The Nokia case provides an opportunity to explore financial policy in a situation of broad strategic change. In recent years, Nokia, the world's leading producer of mobile phones, had seen its market share and profits eroded by rival products such as Apple's iPhone and phones featuring Google's Android operating system. In February 2011, Stephen Elop, the recently appointed president and CEO of Nokia, announced a broad strategic plan and partnership with Microsoft to correct the company's course and improve its competitive position. Analysts regard the next two years as a period of great uncertainty for the company. The CFO of Nokia must reassess the firm's financial policy in light of the plan and consider its effects on the potential need for external funds, and the appropriate mix and cost of the debt or equity financing that might be used to raise those funds. Nokia, like many technology companies, often carried high cash balances to preserve financial flexibility, but in 2008 and 2009 in response to the global financial crisis it had drawn down cash to historically low levels and experienced several downgrades of its debt by major credit rating agencies. Students must evaluate the tradeoffs between maintaining cash reserves and the need for external funds and work through the implications of financing the projected need for external funds with debt or equity.
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