Nokia shakes hands with Microsoft - good deal or not?

In the past when the idea of commerce was newly introduced, personal fund is always concerned as the only way of financing business. With the development of world economic, financing strategies, which are regarded as two main categories being financing by equity and debt, have been becoming more diversified and global. One of the most common methods today is getting company’s name listed on stock exchanges, or in other words, selling company’s shares to public. Stock market concerned matters have been always hot topic to discuss over the decades, especially when it was opened globally. Besides stock market, joint venture has also created many public concerned stories. It always seems to be interesting seeing competitors shaking hands/ or how cooperation works thing out.

Among every industry, the joint ventures of technological corporations can be counted as most concerned because they are a signal of new technologies introduced. Technology creates many benefits to public, so its development is especially in people’s expectation.

Recently, the announcement of strategic tie-up with Microsoft of Nokia has started many rumours and arguments. Nokia used to be highly commanding market share in the handset business. Recalling its successful history, Nokia was “one of the most successful and well-recognised brands in Australia, leading the market with its mobile technology, enterprise products and services, and network infrastructure” and “in May 2007, Nokia announced that its Nokia 1100 handset, launched in 2003, was the best-selling mobile phone of all time at over 200 million units and the world's top-selling consumer electronics product”. However, over a year, Nokia’s share dropped moderately from 11.7 (1 April, 2010) to lowest point of nearly 6.5 (5 July, 2010) and about 6.7 (18 February, 2011). It is about 37% decline.

Share price movement of Nokia from 22 Feb, 2010 to 18 Feb, 2011

Nokia’s phones including old styles and new smart phone cannot defeat Android’s phones (Motorola, Samsung, Sony Ericssons…) and IPhone, especially when Apple launched IPhone 4. That would have been a serious problem if Nokia had not started something new. For this time, Nokia wants to be in real smartphone battle following neither Google’s Android nor Apple’s IPhone.

In primary thought, this joint venture is more important and brings more benefits/ profits to Nokia rather than it does to Microsoft. In order to help Nokia gain the market and develop its technologies, Microsoft will support “billions of dollars in the early years of their partnership” to Nokia as Mr Elop said in an interview. This U.S deal sounds really attractive and beneficial to the Finland company in this period. However, having Microsoft participation means that Nokia has to be ready to make some shifts. Accepting the deal, then, has resulted in the threat of loss of Finish jobs. It raises not only national economic concerns but also ethnic concerns. Moreover, people still cannot forget the consequences of the cooperation between IBM and Microsoft in early 1980s. Having the similar story, the partnership aimed at building an operating system for IBM’s computers. The deal helped Microsoft gain the market growth quickly, whereas IBM suffered huge loss of billions dollars and consequently dismantled the company in early 1990s (Mehta, 2010). The failure of IBM call Nokia’s full attention to consider carefully the terms of partnerships as well as suggest the Finland’s handset maker better creating secure platform so as not to say ‘regret’.

In brief, financing business by joint venture is, indeed, beneficial because the full/ or major parts of funds are raised immediately and the investments are copious (especially when seeking for international joint venture). It has lower costs of raising capitals (as for fund seeking firms) as well as provides instantaneous results (through immediate responses). Nonetheless, the problem it creates over the decades, which has not been solved yet, is biased gain of success and profits among partners. It mainly caused hesitation in deciding whether to deal or not.

Renault on stock market

From the start of 2011, the share price movement of Renault was quite erratic due to its last year strategic scandal which was partly discussed in previous post. Briefly, at the end of last year, the company secret about its electric-car plan was spread out publicly. Company suspected two men who are Michel Balthazard, formerly a member of the Renault management committee and a top official of the company’s electric car program, and his subordinate Bertrand Rochette of being spies for international rivals. Renault supposed China has a link to this scandal, but it made no clear evidences for that accusation. The problem would not have had such strong impact if company had solved the issues internally. Up to now, the company’s accusations of two men’ espionage and dirty trick of international rivals are critically argued.This long lasting fight was one of the main reasons making Renault’s share prices unstable over the past few weeks. The misfortune started on 12 Jan, 2011 when the share price was on downward trend from 49.33 to 46.98 on 20 Jan, 2011. Maybe, the problem cannot really affect the business and shareholders’ benefits, but the behaviours of investors are influenced by public’s trends and responses. That is how current global market moves.

After suffering the downturn in few days, Renault seemed to see brighter future when luckily, the movement was inversed. Against an expected scandal, company quickly drew out some feasible and credible projects including the merging with alliance partner and paying off debts (which might prove its strong liquidity management). New instant strategies did help to pull the company’s share price up, but incompletely. Unfortunately, bad news is always more attractive and has stronger effects than good news. From the peak of 49.46 on 27 Jan, 2011, its share went down to 46.10 after 6 days.

The rescue plans cannot totally win the rumours and arguments around the past story. As being thought, the full merge of Renault and Nissan could have some restrictions. Carlos Ghosn, a CEO of both two companies, agreed on 10 Feb about its infeasibility, but believed in future structural development. None of us can measure the success (or maybe, failure) of this merge in the future, but visibly see the descending line by this time and the endeavor of Renault standing up to the storm.