20-F 1 u10545e20vf.htm 20-F e20vf
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As filed with the Securities and Exchange Commission on March 11, 2011.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
FORM 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 
SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2010
 
Commission file number 1-13202
 
 
 
 
Nokia Corporation
(Exact name of Registrant as specified in its charter)
 
 
 
 
Republic of Finland
(Jurisdiction of incorporation)
 
Keilalahdentie 4, P.O. Box 226, FI-00045 NOKIA GROUP, Espoo, Finland
(Address of principal executive offices)
 
Kaarina Ståhlberg, Vice President, Assistant General Counsel
Telephone: +358 (0)7 1800-8000, Facsimile: +358 (0) 7 1803-8503
Keilalahdentie 4, P.O. Box 226, FI-00045 NOKIA GROUP, Espoo, Finland
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
 
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 (the “Exchange Act”):
 
     
    Name of each exchange
Title of each class   on which registered
 
American Depositary Shares
Shares
  New York Stock Exchange
New York Stock Exchange(1)
 
 
(1) Not for trading, but only in connection with the registration of American Depositary Shares representing these shares, pursuant to the requirements of the Securities and Exchange Commission.
 
Securities registered pursuant to Section 12(g) of the Exchange Act: None
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Exchange Act: 5.375% Notes due 2019 and 6.625% Notes due 2039
 
Indicate the number of outstanding shares of each of the registrant’s classes of capital or common stock as of the close of the period covered by the annual report.
 
Shares: 3 744 956 052.
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes x  No o
 
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.
Yes o  No x
 
Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  x Accelerated filer  o Non-accelerated filer  o Smaller reporting company o
(Do not check if a smaller reporting company)
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
U.S.GAAP o
 
International Financial Reporting Standards as issued by the International Accounting Standards Board x
 
Other o
 
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 o  Item 18 o
 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o  No x
 


Table of Contents

 
TABLE OF CONTENTS
 
             
        Page
 
    4  
    5  
           
    PART I        
  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS     8  
  OFFER STATISTICS AND EXPECTED TIMETABLE     8  
  KEY INFORMATION     8  
  Selected Financial Data     8  
  Capitalization and Indebtedness     12  
  Reasons for the Offer and Use of Proceeds     12  
  Risk Factors     12  
  INFORMATION ON THE COMPANY     39  
  History and Development of the Company     39  
  Business Overview     42  
  Organizational Structure     74  
  Property, Plants and Equipment     74  
  UNRESOLVED STAFF COMMENTS     75  
  OPERATING AND FINANCIAL REVIEW AND PROSPECTS     75  
  Operating Results     75  
  Liquidity and Capital Resources     118  
  Research and Development, Patents and Licenses     122  
  Trend Information     122  
  Off-Balance Sheet Arrangements     122  
  Tabular Disclosure of Contractual Obligations     123  
  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES     123  
  Directors and Senior Management     123  
  Compensation     132  
  Board Practices     151  
  Employees     156  
  Share Ownership     156  
  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS     164  
  Major Shareholders     164  
  Related Party Transactions     164  
  Interests of Experts and Counsel     165  
  FINANCIAL INFORMATION     165  
  Consolidated Statements and Other Financial Information     165  
  Significant Changes     170  
  THE OFFER AND LISTING     170  
  Offer and Listing Details     170  
  Plan of Distribution     171  
  Markets     171  
  Selling Shareholders     171  
  Dilution     171  
  Expenses of the Issue     172  


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        Page
 
  ADDITIONAL INFORMATION     172  
  Share Capital     172  
  Memorandum and Articles of Association     172  
  Material Contracts     174  
  Exchange Controls     174  
  Taxation     174  
  Dividends and Paying Agents     178  
  Statement by Experts     178  
  Documents on Display     178  
  Subsidiary Information     178  
  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK     178  
  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES     179  
  American Depositary Shares     179  
           
    PART II        
  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES     180  
  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS     180  
  CONTROLS AND PROCEDURES     180  
  AUDIT COMMITTEE FINANCIAL EXPERT     180  
  CODE OF ETHICS     181  
  PRINCIPAL ACCOUNTANT FEES AND SERVICES     181  
  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES     182  
  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS     182  
  CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT     182  
  CORPORATE GOVERNANCE     182  
           
    PART III        
  FINANCIAL STATEMENTS     183  
  FINANCIAL STATEMENTS     183  
  EXHIBITS     183  
    184  
 Exhibit 1
 Exhibit 8
 Exhibit 12.1
 Exhibit 12.2
 Exhibit 13
 Exhibit 15.(a)


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INTRODUCTION AND USE OF CERTAIN TERMS
 
Nokia Corporation is a public limited liability company incorporated under the laws of the Republic of Finland. In this document, any reference to “we,” “us,” “the Group” or “Nokia” means Nokia Corporation and its subsidiaries on a consolidated basis, except where we make clear that the term means Nokia Corporation or a particular subsidiary or business segment only, and except that references to “our shares,” matters relating to our shares or matters of corporate governance refer to the shares and corporate governance of Nokia Corporation. Nokia Corporation has published its consolidated financial statements in euro for periods beginning on or after January 1, 1999. In this annual report on Form 20-F, references to “EUR,” “euro” or “€” are to the common currency of the European Economic and Monetary Union, or EMU, and references to “dollars,” “US dollars,” “USD” or “$” are to the currency of the United States. Solely for the convenience of the reader, this annual report contains conversions of selected euro amounts into US dollars at specified rates, or, if not so specified, at the rate of 1.3269 US dollars per euro, which was the noon buying rate in New York City for cable transfers in euro as certified for customs purposes by the Federal Reserve Bank of New York on December 30, 2010. No representation is made that the amounts have been, could have been or could be converted into US dollars at the rates indicated or at any other rates.
 
Our principal executive office is located at Keilalahdentie 4, P.O. Box 226, FI-00045 Nokia Group, Espoo, Finland and our telephone number is +358 (0) 7 1800-8000.
 
Nokia Corporation furnishes Citibank, N.A., as Depositary, with consolidated financial statements and a related audit opinion of our independent auditors annually. These financial statements are prepared on the basis of International Financial Reporting Standards as issued by the International Accounting Standards Board and in conformity with International Financial Reporting Standards as adopted by the European Union (“IFRS”). In accordance with the rules and regulations of the US Securities and Exchange Commission, or SEC, we do not provide a reconciliation of net income and shareholders’ equity in our consolidated financial statements to accounting principles generally accepted in the United States, or US GAAP. We also furnish the Depositary with quarterly reports containing unaudited financial information prepared on the basis of IFRS, as well as all notices of shareholders’ meetings and other reports and communications that are made available generally to our shareholders. The Depositary makes these notices, reports and communications available for inspection by record holders of American Depositary Receipts, or ADRs, evidencing American Depositary Shares, or ADSs (one ADS represents one share), and distributes to all record holders of ADRs notices of shareholders’ meetings received by the Depositary.
 
In addition to the materials delivered to holders of ADRs by the Depositary, holders can access our consolidated financial statements, and other information included in our annual reports and proxy materials, at www.nokia.com. This annual report on Form 20-F is also available at www.nokia.com as well as on Citibank’s website at http://citibank.ar.wilink.com (enter “Nokia” in the Company Name Search). Holders may also request a hard copy of this annual report by calling the toll-free number 1-877-NOKIA-ADR (1-877-665-4223), or by directing a written request to Citibank, N.A., Shareholder Services, PO Box 43124, Providence, RI 02940-5140, or by calling Nokia Investor Relations US Main Office at 1-914-368-0555. With each annual distribution of our proxy materials, we offer our record holders of ADRs the option of receiving all of these documents electronically in the future.


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FORWARD-LOOKING STATEMENTS
 
It should be noted that certain statements herein which are not historical facts are forward-looking statements, including, without limitation, those regarding:
 
  •  the intention to form a strategic partnership with Microsoft to combine complementary assets and expertise to form a global mobile ecosystem and to adopt Windows Phone as our primary smartphone platform, including the expected plans and benefits of such partnership;
 
  •  the timing and expected benefits of our new strategy, including expected operational and financial benefits and targets as well as changes in leadership and operational structure;
 
  •  the timing of the deliveries of our products and services;
 
  •  our ability to innovate, develop, execute and commercialize new technologies, products and services;
 
  •  expectations regarding market developments and structural changes;
 
  •  expectations and targets regarding our industry volumes, market share, prices, net sales and margins of products and services;
 
  •  expectations and targets regarding our operational priorities and results of operations;
 
  •  expectations and targets regarding collaboration and partnering arrangements;
 
  •  the outcome of pending and threatened litigation;
 
  •  expectations regarding the successful completion of acquisitions or restructurings on a timely basis and our ability to achieve the financial and operational targets set in connection with any such acquisition or restructuring; and
 
  •  statements preceded by “believe,” “expect,” “anticipate,” “foresee,” “target,” “estimate,” “designed,” “plans,” “will” or similar expressions.
 
These statements are based on management’s best assumptions and beliefs in light of the information currently available to it. Because they involve risks and uncertainties, actual results may differ materially from the results that we currently expect. Factors that could cause these differences include, but are not limited to:
 
    1.   whether definitive agreements can be entered into with Microsoft for the proposed partnership in a timely manner, or at all, and on terms beneficial to us;
 
    2.   our ability to succeed in creating a competitive smartphone platform for high-quality differentiated winning smartphones or in creating new sources of revenue through the proposed partnership with Microsoft;
 
    3.   the expected timing of the planned transition to Windows Phone as our primary smartphone platform and the introduction of mobile products based on that platform;
 
    4.   our ability to maintain the viability of our current Symbian smartphone platform during the transition to Windows Phone as our primary smartphone platform;
 
    5.   our ability to realize a return on our investment in MeeGo and next generation devices, platforms and user experiences;
 
    6.   our ability to build a competitive and profitable global ecosystem of sufficient scale, attractiveness and value to all participants and to bring winning smartphones to the market in a timely manner;
 
    7.   our ability to produce mobile phones in a timely and cost efficient manner with differentiated hardware, localized services and applications;


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    8.   our ability to increase our speed of innovation, product development and execution to bring new competitive smartphones and mobile phones to the market in a timely manner;
 
    9.   our ability to retain, motivate, develop and recruit appropriately skilled employees;
 
  10.   our ability to implement our strategies, particularly our new mobile product strategy;
 
  11.   the intensity of competition in the various markets where we do business and our ability to maintain or improve our market position or respond successfully to changes in the competitive environment;
 
  12.   our ability to maintain and leverage our traditional strengths in the mobile product market if we are unable to retain the loyalty of our mobile operator and distributor customers and consumers as a result of the implementation of our new strategy or other factors;
 
  13.   our success in collaboration and partnering arrangements with third parties, including Microsoft;
 
  14.   the success, financial condition and performance of our suppliers, collaboration partners and customers;
 
  15.   our ability to manage efficiently our manufacturing and logistics, as well as to ensure the quality, safety, security and timely delivery of our products and services;
 
  16.   our ability to source sufficient amounts of fully functional quality components, sub-assemblies and software on a timely basis without interruption and on favorable terms;
 
  17.   our ability to manage our inventory and timely adapt our supply to meet changing demands for our products;
 
  18.   our ability to successfully manage costs;
 
  19.   our ability to effectively and smoothly implement the new operational structure for our devices and services business effective April 1, 2011;
 
  20.   the development of the mobile and fixed communications industry and general economic conditions globally and regionally;
 
  21.   exchange rate fluctuations, including, in particular, fluctuations between the euro, which is our reporting currency, and the US dollar, the Japanese yen and the Chinese yuan, as well as certain other currencies;
 
  22.   our ability to protect the technologies, which we or others develop or that we license, from claims that we have infringed third parties’ intellectual property rights, as well as our unrestricted use on commercially acceptable terms of certain technologies in our products and services;
 
  23.   our ability to protect numerous Nokia, NAVTEQ and Nokia Siemens Networks patented, standardized or proprietary technologies from third-party infringement or actions to invalidate the intellectual property rights of these technologies;
 
  24.   the impact of changes in government policies, trade policies, laws or regulations and economic or political turmoil in countries where our assets are located and we do business;
 
  25.   any disruption to information technology systems and networks that our operations rely on;
 
  26.   unfavorable outcome of litigations;
 
  27.   allegations of possible health risks from electromagnetic fields generated by base stations and mobile products and lawsuits related to them, regardless of merit;
 
  28.   our ability to achieve targeted costs reductions and increase profitability in Nokia Siemens Networks and to effectively and timely execute related restructuring measures;


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  29.   Nokia Siemens Networks’ ability to maintain or improve its market position or respond successfully to changes in the competitive environment;
 
  30.   Nokia Siemens Networks’ liquidity and its ability to meet its working capital requirements;
 
  31.   whether Nokia Siemens Networks’ acquisition of the majority of Motorola’s wireless network infrastructure assets will be completed in a timely manner, or at all, and, if completed, whether Nokia Siemens Networks is able to successfully integrate the acquired business, cross-sell its existing products and services to customers of the acquired business and realize the expected synergies and benefits of the planned acquisition;
 
  32.   Nokia Siemens Networks’ ability to timely introduce new products, services, upgrades and technologies;
 
  33.   Nokia Siemens Networks’ success in the telecommunications infrastructure services market and Nokia Siemens Networks’ ability to effectively and profitably adapt its business and operations in a timely manner to the increasingly diverse service needs of its customers;
 
  34.   developments under large, multi-year contracts or in relation to major customers in the networks infrastructure and related services business;
 
  35.   the management of our customer financing exposure, particularly in the networks infrastructure and related services business;
 
  36.   whether ongoing or any additional governmental investigations into alleged violations of law by some former employees of Siemens AG (“Siemens”) may involve and affect the carrier-related assets and employees transferred by Siemens to Nokia Siemens Networks;
 
  37.   any impairment of Nokia Siemens Networks customer relationships resulting from ongoing or any additional governmental investigations involving the Siemens carrier-related operations transferred to Nokia Siemens Networks;
 
as well as the risk factors specified in this annual report under Item 3D. “Risk Factors.”
 
Other unknown or unpredictable factors or underlying assumptions subsequently proving to be incorrect could cause actual results to differ materially from those in the forward-looking statements. Nokia does not undertake any obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required.


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PART I
 
ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
 
Not applicable.
 
ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE
 
Not applicable.
 
ITEM 3.  KEY INFORMATION
 
3A. Selected Financial Data
 
The financial data set forth below at December 31, 2009 and 2010 and for each of the years in the three-year period ended December 31, 2010 have been derived from our audited consolidated financial statements included in Item 18 of this annual report. Financial data at December 31, 2006, 2007, and 2008 and for each of the years in the two-year period ended December 31, 2007 have been derived from our previously published audited consolidated financial statements not included in this annual report.
 
The financial data at December 31, 2009 and 2010 and for each of the years in the three-year period ended December 31, 2010 should be read in conjunction with, and are qualified in their entirety by reference to, our audited consolidated financial statements.
 
The audited consolidated financial statements from which the selected consolidated financial data set forth below have been derived were prepared in accordance with IFRS.
 
                                                 
    Year Ended December 31,
    2006(1)   2007(1)   2008(1)   2009(1)   2010(1)   2010(1)
    (EUR)   (EUR)   (EUR)   (EUR)   (EUR)   (USD)
    (in millions, except per share data)
 
Profit and Loss Account Data
                                               
Net sales
    41 121       51 058       50 710       40 984       42 446       56 322  
Operating profit
    5 488       7 985       4 966       1 197       2 070       2 747  
Profit before tax
    5 723       8 268       4 970       962       1 786       2 370  
Profit attributable to equity holders of the parent
    4 306       7 205       3 988       891       1 850       2 455  
Earnings per share (for profit attributable to equity holders of the parent)
                                               
Basic earnings per share
    1.06       1.85       1.07       0.24       0.50       0.66  
Diluted earnings per share
    1.05       1.83       1.05       0.24       0.50       0.66  
Cash dividends per share
    0.43       0.53       0.40       0.40       0.40 (2)     0.53 (2)
Average number of shares
(millions of shares)
                                               
Basic
    4 063       3 885       3 744       3 705       3 709       3 709  
Diluted
    4 087       3 932       3 780       3 721       3 713       3 713  


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    December 31,
    2006(1)   2007(1)   2008(1)   2009(1)   2010(1)   2010(1)
    (EUR)   (EUR)   (EUR)   (EUR)   (EUR)   (USD)
    (in millions, except per share data)
 
Balance Sheet Data
                                               
Fixed assets and other non-current assets
    4 031       8 305       15 112       12 125       11 978       15 893  
Cash and other liquid assets(3)
    8 537       11 753       6 820       8 873       12 275       16 288  
Other current assets
    10 049       17 541       17 650       14 740       14 870       19 731  
Total assets
    22 617       37 599       39 582       35 738       39 123       51 912  
Capital and reserves attributable to equity holders of the parent
    11 968       14 773       14 208       13 088       14 384       19 086  
Non-controlling interests
    92       2 565       2 302       1 661       1 847       2 451  
Long-term interest-bearing liabilities
    69       203       861       4 432       4 242       5 628  
Other long-term liabilities
    327       1 082       1 856       1 369       1 110       1 473  
Borrowings due within one year
    180       887       3 591       771       1 037       1 376  
Other current liabilities
    9 981       18 089       16 764       14 417       16 503       21 898  
Total shareholders’ equity and liabilities
    22 617       37 599       39 582       35 738       39 123       51 912  
Net interest-bearing debt(4)
    (8 288 )     (10 663 )     (2 368 )     (3 670 )     (6 996 )     (9 283 )
Share capital
    246       246       246       246       246       326  
 
 
(1) As from April 1, 2007, our consolidated financial data includes that of Nokia Siemens Networks on a fully consolidated basis. Nokia Siemens Networks, a company jointly owned by Nokia and Siemens, is comprised of our former Networks business group and Siemens’ carrier-related operations for fixed and mobile networks. Accordingly, our consolidated financial data for the year ended December 31, 2006 is not directly comparable to any subsequent years and our consolidated financial data for the year ended December 31, 2007 is not directly comparable to any prior or subsequent years. Our consolidated financial data for the periods prior to April 1, 2007 included our former Networks business group only.
 
(2) The cash dividend for 2010 is what the Board of Directors will propose for shareholders’ approval at the Annual General Meeting convening on May 3, 2011.
 
(3) For the years ended December 31, 2009 and 2010, cash and other liquid assets consist of the following captions from our consolidated balance sheets: (1) bank and cash, (2) available-for-sale investments, cash equivalents, (3) available-for-sale investments, liquid assets and (4) investments at fair value through profit and loss, liquid assets. For the previous years, cash and other liquid assets consist of the following captions from our consolidated balance sheets: (1) bank and cash, (2) available-for-sale investments, cash equivalents, and (3) available-for-sale investments, liquid assets.
 
(4) Net interest-bearing debt consists of borrowings due within one year and long-term interest-bearing liabilities, less cash and other liquid assets.
 
Distribution of Earnings
 
We distribute retained earnings, if any, within the limits set by the Finnish Companies Act. We make and calculate the distribution, if any, either in the form of cash dividends, share buy-backs, or in some other form or a combination of these. There is no specific formula by which the amount of a distribution is determined, although some limits set by law are discussed below. The timing and amount of future distributions of retained earnings, if any, will depend on our future results and financial condition.

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Under the Finnish Companies Act, we may distribute retained earnings on our shares only upon a shareholders’ resolution and subject to limited exceptions in the amount proposed by our Board of Directors. The amount of any distribution is limited to the amount of distributable earnings of the parent company pursuant to the last accounts approved by our shareholders, taking into account the material changes in the financial situation of the company after the end of the last financial period and a statutory requirement that the distribution of earnings must not result in insolvency of the company. Subject to exceptions relating to the right of minority shareholders to request for a certain minimum distribution, the distribution may not exceed the amount proposed by the Board of Directors.
 
Share Buy-backs
 
Under the Finnish Companies Act, Nokia Corporation may repurchase its own shares pursuant to either a shareholders’ resolution or an authorization to the Board of Directors approved by the company’s shareholders. The authorization may amount to a maximum of 10% of all the shares of the company and its maximum duration is 18 months. Our Board of Directors has been regularly authorized by our shareholders at the Annual General Meetings to repurchase Nokia’s own shares, and during the past three years the authorization covered 370 million shares in 2008, 360 million shares in 2009 and 360 million shares in 2010. The amount authorized each year has been at or slightly under the maximum limit provided by the Finnish Companies Act. Nokia has not repurchased any of its own shares since September 2008.
 
On January 27, 2011, we announced that the Board of Directors will propose that the Annual General Meeting convening on May 3, 2011 authorize the Board to resolve to repurchase a maximum of 360 million Nokia shares. The proposed maximum number of shares that may be repurchased is the same as the Board’s current share repurchase authorization and it corresponds to less than 10% of all the shares of the company. The shares may be repurchased in order to develop the capital structure of the Company, finance or carry out acquisitions or other arrangements, settle the company’s equity-based incentive plans, be transferred for other purposes, or be cancelled. The shares may be repurchased either through a tender offer made to all shareholders on equal terms, or through public trading from the stock market. The authorization would be effective until June 30, 2012 and terminate the current authorization for repurchasing of the Company’s shares resolved at the Annual General Meeting on May 6, 2010.
 
The table below sets forth actual share buy-backs by the Group in respect of each fiscal year indicated.
 
                 
        EUR millions
    Number of shares   (in total)
 
2006
    212 340 000       3 412  
2007
    180 590 000       3 884  
2008
    157 390 000       3 123  
2009
           
2010
           
 
Cash Dividends
 
On January 27, 2011, we announced that the Board of Directors will propose for shareholders’ approval at the Annual General Meeting convening on May 3, 2011 a dividend of EUR 0.40 per share in respect of 2010.


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The table below sets forth the amounts of total cash dividends per share and per ADS paid in respect of each fiscal year indicated. For the purposes of showing the US dollar amounts per ADS for 2006 through 2010, the dividend per share amounts have been translated into US dollars at the noon buying rate in New York City for cable transfers in euro as certified for customs purposes by the Federal Reserve Bank of New York (the “noon buying rate”) on the respective dividend payment dates.
 
                         
            EUR millions
    EUR per share   USD per ADS   (in total)
 
2006
    0.43       0.58       1 685  
2007
    0.53       0.83       1 992  
2008
    0.40       0.54       1 481  
2009
    0.40       0.49       1 483  
2010
    0.40 (1)     (2)     1 498 (3)
 
 
(1) The proposal of the Board of Directors for shareholders’ approval at the Annual General Meeting convening on May 3, 2011.
 
(2) The final US dollar amount will be determined on the basis of the decision of the Annual General Meeting and the dividend payment date.
 
(3) Maximum amount to be distributed as dividend based on the number of shares at December 31, 2010. Earlier year figure represents the total actual amount paid.
 
We make our cash dividend payments in euro. As a result, exchange rate fluctuations will affect the US dollar amount received by holders of ADSs on conversion of these dividends. Moreover, fluctuations in the exchange rates between the euro and the US dollar will affect the dollar equivalent of the euro price of the shares on NASDAQ OMX Helsinki and, as a result, are likely to affect the market price of the ADSs in the United States. See also Item 3D. “Risk Factors—Our net sales, costs and results of operations, as well as the US dollar value of our dividends and market price of our ADSs, are affected by exchange rate fluctuations, particularly between the euro, which is our reporting currency, and the US dollar, the Japanese yen and the Chinese yuan, as well as certain other currencies.”
 
Exchange Rate Data
 
The following table sets forth information concerning the noon buying rate for the years 2006 through 2010 and for each of the months in the six-month period ended February 28, 2011, expressed in US dollars per euro. The average rate for a year means the average of the exchange rates on the last day of each month during a year. The average rate for a month means the average of the daily exchange rates during that month.
 
                                 
    Exchange Rates  
    Rate at
    Average
    Highest
    Lowest
 
For the year ended December 31:
  period end     rate     rate     rate  
    (USD per EUR)  
 
2006
    1.3197       1.2661       1.3327       1.1860  
2007
    1.4603       1.3797       1.4862       1.2904  
2008
    1.3919       1.4695       1.6010       1.2446  
2009
    1.4332       1.3955       1.5100       1.2547  
2010
    1.3269       1.3216       1.4536       1.1959  
                                 
For the month ended:
                               
September 30, 2010
    1.3601       1.3103       1.3638       1.2708  
October 31, 2010
    1.3894       1.3900       1.4066       1.3688  
November 30, 2010
    1.3036       1.3654       1.4224       1.3036  
December 31, 2010
    1.3269       1.3221       1.3395       1.3089  
January 31, 2011
    1.3715       1.3371       1.3715       1.2944  
February 28, 2011
    1.3793       1.3656       1.3794       1.3474  
 
On March 4, 2011, the noon buying rate was USD 1.3983 per EUR 1.00.


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3B. Capitalization and Indebtedness
 
Not applicable.
 
3C. Reasons for the Offer and Use of Proceeds
 
Not applicable.
 
3D. Risk Factors
 
Set forth below is a description of risk factors that could affect Nokia. There may be, however, additional risks unknown to Nokia and other risks currently believed to be immaterial that could turn out to be material. These risks, either individually or together, could adversely affect our business, sales, profitability, results of operations, financial condition, market share, brand, reputation and share price from time to time. Unless otherwise indicated or the context otherwise provides, references in these risk factors to “Nokia”, “we”, “us” and “our” mean Nokia’s consolidated operating segments—Devices & Services; NAVTEQ and Nokia Siemens Networks. Additional risks primarily related to Nokia Siemens Networks that could affect Nokia are detailed under the heading “Nokia Siemens Networks” below.
 
Our proposed partnership with Microsoft may not succeed in creating a competitive smartphone platform for high-quality differentiated winning smartphones or in creating new sources of revenue for us.
 
The mobile communications industry continues to undergo significant changes. The broad convergence of the mobility, computing, consumer electronics and services industries has led to a significant shift in the mobile device market for smartphones from a device oriented strategy to a platform oriented strategy. Today, industry participants are creating competing ecosystems of mutually beneficial partnerships to combine the hardware, software, services and application environment to create high-quality differentiated winning smartphones. Consumers increasingly choose mobile products based on the quality of the software, web applications and services, together with the overall user experience, rather than the hardware. As a result, in volume and value terms, smartphones are capturing the major part of the growth and public focus in the mobile device market. We believe that winning smartphones deliver great hardware, compelling user interfaces and the coherent aggregation of a vast array of applications and services, including search, advertising, ecommerce, social networking, location-based services, entertainment and unified communications, which results from a broad ecosystem of those industry participants all contributing to the final mobile product and user experience. Our current smartphone platform utilizes the Symbian operating system, and we work with developers and other partners and collaborators to create applications and provide services and content for our smartphones. We invest our own resources in developing Symbian, which is royalty-free to us. Since the fall of 2010, the development of the Symbian platform has been under our control. We have also been working with Intel to develop a new smartphone platform, MeeGo, an open-sourced platform focused on longer-term next-generation devices.
 
Other smartphone platforms with their related ecosystems have gained significant momentum and market share, specifically Apple’s iOS proprietary platform and Google’s open source Android platform, and are continuing apace. Until very recently, we believed our competitive position in smartphones could be improved with Symbian, as well as MeeGo, and our strategy based on those platforms. We are now of the view, however, that for the longer term our Symbian platform is not sufficiently competitive in leading markets. Accordingly, on February 11, 2011, we announced our intention to enter into a broad strategic partnership with Microsoft that would combine our respective complementary assets and expertise to build a new global mobile ecosystem for smartphones (the “Microsoft partnership”). Under the proposed partnership, we would adopt, and license from Microsoft, Windows Phone as our primary smartphone platform. Microsoft will continue to license Windows Phones to other mobile manufacturers. The Microsoft partnership would provide us, however, with opportunities to innovate and customize on the Windows Phone platform with a view


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to differentiating Nokia smartphones from those of our competitors who also use the Windows Phone platform. The Microsoft partnership would also provide opportunities for new revenue sources from the combination of various services, such as our location-based assets with Microsoft’s broader search engine and advertising platform.
 
While we transition to Windows Phone as our primary smartphone platform, we will continue to leverage our investment in Symbian for the benefit of Nokia, our customers and consumers, as well as developers. This strategy recognizes the opportunity to retain and transition the installed base of approximately 200 million Symbian owners to Nokia Windows Phone smartphones over time. We expect to sell approximately 150 million more Symbian devices in the years to come, supported by our plan to deliver additional user interface and hardware enhancements. We will continue our development of MeeGo with increased emphasis on longer-term market exploration of next-generation devices, platforms and user experiences. We expect the transition to Windows Phone as our primary smartphone platform to take about two years. We and Microsoft have entered into a non-binding term sheet, and the proposed Microsoft partnership remains subject to the negotiation and execution of definitive agreements. See Item 4B. “Business Overview—Devices & Services—New strategy—Smartphones” for additional information about the proposed Microsoft partnership.
 
Our proposed partnership with Microsoft and change in our smartphone platform strategy are subject to certain risks and uncertainties, which could, either individually or together, significantly impair our ability to compete effectively in the smartphone market. If that were to occur, our business would become more dependent on sales in the mobile phones market, which is an increasingly commoditized and intensely competitive market, with substantially lower growth potential, prices and profitability compared to the smartphone market. Those risks and uncertainties include the following:
 
  •  Definitive agreements with Microsoft for the proposed partnership may not be entered into in a timely manner, or at all, or on terms beneficial to us.
 
  •  In choosing to adopt Windows Phone as our primary smartphone platform, we may forgo more competitive alternatives achieving greater and faster acceptance in the smartphone market. If we fail to finalize our partnership with Microsoft or the benefits of that partnership do not materialize as expected, we will have limited our options and more competitive alternatives may not be available to us in a timely manner, or at all.
 
  •  The Windows Phone platform is a very recent, largely unproven addition to the market focused solely on high-end smartphones with currently very low adoption and consumer awareness relative to the Android and Apple platforms, and the proposed Microsoft partnership may not succeed in developing it into a sufficiently broad competitive smartphone platform.
 
  •  Our expected transition to the Windows Phone platform may prove to be too long to compete effectively in the smartphone market longer term given the ongoing developments of other competing smartphone platforms.
 
  •  Our ability to innovate and customize on the Windows Phone platform may not materialize as expected to enable us to produce smartphones that are differentiated from those of our competitors.
 
  •  The Microsoft partnership may not achieve in a timely manner the necessary scale, product breadth, geographical reach and localization to be sufficiently competitive in the smartphone market.
 
  •  The Microsoft partnership may erode our brand identity in markets where we are strong and may not enhance our brand identity in markets where we are weak. For example, our association with the Microsoft brand may impair our current strong market position in China and may not accelerate our access to a broader market in the United States.
 
  •  New sources of revenue expected to be generated from the Microsoft partnership, such as


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  increased monetization opportunities for us in services and intellectual property rights, may not materialize as expected, or at all.
 
  •  The opportunity to integrate our location-based assets, including NAVTEQ, with Microsoft’s Bing search engine and adCenter advertising platform and leverage those combined assets to form a local search and advertising capability that generates new sources of revenue for us may not materialize as expected, or at all. This could also decrease the value of our location-based assets that might result in impairment charges.
 
  •  We may not succeed in leveraging the Microsoft advertising assets to build and achieve the required scale for a Nokia-based online advertising platform on our smartphones that generates new sources of advertising-based revenue.
 
  •  We may not succeed in creating a profitable business model when we transition from our royalty-free smartphone platform to the royalty-based Windows Phone platform due to, among other things, our inability to offset our higher cost of sales resulting from our royalty payments to Microsoft with new revenue sources and a reduction of our operating expenses, particularly our research and development expenses.
 
  •  We will need to continue to innovate and find additional ways to create patentable inventions and other intellectual property, particularly as we would no longer be developing the core platform technology for our smartphones under the proposed Microsoft partnership. As a result, we may not be able to generate sufficient patentable inventions or other intellectual property to maintain, for example, the same size and/or quality patent portfolio as we have historically.
 
  •  We may not be able to change our mode of working or culture to enable us to work effectively and efficiently with Microsoft in order to realize the stated benefits of the proposed partnership in a timely manner.
 
  •  The negotiation and implementation of the proposed Microsoft partnership will require significant time, attention and resources of our senior management and others within the organization potentially diverting their attention from other aspects of our business.
 
  •  The proposed Microsoft partnership may cause dissatisfaction and adversely affect the terms on which we do business with our other partners, mobile operators, distributors and suppliers, or foreclose the ability to do business with new partners, mobile operators, distributors and suppliers.
 
  •  The implementation of the proposed Microsoft partnership may cause disruption and dissatisfaction among employees reducing their motivation, energy, focus and productivity, causing inefficiencies and other problems across the organization and leading to the loss of key personnel and the related costs in dealing with such matters.
 
  •  We may not have or be able to recruit, retain and motivate appropriately skilled employees to implement successfully the Windows Phone smartphone platform and to work effectively and efficiently with Microsoft and the related ecosystem.
 
  •  We may be required or choose to share with Microsoft personal or consumer data that has been made available to us, which could increase the risk of loss, improper disclosure or leakage of such personal or consumer data or create negative perceptions about our ability to maintain the confidentiality of such data.
 
  •  Consumers may be more reluctant to provide personal data to us as a result of the proposed Microsoft partnership, which would hamper our ability to use our current business models, or create new ones, that rely on access to personal data.
 
  •  We do not currently have tablets in our mobile product portfolio, which may result in our inability to compete effectively in that market segment in the future or forgoing that potential growth opportunity in the mobile market.


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  •  The assessment of our proposed partnership with Microsoft and new strategy could cause lowered credit ratings of our short and long-term debt or their outlook from the credit rating agencies and, consequently, impair our ability to raise new financing or refinance our current borrowings and increase our interest costs associated with any new debt instruments.
 
We may not be able to maintain the viability of our current Symbian smartphone platform during the transition to Windows Phone as our primary smartphone platform or we may not realize a return on our investment in MeeGo and next generation devices, platforms and user experiences.
 
The continued viability of our Symbian smartphones, even as we plan to deliver additional user interface and hardware enhancements, during the transition to Windows Phone as our primary smartphone platform is subject to certain risks and uncertainties, which could, either individually or together, significantly impair our market share, net sales and profitability. Those risks and uncertainties include the following:
 
  •  Our mobile operator and distributor customers and consumers may no longer see our Symbian smartphones as attractive investments during the transition to Windows Phone. This would result in a loss of market share, which could be substantial, during the transition and which we may not be able to regain when quantities of Nokia Windows Phone smartphones are commercially available.
 
  •  We may not succeed in transitioning over time our installed base of Symbian owners to our Windows Phone smartphones.
 
  •  Application, services and content development by developers and other partners for Symbian may decline or cease, which would diminish the viability of our Symbian smartphones and their attractiveness to our mobile operator and distributor customers and consumers, as well as limit the opportunity to transition compatible aspects of our Symbian development to the Windows Phone ecosystem.
 
  •  Our mobile operator and distributor customers may choose not to promote and market robustly some or all of our Symbian smartphones, may require monetary incentives, including significant price reductions, to do so or may discontinue some or all of our Symbian smartphone product lines.
 
  •  Our suppliers may reduce the availability of certain components for our Symbian smartphones or we may not be able to obtain certain or sufficient components for our Symbian smartphones at attractive prices resulting in increased costs that we may not be able to pass on to our customers.
 
  •  We may not be able to provide the necessary support for our Symbian smartphones organization and business during the transition to Windows Phone, including efficiently managing the phase-out over time of our investment in Symbian while maintaining acceptable profitability for those products.
 
  •  We may lose key personnel and skilled employees involved in the development of our Symbian platform. We may also not be able to maintain employee motivation and focus to continue to innovate and develop on the Symbian smartphone platform or otherwise be able to maintain the quality of our Symbian smartphones.
 
  •  Under our new strategy, MeeGo becomes an open-source, mobile platform project. Our investment in MeeGo will emphasize longer-term market exploration of next-generation devices, platforms and user experiences. We plan to ship a MeeGo-based mobile product later this year. If the market segment that we target with that mobile product does not materialize as expected, or if we fail to develop next-generation platforms, user experiences and mobile products, we may incur operating losses and accordingly not realize a return on our investment in this area.


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Our ability to bring winning smartphones to the market in a timely manner will be significantly impaired if we are unable to build a competitive and profitable global ecosystem of sufficient scale, attractiveness and value to all participants.
 
The emergence of ecosystems in and around the mobile device market for smartphones represents the broad convergence of the mobility, computing, consumer electronics and services industries. Different industry participants—such as hardware manufacturers, software providers, developers, publishers, entertainment providers, advertisers and ecommerce specialists—are forming increasingly large communities of mutually beneficial partnerships in order to bring their offerings to the market. The nexus of the major smartphone ecosystems is the operating system and the development platform upon which smartphones are based and services built. We work with developers and other partners and collaborators to create applications and provide services and content for our Symbian smartphones and utilize the Qt development framework. Until very recently, we believed our competitive position in smartphones could be improved with Symbian, as well as MeeGo, and our strategy based on those platforms. We are now of the view, however, that for the longer term our Symbian platform is not sufficiently competitive in leading markets and our MeeGo project is focused on longer-term next-generation mobile products. Additionally, Symbian is proving to be a challenging development environment in which to meet the continuously expanding consumer requirements and around which to build a competitive global ecosystem of sufficient scale and attractiveness that brings value to all participants. Accordingly, on February 11, 2011, we announced our intention to enter into a broad strategic partnership with Microsoft and adopt Windows Phone as our primary smartphone platform designed to build a competitive global mobile ecosystem for our smartphones.
 
Our ability to build a competitive global ecosystem for our smartphones is subject to certain risks and uncertainties, which could, either individually or together, significantly impair our ability to bring winning smartphones to the market in a timely manner. If that were to occur, our business would become more dependent on sales in the mobile phones market, which is an increasingly commoditized and intensely competitive market, with substantially lower growth potential, prices and profitability compared to the smartphone market. Those risks and uncertainties include the following:
 
  •  If we fail to finalize a partnership with Microsoft or the benefits of that partnership do not materialize as expected, we will have limited our options to build a competitive smartphone ecosystem with another partner or join another competitive smartphone ecosystem in a timely manner.
 
  •  The Windows Phone platform may not achieve or retain broad or timely market acceptance or be preferred by ecosystem participants, mobile operators and consumers.
 
  •  We may not be able to develop and execute with speed sufficient quantities of high-quality differentiated Nokia Windows Phone smartphones in order to achieve the scale needed for a competitive global ecosystem and the success of our own business and results of operations.
 
  •  We may not be able to provide sufficient opportunities to innovate and customize on the Windows Phone platform in order to attract developers and other ecosystem participants seeking to differentiate their offerings on our smartphones from those of our competitors.
 
  •  We may not succeed in rapidly expanding the Windows Phone platform and related ecosystem beyond its current use in high-end smartphones to more affordable smartphones.
 
  •  Other competitive major smartphone ecosystems have advantages which may be difficult for us to overcome, such as first-mover advantage, momentum, engagement by developers, mobile operators and consumers and brand preference, and their advantages may become even greater during our transition to the Windows Phone platform.
 
  •  The global ecosystem may not be flexible enough to allow local ecosystems to develop around and in connection with it.
 
  •  Applicable developer tools may not gain needed traction or acceptance in the market, may be


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  introduced late, or when introduced, do not offer technologies that developers are willing to use.
 
  •  We may not succeed in creating business models which provide value to all participants in the ecosystem, including ourselves.
 
  •  We may not succeed in reducing our smartphone operating expenses, including our research and development costs, which will impair our ability to create a profitable business model for a new global ecosystem.
 
  •  We may not be able to change our mode of working or culture sufficiently to collaborate effectively and efficiently both internally and externally with a large community of partners.
 
  •  We may not succeed in making the Nokia brand more desirable than brands of our competitors in smartphones.
 
  •  We may not be able to attract developers and other participants to our ecosystem if they do not have the opportunity to leverage their offerings across a wide range of mobile products, particularly tablets, which we currently do not have in our mobile product portfolio.
 
We may not be able to produce mobile phones in a timely and cost efficient manner with differentiated hardware, localized services and applications.
 
The mobile phones market, a traditional area of strength for us, is also undergoing significant changes. Today, a different type of ecosystem from that of smartphones is emerging around mobile phones involving very low cost components and manufacturing processes. Speed to market and attractive pricing are critical success factors in the mobile phones market. In particular, the availability of complete mobile solutions chipsets from MediaTek has enabled the very rapid and low cost production of mobile phones by numerous manufacturers in the Shenzhen region of China, which have gained significant share in emerging markets. Moreover, many mid-range to low-end mobile phones increasingly offer access to the Internet and mobile applications and provide more smartphone-like experiences. Accordingly, we need to provide mobile phones in a timely and cost-efficient manner with differentiated hardware, localized services and applications that attract new users and connect new and existing users to their first Internet and application experience. Our ability to achieve this is subject to certain risks and uncertainties, including the following:
 
  •  We may not be able to leverage our traditional competitive strengths of scale in manufacturing and logistics, as well as in our marketing and sales channels, to significantly increase the speed to market of our mobile phones in a sufficiently cost-competitive manner, particularly with mobile operators and consumers requiring increasing customization to meet divergent local needs and preferences.
 
  •  We may be unable to source the right amount of components and at affordable cost.
 
  •  The platforms that we deploy for our mobile phones may not provide sufficient flexibility and cost efficiency for application developers and other partners to create a vibrant ecosystem for mobile phones with increasingly smartphone-like experiences of Internet access and mobile applications.
 
  •  We may need to make significant investments to further develop our mobile phone platforms in order to bring an upgraded mobile experience to traditional mobile phone consumers.
 
  •  We may not succeed in innovating and developing sufficiently locally relevant services, applications and content in a speedy and cost-efficient manner to attract and retain consumers in multiple markets with divergent local needs and preferences.
 
  •  Our brand preference may erode due to various factors, such as inadequate marketing, quality issues, lack of affordable locally-relevant services, applications and content or lack of success in smartphones.
 
  •  Our management attention in smartphones and in the establishment of the new ecosystem for


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  smartphones with Microsoft may result in less management attention paid to our mobile phones business.
 
Our failure to increase our speed of innovation, product development and execution will impair our ability to bring new competitive smartphones and mobile phones to the market in a timely manner.
 
We need to identify and understand the key market trends and user segments to address consumers’ expanding needs in order to bring new innovative and competitive smartphones and mobile phones to the market in a timely manner. We must follow, anticipate and be able to respond with speed to these key market trends, and actively create future trends in the market, through our product development processes. We also need to execute efficiently in creating and developing competitive products, and in bringing our products to market in a timely manner with compelling marketing messages that succeed in retaining and engaging our current, and attract new, customers and consumers. Our inability to innovate, develop and bring our mobile products to market and delays in the ramp up of new product deliveries may result from a variety of factors, including failure to anticipate consumer trends and needs; insufficient and ineffective internal and external execution in our research and product development processes; or an inability to secure necessary components or software assets from suppliers in sufficient quantities on a timely basis. Additionally, the software complexity and integration of the hardware and software functionalities, particularly in our smartphones, may cause unforeseen delays even close to anticipated launch of the mobile product. We are also increasingly dependent on application developers and other partners, which can lead to additional challenges and delays that are largely outside of our control.
 
Our ability to innovate and the need to increase the speed of our product development and execution are critical to the success of our new strategy, particularly the implementation of Windows Phone as our primary smartphone platform and in bringing products to market in a timely manner. In addition to the factors described above, delays in innovation, product development and execution may result from the added complexity of working in partnership with Microsoft to produce Nokia Windows Phone smartphones. For example, we may not be successful in changing our mode of working to collaborate effectively and efficiently with Microsoft, or be able to quickly determine and build the necessary infrastructure to manufacture Nokia Windows Phone smartphones, source the right chipsets and generally integrate the hardware and software that both we and Microsoft will be contributing.
 
Failures or delays in understanding or anticipating market trends or delays in innovation, product development and execution may result in a suboptimal portfolio of mobile products, gaps in certain price points or an uncompetitive offering. Our failure to deliver mobile products in a timely fashion to markets and in sufficient quantities not only may have a negative effect on our market share, net sales and profitability, but may also erode our brand through consumer disappointment. Moreover, our customers and consumers expect that the services and applications provided with and in connection with our mobile products have the same or more capabilities than those of our competitors, function properly and are of high quality. If we fail in launching the services, have insufficient breadth of available applications or content, have inadequate or unsuccessful updates to them or there are other defects or quality issues with our mobile products, this may cause consumer retention and engagement for our mobile products to deteriorate.
 
We may be unable to retain, motivate, develop and recruit appropriately skilled employees, which may hamper our ability to implement our strategies, particularly our new mobile product strategy.
 
Our success is dependent on our ability to retain, motivate, develop through constant competence training, and recruit appropriately skilled employees with a comprehensive understanding of our current and future businesses, technologies, software and products. This is particularly important for the successful implementation of our new mobile product strategy and the proposed Microsoft partnership, where we need highly-skilled, innovative and solutions-oriented personnel with new


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capabilities. The implementation of our new strategy is expected to have a significant impact on our personnel, including substantial reductions in personnel following the appropriate consultations. This may cause disruption and dissatisfaction among employees, as well as fatigue due to the cumulative effect of several other reorganizations in the past few years. As a result, employee motivation, energy, focus and productivity may be reduced causing inefficiencies and other problems across the organization and leading to the loss of key personnel and the related costs in dealing with such matters. Moreover, our employees may be targeted aggressively by our competitors during the implementation of our new strategy, and some employees may be more receptive to such offers, leading to the loss of key personnel. Accordingly, we may need to adjust our compensation and benefits policies and take other measures to attract, retain and motivate skilled personnel aligned with the changes to our mode of working and culture needed to implement our new strategy successfully. This will require significant time, attention and resources of our senior management and others within the organization and may result in increased costs. We have encountered, and may encounter in the future, shortages of appropriately skilled personnel, which may hamper our ability to implement our strategies and materially harm our business and results of operations.
 
We face intense competition in the mobile products and digital map data and related location-based content markets.
 
We experience intense competition in every aspect of our business and across all markets for our mobile products. Mobile device markets are increasingly segmented, diversified and commoditized. We face competition from a growing number of participants in different user segments, price points and geographical markets, as well as layers of the mobile product using different competitive means in each of them. In some of those layers, we may have more limited experience and scale than our competitors. This makes it more difficult and less cost-efficient for us to compete successfully with differentiated offerings across the whole mobile device market against more specialized competitors. It also limits our ability to leverage effectively our scale and other traditional strengths, such as our brand, manufacturing and logistics, distribution, strategic sourcing, R&D and intellectual property, to achieve significant advantages compared to our competitors.
 
In the smartphone market, we face intense competition from traditional mobile device manufacturers and companies in related industries, such as Internet-based product and service providers, mobile operators, business device and solution providers and consumer electronics manufacturers. Some of those competitors are currently viewed as more attractive partners for application developers, content providers and other key industry participants, resulting in more robust global ecosystems and more appealing smartphones; have more experience, skills, speed of product development and execution, including software development, and scale in certain segments of the smartphone market; have a stronger market presence and brand recognition for their smartphones; have created different business models to tap into significant new sources of revenues, such as advertising and subscriptions; or generally have been able to adjust their business models and operations in an effective and timely manner to the developing smartphone and related ecosystem market requirements.
 
The availability and success of Google’s free open source Android platform has made entry and expansion in the smartphone market easier for a number of hardware manufacturers which have chosen to join Android’s ecosystem, especially at the mid-to-low range of the smartphone market. Product differentiation is more challenging, however, potentially leading to increased commoditization of Android-based devices with the resulting downward pressure on pricing. On the other hand, the significant momentum and market share gains of the global ecosystems around Apple’s iOS proprietary platform and the Android platform have increased the competitive barriers to additional entrants looking to build a competing global smartphone ecosystem, like Nokia using the Windows Phone platform. At the same time, other ecosystems are being built which are attracting developers and consumers, such as Research in Motion’s efforts around Blackberry Messenger, and may result in fragmentation among ecosystem participants and the inability of new ecosystems to gain sufficient competitive scale. During the transition of our smartphones to the Windows Phone


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platform, our competitors will endeavor to attract our current and future consumers, mobile operators and other customers to their smartphone offerings. If our competitors succeed in that endeavor, this would erode our smartphone market share, which we may not be able to regain when quantities of Nokia Windows Phone smartphones are commercially available.
 
In the mobile phones market, an increasing number of our competitors, particularly recent entrants, have used, and we expect will continue to use, more aggressive pricing and marketing strategies, different design approaches and alternative technologies which consumers may prefer over our offering of mobile phones. Some competitors have chosen to focus on building mobile phones based on commercially available components, software and content, in some cases available at very low or no cost, which enable them to introduce their products much faster and at significantly lower cost to them and the consumer than we are able to do. We also face competition from vendors of legitimate, as well as unlicensed and counterfeit, products with manufacturing facilities primarily centered around certain locations in Asia and other emerging markets. The entry barriers for these vendors are very low as they are able to take advantage of licensed and unlicensed commercially available free or low cost components, software and content. Our failure to provide low cost differentiated alternatives for consumers in a timely manner or to enforce our intellectual property rights adversely affects our ability to compete efficiently in the market for mobile phones. Some of our competitors may also benefit from governmental support in their home countries and other measures that may have protectionist objectives. These factors could reduce the price competitiveness of our mobile phones and have a material adverse effect on our sales and profitability.
 
We do not currently have tablets in our mobile product portfolio, which may result in our inability to compete effectively in that market segment in the future or forgoing that potential growth opportunity in the mobile market.
 
With respect to digital map data and related location-based content, several global and local companies, as well as governmental and quasi-governmental agencies, are making more map data with improving coverage and content, and high quality, available free of charge or at lower prices. For example, NAVTEQ competes with Google which uses an advertising-based model allowing consumers and companies to use its map data and related services in their products free of charge. NAVTEQ also competes with companies such as TomTom, which licenses its map data and where competition is focused on the quality of the map data and pricing, and Open Street Map, which is a community-generated open source map available to users free of charge. Aerial, satellite and other location-based imagery is also becoming increasingly available and competitors are offering location-based products and services with the map data to both business customers and consumers in order to differentiate their offerings. Those developments may encourage new market entrants, cause business customers to incorporate map data from sources other than NAVTEQ or reduce the demand for fee-based products and services which incorporate NAVTEQ’s map database. Accordingly, NAVTEQ must positively differentiate its digital map data and related location-based content from similar offerings by our competitors and create competitive business models for our customers. In particular, the proposed Microsoft partnership business model to integrate our location-based assets, including NAVTEQ, with Microsoft’s Bing search engine and adCenter advertising platform to form a local search and advertising capability that generates new sources of revenue for us may not materialize as expected, or at all. This could also decrease the value of our location-based assets that might result in impairment charges.
 
Our ability to maintain and leverage our traditional strengths in the mobile product market may be impaired if we are unable to retain the loyalty of our mobile operator and distributor customers and consumers as a result of the implementation of our new strategy or other factors.
 
We have a number of competitive strengths that have historically contributed significantly to our sales and profitability. These include our substantial scale, our differentiating brand, our world-class manufacturing and logistics system, the industry’s largest distribution network and our strong


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relationships with our mobile operator and distributor customers. Going forward, these strengths are critical core competencies that we will bring to the proposed partnership with Microsoft and the implementation of our Windows Phone smartphone strategy. Our ability to maintain and leverage these strengths also continues to be important to our competitiveness in the mobile phones market.
 
As discussed above, however, the proposed Microsoft partnership and the adoption of Windows Phone as our primary smartphone platform are subject to certain risks and uncertainties. Several of those risks and uncertainties relate to whether our mobile operator and distributor customers and consumers will be satisfied with our new strategy and proposed partnership with Microsoft. If those risks were to materialize and mobile operator and distributor customers and consumers as a consequence reduce their support and purchases of our mobile products, this would reduce our market share and net sales and in turn may erode our scale, brand, manufacturing and logistics, distribution and customer relations. The erosion of those strengths would impair our competitiveness in the mobile products market and our ability to execute successfully our new strategy and to realize fully the expected benefits of the proposed Microsoft partnership.
 
Also, as result of market developments, competitors’ actions or other factors within or out of our control, we may not be able to maintain these competitive strengths that we have benefitted from historically. It is also possible that such strengths or some of them become less relevant in the future or are replaced by other type of strengths required for future success in the mobile product market.
 
If any of the companies we partner and collaborate with, including Microsoft, were to fail to perform as planned or if we fail to achieve the collaboration or partnering arrangements needed to succeed, we may not be able to bring our mobile products to market successfully or in a timely way.
 
We are increasingly collaborating and partnering with third parties to develop technologies and products for our smartphones and mobile phones. These arrangements involve the commitment by each party of various resources, including technology, research and development efforts, services and personnel. Today, mobile products are developed in an ecosystem of multiple partnerships with different industry participants where our ability to collaborate successfully with the right partners is critical to our success in creating and delivering mobile products that are preferred by our customers and consumers. Although the objective of the collaborative and partnering arrangements is a mutually beneficial outcome for each party, our ability to introduce new mobile products that are commercially viable and meet our and our customers’ and consumers’ quality, safety, security and other standards successfully and on schedule could be hampered if, for example, any of the following risks were to materialize:
 
  •  We fail to engage the right partners or on terms that are beneficial to us.
 
  •  We are unable to collaborate and partner effectively with individual partners and simultaneously with multiple partners to execute and reach the targets set for the collaboration.
 
  •  The arrangements with the parties we work with do not develop as expected.
 
  •  The technologies provided by the parties we work with are not sufficiently protected or infringe third parties’ intellectual property rights in a way that we cannot foresee or prevent.
 
  •  The technologies or products or services supplied by the parties we work with do not meet the required quality, safety, security and other standards or customer needs.
 
  •  Our own quality controls fail.
 
  •  The financial condition of our collaborative partners deteriorates which may result in underperformance by the collaborative partners or insolvency or closure of the business of such partners.
 
  •  Our increasing reliance on collaborative partnering for Nokia-branded or co-branded products


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  may result in more variable quality due to our more limited control which may have a negative effect on our reputation and erode the value of the Nokia brand.
 
The failure of the limited number of suppliers we depend on for the timely delivery of sufficient quantities of fully functional components, sub-assemblies and software on favorable terms and for their compliance with our supplier requirements could materially adversely affect our ability to deliver our mobile products profitably and on time.
 
Our manufacturing operations depend on obtaining sufficient quantities of fully functional components, sub-assemblies and software on a timely basis. Our principal supply requirements for our mobile products are for electronic components, mechanical components and software, which all have a wide range of applications in our products.
 
In some cases, a particular component may be available only from a limited number of suppliers. In addition, our dependence on third-party suppliers has increased as a result of our strategic decisions to outsource certain activities, for example parts of our own chipset as well as wireless modems R&D, and to expand the use of commercially available chipsets and wireless modems. Suppliers may from time to time extend lead times, limit supplies, change their partner preferences, increase prices or be unable to increase supplies to meet increased demand due to capacity constraints or other factors, which could adversely affect our ability to deliver our mobile products on a timely basis. If we fail to anticipate customer demand properly, an over-supply or under-supply of components and production capacity could occur. In many cases, some of our competitors utilize the same contract manufacturers. If they have purchased capacity ahead of us, this could prevent us from acquiring the needed products, which could limit our ability to supply our customers or increase our costs. We also commit to certain capacity levels or component quantities which, if unused, will result in charges for unused capacity or scrapping costs. Additionally, with the increased bargaining power of other large manufacturers in the mobile device and electronics industry, we may not be able to achieve as favorable terms as in the past resulting in increased costs that we may not be able to pass on to our customers, as well as lapses in the availability of certain components, especially in situations of tight supply.
 
Moreover, a supplier may fail to meet our supplier requirements, such as, most notably, our and our customers’ and consumers’ product quality, safety, security and other standards. Consequently, some of our products may be unacceptable to us and our customers and consumers, or may fail to meet our quality controls. In case of issues affecting a product’s safety or regulatory compliance, we may be subject to damages due to product liability, or defective products, components or services may need to be replaced or recalled. Also, some suppliers may not be compliant with local laws, including, among others, local labor laws. In addition, a component supplier may experience delays or disruption to its manufacturing processes or financial difficulties or even insolvency or closure of its business, in particular due to difficult economic conditions. Due to our high volumes, any of these events could delay our successful and timely delivery of products that meet our and our customers’ and consumers’ quality, safety, security and other requirements, or otherwise materially adversely affect our sales and results of operations or our reputation and brand value.
 
Possible consolidation among our suppliers could potentially result in larger suppliers with stronger bargaining power and limit the choice of alternative suppliers, which could lead to an increase in the cost, or limit the availability, of components that may materially adversely affect our sales and results of operations. The intensive competition among our suppliers and the resulting pressure on their profitability, as well as negative effects from shifts in demand for components and sub-assemblies, may result in the exit of certain suppliers from our industry and decrease the ability of some suppliers to invest in the innovation that is vital for our business. Further, our dependence on a limited number of suppliers that require purchases in their home country foreign currency increases our exposure to fluctuations in the exchange rate between the euro, our reporting currency, and such foreign currency and, consequently, may increase our costs which we may not be able to pass on to our customers.


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Many of the production sites of our suppliers are geographically concentrated. In the event that any of these geographic areas is generally affected by adverse conditions that disrupt production and/or deliveries from any of our suppliers, this could adversely affect our ability to deliver our products on a timely basis, which may materially adversely affect our business and results of operations.
 
We may fail to efficiently manage our manufacturing, service creation and delivery as well as logistics without interruption or make timely and appropriate adjustments, or fail to ensure that our products meet our and our customers’ and consumers’ requirements and are delivered on time and in sufficient volumes.
 
Our product manufacturing, service creation and delivery as well as logistics are complex, require advanced and costly equipment and include outsourcing to third parties. These operations are continuously modified in an effort to improve efficiency and flexibility of our manufacturing, service creation and delivery as well as logistics and to produce, create and distribute continuously changing volumes. We may experience difficulties in adapting our supply to meet the changing demand for our products, both ramping up and down production at our facilities as needed on a timely basis; maintaining an optimal inventory level; adopting new manufacturing processes; finding the most timely way to develop the best technical solutions for new products; managing the increasingly complex manufacturing process for our high-end products, particularly the software for those products; adapting our manufacturing processes for the requirements of the Windows Phone platform and the production of Nokia Windows Phone smartphones; or achieving manufacturing efficiency and flexibility, whether we manufacture our products and create our services ourselves or outsource to third parties. We may also face challenges in retooling our manufacturing processes to accommodate the production of devices in smaller lot sizes to customize devices to the specifications of certain mobile networks operators or to comply with regional technical standards. Further, we may experience challenges in having our services and related software fully operational at the time they are made available to customers and consumers, including issues related to localization of the services to numerous markets and to the integration of our services with, for example, billing systems of network operators.
 
We have from time to time outsourced manufacturing of certain products and components to adjust our production to demand fluctuations as well as to benefit from expertise others have in the production of certain mobile technologies. In future, we may increase the use of contract manufacturers to produce in the normal course the entire product, which is subject to certain risks involving, for example, the choice of contract manufacturers, the need to change our mode of operation to work effectively and efficiently with such manufacturers and otherwise manage the complexities of such relationships to ensure that the products meet all of the required specifications. We may also experience challenges caused by third parties or other external difficulties in connection with our efforts to modify our operations to improve the efficiency and flexibility of our manufacturing, service creation and delivery as well as logistics, including, but not limited to, strikes, purchasing boycotts, public harm to the Nokia brand and claims for compensation resulting from our decisions on where to locate our manufacturing facilities and business. Such difficulties may have a material adverse effect on our business and results of operations and may result from, among other things, delays in adjusting or upgrading production at our facilities, delays in expanding production capacity, failure in our manufacturing, service creation and delivery as well as logistics processes, failures in the activities we have outsourced, and interruptions in the data communication systems that run our operations. Such failures or interruptions could result in our products not meeting our and our customers’ and consumers’ quality, safety, security and other requirements, or being delivered late or in insufficient or excess volumes compared to our own estimates or customer requirements, which could have a material adverse effect on our sales, results of operations, reputation and the value of the Nokia brand.


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Any actual or even alleged defects or other quality, safety and security issues in our products, including the hardware, software and content used in our products, could have a material adverse effect on our sales, results of operations, reputation and the value of the Nokia brand.
 
Our products are highly complex, and defects in their design, manufacture and associated hardware, software and content have occurred and may occur in the future. Due to the very high production volumes of many of our mobile devices, even a single defect in their design, manufacture or associated hardware, software and content may have a material adverse effect on our business. Our smartphones, in particular, incorporate numerous functionalities, feature computer-like and consumer electronics-like hardware and are powered by sophisticated software. This complexity and the need for the seamless integration of the hardware, software and services elements and compatibility with other relevant technologies may also increase the risk of quality issues in our smartphones. Further, our mobile product portfolio is subject to continuous renewal which, particularly during periods of significant portfolio renewals, may increase the risk of quality issues related to our products, in particular in smartphones.
 
Defects and other quality issues may result from, among other things, failures in our own product and service creation and deliveries as well as manufacturing processes; failures of our suppliers to comply with our supplier requirements or failures in products and services created jointly with collaboration partners or other third parties where the development and manufacturing process is not fully in our control. Prior to shipment, quality issues may cause failures in ramping up the production of our products and shipping them to customers in a timely manner as well as related additional costs or even cancellation of orders by customers. After shipment, products may fail to meet marketing expectations set for them, may malfunction or may contain security vulnerabilities, and thus cause additional repair, product replacement, recall or warranty costs to us and harm our reputation. In case of issues affecting a product’s safety, regulatory compliance including but not limited to privacy or security, we may be subject to damages due to product liability, and defective products, components or service offerings may need to be replaced or recalled. With respect to our services, quality issues may relate to the challenges in having the services fully operational at the time they are made available to our customers and consumers and maintaining them on an ongoing basis. The use of NAVTEQ’s map data in our customers’ products and services, including Ovi Maps in our mobile devices, involves a possibility of product liability claims and associated adverse publicity. Claims could be made by business customers if errors or defects result in a failure of their products or services, or by end-users of those products or services as a result of actual or perceived errors or defects in the map database. In addition, the business customers may require us to correct defective data, which could be costly, or pay penalties if quality requirements or service level agreements are not satisfied.
 
We make provisions to cover our estimated warranty costs for our products. We believe that our provisions are appropriate, although the ultimate outcome may differ from the provided level which could have a positive or negative impact on our results of operations and financial condition.
 
Our mobile devices and related accessories are also subject to counterfeiting activities in certain markets. Counterfeit products may erode our brand due to poor quality. Such activities may affect us disproportionately due to our brand recognition in various markets. Furthermore, our products are increasingly used together with hardware, software or service components that have been developed by third parties, whether or not we have authorized their use with our products. However, such components, such as batteries or software applications and content, may not be compatible with our products and may not meet our and our customers’ and consumers’ quality, safety, security or other standards. Additionally, certain components or layers that may be used with our products may enable them to be used for objectionable purposes, such as to transfer content that might be illegal, hateful or derogatory. The use of our products with incompatible or otherwise substandard hardware, software or software components, or for purposes that are inappropriate, is largely outside of our control and could harm the Nokia brand.


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Any actual or alleged loss, improper disclosure or leakage of any personal or consumer data collected by us or our partners or subcontractors, made available to us or stored in or through our products could have a material adverse effect on our sales, results of operations, reputation and value of the Nokia brand.
 
Although we endeavor to develop products that meet the appropriate security standards, such as data protection, we or our products may be subject to hacking, viruses, worms and other malicious software, unauthorized modifications or illegal activities that may cause potential security risks and other harm to us, our customers or consumers and other end-users of our products. This may affect us disproportionately due to our market position in mobile products, as hackers tend to focus their efforts on popular products. Due to the very high volumes of many of our mobile products, and the evolving nature of services and map data, such events or mere allegations of such events may have a material adverse effect on our business.
 
In connection with providing our products to our customers and consumers certain customer feedback, information on consumer usage patterns and other personal and consumer data is collected and stored through our products, in particular with smartphones, either by the consumers or by us or our partners or subcontractors. Loss, improper disclosure or leakage of any personal or consumer data collected by us or that is available to our partners or subcontractors, made available to us or stored in or through our products could result in liability to us and harm our reputation and brand. In addition, governmental authorities may use our products to access the personal data of individuals without our involvement, for example, through so-called lawful intercept capability of network infrastructure. Even perceptions that our products do not adequately protect personal or consumer data collected by us, made available to us or stored in or through our products or that they are being used by third parties to access personal or consumer data could impair our sales or our reputation and brand value.
 
Our business and results of operations, particularly our profitability, may be materially adversely affected if we are not able to successfully manage costs related to our products and to our operations.
 
We need to introduce products in a cost-efficient and timely manner and manage proactively the costs and cost development related to our portfolio of products, including component sourcing, manufacturing, logistics and other operations. Historically, our market position and scale provided a significant cost advantage in many areas of our business, such as component sourcing, compared to our competitors, but our ability to leverage that advantage is now more limited. As well, we have benefitted from the cost of components eroding more rapidly than the price erosion of our mobile products. Recently, however, component cost erosion is generally slowing, a trend which adversely affected our profitability in 2010, and may do so in the future. Currency fluctuations may also have an adverse impact on our ability to manage our costs relative to certain of our competitors who incur a material part of their costs in other currencies than we do. If we fail to maintain or improve our market position and scale compared to our competitors across the range of our products, as well as leverage our scale to the fullest extent, or if we are unable to develop or otherwise acquire software, applications and content cost competitively in comparison to our competitors, or if our costs increase relative to those of our competitors due to currency fluctuations, any relative cost advantage may be eroded, which could materially adversely affect our competitive position, business and results of operations, particularly our profitability.
 
We need to manage our operating expenses and other internal costs to maintain cost efficiency and competitive pricing of our products. Any failure by us to determine the appropriate prioritization of operating expenses and other costs, to identify and implement on a timely basis the appropriate measures to adjust our operating expenses and other costs accordingly or to maintain reductions could have a material adverse effect on our business, results of operations and financial condition. In particular, our profitability could be materially adversely affected when we transition from our royalty-free Symbian smartphone platform to the royalty-based Windows Phone platform if we are unable to offset our higher cost of sales resulting from our royalty payments to Microsoft with new


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revenue sources from the proposed Microsoft partnership and a reduction in our operating expenses, particularly our research and development expenses.
 
Our products are subject to price erosion, both naturally over their life cycle and as a result of various other factors, including increased price pressure. We have also in the past and may continue to increase the proportion of devices sold at lower prices to reach wider groups of consumers, particularly in our smartphones. Other factors that may adversely impact the selling price of our mobile devices include the extent to which consumers do not upgrade their mobile devices, postpone replacement or replace their current device with a lower-priced device and the extent to which our regional mix is weighted towards emerging markets where lower-priced products predominate. Moreover, some of our competitors may continue to reduce their prices resulting in significantly lower profit margins than is customary or sustainable on a long-term basis in this industry, which would lower the selling price of our devices if we chose for competitive reasons to lower our prices. Our inability to lower our costs at the same rate or faster than the price erosion of our devices could have a material adverse effect on our business and results of operations, particularly our profitability.
 
We may be unable to effectively and smoothly implement the new operational structure for our devices and services business effective April 1, 2011.
 
We announced a new strategy, leadership team and operational structure for our devices and services business on February 11, 2011 designed to focus on speed, results and accountability. Effective April 1, 2011, there will be two business units: Smart Devices, focused on smartphones, and Mobile Phones, focused on mass-market mobile phones. The new strategy and operational structure is expected to have a significant impact on our operations and personnel, including substantial reductions in personnel following the appropriate consultations, as well as the related costs of the operational restructuring and personnel reductions.
 
The new strategy also involves changing our mode of working and culture to facilitate speed and agility in our innovation, product development and execution and accountability for results. Organizational changes of this nature consume significant time, attention and resources of our senior management and others within the organization, potentially diverting their attention from other aspects of our business. Additionally, when such changes are planned and implemented they may cause disruption and dissatisfaction among employees, as well as fatigue due to the cumulative effect of several other reorganizations in the past few years. As a result, employee motivation, energy, focus and productivity may be reduced causing inefficiencies and other problems across the organization and leading to the loss of key personnel and the related costs associated in dealing with such matters. Moreover, our employees may be targeted aggressively by our competitors during the implementation of our new strategy, and some employees may be more receptive to such offers leading to the loss of key personnel. These factors may have a more pronounced adverse impact due to the cumulative effect of the previous reorganizations. Should we fail to implement the new operational structure effectively and smoothly and effect the changes in our mode of working and culture, the efficiency of our operations and performance may be affected, which could have a material adverse effect on our business and results of operations, particularly our profitability. See “Item 4A. ‘‘History and Development of the Company—Organizational Structure” for more information about our new operational structure.
 
Our sales and profitability are dependent on the development of the mobile and fixed communications industry in numerous diverse markets, as well as on general economic conditions globally and regionally.
 
Our sales and profitability are dependent on the development of the mobile and fixed communications industry in numerous diverse markets in terms of the number of new mobile subscribers, the number of existing subscribers who upgrade or replace their existing mobile devices and the number of active users of applications and services on our devices. In certain low penetration markets, in order to support a continued increase in mobile subscribers, we continue to be dependent


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on our own and mobile network operators’ and distributors’ ability to increase the sales volumes of lower cost mobile devices and on mobile network operators to offer affordable tariffs and tailored mobile network solutions designed for a low total cost of ownership. In highly penetrated markets, we are more dependent on our own and mobile network operators’ ability to successfully introduce value-added products, such as smartphones that drive the upgrade and replacement of devices, as well as ownership of multiple devices. We are also dependent on developers’ interest and success in creating value-added applications and other content in our products to achieve differentiation and additional consumer demand. NAVTEQ is dependent on the development of a wide variety of products that use its data, the availability and functionality of such products and the rate at which consumers and businesses purchase those products. Nokia Siemens Networks is dependent on the pace of investments made by mobile network operators and service providers in network infrastructure and related services. If we and the other market participants are not successful in our attempts to increase subscriber numbers, stimulate increased usage or drive upgrade and replacement sales of mobile devices and develop and increase demand for value-added services, or if mobile network operators and service providers invest in the related infrastructure and services less than anticipated, our business and results of operations could be materially adversely affected.
 
As we are a global company with sales in most countries of the world, our sales and profitability are dependent on general economic conditions globally and regionally. The traditional mobile communications industry has matured to varying degrees in different markets and, consequently, the industry is more vulnerable than before to the negative impacts of deteriorations in global economic conditions. Although the overall economic environment improved during 2010, in comparison to 2009, there still can be no assurances that a sustainable global recovery is underway or about the impact and timing of any such recovery in the various market where we do business. Continued uncertainty or deterioration in global economic conditions may result in our current and potential customers and consumers postponing or reducing spending on our products. In addition, mobile network operators may reduce the device subsidies that they offer to the consumers or attempt to extend the periods of contracts that obligate the consumer to use a certain device and postpone or reduce investment in their network infrastructure and related services. The demand for digital map information and other location-based content by automotive and mobile device manufacturers may decline in relation to any further contraction of sales in the automotive and consumer electronics industry.
 
In addition, any further deterioration in the global or regional economic conditions may:
 
  •  Limit the availability of credit or raise the interest rates related to credit which may have a negative impact on the financial condition, and in particular on the purchasing ability, of some of our distributors, independent retailers and network operator customers and may also result in requests for extended payment terms, credit losses, insolvencies, limited ability to respond to demand or diminished sales channels available to us.
 
  •  Cause financial difficulties for our suppliers and collaborative partners which may result in their failure to perform as planned and, consequently, in delays in the delivery of our products.
 
  •  Increase volatility in exchange rates which may increase the costs of our products that we may not be able to pass on to our customers and result in significant competitive benefit to certain of our competitors that incur a material part of their costs in other currencies than we do; hamper our pricing; and increase our hedging costs and limit our ability to hedge our exchange rate exposure.
 
  •  Result in inefficiencies due to our deteriorated ability to appropriately forecast developments in our industry and plan our operations accordingly, delayed or insufficient investments in new market segments and failure to adjust our costs appropriately.
 
  •  Cause reductions in the future valuations of our investments and assets and result in impairment charges related to goodwill or other assets due to any significant underperformance relative to historical or projected future results by us or any part of our


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  business or any significant changes in the manner of our use of acquired assets or the strategy for our overall business.
 
  •  Cause lowered credit ratings of our short and long-term debt or their outlook from the credit rating agencies and, consequently, impair our ability to raise new financing or refinance our current borrowings and increase our interest costs associated with any new debt instruments.
 
  •  Result in failures of derivative counterparties or other financial institutions which could have a negative impact on our treasury operations.
 
  •  Result in increased and/or more volatile taxes which could negatively impact our effective tax rate.
 
  •  Impact our investment portfolio and other assets and result in impairment.
 
We currently believe our funding position to be sufficient to meet our operating and capital expenditures in the foreseeable future. However, adverse developments in the global financial markets could have a material adverse effect on our financial condition and results of operations. For a more detailed discussion of our liquidity and capital resources, see Item 5B. “Liquidity and Capital Resources” and Note 35 of our consolidated financial statements included in Item 18 of this annual report.
 
Our net sales, costs and results of operations, as well as the US dollar value of our dividends and market price of our ADSs, are affected by exchange rate fluctuations, particularly between the euro, which is our reporting currency, and the US dollar, the Japanese yen and the Chinese yuan, as well as certain other currencies.
 
We operate globally and are therefore exposed to foreign exchange risks in the form of both transaction risks and translation risks. Our policy is to monitor and hedge exchange rate exposure, and we manage our operations to mitigate, but not to eliminate, the impacts of exchange rate fluctuations. There can be no assurance, however, that our hedging activities will be successful in mitigating the impact of exchange rate fluctuations. In addition, significant volatility in the exchange rates may increase our hedging costs, as well as limit our ability to hedge our exchange rate exposure in particular against unfavorable movements in the exchange rates of certain emerging market currencies and could have an adverse impact on our results of operations, particularly our profitability. Further, exchange rate fluctuations may have an adverse affect on our net sales, costs and results of operations, as well as our competitive position. Exchange rate fluctuations may also make our pricing more difficult as our products may be re-routed by the distribution channels for sale to consumers in other geographic areas where sales can be made at more favorable exchange rates by those channels. Further, exchange rate fluctuations may also materially affect the US dollar value of any dividends or other distributions that are paid in euro as well as the market price of our ADSs. For a more detailed discussion of exchange risks, see Item 5A. “Operating Results—Certain Other Factors—Exchange Rates” and Note 35 of our consolidated financial statements included in Item 18 of this annual report.
 
Our products include increasingly complex technologies, some of which have been developed by us or licensed to us by certain third parties. As a consequence, evaluating the rights related to the technologies we use or intend to use is more and more challenging, and we expect increasingly to face claims that we have infringed third parties’ intellectual property rights. The use of these technologies may also result in increased licensing costs for us, restrictions on our ability to use certain technologies in our products and/or costly and time-consuming litigation, which could have a material adverse effect on our business, results of operations and financial condition.
 
Our products include increasingly complex technologies, some of which have been developed by us and some by third parties. As the amount of such proprietary technologies and the number of parties claiming intellectual property rights continues to increase, even within individual products, as the


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range of our products becomes more diversified and we enter new businesses, and as the complexity of the technology increases, the possibility of alleged infringement and related intellectual property claims against us continues to rise. The holders of patents and other intellectual property rights potentially relevant to our products may be unknown to us, may have different business models, may refuse to grant licenses to their proprietary rights, or may otherwise make it difficult for us to acquire a license on commercially acceptable terms. There may also be technologies licensed to and relied on by us that are subject to infringement or other corresponding allegations or claims by others which could impair our ability to rely on such technologies. In addition, although we endeavor to ensure that companies that work with us possess appropriate intellectual property rights or licenses, we cannot fully avoid the risks of intellectual property rights infringement created by suppliers of components and various layers in our products, or by companies with which we work in cooperative research and development activities. Similarly, we and our customers may face claims of infringement in connection with our customers’ use of our products and such claims may also influence consumer behavior.
 
In many aspects, the business models for mobile services have not yet been established. The lack of availability of licenses for copyrighted content, delayed negotiations, or restrictive licensing terms may have a material adverse effect on the cost or timing of content-related services offered by us, mobile network operators or third-party service providers, and may also indirectly affect the sales of our mobile devices.
 
Since all technology standards, including those used and relied on by us, include some intellectual property rights, we cannot fully avoid risks of a claim for infringement of such rights due to our reliance on such standards. We believe that the number of third parties declaring their intellectual property to be relevant to these standards, for example, the standards related to so-called 3G and 4G mobile communication technologies, as well as other advanced mobile communications standards, is increasing, which may increase the likelihood that we will be subject to such claims in the future. While we believe that any such intellectual property rights declared and found to be essential to a given standard carry with them an obligation to be licensed on fair, reasonable and non-discriminatory terms, not all intellectual property owners agree on the meaning of that obligation and thus costly and time-consuming litigation over such issues has resulted and may continue to result in the future. While the rules of many standard setting bodies, such as the European Telecommunication Standardization Institute, or ETSI, often apply on a global basis, the enforcement of those rules may involve national courts, which means that there may be a risk of different interpretation of those rules.
 
From time to time, some existing patent licenses may expire or otherwise become subject to renegotiation. The inability to renew or finalize such arrangements or new licenses with acceptable commercial terms may result in costly and time-consuming litigation, and any adverse result in any such litigation may lead to restrictions on our ability to sell certain products and could result in payments that potentially could have a material adverse effect on our operating results and financial condition. These legal proceedings may continue to be expensive and time-consuming and divert the efforts of our management and technical personnel from our business, and, if decided against us, could result in restrictions on our ability to sell our products, require us to pay increased licensing fees, substantial judgments, settlements or other penalties and incur expenses that could have a material adverse effect on our business, results of operations and financial condition.
 
Our patent license agreements may not cover all the future businesses that we may enter; our existing businesses may not necessarily be covered by our patent license agreements if there are changes in Nokia’s corporate structure or in companies under Nokia’s control; or our newly-acquired businesses may already have patent license agreements with terms that differ from similar terms in our patent license agreements. This may result in increased costs, restrictions to use certain technologies or time-consuming and costly disputes whenever there are changes in our corporate structure or in companies under our control, or whenever we enter new businesses or acquire new businesses.


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Nokia Siemens Networks has access to certain licenses through cross-licensing arrangements with its current shareholders, Nokia and Siemens. If there are changes to Nokia Siemens Networks’ corporate structure, including a sale of Nokia Siemens Networks’ shares by one or both of its current shareholders, Nokia Siemens Networks may be unable to rely on some of its existing licenses. There can be no assurance that such licenses could be replaced on terms that are commercially acceptable.
 
We make accruals and provisions to cover our estimated total direct IPR costs for our products. The total direct IPR cost consists of actual payments to licensors, accrued expenses under existing agreements and provisions for potential liabilities. We believe that our accruals and provisions are appropriate for all technologies owned by others. The ultimate outcome, however, may differ from the provided level which could have a positive or negative impact on our results of operations and financial condition.
 
Any restrictions on our ability to sell our products due to expected or alleged infringements of third-party intellectual property rights and any intellectual property rights claims, regardless of merit, could result in material losses of profits, costly litigation, the payment of damages and other compensation, the diversion of the attention of our personnel, product shipment delays or the need for us to develop non-infringing technology or to enter into a licensing agreement. If licensing agreements were not available or available on commercially acceptable terms, we could be precluded from making and selling the affected products, or could face increased licensing costs. As new features are added to our products, we may need to acquire further licenses, including from new and sometimes unidentified owners of intellectual property. The cumulative costs of obtaining any necessary licenses are difficult to predict and may over time have a negative effect on our operating results. See Item 4B. “Business Overview—Devices & Services—Patents and Licenses”; “—NAVTEQ—Patents and Licenses” and “—Nokia Siemens Networks—Patents and Licenses” for a more detailed discussion of our intellectual property activities.
 
Our products include numerous Nokia, NAVTEQ and Nokia Siemens Networks patented, standardized or proprietary technologies on which we depend. Third parties may use without a license or unlawfully infringe our intellectual property or commence actions seeking to establish the invalidity of the intellectual property rights of these technologies. This may have a material adverse effect on our business and results of operations.
 
Our products include numerous Nokia, NAVTEQ and Nokia Siemens Networks patented, standardized or proprietary technologies on which we depend. Despite the steps that we have taken to protect our technology investment with intellectual property rights, we cannot be certain that any rights or pending applications will be granted or that the rights granted in connection with any future patents or other intellectual property rights will be sufficiently broad to protect our technology. Third parties may infringe our intellectual property relating to our non-licensable proprietary features or by ignoring their obligation to seek a license.
 
Any patents or other intellectual property rights that are granted to us may be challenged, invalidated or circumvented, and any right granted under our patents may not provide competitive advantages for us. Other companies have commenced and may continue to commence actions seeking to establish the invalidity of our intellectual property, for example, patent rights. In the event that one or more of our patents are challenged, a court may invalidate the patent or determine that the patent is not enforceable, which could harm our competitive position. Also, if any of our key patents are invalidated, or if the scope of the claims in any of these patents is limited by a court decision, we could be prevented from using such patents as a basis for product differentiation or from licensing the invalidated or limited portion of our intellectual property rights, or we could lose part of the leverage we have in terms of our own intellectual property rights portfolio. Even if such a patent challenge is not successful, it could be expensive and time-consuming, divert attention of our management and technical personnel from our business and harm our reputation. Any diminution of the protection that our own intellectual property rights enjoy could cause us to lose some of the benefits of our investments in research and development, which may have a negative effect on our


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business and results of operations. See Item 4B. “Business Overview—Devices & Services—Patents and Licenses”; “—NAVTEQ—Patents and Licenses”; and “—Nokia Siemens Networks—Patents and Licenses” for a more detailed discussion of our intellectual property activities.
 
Our sales derived from, and assets located in, emerging market countries may be materially adversely affected by economic, regulatory and political developments in those countries or by other countries imposing regulations against imports to such countries. As sales from those countries represent a significant portion of our total sales, economic or political turmoil in those countries could materially adversely affect our sales and results of operations. Our investments in emerging market countries may also be subject to other risks and uncertainties.
 
We generate sales from and have manufacturing facilities located in various emerging market countries. Sales from those countries represent a significant portion of our total sales and those countries represent a significant portion of any expected industry growth. Accordingly, economic or political turmoil in those countries could materially adversely affect our sales and results of operations and the supply of devices and network infrastructure equipment manufactured in those countries. Further, the economic conditions in emerging market countries may be more volatile than in developed countries and the purchasing power of our customers and consumers in those countries depends to a greater extent on the price development of basic commodities and currency fluctuations which may render our products too expensive to afford. Our business and investments in emerging market countries may also be subject to risks and uncertainties, including unfavorable or unpredictable taxation treatment, exchange controls, challenges in protecting our intellectual property rights, nationalization, inflation, currency fluctuations, or the absence of, or unexpected changes in, regulation as well as other unforeseeable operational risks. For example, Nokia Siemens Networks, as well as its competitors, were adversely affected in 2010 by the implementation of security clearance requirements in India which prevented the completion of product sales to customers, and could be similarly affected again in 2011, leading to ongoing uncertainty in that market. See Note 2 to our consolidated financial statements included in Item 18 of this annual report for more detailed information on geographic location of net sales to external customers, segment assets and capital expenditures.
 
Changes in various types of regulation and trade policies as well as enforcement of such regulation and policies in countries around the world could have a material adverse effect on our business and results of operations.
 
Our business is subject to direct and indirect regulation in each of the countries in which we, the companies with which we work and our customers do business. We develop many of our products based on existing regulations and technical standards, our interpretation of unfinished technical standards or there may be an absence of applicable regulations and standards. As a result, changes in various types of regulations, their application and trade policies applicable to current or new technologies or products may adversely affect our business and results of operations. For example, changes in regulation affecting the construction of base stations and other network infrastructure could adversely affect the timing and costs of new network construction or expansion and the commercial launch and ultimate commercial success of those networks. Export control, tariffs or other fees or levies imposed on our products and environmental, product safety and security and other regulations that adversely affect the export, import, pricing or costs of our products could also adversely affect our sales and results of operations. For example, copyright collecting societies in several member states of the EU as well as in several other countries claim that due to their capability to play and store copyrighted content, mobile devices should be subject to similar copyright levies that are charged for products such as compact disc, digital video disc or digital audio players. Any new or increased levies and duties could result in costs which lead to higher prices for our products, which may in turn impair their demand. In addition, changes in various types of


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regulations or their application with respect to taxation or other fees collected by governments or governmental agencies may result in unexpected payments to be made by us.
 
Our expansion into the provision of services has resulted in a variety of new regulatory issues and subjects us to increased regulatory scrutiny. Moreover, our competitors have employed and will likely continue to employ significant resources to shape the legal and regulatory regimes in countries where we have significant operations. Legislators and regulators may make legal and regulatory changes, or interpret and apply existing laws, in ways that make our services less appealing to the end users, require us to incur substantial costs, change our business practices or prevent us from offering the services. These changes or increased costs could negatively impact our business.
 
The impact of changes in or uncertainties related to regulation and trade policies could affect our business and results of operations adversely even though the specific regulations do not always directly apply to us or our products. In addition to changes in regulation and trade policies, our business may be adversely affected by local business culture and general practices in some regions that are contrary to our code of conduct. If our employees or subcontractors engage in any bribery, corruption or other unsound business practices, this may result in fines, penalties or other sanctions to us. Additionally, such practices or allegations of such practices may result in the loss of reputation and business. Detecting, investigating and resolving such situations may also result in significant costs, including the need to engage external advisors, and consume significant time, attention and resources of our management. Further, our business and results of operations may be adversely affected by regulation and trade policies favoring the local industry participants as well as other measures with potentially protectionist objectives which host governments in different countries may take, particularly in response to difficult global economic conditions.
 
Our operations rely on the efficient and uninterrupted operation of complex and centralized information technology systems and networks. If a system or network inefficiency, malfunction or disruption occurs, this could have a material adverse effect on our business and results of operations.
 
Our operations rely to a significant degree on the efficient and uninterrupted operation of complex and centralized information technology systems and networks, which are integrated with those of third parties. All information technology systems are potentially vulnerable to damage, malfunction or interruption from a variety of sources. We pursue various measures in order to manage our risks related to system and network malfunction and disruptions, including the use of multiple suppliers and available information technology security. However, despite precautions taken by us, any malfunction or disruption of our current or future systems or networks such as an outage in a telecommunications network utilized by any of our information technology systems, attack by a virus or other event that leads to an unanticipated interruption or malfunction of our information technology systems or networks could have a material adverse effect on our business and results of operations. Furthermore, any data leakages resulting from information technology security breaches could also materially adversely affect us. Also, failures to successfully utilize information technology systems and networks in our operations may impair our operational efficiency or competitiveness which could have a material adverse effect on our business and results of operations.
 
An unfavorable outcome of litigation could have a material adverse effect on our business, results of operations and financial condition.
 
We are a party to lawsuits in the normal course of our business. Litigation can be expensive, lengthy, and disruptive to normal business operations and divert the efforts of our management. Moreover, the results of complex legal proceedings are difficult to predict. An unfavorable resolution of a particular lawsuit could have a material adverse effect on our business, results of operations and financial condition.
 
We record provisions for pending litigation when we determine that an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertain nature


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of litigation, the ultimate outcome or actual cost of settlement may vary materially from estimates. We believe that our provisions for pending litigation are appropriate. The ultimate outcome, however, may differ from the provided level which could have a positive or negative impact on our results of operations and financial condition.
 
See Item 8A7. “Litigation” for a more detailed discussion about litigation that we are party to.
 
Allegations of possible health risks from the electromagnetic fields generated by base stations and mobile devices, and the lawsuits and publicity relating to this matter, regardless of merit, could have a material adverse effect on our sales, results of operations, share price, reputation and brand value by leading consumers to reduce their use of mobile devices, by increasing difficulty in obtaining sites for base stations, or by leading regulatory bodies to set arbitrary use restrictions and exposure limits, or by causing us to allocate additional monetary and personnel resources to these issues.
 
There has been public speculation about possible health risks to individuals from exposure to electromagnetic fields from base stations and from the use of mobile devices. A substantial amount of scientific research conducted to date by various independent research bodies has indicated that these radio signals, at levels within the limits prescribed by safety standards set by, and recommendations of, public health authorities, present no adverse effect on human health. We cannot, however, be certain that future studies, irrespective of their scientific basis, will not suggest a link between electromagnetic fields and adverse health effects that could have a material adverse effect on our sales, results of operations and share price. Research into these issues is ongoing by government agencies, international health organizations and other scientific bodies in order to develop a better scientific and public understanding of these issues.
 
Over the past ten years Nokia has been involved in several class action matters alleging that Nokia and other manufacturers and cellular service providers failed to properly warn consumers of alleged potential adverse health effects and failed to include headsets with every handset to reduce the potential for alleged adverse health effects. All but one of these cases have been withdrawn or dismissed, with one dismissal currently on appeal. In addition, Nokia and other mobile device manufacturers and cellular service providers were named in five lawsuits by individual plaintiffs who allege that radio emissions from mobile phones caused or contributed to each plaintiff’s brain tumor.
 
Although Nokia products are designed to meet all relevant safety standards and recommendations globally, we cannot guarantee we will not become subject to product liability claims or be held liable for such claims or be required to comply with future regulatory changes in this area that could have a material adverse effect on our business. Even a perceived risk of adverse health effects of mobile devices or base stations could have a material adverse effect on us through a reduction in sales of mobile devices or increased difficulty in obtaining sites for base stations, and could have a material adverse effect on our reputation and brand value, results of operations as well as share price.
 
Nokia Siemens Networks
 
In addition to the risks described above, the following are risks primarily related to Nokia Siemens Networks that could affect Nokia.
 
Nokia Siemens Networks may be unable to execute effectively and in a timely manner its plan designed to improve its financial performance and market position and increase profitability or Nokia Siemens Networks may be unable to otherwise continue to reduce operating expenses and other costs.
 
Nokia Siemens Networks announced in 2009 a plan designed to improve its financial performance and market position and increase profitability. The plan included a reorganization of Nokia Siemens Networks’ business units to provide a more customer-focused structure, which came into effect on January 1, 2010, as well as extensive operating expense, production overhead and procurement cost


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reductions. The plan also included a global personnel review which resulted in personnel reductions. Implementation of the plan is continuing. In addition, Nokia Siemens Networks otherwise seeks to reduce operating expenses and other costs on an ongoing basis.
 
Executing this plan has consumed and may continue to consume significant time, attention and resources of Nokia Siemens Networks’ management which could negatively impact Nokia Siemens Networks’ business. Personnel reductions may result in reduced productivity and dissatisfaction among employees and lead to loss of key personnel. These factors may have a more pronounced adverse impact due to Nokia Siemens Networks having been subject to various restructuring measures in the past. If Nokia Siemens Networks fails to execute its plan successfully or to otherwise reduce its operating expenses and other costs on an ongoing basis, its market share may decline which could result in the loss of scale benefits and reduce competitiveness and its financial performance may deteriorate.
 
Nokia Siemens Networks is a company jointly owned by Nokia and Siemens and consolidated by Nokia. Accordingly, the financial performance of Nokia Siemens Networks, including the announced measures targeted to improve its financial performance, may also require further support from the shareholders of Nokia Siemens Networks in the form of additional financing, guarantees, consents or agreements by the shareholders regarding measures planned by its management, or through other means. Nokia and Siemens do not, however, guarantee Nokia Siemens Networks’ current financial obligations. If Nokia Siemens Networks fails to achieve such support from its shareholders, our business, results of operations and financial condition could be materially adversely affected.
 
In addition, Nokia Siemens Networks has received expressions of interest from private equity firms seeking to invest. There can be no assurance that such expressions of interest will result in any further investment in Nokia Siemens Networks, nor can there be any assurance that the ownership of Nokia Siemens Networks will, or will not, change in the future or any new shareholder will provide any support to Nokia Siemens Networks.
 
Competition in the mobile and fixed networks infrastructure and related services market is intense. Nokia Siemens Networks’ may be unable to maintain or improve its market position or respond successfully to changes in the competitive environment.
 
The competitive environment in the mobile and fixed networks infrastructure and related services market continues to be intense and is characterized by equipment price erosion, a maturing of industry technology and intense price competition. Moreover, mobile network operators’ cost reductions are reducing the amount of available business resulting in increased competition and pressure on pricing and profitability. Overall, participants in this market compete with each other on the basis of product offerings, technical capabilities, quality, service and price. Nokia Siemens Networks competes with companies that have larger scale and higher margins affording such companies more flexibility on pricing, while some competitors may have stronger customer finance possibilities due to internal policies or governmental support, for example in the form of trade guarantees, allowing them to offer products and services at very low prices or with attractive financing terms. Nokia Siemens Networks also faces increasing competition from the entry into the market of low cost competitors from China, which endeavor to gain market share by leveraging their low cost advantage in tenders for customer contracts. Competition for new communication service provider customers as well as for new infrastructure deployments is particularly intense and focused on price. In addition, new competitors may enter the industry as a result of acquisitions or shifts in technology. If Nokia Siemens Networks cannot respond successfully to the competitive requirements in the mobile and fixed networks infrastructure and related services market, our business and results of operations, particularly profitability, may be materially adversely affected.
 
Nokia Siemens Networks seeks to increase sales in geographic markets in which price competition is less intense. If Nokia Siemens Networks is not successful in increasing its sales in those markets or the price competition in those markets intensifies, as a result of the entry into those markets of low


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cost competitors, price reductions by existing competitors or otherwise, our business, sales, results of operations, particularly profitability, and financial condition may be materially adversely affected.
 
In addition, Nokia Siemens Networks has expanded its enterprise mobility infrastructure as well as its managed service, systems integration and consulting businesses through acquisitions and collaborative arrangements, such as partnering with third parties. Nokia Siemens Networks expects to make further investments in these areas in a focused manner. If Nokia Siemens Networks fails to increase its competitiveness through these and other measures and if there is a deterioration of Nokia Siemens Networks financial performance as a result, this may have a material adverse effect on our business, results of operations and financial condition, and we may need to make further impairment charges.
 
Nokia Siemens Networks’ liquidity and its ability to meet its working capital requirements depend on access to available credit under Nokia Siemens Networks’ credit facilities and other credit lines. If a significant number of those sources of liquidity were to be unavailable, or cannot be refinanced when they mature, this would have a material adverse effect on our business, results of operations and financial condition.
 
To provide liquidity and meet its working capital requirements, Nokia Siemens Networks is party to certain credit facilities and has arranged for other committed and uncommitted credit lines. Nokia Siemens Networks’ ability to draw upon those resources is dependent upon a variety of factors, including compliance with existing covenants, the absence of any event of default and, with respect to uncommitted credit lines, the lenders’ perception of Nokia Siemens Networks’ credit quality. The covenants under Nokia Siemens Networks’ existing credit facilities require it, among other things, to maintain a maximum gearing ratio. Nokia Siemens Networks’ ability to satisfy these and other existing covenants may be affected by events beyond its control and there can be no assurance that Nokia Siemens Networks will be able to comply with its existing covenants in the future. Any failure to comply with the covenants under any of Nokia Siemens Networks’ existing credit facilities may constitute a default under its other credit facilities and credit lines and may require Nokia Siemens Networks to either obtain a waiver from its creditors, renegotiate its credit facilities, raise additional financing from existing or new shareholders or repay or refinance borrowings in order to avoid the consequences of a default. There can be no assurance that Nokia Siemens Networks would be able to obtain such a waiver, to renegotiate its credit facilities, to raise additional financing from existing or new shareholders or to repay or refinance its borrowings on terms that are acceptable to it, if at all. In addition, any failure by Nokia Siemens Networks to comply with its existing covenants, any actual or perceived decline in Nokia Siemens Networks’ business, results of operations or financial condition or other factors may result in a deterioration of lenders’ perception of Nokia Siemens Networks’ credit quality, which may negatively impact Nokia Siemens Networks’ ability to renegotiate its credit facilities, refinance its borrowings or to draw upon its uncommitted credit lines. Although Nokia Siemens Networks believes it has sufficient resources to fund its operations, if a significant number of those sources of liquidity were to be unavailable, or cannot be refinanced when they mature, this could have a material adverse effect on our business, results of operations and financial condition.
 
Nokia Siemens Networks may be unable to complete its planned acquisition of the majority of the wireless infrastructure networks assets of Motorola in a timely manner, or at all, and, if completed, to successfully integrate the acquired business or cross-sell Nokia Siemens Networks’ existing products and services to customers of the acquired business and realize the expected synergies and benefits of the acquisition.
 
On July 19, 2010, Nokia Siemens Networks and Motorola jointly announced that Nokia Siemens Networks and Motorola had entered into an agreement under which Nokia Siemens Networks will acquire the majority of Motorola’s wireless network infrastructure assets for USD 1.2 billion in cash.


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The acquisition is subject to customary closing conditions, including regulatory approvals, and is subject to certain risks and uncertainties, including:
 
  •  The acquisition does not receive all regulatory approvals or fulfil closing conditions and does not close in a timely manner, or at all.
 
  •  The financial data on which the decision to undertake the acquisition was based on is materially inaccurate
 
  •  The difficulty in integrating the acquired business in an efficient and effective manner.
 
  •  The challenges in achieving the strategic objectives, cost savings and other benefits from the acquisition.
 
  •  Existing customers of the acquired business may be reluctant, unwilling or unable to maintain their customer relationship with Nokia Siemens Networks after the acquisition.
 
  •  The markets of the acquired business do not evolve as anticipated and the technologies acquired do not prove to be those needed to be successful in those markets.
 
  •  Nokia Siemens Networks may not successfully access the acquired business’ existing product markets due to a lack of requisite capabilities, regulatory reasons or otherwise.
 
  •  The potential loss of key employees of the acquired business.
 
  •  The risk of diverting the attention of senior management from Nokia Siemens Networks’ operations.
 
  •  The risks associated with integrating financial reporting and internal control systems.
 
  •  Difficulties in expanding information technology systems and other business processes to accommodate the acquired business.
 
  •  Impairments of goodwill could arise as a result of the acquisition.
 
  •  Unexpected contingent or undisclosed liabilities may be acquired with the acquired business and agreed indemnities may provide insufficient coverage against such liabilities.
 
  •  If Nokia Siemens Networks does not successfully cross-sell its existing products and services to customers of the acquired business, Nokia Siemens Networks may not realize the expected expansion of its customer base.
 
Nokia Siemens Networks’ may fail to effectively and profitably invest in new products, services, upgrades and technologies and bring them to market in a timely manner.
 
The mobile and fixed networks infrastructure and related services market is characterized by rapidly changing technologies, frequent new solutions requirements and product feature introductions and evolving industry standards.
 
Nokia Siemens Networks’ success depends to a significant extent on the timely and successful introduction of new products, services and upgrades of current products to comply with emerging industry standards and to address competing technological and product developments carried out by Nokia Siemens Networks’ competitors. The research and development of new and innovative technologically-advanced products, including the introduction of new radio frequency technologies, as well as upgrades to current products and new generations of technologies, is a complex and uncertain process requiring high levels of innovation and investment, as well as accurate anticipation of technology and market trends. Nokia Siemens Networks may focus its resources on technologies that do not become widely accepted or ultimately prove not to be viable. Nokia Siemens Networks’ sales and operating results will depend to a significant extent on its ability to maintain a product portfolio and service capability that is attractive to its customers; to enhance its existing products; to continue to introduce new products successfully and on a timely basis and to develop new or enhance existing tools for its services offerings.


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Nokia Siemens Networks’ failure to effectively and profitably invest in new products, services, upgrades and technologies and bring them to market in a timely manner could result in a loss of sales and market share and could have a material adverse effect on our results of operations, particularly profitability, and financial condition.
 
Increasingly, Nokia Siemens Networks’ sales and profitability depend on its success in the telecommunications infrastructure services market. Nokia Siemens Networks’ may fail to effectively and profitably adapt its business and operations in a timely manner to the increasingly diverse service needs of its customers.
 
A key component of Nokia Siemens Networks’ business priorities is an increasing focus on the mobile and fixed networks infrastructure services market, which it believes will be a key driver of its sales and profitability. Nokia Siemens Networks’ success in the services market is dependent on a number of factors, including adapting its policies and procedures to the additional emphasis on a services business model, recruiting and retaining skilled personnel, its ability to successfully develop recognition as a software and services company and acceptance of its services offering in that market, an ability to maintain efficient and low cost operations, delays in implementing initiatives, further consolidation of Nokia Siemens Networks’ customers, increased competition and other factors which Nokia Siemens Networks may not be able to anticipate.
 
If Nokia Siemens Networks is not successful in implementing its services business priority and achieving the desired outcomes in a timely manner or if the services market fails to develop in the manner currently anticipated by Nokia Siemens Networks, its business will remain focused on the traditional network systems product offering, which is increasingly characterized by equipment price erosion, maturing industry technology, intense price competition and non-recurring sales. If that occurs, and the current trends in the traditional network systems market continue, this could have a material adverse effect on our business, results of operations, particularly profitability, and financial condition.
 
The networks infrastructure and related services business relies on a limited number of customers and large multi-year contracts. Unfavorable developments under such a contract or in relation to a major customer may have a material adverse effect on our business, results of operations and financial condition.
 
Large multi-year contracts, which are typical in the networks infrastructure and related services business, include a risk that the timing of sales and results of operations associated with those contracts will differ from what was expected when the contracts were entered into. Moreover, such contracts often require the dedication of substantial amounts of working capital and other resources, which may negatively affect Nokia Siemens Networks’ cash flow, particularly in the early stages of a contract, or may require Nokia Siemens Networks to sell products and services in the future that would otherwise be discontinued, thereby diverting resources from developing more profitable or strategically important products and services. Any non-performance by Nokia Siemens Networks under those contracts may have a material adverse effect on us because network operators have demanded and may continue to demand stringent contract undertakings, such as penalties for contract violations.
 
The networks infrastructure and related services business is also dependent on a limited number of customers and consolidation among those customers is continuing. In addition, network operators are increasingly entering into network sharing arrangements, which further reduce the number of networks available for Nokia Siemens Networks to service. As a result of this trend and the intense competition in the industry, Nokia Siemens Networks may be required to provide contract terms increasingly favorable to the customer to remain competitive. Any unfavorable developments in relation to or any change in the contract terms applicable to a major customer may have a material adverse effect on our business, results of operations and financial condition.


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Providing customer financing or extending payment terms to customers can be a competitive requirement in the networks infrastructure and related services business and may have a material adverse effect on our business, results of operations and financial condition.
 
Communication service providers in some markets may require their suppliers, including Nokia Siemens Networks, to arrange, facilitate or provide financing in order to obtain sales or business. They may also require extended payment terms. In some cases, the amounts and duration of these financings and trade credits, and the associated impact on Nokia Siemens Networks’ working capital, may be significant. In response to the tightening of the credit markets in 2009 and 2010, requests for customer financing and extended payment terms have increased in volume and scope. While Nokia Siemens Networks moderately increased the amount of financing it provided directly to its customers in 2010, as a strategic market requirement Nokia Siemens Networks primarily arranged and facilitated, and plans to continue to arrange and facilitate, financing to a number of customers, typically supported by Export Credit or Guarantee Agencies. In the event that those agencies face future constraints in their ability or willingness to provide financing to Nokia Siemens Networks’ customers, it could have a material adverse effect on our business. Nokia Siemens Networks has agreed to extended payment terms for a number of customers, and it will continue to do so. Extended payment terms may continue to result in a material aggregate amount of trade credits. Even when the associated risk is mitigated by the fact that the portfolio relates to a variety of customers, defaults in the aggregate could have a material adverse effect on us.
 
Nokia Siemens Networks cannot guarantee that it will be successful in arranging, facilitating or providing needed financing, including extended payment terms to customers, particularly in difficult financial market conditions. In addition, certain of Nokia Siemens Networks’ competitors may have greater access to credit financing than Nokia Siemens Networks, which could adversely affect Nokia Siemens Networks’ ability to compete successfully for business in the networks infrastructure and, indirectly, in the related services sectors. Nokia Siemens Networks’ ability to manage its total customer finance and trade credit exposure depends on a number of factors, including its capital structure, market conditions affecting its customers, the level and terms of credit available to Nokia Siemens Networks and to its customers, the cooperation of the Export Credit or Guarantee Agencies and its ability to mitigate exposure on acceptable terms. Nokia Siemens Networks may not be successful in managing the challenges associated with the customer financing and trade credit exposure that it may have from time to time. While defaults under financings and trade credits to Nokia Siemens Networks’ customers resulting in impairment charges and credit losses have not been a significant factor for us, these may increase in the future. See “Item 5B. “Liquidity and Capital Resources—Structured Finance,” and Note 35(b) to our consolidated financial statements included in Item 18 of this annual report for a more detailed discussion of issues relating to customer financing, trade credits and related commercial credit risk.
 
Some of the Siemens carrier-related operations transferred to Nokia Siemens Networks have been and continue to be the subject of various criminal and other governmental investigations related to whether certain transactions and payments arranged by some current or former employees of Siemens were unlawful. As a result of those investigations, government authorities and others have taken and may take further actions against Siemens and/or its employees that may involve and affect the assets and employees transferred by Siemens to Nokia Siemens Networks, or there may be undetected additional violations that may have occurred prior to the transfer or violations that may have occurred after the transfer of such assets and employees.
 
Public prosecutors and other government authorities in several jurisdictions have been conducting and in some jurisdictions are continuing to conduct criminal and other investigations with respect to whether certain transactions and payments arranged by some current or former employees of Siemens relating to the carrier-related operations for fixed and mobile networks that were transferred to Nokia Siemens Networks were unlawful. These investigations are part of substantial transactions


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and payments involving Siemens’ former Com business and other Siemens’ business groups which were and are still under investigation.
 
The internal review by Nokia Siemens Networks and Nokia is complete. Siemens has informed us that its own investigation is also complete. Although the government investigations of Siemens by German and United States authorities have been concluded and resolved, investigations in other countries continue, as well as investigations of Siemens employees and other individuals. Accordingly, until these investigations are complete and the matter is resolved, it is not possible to ensure that Siemens employees who may have been involved in the alleged violations of law were not transferred to Nokia Siemens Networks. Nor is it possible to predict the extent to which there may be undetected additional violations of law that may have occurred prior to the transfer that could result in additional investigations or actions by government authorities. Such actions have, and could include criminal and civil fines, tax liability, as well as other penalties and sanctions. To date, none of the substantial fines imposed on Siemens by regulators in Germany and the United States has applied to Nokia Siemens Networks or Nokia. It is also not possible to predict whether there have been any ongoing violations of law after the formation of Nokia Siemens Networks involving the assets and employees of the Siemens carrier-related operations that could result in additional actions by government authorities. The development of any of these situations could have a material adverse effect on Nokia Siemens Networks and our reputation, business, results of operations and financial condition. In addition, detecting, investigating and resolving such situations have been, and might continue to be, expensive and consume significant time, attention and resources of Nokia Siemens Networks’ and our management, which could harm our business and that of Nokia Siemens Networks.
 
The government investigations may also harm Nokia Siemens Networks’ relationships with existing customers, impair its ability to obtain new customers, business partners and public procurement contracts, affect its ability to pursue strategic projects and transactions or result in the cancellation or renegotiation of existing contracts on terms less favorable than those currently existing or affecting its reputation. Nokia Siemens Networks has terminated relationships, originated in the Siemens carrier-related operations, with certain business consultants and other third-party intermediaries in some countries as their business terms and practices were contrary to Nokia Siemens Networks’ Code of Conduct, thus foregoing business opportunities. It is not possible to predict the extent to which other customer relationships and potential business may be affected by Nokia Siemens Networks legally compliant business terms and practices. Third-party civil litigation may also be instigated against the Siemens carrier-related operations and/or employees transferred to Nokia Siemens Networks.
 
Siemens has agreed to indemnify Nokia and Nokia Siemens Networks for any government fines or penalties and damages from civil law suits incurred by either, as well as in certain instances for loss of business through terminated or renegotiated contracts, based on violations of law in the Siemens carrier-related operations that occurred prior to the transfer to Nokia Siemens Networks.
 
We cannot predict with any certainty the final outcome of the ongoing investigations related to this matter, when and the terms upon which such investigations will be resolved, which could be a number of years, or the consequences of the actual or alleged violations of law on our or Nokia Siemens Networks’ business, including its relationships with customers.
 
ITEM 4.  INFORMATION ON THE COMPANY
 
4A. History and Development of the Company
 
Nokia is committed to connecting people to what matters to them by combining advanced mobile technology with personalized services. More than 1.3 billion people connect to one another with a Nokia, from our most affordable voice-optimized mobile phones to advanced Internet-connected smartphones sold in virtually every market in the world. Through Ovi, people also enjoy access to maps and navigation on mobile, a rapidly expanding applications store, a growing catalog of digital


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music, free email and more. Nokia’s NAVTEQ is a leader in comprehensive digital mapping and navigation services, and Nokia Siemens Networks is one of the leading providers of telecommunications infrastructure hardware, software and professional services globally.
 
For 2010, our net sales totaled EUR 42.4 billion (USD 56 billion) and operating profit was EUR 2.1 billion (USD 2.7 billion). At the end of 2010, we employed 132 427 people; had production facilities for mobile products and network infrastructure in nine countries; sales in more than 160 countries; and a global network of sales, customer service and other operational units.
 
History
 
During our 146 year history, Nokia has evolved from its origins in the paper industry to become a world leader in mobile communications. Today, Nokia brings mobile products and services to more than one billion people from virtually every demographic segment of the population.
 
The key milestones in our history are as follows:
 
  •  In 1967, we took our current form as Nokia Corporation under the laws of the Republic of Finland. This was the result of the merger of three Finnish companies: Nokia AB, a wood-pulp mill founded in 1865; Finnish Rubber Works Ltd, a manufacturer of rubber boots, tires and other rubber products founded in 1898; and Finnish Cable Works Ltd, a manufacturer of telephone and power cables founded in 1912.
 
  •  We entered the telecommunications equipment market in 1960 when an electronics department was established at Finnish Cable Works to concentrate on the production of radio-transmission equipment.
 
  •  Regulatory and technological reforms have played a role in our success. Deregulation of the European telecommunications industries since the late 1980s stimulated competition and boosted customer demand.
 
  •  In 1982, we introduced the first fully-digital local telephone exchange in Europe, and in that same year we introduced the world’s first car phone for the Nordic Mobile Telephone analog standard.
 
  •  The technological breakthrough of GSM, which made more efficient use of frequencies and had greater capacity in addition to high-quality sound, was followed by the European resolution in 1987 to adopt GSM as the European digital standard by July 1, 1991.
 
  •  The first GSM call was made with a Nokia phone over the Nokia-built network of a Finnish operator called Radiolinja in 1991, and in the same year Nokia won contracts to supply GSM networks in other European countries.
 
  •  In the early 1990s, we made a strategic decision to make telecommunications our core business, with the goal of establishing leadership in every major global market. Basic industry and non-telecommunications operations—including paper, personal computer, rubber, footwear, chemicals, power plant, cable, aluminum and television businesses—were divested during the period from 1989 to 1996.
 
  •  Mobile communications evolved rapidly during the 1990s and early 2000s, creating new opportunities for devices in entertainment and enterprise use. This trend—where mobile devices increasingly support the features of single-purposed product categories such as music players, cameras, pocketable computers and gaming consoles—is often referred to as digital convergence.
 
  •  Nokia Siemens Networks began operations on April 1, 2007. The company, jointly owned by Nokia and Siemens AG and consolidated by Nokia, combined Nokia’s networks business and Siemens’ carrier-related operations for fixed and mobile networks.
 
  •  In recent years, we have supported the development of our services and software capabilities with acquisitions of key technologies, content and expertise. For example, in 2008 we acquired NAVTEQ,


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  a leading provider of comprehensive digital map information and related location-based content and services, as well as Trolltech, whose Qt technology forms the basis of the tools we and third party developers use to develop services and applications for Nokia smartphones. In 2010, we acquired Motally, whose mobile analytics service enables developers and publishers to optimize the development of their mobile applications through increased understanding of how users engage; MetaCarta to obtain its geographic intelligence technology and expertise; and Novarra, whose mobile browser and services platform is being used by Nokia to deliver enhanced Internet experiences on Nokia’s Series 40-based mobile phones.
 
  •  We are also partnering with third parties as we seek to create the best user experiences for our customers. For instance, in 2010, we formed an alliance with Yahoo!, whereby Nokia is the exclusive, global provider of Yahoo!’s maps and navigation services, integrating Ovi Maps across Yahoo! properties, and Yahoo! is the exclusive, global provider of Nokia’s Ovi Mail and Ovi Chat services.
 
  •  In 2010, Nokia Siemens Networks announced that it had entered into an agreement to acquire the majority of the wireless network infrastructure assets of Motorola. The planned acquisition is expected to enhance Nokia Siemens Networks’ capabilities in key wireless technologies, including WiMAX and CDMA, and strengthen its market position in key geographic markets, in particular Japan and the United States. Nokia Siemens Networks is also targeting to gain incumbent relationships with more than 50 operators and strengthen relationships with certain of the largest communication service providers globally as a result of the acquisition. The Motorola acquisition is expected to close after the final antitrust approval by the Chinese regulatory authorities has been granted and the other closing conditions have been met.
 
  •  As part of our efforts to concentrate on services that we have identified as core to Nokia’s offering, we have also made disposals, including, most recently, the sale of our wireless modem business to Renesas Electronics Corporation as part of a strategic business alliance between the two companies to develop modem technologies for HSPA+/LTE (Evolved High-Speed Packet Access / Long-Term Evolution) and its evolution.
 
  •  In February 2011, Nokia announced a new strategy, leadership team and operational structure designed to accelerate our speed of execution in the intensely competitive mobile products market. The main elements of the new strategy include: plans for a broad strategic partnership with Microsoft to build a new global mobile ecosystem, with Windows Phone serving as Nokia’s primary smartphone platform; a renewed approach to capture volume and value growth to connect “the next billion” to the Internet in developing growth markets; focused investments in next-generation disruptive technologies; and a new leadership team and operational structure designed to focus on speed, accountability and results.
 
Organizational Structure
 
We currently have three operating and reportable segments for financial reporting purposes: Devices & Services; NAVTEQ; and Nokia Siemens Networks.
 
Devices & Services is responsible for developing and managing our portfolio of mobile products, which we make for all major consumer segments, as well as designing and developing services, including applications and content, that enrich the experience people have with their mobile devices. Devices & Services also manages our supply chains, sales channels, brand and marketing activities and explores corporate strategic and future growth opportunities for Nokia.
 
As of April 1, 2011, we will have a new operational structure, which features two distinct business units in Devices & Services business: Smart Devices and Mobile Phones. They will focus on our key business areas: smartphones and mass-market mobile phones. Each unit will have profit-and-loss responsibility and end-to-end accountability for the full consumer experience, including product development, product management and product marketing.


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Starting April 1, 2011, we will present our financial information in line with the new organizational structure and provide financial information for our three businesses: Devices & Services, NAVTEQ and Nokia Siemens Networks. Devices & Services will include two business units: Smart Devices and Mobile Phones as well as devices and services other and unallocated items. For IFRS financial reporting purposes, we will have four operating and reportable segments: Smart Devices and Mobile Phones within Devices & Services, NAVTEQ and Nokia Siemens Networks.
 
NAVTEQ is a leading provider of comprehensive digital map information and related location-based content and services for mobile navigation devices, automotive navigation systems, Internet-based mapping applications, and government and business solutions.
 
Nokia Siemens Networks, jointly owned by Nokia and Siemens and consolidated by Nokia, provides mobile and fixed network infrastructure, communications and networks service platforms, as well as professional services and business solutions, to operators and service providers. Nokia Siemens Networks has three business units: Network Systems; Global Services; and Business Solutions.
 
For a breakdown of our net sales and other operating results by category of activity and geographical location in 2010, see Item 5 and Note 2 to our consolidated financial statements included in Item 18 of this annual report.
 
Other
 
We primarily invest in research and development, sales and marketing, and building the Nokia brand. However, over the past few years we have increased our investment in services and software development tools, including acquiring a number of companies with specific technology assets and expertise. During 2011, we currently expect the amount of capital expenditure, excluding acquisitions, to be approximately EUR 800 million, and to be funded from our cash flow from operations. During 2010, our capital expenditures, excluding acquisitions, totaled EUR 679 million, compared with EUR 531 million in 2009. For further information regarding capital expenditures see Item 5A. “Operating Results” and for a description of capital expenditures by our reportable segments see Note 2 to our consolidated financial statements included in Item 18 of this annual report.
 
We maintain listings on three major securities exchanges. The principal listing venues for our shares are NASDAQ OMX Helsinki, in the form of shares, and the New York Stock Exchange, in the form of American Depositary Shares. In addition, our shares are listed on the Frankfurt Stock Exchange.
 
Our principal executive office is located at Keilalahdentie 4, P.O. Box 226, FI-00045 Nokia Group, Espoo, Finland and our telephone number is +358 (0) 7 1800-8000.
 
4B. Business Overview
 
The following discussion should be read in conjunction with Item 3D. “Risk Factors” and “Forward-Looking Statements.”
 
Devices & Services
 
Market Overview
 
Since the early 1990s, mobile telecommunications penetration has grown rapidly, and today the majority of the world’s population owns a mobile device. The mobile telecommunications market is often characterized in terms of mobile phones and smartphones. The distinction between these two classes of mobile products is typically rooted in their differing capabilities in terms of software and hardware, the richness of the experience they offer and the volume of data they process. Mobile phones, for instance, have been primarily used for calling and text messaging; however, today many models increasingly offer access to the Internet and mobile applications, and can provide more smartphone-like experiences. With their more sophisticated operating systems, smartphones offer a richer Internet experience, giving their users faster connections to the Internet, as well as, for


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example, the ability to access social media, navigate, record high-definition video, take high-resolution photographs, share media, play video games and more.
 
As the availability of faster and more affordable Internet connections has increased and the relevant technology and hardware become more affordable, demand for mobile products that enable people to connect to the Internet has grown rapidly. In volume and value terms, the smartphone segment has captured the major part of this growth. The latest breed of smartphones is geared towards greater Internet usage, featuring larger screens, more powerful processors, greater memory and storage, and more sophisticated operating systems than their earlier counterparts. At the same time, the increased affordability of many smartphones is making them attractive to a broader range of consumer groups and geographic markets, such that they no longer represent only a high-end niche of the market. Demand has also grown for other large handheld Internet-centric computing devices, such as tablets and e-readers, which trade off pocketability for larger screen sizes. Many of the devices in this emerging third category of devices offer access to the Internet over WiFi and 3G networks and, like smartphones, are increasingly offered in combination with an operator data plan that gives the user unlimited or a predefined amount of access to the Internet using their device.
 
Due to the broad convergence of the mobility, computing, consumer electronics and services industries, the competitive landscape of the mobile device market has continued to undergo significant changes. Particularly in the smartphone and tablets segments, success for mobile product manufacturers is now primarily shaped by their ability to build, catalyze or be part of a competitive ecosystem where different industry participants—such as hardware manufacturers, software providers, developers, publishers, entertainment providers, advertisers and ecommerce specialists—are forming increasingly large communities of mutually beneficial partnerships in order to bring their offerings to market. A vibrant ecosystem creates value for consumers, giving them access to a rich and broad range of user experiences. There are different ecosystems reflecting the different operating systems and development platforms available for mobile devices. Developers and publishers decide how to allocate their time and resources in application development and content delivery according to various criteria, including the quality and simplicity of the development tools that are at their disposal as well as the current and potential size of the addressable market and business opportunity. As a result, the competitive landscape is increasingly characterized more as competition between different ecosystems rather than individual hardware manufacturers or products. Ecosystems in the smartphone segment include those based around Apple’s iOS and Google’s Android operating systems, as well as Research in Motion’s Blackberry OS, with the former two, in particular, gaining significant momentum and market share. In the mobile phones segment a different ecosystem is emerging involving very low cost components and manufacturing processes. In particular, the availability of complete mobile solutions chipsets from MediaTek has enabled the very rapid and low cost production of mobile phones by numerous manufacturers in the Shenzhen region of China which have gained significant share in emerging markets.
 
New Strategy
 
On February 11, 2011, we announced a new strategy, including changes to our leadership team and operational structure designed to accelerate our speed of execution in an intensely competitive mobile products market. The main elements of our new strategy are as follows.
 
Smartphones: We plan to form a broad strategic partnership with Microsoft that would combine our respective complementary assets and expertise to build a new global mobile ecosystem for smartphones. Under the proposed partnership, we would adopt, and license from Microsoft, Windows Phone as our primary smartphone platform. While Microsoft will continue to license Windows Phones to other mobile manufacturers, the proposed Microsoft partnership would provide us with opportunities to innovate and customize on the Windows Phone platform, such as in imaging where we are a market leader, with a view to differentiating Nokia smartphones from those of our competitors who also use the Windows Phone platform. We would contribute our expertise on hardware, design, language support and help bring Windows Phone to a broader range of price


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points, market segments and geographies. We and Microsoft would closely collaborate on joint marketing initiatives and a shared development roadmap to align on the future evolution of mobile products. The goal for both partners is that by combining our complementary assets in search, maps, location-based services, ecommerce, social networking, entertainment, unified communications and advertising, we would jointly create an entirely new consumer proposition. We would also combine our developer ecosystem activities to accelerate developer support for the Windows Phone platform on Nokia devices.
 
We expect the transition to Windows Phone as our primary smartphone platform to take about two years. While we transition to Windows Phone as our primary smartphone platform, we will continue to leverage our investment in Symbian for the benefit of Nokia, our customers and consumers, as well as developers. We and Microsoft have entered into a non-binding term sheet, and the proposed Microsoft partnership remains subject to the negotiation and execution of definitive agreements.
 
Mobile phones: In mobile phones, we are renewing our strategy to focus on capturing volume and value growth by leveraging our innovation and strength in developing growth markets to connect the next billion people to their first Internet and application experience.
 
Almost 90% of the world’s population lives within range of a mobile signal, yet there are more than 3 billion people who do not own a mobile device. Of the estimated 3.7 billion people who do own a mobile device, fewer than half use it to access the Internet, either out of choice or because Internet connectivity is not available. Nokia recognizes that there is a significant opportunity to bring people everywhere, affordable mobile products that enable simple and efficient web browsing, as well as give access to maps and other applications and innovations.
 
Next-generation disruptive technologies: Under our new strategy, MeeGo becomes an open-source, mobile operating system project. MeeGo will place increased emphasis on longer-term market exploration of next-generation devices, platforms and user experiences.
 
Our new strategy is supported by changes in Nokia’s leadership, operational structure and approach designed to focus on speed, results and accountability. See Item 4A. “History and Development of the Company—Organizational Structure” and Item 6A. “Directors and Senior Management—Nokia Leadership Team”.
 
The following business overview continues to describe our mobile devices business prior to the announcement of our new strategy and changes in operational structure for our Devices & Services business, effective April 1, 2011, in order to align with the financial segment reporting and related operating and financial review discussion through December 31, 2010 contained in this annual report.
 
Mobile Phones
 
We produce a range of affordable mobile phones based on the Series 30 and Series 40 operating systems. Our Series 30 operating system powers our most cost-effective voice and messaging phones. These products have voice capability, basic messaging and calendar features, and, increasingly, color displays, radios, basic cameras and Bluetooth functionality. They are targeted at consumers for whom a low total cost of ownership is most important and all of our Series 30 models retail for less than EUR 50. Series 30-based mobile phones do not provide Internet connectivity, access to Ovi or offer opportunities for application development by third parties. New additions to our portfolio of Series 30-based mobile phones in 2010 included the Nokia 1616, equipped with a long-lasting anti-dust keypad, FM radio, a flashlight, and a display that makes viewing information on the small screen easier.
 
Our Series 40 operating system powers the majority of our mobile phone models and supports more functionalities and applications, such as Internet connectivity and access to our services. These devices, often called feature phones, are targeted at consumers for whom a balance between cost of ownership, functionality and style is most important, with many of our Series 40-based mobile


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phones retailing for between EUR 50 and EUR 200. Series 40 is open to third-party developers to build Java and Adobe Flash Lite applications and content, which they can make available through the Ovi Store. The EUR 50+ price segment has attracted a number of participants who are competing not just on affordability, but also by incorporating into their products software and hardware innovations more readily associated with smartphones. Our Series 40 operating system has evolved over time to support richer functionality, and some of our latest models incorporate smartphone-like hardware elements and design features. For example, among the new additions to our portfolio of Series 40-based mobile phones in 2010 was the Nokia X3 Touch & Type, one of Nokia’s thinnest mobile devices. It combines a touchscreen and a traditional phone keypad, is equipped with a 5 megapixel camera, quad-band for voice calling and 3G, HSPA and WiFi connectivity for data in a bushed aluminum finish. Other new additions to our portfolio included the Nokia C3 Touch & Type, a stainless steel device, which also combines the touch screen and traditional phone keypad, and the Nokia 2690, our lowest-cost device with a memory card slot, and which gives access to Ovi Mail and features an FM radio and VGA camera.
 
We are also incorporating some of the software features and related services popular in our smartphones into our Series 40-based mobile phones, while seeking to retain the simplicity and ease-of-use of the devices’ user interface. These include the new Ovi web browser, which is based on the browser technology that we obtained as part of our acquisition in 2010 of Novarra, Inc. We also offer Ovi Mail, a free email service designed especially for users in emerging markets with Internet-enabled devices. In some markets we have introduced Life Tools, which enables consumers to access timely and relevant agricultural information, as well as education, healthcare and entertainment services, without requiring the use of GPRS or Internet connectivity.
 
Smartphones
 
Nokia’s smartphones are currently based on the Symbian operating system, which supports a wide array of functionalities and provides opportunities for the development of sophisticated applications and content by third parties. During 2010, Nokia also offered a product built on the Linux-based Maemo operating system.
 
We make smartphones for a broad range of consumer groups, addressing the market for feature-rich mobile devices offering Internet access, entertainment, location-based and other services, applications and content. With smartphones, we capture value from traditional single-purpose product categories, including music players, cameras, pocketable computers, gaming consoles and navigation devices, by bringing combinations of their various functionalities into a single device. Our smartphones cover a wide range of price points, from our most affordable smartphones retailing for just over EUR 100 to upwards of EUR 500 for our most premium models. The global smartphone market has enjoyed strong growth in recent years in both volume and value terms, and as the cost of the relevant technology and hardware has decreased, smartphones have become more affordable for more people in more geographic markets.
 
During the second half of 2010, we introduced a family of mid-priced and premium smartphones based on a new generation of the Symbian operating system that is designed to offer an improved user experience, a higher standard of quality and competitive value to consumers. These were the Nokia N8, a smartphone crafted from anodized aluminum and available in a variety of colors, and which offers industry-leading imaging, video and entertainment capabilities; the Nokia C7, a sleek, full-touch smartphone crafted from stainless steel and glass that is designed to appeal especially to social networkers; the Nokia C6-01, a smaller, full-touch smartphone that features Nokia ClearBlack display technology for improved outdoor visibility; and the Nokia E7, a business smartphone equipped with a full keyboard and 4-inch touchscreen display also featuring Nokia ClearBlack technology. In addition to bringing more than 250 new features and improvements to the Symbian software, these four new smartphones also showcase the improvements we have made to the Ovi experience to make it faster, simpler and more fun. We have also endeavored to offer a better experience to developers through the unified Qt development environment. By using Qt’s


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programming interface, both our own and third party developers are able to build an application once and simultaneously make it available for our Symbian and future MeeGo-based products as well as many products supported by other mobile and desktop operating systems without having to rewrite the source code.
 
During 2010, we also introduced a number of more affordable models based on the Symbian operating system, including the Nokia C6-00, a messaging-optimized smartphone with a 3.2-inch HD touchscreen display, a slide out four-row QWERTY keyboard and a 5 megapixel camera; and the Nokia E5, a messaging-optimized QWERTY smartphone that builds on the success of the Nokia E71 and Nokia E72.
 
During 2011, Nokia plans to complement its offering of mobile phones and smartphones with its first mobile device based on the MeeGo operating system. MeeGo is an open-source, mobile operating system project and our own development around MeeGo will place increased emphasis on longer-term market exploration of next-generation devices. MeeGo was formed from the merger by Nokia and Intel of their respective Maemo and Moblin Linux-based computer operating systems during 2010. Nokia has previously deployed Maemo on Internet tablets and, most recently, the Nokia N900, which was the first Maemo-based device offering cellular functionality.
 
Services
 
While we deploy and utilize different operating systems for our mobile phones and smartphones, we have also worked to offer some commonalities in the look and feel of the user interface, as well as in the user experience, across the different categories of device. An important part of our effort in this respect are our services, including those under our Ovi brand, through which users of Nokia mobile phones and smartphones can enrich their mobile experience. Ovi can be accessed on Nokia mobile devices, through the Nokia Ovi Suite software for desktop computers, as well as at www.ovi.com, giving Nokia users easy access to, for example, popular applications and games, in our view the world’s best maps and navigation through a mobile device, a music store with millions of music tracks, free email and more. The various elements of Ovi are undergoing continuous improvement designed to ensure the best possible experience for Nokia users.
 
As part of our efforts to develop Ovi, we have expanded the availability of its different elements to different geographies, invested in the technological infrastructure to support Ovi’s continual smooth operation and taken steps to improve the user interface of the different elements. We are working to ensure that each element of Ovi is not only viable and positively differentiated from competitor offerings on a standalone basis, but also over time more integrated with other elements to create an overall Ovi experience. One example is Gig Finder, a Nokia-developed application which recommends music events based on the user’s own music tastes, shows these events on Ovi Maps, and gives the user the ability to compare ticket prices and purchase tickets as well as directly download music tracks from Ovi Music. By March 2011, more than 300 000 new consumers a day were signing up for Ovi. In addition, by March 2011, more than 100 developers and publishers had each surpassed the one million downloads mark for their applications and content in the Ovi Store.
 
The following provides a brief description of each of the main elements of Ovi, as well as highlights in their development during 2010 and the early part of 2011.
 
  •  Maps gives consumers access to world-class mapping and navigation. Maps utilizes NAVTEQ’s digital maps database and has been evolving from a static map to a dynamic platform upon which users can add their own content and access location-based services as well as content placed on the map by third parties, such as Lonely Planet, Michelin, HRS and TripAdvisor. Our smartphones include high-end drive and walk navigation features such as turn-by-turn voice guidance, at no extra cost for consumers in 100 markets. Additionally, more than 100 cities around the world have dedicated pedestrian navigation. With the release of the latest version of Ovi Maps, users can download maps directly to their device over Wi-Fi as well as enjoy mapping that includes public transport lines for subways, trams and trains in more than


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  80 cities around the world. In 2010, as part of the newly-formed strategic alliance with Yahoo!, Nokia became the exclusive global provider of Yahoo!’s maps and navigation services, integrating Ovi Maps across Yahoo! properties, branded as “powered by Ovi.”
 
  •  Store is a place where people can download thousands of popular applications and games, many of which are localized for a wide variety of geographies and cultures. During 2010, Nokia launched a renewed Store, offering an improved consumer user experience, including a redesigned look and feel and faster performance as well as enhancements to the way content is displayed and discovered. As of March 2011, the Store was attracting more than 4 million downloads a day. This compares with around 1.5 million downloads a day in March 2010.
 
  •  Music offers a catalog of more than 11 million music tracks, including lots of music from local artists. During 2010, Nokia migrated its Nokia Music Store digital music service to the new Ovi Music platform, which is designed to deliver an enhanced mobile and personal computer (PC) music download experience for new and existing users. The Ovi Music platform brings DRM-free music, improved search, a more attractive user interface, common Ovi branding and numerous user experience enhancements, including over-the-air one-click album downloads. Ovi Music is available in 38 markets. As part of Nokia’s ongoing strategy to deliver market-leading, locally relevant experiences, the decision was made to discontinue production of Ovi Music-unlimited edition devices—with the exception of some high growth markets—as of December 31, 2010. However, in all markets we will continue to offer the full service to existing and new users until the end of their current subscription.
 
  •  Mail is a free email service designed especially for users in emerging markets with Internet-enabled devices. The service can be set up and accessed without ever needing a PC. In 2010, as part of our strategic alliance, Yahoo! became the exclusive global provider of Nokia’s Ovi Mail as well as our Ovi Chat instant messaging service branded as “Ovi Mail / Ovi Chat powered by Yahoo!”.
 
  •  Life Tools is a subscription service through which people can access timely and relevant agricultural information, as well as education, healthcare and entertainment services, without requiring the use of GPRS or Internet connectivity. We currently offer Life Tools across China, India, Indonesia and Nigeria and to date, almost 9 million people have experienced the service. In Nigeria, where Nokia launched the service in November 2010, a farmer can, for example, use the text-based service to check crop prices at markets nearby to find the best market for his product without incurring the time and money that would have otherwise been spent travelling to markets to check prices. Life Tools is available on select Nokia mobile phones, including the Nokia 1616, our popular Series 30-based model.
 
In addition to developing the Ovi experience on our smartphones, we also work closely with third-party companies, application developers and content providers in other areas that we believe could positively differentiate our smartphones from those of our competitors. One area of focus has been Nokia Messaging, our push email and instant messaging service which pushes email from all of the world’s major consumer email services providers directly to the user’s device. By March 2011, Nokia Messaging was available in more than 200 countries and territories, covering more than 600 operator networks. Another area of focus is our strategic alliance with Microsoft to design and market a suite of productivity applications for Nokia smartphones. During 2010, we made available Microsoft Communicator Mobile, the first application developed as part of this alliance, which gives employees direct access to corporate instant messaging through their Nokia smartphone.
 
Vertu
 
In addition to our Nokia-branded mobile phones and smartphones, we also manufacture and sell luxury mobile devices under the Vertu brand. Vertu has more than 600 points of sale globally, including more than 90 Vertu boutiques, in almost 70 countries worldwide.


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Sales and Marketing
 
Sales: Nokia has the industry’s largest distribution network, with more than 650 000 points of sale globally alongside our own growing online retailing presence. Compared to our competitors, we have a substantially larger distribution and care network, particularly in China, India, and the Middle East and Africa.
 
Nokia derives its Devices & Services net sales primarily from sales to mobile network operators, distributors, independent retailers, corporate customers and consumers. However, the total device volume that goes through each channel varies by region. In 2010, sales in North America and Latin America were predominantly to operator customers, sales in Asia-Pacific, China and Middle East and Africa were predominantly to distributors, and sales in Europe were more evenly distributed between operators and distributors.
 
Marketing: Devices & Services’ marketing activities play a fundamental role in our effort to bring people mobile products that satisfy their needs. Our activities are designed to create loyalty, enhance the Nokia brand and drive more sales. Nokia is among the top ten brands in the world according to the Interbrand annual rating of 2010 Best Global Brands.
 
Our marketing activities continued to evolve in 2010. First, we increased the portion of our overall marketing spend that is aimed at boosting revenues beyond the initial point of purchase. In particular, we increased advertising on our own and third party websites of our own services as well as applications available for download at Ovi Store. Secondly, digital marketing accounted for an increasingly larger share of our overall marketing mix as consumption of media continued to shift from traditional broadcast media towards the Internet. As part of this shift, we also increasingly engaged consumers through our own social media channels, and this approach was employed in the launch in 2010 of the Nokia N8, which recorded the highest ever level of pre-orders for a Nokia product. Thirdly, we began to consolidate our advertising effort around a single theme, with the aim of presenting a clearer, simpler and more coherent image of Nokia. This contrasts to our previous approach whereby we had different themes—such as messaging and navigation—to represent different aspects of our offering for the consumer.
 
Production
 
We operated ten major manufacturing facilities in nine countries around the world for the production of mobile devices as of December 31, 2010. Production at six of our production facilities—Beijing in China, Cluj in Romania, Komárom in Hungary, Masan in South Korea, Reynosa in Mexico and Salo in Finland—is focused on our advanced mobile products which require more sophisticated hardware and software, pre-installed services and applications readily accessible out-of-box, and customization per the requirements of our customers. Vertu, our line of luxury mobile devices, is served by our manufacturing facility in the United Kingdom. Our production facilities in Dongguan in China and Chennai in India concentrate on the production of high volume, cost-focused mobile devices, while our facility in Manuas in Brazil produces a mix of high-volume, cost focused devices and advanced mobile devices. In March 2011, we announced plans to establish a new manufacturing site near Hanoi in northern Vietnam, with a targeted opening in 2012. We plan an initial investment of approximately EUR 200 million, with further sizeable investments thereafter. The new manufacturing site is being established to meet the growth in demand for feature phones.
 
Our manufacturing facilities form an integrated global production network, giving us flexibility to adjust our production volumes to fluctuations in market demand in different regions. Each of our plants employs state-of-the-art technology and is highly automated. A significant part of the production of a mobile device includes the integration of software and content, a process which is usually done according to the specific requirements of our customers and the needs of individual markets.
 
Our mobile device manufacturing and logistics are complex and require advanced and costly equipment. We have from time to time outsourced manufacturing of certain aspects of certain


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products and components to adjust our production to seasonal demand fluctuations, as well as to benefit from expertise others have in the production of certain mobile technologies. During 2010, the vast majority of our manufacturing needs were met by our own production network.
 
Overall, we aim to manage our inventories to ensure that production meets demand for our products, while minimizing inventory-carrying costs. The inventory level we maintain is a function of a number of factors, including estimates of demand for each product category, product price levels, the availability of raw materials, supply-chain integration with suppliers and the rate of technological change. From time to time, our inventory levels may differ from actual requirements.
 
Research and Development
 
Devices & Services’ research and development (R&D) expenses amounted to EUR 3.0 billion in 2010. At the end of the year, Devices & Services employed 16 134 people in R&D.
 
We have dedicated R&D teams addressing our short to medium-term needs in product development. Horizontal teams address common elements across the portfolio, such as application and service frameworks, quality and delivery, and architecture and technology development. We have a Devices & Services R&D presence in Beijing in China; Copenhagen in Denmark; Greater Helsinki, Salo, Tampere and Oulu in Finland; Ulm in Germany; Bangalore in India; London and Farnborough in the United Kingdom; and San Diego in the United States.
 
Longer-term, more exploratory technology development comes under the scope of Nokia Research Center, a global network of research centers and laboratories Nokia maintains, in many cases in cooperation with outside partners. Nokia Research Center looks beyond the development of current products, services, platforms and technologies to the creation of assets and competencies in technology areas that we believe will be vital to our future success. In recent years, the Nokia Research Center has been a contributor to almost half of Nokia’s standard essential patents.
 
The center works closely with Devices & Services and Nokia Siemens Networks and collaborates with several universities and research institutes around the globe. These include the Massachusetts Institute of Technology (MIT), Stanford University, the University of California, Berkeley and the University Southern California (USC) in the United States; Cambridge University in the United Kingdom; Ecole Polytechnique Federale de Lausanne (EPFL) and Eidgenössische Technische Hochschule Zürich (ETHZ) in Switzerland; Aalto University, Tampere University of Technology and the University of Tampere in Finland; and Tsinghua University and the Beijing University of Post and Telecommunication (BUPT) in China. Nokia Research Center has a laboratory on the campus of most of these universities.
 
Nokia Research Center’s research agenda is focused on four core areas:
 
  •  Sensing and Data Intelligence: Interactions between people and their surroundings, location, and social environment provide the basis for new classes of services in areas such as traffic, health and entertainment, enabling new business models to emerge.
 
  •  New User Interface: Future user interfaces will utilize intelligence and context-awareness to enhance user experiences, integrating the personalized and adaptive aspects of devices with data-sharing capabilities.
 
  •  High Performance Mobile Platforms: Research focuses on improving the performance-to-power ratio, delivering new sensing capabilities as well as extending platform architecture to enable interoperability and facilitate application development.
 
  •  Cognitive Radio: Research in this area examines ways to utilize wireless spectrum dynamically to improve connectivity and capacity and enable large-scale sensing.
 
One example of the research that Nokia Research Center is carrying out is ’Nokia Instant Community’, a new, immediate way for communities to socially interact when in close proximity, without the need for WLAN infrastructure or Bluetooth and cellular connections. Developed by Nokia Research Center


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and the Tampere University of Technology, Nokia Instant Community is a disruptive technology which enables devices to connect to each other directly and continuously without the need for a server or specific infrastructure. It uses a device’s WLAN chip in a power-efficient way to connect and create an independent network. This project is part of Nokia Research Center’s ongoing research into cognitive radio and is built on more than two decades of academic research into radio technologies.
 
Another example of Nokia Research Center’s research is High Accuracy Indoor Positioning (HAIP), which provides precise indoor location information on a handset without needing GPS, and could enable new services, such as precise routing and navigation inside a building, as well as highly accurate location based advertising. HAIP uses low power wireless signals sent from a tag or mobile device to calculate the position of the subject to within one meter. The signals are received by beacons fixed to the ceiling inside a building. These beacons can also be used to send precise indoor location information directly to a device creating accurate indoor positioning.
 
Strategic Sourcing and Partnering
 
In line with industry practice, Devices & Services sources components for our mobile devices from a global network of suppliers. Those components include electronic components, such as chipsets, integrated circuits, microprocessors, standard components, printed wiring boards, sensors, memory devices, cameras, audio components, displays, batteries and chargers, and mechanical components, such as covers, connectors, key mats, antennas and mechanisms. Such hardware components account for the majority of our overall spending on sourcing.
 
We also source software, applications and content from a global network of third-party companies, application developers, content providers and industry-leading technology providers. For instance, we obtain content from commercial partners in the music industry to offer an extensive catalog of digital music through Ovi Music, our digital music store, and content from travel guide publishers to expand and enhance Ovi Maps.
 
Patents and Licenses
 
A high level of investment by Devices & Services in research and development and rapid technological development has meant that the role of intellectual property rights, or IPR, in our industry has always been important. Digital convergence, multiradio solutions, alternative radio technologies, and differing business models combined with large volumes are further increasing the complexity and importance of IPR.
 
The convergence has for a long time meant that complete products integrate a number of technologies, and that multiple parties contribute to the development of new technologies. The detailed designs of our products are based primarily on our own research and development work and design efforts, and generally comply with all relevant and applicable public standards. We seek to safeguard our investments in technology through adequate intellectual property protection, including patents, design registrations, trade secrets, trademark registrations and copyrights. In addition to safeguarding our technology advantage, they protect the unique Nokia features, look and feel, and brand.
 
We have built our IPR portfolio since the early 1990s, investing approximately EUR 43 billion cumulatively in research and development, and we now own over 10 000 patent families. As a leading innovator in the wireless space, we have built what we believe to be one of the strongest and broadest patent portfolios in the industry, extending across all major cellular and mobile communications standards, software and services as well as hardware and user interface features and functionalities. We receive royalties from certain handset and other vendors under our standard essential patent portfolio.
 
We are a world leader in the development of the wireless technologies of GSM/EDGE, 3G/WCDMA, HSPA, LTE, OFDM, WiMAX and TD-SCDMA, and we have a robust patent portfolio in all of those technology areas, as well as for CDMA2000. We believe our standards-related essential patent


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portfolio is one of the strongest in the industry. In GSM, we have declared over 320 GSM essential patents with a particular stronghold in codec technologies and in mobile packet data. Our major contribution to WCDMA development is demonstrated by over 430 essential patent declarations and in LTE/SAE Nokia has over 300 essential patent declarations to date. Our CDMA2000 portfolio is robust with over 160 patents declared essential.
 
We are a holder of numerous essential patents for various mobile communications standards. An essential patent covers a feature or function that is incorporated into an open standard which is deployed by manufacturers in order to comply with the standard. In accordance with the declarations we have made and the legal obligations created under the applicable rules of various standardization bodies, such as the European Telecommunication Standardization Institute (ETSI), we are committed to promoting open standards, and to offering and agreeing upon license terms for our essential patents in compliance with the IPR policies of applicable standardization bodies. We believe that a company should be compensated for its IPR based on the fundamentals of reasonable cumulative royalty terms and proportionality: proportionality in terms of the number of essential patents that a company contributes to a technology, and proportionality in terms of how important the technology is to the overall product. Nokia has agreed upon terms of several license agreements with other companies. Many of these agreements are cross-license agreements with major telecommunications companies that cover broad product areas and provide Nokia with access to relevant technologies.
 
Our products include increasingly complex technology involving numerous patented, standardized or proprietary, technologies. The possibility of alleged infringement and related intellectual property claims against us continues to rise as the number of entrants in the market grows, the Nokia product range becomes more diversified, our products are increasingly used together with hardware, software or service components that have been developed by third parties, Nokia enters new businesses, and the complexity of technology increases. As new features are added to our products, we are also agreeing upon licensing terms with a number of new companies in the field of new evolving technologies. We believe companies like Nokia with a strong IPR position, cumulative know-how and IPR expertise can have a competitive advantage in the converging industry, and in the increasingly competitive marketplace.
 
Competition
 
The mobile device market continues to undergo significant changes, most notably due to the broad convergence of the mobility, computing, consumer electronics and services industries. With the traditional mobile phone market continuing to mature, the major part of volume and value growth in the industry has been in smartphones, pocketable mobile devices whose sophisticated hardware and software offer a rich user experience increasingly shaped by the Internet. Additionally, other large handheld Internet-centric computing devices, such as tablets and e-readers, have emerged, trading off pocketability and some portability for larger screen sizes, but in many cases offering both cellular and non-cellular connectivity in the same way conventional mobile devices do. Due to their larger size, such devices are not replacing conventional mobile devices, but are generally purchased as a second device.
 
The increasing demand for wireless access to the Internet has also impacted the competitive landscape of the mobile device market in another fundamental way. Companies with roots in the mobile devices, computing, Internet and other industries are increasingly competing directly with one another, making for an intensely competitive market across all mobile products and services. At the same time, and particularly in the smartphone and tablets segments, success for hardware manufacturers is increasingly shaped by their ability to build, catalyze or be part of a competitive ecosystem, where different industry participants—such as hardware manufacturers, software providers, developers, publishers, entertainment providers, advertisers and ecommerce specialists—are forming increasingly large communities of mutually beneficial partnerships in order to bring their offerings to the market. A vibrant ecosystem creates value for consumers, giving them access to a rich and broad range of user experiences. Developers and publishers decide how to allocate their time and


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resources in application development and content delivery according to various criteria, including the quality and simplicity of the development tools that are at their disposal, as well as the current and potential size of the addressable market and business opportunity. As a result, the competitive landscape is increasingly characterized more as competition between different ecosystems rather than individual hardware manufacturers or products.
 
The nexus of the major smartphone ecosystems is the operating system and the development platform upon which devices are based and services built. Our competitors are pursuing a wide range of smartphone platform strategies. Many market participants are utilizing freely available operating systems. For instance, Google, HTC, LG, Motorola, Samsung and Sony Ericsson are among competitors which have deployed the Android operating system on their smartphones. Users of Android devices can access and download applications from the Android Market application store run by Google, so many companies deploying Android have focused their software development efforts around the user interface—or the ‘skin’ of the device—as well as focused on exploring new hardware form factors, such as tablets, as they seek to differentiate their offering from that of their competitors also using Android, as well as that of others using alternative operating systems, including Nokia. The availability and success of Google’s free open source Android platform has made entry and expansion in the smartphone market easier for a number of hardware manufacturers that have chosen to join Android’s ecosystem, especially at the mid-to-low range of the smartphone market. However, product differentiation is more challenging, potentially leading to increased commoditization of these devices and the resulting downward pressure on pricing. In addition, there is uncertainty in relation to the intellectual property rights in the Android ecosystem, which we believe increases the risk of direct and indirect litigation for participants in that ecosystem.
 
Other companies favor proprietary operating systems, including Apple, whose products use the iOS operating system, and Research in Motion (RIM), which deploys Blackberry OS on its mobile devices. Both Apple and RIM have developed their own application stores, through which users of their products can access applications. In 2010, Microsoft launched the Windows Phone operating system, which is being deployed on smartphones by HTC and Samsung, among others. In February 2011, we announced our plans to offer smartphones based on the Windows Phone operating system. Users of Windows Phone devices can access the Microsoft-run Marketplace for digital content and third party applications. The significant momentum and market share gains of the global ecosystems around the Apple and Android platforms have increased the competitive barriers to additional entrants looking to build a competing global smartphone ecosystem, like Nokia using the Windows Phone platform. At the same time, other ecosystems are being built which are attracting developers and consumers, such as RIM’s efforts around Blackberry Messenger, which may result in potential fragmentation among ecosystem participants and the inability of new ecosystems to gain sufficient competitive scale.
 
We also face intense competition in mobile phones where a different type of ecosystem from that of smartphones is emerging involving very low cost components and manufacturing processes, with speed to market and attractive pricing being critical success factors. In particular, the availability of complete mobile solutions chipsets from MediaTek has lowered the barriers of market entry and enabled the very rapid and low cost production of mobile phones by numerous manufacturers in the Shenzhen region of China which have gained significant share in emerging markets, as well as brought some locally relevant innovations to market. Such manufacturers have also demonstrated that they have significantly lower gross margin expectations than we do. We also face competition from vendors of unlicensed and counterfeit products with manufacturing facilities primarily centered around certain locations in Asia and other emerging markets which produce inexpensive devices, with sometimes low quality and limited after-sales services, that take advantage of commercially-available free software and other free or low cost components, software and content. In addition, we compete with non-branded mobile phone manufacturers, including mobile network operators, which offer mobile devices under their own brand, as well as providers of specific hardware and software layers within products and services at the level of those layers rather than solely at the level of complete products and services and their combinations.


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Our competitors use a wide range of other strategies and tactics. Certain competitors choose to accept significantly lower profit margins than we are targeting. Certain competitors have chosen to focus on building products and services based on commercially available components and content, in some cases available at very low or no cost. Certain competitors have also benefited from favorable currency exchange rates. For instance, the depreciated level of the Korean won against the euro and US dollar continues to benefit our Korea-based competitors. Further, certain competitors may benefit from support from the governments of their home countries and other measures which may have protectionist objectives.
 
NAVTEQ
 
Overview
 
In July 2008, we acquired NAVTEQ Corporation, a leading provider of comprehensive digital map information and related location-based content and services for mobile navigation devices, automotive navigation systems, Internet-based mapping applications, and government and business solutions. NAVTEQ enables the continued development of our context and geographical services through Ovi Maps as we move from simple navigation to a broader range of location-based services, such as pedestrian navigation, traffic and public transport information, local services and city guides, integration with social networks and contextual advertising. In January 2010, we introduced a new version of Ovi Maps for our smartphones which includes high-end navigation at no extra cost to the user, and we are using NAVTEQ’s comprehensive digital map information and related location-based content extensively in this offering. This new version of Ovi Maps includes high-end car and pedestrian navigation features, such as turn-by-turn voice guidance, at no extra cost for consumers in 100 markets. Since introducing this offering, Nokia’s Devices & Services has increased its use of data and its purchases of map licenses from NAVTEQ, boosting NAVTEQ’s core business and revenues. Under our planned agreement with Microsoft, Nokia and Microsoft would combine complementary assets in search, with Nokia’s maps offering at the heart of key Microsoft assets like Bing and AdCenter to form a local search and advertising experience.
 
NAVTEQ also continues to develop its expertise in digital mapping and navigation, service its external customer base and invest in the further development of its map data, location-based services, mobile advertising capabilities and technology platform.
 
As of December 31, 2010, NAVTEQ had approximately 5 300 employees in 49 countries. Highlights in 2010 included the following.
 
  •  NAVTEQ launched its new advanced mapping collection technology, NAVTEQ True, further innovating the scale and quality of data collection and processing.
 
  •  NAVTEQ launched Natural Guidance, a product to enable guidance in a human manner through the use of descriptive reference cues.
 
  •  NAVTEQ announced successful advertiser trials in Europe with McDonald’s and Best Western powered by NAVTEQ’s LocationPoint Advertising platform.
 
  •  NAVTEQ expanded map coverage to include six more countries, bringing to 84 the number of countries supported by NAVTEQ Maps.
 
  •  NAVTEQ announced the availability of real-time traffic in the UK, bringing to 13 the number of European cities with access to uninterrupted traffic data.
 
NAVTEQ’s map database enables its customers to offer dynamic navigation, route planning, location-based services and other geographic information-based products and services to consumer and commercial users. NAVTEQ provides its database to mobile device and handset manufacturers, automobile manufacturers and dealers, navigation systems manufacturers, software developers, Internet portals, parcel and overnight delivery services companies and governmental and quasi-


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governmental entities, among others. The products and services incorporating NAVTEQ map data include the following.
 
  •  Advanced Driver Assistance Systems are in-vehicle applications that require highly accurate and comprehensive geographic data, such as curve, slope, speed limits and highly detailed geometry, to enhance various fuel efficiency, safety feature and driver advisory systems.
 
  •  Dynamic navigation is real-time, detailed turn-by-turn route guidance which can be provided to end-users through vehicle navigation systems, as well as through GPS-enabled handheld navigation devices, and other mobile devices.
 
  •  Route planning consists of driving directions, route optimization and map display through services provided by Internet portals and through computer software for personal and commercial use.
 
  •  Location-based services include location-specific information services, providing information about people and places that is tailored to the immediate proximity of the specific user. Current applications using NAVTEQ’s map database include points of interest locators, mobile directory assistance services, emergency response systems and vehicle-based telematics services.
 
  •  Geographic information systems render geographic representations of information and assets for management analysis and decision making. Examples of these applications include infrastructure cataloging and tracking for government agencies and utility companies, asset tracking and fleet management for commercial logistics companies and demographic analysis.
 
In addition, NAVTEQ has a traffic and logistics data collection network in which it processes traffic incident and event information, along with comprehensive traffic flow data collected through its network of roadside sensors and from GPS data records from Nokia devices and other NAVTEQ customers, in order to provide detailed traffic information to radio and television stations, in-vehicle and mobile navigation systems, Internet sites and mobile device users.
 
NAVTEQ’s map database is a highly accurate and detailed digital representation of road transportation networks in Europe, North America, Australia, Asia and other regions around the world. This database offers extensive geographic coverage, including data at various levels of detail for 84 countries on six continents, covering more than 19 million miles of roadway worldwide. Unlike basic road maps, NAVTEQ’s map database currently can have over 200 unique attributes for a particular road segment. The most detailed coverage includes extensive road, route and related travel information, including attributes collected by road segment that are essential for routing and navigation, such as road classifications, details regarding ramps, road barriers, sign information, street names and addresses and traffic rules and regulations. In addition, the database currently includes over 50 million points of interest, such as airports, hotels, restaurants, retailers, civic offices and cultural sites. We believe NAVTEQ’s digital map has the most extensive navigable geographic coverage of any commercially available today.
 
NAVTEQ also continues to grow its advertising business through NAVTEQ Media Solutions which is focused on creating a high-value contextual mobile advertising network and servicing NAVTEQ’s radio and television customers that provide NAVTEQ advertising inventory in exchange for traffic data. NAVTEQ obtains mobile advertising inventory from Nokia, mobile website publishers and NAVTEQ map data customers, including device manufacturers and application developers. NAVTEQ’s proprietary location-based advertising API enables its map data customers to provide mobile advertisements to consumers based on their location. NAVTEQ believes that providing location-relevant advertisements significantly increases the value of the advertisement to both the advertiser and the consumer. NAVTEQ Media Solutions includes Nokia’s Interactive Advertising business which was combined into NAVTEQ Media Solutions in December 2009.


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Sales and Marketing
 
Sales: NAVTEQ provides its data to end-users through multiple distribution methods, including retail establishments, the Internet, automobile, handset and mobile device manufacturers and their dealers, and other re-distributors. NAVTEQ also offers distribution services to its customers, including the manufacturing and shipping of digital storage media to automobile manufacturers and dealers or directly to end-users, as well as a complete range of services, including inventory management, order processing, on-line credit card processing, multi-currency processing, localized VAT handling and consumer call center support.
 
NAVTEQ licenses and distributes its database in several ways, including licensing and delivering the database directly and indirectly to its business customers and consumer end-users. In addition to the basic license terms that typically provide for non-exclusive licenses, the license agreements generally include additional terms and conditions relating to the specific use of the data.
 
The license fees for NAVTEQ’s data vary depending on several factors, including the content of the data to be used by the product or service, the use for which the data has been licensed, the geographical scope of the data and whether there is any advertising inventory associated with such data. The fees paid for the licenses are usually on a per-copy, per transaction or per subscription basis. The fees for NAVTEQ’s data are also increasingly including fees generated from advertising inventory associated with the map. NAVTEQ also produces and delivers database copies to automobile manufacturers pursuant to purchase orders or other agreements.
 
Marketing: NAVTEQ’s marketing efforts include a direct sales force, attendance and exhibition at trade shows and conferences, advertisements in relevant industry periodicals, direct sales mailings and advertisements, electronic mailings, Internet-based marketing and co-marketing with customers.
 
Technology, Research and Development
 
NAVTEQ’s global technology team focuses on developments and innovations in data gathering, processing, delivery and deployment of its map database and related content. NAVTEQ employs an integrated approach to its database, software support and operations environments and devotes significant resources and expertise to the development of a customized data management software system. NAVTEQ has also built workstation software to enable sophisticated database creation and the performance of updating tasks in a well-controlled and efficient environment with the ability to access the common database from any of its satellite offices and edit portions of the data concurrently among several users. NAVTEQ’s proprietary software enables its field force to gather data on a real-time basis on portable computers in field vehicles. Once the data has been gathered and stored on portable computers, NAVTEQ’s field force performs further data processing at its field offices before integrating the changes into the common database. NAVTEQ also incorporates community feedback received from local governmental entities and consumer feedback received from NAVTEQ’s Map Reporter and NAVTEQ’s business customers. NAVTEQ continues to work with its business customers, including Nokia, in order to enable consumers to more easily submit feedback that can further improve the data.
 
Patents and Licenses
 
NAVTEQ relies primarily on a combination of copyright laws, including, in Europe, database protection laws, trade secrets and patents to establish and protect its intellectual property rights in its database, software and related technology. NAVTEQ holds a total of 240 United States patents, which cover a variety of technologies, including technologies relating to the collection and distribution of geographical and other data, data organization and format, and database evaluation and analysis tools. NAVTEQ also protects its database, software and related technology, in part, through the terms of its license agreements and by confidentiality agreements with its employees, consultants, customers and others.


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Competition
 
The market for map and related location-based information is highly competitive. NAVTEQ currently has several major competitors, including Google, Tele Atlas, which was acquired by TomTom, Open Street Map and numerous governmental and quasi-governmental mapping agencies that license map data for commercial use, as well as many local competitors in geographic areas outside of North America and Europe. NAVTEQ’s primary competitors have different business models. For example, Google uses an advertising-based model allowing consumers and companies to use its map data and related services in their products free of change, TomTom licenses its map data, while Open Street Map is a community generated open source map available to users free of charge.
 
Several global and local companies, as well as governmental and quasi-governmental agencies, are making more map data with improving coverage and content, and high quality, available free of charge or at lower prices. Aerial, satellite and other location-based imagery is also becoming increasingly available. Those developments may encourage new market entrants, cause business customers to incorporate map data from sources other than NAVTEQ or reduce the demand for fee-based products and services which incorporate NAVTEQ’s map database.
 
Nokia Siemens Networks
 
Overview
 
Nokia Siemens Networks is one of the leading providers of telecommunications infrastructure hardware, software and professional services globally. Nokia Siemens Networks provides mobile and fixed network infrastructure, communications and network service platforms, as well as professional services and business solutions, to communication service providers. Nokia Siemens Networks’ customers include network operators such as Bharti Airtel, Deutsche Telecom, France Telecom, Telefonica O2 and Vodafone, as well as service providers such as Unitech and XO Communications. Nokia Siemens Networks has a broad and innovative products and services portfolio designed to address evolving needs of communication service providers, a global base of customers with a presence in both developed and emerging markets and one of the largest service organizations in the telecommunications infrastructure industry. Nokia Siemens Networks provides its products and services to more than 600 communication service providers in over 150 countries and has systems serving in excess of 1.5 billion subscribers.
 
Nokia Siemens Networks’ strategy is to play the vital role of an enabler to communication service providers, helping them build stronger, more lasting and ultimately more profitable customer relationships. To address the evolving needs of communication service providers, Nokia Siemens Networks has emphasized those products and services that enable extreme efficiency through low cost connectivity and flexible service creation and individual experience that delivers context aware and customized offerings. In this respect, Nokia Siemens Networks has identified three key market opportunities—mobile broadband, managed services and subscriber-centric solutions—that it believes are the growth engines of the telecommunications infrastructure industry. Nokia Siemens Networks’ three business units—Network Systems, Global Services and Business Solutions—are aligned with the increasingly diverse needs of its customers and these key market opportunities.
 
Nokia Siemens Networks began operations on April 1, 2007. Nokia Siemens Networks, jointly owned by Nokia and Siemens and consolidated by Nokia, combined Nokia’s networks business and Siemens’ carrier-related operations for fixed and mobile networks. Nokia Siemens Networks’ operational headquarters is in Espoo, Finland and it has a strong regional presence in Munich, Germany and a services business unit based in New Delhi, India. The Board of Directors of Nokia Siemens Networks is comprised of seven directors, four appointed by Nokia and three by Siemens, and Nokia appoints the CEO.


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Motorola Acquisition
 
On July 19, 2010, Nokia Siemens Networks announced that it had entered into an agreement to acquire the majority of Motorola’s wireless network assets for USD 1.2 billion. Under the terms of the agreement, Nokia Siemens Networks will acquire assets related to the development, manufacture and sale of CDMA, WiMAX, WCDMA, LTE and GSM products and services, as well as approximately 7 500 employees and assets in 63 countries, including research and development sites in the United States, China and India.
 
The Motorola acquisition is expected to strengthen Nokia Siemens Networks’ market position in key geographic markets, in particular Japan and the United States, as well as other countries in the Asia-Pacific region, the Middle East and Africa. The Motorola acquisition is also expected to provide Nokia Siemens Networks with new customer relationships with over 50 network operators and to strengthen Nokia Siemens Networks’ position with certain of the largest communication service providers globally, including China Mobile, Clearwire, KDDI, Sprint and Verizon Wireless.
 
The Motorola acquisition is also expected to enhance Nokia Siemens Networks’ capabilities in WiMAX, as the Motorola business is a market leader in WiMAX with 41 contracts in 21 countries, and CDMA, as the Motorola business has a strong global presence in CDMA with 30 active networks in 22 countries, as well as to enhance Nokia Siemens Networks’ scale in GSM and LTE technologies, as the Motorola business enjoys a robust position in GSM with more than 80 active networks in 66 countries.
 
Nokia Siemens Networks’ acquisition of Motorola’s wireless networks infrastructure assets has received antitrust approvals from all jurisdictions except China, where approval of the regulatory authorities is still pending. Nokia Siemens Networks is continuing to work with the Chinese regulatory authorities to get the final antitrust approval. The Motorola acquisition is expected to close after the final antitrust approval by the Chinese regulatory authorities has been granted and the other closing conditions have been met.
 
Business Units
 
Network Systems: This business unit offers communication service providers both fixed and mobile network infrastructure, including Nokia Siemens Networks’ innovative Flexi Multiradio base stations, a software defined radio supporting GSM, 3G and LTE radio technologies, packet core products, optical transport systems and broadband access equipment.
 
For wireless networks, Network Systems develops and manufactures GSM/EDGE and WCDMA/HSPA radio access networks for network operators. It also develops innovative products such as I-HSPA and new technologies such as LTE to support the uptake of mobile data services and to introduce simplified network architecture for wireless and mobile broadband applications. Nokia Siemens Networks is the market leader in LTE, with 20 commercial LTE contracts. LTE is the fourth generation of wireless network technology which has emerged as the industry standard platform for future high-speed mobile broadband networks. It also has a strong leadership position in the WCDMA market, with the most 3G customers in the industry, and enjoys leadership positions in several other areas.
 
The main products are base stations, base station controllers and related software. Networks Systems’ flagship product is the Flexi Multiradio base station, a software defined radio supporting GSM, 3G and LTE radio technologies with common IP/Ethernet, Optical or Microwave transport. The Flexi Multiradio base station is at the heart of Nokia Siemens Networks’ Single RAN (Radio Access Network) solution, which enables communication service providers to operate different technology standards, from GSM to LTE, using the same hardware updated only by software.
 
For fixed line networks, Network Systems focuses on transport networks, which are the underlying infrastructure for all fixed and mobile networks. Network Systems provides the fundamental elements for high-speed transmission via optical and microwave networks, including packet-oriented technologies such as Carrier Ethernet and traditional protocols such as TDM.


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The business unit also provides a comprehensive portfolio for wireline connectivity, including digital subscriber line access multiplexers and narrowband/multi-service equipment. Network Systems aims to provide cost-efficient high bandwidth for access networks, enabling high quality “triple play” services such as high-speed Internet, Voice-over-IP and IPTV.
 
Global Services: This business unit offers network operators a broad range of professional services, including network planning and optimization, the management of network operations and the care and maintenance of software and hardware, and a full range of network implementation and turnkey solutions.
 
The Global Services organization operates a global delivery model designed to assist in achieving a balance between cost competitiveness and market reach. This is achieved through multi-technology, central delivery hubs that pool global skills and expertise as well as automated and standardized tools and processes to drive efficiency and quality for network operators around the world. As of December 31, 2010, 180 million global subscribers were managed via Nokia Siemens Networks’ global delivery hubs.
 
The consulting and solutions led approach of Global Services is aimed at customers who are increasingly looking for a business partnership with network infrastructure and service suppliers and who need consultancy services in relation to network management, development of value-added services for end-users and multi-vendor systems integration. Global Services consists of three businesses:
 
  •  Managed Services offers network planning and optimization and the management of network operations, with the leading market share position in India, Latin America and the Middle East and Africa.
 
  •  Care offers software and hardware maintenance, proactive and multi-vendor care and competence development services, dealing with one million global hardware service transactions per year.
 
  •  Network Implementation offers project management and turnkey implementations and energy efficient sites, remotely activating a site every two minutes, 365 days per year.
 
Business Solutions: This business unit offers products to communication service providers for business and operations support systems and customer experience management, such as charging and billing software, service management software and subscriber database management, and products that enable enhancement and delivery of services across multiple networks and devices and convergent service control and network security, together with services related to consulting, product implementation, support and care, systems integration and managed services.
 
The Business Solutions offering extends across network and information technology and the end-to-end customer lifecycle. It comprises a unified set of capabilities for flexible service enablement, real-time customer view, convergent service control, network and service management, unified charging, billing and care and asset security.
 
Business Solutions offers products for the following five areas, as well as services relating to consulting, product implementation, support and care, systems integration and managed services.
 
  •  Business Support Systems includes products for convergent charging and billing, mediation and service brokering. It enables communication service providers to monetize services through flexible and personalized pricing models, bundles and payment methods, and to leverage existing network assets and new-IP capabilities to deliver next-generation services and accelerate time to market.
 
  •  Operations Support Systems includes products for network, service, resource and inventory management and process automation. It enables communication service providers to automate customer-centric processes, manage multivendor networks and services, enhance network and service performance and personalize service quality.


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  •  Customer Experience Management includes products for subscriber data management, customer care automation, device management, reporting and analytics. It enables communication service providers to consolidate and leverage subscriber, network, device and service data in order to proactively enhance the customer experience in real-time.
 
  •  Service Enablement and Delivery includes products for mobile browsing, messaging, multiscreen TV and rich communication. It enables communication service providers to develop, launch and monetize innovative services across multiple networks and devices, shorten time-to-market, leverage third party partners and enhance the end-user experience.
 
  •  Converged Service Control includes products for mobile softswitching, IMS, VoIP/VoLTE/HD Voice, next generation IN, network security and policy control. It enables communication service providers to drive an all-IP fixed and mobile voice evolution, while leveraging fixed-mobile convergence, greater efficiencies and personalized policies.
 
Sales and Marketing
 
Sales: Nokia Siemens Networks has a geographically diverse direct sales force which is active in approximately 120 countries. This geographic diversity provides proximity to customers, enabling the development of close relationships. Customer teams and customer business teams, which handle larger, multinational customers, act as the company’s main customer interfaces to create and capture sales opportunities by working with their customers to anticipate the needs of their business and to develop solutions. Sales are done predominantly directly or in some cases through approved Nokia Siemens Networks reseller companies.
 
Typically, orders are placed with Nokia Siemens Networks directly or following a more formalized “Request for Proposal” process involving several potential vendors. Orders received may be for immediate short-term deliveries or for significantly longer periods covering, for example, a full network rollout with network implementation or even performed on a turnkey project basis. Quite often, a framework agreement will be established under which specific deliveries and services are called up over time. Managed services contracts are generally long-term, typically for five years or more.
 
Sales Organization: The Customer Operation unit oversees and executes sales and product marketing at Nokia Siemens Networks. Prior to January 1, 2011, the Customer Operations unit was organized into eight regions: APAC, Greater China, India, Latin America, Middle East/Africa, North America, North East Europe and West South Europe. From January 1, 2011, the Customer Operations unit has been reorganized into two new regional groupings: East (which covers the APAC, Greater China, India, Japan and Middle East regions) and West (which covers Africa, Latin America, North America, North East Europe and West South Europe). This change is designed to better align the organization to the opportunities and challenges presented by the planned Motorola acquisition. To complement this change and to put additional focus on Nokia Siemens Networks’ growing businesses, the current MEA region has been divided into Africa and the Middle East; and Japan reports direct to the head of the East regional grouping, coming out of the APAC region. This move is designed to bring Nokia Siemens Networks closer to the customers in these respective markets.
 
Cross-regionally, specialist sales teams focus on the products and services offered by Nokia Siemens Networks’ three business units. In addition, dedicated account teams look after Nokia Siemens Networks’ biggest global customers—Bharti Airtel, Deutsche Telecom, France Telecom, Telefonica O2 and Vodafone. Below the regional level, the Customer Operations unit is organized through country units and within those specific customer teams aligned to local operators.
 
Marketing: The marketing and communications unit of Nokia Siemens Networks is responsible for developing, executing and measuring the corporate marketing strategy, plan and budget. It develops content, executes and measures corporate marketing programs and events that raise the visibility of the Nokia Siemens Networks brand, seeks to position Nokia Siemens Networks as a thought leader in the telecoms industry and promotes its portfolio of products, solutions and services to


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communications service providers and public and corporate customers. It works in close collaboration with the regional marketing teams, sales, the business units, the corporate strategy team and human resources.
 
The marketing and communications unit is also responsible for a consistent brand strategy including corporate image, positioning and messaging across all customer and internal communications. These include the Nokia Siemens Networks public website, the extranet site and the intranet site. It develops corporate assets such as advertising and events, corporate videos, customer presentations and collateral and marketing programs that communicate what differentiates Nokia Siemens Networks from its competitors for use by the regional marketing teams as well as global functions. It creates, executes and measures corporate advertising and cross-business unit marketing campaigns as well as joint marketing programs with communication service providers.
 
The marketing and communications unit manages Nokia Siemens Networks’ participation in multi-regional industry events such as Mobile World Congress and Broadband World Forum, including speaking opportunities, stand themes and demonstrations, advertising and sponsorships.
 
Production
 
Nokia Siemens Networks’ operations unit handles the supply chain management of all Nokia Siemens Networks’ hardware, software and original equipment manufacturer (OEM) products. This includes supply planning, manufacturing, distribution, procurement, logistics, demand/supply network design and delivery capability creation in product programs.
 
At the end of 2010, Nokia Siemens Networks had eight manufacturing facilities worldwide: three in China (Beijing, Shanghai and Suzhou), one in Finland (Oulu), two in Germany (Berlin and Bruchsal), and two in India (Kolkata and Chennai).
 
In April of 2010, Nokia Siemens Networks started manufacturing of 3G mobile communications infrastructure in its Chennai facility to enable key customers in India to roll out 3G services faster. With this, Nokia Siemens Networks became the first vendor of telecommunications infrastructure to manufacture 3G products locally.
 
Nokia Siemens Networks works with best-in-class manufacturing service suppliers to increase its flexibility and optimize costs. Approximately 29% of Nokia Siemens Networks’ production is outsourced.
 
Certain components and sub-assemblies for Nokia Siemens Networks’ products, such as company specific integrated circuits and radio frequency components, are sourced and manufactured by third-party suppliers. Nokia Siemens Networks then assembles these components and sub-assemblies into final products and solutions. For selected products and solutions, suppliers deliver goods directly to Nokia Siemens Networks’ customers. Consistent with industry practice, Nokia Siemens Networks manufactures telecommunications systems on a contract-by-contract basis.
 
Nokia Siemens Networks generally prefers to have multiple sources for its components, but in certain cases it sources some components from a single or a small number of selected suppliers. These business relationships are stable and typically involve a high degree of cooperation in research and development, product design and manufacturing to ensure optimal product interoperability.
 
Research and Development
 
The Chief Technology Office focuses on research, standardization, intellectual property rights and innovation. It cooperates with universities, research institutes, leading industry partners and other industry cooperation bodies worldwide. The focus is on leading edge technologies three or more years out.
 
Nokia Siemens Networks’ business units focus on understanding short and medium-term customer needs and the overall development of the market to define requirements for product and solution


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functionality that will meet its customers’ requirements in the market. Each business unit is responsible for roadmaps for products, services, solutions and applications, while also managing actual development of hardware and software required for building products and solutions. Business units closely work together with industry partners to leverage their innovation into the Nokia Siemens Networks products, services and solutions while focusing their own R&D.
 
Nokia Siemens Networks has R&D centers in China, Finland, Greece, India, Israel, Italy, Portugal, Poland and the United States. Nokia Siemens Networks research and development work focuses on wireless and wireline communications solutions that enable communications services for people, machines, businesses and public authorities. These include wireless connectivity solutions like GSM/EDGE, 3G/WCDMA/HSPA/HSPA+, TD-LTE and LTE and wireline connectivity solutions based on copper (ADSL, VDSL2 and Ethernet), and fiber-based next generation optical access, or NGOA. Nokia Siemens Networks also develops the software, solutions and services that drive all these technologies, as well as the end-user analytics and insight that are crucial to ensuring that new services deliver on their promise.
 
In the transport and aggregation domain, carrier ethernet, next generation packet optical transport networks consisting of optics, microwave and IP routers, IP traffic analysis and multi-access mobility are among the key focus areas. Within the applications domain, research and development focuses on service enabling, network value-added services, identity management, and subscriber and device profile data storage. It also focuses on peer-to-peer, or person-to-person services, IP connectivity session control (IMS) and VoIP, network/service/subscriber/device management, and business management for instance for online and offline charging for post- and pre-paid subscribers. Additionally, R&D focuses on Self Organized Networks.
 
Nokia Siemens Networks also conducts R&D to support its customers when leveraging communications technologies for servicing other industries like the energy and transport sectors.
 
Nokia Siemens Networks conducts R&D internally as well as with industry partners where additional capacity or expertise is required.
 
Patents and Licenses
 
Nokia Siemens Networks seeks to safeguard its investments in technology through adequate intellectual property protections, including patents, patent applications, design patents, trade secrets, trademark registrations and copyrights. Nokia Siemens Networks owns a significant portfolio comprising IPR that was transferred from its parent companies at formation and IPR filed since its start of operations. Nokia Siemens Networks is a world leader in the research and development of wireless technologies, as well as transport and broadband technologies, and it has robust patent portfolios in a broad range of technology areas. The IPR portfolio includes standards-related essential patents and patent applications that have been declared by Nokia and Siemens. Nokia Siemens Networks has declared its own essential patents and patent applications based on evaluation of pending cases with respect to standards. Nokia Siemens Networks receives and pays certain patent license royalties in the ordinary course of its business based on existing agreements with telecommunication vendors.
 
Competition
 
Conditions in the market for mobile and fixed network infrastructure and related services improved, but remained challenging and intensely competitive in 2010. The market continued to be characterized by mixed trends as growth in mobile broadband and services were offset by equipment price erosion, a maturing of legacy industry technology and intense price competition. During 2010, an industry wide issue related to security clearances in India, which was preventing the completion of product sales to customers, further impacted the market. Based on preliminary estimates, Nokia and Nokia Siemens Networks believe the market for mobile and fixed infrastructure and related services was approximately flat in euro terms in 2010, compared to 2009.


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During the past three years, industry participants have changed significantly. Major industry consolidation occurred in 2007 with the emergence of three major European vendors, Alcatel-Lucent, Ericsson and Nokia Siemens Networks. The break-up of Nortel occurred in 2009 when it entered bankruptcy protection and many parts of the business were sold, including the wireless carrier unit, Metro Ethernet Networks, and GSM business. In 2010, Motorola was separated into two independent companies. On July 19, 2010 Nokia Siemens Networks announced that it had entered into an agreement to acquire the majority of Motorola’s wireless network assets. See “—Motorola Acquisition”. The market also saw the rise of low cost vendors from China, namely Huawei and ZTE.
 
In 2010, the competitive environment in the telecommunications infrastructure market was characterized by a continued slight decline in global communication service providers’ capital expenditures, mainly attributable to the Chinese, Indian and Middle East markets, while increased smart phone usage drove increased investments in the United States and European markets. The market share of lower cost vendors from China, Huawei and ZTE, continued to grow but at a slower pace than in previous years and continued to challenge Alcatel-Lucent, Ericsson and Nokia Siemens Networks. Nokia Siemens Networks’ ability to compete with the low cost vendors primarily depends on its ability to be price competitive and, in certain circumstances, its ability to provide or facilitate vendor financing. In addition to the major infrastructure providers, Nokia Siemens Networks also competes with CISCO, NEC and Motorola, as well as other companies, in certain segments of the market. Following the expected closing of the Motorola acquisition, Motorola would no longer compete with Nokia Siemens Networks. Nokia Siemens Networks’ planned acquisition of Motorola’s wireless networks infrastructure assets has received anti-trust approvals from all jurisdictions except China, where approval of the regulatory authorities is still pending. Nokia Siemens Networks will continue to work with the Chinese regulatory authorities to get the final anti-trust approval. The Motorola acquisition is expected to close after the final antitrust approval by the Chinese regulatory authorities has been granted and the other closing conditions have been met.
 
In the networks systems business, the 2G (GSM) decline continued in 2010, whereas investments to 3G continued and increased worldwide. Also, fourth generation (4G) LTE trials and pilots continued strongly as operators continued to merge towards next generation LTE and all-IP networks. Within the LTE segment, leading vendors are competing based on factors including technology innovation, network typology and less complex network architectures as well integration towards all-IP networks.
 
Growth in wireline and wireless broadband services sped up optical/wireless network upgrades in developed markets. In addition, the related investment in mobile backhaul networks continued to increase due to data traffic increases in the operator networks.
 
In services, which remained the fastest growing part of the industry, competition is generally based on a vendor’s ability to identify and solve customer problems rather than their ability to supply equipment at a competitive price. Competition in services is from both traditional vendors such as Alcatel-Lucent, Ericsson and Huawei, as well as non-traditional telecommunications players and system integrators, such as Accenture and IBM. In addition to these companies, there are also local service companies, which have a narrower scope in terms of served regions and business areas.
 
In Business Solutions, communication service providers seek to transform their business, processes and systems to enhance the customer experience, drive new revenue and improve operational efficiency to enable them to successfully address the challenges and opportunities of mobile broadband, smartphones, multi-play offerings, service innovation and new growth areas. In this area, Nokia Siemens Networks faces competition from information technology and software businesses like Accenture, Amdocs, HP, IBM and Oracle, who are active in areas such as the service delivery platform market and business insight and analysis services.
 
Nokia Siemens Networks competes with certain competitors that may receive governmental support allowing them to offer products and services at very low prices. Further, in many regions restricted access to capital has caused network operators to reduce capital expenditure and produced a stronger demand for vendor financing. Certain of Nokia Siemens Networks’ competitors may have stronger


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customer financing possibilities due to internal policies or government support. While Nokia Siemens Networks has moderately increased the amount of financing directly provided to its customers in 2010, as a strategic market requirement, it primarily arranged and facilitated, and plans to continue to arrange and facilitate, financing to a number of customers, typically supported by Export Credit or Guarantee Agencies.
 
Seasonality—Devices & Services, NAVTEQ and Nokia Siemens Networks
 
For information on the seasonality of Devices & Services, NAVTEQ and Nokia Siemens Networks, see Item 5A. “Operating Results—Overview—Certain Other Factors—Seasonality.”
 
Sales in sanctioned countries—Devices & Services, NAVTEQ and Nokia Siemens Networks
 
We are a global company and have sales in most countries of the world. We sold mobile devices and services through Devices & Services and network equipment through Nokia Siemens Networks to customers in Iran, Sudan and Syria in 2010. NAVTEQ did not have any sales to customers in these countries from the completion of our acquisition of NAVTEQ on July 10, 2008 to December 31, 2010. Our aggregate sales to customers in these countries in 2010 accounted for approximately 1.3% of Nokia’s total net sales, or EUR 542 million. Iran, Sudan and Syria are subject to US economic sanctions that are primarily designed to implement US foreign policy and the United States government has designated these countries as “state sponsors of terrorism.”
 
Government Regulation—Devices & Services, NAVTEQ and Nokia Siemens Networks
 
Our business is subject to direct and indirect regulation in each of the countries in which we, the companies with which we work and our customers do business. As a result, changes in or uncertainties related to various types of regulations applicable to current or new technologies, products and services could affect our business adversely. Moreover, the implementation of technological or legal requirements could impact our products and services, manufacturing and distribution processes, and could affect the timing of product and services introductions, the cost of our production, products and services, as well as their commercial success. Also, our business is subject to the impacts of changes in trade policies or regulation favoring the local industry participants, as well as other measures with potentially protectionist objectives that the host governments in different countries may take. Export control, tariffs or other fees or levies imposed on our products and services as well as environmental, product safety and security and other regulations that adversely affect the export, import, pricing or costs of our products and services could adversely affect our net sales and results of operations.
 
For example, in the United States, our products and services are subject to a wide range of government regulations that might have a direct impact on our business, including, but not limited to, regulation related to product certification, standards, spectrum management, access networks, competition and environment. We are in continuous dialogue with relevant United States agencies, regulators and the Congress through our experts, industry associations and our office in Washington, D.C. New, partly local 3G telecom standards have been enacted in China that may affect product processers and success criteria of the vendors. Also, the European Union (EU) regulation has in many areas a direct effect on our business and customers within the single market of the EU. Various legal requirements influence, for example, the conditions for innovation for multifunctional devices and services, as well as investment in fixed and wireless broadband communication infrastructure. We interact continuously with the EU through our experts, industry associations and our office in Brussels.


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Corporate Responsibility—Devices & Services, NAVTEQ and Nokia Siemens Networks
 
In the following description of our corporate responsibility activities, “Nokia” refers to Nokia excluding NAVTEQ and Nokia Siemens Networks.
 
We strive to be a leader in sustainability. We have a long track record of taking sustainability into account in all of our operations and products, and we continue to work to ensure that sustainability is reflected in the way we do business every day. We are also looking beyond our own operations to how the estimated 1.3 billion people using a Nokia mobile product can enhance and enrich their lives in a sustainable way with mobile technology. We believe that mobile technology can play an important role in education and health as well as in supporting livelihoods.
 
Customers—Corporate Responsibility
 
Accessibility of Nokia Mobile Products
 
Accessibility is about making Nokia products and services usable and accessible to the greatest possible number of people, including users with disabilities. Nokia is working to bring wireless communications to the estimated 600 million people worldwide who have a recognized disability and others with needs for improved accessibility. Our goal is to offer products that take unique needs into consideration, whether these are in regards to vision, hearing, speech, mobility or cognition. Many of the features initially developed to better serve these specific groups are finding uses in the general population, especially as the population ages. For example, for people with hearing difficulties we have developed the Nokia Wireless Loopset (LPS-5), which enables t-coil equipped hearing aid users to use a mobile device in a convenient way. Additionally, the increased affordability of smartphones has made features such as screen magnification, voice dialing, text-to-speech processing and enhanced personalization options more accessible for more people.
 
Nokia also supports the GSM Association’s mWomen program, which seeks to narrow the gender gap in mobile device ownership in emerging markets.
 
Health and Safety of Product Use
 
Product safety is a top priority for Nokia. All Nokia mobile products and Nokia Siemens Networks base stations operate below relevant international exposure guidelines and limits that are set by public health authorities. Since 1995, expert panels and government agencies around the world have performed more than 110 reviews of the scientific evidence regarding health effects from exposure to radio frequencies (RF). These reviews consistently support the scientific conclusion that RF fields operated at levels below the exposure guidelines pose no adverse effects to humans. Nokia is responsive to our customers’ questions about mobile phone safety and is committed to making information available transparently for consumers. Our website contains information and links to other sources. Since 2001, Nokia has also voluntarily made SAR (Specific Absorption Rate) information available to consumers. The information is included in product user guides and can also be found on our website.
 
Nokia Siemens Networks supports the move by the World Health Organization to harmonize global regulations on electromagnetic fields based on the widely recognized guidelines issued by the International Commission on Non-Ionizing Radiation Protection. Nokia Siemens Networks engages with its customers, including mobile network operators, to make them aware of electromagnetic field issues and provides detailed instructions to ensure they operate equipment appropriately to keep local exposure within safe limits. Nokia Siemens Networks also engages openly in global public discussions on the topic and monitors the latest scientific studies on radio waves and health.


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Privacy and Security
 
As the Internet has grown and converged with mobility and as we have developed new services for consumers, user privacy has become more important for us. Consumers have increasing possibilities to use and share their personal information in new contexts. To remain a trusted brand, Nokia works to ensure that this custodial information is protected from any threats. Respect for privacy is part of our commitment to observing high standards of integrity and ethical conduct in all our operations.
 
Employees—Corporate Responsibility
 
Values
 
We have a set of values developed by our employees around the world that reflects and supports our business and changing environment. The values act as a foundation for our evolving business culture and form the basis of how we operate: achieving together, to reflect how we reach out to others, encouraging them to work together with us and share risks, responsibilities and successes; very human, to reflect how we do business and work with each other; engaging you, to reflect how we engage our customers, our suppliers, and our own employees in what our company stands for; and passion for innovation, to reflect our curiosity about the world around us and our desire to improve people’s lives through innovation in technology.
 
To enrich its culture, Nokia Siemens Networks has five values: Focus on customer, Communicate Openly, Innovate, Inspire and Win together. Every employee of Nokia Siemens Networks is responsible for adopting these principles and using them to guide their actions and behavior. The values serve as the cultural cornerstones of the company.
 
Code of Conduct
 
We have a Code of Conduct in place across Nokia, including NAVTEQ. Nokia Siemens Networks also has a Code of Conduct, which is identical to that of Nokia’s.
 
At Nokia, the complete Code is available in 34 languages at www.nokia.com. A training program on the new Code began in the spring of 2009 and by the end of 2010 a total of 98% of all Nokia indirect employees had undertaken training on the Code, mostly using an e-learning platform. In our manufacturing facilities, where we have direct employees, 88% had undertaken classroom training by year end. The training module is offered in 13 languages. Approximately 80% of employees at NAVTEQ have familiarized themselves with the Code. Training will continue during 2011 with the goal of ensuring that all Nokia, NAVTEQ and Nokia Siemens Networks employees are familiar with, and understand, the Code.
 
Nokia has an Ethics Office, established to support all Nokia employees with questions relating to the Nokia Code of Conduct and business ethics. The Ethics Office also supports NAVTEQ employees. There are various channels for reporting violations of the Code of Conduct. Employees may also report violations directly to the Board of Directors anonymously.
 
Nokia Siemens Networks launched an updated Ethical business training (see training on the Code of Conduct above) in October 2010, mandatory to all employees. By the end of the year, 91.7% of employees with online access had completed the training.
 
Nokia Siemens Networks merged together its Ethics and Compliance Offices in 2010 to form an Ethics and Compliance office to support employees in matters relating to the Code of Conduct. Its focus is to prevent unethical behavior through training and awareness, to detect violations through different channels and mechanisms, to investigate and take corrective measures when violations occur and to work with the industry and wider community to promote ethical business practices. The Ethics and Compliance office has an email and internet reporting tool for employees and external parties. Reporting of any violations can also be done anonymously. A 24-hour telephone helpline in different languages is intended to be made available during 2011.


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Nokia Siemens Networks and Nokia are committed to actively fight against improper business practices, including corruption, and believe that as a multinational company it can play an important role in this area. We also believe that our efforts in this area can provide us with a competitive advantage with customers who demand high ethical standards in their supply chain.
 
Labor Conditions at Manufacturing Facilities
 
At December 31, 2010, Nokia had 29 234 employees working directly in production, including manufacturing, packaging and shipping. Nokia carries out in-depth assessments of labor conditions at all of our major production facilities every second year. During the intervening period, we also carry out reassessments to ensure any necessary corrective actions have been made, and we conduct some internal surprise audits based on risk analysis. Assessments are carried out against a framework based on International Labour Organization conventions and the human rights declarations of the United Nations. To support the implementation of the framework, all manufacturing facility employees undertake training on the principles of the framework as part of their induction. The last assessments of our nine major mobile device manufacturing facilities were conducted by a professional external assessment company, Intertek, in 2010.
 
In addition to onsite assessments, Nokia also requests all nine of its major mobile device manufacturing facilities to conduct a self assessment once a year using the ETASC (Electronics—Tool for Accountable Supply Chains) self assessment tool. ETASC, a joint effort of the Global eSustainability Initiative (GeSi) and the Electronic Industry Citizenship Coalition (EICC), is a web-based information management system to help companies collect, manage, and analyze social and environmental responsibility data from their supply chain. Nokia also uses this self assessment tool for its suppliers.
 
At December 31, 2010, Nokia Siemens Networks had 2 081 employees working directly in production, including manufacturing, packaging and shipping, at its production facilities. Nokia Siemens Networks also employed over 10 000 people in operative tasks such as telecommunications infrastructure installation and field maintenance activities.
 
Nokia Siemens Networks Global Labor Standard, based on International Labour Organization conventions and a standardized Industry Code of Conduct, benchmarked against international labor laws and standards, is integrated into Nokia Siemens Networks’ global employment policies and guidelines. The Standard is aimed at ensuring decent working conditions at Nokia Siemens Networks operations worldwide, and is supported by risk assessment processes relating to labor conditions and human rights.
 
Promoting Diversity in the Workplace
 
Nokia and Nokia Siemens Networks are committed to promoting diversity and inclusion in the workplace and providing rewarding career development opportunities for all employees. At the end of 2010, 14.5% of senior management positions within Nokia were held by women, while 53.2% of senior management positions were held by people of non-Finnish nationality.
 
Voluntary Attrition at Nokia and at NSN
 
During 2010, the rate of voluntary attrition—that is the percentage of the workforce leaving the company voluntarily—was 12.0% at Nokia and 9.4% at Nokia Siemens Networks.
 
Employee Training
 
During 2010, Nokia spent nearly EUR 28 million on training for employees working in areas other than production. This equates to EUR 850 for each employee. During 2010, Nokia Siemens Networks spent nearly EUR 57 million on training for employees. This equates to more than EUR 900 per employee.


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Suppliers—Corporate Responsibility
 
Open communication, good relationships and transparency are of key importance for us in ensuring that the highest standards of social and environmental responsibility are met within our supply chain. We work with many suppliers and our comprehensive set of Nokia Supplier Requirements provides clear guidance on what is expected from them.
 
To monitor supplier performance against our requirements and promote sustainability improvements, we conduct supplier self-assessments and onsite assessments. The average result of 26 suppliers’ self-assessments indicates a corporate level score of 89.7% and facility-level score of 89.9%, where a lower percentage score indicates a higher risk that the supplier is falling short of expectations and standards. In addition during 2010 we conducted 31 onsite assessments in regards to Nokia Supplier Requirements. We also identified some suppliers with potential risk and carried out 6 in-depth labor, health and safety and environmental assessments. In areas where risks were identified, suppliers have been requested to take corrective actions and we follow up on their improvements.
 
To drive sustainable changes, assessments are only one of the tools we use. Supplier training, face-to-face meetings and development programs are equally important. We also use a set of key environment and social performance indicators to generate sustained improvements. One of the performance indicators we track relates to the Code of Conduct policy of our suppliers. For 2010, we set a target to have visibility of the Code of Conduct policy and its implementation at all of our direct hardware suppliers. We found that 92.9% of our suppliers met our requirements. Suppliers not meeting our expectations have been requested to make improvements and we follow up on their improvements.
 
One of our aims is also to reduce the environmental impact of our products throughout the life cycle. For the supply chain, this means that we focus on the suppliers that account for the greatest environmental impact and those suppliers which are strategically significant for us. During 2010 71.9% of these suppliers had company level reduction targets for energy, carbon dioxide (equivalent), water and waste in place and monitored. Over the longer term, we would like to see that all of our suppliers have reduction targets in place.
 
To drive systematic improvements in environmental performance, we also require suppliers to have Environmental Management Systems in place. In 2010, 91.7% of our direct hardware suppliers’ sites serving Nokia were certified to ISO 14001.
 
In 2010, to obtain a broader overview on working conditions at our suppliers, we introduced four new metrics related to health, safety and labor issues. The metrics concern occupational injuries, employee attrition, the absence rate due to sick leave and overall employee satisfaction. We piloted these metrics with eight identified priority suppliers and during 2011 our aim is to continue with a comprehensive implementation across more of our supplier base.
 
Nokia strictly condemns any activities that benefit militant groups or fuel conflict. We have banned the use of ‘conflict metals’ and take continuous action to ensure that metals from conflict areas do not end up in our products. Since 2001, we have demanded written assurance from our suppliers to ensure our products do not have Tantalum derived from Coltan originating in the conflict areas, and we have expanded this to cover other metals as well. Furthermore, we request key suppliers to map their supply chains for the metals in their components back down to smelter and source.
 
Metal traceability is an issue that concerns the whole electronics industry, as well as other industries using these metals. We are actively participating in the industry initiatives (EICC and GeSI) to improve the overall traceability of metals and minerals, even though we do not mine or even buy metals directly. Recent developments, such as the smelter audit validation processes by EICC and GeSI, and the conflict metal legislation in the United States, are encouraging. An effective and sustainable solution requires that all companies and industries using metals follow the same rules and apply the same practices.


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Regarding the European Union Regulation on Registration, Evaluation, Authorization and Restriction of Chemicals (REACH), we have continued to work with all our direct suppliers to ensure that necessary actions are in place to support regulatory compliance within the supply chain.
 
Finally, Nokia conducts an annual Supplier Satisfaction Survey. Overall satisfaction reflects how Nokia performs on areas such as planning and relationship management and whether other business expectations force suppliers to compromise on their environmental and ethical level of compliance. In 2010, on average, the respondents gave an overall rating for doing business with Nokia as 80% on a scale where 0% represents an unacceptable level and 100% an excellent level. Furthermore, on average the respondents rated the overall level of Nokia’s approach to corporate responsibility as 87%.
 
Nokia Siemens Networks
 
All Nokia Siemens Networks suppliers must meet Nokia Siemens Networks’ global supplier requirements, which set standards for the management of ethical, environmental and social issues. This commitment is part of the contractual agreements with suppliers.
 
To monitor our suppliers, Nokia Siemens Networks conducts regular audits to identify risks, monitor compliance and raise awareness of its requirements, and shares best practice on corporate responsibility management. In 2010, Nokia Siemens Networks carried out 108 on-site system audits to assess compliance with its supplier requirements. Nokia Siemens Networks increased the number of in-depth labor conditions audits to 13 suppliers in 2010.
 
Nokia Siemens Networks environmental requirements state that suppliers need to have documented Environmental Management Systems (EMS) in place. A site-level review in 2010 of Nokia Siemens Networks top 250 suppliers by spend to whom the EMS alignment to ISO 14001 or such a certification is applicable showed that 85% of these sites have documented EMS in place and 75% are certified to ISO 14001. The top 250 suppliers represent approx 69% of the whole supplier spend (2009 spend). 29% of Nokia Siemens Networks suppliers by spend have set reduction targets for energy efficiency. Nokia Siemens Networks invited 30 suppliers to join its Energy Efficiency program in 2010 and prepares to introduce the Carbon Disclosure Project tool for its suppliers in 2011.
 
The annual Nokia Siemens Networks supplier satisfaction survey was conducted with 281 key suppliers. The overall rating for Nokia Siemens Networks’ requirements on business ethics when dealing with suppliers was 7.8 on a scale of 1-10 where 1 represents that Nokia Siemens Networks is not strict at all on its requirements and 10 very strict. Based on the feedback of this survey, Nokia Siemens Networks considers that the basic requirements are understood well by the majority of its suppliers, and that suppliers find the requirements to be strict.
 
In 2010 Nokia Siemens Networks held workshops on labor conditions and environmental protection for a total of 103 persons representing supplier management of 54 suppliers participating in Indonesia, UAE, Saudi Arabia, Russia and Turkey. Nokia Siemens Networks also rolled out an industry-wide web-based corporate responsibility training program for its suppliers.
 
Of Nokia Siemens Networks’ Global Procurement staff, 70% had received corporate responsibility training by the end of 2010 and 97% had completed the annual Ethical business training.
 
Nokia Siemens Networks continues to actively work together with other industry players to improve standards in the information and communications technology (ICT) supply chain through groups such as the GeSI. By the end of 2010, 18 key suppliers representing 16% of Nokia Siemens Networks supplier spend had joined E-TASC, a common industry supplier assessment and auditing tool developed by the GeSI and EICC. The average corporate score for these suppliers is 84.5% and the average facility score 89.3%.
 
In 2010, Nokia Siemens Networks implemented a corporate responsibility risk assessment tool based on the Maplecroft risk indices. Nokia Siemens Networks does not accept the use of any conflict minerals in its products and has developed a Conflict Minerals policy with the target to improve both


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the traceability of minerals and the transparency of global supply chains. Communication of the policy to suppliers started in 2010.
 
Society—Corporate Responsibility
 
Corporate Social Investment Strategy
 
Used by the vast majority of the world’s population, mobile phones have become recognized as a useful means by which to deliver critical social services. As a result, Nokia has reshaped its corporate social investment strategy to target the use of mobile technology for development. Our goal is not only to help people on a scale that is proportional to our business but to make the social benefit of mobile technology axiomatic.
 
Our work is targeted to address education, health and livelihoods, with a focus on education, and our investment prioritizes concepts that can be financially sustainable or deliver enduring value to society. In the following sections, we outline the focus areas of our investment.
 
Education
 
The most urgent priority in the area of education is to ensure access to, and improve the quality of, education for girls and women, and to remove every obstacle that hampers their active participation. To that end, mobile phones can offer individualized learning for every person, irrespective of gender. Concepts such as Ovi Life Tools, our expanding subscription-based service, show that education can be delivered on a large scale, in a way that is financially viable. We have also developed, or are participating in, more initiatives specifically related to education. These include:
 
  •  Our five-year partnership with UNESCO, initiated in October 2010. The partnership aims to harness mobile communication to serve individuals and support governments as they strive to achieve the goals of the World Declaration of Education for All. The target date for these objectives to be reached is 2015 and our partnership with UNESCO has been structured accordingly. Nokia is contributing expertise relating to technology and policy setting in this area.
 
  •  Nokia Education Delivery, software which enables the structured delivery of quality education materials over mobile networks. Combined with teacher training and community engagement, this software has been shown to improve academic results and increase retention among students, especially girls. During 2010, the concept expanded to two additional countries, Chile and Colombia. This built on earlier projects in the Philippines and Tanzania.
 
  •  A South African project for individualized mobile learning, which reached a stage of maturity and success in 2010. The concept uses Mxit, a popular social media channel as a means to deliver mathematics education. Importantly, it harnesses the social networking element of the channel to engage students around learning content. The project covers 30 schools and more than 4 000 students across South Africa, and helps teachers and learners deliver a marked improvement in academic achievement.
 
Health
 
In 2010, we commenced trials of a concept that uses mobile networks and social networks to increase adherence to courses of prescribed medicines. The costs of failing to adhere to a course of medicine can be significant, in personal terms and for the public, so a successful proof of concept would be significant. Funded by the Brazilian government, the project is being carried out in Belo Horizonte and we expect information on the outcomes by mid-2011. We anticipate that future social investments in health will be more educational in nature, targeted at early childhood care and development.


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Livelihoods
 
In July 2010, we announced the availability of Nokia Data Gathering under an open source license. This software suite replaces traditional data-gathering methods (such as paper questionnaires) with mobile phones, improving results and saving time and money. The open source software has positively impacted adoption among government, non-government and corporate clients, giving assurance of continuity. Nokia invests in the development and maintenance of the software but does not donate devices or act as a systems integrator. Rather, we aim to support entrepreneurs around the world who can serve organizations that provide important social services. This model allows us to affordably offer the software on a large scale, while supporting the creation of livelihoods.
 
Recent public reference cases have included the Department of Agriculture in the Philippines (to improve food security), UN FAO (Food and Agriculture Organization of the United Nations) in Kenya (mapping water points), World Vision in Indonesia (child sponsorship), Plan Kenya (birth registration) and Syngenta Foundation in Kenya (agricultural productivity). More than 50 organizations have conducted trials of Nokia Data Gathering using our test server, while other organizations have simply taken it into use.
 
Youth Development
 
In 2010, we continued to support a diverse range of youth development projects across the world, aimed at addressing needs identified by partners, such as the Heart to Heart project in China, which recognizes the stress that economic migration can exert on families and aims to support affected children, as well as our youth life skills initiative with the International Youth Foundation in more than 10 countries.
 
Disaster Relief
 
We try to respond to disaster crises appropriately, working together with our non-profit partners around the world. Our response depends on the severity of the situation, our presence and our ability to make a meaningful contribution. In 2010, we gave financial or in-kind support in several locations, including Haiti, Pakistan, Thailand, Vietnam, Indonesia and Uganda.
 
Today, we are focusing more on disaster preparedness, including the development of mobile based tools and applications. Furthermore we intend to explore ways to deploy our knowledge and skills for the benefit of disaster relief efforts.
 
Promoting Sustainability through Services
 
With our services offering, Nokia address the fundamental needs of connectivity, affordability and relevance. For example, Ovi Mail is providing many people in emerging markets their first email account, while Ovi Life Tools, our subscription service, is providing people in China, India, Indonesia and Nigeria with livelihood and life improvement services, including healthcare, agriculture, entertainment and educational services. We have also launched a collection of eco applications in Ovi Store promoting more sustainable lifestyles. The Go Green content is created together with developers and partners offering around 500 green applications around the world.
 
Nokia Siemens Networks
 
During 2010, Nokia Siemens Networks provided both technical assistance in restoration of telecommunications infrastructure and monetary support via the International Red Cross in the aftermath of the devastating earth quakes in Haiti and Chile and the massive floods in Pakistan.
 
In 2010, Nokia Siemens Networks continued to provide education and capacity building activities throughout the world through a variety of projects, including educational activities for the handicapped, the elderly and the socially or economically disadvantaged. Many of these activities were run by Nokia Siemens Networks employee volunteers. A large proportion of the education work


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was invested in non-R&D university partnerships and vocational training activities, for example in providing scholarships to women in engineering.
 
In 2010, Nokia Siemens Networks continued its collaboration with Professor Leonard Waverman from London Business School and economic consulting firm LECG, to produce the ‘Connectivity Scorecard’. The Connectivity Scorecard ranks economies around the world in terms of “useful connectivity”: to what extent are governments, businesses and consumers making use of ICT to enhance a country’s social and economic prosperity.
 
Environment—Corporate Responsibility
 
Environmental Management at Nokia
 
Nokia aims to be a leading company in environmental performance. In 2010, we continued to look for possibilities to reduce the environmental impact of our devices and operations at each stage of the product life cycle. Focus areas include materials used, energy efficiency, take-back of used products, and eco services for our phones to help people to make sustainable choices and consider the environment in their everyday lives. Our environmental work is based on global principles and standards. Our targets are not driven solely by regulatory compliance, but are designed to go beyond legal requirements. Environmental issues are fully integrated in our business activities and are everyone’s responsibility at Nokia.
 
Environment and Nokia Products
 
The way we make products is guided by life cycle thinking, where we aim to minimize the environmental impacts of a product at every stage of its life, from manufacture through to use and disposal. Life cycle assessments help us identify and focus on the areas where we can make the biggest contribution to reducing impacts. Our life cycle assessment method has been externally audited. During a product’s creation we focus on energy efficiency, sustainable use of materials and smart, sustainable packaging. We choose the materials for our products and packaging with the environment in mind.
 
We’ve been driving environmental improvements systematically across our product portfolio for years, and we aim to continuously improve the environmental attributes of all our products. During the last decade we have been able to reduce the environmental impact of our products—measured by the energy consumed through the entire product lifecycle—by up to 65%, while also introducing new features and capabilities that allow the mobile phone to be used in many other ways than just for calling. Our latest smartphone models—the Nokia C7, Nokia C6-01, Nokia E7 and Nokia N8—represent an important step in making our product portfolio more environmentally friendly, in that they make use of renewable and recycled materials such as bio-paints, bio-plastics and recycled metals. The Nokia C7 is the industry’s first mobile device to use bio paints and the Nokia C6-01 is the first in the industry to use recycled metals.
 
Nokia has provided Eco declarations for older products and in order to improve transparency in environmental matters, in May 2010 we started to provide enhanced Eco profiles for all our new products containing information on their environmental impact. In addition to this, Eco profiles contain also basic information on products’ material use, energy efficiency, packaging, disassembly and recycling. Sustainable living is also promoted through hundreds of applications available in Ovi Store, including a collection of applications in a dedicated ‘green’ section of the store.
 
Materials in Nokia Products and Packaging
 
Our main objective is that we know all the substances in our products, not just those that raise concerns, and that they are safe for people and the environment when used in the proper way. All our mobile devices and accessories worldwide are fully compliant with the EU Directive on the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (EU


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RoHS). Additionally, our products do not contain substances included in the current EU REACH Candidate List of Substances of Very High Concern, which the EU REACH regulation requires to be reported.
 
We have also voluntarily phased out PVC from all mobile devices and enhancements since 2006. We are currently voluntarily phasing out the use of brominated and chlorinated compounds and antimony trioxide. At the end of 2010, a total of 46 Nokia models available on the market are free of these substances, based on Nokia Substance List definitions. Our new mobile phones and accessories are also fully free of brominated and chlorinated compounds and antimony trioxide as defined in the Nokia Substance List, which is available on our website.
 
We continue to improve our packaging, increasing our use of renewable, paper-based materials to over 95% of total packaging materials. Our packages are 100% recyclable. Since 2008, the sales packages of all new devices have been smaller than their earlier equivalents, and the reductions continue. Smaller and lighter packaging has also reduced transportation loads, and these factors together have translated into significant cost savings.
 
Energy Savings in Nokia Products
 
We have introduced energy saving features throughout our product portfolio, including energy-efficient chargers. Over the last decade, we have reduced the average no-load energy consumption of our chargers by more than 80% and our best-in-class chargers by over 95%. We have reached and exceeded our target of reducing no-load power used by our chargers by 50% from 2006 to 2010. The target was already reached during the second half of 2009 and during 2010 the no-load power consumption was further decreasing and finally exceeding the target with 18%. The no-load energy consumption of a charger is the amount of energy the charger continues to consume if you forget to unplug it from the wall outlet once the phone is fully charged.
 
Recycling Nokia Products
 
In 2010 we have continued our work globally to raise consumers’ awareness about mobile phone recycling. After a product is no longer in use our recycling programs target to ensure that unusable products do not end up in landfill sites. Our target in take-back is to build up and widen our collection and recycling infrastructure together with various local partners in order to build a recycling culture. In our service center network, the aim is to provide people with a one stop process to limit the transportation of devices as much as possible. Additionally, all of the non-repairable products are sent to eco-efficient recycling. Of the materials in a mobile phone, 100% can be recovered and used to make new products or generate energy.
 
Nokia Siemens Networks: Environment
 
The focus of Nokia Siemens Networks’ environmental strategy is to achieve a net positive impact on the environment. This will be delivered by:
 
  •  Minimizing its environmental footprint.
 
  •  Combining environmental and business benefits for a sustainable solution.
 
  •  Maximizing the positive impact of telecommunications on other industries.
 
Nokia Siemens Networks continues to hold a leadership position and offers the industry’s most comprehensive range of energy solutions for telecoms operators, combining products and services. This portfolio is designed to reduce the network operating costs of new and legacy telecommunications networks, these solutions can reduce power consumption and resultant GHG emissions by exploiting more efficient technology and renewable energy.
 
By the end of 2010 Nokia Siemens Networks had deployed more than 390 sites running on renewable energy in 25 countries encompassing Asia-Pacific, China, Europe, Middle East, Africa and Latin America.


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Nokia Siemens Networks has set targets for improving the environmental performance of its products and its facilities and will continue to set progressively more demanding targets on an on-going basis. Nokia Siemens Networks has been a member of the WWF Climate Savers program since June 2008, and is well on track to achieve its commitment to improving the energy efficiency of base station products by up to 40% by 2012, reducing energy consumption of buildings by 6% by 2012 and increasing the use of renewable energy in company operations to 50% by the end of 2010. The emissions avoided by these actions will amount to approximately 2 million tons of CO2 annually compared to the 2007 level.
 
During 2010 Nokia Siemens Networks has highlighted the positive environmental impact information technology solutions can have in other industry sectors. Nokia Siemens Networks is offering solutions for the utilities sector with smart grids and improved energy management solutions.
 
All of Nokia Siemens Networks’ production sites are included in the scope of the ISO 14001 certification. During 2010 Nokia Siemens Networks has made significant progress to extend the certification to cover its entire operations. This is planned to be completed during 2011.
 
Operations
 
In 2010, Nokia Group facilities consumed 91 GWh of direct and 1 099 GWh of indirect energy. This energy consumption caused 17 000 tons of direct and 396 000 tons of indirect greenhouse gas (CO2e) emissions. Direct energy means our use of gas and oil while indirect energy refers to our use of electricity, district heating and district cooling. Without our purchase of certified green energy the (above mentioned) indirect emissions would have been greater by 127 000 tons.
 
We have been increasing the purchase of green electricity since 2006 and in 2010 the share was 409 GWh, which equals 42%.
 
Reducing the energy consumption and environmental impact of all our facilities has been a longstanding focus for us. Nokia Group has improved the energy efficiency of its facilities through a number of different projects in recent years. In 2010, Nokia created 8 500 MWh and Nokia Siemens Networks 10 100 MWh of new energy savings in technical building systems. Nokia has already achieved and Nokia Siemens Networks is on course to achieving the cumulative 6% energy savings target by 2012, compared to the baseline year 2006 (Nokia) or 2007 (Nokia Siemens Networks).
 
In 2010 Nokia (including NAVTEQ) was able to reduce facilities CO2 emissions by 19%, compared with the 2006 level. This reduction was achieved through the above mentioned energy efficiency measures, renewable energy purchases and by supporting Gold Standard certified renewable energy project in China.
 
Nokia’s travel reduction efforts, consisting of a new travel policy, travel awareness campaigns, improved availability of video conferencing facilities and direct travel consultancy to Nokia business units, have resulted in reductions in air travel emissions. Employees are encouraged to purchase company funded carbon offsets to compensate for the CO2 emissions caused by our remaining air travel. Nokia’s CO2 emissions from air travel have been reduced by 40% from 2008 base level. CO2 emissions from air travel were 75 893 tons in 2010, which is 2.8% more than in 2009. In 2010 the number of flights actually decreased, but average flight distance increased which resulted in increased emissions. The emissions figure covers 95% of Nokia’s air travel and has been calculated with a conservative interpretation of GHG Protocol emission factors.
 
Water is not a significant environmental topic for Nokia Group’s own operations. Water is used mainly for sanitary and catering purposes, and to a smaller extent in gardening and facilities management, such as cooling towers. Production processes do not consume water. In 2010 Nokia Group withdrew 2 197 000 m3 water for use in its facilities, out of which 96% was withdrawn from municipal and 4% from ground water sources. 9% was recycled.


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Nokia (including NAVTEQ) caused 59 800 tons of waste in 2010. Out of this, 91% was reused or recycled, energy was recovered from 4% and only 5% went for final disposal, i.e., either for landfill or was incinerated without energy recovery.
 
4C. Organizational Structure
 
The following is a list of Nokia’s significant subsidiaries as of December 31, 2010. See also, Item 4A. “History and Development of the Company—Organizational Structure”.
 
                     
        Nokia
    Nokia
 
    Country of
  Ownership
    Voting
 
Company
  Incorporation   Interest     Interest  
 
Nokia Inc. 
  United States     100 %     100 %
Nokia GmbH
  Germany     100 %     100 %
Nokia UK Limited
  England & Wales     100 %     100 %
Nokia TMC Limited
  South Korea     100 %     100 %
Nokia Telecommunications Ltd. 
  China     83.9 %     83.9 %
Nokia Finance International B.V. 
  The Netherlands     100 %     100 %
Nokia Komárom Kft
  Hungary     100 %     100 %
Nokia India Pvt. Ltd. 
  India     100 %     100 %
Nokia Italia S.p.A
  Italy     100 %     100 %
Nokia Spain S.A.U. 
  Spain     100 %     100 %
Nokia Romania SRL
  Romania     100 %     100 %
Nokia do Brasil Tecnologia Ltda
  Brazil     100 %     100 %
OOO Nokia
  Russia     100 %     100 %
NAVTEQ Corporation
  United States     100 %     100 %
Nokia Siemens Networks B.V. 
  The Netherlands     50 %(1)     50 %(1)
Nokia Siemens Networks Oy
  Finland     50 %     50 %
Nokia Siemens Networks GmbH & Co KG
  Germany     50 %     50 %
Nokia Siemens Networks Pvt. Ltd. 
  India     50 %     50 %
 
 
(1) Nokia Siemens Networks B.V., the ultimate parent of the Nokia Siemens Networks group, is owned approximately 50% by each of Nokia and Siemens and consolidated by Nokia. Nokia effectively controls Nokia Siemens Networks as it has the ability to appoint key officers and the majority of the members of its Board of Directors and, accordingly, Nokia consolidates Nokia Siemens Networks.
 
4D. Property, Plants and Equipment
 
At December 31, 2010, Nokia operated ten manufacturing facilities in nine countries for the production of mobile devices, and Nokia Siemens Networks had eight major production facilities in four countries. We consider the production capacity of our manufacturing facilities to be sufficient to meet the requirements of our devices and networks infrastructure business. The extent of utilization of our manufacturing facilities varies from plant to plant and from time to time during the year. None of these facilities is subject to a material encumbrance. See also, Item 4B. “Business Overview—Devices & Services—Production” and “—Nokia Siemens Networks—Production.”


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The following is a list of the location, use and capacity of major manufacturing facilities for Nokia mobile devices and Nokia Siemens Networks infrastructure equipment.
 
             
        Productive
 
        Capacity, Net
 
Country
 
Location and Products
  (m2)(1)  
 
BRAZIL
  Manaus: mobile devices     11 752  
CHINA
  Beijing: mobile devices     26 848  
    Dongguan: mobile devices     35 667  
    Beijing: switching systems     6 749  
    Shanghai: base stations, broadband access systems, transmission systems     16 363  
    Suzhou: base stations     11 373  
FINLAND
  Salo: mobile devices     17 352  
    Oulu: base stations     14 000  
GERMANY
  Berlin: optical transmission systems     14 045  
    Bruchsal: Switching systems, transmission systems, broadband access systems     23 612  
HUNGARY
  Komárom: mobile devices     44 805  
INDIA
  Chennai: mobile devices     35 581  
    Chennai: base stations and radio controllers, microwave radio products.     7 328  
    Kolkata: fixed switching     9 057  
MEXICO
  Reynosa: mobile devices     19 535  
REPUBLIC OF KOREA
  Masan: mobile devices     31 183  
ROMANIA
  Cluj: mobile devices     15 773  
UNITED KINGDOM
  Fleet: mobile devices     2 728  
 
 
(1) Productive capacity equals the total area allotted to manufacturing and to the storage of manufacturing-related materials.
 
ITEM 4A.  UNRESOLVED STAFF COMMENTS
 
Not applicable.
 
ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 
5A. Operating Results
 
This section begins with an overview of the principal factors and trends affecting our results of operations. The overview is followed by a discussion of our critical accounting policies and estimates that we believe are important to understanding the assumptions and judgments reflected in our reported financial results. We then present an analysis of our results of operations for the last three fiscal years.
 
We currently have three operating and reportable segments for financial reporting purposes: Devices & Services; NAVTEQ; and Nokia Siemens Networks.
 
On July 10, 2008, we completed the acquisition of NAVTEQ Corporation. NAVTEQ is a separate reportable segment of Nokia starting from the third quarter 2008. The results of NAVTEQ are not available for the prior periods. Accordingly, the results of NAVTEQ for the full years 2010 and 2009 are not directly comparable to the results for the full year 2008.
 
As of April 1, 2011, we will have a new operational structure, which features two distinct business units in Devices & Services business: Smart Devices and Mobile Phones. They will focus on our key business areas: smartphones and mass-market mobile phones. Each unit will have profit-and-loss


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responsibility and end-to-end accountability for the full consumer experience, including product development, product management and product marketing.
 
Starting April 1, 2011, we will present our financial information in line with the new organizational structure and provide financial information for our three businesses: Devices & Services, NAVTEQ and Nokia Siemens Networks. Devices & Services will include two business units: Smart Devices and Mobile Phones as well as devices and services other and unallocated items. For IFRS financial reporting purposes, we will have four operating and reportable segments: Smart Devices and Mobile Phones within Devices & Services, NAVTEQ and Nokia Siemens Networks.
 
For a description of our organizational structure see Item 4A.—“History and Development of the Company—Organizational Structure”. Business segment data in the following discussion is prior to inter-segment eliminations. See Note 2 to our consolidated financial statements included in Item 18 of this annual report. The following discussion should be read in conjunction with our consolidated financial statements included in Item 18 of this annual report, Item 3D “Risk Factors” and “Forward-Looking Statements”. Our financial statements have been prepared in accordance with IFRS.
 
Principal Factors & Trends Affecting our Results of Operations
 
Devices & Services
 
The principal source of net sales in our Devices & Services business is the sale of mobile devices and services. Our mobile device portfolio ranges from basic mobile phones focused on voice capability to smartphones which can access a broad range of web applications and services with advanced multimedia capabilities.
 
In 2010, the global mobile device market benefited from improved economic and financial conditions following the significant deterioration in demand during the second half of 2008 and 2009. According to our preliminary estimate, in 2010 the industry mobile device volumes increased by 13% to 1.43 billion units, compared with an estimated 1.26 billion units in 2009. We estimate that our mobile device volume market share was 32% in 2010, compared to an estimated 34% in 2009 (based on Nokia’s revised definition of the industry mobile device market share applicable beginning in 2010 and applied retrospectively to 2009 for comparative purposes only). Moreover, smartphones continued to capture the major part of the volume and value growth and public focus in the mobile device market.
 
During 2010, we took a number of steps designed to improve our competitive position, especially in smartphones. For example, we launched a family of new products based on our new Symbian platform with performance and functionality enhancements, as well as focusing on Qt as the sole application development framework for both Symbian and future MeeGo devices. In addition, we also announced plans to simplify our services organization as well as focusing on delivering an integrated Ovi experience across our full range of devices.
 
At the same time, 2010 was a year of unprecedented change in the mobile device industry. As the competitive landscape evolved and accelerated from being product driven to ecosystem led, our leadership position and financial performance came under increasing pressure. Until very recently, we believed our competitive position in smartphones could be improved with Symbian, as well as MeeGo, and our strategy based on those platforms. We are now of the view, however, that for the longer term our Symbian platform is not sufficiently competitive in leading markets. As a result, we needed to change our strategic direction and operational structure, and position Nokia in an industry ecosystem that we believe has strong growth potential and represents the best option to drive our longer-term financial performance.
 
Our strategy is built around three “pillars”: regaining leadership in the smartphone market, reinforcing our leadership position in mobile phones and investing in future disruptions.


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The key element of our smartphone strategy is our planned strategic partnership with Microsoft, announced on February 11, 2011, to build a new global mobile ecosystem. The Windows Phone ecosystem targets to deliver more competitive, differentiated and innovative mobile products with an unrivalled scale, product breadth, geographical reach and brand identity.
 
Under the proposed partnership, we would adopt, and license from Microsoft, Windows Phone as our primary smartphone platform. Microsoft will continue to license Windows Phones to other mobile manufacturers. The Microsoft partnership would provide us, however, with opportunities to innovate and customize on the Windows Phone platform with a view to differentiating Nokia smartphones from those of our competitors who also use the Windows Phone platform. The Microsoft partnership would also provide opportunities to drive innovation and new revenue sources from the combination of various services assets, such as location-based services, search, advertising, ecommerce, gaming and productivity tools. Under the proposed partnership, Microsoft would provide developer tools, making it easier for application developers on Windows and Windows-related platforms to leverage our global scale and reach with enhanced monetization opportunities for the ecosystem at large.
 
In mobile phones, we are renewing our strategy to leverage our innovation and strength in growth markets to connect the next billion people to their first Internet and application ecosystem experience. Through our investments in developing assets designed to bring a modern mobile experience —software, services and applications—we believe we have the opportunity to deliver the “web for the next billion” to aspirational consumers in key growth markets. During 2010, we continued to invest in Series-40 and we brought support for QWERTY keyboard, dual SIM and touch experiences to our mobile phones. In addition, we also acquired Novarra, Inc. with the aim of bringing new browser technology and the power of cloud services to Series 40, and making browsing on Nokia mobile phones faster, more affordable, easier to use and a more personalized experience for more Internet users in emerging markets.
 
Finally, we believe that we must invest to take advantage of future technology disruptions and trends. Through ongoing research and development, we plan to explore and lead next-generation opportunities in devices, platforms and user experiences to support our industry position and longer-term financial performance.
 
We expect 2011 and 2012 to be transition years, as we transition to Windows Phone as our primary smartphone platform and we invest in building a new ecosystem with Microsoft. During this transition, we believe that our Devices & Services business will be subject to significant risks and uncertainties. Those uncertainties, among others, include consumer demand for our Symbian devices and potential market share losses as competitors endeavor to capitalize on our platform and product transition. Therefore, we believe that it is not appropriate to provide annual targets for 2011 at the present time. However, we expect to continue to provide short-term quarterly forecasts to indicate our progress in our interim reports as well as annual targets when circumstances allow us to do so.
 
Over the longer-term we target:
 
  •  Devices & Services net sales to grow faster than the market, and
 
  •  Devices & Services operating margin to be 10% or more, excluding special items and purchase price accounting related items.
 
We believe that our Devices & Services net sales and profitability are currently driven primarily by the following factors and trends:
 
  •  Continued convergence of the mobility, computing, consumer electronics and services industries;
 
  •  Increasing importance of competing on an ecosystem to ecosystem basis with new monetization models;
 
  •  Increasing challenges of achieving sustained differentiation and impact on overall industry gross margin trends;


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  •  Speed of innovation, product development and execution;
 
  •  Increasing innovation in the mobile phone market; and
 
  •  Operational efficiency and cost control.
 
Continued Convergence of the Mobility, Computing, Consumer Electronics and Services Industries
 
Value in the mobile handset industry continues to be increasingly driven by the convergence of the mobility, computing, consumer electronics and services industries. As consumer demand and interest for smartphone and tablets with access to a range of content and media accelerates, new opportunities to create and capture value through innovative new service offerings and user experiences have arisen, with a greater emphasis and importance on software and ecosystem-driven innovation, rather than standalone devices. In addition, the increasing availability of more affordable smartphones and connected devices and related services has created new opportunities to capture value from the traditional mobile phone market as well as adjacent industries.
 
As a result, in volume and value terms smartphones are capturing the major part of the growth and public focus in the mobile device market. We believe that having a winning smartphone platform has become increasingly important as a key enabler of compelling smartphone products and longer-term financial performance.
 
Our current smartphone platform utilizes the Symbian operating system, and we work with developers and partners to create applications and provide services and content for our smartphones. We have also been working with Intel to develop a new smartphone platform, MeeGo, an open-sourced platform focused longer-term next generation devices.
 
Until very recently, we believed our competitive position in smartphones could be improved with Symbian, as well as MeeGo, and our strategy based on those platforms. We are now of the view, however, that for the longer term our Symbian platform is not sufficiently competitive in leading markets. In addition, we now believe that Symbian would not allow us to overcome the challenges we face in terms of the speed at which we need to bring innovation to the market. With MeeGo, we now believe that we cannot build the necessary scale fast enough to create a sufficiently competitive ecosystem.
 
Accordingly as discussed above, on February 11, 2011, we announced our intention to enter into a broad strategic partnership with Microsoft and adopt, and license from Microsoft, Windows Phone as our primary smartphone platform.
 
While we transition to Windows Phone as our primary smartphone platform, we will continue to leverage our investment in Symbian for the benefit of Nokia, our customers and consumers, as well as developers. This strategy recognizes the opportunity to retain and transition the installed base of approximately 200 million Symbian owners to Nokia Windows Phone smartphones over time. We expect to sell approximately 150 million more Symbian devices in the years to come, supported by our plan to deliver additional user interface and hardware enhancements. We will continue our development of MeeGo at an appropriate level as part of our longer-term market exploration of next-generation devices, platforms and user experiences.
 
Increasing Importance of Competing on an Ecosystem to Ecosystem Basis with New Monetization Models
 
In the market for smartphones, we have seen significant momentum and emphasis on the creation and evolution of new ecosystems around major software platforms, including Apple’s iOS proprietary platform and Google’s open source Android platform, bringing together devices, software, applications and services with a broad range of new and innovative monetization models. In addition, other industry players, including other handset vendors and mobile operators, have created their own proprietary marketplaces for services and applications.


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The increasing importance of ecosystems is, to a large degree, driven by the convergence trends mentioned above and the implications for the competencies and business model adjustments required for longer-term success. Key determinants of the sustainability of ecosystem success include the underlying software platform choices, the ability to attract developers, building sufficient scale and partnering in mutually beneficial ways with a broad range of industry participants to deliver high-quality, differentiated products.
 
Moreover, we believe traditional monetization models around the sales of devices and direct services are becoming increasingly challenging. Accordingly, developing a range of indirect monetization opportunities, such as advertising based business models, will need to be part of successful ecosystems over the coming years. Obtaining and analyzing a complex array of customer feedback, information on consumer usage patterns and other personal and consumer data over the largest possible user-base is essential in gaining greater consumer understanding. We believe this understanding is a key element in developing new monetization opportunities and generating new sources of revenue, as well as in facilitating future innovations, including the delivery of new and more relevant user experiences ahead of the competition.
 
Our planned partnership with Microsoft would bring together complementary assets and competencies. Nokia would bring assets such as its brand, hardware, productization, global reach, application store, operator billing support, maps and location-based assets to the partnership. Microsoft would bring their next generation smartphone platform with Windows Phone, as well as search, broader advertising, ecommerce, gaming and productivity assets such as Bing, AdCenter, Xbox Live and Office.
 
We intend to combine our services assets to drive innovation and new sources of revenues. Nokia Maps, for example, would be at the heart of key Microsoft assets like Bing and AdCenter, and Nokia’s application and content store would be integrated into Microsoft Marketplace for Nokia Windows Phone smartphones. We believe the ability to understand the specific needs of different geographic markets and consumer segments and to localize services appropriately will be a key competitive differentiator. To support this, we plan to invest in local advertising platforms to further enhance and enrich our localized offerings. Combined with the scale we expect to achieve, we believe that we have the opportunity to deliver more compelling and relevant local services and to build new monetization models for Nokia and the Windows Phone ecosystem.
 
We also believe that by extending the price points, market segments and geographies of Nokia Windows Phone smartphones, we should be able to significantly strengthen the scale and attractiveness of the ecosystem to developers, operators and partners.
 
For developers, we believe that we can create new and highly attractive monetization opportunities. By leveraging Microsoft’s proven developer tools and support, based on Silverlight, with our operator billing, merchandising and global application store, we intend to offer new monetization mechanisms for developers while providing access to Nokia’s global scale. We will continue to promote Qt as the sole application development framework for our Symbian smartphone platform on which we expect to sell approximately 150 million more devices in the years to come. For our Series 40-based feature phones, we will continue to support a Java-based development environment.
 
For operators, we plan to be their preferred ecosystem partner. By creating a new global mobile ecosystem with Microsoft, we believe that we will be able to create a greater balance for operators as well as providing more opportunities to share the economic benefits from services and applications sales. For example, operators can integrate their billing systems with our global application store and leverage our geographic scale and reach.
 
For partners, we intend to prioritize the success of the Windows Phone ecosystem in order to build critical mass. By creating a more complete and compelling platform that is accessible for others to use, we aim to enhance the attractiveness of our ecosystem to a broad range of partners—such as hardware manufacturers, software providers, publishers, entertainment providers, advertisers and


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e-commerce specialists. For example, by making assets such as our location-based services and a number of Microsoft’s web assets available for other original equipment manufacturers and partners to use, we aim to bring further scale to our ecosystem, an important driver of future advertising-based revenue streams.
 
Increasing Challenges of Achieving Sustained Differentiation and Impact on Overall Industry Gross Margin Trends
 
Although we expect the mobile device industry to continue to deliver attractive revenue growth prospects, we are less optimistic about the mobile device industry’s gross margin trends going forward. The creation and momentum of new ecosystems, especially from established internet players with disruptive business models, has enabled handset vendors that do not have substantial software expertise to develop an increasingly broad and affordable range of smartphones and other connected devices that feature a certain user interface, application development and mobile service ecosystems. At the same time, this has significantly reduced the amount of differentiation in the user experience in the eyes of consumers. We believe that as it becomes increasingly difficult for many of our competitors to achieve sustained differentiation, this may depress overall industry gross margin trends going forward.
 
Our ability to achieve sustained differentiation of our mobile products is a key driver of consumer retention, net sales growth and margins. We believe that the three pillars of our new strategy create a solid foundation for sustained differentiation across our mobile product portfolio and our future financial performance.
 
Through our planned partnership with Microsoft and the Windows Phone ecosystem, we plan to focus more of our investments in areas where we believe we can differentiate and less on areas where we cannot, leveraging the assets and competencies of our ecosystem partners. As a consequence, we are working to reduce our overall R&D expenditures in our devices and services business over the longer term. Areas where we believe we can achieve sustained differentiation include:
 
  •  Unique experiences. We believe that we have an opportunity to differentiate through a collection of experiences on Nokia devices, supported by our productization capabilities. For example, bringing together our best-in-class photographic and imaging capabilities with our location-based, geopositioning and other assets to create unique and differentiated experiences.
 
  •  Distinctive design. We have a long history of bringing iconic and signature designs to both smart devices and mobile phones. We believe that having a distinctive “Nokia” design is a key element of our strategy.
 
  •  Local and global approach. Although we are a global company, we have significant local presence and capabilities to ensure we are able to capitalize on local developer and ecosystem opportunities. Services such as Nokia Life Tools and Nokia Money as well as our ability to launch regional and country specific initiatives give us a unique opportunity to differentiate in a number of high growth markets where our market position and brand are strongest. We believe our ability to combine our scale and localization provides an important opportunity to differentiate our mobile products.
 
  •  Compelling hardware. We believe that in areas such as imaging, advanced sensors, GPS, accelerometers and gyroscopes, we have an opportunity to continue to differentiate our offering across a broad range of price points.
 
  •  Brand. As the devices business is a consumer business, brand is a major differentiating factor with broad effects on market position and pricing. The Interbrand annual rating of 2010 Best Global Brands positioned Nokia as the eighth most-valued brand in the world. In addition, Nokia has been ranked No. 1 in The Economic Times-Brand Equity’s annual ‘Most Trusted


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  Brands’ survey for 2010 in India, marking Nokia’s recognition as India’s most trusted brand for three consecutive years.
 
  •  Supply chain, distribution and relationships. We enjoy a world-class manufacturing and logistics system, which is designed to deliver quality hardware and respond quickly to customer demand. During 2010, we made over one million devices per day in our nine main device manufacturing facilities globally. In addition, we source components from a global network of strategic partners, the majority of whom we have long standing and deep relationships supported by our scale and market position. Nokia has the industry’s largest distribution network with over 650 000 points of sale globally. Compared to our competitors, we have a substantially larger distribution and care network, particularly in China, India and Middle East and Africa.
 
  •  Intellectual property:  Success in our industry requires significant research and development investments, with intellectual property rights filed to protect those investments and related inventions. We believe that Nokia has built one of the strongest and broadest patent portfolios in the industry. Since the early 1990s, we have invested approximately EUR 43 billion cumulatively in research and development, and we now own over 10 000 patent families.
 
Additionally, under the planned Microsoft partnership we will have the ability to innovate and customize on the Windows Phone platform with a view to differentiating Nokia smartphones from those of our competitors who also use the Windows Phone platform.
 
On Mobile Phones, we plan to differentiate by further leveraging our strong market position, especially in growth economies. We plan to take advantage of this by delivering the “web for the next billion”—making people’s first web and application experience a Nokia experience in these growth markets. We are already investing in the future, developing assets with which we can bring a modern mobile experience—software, services and applications—to the billions of aspirational consumers in key growth markets.
 
Finally, we believe that we must invest to take advantage of future technology disruptions and trends. Through ongoing research and development, we plan to explore and lead next-generation opportunities in devices, platforms and user experiences to support our industry position as well as our ability to further differentiate over the longer-term.
 
Speed of Innovation, Product Development and Execution
 
As the mobile communications industry continues to undergo significant changes, we believe that speed of innovation and product development are important drivers of competitive strength. For example, a number of our competitors have been able to successfully leverage their software expertise to continuously bring innovations to market at a rapid pace, faster than typical hardware cycles. This has placed increasing pressure on all industry participants to continue to shorten product creation cycles and the ability to execute in a timely, effective and consistent manner.
 
On February 11, 2011, Nokia outlined its new strategic direction, including changes to operational structure, company leadership, decision-making, ways of working and competencies designed to accelerate the company’s speed of execution in an intensely competitive environment. The planned changes to our ways of working fall under six areas: globally accountable business units, revised services mission, local empowerment, simplified decision-making, performance-based culture with consistent behavior, new leadership structure and principles.
 
Effective April 1, 2011, our Devices & Services business will include two business units: Smart Devices and Mobile Phones. They will focus on our key business areas: smartphones and mass-market mobile phones. Each unit will have profit-and-loss responsibility and end-to-end accountability for the full consumer experience, including product development, product management and product marketing.


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Increasing Innovation in the Mobile Phone Market
 
Although the mobile phone market continues to mature as the rate of growth of new subscribers slows, we believe that significant changes are also taking place. Today, a different type of ecosystem from that of smartphones is emerging around mobile phones involving very low cost components and manufacturing processes, with speed to market and attractive pricing being critical success factors. In particular, the availability of complete mobile solutions chipsets from MediaTek has lowered the barriers of market entry and enabled the very rapid and low cost production of mobile phones by numerous manufacturers in the Shenzhen region of China which have gained significant share in emerging markets, as well as brought some locally relevant innovations to market. Such manufacturers have also demonstrated that they have significantly lower gross margin expectations than we do.
 
We also face competition from vendors of unlicensed and counterfeit, products with manufacturing facilities primarily centered around certain locations in Asia and other emerging markets which produce inexpensive devices, with sometimes low quality and limited after-sales services, that take advantage of commercially-available free software and other free or low cost components, software and content. In addition, we compete with non-branded mobile phone manufacturers, including mobile network operators, which offer mobile devices under their own brand, as well as providers of specific hardware and software layers within products and services at the level of those layers rather than solely at the level of complete products. These market developments are contributing to less product differentiation in the mobile phones category.
 
Divergent consumer preference trends have also emerged; consumers who purchase ultra low-end devices for basic voice, SMS and limited data services and those who are seeking more advanced internet browsing, applications and mobile services such as social networking and messaging. Many mid-range to low-end mobile phones increasingly offer access to the Internet and mobile applications and provide more smartphone-like experiences.
 
In the mobile phone category, we believe our competitive advantages—including our scale, brand, quality, manufacturing and logistics, strategic sourcing and partnering, distribution, R&D and software platforms and intellectual property—continue to be important to our competitive position. Moreover, we believe that our new strategy and organizational structure, announced on February 11, 2011, should strengthen our ability to provide mobile phones in a timely and cost efficient manner with differentiated hardware, localized services and applications that attract new users and connect new and existing users to their first Internet and application experience.
 
Nokia has and is continuing to invest in Series 40, bringing ongoing innovation, freshness and differentiation to our mobile phones portfolio. During 2010, we brought support for QWERTY keyboard, dual SIM and touch experiences to our devices. In addition, we also acquired Novarra, Inc. with the aim of bringing new browser technology and the power of cloud services to Series 40, and making browsing on Nokia mobile phones faster, more affordable, easier to use and a more personalized experience for more Internet users in emerging markets.
 
We believe that innovation in mobile phones will not only be driven by cost and hardware differentiation, such as full touch, dual SIM and QWERTY devices, but also with elements of software and services.
 
To create additional value for users of our Series 30 and Series 40-powered mobile phones, we offer a range of services that can be accessed with them, such as Nokia Life Tools, Ovi Mail, Nokia Maps, and Nokia Money. For example, with Nokia Life Tools, consumers can access timely and relevant agricultural information, as well as education and entertainment services, without requiring the use of GPRS or Internet connectivity. During 2010, we launched Life Tools in China and Nigeria, expanding the presence of the service to four markets.
 
We plan to further extend our mobile phone offerings and capabilities during 2011 in order to bring a modern mobile experience—software, services and applications—to the billions of aspirational


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consumers in key growth markets as part of our renewed strategy to bring the web to the next billion. At the same time, we plan to drive third party innovation through working with our partners to engage in building strong, local ecosystems.
 
Operational Efficiency and Cost Control
 
The factors and trends discussed above influence our net sales and gross profit potential. In addition, operational efficiency and cost control are important factors affecting our profitability and competitiveness. We continuously assess our cost structure and prioritize our investments. Our objective remains to maintain our strong capital structure, focus on profitability and cash flow and invest appropriately to innovate and grow in key strategic areas.
 
Our cost structure has benefitted from the cost of components eroding more rapidly than the price erosion of our mobile products. Recently, however, component cost erosion has been generally slowing, a trend which adversely affected our profitability in 2010, and may do so in the future.
 
The currency volatility we have experienced during 2010 continued to impact our costs. In particular, we have continued to take action in 2010 to reduce our devices sourcing costs in the Japanese yen which appreciated significantly relative to the US dollar and the euro in 2010. These measures included price negotiations with our suppliers and shifting the sourcing of certain components to non-Japanese suppliers. During 2010, we decreased sourcing of device components based on the Japanese yen from approximately 18% to approximately 12% of our total costs of sales.
 
During 2010, we continued to take action to reduce operating expenses and shift the mix of our investments towards areas that we believe will lead to longer-term differentiation of our mobile devices from the consumer perspective. In 2010, we reduced our Devices & Services operating expenses—research and development expenses, selling and marketing expenses, administrative and general expenses—by approximately 2% compared to 2009. Actions included the simplification of the company structure, the streamlining of Symbian Smartphones and Services organizations as well as the transfer of the wireless modem business to Renesas Electronics Corporation.
 
The implementation of our new strategy and the proposed partnership with Microsoft is expected to have a significant impact on our operations and personnel, including substantial reductions in personnel following the appropriate consultations. As a result, we expect to incur additional costs related to the operational restructuring and personnel reductions particularly during the transition period over the next two years.
 
In addition, we will be making royalty payments to Microsoft to license Windows Phone as our primary smartphone platform; our current Symbian smartphone platform is royalty-free to us. This will increase our cost of sales and lower the gross margin in our devices and services business. Accordingly, we plan to adjust our cost structure and capitalize on the opportunities to generate new sources of revenue afforded by the planned Microsoft partnership in order to create a long-term profitable business model for our devices and services business. For example, the planned Microsoft partnership should enable us to make more focused R&D investments in operating systems and services, which is expected to result in lower overall R&D expenses over the longer term in our devices and services business. We also expect to receive substantial sales and marketing support from Microsoft for our combined devices and services efforts with the goal of lowering those operating expenses over the longer term. In addition, we intend to address other ways to increase our cost efficiency with a view to reducing our overall operating expenses. We also believe that the planned Microsoft partnership will provide important long-term opportunities to generate new sources of revenue, particularly from the monetization of our combined service assets such as our location-based services and Microsoft’s search and advertising platforms, as discussed above.
 
NAVTEQ
 
NAVTEQ’s objective is to be the leading provider of comprehensive digital map data and related location-based content and services, including traffic information, to a broad range of customers.


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NAVTEQ’s strategy is to enhance and expand its geographic database and related dynamic content and services, thereby enabling NAVTEQ to grow its presence in applications and services created by mobile device manufacturers, automotive manufacturers, navigation system and application vendors and Internet application providers. Through NAVTEQ, we are ensuring the continued development of our context and geographical services through Ovi Maps as we move from simple navigation to a broader range of location-based services, such as pedestrian navigation, traffic and public transport information, local services and city guides, integration with social networks and contextual advertising. Our Devices & Services business is a key customer of NAVTEQ. Devices & Services purchases map licenses from NAVTEQ for its Ovi Maps service sold in combination with GPS enabled smartphones.
 
At the same time, NAVTEQ continues to develop its expertise in digital mapping and navigation, service its external customer base and invest in the further development of its map data, location-based services, mobile advertising capabilities and technology platform.
 
Location-Based Products and Services Proliferating
 
A substantial majority of NAVTEQ’s net sales comes from the licensing of NAVTEQ’s digital map data and related location-based content and services for use in mobile devices, in-vehicle navigation systems, Internet applications, geographical information system applications and other location-based products and services. NAVTEQ’s success depends upon the development of a wide variety of products and services that use its data, the availability and functionality of such products and services and the rate at which consumers and businesses purchase these products and services. In recent years, there has been an overwhelming increase in the availability of such products and services, particularly in mobile devices and online application stores for such devices. We expect this trend to continue, but we also expect that the level of quality required for these products and services and the ability to charge license fees for the use of map data incorporated into such products and services may vary significantly.
 
Price Pressure for Navigable Map Data Increasing
 
NAVTEQ net sales are also impacted by the highly competitive pricing environment. Google is now offering turn-by-turn navigation for many countries to its business customers and consumers on certain mobile handsets at no charge to the consumer. In January 2010, Nokia introduced a new version of Ovi Maps for its selected smartphones that includes high-end walk and drive navigation at no extra cost to the consumer. We expect these offerings will increase the adoption of location-based services in the mobile handset industry, but we also expect it may result in additional price pressure from NAVTEQ’s other business customers, including handset manufacturers, navigation application developers, wireless carriers and personal navigation device (“PND”) manufacturers, seeking ways to offer lower-cost or free turn-by-turn navigation to consumers. Turn-by-turn navigation solutions that are free to consumers on mobile devices may also put pressure on automotive OEMs and automotive navigation system manufacturers to have lower cost navigation alternatives. The price pressure will likely result in an increased focus on advertising revenue as a way to supplement or replace license fees for map data.
 
In response to the pricing pressure, NAVTEQ focuses on offering a digital map database with superior quality, detail and coverage; providing value-added services to its customers such as distribution and technical services; enhancing and extending its product offering by adding additional content to its map database, such as 3D landmarks, and providing business customers with alternative business models that are less onerous to the business customer than those provided by competitors. NAVTEQ’s future results will also depend on NAVTEQ’s ability to adapt its business models to generate increasing amounts of advertising revenues from its map and other location-based content.
 
We believe that NAVTEQ’s PND customers will continue to face competitive pressure from smartphones and other mobile devices that now offer navigation, but that PNDs currently offer a strong value proposition for consumers based on the functionality, user interface, quality and overall ease of use.


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Quality and Richness of Location-Based Content and Services Will Continue to Increase
 
In addition to the factors driving net sales discussed above, NAVTEQ’s profitability is also driven by NAVTEQ’s expenses related to the development of its database and expansion. NAVTEQ’s development costs are comprised primarily of the purchase and licensing of source maps, employee compensation and third-party fees related to the construction, maintenance and delivery of its database.
 
In order to remain competitive and notwithstanding the price pressure discussed above, NAVTEQ will need to continue to expand the geographic scope of its map data, maintain the quality of its existing map data and add an increasing list of new location-based content and services, as well as using innovative ways like crowd sourcing to collect data. The trends for such location-based content and services include real-time updates to location information, more dynamic information, such as traffic, weather, events and parking availability, and imagery consistent with the real-world. We expect that these requirements will cause NAVTEQ’s map development expenses to continue to grow, despite a number of productivity initiatives underway to improve the efficiency of our database collection processing and delivery.
 
Industry Developments Impacting NAVTEQ
 
Sales of our map database on handsets grew in 2010 as a result of rapid deployment of navigation by handset providers globally and by wireless carriers in the US. While the global economic environment appears to only gradually be strengthening, we expect to see continued growth in navigation on mobile devices in 2011. Sales in the automotive sector also increased in 2010 as a result of higher automobile sales in Europe and North America. We expect sales of our map database in the automotive sector to remain steady in 2011, but expect the percentage of NAVTEQ net sales derived from in-vehicle navigation to decline in 2011 compared with 2010 and the percentage derived from handsets to increase compared to 2010. We also expect sales of our map database used in PNDs to decline in total and as a percentage of NAVTEQ net sales in 2011, compared to 2010.
 
Nokia Siemens Networks
 
Nokia Siemens Networks is one of the leading providers of telecommunications infrastructure hardware, software and professional services globally. After the completion of the expected Motorola acquisition discussed below, Nokia Siemens Networks believes that it would be the second largest such provider globally by revenue.
 
Nokia Siemens Networks’ net sales depend on various developments in the global mobile and fixed network infrastructure and related services market, such as network operator investments, the pricing environment and product mix. In developed markets, operator investments are primarily driven by capacity and coverage upgrades, which, in turn, are driven by greater usage of the networks both for voice calls and, increasingly, for data usage. Those operators are increasingly targeting investments in technology and services that allow better management of users on their network, and also allow them additional access to the value of the large amounts of subscriber data under their control. Also, in developed markets, the investments of network operators are driven by the evolution of network technologies and an increasing need for efficiency and flexibility. In emerging markets, the principal factors influencing operator investments are the continued growth in customer demand for telecommunications services, including data, as well as new subscriber growth. In many emerging markets, this continues to drive growth in network coverage and capacity requirements.
 
The telecommunications infrastructure market is characterized by intense competition and price erosion caused in part by the entry into the market of low cost competitors from China, which look to gain market share by leveraging their low cost advantage in tenders for customer contracts. The pricing environment has remained intense in 2010 as the rise of the low cost vendors from China continues. In particular, the wave of network modernization that has taken place, particularly in Europe, has seen some aggressive pricing as Chinese vendors attempt to break into these markets.


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Nokia Siemens Networks’ net sales are impacted by those pricing developments, which show some regional variation, and in particular by the balance between sales in developed and emerging markets. While price erosion is evident across most geographical markets, it continues to be particularly intense in a number of emerging markets where many operator customers have been subject to financial pressure, both through lack of availability of financing facilities during 2010 as well as intense pricing pressure in their domestic markets.
 
Pricing pressure is evident in the traditional products markets, in particular, where competitors may have products with similar technological capabilities, leading to commoditization in some areas. Nokia Siemens Networks’ ability to compete in those markets is determined by its ability to remain price competitive with its rivals and it is therefore important for Nokia Siemens Networks to continue to lower product costs to keep pace with price erosion. Nokia Siemens Networks continued to make strong progress in reducing product and procurement costs in 2010, and will need to continue to do so in order to provide its customers with high-quality products at competitive prices. There is currently less pricing sensitivity in the managed services market, where vendor selections are often largely determined by the level of trust and demonstrated capability in the field.
 
Over recent years, the telecommunications infrastructure industry has entered a more mature phase characterized by the completion of the greenfield roll-outs of mobile and fixed network infrastructure across many markets, although this is further advanced in developed markets. Despite this, there is still a significant market for traditional network infrastructure products to meet coverage and capacity requirements, even as older technologies such as 2G are supplanted by 3G and LTE. As growth in traditional network products sales slows, there is an emphasis on the provision of network upgrades, often through software, as well as applications, such as billing, charging and subscriber management, and services, particularly the outsourcing of non-core activities to companies that provide extensive telecommunications expertise and strong managed service offerings.
 
Three principal trends have emerged in the telecommunications infrastructure market over recent years that are likely to impact future net sales: the growth of data usage, the move towards managed services and outsourcing, and the focus on subscriber-centric services. These can be seen as having a complementary impact on the investment choices made by Nokia Siemens Networks’ customers.
 
Growing Data Usage
 
The increased flow of data through telecommunications networks, particularly in developed markets, has begun to have significant implications for network development. Alongside traditional voice and data services, such as text messaging, end-users are beginning to access a wealth of media services through communications networks, including email and other business data; entertainment services, including games and music; visual media, including films and television programming; and social media sites. End-users increasingly expect that such services are available to them everywhere, through both mobile and fixed networks. These services are now accessed and used through multiple devices, including personal computers and televisions, through traditional broadband access lines as well as 3G data dongles, set-top boxes and mobile and fixed line telephones.
 
The growing popularity and affordability of feature rich smartphones that combine voice functionality, messaging, email, media players, navigation systems and other capabilities has been complemented by a proliferation of products and services in the market that both meet and feed end-user demand. The result has been a dramatic increase in data traffic and signalling through both mobile access and transport networks that carry the potential to cause network congestion and complexity. During 2010, this increase continued unabated as more and more devices were introduced to the market that require constant connectivity.
 
To cope with the growing traffic load within networks, operators are likely to need to invest increasingly in additional capacity, and in the speed and flexibility in their networks while maintaining the quality of the customer experience, both in the access networks and the backhaul that carries the data load as well as in the core networks that link them. In addition, networks


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require optimization to meet the signalling challenge they face from applications that are “always on”. That investment is likely at first to come in upgrades to existing 3G, core and backhaul networks and later in the move towards LTE, and it will require both hardware and software investment.
 
Nokia Siemens Networks has intensified and focused its investment in research and development in its network systems business and in the radio access area, in order to offer the products and software that respond to the growing requirement of operators for efficient networks that can “smartly” handle the data growth at reasonable cost. During 2010, Nokia Siemens Networks launched its “Golden Cluster” program, designed to combine all of its assets and expertise into a single solution to optimize networks for smart devices. By focusing on the relevant technologies, such as flat architectures, capacity scaling, fat pipes, proper radio coverage, and radio network features that increase smart device battery life and reduce signalling, Nokia Siemens Networks believes that it is well positioned to serve its customers’ current and future needs.
 
Managed Services and Outsourcing
 
A second trend has been the acceleration in the development of the managed services market as operators are increasingly looking to outsource network management to infrastructure vendors. The primary driver for this trend is that managed services providers are able to offer economies of scale in network management that allow the vendor to manage such contracts profitably while operators can reduce the cost of network management. The outsourcing trend is also underpinned by many operators taking the view that network management is no longer either a core competence or requirement of their business and are increasingly confident that they can find greater expertise by outsourcing this activity to a trusted partner that can also improve quality and reliability in the network.
 
Nokia Siemens Networks believes that this trend will continue and that it could in future be driven by financial imperatives of its customers. While data traffic has grown at very high rates over recent years, fuelling the requirement for capital expenditure in networks, many operators have yet to see a corresponding growth in revenues from users, a dynamic that has the potential to threaten their profitability levels. As capital expenditure increases, some operators are looking to other areas to sustain and grow profitability, and in particular many operators are looking to control their operating expenditure. In those circumstances, the outsourcing of the management of their network to infrastructure vendors such as Nokia Siemens Networks can be an attractive option.
 
In emerging markets, such as Africa and India, price pressure and competition in the end-user market has increased the financial pressure on many operators, and that in turn has resulted in a similar trend as operators have looked to control and cut costs through outsourcing network management.
 
The trend towards network management outsourcing is evident in every region of the world and has intensified during 2010. Nokia Siemens Networks has contracts in all regions and in 2010 was awarded contracts in new markets such as Africa, Russia, Australia and Latin America. Nokia Siemens Networks believes that such a trend generates its own momentum in the market as vendors can increasingly demonstrate their capabilities with reference accounts and operators are exposed to their competitors taking steps that can enhance profitability and improve network quality and reliability.
 
Nokia Siemens Networks, which employs approximately 45 000 services professionals, continues to build its managed services capability to address the growing demand for outsourcing. For example, it manages nearly half a billion subscribers and has managed services contracts with 158 operators around the world. Nokia Siemens Networks has developed a global delivery model that offers the benefits of scale and efficiencies both to Nokia Siemens Networks and its customers. The model is based on the delivery of services from three global network solutions centres in Lisbon, Portugal and Chennai and Noida in India, the latter of which was opened in 2009. During 2010, Nokia Siemens Networks announced that it will open new global networks operations centers in both Russia and Brazil to support the move towards managed services in those regions. These new global operations centers are expected to open in the first half of 2011. Increasingly, Nokia Siemens Networks is addressing opportunities in multi-vendor network management, where the customer network might


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be partially or even entirely comprised of network components manufactured and installed by other vendors. The five year, five country deal signed with NII Nextel during 2010 is an example of the outsourcing of management of a network in which Nokia Siemens Networks has no hardware elements.
 
Nokia Siemens Networks believes it has a strong competitive position in managed services and continues to invest and innovate to ensure that it can maintain and enhance that position.
 
Subscriber-centric Solutions
 
As operators in many markets see the growth of net new subscribers slowing or even stopping, they are increasingly focused on leveraging the value of the subscribers they have. As the acquisition of new subscribers to networks in such markets can be both difficult and expensive, customers look to limit “churn”, where end-users transfer to a rival service provider, as well as to increase the revenue derived from each user through the addition of value-added services, such as access to media and entertainment and social networking services. This often requires that operators invest in software and solutions that allow customers to enjoy an improved experience. One of the key foundations for this improved end-user experience is understanding an end-user’s behavior and preferences, which in turn allows the operator to tailor service offerings to the individual consumer. This not only includes services and applications, but also bespoke billing platforms and identity management solutions.
 
Nokia Siemens Networks continues to develop and enhance its offerings in this area. Nokia Siemens Networks believes it has the industry’s leading subscriber database management platform, complemented by flexible billing and charging platforms and other software and solutions that provide its customers with the tools, flexibility and agility required to respond to a rapidly changing end-user market. Nokia Siemens Networks also provides business process and consulting services that help to lead its customers through business transformation opportunities.
 
Motorola Acquisition
 
On July 19, 2010 Nokia Siemens Networks announced that it had entered into an agreement to acquire the majority of Motorola wireless network assets for USD 1.2 billion. Under the terms of the agreement, Nokia Siemens Networks will acquire assets related to the development, manufacture and sale of CDMA, WiMAX, WCDMA, LTE and GSM products and services, as well as approximately 7 500 employees and assets in 63 countries, including large development sites in the United States, China and India.
 
Nokia Siemens Networks’ acquisition of Motorola’s wireless networks infrastructure assets has received antitrust approvals from all jurisdictions except China, where approval of the regulatory authorities is still pending. Nokia Siemens Networks is continuing to work with the Chinese regulatory authorities to get the final antitrust approval. The Motorola acquisition is expected to close after the final antitrust approval by the Chinese regulatory authorities has been granted and the other closing conditions have been met.
 
Outlook, Targets and Priorities for 2011
 
After the stabilization of the infrastructure market in 2010, following the declines of 2009, overall market conditions are expected to continue to improve in 2011. Nokia Siemens Networks expects industry revenues to grow slightly in 2011 compared to 2010. While growth is expected in certain areas, such as mobile broadband and services, this is expected to be offset to some extent by declines in certain areas and a continued challenging competitive environment.
 
In the context of these market conditions, Nokia Siemens Networks has clearly defined priorities. Firstly, it continues to drive for growth. Nokia Siemens Networks does not believe in growth at any cost, but does believe that maintaining scale is essential—a key milestone here is the expected completion of the Motorola transaction, which we believe would allow Nokia Siemens Networks to leverage those assets to accelerate its progress in North America.


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In addition, Nokia Siemens Networks expects to capture growth by focusing on driving momentum in the areas of: mobile broadband, TD-LTE, services, customer experience management, and addressing the competition from internet players.
 
Nokia Siemens Networks will need to continue to leverage and, in some cases, improve its scale, technology and product portfolio to maintain or improve its position in the market. Nokia Siemens Networks is confident that it can maintain momentum in those key areas and therefore targets its net sales to grow faster than the market in 2011.
 
There are several factors that drive the profitability at Nokia Siemens Networks, and the company’s second priority for 2011 is to capture value in all such areas to drive profitability. Scale, operational efficiency and cost control have been and will continue to be important factors affecting Nokia Siemens Networks’ profitability and competitiveness. Nokia Siemens Networks’ product costs are comprised of the cost of components, manufacturing, labor and overhead, royalties and license fees, the depreciation of product machinery, logistics costs as well as warranty and other quality costs. Continued momentum in reducing product costs and capturing procurement savings will be a key areas in 2011. Nokia Siemens Networks’ profitability is also impacted by the pricing environment, product mix, including higher margin software sales, and regional mix.
 
Nokia Siemens Networks will therefore continue to seek areas of value in higher margin sales through increasing the proportion of software sales in its Network Systems and Global Services, but will also seek to improve the performance of its Business Solutions unit. Nokia Siemens Networks will continue to prioritize those regional markets, such as Japan, Korea and the US, where it believes it can capture more value.
 
Nokia Siemens Networks targets its operating margin to be above breakeven in 2011, excluding special items and purchase price accounting related items.
 
Nokia Siemens Networks continues to target reductions of annualized operating expenses and production overheads of EUR 500 million by the end of 2011, compared to the end of 2009, excluding special items and purchase price accounting related items.
 
Certain Other Factors
 
Exchange Rates
 
Our business and results of operations are from time to time affected by changes in exchange rates, particularly between the euro, our reporting currency, and other currencies such as the US dollar, the Japanese yen and the Chinese yuan. See Item 3A “Selected Financial Data—Exchange Rate Data.” Foreign currency denominated assets and liabilities, together with highly probable purchase and sale commitments, give rise to foreign exchange exposure.
 
The magnitude of foreign exchange exposures changes over time as a function of our presence in different markets and the prevalent currencies used for transactions in those markets. The majority of our non-euro based sales are denominated in the US dollar, but Nokia’s strong presence in emerging markets like China, India, Brazil and in Russia also gives rise to substantial foreign exchange exposure in the Chinese yuan, Indian rupee, Brazilian real and Russian ruble. The majority of our non-euro based purchases are denominated in US dollars and Japanese yen. In general, depreciation of another currency relative to the euro has an adverse effect on our sales and operating profit, while appreciation of another currency relative to the euro has a positive effect, with the exception of the Japanese yen, being the only significant foreign currency in which we have more purchases than sales.
 
In addition to foreign exchange risk of our own sales and costs, our overall risk depends on the competitive environment in our industry and the foreign exchange exposures of our competitors.
 
To mitigate the impact of changes in exchange rates on net sales as well as average product cost, we hedge material transaction exposures on a gross basis, unless hedging would be uneconomical due to market liquidity and/or hedging cost. We hedge significant forecasted cash flows typically with a 6 to


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12 month hedging horizon. For the majority of these hedges, hedge accounting is applied to reduce profit and loss volatility. We also hedge significant balance sheet exposures. Our balance sheet is also affected by the translation into euro for financial reporting purposes of the shareholders’ equity of our foreign subsidiaries that are denominated in currencies other than the euro. In general, this translation increases our shareholders’ equity when the euro depreciates, and affects shareholders’ equity adversely when the euro appreciates against the relevant other currencies (year-end rate to previous year-end rate). To mitigate the impact to shareholders’ equity, Nokia hedges selected net investment exposures from time to time.
 
During 2010, the volatility of the currency market remained broadly around the same level as in 2009, but remained elevated compared to levels during the first half of 2008. At the same time, the currency market liquidity conditions continued to improve. Overall hedging costs remained relatively low in 2010 due to the low interest rate environment.
 
In 2010, during the first half the year, the US dollar appreciated against the euro by 20.8%. After that, the US dollar gave away some of those gains, and at the end of 2010 the US dollar was 13.0% stronger against the euro than at the end of 2009.
 
The stronger US dollar during the last two months of 2010 had a positive impact on our net sales expressed in euro as approximately 40% of our net sales are generated in US dollars and currencies closely following the US dollar. However, the appreciation of the US dollar also contributed to a higher average product cost as approximately 60% of the components we use are sourced in the US dollar. During 2010, we increased the percentage of our direct material purchases in US dollars, as this helps to balance our net US dollar position. In total, the movements of the US dollar against the euro had a slightly negative impact on our operating profit in 2010.
 
In 2010, the Japanese yen appreciated by 20.8% against the euro. During 2010, approximately 15% of the devices components we used were sourced in the Japanese yen and, consequently, the appreciation of the Japanese yen had a negative impact on our operating profit in 2010. We have taken action in 2010 to further reduce our devices sourcing costs in the Japanese yen, including price negotiations with our suppliers and shifting the sourcing of certain components to non-Japanese suppliers. At the end of 2010, we had decreased the amount of device components we source in Japanese yen to approximately 12% of our total costs of sales.
 
In 2010, emerging market currencies faced appreciation pressures and performed strongly. The Chinese yuan and the Indian rupee performed the best appreciating by 15.8% and 15.3%, respectively, against the euro. Also, the Brazilian reais and the Russian ruble appreciated by 14.0% and 5.8%, respectively, against the euro.
 
In general, the depreciation of an emerging market currency has a negative impact on our operating profit due to reduced revenue in euro terms and/or the reduced purchasing power of customers in the emerging market. The appreciation of an emerging market currency generally has a positive impact on our operating profit.
 
Significant changes in exchange rates may also impact our competitive position and related price pressures through their impact on our competitors.
 
For a discussion on the instruments used by Nokia in connection with our hedging activities, see Note 35 to our consolidated financial statements included in Item 18 of this annual report. See also Item 11. “Quantitative and Qualitative Disclosures About Market Risk” and Item 3D. “Risk Factors.”
 
Seasonality
 
Our Devices & Services sales are somewhat affected by seasonality. Historically, the first quarter of the year has been the lowest quarter of the year and the fourth quarter has been the strongest quarter, mainly due to the effect of holiday sales. However, over time we have seen a trend towards less pronounced seasonality. The difference between the sequential holiday seasonal increase in the Western hemisphere in fourth quarter and subsequent decrease in first quarter sequential volumes


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has moderated. The moderation in seasonality has been caused by shifts in the regional make-up of the overall market. Specifically, there has been a larger mix of industry volumes coming from markets where the fourth quarter holiday seasonality is much less prevalent.
 
NAVTEQ’s sales to the automotive industry are not significantly impacted by seasonality. However, NAVTEQ’s sales to navigation device and mobile handset manufacturers typically see strong fourth quarter seasonality due to holiday sales. As the relative share of licensing of NAVTEQ’s digital map data and related location-based content and services for use in mobile devices compared to in-vehicle navigation systems has increased during the last few years, NAVTEQ’s sales have been increasingly affected by the same seasonality as mobile device sales.
 
Nokia Siemens Networks also experiences seasonality. Its sales are generally higher in the last quarter of the year compared with the first quarter of the following year due to network operators’ planning, budgeting and spending cycles.
 
Accounting Developments
 
The International Accounting Standards Board, or IASB, has and will continue to critically examine current IFRS, with a view towards improving existing IFRS as well as increasing international harmonization of accounting rules. This process of improvement and convergence of worldwide accounting standards has resulted in amendments to existing rules effective from January 1, 2010 and additional amendments effective the following year. These are discussed in more detail under “New accounting pronouncements under IFRS” in Note 1 to our consolidated financial statements included in Item 18 of this annual report. There were no IFRS accounting developments adopted in 2010 that had a material impact on our results of operations or financial position.
 
Subsequent Events
 
Nokia outlines new strategy, introduces new leadership and operational structure
 
On February 11, 2011, we outlined our new strategic direction, including changes in leadership and operational structure designed to accelerate the company’s speed of execution in the intensely competitive mobile product market. The main elements of our new strategy includes: plans for a broad strategic partnership with Microsoft to build a new global mobile ecosystem, with Windows Phones serving as Nokia’s primary smartphone platform; a renewed approach to capture volume and value growth to connect “the next billion” to the internet in developing growth markets; focused investments in next-generation disruptive technologies; and a new leadership team and operational structure designed to focus on speed, accountability and results.
 
We and Microsoft have entered into a non-binding term sheet, however, the planned partnership with Microsoft remains subject to negotiation and execution of definitive agreements by the parties, and there can be no assurances that definite agreements will be entered into. The future impact to Nokia Group’s financial statements resulting from the terms of any definitive agreements will be evaluated once those terms are agreed.
 
As of April 1, 2011, we will have a new operational structure, which features two distinct business units in Devices & Services business: Smart Devices and Mobile Phones. They will focus on our key business areas: smartphones and mass-market mobile phones. Each unit will have profit-and-loss responsibility and end-to-end accountability for the full consumer experience, including product development, product management and product marketing.
 
Starting April 1, 2011, we will present our financial information in line with the new organizational structure and provide financial information for our three businesses: Devices & Services, NAVTEQ and Nokia Siemens Networks. Devices & Services will include two business units: Smart Devices and Mobile Phones as well as devices and services other and unallocated items. For IFRS financial reporting purposes, we will have four operating and reportable segments: Smart Devices and Mobile Phones within Devices & Services, NAVTEQ and Nokia Siemens Networks.


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Nokia Siemens Networks planned acquisition of certain wireless network infrastructure assets of Motorola
 
On July 19, 2010, Nokia Siemens Networks announced that it had entered into an agreement to acquire the majority of Motorola’s wireless network infrastructure assets for USD 1.2 billion in cash and cash equivalents. Approximately 7 500 employees are expected to transfer to Nokia Siemens Networks from Motorola’s wireless network infrastructure business when the transaction closes, including large research and development sites in the United States, China and India. As part of the transaction, Nokia Siemens Networks expects to enhance its capabilities in key wireless technologies, including WiMAX and CDMA, and to strengthen its market position in key geographic markets, in particular Japan and the United States. Nokia Siemens Networks is also targeting to gain incumbent relationship with more than 50 operators and to strengthen its relationship with certain of the largest communication service providers globally.
 
The Motorola acquisition is expected to close after the final antitrust approval by the Chinese regulatory authorities has been granted and the other closing conditions have been met.
 
Critical Accounting Policies
 
Our accounting policies affecting our financial condition and results of operations are more fully described in Note 1 to our consolidated financial statements included in Item 18 of this annual report. Certain of our accounting policies require the application of judgment by management in selecting appropriate assumptions for calculating financial estimates, which inherently contain some degree of uncertainty. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the reported carrying values of assets and liabilities and the reported amounts of revenues and expenses that may not be readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The estimates affect all our segments equally unless otherwise indicated.
 
We believe the following are the critical accounting policies and related judgments and estimates used in the preparation of our consolidated financial statements. We have discussed the application of these critical accounting estimates with our Board of Directors and Audit Committee.
 
Revenue Recognition
 
Sales from the majority of the Group are recognized when the significant risks and rewards of ownership have transferred to the buyer, continuing managerial involvement usually associated with ownership and effective control have ceased, the amount of revenue can be measured reliably, it is probable that economic benefits associated with the transaction will flow to the Group, and the costs incurred or to be incurred in respect of the transaction can be measured reliably. The remainder of revenue is recorded under the percentage of completion method.
 
Devices & Services and certain NAVTEQ and Nokia Siemens Networks revenues are generally recognized when the significant risks and rewards of ownership have transferred to the buyer, continuing managerial involvement usually associated with ownership and effective control have ceased, the amount of revenue can be measured reliably, it is probable that economic benefits associated with the transaction will flow to the Group and the costs incurred or to be incurred in respect of the transaction can be measured reliably. This requires us to assess at the point of delivery whether these criteria have been met. When management determines that such criteria have been met, revenue is recognized. We record estimated reductions to revenue for special pricing agreements, price protection and other volume based discounts at the time of sale, mainly in the mobile device business. Sales adjustments for volume based discount programs are estimated based largely on historical activity under similar programs. Price protection adjustments are based on estimates of future price reductions and certain agreed customer inventories at the date of the price


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adjustment. Devices & Services and certain Nokia Siemens Networks service revenue is generally recognized on a straight line basis over the service period unless there is evidence that some other method better represents the stage of completion. Devices & Services and NAVTEQ license fees from usage are recognized in the period when they are reliably measurable which is normally when the customer reports them to the Group.
 
Devices & Services, NAVTEQ and Nokia Siemens Networks may enter into multiple component transactions consisting of any combination of hardware, services and software. The commercial effect of each separately identifiable element of the transaction is evaluated in order to reflect the substance of the transaction. The consideration from these transactions is allocated to each separately identifiable component based on the relative fair value of each component. The consideration allocated to each component is recognized as revenue when the revenue recognition criteria for that element have been met. The Group determines the fair value of each component by taking into consideration factors such as the price when the component is sold separately by the Group, the price when a similar component is sold separately by the Group or a third party and cost plus a reasonable margin.
 
Nokia Siemens Networks revenue and cost of sales from contracts involving solutions achieved through modification of complex telecommunications equipment is recognized on the percentage of completion basis when the outcome of the contract can be estimated reliably. This occurs when total contract revenue and the cost to complete the contract can be estimated reliably, it is probable that economic benefits associated with the contract will flow to the Group, and the stage of contract completion can be measured. When we are not able to meet those conditions, the policy is to recognize revenues only equal to costs incurred to date, to the extent that such costs are expected to be recovered. Completion is measured by reference to costs incurred to date as a percentage of estimated total project costs using the cost-to-cost method.
 
The percentage of completion method relies on estimates of total expected contract revenue and costs, as well as the dependable measurement of the progress made towards completing the particular project. Recognized revenues and profit are subject to revisions during the project in the event that the assumptions regarding the overall project outcome are revised. The cumulative impact of a revision in estimates is recorded in the period such revisions become likely and estimable. Losses on projects in progress are recognized in the period they become likely and estimable.
 
Nokia Siemens Networks’ current sales and profit estimates for projects may change due to the early stage of a long-term project, new technology, changes in the project scope, changes in costs, changes in timing, changes in customers’ plans, realization of penalties, and other corresponding factors.
 
Customer Financing
 
We have provided a limited number of customer financing arrangements and agreed extended payment terms with selected customers. In establishing credit arrangements, management must assess the creditworthiness of the customer and the timing of cash flows expected to be received under the arrangement. However, should the actual financial position of our customers or general economic conditions differ from our assumptions, we may be required to re-assess the ultimate collectability of such financings and trade credits, which could result in a write-off of these balances in future periods and thus negatively impact our profits in future periods. Our assessment of the net recoverable value considers the collateral and security arrangements of the receivable as well as the likelihood and timing of estimated collections. The Group endeavors to mitigate this risk through the transfer of its rights to the cash collected from these arrangements to third-party financial institutions on a non-recourse basis in exchange for an upfront cash payment. During the past three fiscal years the Group has not had any write-offs or impairments regarding customer financing. The financial impact of the customer financing related assumptions mainly affects the Nokia Siemens Networks segment. See also Note 35(b) to our consolidated financial statements included in Item 18 of this annual report for a further discussion of long-term loans to customers and other parties.


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Allowances for Doubtful Accounts
 
We maintain allowances for doubtful accounts for estimated losses resulting from the subsequent inability of our customers to make required payments. If the financial conditions of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required in future periods. Management specifically analyzes accounts receivables and historical bad debt, customer concentrations, customer creditworthiness, current economic trends and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. Based on these estimates and assumptions the allowance for doubtful accounts was EUR 363 million at the end of 2010 (EUR 391 million at the end of 2009).
 
Inventory-related Allowances
 
We periodically review our inventory for excess, obsolescence and declines in market value below cost and record an allowance against the inventory balance for any such declines. These reviews require management to estimate future demand for our products. Possible changes in these estimates could result in revisions to the valuation of inventory in future periods. Based on these estimates and assumptions the allowance for excess and obsolete inventory was EUR 301 million at the end of 2010 (EUR 361 million at the end of 2009). The financial impact of the assumptions regarding this allowance affects mainly the cost of sales of the Devices & Services and Nokia Siemens Networks segments.
 
Warranty Provisions
 
We provide for the estimated cost of product warranties at the time revenue is recognized. Our products are covered by product warranty plans of varying periods, depending on local practices and regulations. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, our warranty obligations are affected by actual product failure rates (field failure rates) and by material usage and service delivery costs incurred in correcting a product failure. Our warranty provision is established based upon our best estimates of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. As we continuously introduce new products which incorporate complex technology, and as local laws, regulations and practices may change, it will be increasingly difficult to anticipate our failure rates, the length of warranty periods and repair costs. While we believe that our warranty provisions are adequate and that the judgments applied are appropriate, the ultimate cost of product warranty could differ materially from our estimates. When the actual cost of quality of our products is lower than we originally anticipated, we release an appropriate proportion of the provision, and if the cost of quality is higher than anticipated, we increase the provision. Based on these estimates and assumptions the warranty provision was EUR 928 million at the end of 2010 (EUR 971 million at the end of 2009). The financial impact of the assumptions regarding this provision mainly affects the cost of sales of our Devices & Services segment.
 
Provision for Intellectual Property Rights, or IPR, Infringements
 
We provide for the estimated future settlements related to asserted and unasserted past alleged IPR infringements based on the probable outcome of each potential infringement.
 
Our products include increasingly complex technologies involving numerous patented and other proprietary technologies. Although we proactively try to ensure that we are aware of any patents and other intellectual property rights related to our products under development and thereby avoid inadvertent infringement of proprietary technologies, the nature of our business is such that patent and other intellectual property right infringements may and do occur. Through contact with parties claiming infringement of their patented or otherwise exclusive technology, or through our own monitoring of developments in patent and other intellectual property right cases involving our competitors, we identify potential IPR infringements.


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We estimate the outcome of all potential IPR infringements made known to us through assertion by third parties, or through our own monitoring of patent- and other IPR-related cases in the relevant legal systems. To the extent that we determine that an identified potential infringement will result in a probable outflow of resources, we record a liability based on our best estimate of the expenditure required to settle infringement proceedings. Based on these estimates and assumptions the provision for IPR infringements was EUR 449 million at the end of 2010 (EUR 390 million at the end of 2009). The financial impact of the assumptions regarding this provision mainly affects our Devices & Services segment.
 
Our experience with claims of IPR infringement is that there is typically a discussion period with the accusing party, which can last from several months to years. In cases where a settlement is not reached, the discovery and ensuing legal process typically lasts a minimum of one year. For this reason, IPR infringement claims can last for varying periods of time, resulting in irregular movements in the IPR infringement provision. In addition, the ultimate outcome or actual cost of settling an individual infringement may materially vary from our estimates.
 
Legal Contingencies
 
As discussed in Item 8A7. “Litigation” and in Note 29 to the consolidated financial statements included in Item 18 of this annual report, legal proceedings covering a wide range of matters are pending or threatened in various jurisdictions against the Group. We record provisions for pending litigation when we determine that an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertain nature of litigation, the ultimate outcome or actual cost of settlement may materially vary from estimates.
 
Capitalized Development Costs
 
We capitalize certain development costs primarily in the Nokia Siemens Networks segment when it is probable that a development project will be a success and certain criteria, including commercial and technical feasibility, have been met. These costs are then amortized on a systematic basis over their expected useful lives, which due to the constant development of new technologies is between two to five years. During the development stage, management must estimate the commercial and technical feasibility of these projects as well as their expected useful lives. Should a product fail to substantiate its estimated feasibility or life cycle, we may be required to write off excess development costs in future periods.
 
Whenever there is an indicator that development costs capitalized for a specific project may be impaired, the recoverable amount of the asset is estimated. An asset is impaired when the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is defined as the higher of an asset’s net selling price and value in use. Value in use is the present value of discounted estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. For projects still in development, these estimates include the future cash outflows that are expected to occur before the asset is ready for use. See Note 8 to our consolidated financial statements included in Item 18 of this annual report.
 
Impairment reviews are based upon our projections of anticipated discounted future cash flows. The most significant variables in determining cash flows are discount rates, terminal values, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. Management determines discount rates to be used based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are based on the expected life of products and forecasted life cycle and forecasted cash flows over that period. While we believe that our assumptions are appropriate, such amounts estimated could differ materially from what will actually occur in the future.


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Business Combinations
 
We apply the acquisition method of accounting to account for acquisitions of businesses. The consideration transferred in a business combination is measured as the aggregate of the fair values of the assets transferred, liabilities incurred towards the former owners of the acquired business and equity instruments issued. Acquisition-related costs are recognized as expense in profit and loss in the periods when the costs are incurred and the related services are received. Identifiable assets acquired and liabilities assumed are measured separately at their fair value as of the acquisition date. Non-controlling interests in the acquired business are measured separately based on their proportionate share of the identifiable net assets of the acquired business. The excess of the cost of the acquisition over our interest in the fair value of the identifiable net assets acquired is recorded as goodwill.
 
The determination and allocation of fair values to the identifiable assets acquired and liabilities assumed is based on various assumptions and valuation methodologies requiring considerable management judgment. The most significant variables in these valuations are discount rates, terminal values, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. Management determines the discount rates to be used based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are based on the expected life of products and forecasted life cycle and forecasted cash flows over that period. Although we believe that the assumptions applied in the determination are reasonable based on information available at the date of acquisition, actual results may differ from the forecasted amounts and the difference could be material.
 
Valuation of Long-lived Assets, Intangible Assets and Goodwill
 
We assess the carrying amount of identifiable intangible assets and long-lived assets if events or changes in circumstances indicate that such carrying amount may not be recoverable. We assess the carrying amount of our goodwill at least annually, or more frequently based on these same indicators. Factors we consider important, which could trigger an impairment review, include the following:
 
  •  significant underperformance relative to historical or projected future results;
 
  •  significant changes in the manner of our use of these assets or the strategy for our overall business; and
 
  •  significantly negative industry or economic trends.
 
When we determine that the carrying amount of intangible assets, long-lived assets or goodwill may not be recoverable based upon the existence of one or more of the above indicators of impairment, we measure any impairment based on discounted projected cash flows.
 
This review is based upon our projections of anticipated discounted future cash flows. The most significant variables in determining cash flows are discount rates, terminal values, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. Management determines discount rates to be used based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are based on the expected life of products and forecasted life cycle and forecasted cash flows over that period. While we believe that our assumptions are appropriate, such amounts estimated could differ materially from what will actually occur in the future. In assessing goodwill, these discounted cash flows are prepared at a cash generating unit level. Amounts estimated could differ materially from what will actually occur in the future.
 
Goodwill is allocated to the Group’s cash-generating units (CGU) and discounted cash flows are prepared at CGU level for the purpose of impairment testing. The allocation of goodwill to our CGUs is made in a manner that is consistent with the level at which management monitors operations and


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the CGUs are expected to benefit from the synergies arising from each of our acquisitions. Accordingly, (i) goodwill arising from the acquisitions completed by the Devices & Services segment has been allocated to the Devices & Services CGU and (ii) goodwill arising from the acquisition of and acquisitions completed by NAVTEQ has been allocated to the NAVTEQ CGU.
 
The recoverable amounts for the Devices & Services CGU and NAVTEQ CGU are determined based on a value in use calculation. The cash flow projections employed in the value in use calculation are based on financial plans approved by management. These projections are consistent with external sources of information, whenever available. Cash flows beyond the explicit forecast period are extrapolated using an estimated terminal growth rate that does not exceed the long-term average growth rates for the industry and economies in which the CGU operates.
 
The discount rates applied in the value in use calculation for each CGU have been determined independently of capital structure reflecting current assessments of the time value of money and relevant market risk premiums. Risk premiums included in the determination of the discount rate reflect risks and uncertainties for which the future cash flow estimates have not been adjusted. Overall, the discount rates applied in the 2010 impairment testing have decreased in line with declining interest rates.
 
In case there are reasonably possible changes in estimates or underlying assumptions applied in our goodwill impairment testing, such as growth rates and discount rates, which could have a material impact on the carrying amount of the goodwill or result in an impairment loss, those are disclosed below in connection with the relevant CGU.
 
In 2009, we recorded an impairment loss of EUR 908 million in the third quarter of 2009 to reduce the carrying amount of the Nokia Siemens Networks CGU to its recoverable amount. The impairment loss was allocated in its entirety to the carrying amount of goodwill arising from the formation of Nokia Siemens Networks and from subsequent acquisitions completed by Nokia Siemens Networks. The impairment loss is presented as impairment of goodwill in the consolidated income statement. As a result of the impairment loss, the amount of goodwill allocated to the Nokia Siemens Networks CGU has been reduced to zero.
 
We have performed our annual goodwill impairment testing during the fourth quarter of 2010 on the opening fourth quarter balances. During 2010, the conditions in the world economy have shown signs of improvement as countries have begun to emerge from the global economic downturn. However, significant uncertainty exists regarding the speed, timing and resiliency of the global economic recovery and this uncertainty is reflected in the impairment testing for each of the Group’s CGUs. The impairment testing has been carried out based on management’s assessment of financial performance and future strategies in light of current and expected market and economic conditions. Events that occurred subsequent to the balance sheet date, as discussed in Note 33, did not have an impact on this assessment.
 
Goodwill amounting to EUR 1 355 million has been allocated to the Devices & Services CGU for the purpose of impairment testing. The goodwill impairment testing conducted for the Devices & Services CGU for the year ended December 31, 2010 did not result in any impairment charges.
 
Goodwill amounting to EUR 4 368 million has been allocated to the NAVTEQ CGU. The goodwill impairment testing conducted for the NAVTEQ CGU for the year ended December 31, 2010 did not result in any impairment charges. The recoverable amount of the NAVTEQ CGU is between 15 to 20% higher than its carrying amount. The Group expects that a reasonably possible change of 1-2% in the valuation assumptions for long-term growth rate or discount rate would give rise to an impairment loss.


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The key assumptions applied in the impairment testing for each CGU in the annual goodwill impairment testing for each year indicated are presented in the table below:
 
                                                                         
    Cash-generating Unit
    Devices &
  Nokia Siemens
   
    Services
  Networks
  NAVTEQ
    %   %   %
    2010   2009   2008   2010   2009   2008   2010   2009   2008
 
Terminal growth rate
    2.0       2.0       2.3             1.0       1.0       4.0       5.0       5.0  
Pre-tax discount rate
    11.1       11.5       12.4             13.2       15.6       12.8       12.6       12.4  
 
 
(1) The annual goodwill impairment testing conducted for each of the Group’s CGUs for the years ended December 31, 2010 and 2008 have not resulted in any impairment charges. The goodwill impairment testing for the year ended December 31, 2009 resulted in the aforementioned impairment charge for the Nokia Siemens Networks CGU.
 
The Group has applied consistent valuation methodologies for each of the Group’s CGUs for the years ended December 31, 2010, 2009 and 2008. We periodically update the assumptions applied in our impairment testing to reflect management’s best estimates of future cash flows and the conditions that are expected to prevail during the forecast period.
 
See also Note 8 to our consolidated financial statements included in Item 18 of this annual report for further information regarding “Valuation of long-lived and intangible assets and goodwill.”
 
Fair Value of Derivatives and Other Financial Instruments
 
The fair value of financial instruments that are not traded in an active market (for example, unlisted equities, currency options and embedded derivatives) are determined using valuation techniques. We use judgment to select an appropriate valuation methodology and underlying assumptions based principally on existing market conditions. If quoted market prices are not available for unlisted shares, fair value is estimated by using various factors, including, but not limited to: (1) the current market value of similar instruments, (2) prices established from a recent arm’s length financing transaction of the target companies, (3) analysis of market prospects and operating performance of the target companies taking into consideration of public market comparable companies in similar industry sectors. Changes in these assumptions may cause the Group to recognize impairments or losses in the future periods. During 2010 the Group received distributions of EUR 69 million (EUR 13 million in 2009) included in other financial income from a private fund held as non-current available-for-sale. Due to a reduction in estimated future cash flows the Group also recognized an impairment loss of EUR 94 million (EUR 9 million in 2009) for the fund included in other financial expenses.
 
Income Taxes
 
The Group is subject to income taxes both in Finland and in numerous other jurisdictions. Significant judgment is required in determining income tax expense, tax provisions, deferred tax assets and liabilities recognized in the consolidated financial statements. We recognize deferred tax assets to the extent that it is probable that sufficient taxable income will be available in the future against which the temporary differences and unused tax losses can be utilized. We have considered future taxable income and tax planning strategies in making this assessment. Deferred tax assets are assessed for realizability each reporting period, and when circumstances indicate that it is no longer probable that deferred tax assets will be utilized, they are adjusted as necessary. At December 31, 2010, the Group had loss carry forwards, temporary differences and tax credits of EUR 3 323 million (EUR 2 532 million in 2009) for which no deferred tax assets were recognized in the consolidated financial statements due to loss history and current year loss in certain jurisdictions.


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We recognize tax provisions based on estimates and assumptions when, despite our belief that tax return positions are supportable, it is more likely than not that certain positions will be challenged and may not be fully sustained upon review by tax authorities.
 
If the final outcome of these matters differs from the amounts initially recorded, differences may positively or negatively impact the income tax and deferred tax provisions in the period in which such determination is made.
 
Pensions
 
The determination of our pension benefit obligation and expense for defined benefit pension plans is dependent on our selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions are described in Note 5 to our consolidated financial statements included in Item 18 of this annual report and include, among others, the discount rate, expected long-term rate of return on plan assets and annual rate of increase in future compensation levels. A portion of our plan assets is invested in equity securities. The equity markets have experienced volatility, which has affected the value of our pension plan assets. This volatility may make it difficult to estimate the long-term rate of return on plan assets. Actual results that differ from our assumptions are accumulated and amortized over future periods and therefore generally affect our recognized expense and recorded obligation in such future periods. Our assumptions are based on actual historical experience and external data regarding compensation and discount rate trends. While we believe that our assumptions are appropriate, significant differences in our actual experience or significant changes in our assumptions may materially affect our pension obligation and our future expense. The financial impact of the pension assumptions affects mainly the Devices & Services and Nokia Siemens Networks segments.
 
Share-based Compensation
 
We have various types of equity settled share-based compensation schemes for employees. Employee services received, and the corresponding increase in equity, are measured by reference to the fair value of the equity instruments as at the date of grant, excluding the impact of any non-market vesting conditions. Fair value of stock options is estimated by using the Black-Scholes model on the date of grant based on certain assumptions. Those assumptions are described in Note 24 to our consolidated financial statements included in Item 18 of this annual report and include, among others, the dividend yield, expected volatility and expected life of stock options. The expected life of stock options is estimated by observing general option holder behavior and actual historical terms of Nokia stock option programs, whereas the assumption of the expected volatility has been set by reference to the implied volatility of stock options available on Nokia shares in the open market and in light of historical patterns of volatility. These variables make estimation of fair value of stock options difficult.
 
Non-market vesting conditions attached to the performance shares are included in assumptions about the number of shares that the employee will ultimately receive relating to projections of sales and earnings per share. On a regular basis, we review the assumptions made and revise the estimates of the number of performance shares that are expected to be settled, where necessary. At the date of grant, the number of performance shares granted that are expected to be settled is assumed to be two times the amount at threshold. Any subsequent revisions to the estimates of the number of performance shares expected to be settled may increase or decrease total compensation expense. Such increase or decrease adjusts the prior period compensation expense in the period of the review on a cumulative basis for unvested performance shares for which compensation expense has already been recognized in the profit and loss account, and in subsequent periods for unvested performance shares for which the expense has not yet been recognized in the profit and loss account. Significant differences in employee option activity, equity market performance, and our projected and actual net sales and earnings per share performance may materially affect future expense. In addition, the value,


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if any, an employee ultimately receives from share-based payment awards may not correspond to the expense amounts recorded by the Group.
 
Results of Operations
 
2010 compared with 2009
 
Nokia Group
 
The following table sets forth selective line items and the percentage of net sales that they represent for the fiscal years 2010 and 2009.
 
                                                 
    Year Ended
          Year Ended
          Percentage
       
    December 31,
    Percentage of
    December 31,
    Percentage of
    Increase/
       
    2010     Net Sales     2009     Net Sales     (Decrease)        
    (EUR millions, except percentage data)        
 
Net sales
    42 446       100.0 %     40 984       100.0 %     4 %        
Cost of sales
    (29 629 )     (69.8 )%     (27 720 )     (67.6 )%     7 %        
                                                 
Gross profit
    12 817       30.2 %     13 264       32.4 %     (3 )%        
Research and development expenses
    (5 863 )     (13.8 )%     (5 909 )     (14.4 )%     (1 )%        
Selling and marketing expenses
    (3 877 )     (9.1 )%     (3 933 )     (9.6 )%     (1 )%        
Administrative and general expenses
    (1 115 )     (2.6 )%     (1 145 )     (2.8 )%     (3 )%        
Other operating income and expenses
    108       0.3 %     (1 080 )     (2.6 )%                
                                                 
Operating profit
    2 070       4.9 %     1 197       2.9 %     73 %        
                                                 
 
Net Sales. For 2010, our net sales and profitability benefited from improved economic and financial conditions following the significant deterioration in demand during the second half of 2008 and 2009. In 2010, we saw volume and value growth in the global mobile device market driven by rapid growth in smartphones. At the same time, the competitive environment in mobile devices intensified, adversely impacting our competitive position in the market. Our device volumes were also adversely affected in the second half of 2010 by shortages of certain components, which we expect to continue to impact our business at least through the end of the first quarter 2011. For NAVTEQ and Nokia Siemens Networks, the demand environment improved in 2010. The overall appreciation of certain currencies relative to the euro during 2010 had a positive effect on our net sales.
 
The following table sets forth the distribution by geographical area of our net sales for the fiscal years 2010 and 2009.
 
                 
    Year Ended December 31,  
    2010     2009  
 
Europe
    34%       36%  
Middle East & Africa
    13%       14%  
Greater China
    18%       16%  
Asia-Pacific
    21%       22%  
North America
    5%       5%  
Latin America
    9%       7%  
                 
Total
    100%       100%  
                 


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The 10 markets in which we generated the greatest net sales in 2010 were, in descending order of magnitude, China, India, Germany, Russia, the United States, Brazil, the United Kingdom, Spain, Italy and Indonesia, together representing approximately 52% of total net sales in 2010. In comparison, the 10 markets in which we generated the greatest net sales in 2009 were China, India, the United Kingdom, Germany, the United States, Russia, Indonesia, Spain, Brazil and Italy, together representing approximately 52% of total net sales in 2009.
 
Profitability. Our gross margin in 2010 was 30.2% compared with 32.4% in 2009. The lower gross margin in 2010 resulted primarily from the decrease in gross margin in all three of our reportable segments compared to 2009.
 
Research and development expenses were EUR 5 863 million in 2010, down 1% from EUR 5 909 million in 2009. Research and development costs represented 13.8% of our net sales in 2010, down from 14.4% in 2009. The decrease in R&D expenses as a percentage of net sales reflected the increase in net sales in 2010. Research and development expenses included purchase price accounting items and other special items of EUR 575 million in 2010 (EUR 564 million in 2009). At December 31, 2010, we employed 35 869 people in research and development, representing approximately 27% of the group’s total workforce, and had a strong research and development presence in 16 countries.
 
In 2010, our selling and marketing expenses were EUR 3 877 million, down 1% from EUR 3 933 million in 2009. Selling and marketing expenses represented 9.1% of our net sales in 2010, compared with 9.6% in 2009. The decrease in selling and marketing expenses as a percentage of net sales reflected the increase in net sales in 2010. Selling and marketing expenses included purchase price accounting items and other special items of EUR 429 million in 2010 (EUR 413 million in 2009).
 
Administrative and general expenses were EUR 1 115 million in 2010, down 3% from EUR 1 145 in 2009. Administrative and general expenses represented 2.6% of our net sales in 2010, compared with 2.8% in 2009. The decrease in administrative and general expenses as a percentage of net sales reflected the increase in net sales in 2010. Administrative and general expenses included special items of EUR 77 million in 2010 (EUR 103 million in 2009).
 
In 2010, other income and expenses included restructuring charges of EUR 112 million, a prior year-related refund of customs duties of EUR 61 million, a gain on sale of assets and businesses of EUR 29 million and a gain on sale of the wireless modem business of EUR 147 million. In 2009, other income and expenses included restructuring charges of EUR 192 million, purchase price accounting related items of EUR 5 million, impairment of goodwill related to Nokia Siemens Networks of EUR 908 million, impairment of assets of EUR 56 million, a gain on sale of the security appliance business of EUR 68 million and a gain on sale real estate of EUR 22 million.
 
Our operating profit for 2010 increased 73% to EUR 2 070 million, compared with EUR 1 197 million in 2009. The increased operating profit resulted from a decrease in the operating losses at Nokia Siemens Networks and NAVTEQ somewhat offset by a lower operating profit in Devices & Services. Our operating margin was 4.9% in 2010, compared with 2.9% in 2009. Our operating profit in 2010 included purchase price accounting items and other special items of net negative EUR 1.1 billion (net negative EUR 2.3 billion in 2009).
 
Group Common Functions. Group Common Functions’ expenses totaled EUR 114 million in 2010, compared to EUR 134 million in 2009.
 
Net Financial Income and Expenses. During 2010, our net financial expenses were EUR 285 million, compared with EUR 265 million in 2009. In 2010, the group’s net funding costs, as well as the result from foreign exchange gains and losses, were approximately at the same level as in 2009. Other financial income and expenses were adversely impacted by a net loss from an investment in a private fund in 2010.


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Our net debt to equity ratio was negative 43% at December 31, 2010, compared with a net debt to equity ratio of negative 25% at December 31, 2009. See item 5B. “Liquidity and Capital Resources” below.
 
Profit Before Taxes. Profit before tax increased 86% to EUR 1 786 million in 2010, compared with EUR 962 million in 2009. Taxes amounted to EUR 443 million in 2010 and EUR 702 million in 2009. The effective tax rate decreased to 24.8% in 2010, compared with 73.0% in 2009. The higher tax rate in 2009 was primarily due to the non-tax deductible impairment of Nokia Siemens Networks goodwill in 2009. In 2010, our taxes continued to be unfavorably impacted by Nokia Siemens Networks taxes as no tax benefits are recognized for certain Nokia Siemens Networks deferred tax items due to uncertainty of utilization of these items. This was more than offset by the positive effect from withholding tax legislation changes in certain jurisdictions in 2010.
 
Non-controlling interests. Loss attributable to non-controlling interests totaled EUR 507 million in 2010, compared with loss attributable to non-controlling interests of EUR 631 million in 2009. This change was primarily due to a decrease in Nokia Siemens Networks’ losses.
 
Profit Attributable to Equity Holders of the Parent and Earnings per Share. Profit attributable to equity holders of the parent in 2010 totaled EUR 1 850 million, compared with EUR 891 million in 2009, representing a year-on-year increase of 108% in 2010. Earnings per share in 2010 increased to EUR 0.50 (basic) and EUR 0.50 (diluted), compared with EUR 0.24 (basic) and EUR 0.24 (diluted) in 2009.
 
Results by Segments
 
Devices & Services
 
The following table sets forth selective line items and the percentage of net sales that they represent for Devices & Services for the fiscal years 2010 and 2009.
 
                                         
    Year Ended
          Year Ended
          Percentage
 
    December 31,
    Percentage of
    December 31,
    Percentage of
    Increase/
 
    2010     Net Sales     2009     Net Sales     (Decrease)  
    (EUR millions, except percentage data)  
 
Net sales
    29 134       100.0 %     27 853       100.0 %     5 %
Cost of sales
    (20 364 )     (69.9 )%     (18 583 )     (66.7 )%     10 %
                                         
Gross profit
    8 770       30.1 %     9 270       33.3 %     (5 )%
Research and development expenses
    (2 954 )     (10.1 )%     (2 984 )     (10.7 )%     (1 )%
Selling and marketing expenses
    (2 294 )     (7.9 )%     (2 366 )     (8.5 )%     (3 )%
Administrative and general expenses
    (393 )     (1.3 )%     (417 )     (1.5 )%     (6 )%
Other operating income and expenses
    170       0.6 %     (189 )     (0.7 )%        
                                         
Operating profit
    3 299       11.3 %     3 314       11.9 %        
                                         


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Net Sales. The following table sets forth our Devices & Services net sales and year-on-year growth rate by category for the fiscal years 2010 and 2009.
 
                         
    Year Ended
      Year Ended
    December 31,
  Change
  December 31,
    2010   2009 to 20103   20093
    (EUR millions, except percentage data)
 
Mobile phones1
    14 347       (5 )%     15 126  
Converged mobile devices2
    14 786       17 %     12 676  
                         
Total
    29 133       5 %     27 802  
                         
 
 
(1) Series 30 and Series 40-based devices ranging from basic mobile phones focused on voice capability to devices with a number of additional functionalities, such as Internet connectivity, including the services and accessories sold with them.
 
(2) Smartphones and mobile computers, including the services and accessories sold with them.
 
(3) Does not include the net sales of the security appliance business that was divested in April 2009.
 
The following table sets forth our Devices & Services net sales and year-on-year growth rate by geographic area for the fiscal years 2010 and 2009.
 
                         
    Year Ended
      Year Ended
    December 31,
  Change
  December 31,
    2010   2009 to 2010   2009
    (EUR millions, except percentage data)
 
Europe
    9 736       (2 )%     9 890  
Middle East & Africa
    4 046       3 %     3 923  
Greater China
    6 167       23 %     5 028  
Asia-Pacific
    6 013       (3 )%     6 230  
North America
    901       (12 )%     1 020  
Latin America
    2 270       29 %     1 762  
                         
Total
    29 133       5 %     27 853  
                         
 
The 5% year-on-year increase in Devices & Services net sales in 2010 resulted from higher volumes and a flat average selling price (ASP), as well as the overall appreciation of certain currencies against the euro during 2010 and a smaller negative foreign exchange hedging impact compared with 2009. Of our total Devices & Services net sales, services contributed EUR 667 million in 2010, compared with EUR 592 million in 2009.
 
Volume and Market Share. The following table sets forth our estimates for industry mobile device volumes and year-on-year growth rate by geographic area for the fiscal years 2010 and 2009.
 
                         
    Year Ended
          Year Ended
 
    December 31,
    Change
    December 31,
 
    2010(1)     2009 to 2010     2009  
    (Units in millions, except percentage data)  
 
Europe
    289       8 %     267  
Middle East & Africa
    174       19 %     146  
Greater China
    265       13 %     234  
Asia-Pacific
    361       18 %     305  
North America
    151       14 %     132  
Latin America
    187       5 %     178  
                         
Total
    1 427       13 %     1 263  
                         


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(1) As previously announced, beginning in 2010 we revised our definition of the industry mobile device market that we use to estimate industry volumes. This is due to improved measurement processes and tools that enable us to have better visibility to estimate the number of mobile devices sold by certain new entrants in the global mobile device market. We are applying the revised definition and improved measurement processes and tools beginning in 2010, and retrospectively to 2009 for comparative purposes only.
 
The following table sets forth our mobile device volumes and year-on-year growth rate by category for the fiscal years 2010 and 2009.
 
                         
    Year Ended
      Year Ended
    December 31,
  Change
  December 31,
    2010(1)   2009 to 2010   2009
    (Units in millions, except percentage data)
 
Mobile phones1
    352.6       (3 )%     364.0  
Converged mobile devices2
    100.3       48 %     67.8  
                         
Total
    452.9       5 %     431.8  
                         
 
 
(1) Series 30 and Series 40-based devices ranging from basic mobile phones focused on voice capability to devices with a number of additional functionalities, such as Internet connectivity, including the services and accessories sold with them.
 
(2) Smartphones and mobile computers, including the services and accessories sold with them.
 
In 2010, our total mobile device volumes reached 453 million units, representing an increase of 5% year-on-year. The overall industry mobile device volumes for 2010 reached 1.43 billion units, based on our preliminary market estimate, representing an increase of 13% year-on-year. Based on our preliminary market estimate, Nokia’s market share decreased to 32% in 2010, compared to an estimated 34% in 2009 (based on Nokia’s revised definition of the industry mobile device market share applicable beginning in 2010 and applied retrospectively to 2009 for comparative purposes only).
 
Of the total industry mobile device volumes, converged mobile device industry volumes in 2010 increased to 286 million units, based on our preliminary estimate, representing an increase of 63% year-on-year. Nokia’s preliminary estimated share of the converged mobile device market was 36% in 2010, compared with an estimated 39% in 2009.
 
The following table sets forth our mobile device volumes and year-on-year growth rate by geographic area for the fiscal years 2010 and 2009.
 
                         
    Year Ended
      Year Ended
    December 31,
  Change
  December 31,
    2010   2009 to 2010   2009
    (Units in millions, except percentage data)
 
Europe
    112.7       5 %     107.0  
Middle East & Africa
    83.8       8 %     77.6  
Greater China
    82.5       14 %     72.6  
Asia-Pacific
    119.1       (4 )%     123.5  
North America
    11.1       (18 )%     13.5  
Latin America
    43.7       16 %     37.6  
                         
Total
    452.9       5 %     431.8  
                         
 
Our 5% increase year-on-year in global mobile device volumes was driven primarily by an improved demand environment in 2010, partially offset by the intense competitive environment and shortages of certain components in the second half of 2010. During 2010, we gained device market share in


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Latin America. Our device market share decreased in Asia-Pacific, Middle East & Africa, Europe and North America. Our device market share was flat in Greater China.
 
In Latin America, our market share increased. Our share increased in, for example, Chile, Colombia, Paraguay and Peru, but was partly offset by market share declines in Argentina, Brazil, Mexico and some other countries.
 
In Asia-Pacific, our market share declined in 2010 as a result of market share losses in several markets, including India, Indonesia, Singapore, Vietnam and some other countries, but this was partly offset by market share increases in, for example, Australia, Thailand and Philippines. In Middle East & Africa, our market share decline was driven by share losses in markets such as Egypt, Nigeria and UAE, which was offset to some extent by share gains in some markets such as South Africa and Pakistan. In Europe, our market share declined in markets including the UK and Spain, but was partly offset by share gains in markets such as Italy and France. Our market share declined in North America in 2010 primarily due to a market share decline in the United States offset to some extent by our market share increase in Canada. In Greater China, we continued to benefit from our brand, broad product portfolio and extensive distribution system during 2010.
 
Average Selling Price. The following table sets forth our mobile device ASP and year-on-year growth rate by category for the fiscal years 2010 and 2009.
 
                         
    Year Ended
      Year Ended
    December 31,
  Change
  December 31,
    2010   2009 to 2010   2009
    (EUR millions, except percentage data)
 
Mobile phones1
    41       (2 )%     42  
Converged mobile devices2
    147       (21 )%     187  
                         
Total
    64       0 %     64  
                         
 
 
(1) Series 30 and Series 40-based devices ranging from basic mobile phones focused on voice capability to devices with a number of additional functionalities, such as Internet connectivity, including the services and accessories sold with them.
 
(2) Smartphones and mobile computers, including the services and accessories sold with them.
 
Our mobile device ASP (including services revenue) in 2010 was EUR 64, unchanged from 2009. During the first half of 2010, our device ASP decreased primarily as a result of general price erosion across our mobile device portfolio and a higher proportion of lower-priced converged mobile device sales, offset to some extent by the positive impact of converged mobile devices representing a higher proportion of our overall mobile device sales compared to 2009. However, the decrease in our ASP during the first half of 2010 was offset by an increase in our ASP during the second half of 2010. The increase in our ASP during the second half of 2010 was due primarily to converged mobile devices representing a higher proportion of our overall mobile device sales and the appreciation of certain currencies against the euro. This increase was offset to some extent by general price erosion driven by the intense competitive environment and a higher proportion of lower-priced converged mobile device sales, which is reflected in the 21% decline in our converged mobile devices ASP in 2010 compared to 2009.
 
Profitability. Devices & Services gross profit decreased 5% to EUR 8.8 billion, compared with EUR 9.3 billion in 2009, with a gross margin of 30.1% (33.3% in 2009). The gross margin decline was primarily due to general price pressure and product material cost erosion being less than general product price erosion, offset to some extent by converged mobile device volumes representing a higher proportion of overall mobile device volumes. Additionally, the gross margin was negatively impacted in 2010 by the overall appreciation of certain currencies against the euro and unfavorable foreign exchange hedging compared with 2009. During the first half of 2010, the gross margin was positively impacted by the depreciation of certain currencies against the euro. However, this positive


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impact was more than offset by the appreciation of certain currencies against the euro during the second half of 2010. Further, during the first half of 2010, the gross margin was negatively impacted by unfavorable foreign exchange hedging, which was to some extent offset by a favorable foreign exchange hedging impact during the second half of 2010.
 
Devices & Services R&D expenses in 2010 decreased 1% to EUR 2 954 million, compared with EUR 2 984 million in 2009. In 2010, R&D expenses represented 10.1% of Devices & Services net sales, compared with 10.7% in 2009. The decrease in Devices & Services R&D expenses in 2010 was primarily due to the measures taken to adjust our business operations and cost base to prevailing market conditions. Devices & Services R&D expenses included amortization of acquired intangible assets of EUR 10 million and EUR 8 million in 2010 and 2009, respectively.
 
In 2010, Devices & Services selling and marketing expenses decreased 3% to EUR 2 294 million, compared with EUR 2 366 million in 2009. The decrease was primarily due to the measures taken to adjust our business operations and cost base to prevailing market conditions. In 2010, selling and marketing expenses represented 7.9% of Devices & Services net sales, compared with 8.5% of its net sales in 2009.
 
Other operating income and expenses were EUR 170 million in 2010 and included restructuring charges of EUR 85 million, a prior year-related refund of customs duties of EUR 61 million, a gain on sale of assets and business of EUR 29 million and a gain on sale of the wireless modem business of EUR 147 million. In 2009, other operating income and expenses were EUR 189 million and included restructuring charges of EUR 178 million, impairment of assets of EUR 56 million and gain on the sale of the security appliance business of EUR 68 million.
 
Devices & Services operating profit remained virtually unchanged at EUR 3.3 billion, compared with 2009. Devices & Services operating margin in 2010 was 11.3%, compared with 11.9% in 2009. The year-on-year decrease in operating margin in 2010 was driven primarily by the lower gross margin compared to 2009.
 
NAVTEQ
 
The following table sets forth selective line items and the percentage of net sales that they represent for NAVTEQ for the fiscal years 2010 and 2009.
 
                                 
    Year Ended
          Year Ended
       
    December 31,
    Percentage of
    December 31,
    Percentage of
 
    2010     Net Sales     2009     Net Sales  
    (EUR millions, except percentage data)  
 
Net sales
    1 002       100.0 %     670       100.0 %
Cost of sales
    (153 )     (15.3 )%     (88 )     (13.1 )%
                                 
Gross profit
    849       84.7 %     582       86.9 %
Research and development expenses
    (751 )     (75.0 )%     (653 )     (97.5 )%
Selling and marketing expenses
    (250 )     (25.0 )%     (217 )     (32.4 )%
Administrative and general expenses
    (70 )     (7.0 )%     (57 )     (8.5 )%
Other operating income and expenses
    (3 )     (0.3 )%     1          
                                 
Operating profit
    (225 )     (22.5 )%     (344 )     (51.3 )%
                                 


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Net Sales. The following table sets forth NAVTEQ net sales and year-on-year growth rate by geographic area for the fiscal years 2010 and 2009.
 
                         
    Year Ended
          Year Ended
 
    December 31,
    Change
    December 31,
 
    2010     2009 to 2010     2009  
    (EUR millions, except percentage data)  
 
Europe
    429       38 %     312  
Middle East & Africa
    60       107 %     29  
Greater China
    92               5  
Asia-Pacific
    73       306 %     18  
North America
    325       11 %     293  
Latin America
    23       77 %     13  
                         
Total
    1 002       50 %     670  
                         
 
Net sales of NAVTEQ were EUR 1.0 billion in 2010, compared to EUR 670 million in 2009. Europe accounted for 43% (46%) of NAVTEQ’s net sales, North America 33% (44%), Middle East & Africa 6% (4%), Asia-Pacific 7% (3%), Latin America 2% (2%) and Greater China 9% (1%) in 2010 (2009). The year-on-year increase in net sales was primarily driven by growth in mobile device sales, particularly Nokia mobile devices, improved sales of map licenses to mobile device customers, as well as improved conditions and higher navigation uptake rates in the automotive industry.
 
Profitability. NAVTEQ gross profit was EUR 849 million in 2010, compared to EUR 582 million in 2009, with a gross margin of 84.7% (86.9% in 2009). The lower gross margin in 2010 was primarily due to changes in net sales mix.
 
NAVTEQ R&D expenses in 2010 were EUR 751 million, compared with EUR 653 million in 2009. NAVTEQ R&D expenses included amortization of intangible assets recorded as part of Nokia’s acquisition of NAVTEQ totaling EUR 366 million and EUR 346 million in 2010 and 2009, respectively. R&D expenses in 2010 were also driven by increased investment in NAVTEQ’s map database related to geographic expansion and quality improvements in 2010. R&D expenses represented 75.0% of NAVTEQ net sales in 2010, compared to 97.5% of NAVTEQ net sales in 2009.
 
NAVTEQ selling and marketing expenses in 2010 were EUR 250 million, compared with EUR 217 million in 2009. NAVTEQ selling and marketing expenses primarily consisted of amortization of intangible assets recorded as part of Nokia’s acquisition of NAVTEQ totaling EUR 121 million and EUR 115 million in 2010 and 2009, respectively. Selling and marketing expenses in 2010 were also driven by investments to grow NAVTEQ’s worldwide sales force and expand the breadth of its product offerings. Selling and marketing expenses represented 25.0% of NAVTEQ net sales in 2010, compared to 32.4% of NAVTEQ net sales in 2009.
 
NAVTEQ operating loss was EUR 225 million in 2010, compared to a loss of EUR 344 million in 2009. NAVTEQ operating margin was -22.5% (-51.3% in 2009). The year-on-year improvement in operating margin was primarily due to higher net sales offset to some extent by the lower gross margin and higher operating expenses.
 
Nokia Siemens Networks
 
According to our estimates, the mobile infrastructure market remained flat in euro terms in 2010 compared to 2009 with the trend varying, depending on region. In the first half of 2010 there was some easing of the difficult market conditions experienced in 2009—when the deterioration in global economic conditions caused many operators to delay investments in network infrastructure—but this improvement was offset by two industry specific factors that caused the overall market to continue to decline. First, a global component shortage restricted deliveries of certain products. Second, the introduction of new security clearance processes for telecommunications in India, prevented the completion of product sales to customers during the second and third quarters of the year. These


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issues continued to impact, but were less influential in the second half of the year, when the market was more buoyant overall.
 
In 2010, in regional terms there was significant growth in North America as operators invested heavily in upgrading both fixed and wireless networks. The Latin American market also recovered from the severe downturn it experienced in 2009 and saw renewed operator investment. In Europe there was slight growth. The Asia Pacific market was varied with growth in Japan and China, while India contracted year-on-year as a result of the security clearance issue, despite 3G investment in the second half. The Middle East and Africa region remained difficult as continued financial restraints and a wave of consolidation in the market delayed investment.
 
In segment terms, the managed services market grew and there was continued strong investment in mobile broadband infrastructure in 2010.
 
Globally in 2010, the network infrastructure equipment segment continued to be affected by significant price erosion of the equipment, largely as a result of maturing technologies and intense price competition, especially from Asian vendors.
 
The following table sets forth selective line items and the percentage of net sales that they represent for Nokia Siemens Networks for the fiscal years 2010 and 2009.
 
                                         
    Year Ended
          Year Ended
          Percentage
 
    December 31,
    Percentage of
    December 31,
    Percentage of
    Increase/
 
    2010     Net Sales     2009     Net Sales     (Decrease)  
    (EUR millions, except percentage data)  
 
Net sales
    12 661       100.0 %     12 574       100.0 %     1 %
Cost of Sales
    (9 266 )     (73.2 )%     (9 162 )     (72.9 )%     1 %
                                         
Gross profit
    3 395       26.8 %     3 412       27.1 %     (1 )%
Research and development expenses
    (2 156 )     (17.0 )%     (2 271 )     (18.1 )%     (5 )%
Selling and marketing expenses
    (1 328 )     (10.5 )%     (1 349 )     (10.7 )%     (2 )%
Administrative and general expenses
    (553 )     (4.4 )%     (573 )     (4.6 )%     (4 )%
Other income and expenses
    (44 )     (0.3 )%     (858 )     (6.8 )%     (95 )%
                                         
Operating profit
    (686 )     (5.4 )%     (1 639 )     (13.0 )%     (58 )%
                                         
 
Net Sales. The following table sets forth Nokia Siemens Networks net sales and year-on-year growth rate by geographic area for the fiscal years 2010 and 2009.
 
                         
    Year Ended
      Year Ended
    December 31,
  Change
  December 31,
    2010   2009 to 2010   2009
    (EUR millions, except percentage data)
 
Europe
    4 628       (1 )%     4 695  
Middle East & Africa
    1 451       (12 )%     1 653  
Greater China
    1 451       4 %     1 397  
Asia-Pacific
    2 915       7 %     2 725  
North America
    735       (2 )%     748  
Latin America
    1 481       9 %     1 356  
                         
Total
    12 661       1 %     12 574  
                         
 
The 1% increase in net sales of Nokia Siemens Networks primarily reflected improved market conditions in the second half of 2010 and growth in both the product and services business, largely offset by challenging competitive factors, as well as industry-wide shortages of certain components


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and security clearances issues in India preventing the completion of product sales to customers during the second and third quarters of 2010. Of total Nokia Siemens Networks net sales, services contributed EUR 5.8 billion in 2010 (EUR 5.7 billion in 2009). Europe accounted for 37% (37%) of Nokia Siemens Network’s net sales, Asia-Pacific 23% (22%), Middle East & Africa 11% (13%), Latin America 12% (11%), Greater China 11% (11%) and North America 6% (6%) in 2010 (2009).
 
Profitability. Nokia Siemens Networks gross profit decreased to EUR 3 395 million in 2010, compared with EUR 3 412 million in 2009, with a gross margin of 26.8% (27.1% in 2009). The year-on-year decline in gross margin was primarily due to general price pressure on certain products, a higher proportion of lower margin products in the business mix and shortages of certain components during the second and third quarters of 2010, offset to some extent by progress on product cost reductions and a more favorable regional mix compared to 2009.
 
In Nokia Siemens Networks, R&D expenses decreased to EUR 2 156 million in 2010, compared with EUR 2 271 million in 2009. In 2010, R&D expenses represented 17.0% of Nokia Siemens Networks net sales, compared with 18.1% in 2010. The decrease in R&D expenses resulted largely from a higher proportion of R&D activities being conducted in emerging markets. In 2010, R&D expenses included restructuring charges and other items of EUR 19 million (EUR 30 million in 2009) and purchase price accounting related items of EUR 180 million (EUR 180 million in 2009).
 
In 2010, Nokia Siemens Networks’ selling and marketing expenses decreased to EUR 1 328 million, compared with EUR 1 349 million in 2009. Nokia Siemens Networks’ selling and marketing expenses represented 10.5% of its net sales in 2009, compared to 10.7% in 2009. The slight reduction in selling and marketing expenses was related to ongoing restructuring and measures to reduce discretionary expenditure. In 2010, selling and marketing expenses included restructuring charges of EUR 21 million (EUR 12 million in 2009) and purchase price accounting related items of EUR 285 million (EUR 286 million in 2009).
 
In 2010, other operating expenses of EUR 44 million included restructuring charges of EUR 27 million. In 2009, other operating income and expenses included an impairment of goodwill of EUR 908 million in the third quarter of 2009 due to a decline in forecasted profits and cash flows as a result of challenging competitive factors and market conditions in the infrastructure and related service business. In addition, other operating income and expenses in 2009 included a restructuring charge and other items of EUR 14 million, purchase price accounting related items of EUR 5 million and a gain of EUR 22 million on the sale of real estate.
 
Nokia Siemens Networks had an operating loss of EUR 686 million in 2010, compared with an operating loss of EUR 1.6 billion in 2009. The operating margin of Nokia Siemens Networks in 2010 was -5.4% compared with -13.0% in 2009. The operating loss decrease in 2010 resulted primarily from the absence of goodwill charges in 2010, compared to the EUR 908 million impairment of goodwill in 2009, higher net sales and lower operating expenses, the impact of which was partially offset by the lower gross margin.
 
2009 compared with 2008
 
Nokia completed the acquisition of NAVTEQ Corporation on July 10, 2008. NAVTEQ is a separate reportable segment of Nokia starting from the third quarter 2008. The results of NAVTEQ are not available for the prior periods. Accordingly, the results of Nokia Group and NAVTEQ for the full year 2009 are not directly comparable to the results for the full year 2008.


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Nokia Group
 
The following table sets forth selective line items and the percentage of net sales that they represent for the fiscal years 2009 and 2008.
 
                                         
    Year Ended
          Year Ended
          Percentage
 
    December 31,
    Percentage of
    December 31,
    Percentage of
    Increase/
 
    2009     Net Sales     2008     Net Sales     (Decrease)  
    (EUR millions, except percentage data)  
 
Net sales
    40 984       100.0 %     50 710       100.0 %     (19.2 )%
Cost of sales
    (27 720 )     (67.6 )%     (33 337 )     (65.7 )%     (16.8 )%
                                         
Gross profit
    13 264       32.4 %     17 373       34.3 %     (23.7 )%
Research and development expenses