Question Number Three

Recently a very popular strategic alliance took place. Take the case of that alliance and analyze it looking at the benefits of strategic alliances

Introduction

Case study introduction

Introduction of companies involved in the alliance

Pest analysis

Swot analysis

Financial analysis

Conclusion

References

Introduction

In this new era where today’s fad becomes obsolete tomorrow, one thing is assured-

nothing is certain. On account of this uncertainty, companies to ensure their survival

and maintain competitiveness often form alliances with each other either with a

direct competitor or a crucial partner in the business cycle. This kind of affiliation is

fast becoming the stamp of the 21st century. It is a kind of partnering with mutual

sharing of resources which focuses on one’s weakness compensated by the other’s

strength.

This partnering is known as strategic alliance and it takes many forms, from

outsourcing a function to another or to a joint agreement such as researching/

developing / marketing a product. It can also assume the form of a joint venture. The

gist it that each party does something better than the other, and the alliance allows

each party to focus on what it does best.

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In this case I will be analyzing the recently announced strategic partnership between

Intel & Nokia and will be detailing the benefits of the alliance

Intel & Nokia strategic alliance 2009

US semiconductor giant Intel and Finnish mobile phone maker Nokia announced

a "strategic relationship" to develop futuristic mobile computing devices.Intel, the

world's biggest computer-chip maker, and Nokia, the largest mobile phone

manufacturer, announced that their partnership would seek to "define a new

mobile platform beyond today's smartphones, notebooks and netbooks."

COMPANY PROFILES OF INTEL & NOKIA

INTEL

Integrated Electronics (Intel) is an American company which is in the semiconductor

business which supplies the crucial processors for computers.

Intel’s vision

“At Intel, we constantly push the boundaries of innovation in order to make people's

lives more exciting, more fulfilling, and easier to manage. Our unwavering

commitment to moving technology forward has transformed the world by leaps and

bounds.We're a company that's always in motion, fuelling an industry that never rests.

We inspire our partners to develop innovative products and services, rally the

industry to support new products, and drive industry standards. We do this so that we

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can collectively deliver better solutions with greater benefits more

quickly”(Intel.com)

Mission Statement

“Delight our customers, employees, and shareholders by relentlessly delivering the

platform and technology advancements that become essential to the way we work and

live.”(Intel.com)

NOKIA

Nokia is Finnish pioneer in mobile telecommunications and the world's leading maker

of mobile devices. People want to be truly connected, independent of time and place,

in a way that is very personal to them. And, Nokia’s promise is to connect people in

new and better ways.

http://www.nokia.com/about-nokia/company/vision-and-strategy/nokias-strategy

Vision 

“Our customers continue to our First Priority”

Nokia’s future success depends on delivering great experiences to our customers by

creating products and solutions that work seamlessly and are appealing.

Mission

“In a world where everyone can be connected, we take very human approach to

technology”. “Our promise is to help people feel close to what is important to them”

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PEST ANALYSIS

PEST analysis stands for Political, economical, social and Technological factors

which are essentially external factors that can affect or contribute to a business.

The following is the PEST analysis for Intel-Nokia alliance.

POLITICAL

The political arena has a huge influence upon the regulation of businesses. In the

semiconductor industry as well as telecommunication industry competition regulation

is low. The alliance does not have any major political ramifications. This is an

alliance where technologies are licensed and the companies have agreed to work on a

new breed of gadget.So government policies are not going to influence the alliance

since it is a licensing of proprietary technology. Government policies may come into

play when the real product in question(which has not been announced yet) is to be

produced.

ECONOMIC FACTORS

The economic growth of the target market is fairly positive. Industry growth is

very promising and there is a wealth of opportunities for those who are already

established in this industry. With the increased pace in the change in technology

spurred by more need for higher and more advanced technology, the demand for the

electronics industry is stronger than ever. This present scenario offers a whole avenue

of possibility for Intel & nokia to develop their products to keep up with the demands

of the market.

SOCIO-CULTURAL FACTORS

This is an era of Generation ‘X’.Geeks who are born with gadgets,so to say.Both

companies have to be very attentive to cater to this market and produce innovative

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products which keeps everyone connected.As the nature of the industry in which the

two companies are involved is of a very dynamic nature where change and

innovation are everyday words, there exists the need to constantly sensitive to the

change in market demands and preferences, as it is the key to maintaining market

leadership.

TECHNOLOGICAL FACTORS

A very fast technological transfer and a very fast rate of technological obsolescence is

a characteristic of the industry. A unique aspect of this industry is that prices for

products tend to decrease over time. more and more functions are integrated into a

single device. This phenomenal increase in industry productivity is the driving force

that has made semiconductor industry/ electronics so appealing.

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SWOT ANALYSIS-INTEL CORPORATION

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Strengths

1. Worlds largest chip manufacturer

2. Brand strength

3. Strong financial clout

4. Supplier to most of the major firms

5. Chips are found in 8/10 pc’s

6.Industry’s leading innovators

7.Specialists in “Microprocessors”

Weaknesses

1. No ground breaking product in recent years

2. Stiffer competition in the industry

3. One directional business

4. Failure to break through in the mobile computing playground while competitors are successful

5.

Threats

1. Threat of new entrants like Nvidia

2. Competitors like AMD slicing Intel’s market share

3. Majority of Intels competitors have a foot hold in the mobile market

4. Intel faces isolation in the fastest growing market in the world-mobiles

5. Personal computers can become obsolete in the future

6. Nvidia introducing its cellular phone chip package

7. The focus is on mobility today.Intel does not supply chips for this class of devices

Opportunities

1. Demand for “Chips” stronger than ever

2. Opportunity for creative team in Intel to Innovate

3. Create a new platform for Mobile Internet devices

4. Enter the mobile processors field

5. Create a low power consuming chip line for mobiles

SWOT ANALYSIS-NOKIA

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Strengths

1.Worlds largest mobile manufacturer

2.Brand strength

3.Strong financial clout

4.Has different products catering to different segments of the market

5.Over 40% marker share

6.Simple user Interface

7.Proprietary radio transfer technology like HSPA

Weakness

1.Recent flagship models a failure(N96,N97)

2. Stiffer competition in the industry

3.Steadily losing ground to innovators such as Samsung,LG

4.Lack of intuitive interface as in Iphone,Samsung omnia,Lg”S” class

5.Near obsolete software platform(S60)

6.Lack of a good app store like Itunes

7.Signing restriction preventing develepoers from developing new software

8.Low presence in USA

9.Dependent on Arm processors

10.Caters to every segment but not outstanding in any segment

Opportunities

1.Strengthen market leadership through product differentiation,pricing

2.Introduce convergence devices

3.Create a new open source platform for Mobile with less restrictions on developers

4.Develop devices with real computing power

5.Expansion to USA market with suitable devices

6.Enterprise solutions challenging

Threats

1.Threat of new entrants

2.Market share & profits have dropped steadily

3.Has been losing out to its competitive innovators like Samsung,Lg

4.Stuck with the S60 platform

5.Stiff competition from Iphone,RIM

6.New entrants entering the market like PC makers Acer &

STRENGTH(S) WEAKNESS(W)

OPPORTUNITY(O) SO STRATEGIES WO STRATEGIES

THREAT(T) ST STRATEGIES WT STRATEGIES

SO STRATEGIES

Intel corporation is to develop a technologically superior, low cost, low power

consuming class of chips for the mobile market which Nokia will use in its MID.The

marketing is to be done by Nokia.Intel & Nokia will leverage their collaboration in

the Linux platoform to introduce the new operating system ’Mobilin’.With Intels

acquisition of Nokias technological expertise & an open source platform,with a

planned app store in place,things should be rosy & they should dominate the market

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WO STRATEGIES

Intel to leverage Nokias market leadership to inculcate its chips in its

devices.Nokia to use Intel chips to produce superior convergence devices based on

Linux.With Intels expertise Nokia is to enter the netbook market while Intel will use

Nokias wireless technology in its chips

ST STRATEGIES

When leaders in their respective fields come out with a product there is an instant

approval in customers minds.Capitalize on the fast developing mobile market to

introduce new portable, convergence devices.Focus on technical excellence. Both

companies to offer a new innovative mobile interface where the end user can

customize it. It should be a slick,intuitive GUI which would squash the threat of

Iphone.

WT STRATEGIES

Nokia with a logo of ‘Intel Inside’ should convince any geek to buy the device while

the advanced proprietary technologies from Nokia will allow Intel to stay miles

ahead of its competition .

DETAILED BREAKDOWN OF THE ANALYSIS

Both Intel & Nokia can undoubtedly be called as the best in their class and the

collaboration between the two is expected to open a whole new world of technical

advances. This Strategic Relationship is to develop a new class of Intel Architecture-

based mobile computing device and chipset architectures which will combine the

performance of powerful computers with high-bandwidth mobile broadband

communications and omnipresent Internet connectivity. Taking advantage of each

company's expertise as leaders in their respective fields, these future standards-based

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devices will collage the best features and capabilities of the computing and

communications worlds.

The most likely outcome of this alliance is

1. New smartphones

The most important devices to spring out of the deal will essentially be smartphones

with good computing abilities.It’ll largely replace Nokia's existing ARM-based

smartphone handsets.

2. New form factors

The devices in question, have not been announced yet but in all likelihoods will be

pocketable gadgets. Intel will work on x86-based designs with Nokia,i.e its fully PC

compatible A new Atom-based 3G nokia net book has already been announced

3. It'll use next generation Medfield, not Atom chips

The processors used in netbooks is likely to be atom while the new convergence

device in concept will most likely use the Medfield chips which is a fully integrated

system-on-a-chip design.

4.New operating system based on linux-Moblin

The agreement includes technology development and cooperation in several open

source software initiatives & to develop common technologies for use in the Moblin

and Maemo platform projects.This will deliver Linux-based operating systems for

these future mobile computing devices.

Moblin is an optimized open source Linux operating system project that delivers

visually rich Internet media experiences on Intel® Atom™ processor-based devices

including MIDs, netbooks, nettops, in-vehicle infotainment (IVI), and embedded

systems. Enabling common technologies across the Moblin and Maemo software

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environments will help foster the development of compatible applications for these

devices

5. Intel to License Nokia's HSPA/3G Modem Technologies

Intel will license Nokia's HSPA/3G modem technologies,combining the best-in-class

modem technology with the high performance of future Intel Architecture-based

platforms.The Nokia modem license complements Intel's broadband wireless

technologies and will enable the company to extend chipset solutions incorporating

Nokia's modem technologies across its mobility offerings in the future.

6. Development of Wimax

The alliance will be working on the development of the superior wireless

broadband service known as WiMax. WiMax iss capable of providing more reliable

wireless networking technology over a wider area compared to WLAN.

7. The alliance also extends to the realms of chipset architectures.

With the mobility of the portable technologies increasing every day in terms of

netbooks, laptops and the smart phones, it has become necessary that the

telecommunication carriers and the chipset manufactures must act closely to make

things possible and make portable computers and devices a common place

What products this alliance will generate – and how soon      

 Both companies have refused to be drawn on a timeframe for the first fruits of this

alliance.

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Analysis

It’s a Win-win situation

     Intel has had limited presence in the mobile phone market, which is growing much

faster than the PC and laptop categories. Nokia, which holds a major global presence

and has several Smartphone devices is the perfect choice for Intel to move forward in

this field. Intel chips and Nokia’s broadband connectivity are seen as a path toward 

the next wireless world of vast entertainment and information options.  For Nokia it’s

a way to get into notebooks and netbooks.The direction in this alliance is more

computing power, graphics interactivity, multi-touch, video, lots of multi-media as

well as new products being introduced.

Most of the netbooks today carry Intel's Atom chips. ARM falls short as Nokia eyes

the netbook and mobile Internet device markets. Adding Intel to the fold gives Nokia

a say in the design of Atom chips.It would also pressurize Qualcomm,ARM and other

suppliers of Nokia about the price it pays to use its chips and technology portfolio.

Intel has been trying to emulate its competitors by offering complete packages of

processors that handset makers can more easily integrate with their device. By

licensing Nokia's modem technology, Intel can integrate the market-leading HSPA

wireless broadband technology with its own technology. The big takeaway for Intel is

that they have another radio and communications standard to use with Atom. The

relationship with Nokia, the largest handset manufacturer, validates Intel's mobile

strategy. The combination of Intel and Nokia also will be a powerful force in open-

source contributions and potentially a game changing one which is likely to affect

vendors Qualcomm, Marvell, Texas Instruments and ST Microelectronics. If it pays

off, the alliance could broadly reshape the computing and communications industries.

Drawbacks

Though the alliance has been announced it is very weak on actions. It’s unclear at this

point what type of devices will result from the partnership or a specific timeline

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My thoughts:

The alliance between Intel and Nokia is built on the respective strengths of each

company.If Intel eventually assimilates the smartphone market ,this deal will be the

key turning point.

Recommended Strategy:

1. The foundation of policy has been laid. Let the process of R& D begin with the

new technology

2. Announce the type of products that is likely to be borne out of this alliance

3. Announce a specific timeline for the product launch

Financial Statement Analysis

Intel:

A quick look at the balance sheet tells that Intel’s revenue has gone down from 38334

Million dollars to 37586 Million dollars. The net income has fallen down by 24.1 %

in 2008 from 2007.

The Q1 and Q2 statements of 2009 show the effect of the global slowdown, though

Q2 shows some sparks of recovery whilst comparing with Q2 2008.It was also

significant since Intel lost out on a case filed by AMD and was handed a massive 1.2

billion Euro fine.

Please See Annexure 1

Ratio Analysis

Current Ratio

The current ratio is 2.61(2009) which is very healthy against 2.5 in 2008 which shows

that company is stable despite the Global downturn.

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Quick Ratio

The current figure is 1.75 down from 2.1 in 2008 which means the liquid assets have

come down. Still the figure is healthy considering the Industry average of 1.03

Return on Equity

The ROE has come down from 14 % in 2008 to 12.77% in 2009.It is healthy and final

analysis can be given only after the 2009 annual report.

Return on Assets

ROA in 2009 is 4.89 whilst comparing to 10 % in 2008.This shows significant drop in

Income.

Gross Profit Margin

It is 55.44 % while compared to 55% in 2008.This ration signifies that the margin of

profit available in sales has not changed by much.

Operations Margin

This is 25.71 % in 2009 against 24 % in 2008.

Earning per share

It is 0.92 against 0.93 in 2008.This shows that the market price of the equity share of

the company hasn’t changed much.Its stable

Nokia

A look at the balance sheet shows that Nokia’s profit has been declining steadily. This

is most probably because other manufacturers like Rim and Iphone have eaten into

Nokia’s market share. The Q1 2009 results have shown a decrease in sales by 26.7%

while the Q2 2009 results have shown a decrease by 24.6 %, something Nokia should

seriously consider.

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Current Ratio

The current ratio is 1.35(2009) against an industry average of 2.29 means that it lacks

liquidity and working capital.

Quick Ratio

The current figure is 1.24 far from the industry average of 2.29.Though it is not bad as

anything above 1.1 is healthy,it means Nokia’s strategy has to be reconsidered

Return on Equity

The ROE is 17.51 against an Industry average of 5.46

Return on Assets

ROA for a five year margin is 16.01 against an industry average of 8.30

Gross Profit Margin

The gross profit margin for 2009 is 32.45 %

Operations Margin

This is 11.68 % in 2009

Earnings per share

It is 0.10 against 0.29 in 2008.This shows that the market price of the equity share of

the company has changed.

My take on the Financial state of both Corporations

Both companies are going through a tough phase.They do show some sparks of

recovery in Q2 2009.However they have weathered the toughest part of the storm by

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sheer strength of their magnitude and brand equity.With readdressed strategy,both

Nokia and Intel should come on top in the coming years.

The Benefits of Strategic Alliances

Alliances cover up ones weakness by others strengths. Many are the benefits of

strategic alliances. Some of them are

Improved Cash Flow

Improved Access to Capital

Credibility

Access to Facilities and Technology

Access to Expertise

Innovative Products

Diversification into New Markets

Manufacturing Capability

Reduced Risk

Knowledge and Know-how

Avoid Need to Reinvent What Has Been Invented Elsewhere

The Shoring up of Weak Areas in the Company

Strengthened Relationships with Key Suppliers or Customers

Ability to Stay Focused on Core Competence

The Disadvantages of Strategic Alliances

Alliances can be costly, not only due to cash leaving the company's hands, but rather

due to returns from which it could be denied. Moreover, alliances can create indirect

costs by blocking the possibility of cooperating with competing companies, thus

possibly even denying the company various financing options.

Potential Benefits of the Intel-Nokia Strategic   Alliance

Some of the potential benefits that the Intel-Nokiaalliance could achieve are such as:

i.          Gaining capabilities

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Nokia

It gains access into the netbook /notebook market where Intel has heaps of experience

Intel

Gains hold of proprietary Hspa technology which it can integrate into its chips.Also

has the worlds largest mobile manufacturer by your side when you are planning to

enter the mobile field is no mean feat.

ii.         Easier access to target markets

Introducing the product into a new market can be complicated and costly. Using

Nokias excellent distribution network,Intel can easily roll out its new class of devices

iii.        Taking out the competition

Nokia

Nokia will try to outclass its competition by using Intels chips which proposes to give

more computing abilities.Also its opensource alliance will give it a better mobile

platform & software development than the near dead s60 platform

Intel

Will get a foothold in the mobile market and a know how knowledge.If its chips are

successful and if Nokia incorporates into its mobile phones,it is a feat

iv.      Competitive advantage

Two leaders in their respective fields who have a strong brand image has a

competitive advantage over all its competitiors.The expertise shared by Intel & Nokia

will go ahead a long way in bringing new products and enhance technology.

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v.Opportunities for growth in a totally different unexplored market

Nokia

This alliance offers Nokia to enter the net/notebook field with Intels experience as a

background.

Intel

Nokia’s leadership in the mobile market and its propreitary radio transfer techmolgy

will enhance & offer expertise to Intel to enter the mobile market

vi.Less reliance on present partners

Nokia

Nokia is completely reliant on ARM PROCESSOR suppliers like TI.Alliace with

Intel reduces the dependency

vii.Taking their challengers head on

Intel

Rivals like AMD have been eating into Intels market share.While TI,Quacomm are

steadily shutting out Intel from the mobile market.Nokias alliance helps them acquire

new technologies

Nokia

Iphone,Rim,samsung has been steadily eroding Nokia’s market share & profits.This

alliance with the vision of new devices will definitely help stem the rot

In short this alliance is mutually beneficial to both corporates.

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Conclusion

The alliance is a big win for Intel, which is trying to establish itself in a mobile device

market dominated by processors designed by rival Arm and a big boost to Nokia’s

credibility trying to enter the net book market. Potentially a Industry changing

alliance, it has to be seen whether it is empty rhetoric or concrete actions are taken

References

1. My-symbian.com discussion forums

2. Strategic management from theory to Implementation-David Hussey 4th ed

3. www.Intel.com

4. Strategic Alliances and Joint Ventures a how to guide www.nzte.govt.nz

5. www.nokia.com

6. Concepts in Strategic management and business policy(Thomas

L.Wheelan,J.David ( 9ed)

7. Strategic management an Integrated approach(CharlesW.L.Hill,Gareth

R.Jones 6 ed)

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