nok_Current_Folio

As filed with the Securities and Exchange Commission on March 22, 2018

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, 2017

Commission file number 1‑13202

Nokia Corporation

(Exact name of Registrant as specified in its charter)

Republic of Finland
(Jurisdiction of incorporation)

Karaportti 3 FI‑02610 Espoo, Finland
(Address of principal executive offices)

Jussi Koskinen, Vice President, Corporate Legal, Telephone: +358 (0) 10 44 88 000, Facsimile: +358 (0) 10 44 81 002,
Karaportti 3, FI‑02610 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”):


Title of each class	Name of each exchange on which registered
American Depositary Shares	New York Stock Exchange
Shares	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, 3.375% Notes due 2022, 4.375% Notes due 2027 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: 5 839 404 303.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☒ No ☐

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 ☐ No ☒

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒ No ☐

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 ☒	Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)	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 ☐

International Financial Reporting Standards as issued by the International Accounting Standards Board ☒

Other ☐

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 ☐ Item 18 ☐

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 ☐ No ☒

Form 20‑F Item Number		Form 20‑F Heading	Section in Document
ITEM	1	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	N/A
ITEM	2	OFFER STATISTICS AND EXPECTED TIMETABLE	N/A
ITEM	3	KEY INFORMATION
	3A	Selected Financial Data	General facts on Nokia—Selected financial data
	3B	Capitalization and Indebtedness	N/A
	3C	Reasons for the Offer and Use of Proceeds	N/A
	3D	Risk Factors	Operating and financial review and prospects—Risk factors
ITEM	4	INFORMATION ON THE COMPANY
	4A	History and Development of the Company	Cover page, Overview, Introduction and use of certain terms; General facts on Nokia—Our history; Operating and financial review and prospects—Liquidity and capital resources; Operating and financial review and prospects—Material subsequent events; Financial statements—Notes to consolidated financial statements—Note 4, Segment information; Financial statements—Notes to consolidated financial statements—Note 5, Acquisitions
	4B	Business Overview	Business overview; Operating and financial review and prospects—Principal industry trends affecting operations; Financial statements—Notes to consolidated financial statements—Note 4, Segment information; General facts on Nokia—Government regulation
	4C	Organizational Structure	Overview—This is Nokia—Organizational structure and reportable segments; Financial statements—Notes to consolidated financial statements—Note 4, Segment information; Financial statements—Notes to consolidated financial statements—Note 32, Principal Group companies
	4D	Property, Plants and Equipment	Business overview; Financial statements—Notes to consolidated financial statements—Note 2, Significant accounting policies; Financial statements—Notes to consolidated financial statements—Note 6, Disposals treated as Discontinued operations; Financial statements—Notes to consolidated financial statements—Note 15, Property, plant and equipment
	4A	UNRESOLVED STAFF COMMENTS	None
ITEM	5	OPERATING AND FINANCIAL REVIEW AND PROSPECTS
	5A	Operating Results	Operating and financial review and prospects—Principal industry trends affecting operations; Financial statements—Notes to consolidated financial statements—Note 2, Significant accounting policies; Financial statements—Notes to consolidated financial statements—Note 36, Risk management
	5B	Liquidity and Capital Resources	Operating and financial review and prospects—Liquidity and capital resources; Financial statements—Notes to consolidated financial statements—Note 24, Fair value of financial instruments; Financial statements—Notes to consolidated financial statements—Note 25, Derivative financial instruments; Financial statements—Notes to consolidated financial statements—Note 30, Commitments and contingencies; Financial statements—Notes to consolidated financial statements—Note 36, Risk management
	5C	Research and Development, Patents and Licenses	Business overview—Networks business—Research and development; Business overview—Networks business— Patents and licenses; Business overview—Nokia Technologies—Research and development; Business overview—Nokia Technologies—Patents and licenses; Operating and financial review and prospects—Results of operations; Operating and financial review and prospects—Results of segments
	5D	Trends Information	Business overview; Operating and financial review and prospects— Principal industry trends affecting operations
	5E	Off-Balance Sheet Arrangements	Operating and financial review and prospects—Liquidity and capital resources—Off-Balance Sheet Arrangements; Financial statements—Notes to consolidated financial statements—Note 36, Risk management; Financial statements—Notes to consolidated financial statements—Note 30, Commitments and contingencies
	5F	Tabular Disclosure of Contractual Obligations	Financial statements—Notes to consolidated financial statements—Note 30, Commitments and contingencies
	5G	Safe Harbor	Forward-looking statements
ITEM	6	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
	6A	Directors and Senior Management	Corporate governance—Corporate governance statement
	6B	Compensation	Corporate governance—Compensation; Financial statements—Notes to consolidated financial statements—Note 35, Related party transactions
	6C	Board Practices	Corporate governance—Corporate governance statement; Corporate governance—Compensation—Remuneration Governance; Financial statements—Notes to consolidated financial statements—Note 35, Related party transactions
	6D	Employees	Operating and financial review and prospects—Employees
	6E	Share Ownership	Corporate governance—Compensation—Remuneration Report; Financial statements—Notes to consolidated financial statements—Note 26, Share-based payment
ITEM	7	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
	7A	Major Shareholders	General facts on Nokia—Shares and shareholders

Form 20‑F Item Number		Form 20‑F Heading	Section in Document
	7B	Related Party Transactions	General facts on Nokia—Related party transactions, Financial statements—Notes to consolidated financial statements—Note 35, Related party transactions
	7C	Interests of Experts and Counsel	N/A
ITEM	8	FINANCIAL INFORMATION
	8A	Consolidated Statements and Other Financial Information	Financial statements; Report of independent registered public accounting firm; Operating and financial review and prospects—Dividend
	8B	Significant Changes	Operating and financial review and prospects—Material subsequent events
ITEM	9	THE OFFER AND LISTING
	9A	Offer and Listing Details	General facts on Nokia—Shares and shareholders
	9B	Plan of Distribution	N/A
	9C	Markets	General facts on Nokia—Shares and shareholders
	9D	Selling Shareholders	N/A
	9E	Dilution	N/A
	9F	Expenses of the Issue	N/A
ITEM	10	ADDITIONAL INFORMATION
	10A	Share capital	N/A
	10B	Memorandum and Articles of Association	General facts on Nokia—Memorandum and Articles of Association; Other information—Exhibits
	10C	Material Contracts	General facts on Nokia—Our history; Other information—Exhibits
	10D	Exchange Controls	General facts on Nokia—Controls and procedures—Exchange controls
	10E	Taxation	General facts on Nokia—Taxation
	10F	Dividends and Paying Agents	N/A
	10G	Statement by Experts	N/A
	10H	Documents on Display	Other information—Investor information—Documents on display
	10I	Subsidiary Information	N/A
ITEM	11	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	Financial statements—Notes to consolidated financial statements—Note 36, Risk Management
ITEM	12	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
	12A	Debt Securities	N/A
	12B	Warrants and Rights	N/A
	12C	Other Securities	N/A
	12D	American Depositary Shares	General facts on Nokia—Shares and shareholders—Depositary fees and charges; General facts on Nokia—Shares and shareholders—Depositary payments in 2017
ITEM	13	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	None
ITEM	14	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	None
ITEM	15	CONTROLS AND PROCEDURES	Corporate governance—Regulatory framework—Risk management, internal control and internal audit functions at Nokia; General facts on Nokia—Controls and procedures
ITEM	16A	AUDIT COMMITTEE FINANCIAL EXPERT	Corporate governance—Corporate governance statement—Members of the Board of Directors—Committees of the Board of Directors
	16B	CODE OF ETHICS	Corporate governance—Corporate governance statement—Members of the Board of Directors—Further information
	16C	PRINCIPAL ACCOUNTANT FEES AND SERVICES	Corporate governance—Corporate governance statement—Auditor fees and services, Corporate governance—Corporate governance statement—Audit Committee pre-approval policies and procedures
	16D	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	N/A
	16E	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	General facts on Nokia—Shares and shareholders—Authorization to repurchase shares
	16F	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	None
	16G	CORPORATE GOVERNANCE	Corporate governance—Corporate governance statement—Regulatory framework
	16H	MINE SAFETY DISCLOSURE	N/A
ITEM	17	FINANCIAL STATEMENTS	N/A
ITEM	18	FINANCIAL STATEMENTS	Financial Statements
ITEM	19	EXHIBITS	Other information—Exhibits

It should be noted that Nokia and its businesses are exposed to various risks and uncertainties and certain statements herein that are not historical facts are forward-looking statements, including, without limitation, those regarding:

our ability to integrate acquired businesses into our operations and achieve the targeted business plans and benefits, including targeted benefits, synergies, cost savings and efficiencies;

expectations, plans or benefits related to our strategies and growth management;

expectations, plans or benefits related to future performance of our businesses;

expectations, plans or benefits related to changes in organizational and operational structure;

expectations regarding market developments, general economic conditions and structural changes;

expectations and targets regarding financial performance, results, operating expenses, taxes, currency exchange rates, hedging, cost savings and competitiveness, as well as results of operations including targeted synergies and those related to market share, prices, net sales, income and margins;

expectations, plans or benefits related to any future collaboration or to business collaboration agreements or patent license agreements or arbitration awards, including income to be received under any collaboration or partnership, agreement or award;

timing of the deliveries of our products and services;

expectations and targets regarding collaboration and partnering arrangements, joint ventures or the creation of joint ventures, and the related administrative, legal, regulatory and other conditions, as well as our expected customer reach;

outcome of pending and threatened litigation, arbitration, disputes, regulatory proceedings or investigations by authorities;

expectations regarding restructurings, investments, capital structure optimization efforts, uses of proceeds from transactions, acquisitions and divestments and our ability to achieve the financial and operational targets set in connection with any such restructurings, investments, capital structure optimization efforts, divestments and acquisitions; and

statements preceded by or including “believe”, “expect”, “anticipate”, “foresee”, “sees”, “target”, “estimate”, “designed”, “aim”, “plans”, “intends”, “focus”, “continue”, “project”, “should", "is to", "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, including risks and uncertainties that could cause these differences include, but are not limited to:

our strategy is subject to various risks and uncertainties and we may be unable to successfully implement our strategic plans, sustain or improve the operational and financial performance of our business groups, correctly identify or successfully pursue business opportunities or otherwise grow our business;

general economic and market conditions and other developments in the economies where we operate;

competition and our ability to effectively and profitably invest in new competitive high-quality products, services, upgrades and technologies and bring them to market in a timely manner;

our dependence on the development of the industries in which we operate, including the cyclicality and variability of the information technology and telecommunications industries;

our dependence on a limited number of customers and large multi-year agreements;

our ability to maintain our existing sources of intellectual property-related revenue, establish new sources of revenue and protect our intellectual property from infringement;

our global business and exposure to regulatory, political or other developments in various countries or regions, including emerging markets and the associated risks in relation to tax matters and exchange controls, among others;

our ability to achieve the anticipated benefits, synergies, cost savings and efficiencies of acquisitions, including the acquisition of Alcatel Lucent, and our ability to implement changes to our organizational and operational structure efficiently;

our ability to manage and improve our financial and operating performance, cost savings, competitiveness and synergies generally and after the acquisition of Alcatel Lucent;

10)

exchange rate fluctuations, as well as hedging activities;

11)

our ability to successfully realize the expectations, plans or benefits related to any future collaboration or business collaboration agreements and patent license agreements or arbitration awards, including income to be received under any collaboration, partnership, agreement or arbitration award;

12)

our dependence on IPR technologies, including those that we have developed and those that are licensed to us, and the risk of associated IPR-related legal claims, licensing costs and restrictions on use;

13)

our exposure to direct and indirect regulation, including economic or trade policies, and the reliability of our governance, internal controls and compliance processes to prevent regulatory penalties in our business or in our joint ventures;

14)

our reliance on third-party solutions for data storage and service distribution, which expose us to risks relating to security, regulation and cybersecurity breaches;

15)

inefficiencies, breaches, malfunctions or disruptions of information technology systems;

16)

Nokia Technologies’ ability to generate net sales and profitability through licensing of the Nokia brand, technology licensing and the development and sales of products and services for instance in digital health, as well as other business ventures, which may not materialize as planned;

17)

our exposure to various legal frameworks regulating corruption, fraud, trade policies, and other risk areas, and the possibility of proceedings or investigations that result in fines, penalties or sanctions;

18)

adverse developments with respect to customer financing or extended payment terms we provide to customers;

19)

the potential complex tax issues, tax disputes and tax obligations we may face in various jurisdictions, including the risk of obligations to pay additional taxes;

20)

our actual or anticipated performance, among other factors, which could reduce our ability to utilize deferred tax assets;

21)

our ability to retain, motivate, develop and recruit appropriately skilled employees;

22)

disruptions to our manufacturing, service creation, delivery, logistics and supply chain processes, and the risks related to our geographically-concentrated production sites;

23)

the impact of litigation, arbitration, agreement-related disputes or product liability allegations associated with our business;

24)

our ability to re-establish investment grade rating or maintain our credit ratings;

25)

our ability to achieve targeted benefits from, or successfully implement planned transactions, as well as the liabilities related thereto;

26)

our involvement in joint ventures and jointly-managed companies;

27)

the carrying amount of our goodwill may not be recoverable;

28)

uncertainty related to the amount of dividends and equity return we are able to distribute to shareholders for each financial period;

29)

pension costs, employee fund-related costs, and healthcare costs; and

30)

risks related to undersea infrastructure, as well as the risk factors specified under “Operating and financial review and prospectsRisk factors” of this annual report on Form 20‑F and in our other filings or documents furnished with the U.S. Securities and Exchange Commission. Other unknown or unpredictable factors or underlying assumptions subsequently proven to be incorrect could cause actual results to differ materially from those in the forward-looking statements. We do 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.

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 annual report on Form 20‑F, any reference to “we,” “us,” “the Group,” “the company” or “Nokia” means Nokia Corporation and its consolidated subsidiaries and generally to Nokia’s Continuing operations, except where we separately specify that the term means Nokia Corporation or a particular subsidiary or business segment only or our Discontinued operations. 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, and references to “dollars”, “U.S. dollars”, “USD” or “$” are to the currency of the United States. Solely for the convenience of the reader, this annual report on Form 20-F contains conversions of selected euro amounts into U.S. dollars at specified rates or, if not so specified, at the year-end rate of 1.1993 U.S. dollars per euro, which was the European Central Bank reference rate on December 29, 2017. No representation is made that the amounts have been, could have been or could be converted into U.S. dollars at the rates indicated or at any other rates.

The information contained in, or accessible through, the websites linked throughout this annual report on Form 20‑F is not incorporated by reference into this document and should not be considered a part of this document.

Nokia Corporation furnishes Citibank, N.A., as Depositary, with its 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 IFRS as adopted by the European Union (“IFRS”). In accordance with the rules and regulations of the 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 U.S. 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 (“ADRs”), evidencing American Depositary Shares (“ADSs”), 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 nokia.com/financials. This annual report on Form 20‑F is also available at nokia.com/financials as well as on Citibank’s website at https://app.irdirect.net/company/49733/hotline/. 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 43077, Providence, RI 02940‑3081, United States. 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.

This is Nokia

We create the technology to connect the world. Powered by the research and innovation of Nokia Bell Labs, we serve communications service providers, governments, large enterprises and consumers, with the industry's most complete, end-to-end portfolio of products, services and licensing.

Nokia is enabling the infrastructure for 5G and the Internet of Things, and shaping the future of technology to transform the human experience.

We have combined global leadership in mobile and fixed network infrastructure with the software, services and advanced technologies to serve customers in approximately 130 countries around the world. We are driving the transition to smart, virtual networks and connectivity by creating one single network for all services, converging mobile and fixed broadband, IP routing and optical networks, with the software and services to manage them. Our research scientists and engineers continue to invent new technologies that will increasingly transform the way people and things communicate and connect including 5G, ultra broadband access, IP and Software Defined Networking (“SDN”), cloud applications, Internet of Things (“IoT”), as well as security platforms, data analytics, and sensors.

Through our six business groups, we have a global presence with operations in Europe, the Middle East & Africa, Greater China, North America, Asia-Pacific, India, and Latin America. We also have research and development (“R&D”) facilities in Europe, North America and Asia, and at the end of 2017, we employed approximately 103 000 people.

We closed 2017 delivering net sales of EUR 23.1 billion. We continued to make significant targeted R&D investments, a bedrock of our success in innovation, with R&D expenditures equaling EUR 4.9 billion in 2017.


Countries of operation	Number of employees as of December 31, 2017	R&D investment in 2017

~130	~103 000	EUR 4.9bn

Organizational structure and reportable segments

We have organized our networks-oriented businesses into five business groups: Mobile Networks, Fixed Networks, Global Services, IP/Optical Networks, and Nokia Software (together the “Networks business”); and have kept our driver of future innovation and licensing, Nokia Technologies, as a separate, sixth business group. For descriptions of our business groups, refer to “Business overview—Networks business” and “Business overview—Nokia Technologies”.

We have four reportable segments: (i) Ultra Broadband Networks, comprised of the Mobile Networks and the Fixed Networks business groups, (ii) Global Services, comprised of the Global Services business group, (iii) IP Networks and Applications, comprised of the IP/Optical Networks and Nokia Software business groups (all within our Networks business), and (iv) Nokia Technologies.

On February 1, 2018, we announced that we would rename our Applications & Analytics business group as Nokia Software, effective immediately, to better reflect our strategy and focus on building a strong, standalone software business. In this annual report we refer to Nokia Software throughout the document.

Additionally, we report the results of other business activities that are not reportable segments within Group Common and Other, such as our undersea cables business, Alcatel-Lucent Submarine Networks (“ASN”), and our antenna systems business, Radio Frequency Systems (“RFS”), in aggregate. Both ASN and RFS are being managed as separate businesses. We are continuing the strategic reviews of both businesses. Refer to Note 4, Segment information, of our consolidated financial statements included in this annual report on Form 20-F.

Key data




Net sales 2017		Dividend per share 2017

EUR 23.1bn		EUR 0.19


Gross margin 2017		Net cash as of December 31, 2017

39.5%		EUR 4.5bn

The following table sets forth summary financial and non-financial information for the years ended December 31, 2017 and December 31, 2016 for our Continuing operations. This data has been derived from our consolidated financial statements, which are included in this annual report on Form 20-F.


	2017		2016
For the year ended December 31	EURm		EURm		change
Net sales	23 147		23 641		(2)	%
Nokia’s Networks business	20 523		21 830		(6)	%
Ultra Broadband Networks	8 970		9 758		(8)	%
Global Services	5 810		6 036		(4)	%
IP Networks and Applications	5 743		6 036		(5)	%
Nokia Technologies	1 654		1 053		57	%
Group Common and Other	1 114		1 142		(2)	%
Gross margin	39.5	%	36.1	%	343	bps
Operating profit/(loss)	16		(1 100)		–
Nokia’s Networks business	1 711		1 943		(12)	%
Ultra Broadband Networks	781		922		(15)	%
Global Services	411		406		1	%
IP Networks and Applications	519		615		(16)	%
Nokia Technologies	1 124		579		94	%
Group Common and Other	(248)		(350)		(29)	%
Unallocated items(1)	(2 571)		(3 272)		(21)	%
Operating margin	0.1	%	(4.7)	%	472	bps
Financial income and expenses, net	(537)		(287)		87	%
Income tax (expense)/benefit	(927)		457		–
Loss for the year	(1 437)		(912)		58	%
Earnings per share (“EPS”), EUR diluted	(0.26)		(0.13)		100	%
Average number of employees	101 731		102 687		(1)	%
Net sales by region
Asia-Pacific	4 228		4 223		–
Europe	6 833		6 410		7	%
Greater China	2 516		2 654		(5)	%
Latin America	1 279		1 458		(12)	%
Middle East & Africa	1 907		1 872		2	%
North America	6 384		7 024		(9)	%
Total	23 147		23 641		(2)	%

(1)

Includes costs related to the acquisition of Alcatel Lucent and related integration, goodwill impairment charges, intangible asset amortization and other purchase price fair value adjustments, restructuring and associated charges and certain other items.



Net sales in 2017	Proposed dividend per share	Proposed dividends

EUR 23.1bn	EUR 0.19	EUR 1.1bn

“We have a very talented and dedicated team across our organization; employee connectedness to our mission is strong; and that puts Nokia in the driver’s seat in the transition to 5G and in delivering further shareholder value.”

2017 was a solid year of execution for Nokia, as we delivered on our financial commitments and gained momentum in driving forward all four pillars of our strategy.

With that progress, Nokia is in an excellent position for sharply improving its performance towards 2020 and for leading the transition to 5G that is underway.

Financial Highlights

Our Networks business net sales declined in line with our guidance and it posted an operating margin of 8.3%, which also met our guidance. Nokia Technologies had a strong year, with net sales and operating margin up 57% and 13 percentage points, respectively, compared to 2016, driven by higher licensing revenue that highlights the strength of our patent portfolio. We also closed the year on track to deliver EUR 1.2 billion in structural cost savings in full-year 2018.

Looking forward on the Networks side, we expect our market to decline again in 2018, although at a slightly lower rate than the market decline in 2017, given early signs of improved conditions in North America. For 2019 and 2020, we expect market conditions to improve markedly, driven by full-scale rollouts of 5G networks; and, as those rollouts occur, Nokia is remarkably well-positioned.

With our overall performance, Nokia's Board of Directors will propose a dividend of EUR 0.19 per share for 2017, up 12% from our 2016 dividend. And, the Board is committed to proposing a growing dividend, including for 2018.

Customers

Customer recognition of Nokia's work in leading the way to 5G was reflected in our healthy deal-win rate in 2017. This included our agreement with ALTÁN Redes in Mexico, a truly end-to-end project, which underlined the strength of our complete product offering.

We saw customer support for the progress in our cross-selling capabilities, with the multi-business-group opportunity share of Nokia's deal pipeline standing at 36%. That is up substantially from 2016 and underlines how customers continue to respond favorably to the broad scope of our portfolio in preparation for 5G.

We also saw it in the market share we gained in 2017 in 4G/LTE and small cells; that is relevant, as the 4G/LTE installed base needs to be truly 5G ready. Now to the excellent execution in the four pillars of our strategy.

Strategy

In the first pillar, leading in high-performance end-to-end networks with CSPs, or communication service providers, our 5G readiness progressed on several fronts.

Let me start by saying that CSPs increasingly realize that, unlike 4G and previous generations of technology, 5G is very different. It is not just about radio but spans the full network: from mobile access, cloud core, and software-defined networking to backhaul, front haul, IP routing, fixed networks, and software.

In the face of fast-rising bandwidth and other performance demands, customers know they need to take an architecture-driven, end-to-end approach that Nokia offers, with a coordinated, holistic view across all elements of the network. And, the work is well underway. In early 2018, we announced an agreement to deliver 5G equipment to Japan's NTT DOCOMO, kickstarting what we think will be a year of 5G investment and trials with operators around the globe; followed potentially by some deployments towards the end of 2018, with meaningful deployments in 2019.

Mobile Networks broadened our focus into multiple areas of early 5G mobility use cases, including enhanced mobile broadband and ultra-reliable, ultra-low latency communications. As part of this, we introduced the 5G NR (New Radio) air interface standard to support 5G devices and services.

Fixed Networks launched its Intelligent Access Vision, aimed at making access networks faster, better and smarter. Faster is about bringing the most complete network access toolkit to the market, including copper, fiber, cable and fixed-wireless solutions; better, about delivering a gigabit to the home and throughout the home, as users also expect optimal connectivity in every corner of the home; and smarter, about removing complexity and making the network simpler and easier to manage. As part of that, we introduced our Software-Defined Access Network, or SDAN, solution to bring customers a set of cloud-native software, open hardware, automated operations and integration services. And, we capped all of that by winning the world's first major SDAN project in December, and we see more progress like that ahead.

Global Services accelerated development of its service offering and delivery capabilities by integrating artificial intelligence, machine learning and automation. It unveiled an enhanced Analytics Services solution, powered by our cloud-based cognitive services platform, AVA (Automation,

Virtualized, Analytics). GS also announced our Multi-purpose Intuitive Knowledge Assistant, or MIKA, the world's first digital assistant for CSPs that gives engineers faster access to accurate answers through voice-dictated automated assistance. Further, it launched the industry's first global managed service for IoT, Nokia WING (worldwide IoT network grid), to help CSPs enter this market quickly.

In our second pillar, expanding network sales beyond CSPs to select vertical markets, Nokia saw double-digit underlying sales growth compared to 2016. This reflects our confidence that the need for mission-critical, high-performance networks continues to grow as companies and public sector organizations everywhere digitize their operations.

In the segments we are targeting–spanning webscale companies, extra-large enterprises that use technology as a competitive advantage, and large players in transportation, energy and the public sector–we added almost 100 new customers in 2017, including Amazon, Fujitsu, and Philips.

Our IP/Optical Networks, or ION, business group was a key driver in our momentum in new vertical markets, which represented roughly 5% of Nokia's total sales in 2017. And, with our FP4, silicon-based routing products starting to ship, ION is well-placed to fundamentally improve our IP routing position with webscale companies in 2018 and beyond.

In our third pillar, building a strong, standalone software business at scale, our Applications & Analytics (A&A) business group built Nokia's first dedicated software sales force and re-architected our software on a common foundation. We introduced several new products and services, including Nokia Smart Plan Suite, Nokia Session Border Controller and Nokia NetGuard Security Management Center, and we acquired Comptel to enhance our software intelligence and automation capabilities. In February 2018, we renamed A&A as Nokia Software, highlighting our longer-term ambitions for this business and the opportunities we see in helping CSPs and our select vertical markets improve the digital customer experience, implement innovative business models, and unlock new revenue opportunities.

In our fourth pillar, creating new business and licensing opportunities in the consumer ecosystem, Nokia did not miss a beat. Nokia Technologies signed several new patent licensing agreements and won patent arbitration awards with companies that included Apple, Blackberry, and Huawei. We advanced plans to develop our licensing business in new areas like automotive, and in geographies like China and India. We saw early progress in our brand licensing agreement with HMD Global, which launched several Nokia-branded smartphones and feature phones that have achieved outstanding net promoter scores.

We also took the decision to stop development of the OZO virtual reality camera, as we focus Nokia Technologies' efforts on our licensing business and lowering costs. As part of that approach, in early 2018, we initiated a strategic review of our Digital Health business. We have a disciplined and pragmatic approach towards investing in new growth opportunities in Nokia Technologies. If we think a bet won't meet our criteria for becoming a meaningful business, we will move on quickly, and you see that in the actions we have taken.

Innovation

An important dimension to our strategy progress was the fact that 2017 was another year in which Nokia Bell Labs and all our business groups lived up to Nokia's innovation prowess.

Among our important product launches were 5G FIRST, which enabled early 5G testing and incorporates Nokia's AirScale radio platform and AirFrame technology, including massive MIMO Adaptive Antenna, Cloud Packet Core and mobile transport, to bring new capabilities to operators.

Just after 2017 closed, we introduced our end-to-end 5G Future X network architecture and ReefShark chipset for our radio portfolio. Together, these innovations provide significant differentiation for Nokia against the competition and enable full-scale commercial deployments of standards-based 5G networks, which we see happening towards the end of 2018 or early 2019.

And, we launched the most powerful internet routing platforms, powered by Nokia's new FP4 silicon, the world's first multi-terabit chipset that is many times faster and smarter than anything on the market.

People

In 2017, we strengthened awareness and understanding of our core cultural principles, which are summarized in the "Drive, Dare and Care" behaviors we put into place during the year.

It is especially pleasing to see Nokia employees' strong belief in our company's direction, as indicated by our internal Culture Cohesion Tracker survey, along with particularly good progress in reducing bureaucracy and hierarchies.

All of this progress is encouraging even as we continue to deepen our common culture and ways of working in all six of our business groups and in geographies across the world.

Sustainability and Corporate Responsibility

We also continued to do the right things the right way in delivering on our sustainability commitments, which are an important dimension to everything we do at Nokia.

Working with the Science Based Targets initiative, we set a long term carbon emissions reduction target of 75%; this target includes customer use of our products and forms the largest portion of our carbon footprint. We also set a science-based emissions reduction target of 41% for our own operations. Both targets are set for 2030 against a 2014 baseline. We track these annually and are progressing against both targets.

Nokia was also again ranked in the top 1% of suppliers assessed in 2017 as part of the EcoVadis scorecards, which measure corporate sustainability performance. We achieved excellent scores in environmental performance, sustainable procurement, and labor practices. And, we were again rated an industry leader in the Communications Equipment ("CMT") sector of the Dow Jones Sustainability Indices ("DJSI") and were awarded a "Gold" level by RobecoSAM in early 2018 for our sustainability performance.

Our values

We foster a culture of high-performance and high integrity, guided by our vision, brand and values. It is through our people and culture that we shape technology to serve human needs. Our pursuit of performance with integrity and sustainability – a culture that stems from our Finnish roots – is key to why our customers and partners choose to work with us.

Common shared principles and focus on Drive, Dare and Care is the cultural platform we use to shape our core common culture. It means relentlessly driving for excellent results, and being passionate about good customer experiences and the quality of our products. We have the attitude and Drive of entrepreneurs and do not celebrate hierarchies. We Dare to innovate, learn and challenge outdated practices. We Care about our colleagues, quality and putting the Nokia team first.

Our core culture empowers people and teams to deliver on our strategy. It guides our quest for innovation, as we use our insatiable curiosity and deep technical knowledge to paint a picture of the future for our customers. It also drives our pursuit of continuous improvement, our ability to outperform competitors and be a trusted partner for our customers, partners, and suppliers.

Our integrity is fundamental to how we internally work and provide for our customers. Particularly in the standards-driven world of network technologies, the choices that customers make are often less between different products, and more between different relationships. Nokia stands out as a trusted customer partner, sustaining long-term relationships through our commitment to deliver, and fostering a level of trust we work relentlessly to earn and keep.

We pursue high performance, always under the guiding principles of our values:

Respect

Acting with uncompromising integrity, we work openly and collaboratively, seeking to earn respect from others.

Challenge

We are never complacent. We ask tough questions and push for higher performance to deliver the right results.

Achievement

We take responsibility, and are accountable for driving quality, setting high standards, and striving for continuous improvement.

Renewal

We constantly refine our skills: learning and embracing new ways of doing things, and adapting to the world around us.

Our commitments

What we do to design and deploy technology in the service of our customers and people:

We create the most sophisticated technology that is effortless and intuitive to use

We lead the relentless quest for gains in performance and agility, with technology that thinks for itself.

We solve your future needs

We help customers shape their futures based on a clear view of technology opportunities and constraints. We work closely with customers and partners to anticipate their priorities and guide their choices.

We obsess about integrity, quality, and security

We never compromise our values in the drive for business or technical performance. We pursue quality in all our products and processes, and design for security and privacy from the start.

Our strategy

We are rebalancing for growth, putting Nokia at the heart of unprecedented opportunities to create the technology to connect the world.

We have identified six global megatrends. These megatrends create massive technological requirements, impact our current and potential customers, change the lives of people, impact business operations on a global scale and provide opportunities for Nokia to diversify into new growth areas.

The megatrends we have identified are:

Network, compute and storage: Ever present broadband capacity coupled with a distributed cloud for ubiquitous compute and near infinite storage, allowing limitless connectivity and imperceptible latency as well as subscription-based and asset-less business models.

Internet of Things: In addition to people, trillions of things are connected to the internet, collecting unprecedented amounts of data in a private and business context.

Augmented Intelligence: Artificial intelligence combined with human intelligence transforms the collected data into actionable insights, fundamentally changing the way decisions are made by businesses, governments and individuals, resulting in time savings, less waste, higher efficiency and new business models.

Human and machine interaction: A range of new form factors that fundamentally transform the way humans interact with each other and with machines, e.g. voice-based digital assistance, gesture control, smart clothes, implantable chips, robotics and Augmented and Virtual Reality.

Social and trust economics: Ubiquitous connectivity, compute and storage, as well as technologies such as blockchain, enabling new business models based on sharing assets and distributed trust, allowing rapid scalability on a global level.

Digitization and ecosystems: Next level of digitization beyond content and information, digitizing atoms with additive printing in an industrial, consumer and medical context, fundamentally transforming entire supply chains and production processes by massive-scale automation.

These megatrends are driving new technology requirements. End-to-end networks are a central enabler, which create a multitude of opportunities for us. Nokia Bell Labs has developed a vision of a future network architecture that fulfills these requirements in a holistic way—the Future X network vision. This is our guide not just to how things will change, but also to what we need to do to meet the future needs of our customers and to address these megatrends and the inherent opportunities. The Future X vision encompasses the key domains of future networks: massive scale access, converged edge cloud, smart network fabric, universal adaptive core, programmable network operating systems, augmented cognition systems, digital value platforms and dynamic data security.

Simultaneously, driven by the megatrends and the resulting increasing relevance of networks, we are seeing a shift in who is investing in technology. Our primary market, comprised of communications service providers (“CSPs”), in which we have a leadership position, is very large in size, but expected to remain challenging with a limited estimated growth opportunity. However, the megatrends are increasing the demand for large high-performance networks in other key industries, which we define as our select vertical markets. Webscale companies—such as Google, Microsoft, and Alibaba—are investing in cloud technology and network infrastructure on an increasing scale. As other vertical markets such as transportation, energy, and public sector digitize their operations, they will also need high-performing mission-critical networks. The same is true for TXLEs—technically sophisticated companies, such as banks, that invest heavily in their own network infrastructures to gain a key competitive advantage. Consequently, we have identified attractive growth opportunities in new verticals outside our primary market with CSPs.

We are addressing both our primary CSP market and the newly identified growth opportunities in our adjacent market with our “Rebalancing for Growth” strategy. This strategy builds on our core strength of delivering large high-performance networks by expanding our business into targeted, higher-growth and higher-margin vertical markets. Our ambition is to grow the share of our revenue that is derived from outside the CSPs.

Our leadership

Our diverse Group Leadership Team, spanning several nationalities, reflects the scope of our technological role – and our business ambition.

The Nokia Group Leadership Team is responsible for the operative management of Nokia, including decisions concerning our strategy and the overall business portfolio. The Chair and members of the Group Leadership Team are appointed by the Board of Directors. The Group Leadership Team is chaired by the President and Chief Executive Officer (the “President and CEO”).

Our Group Leadership Team comprises the following 15 members:

Rajeev Suri

President and CEO

Marc Rouanne

President of Mobile Networks

Federico Guillén

President of Fixed Networks

Igor Leprince

President of Global Services

Igor Leprince will step down from the Group Leadership Team as of March 31, 2018. Sanjay Goel was appointed President of Global Services and member of the Group Leadership Team as of April 1, 2018.

Basil Alwan

President of IP/Optical Networks

Bhaskar Gorti

President of Nokia Software

As of February 1, 2018 the Applications & Analytics business group was renamed Nokia Software

Gregory Lee

President of Nokia Technologies

Kristian Pullola

Chief Financial Officer

Joerg Erlemeier

Chief Operating Officer

Hans-Jürgen Bill

Chief Human Resources Officer

Kathrin Buvac

Chief Strategy Officer

Ashish Chowdhary

Chief Customer Operations Officer

Barry French

Chief Marketing Officer

Maria Varsellona

Chief Legal Officer

Marcus Weldon

Chief Technology Officer and President of Nokia Bell Labs

Mobile Networks

Market overview

The primary market for our Mobile Networks business group includes technologies for mobile access, core networks and microwave transport. This encompasses access and core network technologies ranging from 2G to 5G licensed and unlicensed spectrum for both macro and small cell deployments. The primary addressable market for Mobile Networks was estimated at EUR 27 billion in 2017.

The adjacent market for Mobile Networks includes solutions for the public sector, TXLEs, and webscales, and drives expansion into domains such as LTE for public safety, private LTE and unlicensed radio access. The adjacent market, including verticals, was estimated at EUR 4 billion in 2017.

Business overview and organization

Providing connectivity is the core business of our Mobile Networks business group. Our Mobile Networks strategy focuses on maintaining the strong business that we have today, and prudently expanding it to new customer segments and technologies. To implement our strategy, and to become fast and agile in our execution, Mobile Networks introduced a new organizational structure and new ways of working in October 2017. We target to lead in high-performance mobile networks with communications service providers. In practice, we define leading with two indicators: customer feedback and return on investment.

Practically, we aim at being perceived as a leader in 5G, as well as providing the best value to our customers as they evolve their networks towards cloudification. As we move from 4G to 5G and transform our networks into a cloud-native environment, we aim to become a champion of DevOps and continuous delivery. 5G is more than a mobile access technology: the full potential of 5G is only achieved if every part of the network can perform to the same level, and for this we have developed our Future X network architecture blueprint. The capacity, latency, agility, reliability and speed offered by this technology make it applicable to CSPs and other industry verticals.

We believe that 5G will change the way in which communications technology is used in virtually every sphere of life. As we move along the path towards making 5G a commercial reality, we aim to extend our leadership in LTE with a smooth evolution path comprising successive generations of 4.5G, 4.5G Pro and 4.9G offerings. Mobile Networks’ rationalized portfolio, featuring the 5G-ready AirScale radio access, is setting the standard for scalability, openness, energy efficiency and multitechnology support (“Single RAN”).

An important part of our focus is the transformation of service providers as they adopt cloud computing technologies to enable digitalization. Particularly on the Core networks side, there has been a continuous evolution from traditional monolithic products, passing through virtualization and now into a cloud-native network architecture. To support this transition, in 2017 Nokia launched the AirGile cloud-native core which is a full portfolio of network functions built to execute on the demands brought by the future 5G and IoT networks. A proof point of the maturity of the Telco Cloud market and of the leadership position that Nokia has achieved is the strong deal momentum that we have achieved, with more than 120 commercial cloud references with operators and enterprises across the world.

Competition

The mobile networks market is a highly consolidated market and our main competitors are Huawei and Ericsson. Additionally, there are two regional vendors, ZTE and Samsung, that operate with an estimated below 10% market share. As network infrastructure gets virtualized and cloudified, we expect IT companies, such as HP Enterprise and Cisco, to emerge in this field.

2017 highlights

■ In 2017, Mobile Networks established a portfolio of enabling technologies that are central to the infrastructure, operations, software and services required in a hyperconnected, digital world.

■ In February, Nokia launched its 5G FIRST, a commercial end-to-end solution for early 5G deployments. Later in the year, Nokia announced the 5G upgradeability of its existing radio units as well as inclusion of the 3GPP standards based 5GNR support of 5G FIRST.

■ For smoothening the evolution of 4G networks to 5G, Nokia demonstrated commercial 1.2 Gbps speed with a commercial chipset device, cloud radio access network (“RAN”) with all technologies virtualized, and eightfold radio cell capacity increase with massive MIMO technology jointly with Sprint.

■ In September, Nokia launched the AirGile cloud-native core - a full portfolio of network functions built to execute on the demands brought by the future 5G and IoT networks.

Fixed Networks

Market overview

The primary market for our Fixed Network business group includes technologies for fixed access and related services in addition to fixed network transformation services with a focus on transformation of legacy fixed switching networks. The primary market for Fixed Networks was estimated at EUR 8.4 billion in 2017. In this market, we see a shift from copper to fiber technologies, and networks increasingly use a combination of multiple technologies, such as copper, fiber and wireless.

The adjacent market, including verticals, for Fixed Networks includes virtualization solutions for cable access platforms, Digital Home (IoT) and passive optical LAN. The adjacent market, including verticals, was estimated at EUR 0.2 billion in 2017.

Business overview and organization

Our Fixed Networks business group creates Intelligent Access networks that are more advanced, bringing connectivity to more people sooner to deliver the best broadband experience.

The Fixed Networks business group provides the broadest access networks toolkit including copper, fiber, coax and fixed-wireless access technologies to deliver more bandwidth to more people, faster and in a cost-efficient way. The portfolio allows for a customized combination of technologies that brings fiber to the most economical point for our customers. Nokia is a market leader in copper-based solutions to boost capacity on existing copper infrastructure, such as VDSL2 Vectoring, Vplus, and G.fast. Together with Nokia Bell Labs, we continue the innovation and development of even higher-capacity technologies like XG-Fast, which allows 10 Gb/s over copper. The Fixed Networks business group is also a market leader in fiber-to-the-home solutions, with technologies such as GPON, EPON, Ethernet point-to-point, as well as the award-winning 10 gigabit next generation fiber technologies (XGS-PON and TWDM-PON).

Following the acquisition of Gainspeed, Nokia has been extending its cable operator portfolio, with a comprehensive Unified Cable Access solution, including both fiber and coax solutions, as well as its ground-breaking and award-winning virtualized distributed access architecture solution (“vCMTS”). With this enhanced portfolio, Nokia provides cable operators with the end-to-end technology capabilities needed to support growing capacity requirements today and into the future.

Delivering a gigabit to the home is no longer enough, when in-home network, especially Wi-Fi capabilities, is often the pain point. To ensure carrier-grade in-home connectivity, Nokia has expanded its smart home portfolio with its carrier-grade Nokia Wi-Fi solution, providing coverage in every corner of the home, supporting communications service providers to offer enriched customer experience and diversify their services.

Virtualization will have a key role in keeping operational costs low as the network gets more complex. Moving functions to the cloud makes networks easier to manage and scale. With its Software Defined Access solution, Nokia takes a very pragmatic approach towards fixed access virtualization, working closely with service providers around the world to define the use cases that make the most sense for them. Nokia’s Software-Defined Access Network (“SDAN”) solution includes Altiplano cloud-native software and Lightspan open programmable hardware, enabling scalable deployment practices, automated operations and integration services. Nokia was awarded the Broadband Award 2017 for Achievement in Virtualization.

The Fixed Networks services portfolio is based on our unparalleled expertise and experience and includes amongst others, Public Switched Telephone Network transformation, ultra-broadband network design, deployment and operation, site implementation and outside plant, and multivendor maintenance. With predictive care, Nokia brings the powerful and proven intelligent analytics and automation capabilities of Nokia AVA cognitive services platform to fixed networks, providing near-real time monitoring capabilities to identify network anomalies before they impact service.

Competition

The competitive landscape in fixed access has similar characteristics to mobile access, where the market is dominated by three main vendors, Nokia, Huawei, and ZTE, and a handful of other vendors with estimated less than 10% market share.

2017 highlights

■ Nokia continued to be the market leader in copper access and one of the market leaders in fiber access, and is the only vendor with a leading market share in all regions worldwide, according to Dell’Oro.

■ In October, Nokia launched its Intelligent Access Vision on how to build access networks that are faster, better and smarter. This included a series of new product launches for the access network, the cloud and the home. With this extended portfolio, Nokia continues to strengthen its innovation leadership.

■ To complement our portfolio for the cable operator market, Nokia announced the virtualized Distributed Access Architecture, based on its Gainspeed portfolio, ending the industry debate between remote PHY and remote MACPHY, immediately followed by a first customer announcement with Wide Open West. Following the acquisition of Gainspeed in 2016, we have now built up a strong portfolio to address cable operators’ needs.

■ Other key launches included Nokia Wi-Fi, a carrier-grade whole home Wi-Fi solution; a cloud-native set of Software Defined Access Network products; the industry’s first wireless PON solution; expansions to our existing copper and fiber portfolio, and Nokia Predictive Care.

Global Services

Market overview

The Global Services business group’s market includes network implementation, care and professional services for mobile networks in addition to managed services for the fixed, mobile, applications, IP and optical domains. The primary market for mobile networks services was estimated at EUR 28 billion in 2017. The adjacent market for Global Services, including services for Mobile Networks vertical segments, was estimated at EUR 5 billion.

Business overview and organization

Our services, solutions and multivendor capabilities help communications service providers navigate through the evolving technology landscape, network complexity and data growth as well as improve end user experience while supporting them also in day-to-day network planning, implementation, operations and maintenance. At the same time, we expand our offering in select attractive verticals as well as for IoT and cloud by leveraging our innovative portfolio and telco grade expertise.

We differentiate strategically through our service delivery by driving speed, quality and efficiency with the right combination of local expertise and globalized delivery centers, as well as automation and advanced analytics powered by Nokia AVA, our cognitive service delivery platform.

The Global Services business group consists of five business units.

Network Planning and Optimization helps customers maximize their network performance and quality of end users’ experience, while also keeping capital expenditure under tight control. Analytics-based services powered by Nokia AVA are designed to satisfy the surging need for a use-case driven approach to addressing customer pain points.

Network Implementation deploys, expands and modernizes mobile networks of the communications service providers, enterprise and public sector customers in growth and mature markets, thus optimizing customers’ total cost of ownership (both capital expenditure and operating expenditure) and deployment schedules while minimizing risks.

Systems Integration offers network architecture, integration, customization, and migration services. The portfolio focuses on core and SDM, data center services, telco cloud, transformation and prime integration for communications service providers and other specific services for vertical customers.

Care assures optimal network availability by providing network operation support, maintenance, orchestration and expert services. With the power of Nokia AVA and its latest analytics and automation, our offering includes proactive and predictive solutions that are fully customizable to local and customer-specific requirements.

Managed Services provides tailored packages for its communications service providers, public sector, transport and utility customers to help them transform their business and excel in the fixed, mobile, applications, IP and optical domains. The full portfolio comprises of network and service management, a build-operate-transfer model, hosting, advanced analytics, IoT, cloud and security operations.

Competition

In a market segment that combines products and services, Nokia competes against Huawei, Ericsson, ZTE, and Cisco, while for the service-led businesses like managed services and systems integration we see other competitors, such as TechMaindra, HPE and IBM, emerging in addition to Ericsson and Huawei.

2017 highlights

■ Global Services expanded its portfolio with close to 20 new services, including in 5G, IoT, public safety, and analytics.

■ The new Nokia WING—a managed service for IoT—provides communications service providers with a quick market entry.

■ Our new Analytics Services that draw from machine learning, augmented intelligence and the power of Nokia AVA were recognized by several industry awards.

■ Our analytics, artificial intelligence and machine learning capabilities were also recognized by several industry awards.

■ We launched MIKA (Multi-purpose Intuitive Knowledge Assistant), the first digital assistant to support telecom services.

IP/Optical Networks

Market overview

The primary market for our IP/Optical Networks business group includes routing and optical technologies and related services sold to CSPs. This market includes technologies such as IP aggregation, edge and core routing, mobile packet core, Wave Division Multiplex, and packet optical transport networking solutions. We also have analytics and end-to-end Software-Defined Network (“SDN”) solutions. The primary market for IP/Optical Networks was estimated at EUR 25 billion in 2017.

A growing portion of IP/Optical Networks revenue is derived from its adjacent market, which includes customer segments like webscales and enterprise. In the enterprise segment, we address verticals like energy, transport, public sector, and TXLEs. We address this mission-critical market with our IP, Optical and Nuage Networks portfolios. The adjacent market was estimated at EUR 6 billion in 2017.

Business overview and organization

The IP/Optical Networks business group provides the high-performance and massively scalable networks that underpin the digital world’s dynamic interconnectivity. IP/Optical Networks’ portfolio of carrier-grade software, systems and services play across multiple domains, from programmable IP and optical transport networks for the smart fabric to analytics and software-defined capabilities for the programmable network operating system and more.

The networks of CSPs are under tremendous pressure from cloud-based applications, ultra-broadband evolution and the IoT. IP/Optical Networks solutions reduce time-to-market and risk in CSPs launching new services, enabling rapid scaling to meet surging demands in the most optimized configurations. Our insight-driven network automation solutions further assure that network services are delivered with consistent quality, reliability and security and that restorative actions are automatically initiated when any parameter varies beyond set limits. These carrier-grade attributes also benefit—and are valued by—the needs of webscales, energy, transport, public sector and TXLEs.

The IP/Optical Networks product portfolio includes:

comprehensive IP and optical Wide Area Networking (“WAN”) solutions that dynamically, reliably and securely connect people and things from any universal broadband access modality to any clouds and edge clouds at the lowest cost-per-bit;

advanced, cloud-optimized IP service gateways for residential, business, mobile and IoT services and unique hybrid solutions enabling a converged services future;

analytics and carrier SDN solutions for insight-driven network automation that dynamically provision, optimize and assure network services and resources end-to-end, from access to the cloud, and spanning IP and optical technology layers;

advanced datacenter automation and software-defined WAN solutions that configure network connectivity among clouds and to any enterprise branch office with the ease and efficiency of cloud compute using products from our Nuage portfolio;

advanced IP video services offering the utmost user experience streamed efficiently and flawlessly from the cloud; and

an extensive portfolio of professional services to accelerate the benefits of integrating new technologies to transform networks and leverage the latest innovations in SDN, virtualization, video and programmable all-IP networks.

Competition

The competitive landscape includes Cisco, Juniper Networks, Huawei, and Nokia in addition to various specialized players in optical, such as Ciena.

2017 highlights

■ The IP/Optical Networks business group launched the world’s most powerful internet routing platforms powered by Nokia’s new FP4 silicon. Leading smartphone manufacturer Xiaomi signed a business collaboration and multi-year patent agreement that includes the new FP4 silicon as well as optical transport solutions for datacenter interconnect and a datacenter fabric solution.

■ The Nokia 100G optical portfolio was chosen to support the massive growth of Jio's pan-India 4G network and was integral to Nokia and Facebook breaking subsea spectral efficiency records in transatlantic field tests.

■ The Nuage Networks solution powered the launch of BT Agile Connect and TELUS Network as a Service (“NaaS”). These launches reinforced Nuage Networks' SD-WAN leadership following additional wins with major service providers including Telefonica and China Telecom.

■ AT&T teamed with Nokia to offer U.S. utilities a private LTE solution based on the new Nokia wireless router, which will help utility customers modernize their grid distribution and build converged field area networks to reap the benefits of the smart grid.

Nokia Software*

Market overview

Nokia Software’s primary solution segments include software for 1) digital experience and monetization (i.e., Business Support Systems), 2) digital operations (i.e., Operational Support Systems), 3) digital networks (i.e., Session Border Controllers, Authentication, Authorization, and Accounting (“AAA”), and Diameter Routing), and 4) digital intelligence (i.e., big data analytics, augmented and artificial intelligence, etc.). The primary addressable market for Nokia Software and associated professional services was estimated at EUR 14 billion in 2017.

The adjacent market for Nokia Software includes emerging software and services for Network Function Virtualization (“NFV”) and NFV Management Orchestration (“MANO”), Self-Organizing Networks, IoT platforms, and security. This market also includes digital enterprises and IoT verticals. The adjacent market, including verticals, was estimated at EUR 8 billion in 2017.

Business overview and organization

The Nokia Software business group serves communications service providers by helping them harness the power of connected intelligence to enrich and monetize experiences. Nokia is helping customers move from the slow, siloed, and monolithic systems they have today to agile, scalable and lightweight solutions that are built to work in digital time. Each solution is designed to provide intelligence, automation, security, cloud readiness and multi-vendor capabilities over a common software foundation.

The Nokia Software portfolio contains:

Digital experience and monetization: helps service providers identify and act upon the small windows of digital time where the opportunities to enrich and monetize are the best. Our portfolio includes solutions for omni-channel customer engagement, autonomous customer care, fixed and mobile device management, and policy and charging software that can be utilized across all network types from any vendor. Today, we have more than 300 digital experience and monetization customers, we are the market leader in both fixed and mobile device management, and we have one of the industry’s first 5G charging solutions.

Digital operations: helps service providers simplify, automate and optimize their service and network operations. Our portfolio includes solutions for service fulfilment, assurance, orchestration, and network management. We have more than 500 digital operations customers globally, hold leading market positions in NFV MANO and service assurance and have been recognized as the “one stop shop for Operations Support Systems” by Analysys Mason.

Digital networks: software that creates an elastic, programmable, and secure cloud-based foundation to address performance and reliability requirements. Our products include one of the industry’s first cloud-native session border controllers, a portfolio of active security solutions, and market-leading mobile network management solutions.

Our digital intelligence portfolio provides a complete 360-degree view on the market. We use artificial intelligence to provide advanced summarization, correlation, and prediction to determine sentiment, marketing targets, and the next best actions. We are the market leader in network analytics and have over 350 customers.

Competition

Nokia is one of the leading providers of telecom software products according to Analysys Mason. As the market is highly fragmented, the top six vendors all hold less than 10% market share while the remaining market is shared across several niche players.

Our competitors fall into two categories: Independent Software Vendors (“ISVs”) and Network Equipment Providers (“NEPs”). The main ISV competitors are Amdocs, Netcracker, and Oracle. The main NEP competitors are Huawei and Ericsson, selling software as part of large infrastructure deals.

*As of February 1, 2018 the Applications & Analytics business group was renamed Nokia Software.

Within our Networks business

Sales and marketing

The Customer Operations (“CO”) organization is responsible for sales and account management across the five network-oriented business groups. The CO teams are represented worldwide (in approximately 130 countries) to ensure that we are close to our customers and have a deep understanding of local markets. In this way, we strive to create and maintain deep customer intimacy across our customer base.

Geographically, the CO organization is divided into seven markets:

Asia-Pacific and Japan spans a varied geographical scope, ranging from advanced telecommunications markets, such as Japan and the Republic of South Korea, to developing markets including Philippines, Bangladesh, Myanmar, Vietnam and others. In 2017, we worked with all the leading operators in the market, and collaborated on 5G, IoT and other leading network evolution topics with operators from Japan and the Republic of South Korea. We also run a major Service Delivery Hub in Japan. Furthermore, we work across a wide range of vertical markets in Asia-Pacific and Japan including public sector, transportation and energy enabling solutions through its end-to-end portfolio.

In Europe, we engaged with all the major operators serving millions of customers. We have extensive R&D expertise in Europe, and some of our largest Technology Centers, which are developing future technologies, are based in this market. We also have a Global Delivery Center (across two locations: Portugal and Romania) and three regional Service Delivery Hubs in Europe (one in Russia and two in Poland). With our strong end-to-end portfolio, Nokia is well positioned in Europe to help maximize the benefits of 5G, IoT and the digital transformation in the local digital ecosystems.

In Greater China, we are the leading player among companies headquartered outside China, and work with all the major operators. We have also extended our market presence to the public and enterprise sectors, including energy, railways and public security. In 2017, we worked with numerous China-based webscale companies, and all the major operators in Taiwan. In China, we have six Technology Centers, one regional Service Delivery Hub and more than 80 offices spread over megacities and provinces. A major achievement in 2017 was the closing of our agreement with our Chinese partner, which resulted in the formation of the joint venture – Nokia Shanghai Bell. This was the last major organizational step in Nokia and Alcatel Lucent integration, bringing together approximately 8 000 colleagues from both companies into a single organization.

In India, we are a strong supplier and service provider to the leading public and private operators. Collectively, our networks for these operators serve 418 million subscribers across some 459 000 sites with Nokia managing networks supporting 154 million subscribers. In addition, we are a key telecom infrastructure supplier to non-operator segments, including large enterprises, utilities companies, and the Indian defense sector. We are also a strategic telecommunications partner in GSM-Railways technology in India. Nokia’s operations in the country include a Global Delivery Center, a Service Delivery Hub and a Global Technology Center.

In Latin America, an estimated 24% of mobile subscribers use LTE services, almost double from a year ago, due to accelerated adoption in Brazil, Mexico and Argentina. High-speed fixed broadband, meanwhile, is still in its early phase. With the aim of providing broadband services to a population of over 600 million people in the area, we supplied ultra-competitive solutions to all major operators. In 2017, we also closed our biggest ever deal in the market – the nationwide wholesale LTE network in Mexico known as ‘Red Compartida’, for Altán Redes, and the largest LTE 700 MHz deployment in Brazil with TIM.

In Middle-East and Africa, we see strong opportunities for Nokia, and we are closely working with all key global and regional operators. We have been laying the foundation for early 5G adoption and Smart Cities deployments in the Middle-East region, and continue to see strong growth in the number of mobile broadband users in Africa, driven by increasing affordability of smartphones and commercial LTE deployments across the continent.

In North America, we count all the major operators as our key customers. We also deliver advanced IP networking, ultra-broadband access, and cloud technology solutions to a wide array of customers, including local service providers, cable operators, large enterprises, state and local governments, utilities, and many others. North America is also home to the our most important and thriving innovation practices―from the renowned Nokia Bell Labs headquarters in Murray Hill, New Jersey, to the development labs in Silicon Valley.

As Nokia executes its strategy to expand beyond our traditional telecom operator customer base, Customer Operations is leading the way with a strong go-to-market strategy for our non-telco target segments. Our ambition is to drive the sale of business and mission-critical communications networks and services to organizations in several carefully chosen markets.

These efforts are led by two teams within Customer Operations. These are Global Enterprise TEPS (transportation, energy and public sector) and Global Enterprise Webscale / TXLE.

Within TEPS, we focus on the needs of public sector customers for technology in public safety, government driven broadband initiatives and smart city projects. For example, we work with Nedaa (the Dubai government security networks operator) in both public safety and smart city; as a key supplier to AT&T, Nokia will play a significant part in building the FirstNet nationwide U.S. Public Safety broadband network; we supply the Shanghai Oriental Pearl Group with technology for smart city services and work with the Digital Poland Operational Program, in which, together with Infracapital, we formed a joint venture to design, deploy and operate GPON fiber-optic networks to serve more than 400 000 residences and 2 500 schools in 13 regions in central and northern Poland.

In transportation, Nokia is the market leader in GSM for railway customers (“GSMR”) world-wide. And in aviation, we are working with Skyguide on modernizing Switzerland’s nationwide mission-critical communications network for air traffic control, managing both civil and military air traffic. We also supply Air2Ground private LTE solutions for major airline corporations, in cooperation with Deutsche Telekom and Inmarsat, among others. In energy, we are the global leader in Private LTE solutions for the mining industry. In 2017, we also added our first water utility with Placer County Water Authority in the United States, where our technology is helping to control water quality, prevent water loss and more effectively manage hydro-electric power generation. We also work with the world’s largest utility companies, including the world’s largest utility by production – EDF –

the world’s largest utility by customers – SGCC in China – Tata Power in India and the major utilities for both generation and distribution across the United States, including Ameren.

Our Webscale / TXLE business saw significant progress during 2017. In Webscale, our business has grown steadily and we now count Facebook, Amazon Web Services (“AWS”), Apple, Xiaomi Baidu, Alibaba and Tencent among our customers and we also work with some of these as partners. We announced a partnership with Amazon Web Services, providing a full suite of services to support service providers in their migration to AWS, a patent agreement with Xiaomi and a business and patent license and business collaboration agreement with Apple. Among our TXLE customers, we include international banks–such as BBVA, Santander, and Crèdit Andorrà–to which we supply software-defined networking and / or software-defined WAN solutions.

Research and development

Our Networks business is one of the industry’s largest R&D investors in information communication technology and we expect it to drive innovation across telecommunications and vertical industries to meet the needs of a digitally connected world. Product development is continually underway to meet the highly programmable, agile and efficiency requirements of the next generation software-defined networks that will accommodate the IoT, intelligent analytics, and automation used to forge new human possibilities.

Our five networks-focused business groups are responsible for product R&D within the Networks business. The Networks business has a global network of R&D centers, each with individual technology and competence specialties. The main R&D centers are located in Belgium, Canada, China, Finland, France, Germany, Greece, Hungary, India, Italy, Japan, Poland, the Philippines, Portugal, Romania, the United Kingdom, and the United States. We believe that the geographical diversity of our R&D network is an important competitive advantage for us. In addition, the ecosystem around each R&D center helps us to connect with experts on a global scale and our R&D network is further complemented by cooperation with universities and other research facilities.

All of our Networks business groups, and also Nokia Technologies, are committed to the Future X network architecture defined by Nokia Bell Labs. The Future X network is based on a vision of a massively distributed, cognitive, continuously adaptive, learning and optimizing network connecting humans, senses, things, systems, infrastructure, and processes. The Future X network aims to provide a 10-fold improvement across key technology domains in response to the six megatrends identified by Nokia as driving new technological requirements. For a more detailed description refer to “Our strategy” section.

Patents and licenses

Intellectual property assets are fundamental to Nokia, and we own a large patent portfolio of approximately 20 000 patent families. The Patent Business in Nokia Technologies is the primary monetization entity for patent assets. Refer to “Nokia Technologies—Patents and licenses” for a description of our patent licensing activities.

Industry leading R&D in our Networks business including Nokia Bell Labs in fields such as wireless, IP networking, ultra-broadband access and cloud technologies and applications continues to generate valuable new, patentable innovations.

Our Networks business has patent license agreements in place with a number of third parties as part of its ordinary course of business.

Nokia Bell Labs

Nokia Bell Labs is the world-renowned industrial research and innovation arm of Nokia. Over its 90-year history, Nokia Bell Labs has invented many of the foundational technologies that underpin information and communications networks and all digital devices and systems.

This research has resulted in eight Nobel Prizes, two Turing Awards, three Japan Prizes, a plethora of National Medals of Science and Engineering, as well as an Oscar, two Grammys, and an Emmy award for technical innovation. Nokia Bell Labs continues to conduct disruptive research focused on solving the challenges of the new digital era, defined by the contextual connection and interaction of everything and everyone.

Nokia Bell Labs searches for the fundamental limits of what is possible, rather than being constrained by the current state of art. It looks to the future to understand essential human needs and the potential barriers to enabling this new human existence. It then uses its unique diversity of research intellects and disciplines and perspectives to solve the key complex problems by discovering or inventing disruptive innovations that have the power to enable new economic capabilities, new societal behaviors, new business models and new types of services―in other words, to drive human and technological revolutions.

Research at Nokia Bell Labs is focused on key scientific, technological, engineering or mathematical areas which require 10x or more improvement in one or more dimensions. It then combines these areas of research into the Future X network architecture, which brings these disruptive research elements together into industry-redefining solutions. These innovations are brought to market through our business groups or through technology and patent licensing. Nokia Bell Labs also engages directly with the market and customers through its consulting service to help define the path to the future network with business model innovation and the optimum techno-economics.

This model of defining future needs and inventing game-changing solutions to critical problems while advising the market on the path forward has been the constant mission of Nokia Bell Labs.

Three functions create the Nokia Bell Labs’ foundation to disrupt and transform the future:

(1)

Chief Technology Office which defines the technological and architectural vision for the future of human needs.

(2)

Nokia Bell Labs Research which understands the key challenges in the future vision and invents solutions that are 10x better than what is currently possible.

(3)

Bell Labs Consulting which advises the industry on the economics of the vision and how to efficiently achieve this future goal, from the current starting point.

Nokia Bell Labs and Facebook achieved a record spectral efficiency of 7.46 b/s/Hz and 2.5 times capacity breakthrough for massive undersea cable transmission during a submarine field trial using Bell Labs’ Probabilistic Constellation Shaping (“PCS”) technology, a ground-breaking novel modulation technique that maximizes the distance and capacity of high-speed transmission in optical networks.

Nokia Bell Labs introduced “skim storage,” a unique innovation that decreases storage needs by five times using innovative advanced video transcoding technology allowing TV and video providers to serve programming to time-shifted viewers at a fraction of the storage and compute now required.

In a world’s first, Nokia Bell Labs demonstrated it is now possible to use a commercial next generation 10G PON to transport ultra-low latency Common Public Radio Interfaces (“CPRI”) streams showing how operators can re-use existing fiber-to-the-home (“FTTH”) massive-scale deployments to satisfy the strict latency constraints and capacity needs for mobile transport in 4G and future 5G networks.

Nokia Technologies

Market overview

Building on decades of innovation and R&D leadership in technologies used in virtually all mobile devices used today, Nokia Technologies is expanding our patent licensing business, reintroducing the Nokia brand to smartphones through brand licensing, and establishing a technology licensing business.

Smartphones, feature phones, and tablets had a global estimated wholesale market of over EUR 360 billion in 2017. Global smartphone wholesale revenues alone are forecasted to increase by 12% in 2018 and total over EUR 350 billion. In the automotive industry, expectations are that around half of the approximately 100 million new cars sold annually around the world will have connectivity in the next five years.

Business overview and organization

Nokia Technologies is determined to explore, discover and develop the ways in which technology can transform our lives. Nokia Technologies makes our vision for a connected future today’s reality. Nokia Technologies’ mission is to create effortless and impactful technological products and solutions that expand human possibilities.

Nokia Technologies currently consists of a portfolio of four businesses.

With the acquisition of Withings in 2016, our Digital Health business entered the market with a portfolio of premium, intuitive consumer products designed to inspire the individual to take control of their own health. Since then, we expanded this business into corporate wellness and elder care and developed an innovative patient care platform focused on remote patient care monitoring.

In the future, we plan to reduce our focus on consumer incubation in Nokia Technologies to allow us to prioritize our core strengths in business-to- business and licensing patents, technologies and the Nokia brand. In February 2018, Nokia announced a strategic review of options for the Digital Health consumer products business.

Our Brand Partnerships business works with our exclusive licensee for the Nokia brand for phones and tablets, HMD Global, which has launched six new Android smartphones and five new feature phones during 2017.

Our Patent Business continues to grow its successful patent licensing and monetization activities, which drive most of Nokia Technologies’ net sales today, giving us the ability to invest in our new businesses in a disciplined, venture capital-like manner.

We have launched a Technology Licensing business, focused on innovative spatial audio and visual technologies stemming from our OZO VR camera, which is no longer in production.

Sales and marketing

Our Patent Business manages intellectual property as a technology asset and seeks a return on our investments by making our innovations available to the markets through licensing activities and transactions. Nokia Technologies currently has more than 100 licensees, mainly for our standards essential patents (“SEPs”).

Nokia Technologies also continues to engage in global sales and marketing activities supporting the technology licensing solutions stemming from the OZO VR camera, as well as our portfolio of connected health products in both regulated and non-regulated markets.

Nokia Technologies sees further opportunities in licensing its proprietary technologies, intellectual property and brand assets into telecommunications and vertical industries.

Research and development

The applied nature of our R&D in Nokia Technologies has resulted in various relevant and valuable inventions in areas that we believe are important for emerging consumer experiences, such as audio and video standardization, sensing technologies and advanced machine learning-based health analytics.

Nokia Technologies has R&D centers in Finland and France.

Patents and licenses

For more than 20 years, we have defined many of the fundamental technologies used in virtually all mobile devices and taken a leadership role in standards setting. As a result, we own a leading share of essential patents for GSM, 3G radio and 4G LTE technologies. These, together with others for Wi-Fi and video standards, form the core of our patent portfolio for monetization purposes. As mentioned above, Nokia Technologies currently has more than 100 licensees, mainly for our SEPs.

With the acquisitions of Nokia Siemens Networks in 2013 and Alcatel Lucent in 2016, we added the results of their sustained innovation, including that of Bell Labs, creating a larger and more valuable IP portfolio than ever before. As part of our active portfolio management approach, we are continuously evaluating our collective assets and taking actions to optimize the size of our overall portfolio while preserving the high quality of our patents. Through a series of structured divestments in 2017, we have enabled product companies to access Nokia innovations. At the end of 2017, our portfolio stands at around 20 000 patent families, built on combined R&D investments of more than EUR 123 billion over the last two decades.

We continue to refresh our portfolio from R&D activities across all Nokia businesses, filing patent applications on more than 1 300 new inventions in 2017. Continuing our focus on communications standards, we also expect to have a leading position in 5G. Through 2017, we continued to be a leading contributor to the development of emerging 5G standards.

Competition

In the digital health market, our competitors range from large multinationals to innovative smaller specialist vendors. Until recently, our focus was on higher growth segments of the total market, including consumer health and wellness products such as hybrid smart watches, blood pressure monitors, scales and thermometers, as well as remote patient monitoring. Fitbit, Garmin, Xiaomi, and Apple compete in personal wellness products, along with players like Omron, Qardio, and iHealth. Philips, Honeywell Life Care Solutions, Medtronic, and Vivify Health are active around remote patient monitoring.

2017 highlights

■ At Mobile World Congress in February, Nokia Technologies launched its Patient Care Platform to enable doctors to remotely monitor patients with their smart devices. The platform, which is being used in a trial by the UK’s National Health Service, aims to better prevent and manage chronic health conditions and drive timely and targeted patient care.

■ During the year, Nokia signed a number of patent licensing agreements, including with Apple, Huawei, LG Electronics and Xiaomi. Our agreements with Apple and Xiaomi also include broader business collaborations.

■ Our exclusive brand licensee for phones and tablets, HMD Global, launched six new Nokia branded Android smartphones and five new Nokia branded feature phones during its first year of operations. The new products have achieved outstanding net promoter (NPS) scores.

New patent filings in 2017

1 300+

R&D investment over the last two decades

~EUR 123bn

Patent licensees

100+

Principal industry trends affecting operations

Business-specific trends

Networks business

We are a leading vendor in the network and IP infrastructure, software, and the related services market. We provide a broad range of different products, from the hardware components of networks used by communications service providers and increasingly by customers in other select verticals, to software solutions supporting the efficient interaction of networks, as well as services to plan, optimize, implement, run and upgrade networks. Our Networks business is conducted through five business groups: Mobile Networks, Fixed Networks, Global Services, IP/Optical Networks and Nokia Software. These business groups provide an end-to-end portfolio of hardware, software and services to enable us to deliver the next generation of leading networks solutions and services to our customers. We aim for all five business groups to be innovation leaders, drawing on our frontline R&D capabilities to deliver leading products and services for our customers, and ultimately ensure our long-term value creation. For more information on the Networks business refer to “Business overview—Networks business” above.

Industry trends

The network and IP infrastructure, software and related services industry has witnessed certain prominent trends in recent years, which have also affected our Networks business. First, the increase in the use of data services and the resulting exponential increase in data traffic has resulted in an increased need for high-performance, high-quality and highly reliable networks. The continuing increase in data traffic has, however, not been directly reflected in operators’ revenue. Consequently, there is an increased need to be efficient and cost competitive for both communications service providers and network infrastructure and services vendors.

Second, we are witnessing continued consolidation among communications service providers, driven by their desire to provide a wider scope of services, especially through the convergence of disparate network technologies across mobile, fixed, and IP and optical networks. In order to improve networks in terms of coverage, capacity and quality, communications service providers are continuing their transition to all-IP architectures, with an emphasis on fast access to their networks through copper, fiber, LTE and new digital services delivery. We are also seeing similar trends with cable operators, who are investing in the deployment of high-speed networks. Our end-to-end portfolio of products and services can be utilized to address both the fixed mobile convergence and the transition to all-IP architectures.

Third, we see an increasing demand for large high-performance networks in some key areas outside the traditional communications service provider space, which we define as our adjacent markets. Webscale companies and extra-large enterprises—such as Apple, Facebook, Google, Alibaba and Amazon—are investing in cloud technology and network infrastructure to build these high-performing, secure networks. In addition, other target vertical markets such as energy, transportation and the public sector are investing in their own network infrastructure, to connect data centers and provide seamless IP interconnection and digital services delivery.

Pricing and price erosion

In 2017, while we did not witness a widespread change in the overall pricing environment, we saw robust competition in China in the second half of the year, where early positioning for 5G is underway.

Product mix

The profitability of our Networks business is affected by our product mix, including the share of software in the sales mix. Products and services also have varying profitability profiles. For instance, our Ultra Broadband Networks and IP Networks and Applications reportable segments offer a combination of hardware and software, which generally have higher gross margins, but also require significant R&D investment, whereas the Global Services reportable segment has offerings that are typically labor-intensive, while carrying low R&D investment, and have relatively low gross margins compared to the hardware and software products.

Seasonality and cyclical nature of projects

Our Networks business’ sales are affected by seasonality in the network operators’ spending cycles, with generally higher sales in the fourth quarter, followed by generally lower sales in the first quarter. In addition to normal industry seasonality, there are normal peaks and troughs in the deployment of large infrastructure projects. The timing of these projects depends on new radio spectrum allocation, network upgrade cycles and the availability of new consumer devices and services, which in turn affects our Networks’ business sales. As an example, during the last couple of years some of the major LTE deployments have been largely completed. The next major technology cycle is expected to be the transition from 4G to 5G, with trials beginning in 2018, commercial deployments in lead markets in 2019 and large-scale deployments in 2020.

Continued operational efficiency improvements

In 2017, our Networks business continued to focus on operational improvements across its business groups. In order to continue to make our Networks business more efficient, higher-performing and positioned for long-term success, we aim to further strengthen our productivity, efficiency and competitive cost structure through strong operational discipline.

Cost of components and raw materials

There are several important factors driving the profitability and competitiveness of our Networks business: scale, operational efficiency and pricing, and cost discipline. The costs of our networks products comprise, among others, components, manufacturing, labor and overheads, royalties and licensing fees, depreciation of product machinery, logistics and warranty and other quality costs.

Nokia Technologies

Nokia Technologies pursues new business opportunities building on our innovations and the Nokia brand. Nokia Technologies develops and licenses cutting-edge innovations that are powering the next revolution in computing and mobility. The Nokia Technologies strategy consists of: 1) patent licensing, focused on licensing standard-essential and other patents in the Nokia portfolio to companies in the mobile devices market and beyond; 2) technology licensing, focused on licensing proprietary spatial audio and video technologies to enable our customers to build better products; 3) brand licensing, to help our customers leverage the value of the Nokia brand in consumer devices; and 4) developing new products and technologies in digital health. For more information on the Nokia Technologies business, refer to “Business overview—Nokia Technologies”.

Monetization strategies of IPR

Success in the technology industry requires significant R&D investment, with the resulting patents and other IPR utilized to protect and generate a return on those investments and related inventions. In recent years, we have seen new entrants in the mobile device industry, many of which do not have licenses to our patents. Our aim is to approach these companies by potentially using one or more means of monetization. We believe we are well-positioned to protect, and build on, our existing industry-leading patent portfolio, and consequently to increase our shareholders’ value.

We see a number of means of monetizing these opportunities: on the one hand, we seek to license our patent portfolio, and new technological innovations that can be integrated into other companies’ products and services. We also engage in brand licensing to leverage the Nokia brand in consumer devices. In digital health, Nokia announced on February 15, 2018 that it had initiated a review of strategic options for this business. This strategic review of the Digital Health business may or may not result in any transaction or other changes. In digital media, the slower-than-expected development of the virtual reality market has led Nokia Technologies to reduce investments in this area and focus more on technology licensing opportunities.

In patent licensing, the main opportunities we are pursuing are: 1) renewing existing license agreements, and negotiating new license agreements with mobile device manufacturers; and 2) expanding the scope of licensing activities to other industries, in particular those that implement mobile communication technologies such as automotive and consumer electronics. We no longer need patent licenses for our own mobile phone business, enabling the possibility of improving the balance of inbound and outbound patent licensing.

In brand licensing, we will continue to seek further opportunities to bring the Nokia brand into consumer devices, by licensing our brand and other intellectual property. For example, under a strategic agreement covering branding rights and intellectual property licensing, in 2016, Nokia Technologies granted HMD Global, a company based in Finland, an exclusive global license to create Nokia-branded phones and tablets for ten years. During 2017, HMD Global launched 11 new phones, including six Android smartphones.

In technology licensing, the opportunities are more long-term in our view, but we will look at opportunities to license technologies developed by Nokia Technologies and delivered to partners in consumer electronics as solutions or technology packages that can be integrated into their products and services to help enable the Programmable World.

To grow each of the aforementioned business programs, it is necessary to invest in commercial capabilities to support them.

General trends in IPR licensing

In general, there has been increased focus on IPR protection and licensing, and this trend is expected to continue. As such, new agreements are generally a product of lengthy negotiations and potential litigation or arbitration, and therefore the timing and outcome may be difficult to forecast. Due to the structure of patent license agreements, the payments may be very infrequent, at times may be partly retrospective, and the lengths of license agreements can vary.

Additionally, there are clear regional differences in the ease of protecting and licensing patented innovations. We have seen some licensees actively avoiding making license payments, and some licensors using aggressive methods to collect them; both behaviors have attracted regulatory attention. We expect discussion of the regulation of licensing to continue at both global and regional level. Some of those regulatory developments may be adverse to the interests of technology developers and patent owners, including us.

Research, development and patent portfolio development

As the creation of new technology assets and patented innovations is heavily focused on R&D activities with long lead-times to incremental revenues, we may from time to time see investment opportunities that have strategic importance. This generally affects operating expenses before sales reflect a return on those investments.

Trends affecting our businesses

Exchange rates

We are a company with global operations and net sales derived from various countries, invoiced in various currencies. Therefore, our business and results from operations are exposed to changes in exchange rates between the euro, our reporting currency, and other currencies, such as the U.S. dollar and the Chinese yuan. The magnitude of foreign exchange exposures changes over time as a function of our net sales and costs in different markets, as well as the prevalent currencies used for transactions in those markets. Refer also to “General facts on Nokia—Selected financial data—Exchange rate data” below.

To mitigate the impact of changes in exchange rates on our results, we hedge material net foreign exchange exposures (net sales less costs in a currency) typically with a hedging horizon of approximately 12 months. For the majority of these hedges, hedge accounting is applied to reduce income statement volatility.

In 2017, approximately 25% of Continuing operations net sales and approximately 30% of Continuing operations costs were denominated in euro. In 2017, approximately 45% of Continuing operations net sales were denominated in U.S. dollars and approximately 10% in Chinese yuan.

During 2017, the U.S. dollar depreciated against the euro and this had a slightly negative impact on our net sales expressed in euros. However, the weaker U.S. dollar also contributed to slightly lower cost of sales and operating expenses, as approximately 45% of our total cost base was in U.S. dollars. In total, before hedging, the depreciation of the U.S. dollar had a slightly negative effect on our operating profit in 2017.

During 2017, the Chinese yuan depreciated against the euro and this had a slightly negative impact on our net sales expressed in euros. However, the weaker Chinese yuan also contributed to slightly lower cost of sales and operating expenses, as approximately 10% of Continuing operations total costs were denominated in Chinese yuan. In total, before hedging, the depreciation of the Chinese yuan had a slightly negative effect on our operating profit in 2017.

Significant changes in exchange rates may also impact our competitive position and related price pressures through their impact on our competitors.

For a discussion of the instruments used by us in connection with our hedging activities, refer to Note 36, Risk management of our consolidated financial statements included in this annual report on Form 20-F. Refer also to “Operating and financial review and prospects—Risk factors”.

The average currency mix for net sales and total costs:


	2017				2016
Currency	Net sales		Total costs		Net sales		Total costs
EUR	~25	%	~30	%	~25	%	~25	%
USD	~45	%	~45	%	~50	%	~45	%
CNY	~10	%	~10	%	~10	%	~10	%
Other	~20	%	~15	%	~15	%	~20	%
Total	100	%	100	%	100	%	100	%

Results of operations

The financial information included in this “Operating and financial review and prospects” section as of December 31, 2017 and 2016 and for each of the three years ended December 31, 2017, 2016 and 2015 has been derived from our audited consolidated financial statements included in this annual report on Form 20‑F. The financial information as of December 31, 2017 and 2016 and for each of the three years ended December 31, 2017, 2016 and 2015 should be read in conjunction with, and is qualified in its entirety by reference to, our audited consolidated financial statements.

On April 1, 2017 we revised our financial reporting structure. We have two businesses: Nokia’s Networks business and Nokia Technologies, and four reportable segments for financial reporting purposes: Ultra Broadband Networks, Global Services and IP Networks and Applications (within Nokia’s Networks business); and Nokia Technologies. We also present certain segment data for Group Common and Other as well as for Discontinued operations. The comparative financial information presented below has been prepared to reflect the financial results of our Continuing operations as if the new financial reporting structure had been in operation for the full years 2017, 2016 and 2015. Certain adjustments and reclassifications have been necessary. Refer to Note 4, Segment information, of our consolidated financial statements included in this annual report on Form 20‑F.

Continuing operations

For the year ended December 31, 2017 compared to the year ended December 31, 2016

The following table sets forth selective line items and the percentage of net sales for the years indicated.


	2017		2016		Year-on-year
For the year ended December 31	EURm	% of net sales	EURm	% of net sales	change %
Net sales	23 147	100.0	23 641	100.0	(2)
Cost of sales	(14 008)	(60.5)	(15 117)	(63.9)	(7)
Gross profit	9 139	39.5	8 524	36.1	7
Research and development expenses	(4 916)	(21.2)	(4 997)	(21.1)	(2)
Selling, general and administrative expenses	(3 615)	(15.6)	(3 767)	(15.9)	(4)
Other income and expenses	(592)	(2.6)	(860)	(3.6)	(31)
Operating profit/(loss)	16	0.1	(1 100)	(4.7)	–
Share of results of associated companies and joint ventures	11	–	18	0.1	(39)
Financial income and expenses	(537)	(2.3)	(287)	(1.2)	87
Loss before tax	(510)	(2.2)	(1 369)	(5.8)	(63)
Income tax (expense)/benefit	(927)	(4.0)	457	1.9	–
Loss for the year	(1 437)	(6.2)	(912)	(3.9)	58

Net sales

Continuing operations net sales in 2017 were EUR 23 147 million, a decrease of EUR 494 million, or 2%, compared to EUR 23 641 million in 2016. The decrease in Continuing operations net sales was primarily due to a decrease in Nokia’s Networks business net sales, partially offset by an increase in Nokia Technologies net sales.

The following table sets forth distribution of net sales by geographical area for the years indicated.


	2017	2016	Year-on-year
For the year ended December 31	EURm	EURm	change %
Asia-Pacific	4 228	4 223	–
Europe(1)	6 833	6 410	7
Greater China	2 516	2 654	(5)
Latin America	1 279	1 458	(12)
Middle East & Africa	1 907	1 872	2
North America	6 384	7 024	(9)
Total	23 147	23 641	(2)

(1)

All Nokia Technologies IPR and licensing net sales are allocated to Finland.

Gross profit

Gross profit for Continuing operations in 2017 was EUR 9 139 million, an increase of EUR 615 million, or 7%, compared to EUR 8 524 million in 2016. The increase in gross profit was primarily due to lower working capital-related purchase price allocation adjustments and higher gross profit in Nokia Technologies, partially offset by lower gross profit in Nokia’s Networks business and higher product portfolio integration-related costs. Gross margin for Continuing operations in 2017 was 39.5%, compared to 36.1% in 2016. In 2017, gross profit included product portfolio integration-related costs of EUR 453 million and working capital-related purchase price allocation adjustments of EUR 55 million. In 2016, gross profit included working capital-related purchase price allocation adjustments of EUR 840 million, which resulted in higher cost of sales and lower gross profit when the inventory was sold; and product portfolio integration-related costs of EUR 274 million.

Operating expenses

Our R&D expenses for Continuing operations in 2017 were EUR 4 916 million, a decrease of EUR 81 million, or 2%, compared to EUR 4 997 million in 2016. R&D expenses represented 21.2% of our net sales in 2017 compared to 21.1% in 2016. The decrease in R&D expenses were due to decreases in Nokia’s Networks business, Group Common and Other and Nokia Technologies R&D expenses. In 2017, R&D expenses included amortization and depreciation of acquired intangible assets and property, plant and equipment of EUR 633 million, compared to EUR 619 million in 2016, as well as product portfolio integration-related costs of EUR 57 million, compared to EUR 62 million in 2016.

Our selling, general and administrative expenses for Continuing operations in 2017 were EUR 3 615 million, a decrease of EUR 152 million, or 4%, compared to EUR 3 767 million in 2016. Selling, general and administrative expenses represented 15.6% of our net sales in 2017 compared to 15.9% in 2016. The decrease in selling, general and administrative expenses was primarily due to lower transaction and integration-related costs, a decrease in Nokia’s Networks business selling, general and administrative expenses and, to a lesser extent, Group Common and Other selling, general and administrative expenses, partially offset by an increase in Nokia Technologies selling, general and administrative expenses. Selling, general and administrative expenses included amortization and depreciation of acquired intangible assets, and property, plant and equipment of EUR 394 million in 2017 compared to EUR 386 million in 2016, as well as transaction and integration-related costs of EUR 194 million, compared to EUR 294 million in 2016.

Other income and expenses for Continuing operations in 2017 was a net expense of EUR 592 million, a change of EUR 268 million, compared to a net expense of EUR 860 million in 2016. The net positive fluctuation in our other income and expenses was primarily due to lower restructuring and associated charges and a net positive fluctuation in Nokia’s Networks business and Group Common and Other other income and expenses, partially offset by impairment charges. Other income and expenses included restructuring and associated charges of EUR 576 million in 2017 compared to EUR 759 million in 2016.

In 2017, as a result of challenging business conditions, we recorded a non-cash charge to other income and expenses of EUR 141 million, due to the impairment of goodwill related to our Digital Health business, which is part of Nokia Technologies. The impairment charge was allocated to the carrying amount of goodwill held within the digital health cash generating unit, which was reduced to zero. In 2017, we also recorded a non-cash impairment charge to other income and expenses of EUR 32 million related to acquired intangible assets in Nokia’s Networks business.

Operating profit/loss

Our operating profit for Continuing operations in 2017 was EUR 16 million, a change of EUR 1 116 million, compared to an operating loss of EUR 1 100 million in 2016. The change in operating result was primarily due to a higher gross profit and, to a lesser extent, a net positive fluctuation in other income and expenses and lower selling, general and administrative and R&D expenses. Our operating margin in 2017 was approximately break even compared to negative 4.7% in 2016.

The following table sets forth the impact of unallocated items on operating profit/loss:


EURm	2017	2016
Total segment operating profit(1)	2 587	2 172
Amortization and depreciation of acquired intangible assets and property, plant and equipment	(1 033)	(1 026)
Restructuring and associated charges	(579)	(774)
Product portfolio strategy costs	(536)	(348)
Transaction and related costs, including integration costs relating to the acquisition of Alcatel Lucent	(206)	(295)
Impairment of intangible assets	(173)	–
Release of acquisition-related fair value adjustments to deferred revenue and inventory	(55)	(840)
Other	11	11
Total operating profit/(loss)	16	(1 100)

(1)

Excludes costs related to the acquisition of Alcatel Lucent and related integration, goodwill impairment charges, intangible asset amortization and other purchase price fair value adjustments, restructuring and associated charges and certain other items.

Financial income and expenses

Financial income and expenses for Continuing operations was a net expense of EUR 537 million in 2017 compared to a net expense of EUR 287 million in 2016, an increase of EUR 250 million, or 87%. The net negative fluctuation in financial income and expenses was primarily due to costs of EUR 220 million related to the offer to purchase the 6.50% notes due January 15, 2028, the 6.45% notes due March 15, 2029, the 6.75% notes due February 4, 2019 and the 5.375% notes due May 15, 2019; losses from foreign exchange fluctuations; a non-recurring interest expense related to a change to uncertain tax positions; and a loss on the sale of financial assets. This was partially offset by a change in the fair value of the financial liability to acquire Nokia Shanghai Bell non-controlling interest and the absence of costs related to the early redemption of Alcatel Lucent high yield bonds, which adversely affected full year 2016.

Refer to “—Liquidity and capital resources” below.

Loss before tax

Our loss before tax for Continuing operations in 2017 was EUR 510 million, a change of EUR 859 million compared to a loss of EUR 1 369 million in 2016.

Income tax

Income taxes for Continuing operations was a net expense of EUR 927 million in 2017, a change of EUR 1 384 million compared to a net benefit of EUR 457 million in 2016. The change in net income taxes was primarily due to increased profitability, deferred tax expenses of EUR 777 million from re-measurement of deferred tax assets resulting from the tax rate change in the United States, a non-recurring tax expense of EUR 245 million (EUR 439 million tax benefit in 2016) related to the integration of the former Alcatel Lucent and Nokia operating models; as well as income taxes for prior years primarily from to the disposal of the former Alcatel Lucent railway signaling business in 2006 to Thalès. This was partially offset by three factors: lower income taxes due to our regional profit mix in 2017 compared to 2016, lower losses than in 2016 in countries for which we do not recognize deferred tax assets, and a deferred tax benefit from re-measurement of deferred tax assets resulting from the tax rate changes (in

countries other than the United States). Refer to Note 12, Income taxes, of our consolidated financial statements included in this annual report on Form 20-F.

On December 22, 2017, the United States passed a comprehensive set of tax reforms into law. The new law, known as the Tax Cuts and Jobs Act, includes numerous changes to prior tax law, including a permanent reduction in the federal corporate income tax rate from 35% to 21%. Our deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated income statement in the period in which the law is substantively enacted. We concluded that the United States federal income tax rate reduction causes our United States deferred tax assets and liabilities to be revalued in 2017 and, therefore, recognized an additional tax provision of EUR 777 million related to such revaluation. The new tax law also contains several other changes, in addition to the reduction in the federal corporate tax rate, many of which become effective for tax years beginning in 2018. We continue to consider the impact all the tax reform provisions will have on us and have made reasonable estimates for certain effects in our December 31, 2017 consolidated financial statements, as appropriate.

Loss attributable to equity holders of the parent and earnings per share

The loss attributable to equity holders of the parent in 2017 was EUR 1 494 million, an increase of EUR 728 million, compared to a loss of EUR 766 million in 2016. The change in profit attributable to equity holders of the parent was primarily due to an income tax expense, compared to an income tax benefit in 2016 and a net negative fluctuation in financial income and expenses. This was partially offset by an operating profit in 2017, compared to an operating loss in 2016.

Our total basic EPS in 2017 decreased to negative EUR 0.26 (basic) and negative EUR 0.26 (diluted) compared to negative EUR 0.13 (basic) and negative EUR 0.13 (diluted) in 2016.

Cost savings program

On April 6, 2016, we launched a new cost savings program, targeting approximately EUR 1 200 million of recurring annual cost savings to be achieved in full year 2018. In 2017, we recognized restructuring and associated charges of approximately EUR 550 million related to the cost savings program. Cumulative recognized restructuring and associated charges are approximately EUR 1 300 million and we expect total restructuring and associated charges to be approximately EUR 1 900 million.

In 2017, we had restructuring and associated cash outflows of approximately EUR 550 million related to the cost savings program. Cumulative restructuring and associated cash outflows are approximately EUR 950 million and we expect total restructuring and associated cash outflows to be approximately EUR 2 250 million, including approximately EUR 550 million related to previous Nokia and Alcatel Lucent restructuring and cost savings programs.

For the year ended December 31, 2016 compared to the year ended December 31, 2015

The following table sets forth selective line items and the percentage of net sales that they represent for the years indicated.


	2016		2015		Year-on-year
For the year ended December 31	EURm	% of net sales	EURm	% of net sales	change %
Net sales	23 641	100.0	12 560	100.0	88
Cost of sales	(15 117)	(63.9)	(6 963)	(55.4)	117
Gross profit	8 524	36.1	5 597	44.6	52
Research and development expenses	(4 997)	(21.1)	(2 080)	(16.6)	140
Selling, general and administrative expenses	(3 767)	(15.9)	(1 772)	(14.1)	113
Other income and expenses	(860)	(3.6)	(48)	(0.4)	–
Operating (loss)/profit	(1 100)	(4.7)	1 697	13.5	–
Share of results of associated companies and joint ventures	18	0.1	29	0.2	(38)
Financial income and expenses	(287)	(1.2)	(186)	(1.5)	54
(Loss)/profit before tax	(1 369)	(5.8)	1 540	12.3	–
Income tax benefit/(expense)	457	1.9	(346)	(2.8)	–
(Loss)/profit for the year	(912)	(3.9)	1 194	9.5	–

Net sales

Continuing operations net sales in 2016 were EUR 23 641 million, an increase of EUR 11 081 million, or 88%, compared to
EUR 12 560 million in 2015. The increase in Continuing operations net sales was primarily attributable to growth in Nokia’s Networks business and Group Common and Other, primarily related to the acquisition of Alcatel Lucent and, to a lesser extent, growth in Nokia Technologies.

The following table sets forth distribution of net sales by geographical area for the years indicated.


	2016	2015	Year-on-year
For the year ended December 31	EURm	EURm	change %
Asia-Pacific	4 223	3 248	30
Europe(1)	6 410	3 817	68
Greater China	2 654	1 718	54
Latin America	1 458	979	49
Middle East & Africa	1 872	1 195	57
North America	7 024	1 603	338
Total	23 641	12 560	88

(1)

All Nokia Technologies net sales are allocated to Finland.

Gross profit

Gross profit for Continuing operations in 2016 was EUR 8 524 million, an increase of EUR 2 927 million, or 52%, compared to EUR 5 597 million in 2015. The increase in gross profit was primarily due to Nokia’s Networks business, partially offset by working capital-related purchase price allocation adjustments, which resulted in higher cost of sales and lower gross profit when the inventory was sold; and product portfolio integration-related costs, all of which primarily related to the acquisition of Alcatel Lucent. Gross margin for Continuing operations in 2016 was 36.1% compared to 44.6% in 2015. In 2016, cost of sales included working capital-related purchase price allocation adjustments of EUR 509 million, which resulted in higher cost of sales and lower gross profit when the inventory was sold; and product portfolio integration-related costs of EUR 274 million.

Operating expenses

Our R&D expenses for Continuing operations in 2016 were EUR 4 997 million, an increase of EUR 2 917 million, or 140%, compared to EUR 2 080 million in 2015. R&D expenses represented 21.1% of our net sales in 2016 compared to 16.6% in 2015. The increase in R&D expenses was primarily attributable to Nokia’s Networks business, amortization of acquired intangible assets and depreciation of acquired property, plant and equipment; and, to a lesser extent, product portfolio integration costs, as well as Group Common and Other, all of which primarily related to the acquisition of Alcatel Lucent, in addition to Nokia Technologies. R&D expenses included amortization and depreciation of acquired intangible assets, and property, plant and equipment of EUR 619 million in 2016 compared to EUR 35 million in 2015, as well as product portfolio integration-related costs of EUR 61 million in 2016.

Our selling, general and administrative expenses for Continuing operations in 2016 were EUR 3 767 million, an increase of EUR 1 995 million, or 113%, compared to EUR 1 772 million in 2015. Selling, general and administrative expenses represented 15.9% of our net sales in 2016 compared to 14.1% in 2015. The increase in selling, general and administrative expenses was primarily attributable to Nokia’s Networks business, amortization of acquired intangible assets and depreciation of acquired property, plant and equipment, and transaction and integration-related costs and Group Common and Other, all of which primarily related to the acquisition of Alcatel Lucent, as well as Nokia Technologies. Selling, general and administrative expenses included amortization and depreciation of acquired intangible assets, and property, plant and equipment of EUR 385 million in 2016 compared to EUR 44 million in 2015, as well as transaction and integration-related costs of EUR 294 million in 2016.

Other income and expenses for Continuing operations in 2016 was a net expense of EUR 860 million, a change of EUR 812 million, compared to a net expense of EUR 48 million in 2015. The change was primarily attributable to higher restructuring and associated charges and, to a lesser extent, the absence of realized gains related to certain investments made through venture funds. Other income and expenses included restructuring and associated charges of EUR 759 million in 2016 compared to EUR 121 million in 2015.

Operating loss/profit

Our operating loss for Continuing operations in 2016 was EUR 1 100 million, a change of EUR 2 797 million, compared to an operating profit of EUR 1 697 million in 2015. The change in operating result was primarily attributable to higher R&D expenses and selling, general and administrative expenses, and a net negative fluctuation in other income and expenses, partially offset by higher gross profit. Our operating margin in 2016 was negative 4.7% compared to positive 13.5% in 2015.

The following table sets forth the impact of unallocated items on operating profit:


EURm	2016	2015
Total segment operating profit(1)	2 172	1 958
Amortization and depreciation of acquired intangible assets and property, plant and equipment	(1 026)	(79)
Release of acquisition-related fair value adjustments to deferred revenue and inventory	(840)	–
Restructuring and associated charges	(774)	(123)
Product portfolio strategy costs	(348)	–
Transaction and related costs, including integration costs relating to the acquisition of Alcatel Lucent	(295)	(99)
Other	11	40
Total operating (loss)/profit	(1 100)	1 697

(1)

Financial income and expenses

Financial income and expenses for Continuing operations was a net expense of EUR 287 million in 2016 compared to a net expense of EUR 186 million in 2015, an increase of EUR 101 million, or 54%. The change in financial income and expenses was primarily attributable to higher interest expenses, including charges of EUR 41 million related to the redemption of Alcatel Lucent bonds, net interest expenses of EUR 65 million for defined benefit pensions, and impairments of EUR 108 million for certain investments in private funds; partially offset by higher interest income, significantly lower foreign exchange losses and realized gains from venture fund distributions.

Refer to “—Liquidity and capital resources” below.

Loss/profit before tax

Our loss before tax for Continuing operations in 2016 was EUR 1 369 million, a change of EUR 2 909 million compared to a profit of EUR 1 540 million in 2015.

Income tax

Income taxes for Continuing operations was a net benefit of EUR 457 million in 2016, a change of EUR 803 million compared to a net expense of EUR 346 million in 2015. In 2016, net income tax benefit was primarily related to two factors. Firstly, we recorded a loss before tax compared to profit before tax in 2015. Secondly, following the completion of the squeeze-out of the remaining Alcatel Lucent securities, we launched actions to integrate the former Alcatel Lucent and Nokia operating models. In 2016, in connection with these integration activities, we transferred certain intellectual property to our operations in the United States, recording a tax benefit and additional deferred tax assets of EUR 348 million. In addition, we elected to treat the acquisition of Alcatel Lucent’s operations in the United States as an asset purchase for United States tax purposes. The impact of this election was to utilize or forfeit existing deferred tax assets and record new deferred tax assets with a longer amortization period than the life of those forfeited assets. As a result of this we recorded EUR 91 million additional deferred tax assets in 2016.

Following the acquisition of Alcatel Lucent, we now have a strong presence in three jurisdictions: Finland, France and the United States, which had an impact on our effective tax rate in 2016. The local corporate tax rate in the United States and France is significantly higher compared to Finland. In addition, we do not recognize deferred tax assets for tax losses and temporary differences in France as our ability to utilize unrecognized deferred tax assets is currently uncertain. As of December 31, 2016 we have unrecognized deferred tax assets in France of EUR 4.8 billion.

Loss/profit attributable to equity holders of the parent and earnings per share

The loss attributable to equity holders of the parent in 2016 was EUR 766 million, a change of EUR 3 232 million, compared to a profit of EUR 2 466 million in 2015. Continuing operations generated a loss attributable to equity holders of the parent in 2016 of EUR 751 million compared to a profit of EUR 1 192 million in 2015. The change in profit attributable to equity holders of the parent was primarily attributable to the operating loss in 2016, compared to an operating profit in 2015 and, to a lesser extent, a net negative fluctuation in financial income and expenses, both of which primarily related to the acquisition of Alcatel Lucent. This was partially offset by an income tax benefit, resulting from the acquisition of Alcatel Lucent, compared to an income tax expense in 2015. In addition, the loss attributable to the non-controlling interests was higher, as a result of the acquisition of Alcatel Lucent. Our total basic EPS in 2016 decreased to negative EUR 0.13 (basic) and negative EUR 0.13 (diluted) compared to EUR 0.67 (basic) and EUR 0.63 (diluted) in 2015. In 2015, profit for the year included EUR 1 178 million gain on the Sale of the HERE Business recorded in Discontinued operations. From Continuing operations, EPS in 2016 decreased to negative EUR 0.13 (basic) and negative EUR 0.13 (diluted) compared to EUR 0.32 (basic) and EUR 0.31 (diluted) in 2015.

Discontinued operations

Background

The two businesses below are presented as Discontinued operations in this annual report on Form 20‑F. Refer to Note 6, Disposals treated as Discontinued operations, of our consolidated financial statements included in this annual report on Form 20-F.

HERE business

We sold our HERE digital mapping and location services business to a German automotive industry consortium comprised of AUDI AG, BMW Group and Daimler AG, that was completed on December 4, 2015 (“the Sale of HERE Business”). The transaction, originally announced on August 3, 2015, valued HERE at an enterprise value of EUR 2.8 billion, subject to certain purchase price adjustments. We received net proceeds from the transaction of approximately EUR 2.55 billion at the closing of the transaction. We recorded a gain on the Sale of the HERE Business, including a related release of cumulative foreign exchange translation differences of approximately EUR 1.2 billion, in the year ended December 31, 2015.

Devices & Services business

We sold substantially all of our Devices & Services business to Microsoft in a transaction that was completed on April 25, 2014 (the “Sale of the D&S Business”). We granted Microsoft a ten-year non-exclusive license to our patents and patent applications. The announced purchase price of the transaction was EUR 5.44 billion, of which EUR 3.79 billion related to the purchase of substantially all of the Devices & Services business, and EUR 1.65 billion to the ten-year mutual patent license agreement and the option to extend this agreement into perpetuity. Of the Devices & Services-related assets, our former CTO organization and our patent portfolio remained within the Nokia Group, and are now part of the Nokia Technologies business group.

For the year ended December 31, 2017 compared to the year ended December 31, 2016

Discontinued operations loss for the year on ordinary activities was EUR 27 million compared to a loss of EUR 29 million in 2016. Discontinued operations loss for the year was EUR 21 million compared to a loss of EUR 15 million in 2016. Loss for the year in 2017 included EUR 5 million gain on the Sale of the HERE Business. Loss for the year in 2016 included EUR 7 million gain on the Sale of the HERE Business and EUR 7 million gain on the Sale of the D&S Business.

For the year ended December 31, 2016 compared to the year ended December 31, 2015

As the Sale of the HERE Business closed on December 4, 2015, the financial results of Discontinued operations in 2016 are not comparable to the financial results of Discontinued operations in 2015.

The following table sets forth selective line items for the years indicated.


	2016	2015
For the year ended December 31	EURm	EURm
Net sales	–	1 075
Cost of sales	–	(244)
Gross profit	–	831
Research and development expenses	–	(498)
Selling, general and administrative expenses	(11)	(213)
Other income and expenses	(4)	(23)
Operating (loss)/profit	(15)	97
Financial income and expenses	14	(9)
(Loss)/profit before tax	(1)	88
Income tax (expense)/benefit	(28)	8
(Loss)/profit for the year, ordinary activities	(29)	96
Gain on the Sale of the HERE and D&S Businesses, net of tax	14	1 178
(Loss)/profit for the year	(15)	1 274

Net sales

Discontinued operations did not generate net sales in 2016. In 2015, Discontinued operations net sales were EUR 1 075 million. The decrease was attributable to the absence of net sales from HERE.

Gross profit

Discontinued operations did not generate gross profit in 2016. In 2015, Discontinued operations gross profit was EUR 831 million and gross margin 77.3%. The decrease in gross profit was attributable to the absence of net sales and cost of sales from HERE.

Operating expenses

Discontinued operations operating expenses in 2016 were EUR 15 million, a decrease of EUR 719 million, compared to EUR 734 million in 2015. The decrease was attributable to the absence of operating expenses from HERE.

Operating loss/profit

Discontinued operations operating loss in 2016 was EUR 15 million, a change of EUR 112 million, compared to an operating profit of EUR 97 million in 2015. The change in Discontinued operations operating result was attributable to the absence of net sales and operating expenses from HERE.


Overview	6
This is Nokia	7
Key data	9
Business overview	11
Letter from our President and CEO	12
Our role as a global technology leader	15
Our values	16
Our strategy	17
Our leadership	22
Our businesses	23
Operating and financial review and prospects	36
Principal industry trends affecting operations	37
Results of operations	40
Results of segments	47
Liquidity and capital resources	54
Material subsequent events	57
Sustainability and corporate responsibility	58
Employees	62
Dividend	63
Risk factors	64
Shares and share capital	80
Board of Directors and management	81
Articles of Association	81
Corporate governance	82
Corporate governance statement	83
Compensation	96
General facts on Nokia	115
Our history	116
Memorandum and Articles of Association	117
Selected financial data	118
Shares and shareholders	120
Depositary payments in 2017	126
Related party transactions	127
Production of infrastructure equipment and products	127
Key ratios	128
Controls and procedures	128
Government regulation	129
Sales in United State-sanctioned countries	129
Taxation	130
Financial statements	134
Consolidated primary statements	135
Notes to consolidated financial statements	140
Report of independent registered public accounting firm	199
Other information	200
Exhibits	201
Glossary of terms	202
Investor information	206
Contact information	207
Signatures	208