure but on
their spending on R & D.
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