Comparative analysis of Nokia and Samsung

Dnyaneshwar 2011HE007

Narendra 2011HE011

Navdeep 2011HE012

Shikha 2011HE027

Utsav 2011HE035

Company Profile

Nokia• Finland based• Headquarters: Espoo• Founded in 1865, started

as pulp rubber and cable manufacture

• Telecommunications, internet, software industry

• Subsidiaries: Nokia Siemens networks, Navteq, Vertu, Qt development framework

Samsung• South Korea based• Headquarters: Seoul• Founded in 1938• Conglomerate industry• Subsidiaries: Electronics, life

insurance, heavy industries, etc.

Vision and Mission

Nokia

VisionVoice Goes Mobile….If it

can go mobile – it will

MissionConnecting People

Samsung

VisionLeading the Digital

Convergence Revolution

Mission

Digital –e-company

Products

Nokia• Mobile Phones• Smart phones• Mobile computers• Networks• Military communications

and equipment• ADSL modems• Digital television • PCs: Nokia booklet 3G

Samsung• Consumer electronics• Shipbuilding• Telecom• Construction• IT and communications• Financial services• Retail• Heavy industries• Entertainment • Medical services

ManpowerNokia

• President and CEO: Stephen elope

• Chairman: Risto Siilasmaa• Board of directors: 11 (7 to

12) members• Nokia leadership team,

appointed by board of directors: 14 members

• Employees: 130050, out of which 29611 employees are in asia pacifice region.

Samsung• Chairman and CEO: Lee Kun

– Hee• President: Lee Soo-bin• Vice chairman and CEO,

samsung electronics: Geesung Choi

• Board of directors of samsung electronics: 7 members

• Employees: 2,21,726 (2011)

Financial comparison

Nokia (2011)• Revenue= €38.65 billion• Operating income= €-

1.073 billion • Net income= €-1.164

billion• Total assets= €36.20

billion• Total equity= €11.87

billion

Samsung (2011)• Revenue= US$ 247.5

billion• Net income= US$ 18.3

billion• Total assets= US$ 384.3

billion• Total equity= US$ 224.7

billion

“Organizational” “Structure”

Samsung organizational structure

Financial Benchmarking

The key ratios can be divided into four different classes:

• Profitability ratios • Liquidity ratios• Income ratios • Efficiency ratios

Profitability Indices

Ratio data TTM as of 03/31/2012

RATIOS NOKIA SAMSUNG SIGNIFICANCE

Return on Assets

-0.50% 2.5% Measures the amount of profit generated by assets divided by the profits earned by total assets

Return on Equity

-23.30% 16.24% Return on book value of shareholders’ total investment in company

Return on Capital

-16.5% 10.11% Measures the profit before interest and taxation as percentage of capital employed in business

Return on Capital

Nokia Samsung

-20

-15

-10

-5

0

5

10

15

--16.5

10.11

Return on Capital InterpretationA calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. It gives a sense of how well a company is using its money to generate returns.Samsung dominates in this comparison with 10.11 % returns (profit) while Nokia shows 16.5 % losses.

Returns on equity

Nokia Samsung

-30

-20

-10

0

10

20

3029.17

7.045.28 4.98

12.765.82

-8.32

4.02

-20.69

16.24

20082009201020112012

Interpretation- Returns on Equity

• Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.

• Nokia corporation’s profitability for the investors has continuously declined over the years. This means Nokia corp has failed to give profit returns on equity towards its investors. It has declined from 29.17 % (profit) in 2008 to -20.69 % (loss)in 2012.

• Samsung electronics, however has succeeded in providing sustainable profits to its investors. In the first quarter of year 2012, Samsung showed 16.24 % returns on equity for its shareholders.

Return on assets

Nokia Samsung

-0.5

0

0.5

1

1.5

2

2.5

-0.5

2.5

Return on assetsInterpretationAn indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings.For Nokia, the corporation has shown deterioration in its efficiency at using assets to generate profit. ROA was 10.1 in 2008, in 2012 it has gone for a loss -7.4. For Samsung, has shown sustainability in utilizing assets with efficiency. Samsung had ROA 3.26 in 2008, now it is grown up to 7.58

Gross Margin

Samsung

Nokia32.80%

33.00%

33.20%

33.40%

33.60%

33.80%

34.00% 33.92%

33.20%

Gross Margin

Gross Margin

The gross margin % indicates the profit which a company retains over each unit of revenue generated.

For both Nokia and Samsung, the profit over each dollar (any unit) of revenue generated is 33 %. This indicates both of the companies earn a profit of 33 over sell of 100

Operating Margin

Nokia Samsung

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

-5.20%

11.05%

Operating Margin 2012

Analysis of Operating Margin

• It indicates how much of each dollar of revenues is left over after both costs of goods sold and operating expenses are considered.

• Though both Nokia and Samsung have equal gross margin, there is significant difference in their operating margins.

• Nokia is showing negative figure which reveals that after paying for the cost of raw material, labour, productions etc, the revenue generated is negative which means that Nokia is actually in loss.

• Nokia is not able even to cover up the total cost of its productions. This is clear indication of bad health of the company.

EBITDA: Earnings Before Interests, Tax, Depreciation and Amortization

Nokia Samsung02468

101214161820

1.4

18.43

EBITDA

EBITDA

Analysis of EBITDA

• This figure is actually a ‘window-dress’ to Nokia corp. It is actually an attempt to hide the actual net income.

• This shows the net income excluding the depreciations, taxes etc so it is always higher than what actual profit a company is making.

• For this reason, this comes as positive for Nokia too.

Liquidity ratio comparative Analysis : Current ratio

20102011

20121.4

1.421.441.461.48

1.51.521.541.56

1.5551.548

1.459

Current Ratio Nokia

Current Ra-tio Nokia

20102011

20121.555

1.561.565

1.571.575

1.581.585

1.591.595

1.6

1.571.58

1.6

Current Ratio Samsung

Current Ra-tio Samsung Mobile

Interpretation

Current ratio for Nokia has been reducing since last three years while it has improved for Samsung implying that Samsung has lesser liabilities in relation to the available assets than Nokia and its situation is continuously improving.

Current ratio was almost equal for both the companies in previous years. But in 2012, Samsung has highly improved while Nokia has declined.

Quick ratio

Nokia

Samsu

ng0.940.960.98

11.021.041.061.08

1.1

1

1.1Quick ratio nokia and Samsung

Quick ratio nokia and Samsung

InterpretationQuick ratio for both the companies is satisfactory and both are able to pay their current liabilities through their liquid assets

However, this ability is slightly more for Samsung.A quick ratio of less than one can be problematic, which is not a case for any of the companies.

Inventory turn-over ratio

Nokia Samsung0

2

4

6

8

10

12

9.8

7.6

Inventory Turn-Over Ratio

Inventory Turn-Over Ratio

InterpretationNokia is more efficient in managing its inventory as compared to Samsung.

Nokia’s inventory stays for about 40 days and this duration for Samsung is about 50 days.

Efficiency ratios

Nokia Samsung0.9

0.95

1

1.05

1.1

1.15

1.2

1

1.2

Asset turnover ratio

Asset turnover ra-tio

It tells about the dollar of assets generating dollar of revenue. In case of Nokia it is 1(low) and hence it has high profit margin and for Samsung it is 1.2 (high).So Samsung sells with low profit margins

Nokia Samsung0

1

2

3

4

5

6

7

8

9

5.2

8.3

Receivable turnover ratio

Receivable turnover ra-tio

Measures company's efficiency in collecting its sales on credit and collection policies.High ratio means company operates on cash basis. Samsung has 8.3 ratio means it collects it receivables early or operates on cash basis than Nokia which has low ratio 5.2, bad for a firm

Nokia Samsung0

0.020.040.060.08

0.10.120.140.160.18

0.2

0.19

0.07

Accounts payable to sales ratio

Accounts payable to sales ratio

It measures the number of times a company pays its suppliers during a specific accounting period.• More the turnover ratio

faster the rate of paying to it suppliers. Thus Nokia pays at faster rate to its suppliers than Samsung

Nokia Samsung0

10

20

30

40

50

60

70

80

70.19

43.97

Average collec-tion period ratio

Average col-lection pe-riod ratio

Average Collection Period represents the average number of days it takes the company to convert receivables into cash.• Thus Nokia takes more

days(70.19 days) to collect its cash on credit sales than that of Samsung which is 43.97 days only.

Nokia Samsung0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

0.86

1.5

Asset to sale ratio

Asset to sale ratio

• A measure of companies efficiency in managing itsassets in relation to the revenue generated. The higher this ratio, the smaller the investment required to generate the sales revenue, and therefore higher profitability of the company.

• Here, Samsung has higher ratio 1.5 so it shows that it generate max. profit with smaller investment compared to Nokia.

Other Efficiency Ratios

Debt to Equity Ratio• Nokia- 0.3987• Samsung- 0.5

Interpretation This ratio gives an idea about the cushion available to

outsiders on the liquidation of the firm.

Interpretation of the ratio depends upon the financial and business policy of the company. Samsung’s shareholder has invested less than Nokia’s shareholder for equal worth.

31

MARKET SHARE: SAMSUNG OVERTAKES NOKIA

Global mobile handset shipments (Q1) 2012

Company Units (millions) Market share

SOURCE: STRATEGY ANALYTICS

Samsung 93.5 25.4%

Nokia 82.7 22.5%

Apple 35.1 9.5%

Other 156.7 42.6%

NOKIA : $1.76 Billion loss for 3 months

• “We are navigating through a significant company transition in an industry environment that continuous to evolve and shift quickly”

• “Over the last year we have made progress on our own strategy, but we have faced greater than expected competitive challenges”

• The gap have ended Nokia’s 14-year reign in the phone global market.

Smart phones reached 30% market share in 2011 483M units shipped worldwide

Smartphone shipments as a % of total handset shipments

Source: VisionMobile

Profits are monopolized by companies with a tailored value-chain

Share of profits across top-8 handset vendors. Source: Asymco, VisionMobile estimates

Commodity modular market

Integrated from cloud to silicon

Integrated across handset BoM

Marketing Strategies of Nokia and Samsung

Samsung- a Big Smack to Nokia

• Nokia has been long the market leader• Enormous reach and huge customer base• Created significant entry barriers for any

new player as such. • Its Symbian OS being the backbone of the

whole success story

But........

Nokia did a blunder by being very much myopic and complacent about its achievements and didn’t

envision the competition, radical innovations and high end technology coming its way, which

certainly had potential to dethrone it of its place.

Reasons????

PriceAllowances and deals

Distribution and retailer mark-ups

Discount structure

ProductQuality

Models and sizesPackaging

BrandsService

PromotionAdvertising

Sales promotionPersonal selling

Publicity PlaceChannels of distribution

Outlet locationSales territories

Warehousing system

4 P’s of Marketing

Competition in Market

Convergence of the mobile telecommunications, computing, consumer electronics and Internet industries

Product differentiation with Android

Commoditization of devices Resulting downward pressure on pricing

Strategies leading to Cost advantage to Samsung

Samsung’s overall cost was 24 per cent lower than the weighted average cost of the other four producers

The cost advantages related to raw materials by better negotiated agreements with suppliers (perhaps due to the larger volumes of purchases

Higher yields (due to process quality and use of more efficient, larger silicon wafers),

Use of common core design for different products supported by the flexibility of production lines

Competitive advantage due to quality and product mix

Samsung has always produced volumesProduct innovation- Android with GoogleSmart Pricing strategyWide Distribution network- Samsung had 18

state-level distribution offices and a direct dealer interface

The direct dealer interface helped the company get quick feedback from dealers,

Products are market driven and customer centered

World class R&D facility; which helped it to work on its previous weaknesses as found from a market research

Samsung came up with mobile phones to directly compete with Nokia in low end segment in developing economies.

Android revolutionized the mobile phone market and Google in association with many mobile phone manufacturers to come up with low budget smart phones

Current Marketing Strategies of Nokia

In 2011, Nokia announced a new strategy for its mobile products business, with three core elements:

i) to win in smart phones;ii) to connect the “next billion” consumers to the

Internet and information; andiii) to continue to invest in long-term exploratory

research into the future of mobility

Three strategic assets that Nokia will invest in and prioritize:

- Brand and design- Customer engagement and fulfilment- Technology and architecture

• Mobile multimedia experiences to consumers in the form of advanced mobile devices and applications

• more than 8,50,000 points of sale globally• growing online retailing presence• Increasing channel of mobile network operators,

distributors, independent retailers, corporate customers and consumers.

To regain its Brand Equity…

Innovation• Enter smart phone market by collaborating with Microsoft and

bring its smart phones to the market with Nokia Lumia 800

• Plans to increase its investment in capabilities such as end-to-end testing, tools, automation, dedicated resources, customer-focused metrics and training.

Quality• Nokia Siemens Networks expects to leverage the systems, processes and

culture of quality brought to the company through the assets acquired from Motorola Solutions which was widely acknowledged as one of the industry’s leaders in quality

Restructuring

reduce its annualized operating expenses and production overheads

plans to reduce its global workforce by approximately 17,000 by the end of 2013.

transfer of activities to global delivery centrescost synergies from the integration of Motorola

Solutions’ wireless assets, efficiencies in service operationscompany-wide process simplification

Production

Ten manufacturing facilities worldwide: five in China, one in Finland, two in Germany,and two in India (Kolkata and Chennai).

Started manufacturing of 3G mobile communications infrastructure at its Chennai facility to enable key customers in India to roll out 3G services faster.

First vendor of telecommunications infrastructure to manufacture 3G products locally in India.

SWOT: NOKIA V/S SAMSUNG

SWOT analysis: Nokia

STRENGTHS…...

• Is a dominant player in the smart phone market via its majority ownership of Symbian

• In the Asia Pacific sector Nokia ranks in the top 20 of most trusted brands and in India specifically it ranked number 1.

• Nokia hold 37% of the world market which is almost 20 points higher than its next closest competitor Samsung.

WEAKNESS…• Being the market leader and its increase role in

Symbian is giving Nokia a bad image, much like Microsoft in the PC industry.

• Slow to adopt new ways of thinking: good examples are clamshell phones which are preferred by many customers. Nokia was reluctant to produce a clamshell until 2012, when it launched its first model.

• Although Nokia has had the largest mobile device market share in the world it has a rather small presence in the US market.

Contd…• With the success of the iPhone and Android based

phones Nokia will have a difficult time grabbing market share in the world.

• Symbian is an open standard OS that Nokia has only so much control over.

• It is managed by a meritocracy which makes it less than flexible and innovative. It looks dated when put up against Android and iOS and is not as enterprise friendly as RIM’s offerings.

• Although outdated, Symbian has been a solid product. Nokia will need to be careful in how it replaces its flagship OS.

OPPORTUNITIES…• With a hyper-competitive environment and strong players

like Samsung, Apple, Motorola, RIM and HTC; Nokia will need strong business partners to stay on top of the market.

• The most watched partnership will be Nokia’s deal with Microsoft to run Windows Phone 7 on the next generation of smartphones. It is a big gamble for both companies as Nokia needs a new OS and Microsoft needs a respectable and dedicated platform.

• Along with 3G/BB growth Nokia can continue to bring new and innovative technologies to market.

Contd..

• Nokia announced it was adding near-field communication (NFC) chips into future device offerings. This short-range communication capability allows devices to support mobile ticketing, mobile payment, electronic identification and electronic keys.

• Increase their presence in the CDMA market, which they are just entering, as well as 3G and Edge.

• New growth markets where cell phone adoption still has room to go, including India and other countries.

• Leverage its infrastructure business to get preference and a stronger position with carriers.

THREATS..

• With competitors coming out with new products with improved capabilities every 6 months it will be difficult for Nokia to roll out a new generation of phones while at the same time taking on a new OS via Windows Phone 7.

• Nokia has been in a legal battle with Apple over patent infringement for several years over intellectual property.

• If Nokia lose the cases filed by Apple it could result in huge damages .

Contd..

• ODMs (HTC and others) enabling carriers to leverage their customer power bypassing the handset vendor. Operators want to lessen their dependency on handset vendors and the dominance of Nokia. Orange, O2, and many other operators globally are selling their own brand of phones.

• Asian OEMs who are entering the market very aggressively (TCL, nGo Bird)

SWOT analysis: Samsung

Electronics

Strengths

• Product Reliability: One of the company’s competitive advantage is the stress on quality. This is proven by a large number of awards won for performance and reliability.

• Manufacturing process: majority of manufacturing is performed in Seoul, South Korea. This has costs savings from collocation and scale of investments for production process.

Contd..

• Human Resource Policy: Samsung covers 90 % of the expenses associated with health benefits, retirement and education. They also have a rewards system based on achievements .

• Samsung took advantage of the growing economy of Asian market by setting up manufacturing plant in India there by reducing logistics and supply chain costs.

• Samsung brand value increased by 80% in past three years

Contd…

• Samsung is NO.2 in terms of market share in mobiles, it captured Nokia’s market share by superior innovation in smart phones

• Samsungs is the best in terms of design features and technology.

• It was the first to introduced dual screen mobiles, 65k TFT/LCD color phone, first phone with polyphonic ringtones, phones with rotating lens, thinnest and lightest note pad etc

Weakness

• Samsung Mobile launched a series of Smart phones recently which led to cannibalization.

• Chinese products focus on economies of scale and dump into Indian market for lesser cost. This results in reduction of sales

• Samsung is a hardware leader but has too much of dependence for software from other parties.

Opportunities

• Samsung Mobile and Home appliance has future plans of launching Customized products for Indian market. This will improve the market share in rural market

• The Indian youth population is growing and mobile phone sales is expected to increase due to lesser call rates

• Its financial position is strong and there is a scope of entering into unrelated diversification

Threats

• Samsung has wide variety of product lines, failure of one product line will have impact on the other and will result in brand dilution

• The competitors like Nokia are focused only in one segment.

• Threats from Chinese products

Five Field Force Analysis

Entry Barriers : Mobile Phone industry

High Initial And Fixed Cost Requirement :-In order to enter into a competitive market the new

firm requires huge amount of capital. • Nokia enjoys a slight advantage here, though it’s an

advantage that may be quickly lost.• Samsung have a lot of experience making cell

phones, but not necessarily software.

Entry Barriers Contd..

Technology Backup:- • In order to enter into the mobile market the new firm is required to have a

innovative and cutting edge technological back-up. The latest machine, technology and Design in order to satisfy customer with their product.

Government And Legal Issues:-• Two factors may work to keep competitors from entering this market: the

strength of current players’ patents and the regulatory obligations and approval requirements of the TRAI, which governs communication technologies (radio, television, wire, satellite and cable) in the India.

Economies Of Scale :-• Nokia already had pre-existing experience in manufacturing mass-market

consumer electronics devices, many of which share components of the other Nokia mobile: so Nokia is not adversely affected by this barrier.

Product Differentiation:- • Overall this trait sides favorably for Nokia (right now) because the new models

of nokia are significantly different than its nearest competitors. Nokia also has a certain amount of protection through the strength of its brand identity.

Bargaining Power of suppliers: For Nokia and Samsung

• At Nokia, they source products and services including components, softwares, packaging, manufacturing eqipment from thousands of suppliers all around the world.

• Suppliers are not having a strong bargaining power

because the company purchases the raw material from many different suppliers so it is not affected at a by the supplier.

• Samsung is a hardware leader but has too much of dependence for software from other parties.

Bargaining Power Of Customers

• Nokia is not producing products that are satisfying

customers .Even the loyal customers are shifting to other brands like samsung because of the new and smart edge technological products.

• Nokia has failed to produce low cost popular phones (like Samsung Guru) and Android based smart phones at very low price (Galaxy Y and other series by samsung).

• Nokia has come up with Windows based smart phones but the problem with these is that these are not low-cost and the hardware support needed for Windows is also not available in small size mobile devices.

Threat Of Substitute Products

• For Nokia, Samsung’s Android operating system based smart phones have substituted, Nokia mid-price range handsets drastically.

• For Samsung, there is threat of smart hand sets getting replaced by the very compact tablet notebooks of apple, blackberry, Sony etc. With some of the tabs cheaper than the high-range smart phones.

• Samsung though still has the compact size advantage.

“Environmental Analysis”

Political Situations Samsung

Political instability at home- South Korea v/s North Korea

Hostile business environment- African continent and the South East Asia

Conducive political environment which allows it to concentrate on the markets in a better way- India and China

Nokia Finland-very small country, not

involved in international political disputes

member state of European Union- low barrier for Nokia trade and FDI

Open door policy with china after WTO

Former Prime Minister of Finland- Nokia Group Executive Committee members protection to deal with international politics for Nokia

kk

Economic Situations

Samsungoperates based on theeconomic size and the strength of the consumers in terms of variables like disposable incomeaimedat the middle classes in the countries company enters marketswhere the business cycle for the products that it sells is in the initial stages

Nokia mortgage crisis in the

United States-negative impact on Nokia

In 2010, the economy has started to show signs of

recoveryEuropean economic

integrationThese factors can provide

opportunities for Nokia’s products to achieve

globalization

k

Social Environment

Samsung

Has effectively bridged the cultural and social gap between its home country’s business landscape and the markets where it operates

Strike a balance between the aspiration values of the consumer classes and the levels of income that they possess.

Nokia Access to cricket, games,

twitter, stock exchange and news at one click

mobile phone as style statement

Technological Situation

Samsung Innovative approach to

technology and harnessing the same for rolling out products

Cutting edge technologies in their design and features.

Pioneer for many of the technological innovations

Nokia

Invention of single chip and the rapid progress of semiconductorNokia control the heading position in the communications industry that mostly relies on the high speed development of telecommunications of FinlandFinland's well natural and geographical factors provide inborn technology environment for Nokia

References

• Annual Report, Samsung, 2011.• Nokia, Form 20-F, 2011.• Review by The Board Of Directors And Nokia

Annual Accounts 2011.• www.forbes.com• investing.businessweek.com• Analysing Key Financial Ratios,2010.

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