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Accounting

Qualitative Analysis for Blackberry and Nokia

1.    Qualitative Analysis (SWOT)

1.1         Blackberry

Strengths

Blackberry’s strengths are its reputation for delivering high quality, reliable products and durable mobile devices. Additionally Blackberry’s e-mail service is another major strength, which combined with its unparalleled physical QWERT keyboard gained the company lots of loyal customers. The email server used by Blackberry is highly secured, every email that leaves a Blackberry device is decrypted and it can only be decrypted in Blackberry’s own network data center in Waterloo, Ontario. Blackberry devises are used by government agencies and companies who value a high secure method for their confidential communications. Even the current President of the United States Barack Obama is a high profile Blackberry user who even refused to give up on his device once he got elected into the White House, this dedicated endorsement by Mr. Obama is valued up to $50 Million (US) by marketing experts (Krangel, 2009). Another asset of Blackberry is their new BB10 mobile device, which is highly praised by critics (Florence Ion, 2013) with this new phone, Blackberry should be able to regain market share losses, the launch of the device so far looks very promising (Friend, 2013).

Weaknesses

Blackberry’s main weaknesses are the lack of available apps when compared to Apple and Android devices, those two main competitors offer more than 1 Million apps to customers while BB10 will only have between 100.000 and 200.000 apps available in the Blackberry App’s store. A Further weakness of Blackberry is to rely heavily on Government and Corporate purchases, both of which have shrunk over the last years since more and more of these major customers changed to a “bring your own device” policy. But this trend might be reversed since several studies have shown that the “bring your own device” strategy turns out to be more costly for government agencies and private enterprises (Iain Marlow, 2012).

Opportunities

The entire smartphone market has experienced an explosive growth during the last four years global smartphone shipments in 2011 were up a stunning 61%, Apple and Samsung sold 37 million and 36 million units in the 4th Quarter of 2011, so the two companies alone were covering 46.3% of the global smartphone market (Ramos, 2012). This worldwide growing market gives Blackberry the opportunity to market its new device BB10 effectively and regain some of their lost market share. It is especially important to reach customers in emerging markets such as China and India which both proofed to be the biggest markets for mobile devices with the biggest growing potential giving the constantly improving economic situation and large number of population. With the new features like front camera and more available apps and new and updated software, Blackberry might be able to win lost customers back. Safe and secure communication will continue to be the most important features associated with Blackberry devices, in which the company continues to stay unparalleled.

Threats

Blackberry faces a stiff competition from other mobile device brands such as Apple, Samsung and Nokia, which, over the last three years were constantly successful in steadily increasing their percentage of the market share. Another threat for Blackberry is its very own secure email system, since it is impossible for Government Agencies to intercept or to encrypt emails and other communications send from Blackberry handheld devices, many Governments consider Blackberry to be a threat to their own national security. The United Arab Emirates and Saudi Arabia have considered restricting the use of Blackberry services including email, instant messaging and web browsing. After the Terror attacks in Mumbai in 2008, the Indian government threatened to restrict Blackberry services since some of the attackers used the companies secure services to coordinate the attacks (McElroy, 2008). Since India is the second largest market (only behind China) of mobile phone users with 904 Million wireless subscribers (Bouverot, 2012) it would be an immense loss for Blackberry to get cut off from a market with such a high growing potential.

2.    Conclusion

Relating to the discussion presented in this section, it could be considered that Blackberry has incurred its peak condition of market performance as it introduced a new revolution on modern mobile technology. However, at the peak of its innovation, Blackberry faced a certain aspect of competition that involved not only its local competitors but that of the international players in the market as well. Relatively, Apple, Samsung and Nokia offered more options of applications being installed in their system. This hurt the market performance and acceptability of Blackberry making it less acceptable in the international market. The applications it offers are more dedicated to a specific target market, hence, it is a big challenge for the company to become more innovative especially in creating new waves of features that would fit the majority of the market.

3.    Appendix 1

Blackberry

  1. Inventories – Raw materials are stated at the lower of cost and replacement cost. Work in process and finished goods inventories are stated at the lower of cost and net realizable value. Cost includes the cost of materials plus direct labor applied to the product and the applicable share of manufacturing overhead. Cost is determined on a first-in-first-out
  2. Net Income – Net income was $3.4 billion in fiscal 2011 compared to net income of $2.5 billion in the prior fiscal year. The $954 million increase in net income in fiscal 2011 primarily reflects an increase in gross margin in the amount of $2.2 billion, as well as an increase in consolidated gross margin percentage. Included in net income in fiscal 2010 was the impact of unusual charges of $96 million, a $175 million income tax benefit, which related to the foreign exchange impact of the enactment of functional currency tax legislation in Canada, and a $164 million litigation charge, which related to the settlement of the Visto Litigation.
  3. Financial Condition – Liquidity and Capital Resources, Cash, cash equivalents, and investments decreased by $172 million to $2.7 billion as at February 26, 2011 from $2.9 billion as at February 27, 2010. The decrease in cash, cash equivalents, and investments is primarily due to net cash flows used in financing activities and investing activities, which were partially offset by net cash flows provided by operating activities.
  4. Recently issued announcements – In November 2008, the Securities Exchange Commission (“SEC”) announced a proposed roadmap for comment regarding the potential use by U.S. issuers of financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”). IFRS is a comprehensive series of accounting standards published by the International Accounting Standards Board (“IASB”).
  5. Litigation expense – In fiscal 2010, the Company settled the Visto Litigation. The key terms of the settlement involved the Company receiving a perpetual and fully- paid license on all Visto patents, a transfer of certain Visto intellectual property, a one-time payment by the Company of $268 million and the parties executing full and final releases in respect of the Visto Litigation. Of the total payment by the Company, $164 million was expensed as a litigation charge in the second quarter of fiscal 2010. The remainder of the payment was recorded as intangible assets.
  6. Gross Margin – Consolidated gross margin increased by $2.2 billion, or 34.0%, to $8.8 billion, or 44.3% of revenue, in fiscal 2011, compared to $6.6 billion, or 44.0% of revenue, in fiscal 2010. The increase in consolidated gross margin was primarily due to an increase in the number of device shipments and an increase in service revenues as a result of additional subscriber accounts.
  7. Revenue – for fiscal 2011 was $19.9 billion, an increase of $4.9 billion, or 33.1%, from $15.0 billion in fiscal 2010. The number of BlackBerry devices sold increased by approximately 15.6 million, or 43%, to approximately 52.3 million in fiscal 2011, compared to approximately 36.7 million in fiscal 2010. Device revenue increased by $3.8 billion, or 31.7%, to $16.0 billion, reflecting primarily the higher number of devices sold. Service revenue increased by $1.0 billion, or 48.1% to $3.2 billion, reflecting the increase in net new BlackBerry subscriber accounts since the end of fiscal 2010. Software revenue increased by $35 million to $294 million in fiscal 2011 and other revenue increased by $40 million to $460 million in fiscal 2011.
  8. Research and Development – Research and development expenditures increased by $386 million to $1.4 billion, or 6.8% of revenue, in fiscal 2011, compared to$965 million, or 6.5% of revenue, in fiscal 2010. The majority of the increase during fiscal 2011 compared to fiscal 2010 was attributable to salaries and benefits due to an increase in the headcount associated with research and development activities, as well as increased materials usage.
  9. Selling, marketing and administration expenses – increased by $493 million to $2.4 billion for fiscal 2011 compared to $1.9 billion for fiscal 2010. As a percentage of revenue, selling, marketing and administration expenses decreased to 12.1% in fiscal 2011 versus12.8% in fiscal 2010.

4.    Qualitative Analysis (SWOT)

  1. Nokia

Strength: a company that particularly originated in Finland. Nokia is noted for providing high-end quality products that are able to make a specific impact on the market that they aim to serve. Understandably, this particular reputation of the company has led it to its current state of being internationally recognizable (Rao, 2005, 33). Its current status in the market is protected by its alliances with the big players in the mobile and internet industry. Relatively, this makes it easier for Nokia to establish a name even in the outside limitations of its more competitive grounds. Innovation, as a part of the company’s culture remains a strong indicator of the organization’s capacity to enter new markets.

Weakness: the innovations handled by smaller competitors located in areas such as China and India provides a specific condition of challenge to Nokia. With more features that fit the desires of the people and lower price offerings, it is sure that the brands from competing businesses in par with Nokia’s product offerings specifically challenge the foundation of the business especially in the face of the changing market trends (Walker, 2008, 119).

Opportunities: the android market has specifically improved dramatically and it is a great opportunity for Nokia to swerve from the downfall of its profit towards regaining its stand in being the pioneer in innovation (Humphrey, 2005, 67). It may however need to shift its labor and manufacturing faculties to afford innovations with lower costs of expenses.

Threats: If Nokia is not able to make particular changes in its approach to the market, it could be possible that the company would not be able to make specific manifestations of improvement and the capacity to win the market over (Rao, 2005, 35)..

6.    Appendix 2

  1. Nokia

Inventories: Because of the drop of market performance of the products released by Nokia, it could be realized how the inventory of the business increases by at least 2% based from the inventories of 2010. This basically indicates that the rate of products released by the business in the market does not reach a high peak compared to that of the number of items distributed during the past years.

Financial Condition: There is a dramatic year on year drop on the sales and revenue report of the business. This largely impacts the manner by which the business is able to serve the needs and the demands of the market. With a drop of at least 2% to 5% rate of sales, it is essential that adjustments on the operation costs be considered.

Recently issued announcements: To reduce production cost, Nokia has announced that it would have a new manufacturing plant to be located in Hanoi, Vietnam. Targeted to open in 2013, this new branch for manufacturing is expected to lower down both labor and operating costs that the company releases every year.

Litigation expense: Due to the issue between Apple and Nokia, litigation expenses were incurred. The said amount paid for legal services and support specifically hurt the performance of the company yet it was also considered as an investment so as to settle the differences and the disagreements the company has with its tight competitor, Apple. The amount of the said expense was considered to be at EUR 11,000. The process was tedious and the situations that the company has to endure during the time specifically affected the way they managed financial assets accordingly.

Gross Margin: Smart devices sold in the market has a relatively dropping rate of almost 7% gross margin from the 30.8% of 2010 towards the 23.7% performance in 2011. This situation is primarily driven by the fact that the cost erosion of competitive pricing in the market has created a huge gap between Nokia and its competitors.

Revenue: the revenue based on the fiscal report of yearly sales specifically point out that the company has plummet to at least a 13% drop on the rate of sales that it is making both in the local and the international market. The entrant of new producers of mobile phones and smart phones which further develops the android market dramatically creates a distinct indication on how the company performed in 2011 in par with its competitors and new upcoming challengers. The sales of at least EUR 13, 696 million in 2010 went to drop at 13% on 2011 at EUR 11, 930. This drop provides a picture that the income of the business dropped as well. This yearly decline on sales also affects the performance of the organization in an annual manner.

Net income: observably, because of the higher rate of expenses in 2011 which could be valued at EUR 7,534 million compared to 2010 expenses valued at EUR 6,995 million, the net income of the business in 2011 drops dramatically.

Nokia’s share price decrease every year: there is a 5% drop of share price every year based on the performance level of the company in the international market. With the incoming new technologies that has surpassed the innovation that the company pioneered, which is the dual-sim development, it could be considered that the company facing a strong and very much impacting challenge to the way they perform in the market.

Decision of Investment:

Considering the competitive stance of the organizations observed herein, Blackberry seems to be at a more specific course of progress, which means that investing in the company would be more relatively productive than in investing with Nokia. With the android market continuously growing and developing, it is assumed that Blackberry gains a specific place in the arena of competition making it a relative source of proper profit from investment.  With a higher price of share increase in the market in recognition of Blackberry’s position in the industry, it could be realized that investing in this organization is relatively a good decision for both companies and individual entities in the market. With a higher chance of gaining profit, Blackberry seems to take a better sense of command in relation to market segmentation compared to Nokia. If Nokia continues to stick to its original condition of creating and manifesting innovation of mobile phones the way it deed in at least 3 years ago, it would be hard to consider it as a relatively good source of investment in the market. Nevertheless, if it gains better control on how to penetrate the android market and become more acquainted to the need of the market for more functional yet cost-practical products, then it might just be possible for Nokia to be considered a good source of confident investment.

Reference:

Armstrong, M., (2006).  A handbook of Human Resource Management Practice, 10th  Ed. London: Kogan Page.

Humphrey, A., (2005). “SWOT Analysis for Management Consulting”. SRI Alumni Newsletter, SRI International.

Rao, M., (2005). “Sustaining competitive advantage in high-technology environment: A strategic marketing perspective”. ACR Vol.13, No.1, pp.33-47

Walker, D., (2008). “Sustainability: Environmental Management, transparency and  competitive advantage”.  Journal of Retail & Leisure Property, Vol.7, No.2,  pp.119-130