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GU2 Name: Qin Lifei SCN: 085447041 Date: 30/12/2009

This is not a healthy sign show that the company has decreased profitability at their trading level.

The major reasons is the decrease of Net sales in the two years, especially reflects in Mobile Devices segment and Mobile Devices segment. 3.2.2

Net profit percentage

The decline trend also showed in Motorola’s Net profit percentage. The percentage in 2006 was 11%; in 2007 it dropped to -1%; and it keep decline to -9% in the lately year, 2008.

This is not a good sign indicating the company is making lesser profits.

That also mainly influenced by the decrease Net sales, other possible reasons may be the increase of net charges which from $25 million in 2006 to $2.3 billion in 2008 and increased Selling, General and Administrative Expenses. 3.2.3

Return on capital employed percentage

This Company’s Return on capital employed percentage’s trend is same with its Gross profit percentage’s and Net profit percentage’s trend. The specific percentages of the three years are: 27%, -3% and -28%.

That is a bad trend. Existing shareholders will be unhappy with this lower return and potential shareholders will be discouraged from investing.

Possible reasons for this poor trend may include: decline Net sales; poor Net profit before tax; increased expenses and increase tax expenses which recorded $1.6 billion in 2008 compare to $285 million in 2007.

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GU2 Name: Qin Lifei SCN: 085447041 Date: 30/12/2009

All of the three percentages were have different level decline during 2006 to 2008. The Gross profit percentage had two percent decrease, for Net profit percentage the decrease was twenty percent and Return on capital employed percentage even decreased fifty five percent.

That was an unhealthy sign that will not satisfy its shareholders and will bring pretty huge negative influence on its shareholders’ investment decision.

The mainly reasons for the decrease of the three percentages are: decrease of Net sales increased expenses and increase tax expenses.

3.3 Motorola’s and Nokia’s Profitability ratios comparison

Nokia is the biggest competitor to Motorola; without doubt that Nokia is the market leader in handset portion of this industry. In the comparison Gross Profit Percentage, Net

profit percentage and Return on capital employed percentage of the two companies will be use.

Through the analysis shareholders can find out Motorola’ drawbacks and Nokia’s strengths what will let them know which company is more worth them to trust and support.

Following are Motorola’s and Nokia’s profitability ratios during 2006-2008

2006 The Gross Profit Percentage (Gross Profit／Turnover×100) Net profit percentage (Net profit before tax／Turnover×100) Return on capital employed percentage (Net profit before tax／27% 25% -3% 21% -28% 7% 11% 13% -1% 16% -9% 0.9% Motorola 30% Nokia 32% 2007 Motorola 27% Nokia 33% 2008 Motorola 28% Nokia 34% 22/36

GU2 Name: Qin Lifei SCN: 085447041 Date: 30/12/2009

Ordinary shareholders equity×100)

Motorola was performance worse than Nokia in all of three sides during 2006 to 2008. 3.3.1

The Gross Profit Percentage

In 2006 Motorola had 2 percent less than Nokia in 2007 it turned to be 5 percent less. Things get worse for Motorola; in 2008 Nokia had 6 percent higher than Motorola.

It is not good for Motorola. The gap between Motorola and Nokia in Gross Profit Percentage is mainly due to Motorola has lesser Market share than Nokia.

Market share is used by businesses to determine their competitive strength in a sector as compared to other companies in the same sector. It also allows you to accurately assess your performance from year to year. The higher the market shares of one company in that business, the stronger competitiveness it has.

Following are the Mobile Device Vendor Market Share in 2007 and 2008:

Mobile Device Vendor Market Share in 2007

The biggest market share in 2007, 34.0% was belonging to Nokia, one third of the total market share. Motorola was the second place, occupied 20.3% of the total

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GU2 Name: Qin Lifei SCN: 085447041 Date: 30/12/2009

market share. In 2008 Nokia’s market share increased three percent to 37% but in the same period Motorola’s market share dropped to 8.1%.

It was not a good sign for Motorola, indicated that Motorola has weaker competitiveness than Nokia and its competitiveness has decline trend compare with its historical performance.

This may be due to: ?

Nokia are more focus on product research and develop.

The Research and development expenditures for Nokia in 2007 was EUR5636M, in 2008 it increased to EUR5968M. For Motorola the Research and development expenditures in 2007 were $5092M but in 2008 it decreased to $4330M. ?

Nokia are more focus on customers’ needs

For example: different with others, Nokia’s call timer does not automatically open when the call connected, but when the conversation began to open; Nokia products the unmatched camera phones, the sales of their camera phones even more than any of camera manufacturer, and so on. The spirit of Nokia that thought for their customers lead to their success, that is worth for Motorola to learn form it. 3.3.2

Net profit percentage

The gap of the two companies in 2006 was smaller, Motorola was 11% and for Nokia it was 13%. Afterward, in 2007 the distance was rapidly widened to 17%. And then in 2008 along with Nokia’s Net profit percentage’s decline the distance became 10%.

It is an unhealthy sign for Motorola the mainly reason for it is Nokia has a much high Productivity than Motorola.

In 2008, Motorola generated sales of $30146M with 170,000 employees, for a

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GU2 Name: Qin Lifei SCN: 085447041 Date: 30/12/2009

productivity of $0.18M per employee. In contrast, Nokia generated sales of $50,710M with just 128445 employees, for a productivity of $0.39M per employee, doubled the productivity of Motorola. Clearly, Motorola has significant costs associated with its level of employment that are not being returned in sales. This is interesting because Motorola, as observed earlier, also has poor fixed asset use in addition to this effective and/or efficient use of human assets.

Clearly, Motorola has significant costs associated with its level of employment that are not being returned in sales. This is interesting because Motorola, as observed earlier, also has poor fixed asset use in addition to this effective and / or efficient use of human assets. Perhaps contributing to the poor fixed and indirect cost structure is that Motorola has elements of being a conglomerate that most of the other firms in the industry do not have. Motorola is involved in diverse business segments ¨Telecommunications, semiconductors, automotive components, and batteries, to name a few ¨C and must evaluate whether the administrative and infrastructure costs of managing these diverse segments are less than the benefits of having the segments under one corporate umbrella. It is not obvious that the diverse business segments within Motorola are being used synergistically to increase overall value. If there are not synergies between the businesses segments, Motorola shareholders should prefer that Motorola divest the segments as investors can diversify there portfolios more efficiently than Motorola can. Most of the other firms in the industry do not have to absorb the costs associated with managing such diverse business activities. 3.3.3

Return on capital employed

Motorola had the largest distance from Nokia in this aspect. In 2007 Motorola’s percentage was 2 percent higher than Nokia but later on in 2007 Nokia exceeded Motorola and had 28 percent higher than Motorola. In 2008 Motorola turned out to be 35 percent less than Nokia.

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