As filed with the Securities and Exchange Commission on March 12, 2010.

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, 2009

 

Commission file number 1-13202

 

 

 

 

Nokia Corporation

(Exact name of Registrant as specified in its charter)

 

 

 

 

Republic of Finland

(Jurisdiction of incorporation)

 

Keilalahdentie 4, P.O. Box 226, FI-00045 NOKIA GROUP, Espoo, Finland
(Address of principal executive offices)

 

Kaarina Ståhlberg, Vice President, Assistant General Counsel
Telephone: +358 (0)7 1800-8000, Facsimile: +358 (0) 7 1803-8503
Keilalahdentie 4, P.O. Box 226, FI-00045 NOKIA GROUP, Espoo, Finland
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 (the “Exchange Act”):

 

 

 

 

Securities registered pursuant to Section 12(g) of the Exchange Act: None

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Exchange Act: 5.375% Notes due 2019 and 6.625% Notes due 2039

 

Indicate the number of outstanding shares of each of the registrant’s classes of capital or common stock as of the close of the period covered by the annual report.

 

Shares: 3 744 956 052.

 

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

Yes x  No o

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.

Yes o  No x

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

(Do not check if a smaller reporting company)

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S.GAAP o

 

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

 

Other o

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 o  Item 18 o

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o  No x

 

 

TABLE OF CONTENTS

 

 

Nokia Corporation is a public limited liability company incorporated under the laws of the Republic of Finland. In this document, any reference to “we,” “us,” “the Group” or “Nokia” means Nokia Corporation and its subsidiaries on a consolidated basis, except where we make clear that the term means Nokia Corporation or a particular subsidiary or business segment only, and except that references to “our shares,” matters relating to our shares or matters of corporate governance refer to the shares and corporate governance of Nokia Corporation. Nokia Corporation has published its consolidated financial statements in euro for periods beginning on or after January 1, 1999. In this annual report on Form 20-F, references to “EUR,” “euro” or “€” are to the common currency of the European Economic and Monetary Union, or EMU, and references to “dollars,” “US dollars,” “USD” or “$” are to the currency of the United States. Solely for the convenience of the reader, this annual report contains conversions of selected euro amounts into US dollars at specified rates, or, if not so specified, at the rate of 1.4332 US dollars per euro, which was the noon buying rate in New York City for cable transfers in euro as certified for customs purposes by the Federal Reserve Bank of New York on December 31, 2009. No representation is made that the amounts have been, could have been or could be converted into US dollars at the rates indicated or at any other rates.

 

Our principal executive office is currently located at Keilalahdentie 4, P.O. Box 226, FI-00045 Nokia Group, Espoo, Finland and our telephone number is +358 (0) 7 1800-8000.

 

Nokia Corporation furnishes Citibank, N.A., as Depositary, with consolidated financial statements and a related audit opinion of our independent auditors annually. These financial statements are prepared on the basis of International Financial Reporting Standards as issued by the International Accounting Standards Board and in conformity with International Financial Reporting Standards as adopted by the European Union (“IFRS”). In accordance with the rules and regulations of the US Securities and Exchange Commission, or SEC, we do not provide a reconciliation of net income and shareholders’ equity in our consolidated financial statements to accounting principles generally accepted in the United States, or US GAAP. We also furnish the Depositary with quarterly reports containing unaudited financial information prepared on the basis of IFRS, as well as all notices of shareholders’ meetings and other reports and communications that are made available generally to our shareholders. The Depositary makes these notices, reports and communications available for inspection by record holders of American Depositary Receipts, or ADRs, evidencing American Depositary Shares, or ADSs (one ADS represents one share), and distributes to all record holders of ADRs notices of shareholders’ meetings received by the Depositary.

 

In addition to the materials delivered to holders of ADRs by the Depositary, holders can access our consolidated financial statements, and other information included in our annual reports and proxy materials, at www.nokia.com. This annual report on Form 20-F is also available at www.nokia.com as well as on Citibank’s website at http://citibank.ar.wilink.com (enter “Nokia” in the Company Name Search). Holders may also request a hard copy of this annual report by calling the toll-free number 1-877-NOKIA-ADR (1-877-665-4223), or by directing a written request to Citibank, N.A., Shareholder Services, PO Box 43124, Providence, RI 02940-5140, or by calling Nokia Investor Relations US Main Office at 1-914-368-0555. With each annual distribution of our proxy materials, we offer our record holders of ADRs the option of receiving all of these documents electronically in the future.

 

It should be noted that certain statements herein which are not historical facts are forward-looking statements, including, without limitation, those regarding:

 

 

These statements are based on management’s best assumptions and beliefs in light of the information currently available to it. Because they involve risks and uncertainties, actual results may differ materially from the results that we currently expect. Factors that could cause these differences include, but are not limited to:

 

 

 

 

as well as the risk factors specified in this annual report under Item 3D. “Risk Factors.”

 

Other unknown or unpredictable factors or underlying assumptions subsequently proving to be incorrect could cause actual results to differ materially from those in the forward-looking statements. Nokia does not undertake any obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required.

 

 

Not applicable.

 

 

Not applicable.

 

 

The financial data set forth below at December 31, 2008 and 2009 and for each of the years in the three-year period ended December 31, 2009 have been derived from our audited consolidated financial statements included in Item 18 of this annual report. Financial data at December 31, 2005, 2006, and 2007 and for each of the years in the two-year period ended December 31, 2006 have been derived from our previously published audited consolidated financial statements not included in this document.

 

The financial data at December 31, 2008 and 2009 and for each of the years in the three-year period ended December 31, 2009 should be read in conjunction with, and are qualified in their entirety by reference to, our audited consolidated financial statements.

 

The audited consolidated financial statements from which the selected consolidated financial data set forth below have been derived were prepared in accordance with IFRS.

 

 

 

 

Distribution of Earnings

 

We distribute retained earnings, if any, within the limits set by the Finnish Companies Act. We make and calculate the distribution, if any, either in the form of cash dividends, share buy-backs, or in some other form or a combination of these. There is no specific formula by which the amount of a distribution is determined, although some limits set by law are discussed below. The timing and amount of future distributions of retained earnings, if any, will depend on our future results and financial condition.

Under the Finnish Companies Act, we may distribute retained earnings on our shares only upon a shareholders’ resolution and subject to limited exceptions in the amount proposed by our Board of Directors. The amount of any distribution is limited to the amount of distributable earnings of the parent company pursuant to the last accounts approved by our shareholders, taking into account the material changes in the financial situation of the company after the end of the last financial period and a statutory requirement that the distribution of earnings must not result in insolvency of the company. Subject to exceptions relating to the right of minority shareholders to request for a certain minimum distribution, the distribution may not exceed the amount proposed by the Board of Directors.

 

Share Buy-backs

 

Under the Finnish Companies Act, Nokia Corporation may repurchase its own shares pursuant to either a shareholders’ resolution or an authorization to the Board of Directors approved by the company’s shareholders. The authorization may amount to a maximum of 10% of all the shares of the company and its maximum duration is 18 months. Our Board of Directors has been regularly authorized by our shareholders at the Annual General Meetings to repurchase Nokia’s own shares, and during the past three years the authorization covered 380 million shares in 2007, 370 million shares in 2008 and 360 million shares in 2009. The amount authorized each year has been at or slightly under the maximum limit provided by the Finnish Companies Act. Nokia has not repurchased any of its own shares since September 2008.

 

The Board will propose that the Annual General Meeting convening on May 6, 2010 authorize the Board to resolve to repurchase a maximum of 360 million Nokia shares. The proposed maximum number of shares that may be repurchased is the same as the Board’s current share repurchase authorization and it represents less than 10% of all the shares of the company. The shares may be repurchased in order to develop the capital structure of the Company, finance or carry out acquisitions or other arrangements, settle the company’s equity-based incentive plans, be transferred for other purposes, or be cancelled. The shares may be repurchased either through a tender offer made to all shareholders on equal terms, or through public trading from the stock market. The authorization would be effective until June 30, 2011 and terminate the current authorization granted by the Annual General Meeting on April 23, 2009.

 

The table below sets forth actual share buy-backs by the Group in respect of each fiscal year indicated.

 

 

Cash Dividends

 

On January 28, 2010, we announced that the Board of Directors will propose for shareholders’ approval at the Annual General Meeting convening on May 6, 2010 a dividend of EUR 0.40 per share in respect of 2009.

The table below sets forth the amounts of total cash dividends per share and per ADS paid in respect of each fiscal year indicated. For the purposes of showing the US dollar amounts per ADS for 2005 through 2009, the dividend per share amounts have been translated into US dollars at the noon buying rate in New York City for cable transfers in euro as certified for customs purposes by the Federal Reserve Bank of New York (the “noon buying rate”) on the respective dividend payment dates.

 

 

 

 

We make our cash dividend payments in euro. As a result, exchange rate fluctuations will affect the US dollar amount received by holders of ADSs on conversion of these dividends. Moreover, fluctuations in the exchange rates between the euro and the US dollar will affect the dollar equivalent of the euro price of the shares on NASDAQ OMX Helsinki and, as a result, are likely to affect the market price of the ADSs in the United States. See also Item 3D. “Risk Factors—Our net sales, costs and results of operations, as well as the US dollar value of our dividends and market price of our ADSs, are affected by exchange rate fluctuations, particularly between the euro, which is our reporting currency, and the US dollar, the Japanese yen and the Chinese yuan, as well as certain other currencies.”

 

Exchange Rate Data

 

The following table sets forth information concerning the noon buying rate for the years 2005 through 2009 and for each of the months in the six-month period ended February 28, 2010, expressed in US dollars per euro. The average rate for a year means the average of the exchange rates on the last day of each month during a year. The average rate for a month means the average of the daily exchange rates during that month.

 

 

 

On March 5, 2010, the noon buying rate was USD 1.3608 per EUR 1.00.

 

Not applicable.

 

Not applicable.

 

Set forth below is a description of risk factors that could affect Nokia. There may be, however, additional risks unknown to Nokia and other risks currently believed to be immaterial that could turn out to be material. These risks, either individually or together, could adversely affect our business, sales, results of operations, financial condition and share price from time to time.

 

We need to have a competitive portfolio of high quality products and services and their combinations that are preferred, purchased and used by our current and potential customers and consumers. If we fail to achieve or maintain a competitive portfolio, our business, sales and results of operations may be materially adversely affected.

 

We serve a diverse range of mobile device and network infrastructure customers across a variety of markets with different characteristics and at different stages of development. In order to meet our customers’ and consumers’ evolving needs, we need to have a competitive portfolio of products and services and their combinations that are preferred, purchased and used by our current and potential customers and consumers.

 

For our mobile devices, a competitive portfolio means a focused, optimally-sized offering of commercially appealing high quality mobile devices with aesthetically-pleasing and well-designed hardware and software, an intuitive user interface and a combination of value-adding functionalities—such as Internet access, various means of messaging, media, music, entertainment, navigation, location-based and other services—that are easy to discover and use. In addition, we believe that in order to be competitive, the product portfolio needs to target all major consumer segments and price points, be designed, as appropriate, for the local requirements and preferences of different markets and meet our own and our customers’ and consumers’ quality, safety and security standards. We are focused on developing and offering unique and compelling combinations of mobile devices and services, including applications and content developed by us and third parties, together with the appropriate technological infrastructure, to create a rich user experience for people using our devices. Further, our mobile devices, especially our converged mobile devices, must have the flexibility to allow people to easily access and use their preferred services, including applications and content. We believe that a competitive device portfolio also needs to include leading flagship products, be innovative and ahead of the expectations of customers and consumers and positively differentiated from those of our competitors. Further, the devices must be competitive not only from the customers’ and consumers’ viewpoint, but they also need to be preferred by application developers and content providers who are invited to develop applications and content for our mobile devices. For our network infrastructure and related services business, a competitive portfolio means a high-quality offering of products, services and solutions based on robust technology and designed to meet the requirements of our customers and local markets, supported by a competitive cost structure and cost-effectiveness to our customers. If we fail to achieve or maintain a competitive portfolio and balance successfully our global portfolio with the local requirements of our customers and consumers in the different markets we serve in a cost-effective manner, our business, sales and results of operations may be materially adversely affected.

 

In order to create a competitive portfolio we need to identify and understand the key market trends and user segments and address our customers’ and consumers’ evolving needs in the different markets and consumer segments proactively and on a timely basis. To achieve that, we must constantly obtain and evaluate a complex array of customer feedback, information on consumer

usage patterns and other personal and consumer data in an efficient manner. The competitiveness of our device portfolio depends on our ability to introduce on a continuous and timely basis, ahead of our competitors, new innovative and appealing products and services and their combinations, as well as related business models, and to create new or address yet unidentified needs among our current and potential customers and consumers. If we fail to analyze correctly or respond timely and appropriately to key market trends, customer feedback, information on consumer usage patterns and other personal and consumer data or to introduce new innovative and commercially appealing products and services and their combinations and to adapt our business accordingly, our ability to retain our current, as well as attract new, customers and consumers may be impaired and our business, sales and results of operations may be materially adversely affected.

 

The competitiveness of our mobile device portfolio is also dependent on our ability to timely and successfully develop or otherwise acquire the appropriate technologies and commercialize such technologies as new advanced products and services and their combinations that our current and potential customers and consumers prefer over those of our competitors. For example, increasingly the choice of software platform that powers mobile devices, as well as related software developer tools, are important factors in our ability to provide unique and compelling mobile devices and services and their combinations, to create a rich user experience, and to attract third parties to create applications and provide content for our mobile devices. We currently deploy four software platforms for our mobile devices designed to balance usability, features and cost in a flexible manner across our wide range of market segments, price points and user groups. We recognize that the deployment of multiple software platforms can create fragmentation in the market for mobile services, which we endeavor to offset with our cross-platform software development tools that run and facilitate application and content development across different software platforms. The technologies, including but not limited to software platforms, which we choose to focus on may not achieve or retain broad or timely market acceptance or be preferred by application developers, content providers and, ultimately, our customers and consumers. This may result from numerous factors, including the availability of more attractive alternatives; perceived or actual issues related to reliability, stability and ease of use of our chosen technologies; a lack of sufficient compatibility with other existing technologies, products and services; barriers for consumers to transfer previously acquired content and applications to our devices; or regulators’ decisions. By choosing to focus on certain technologies, we may forego alternatives achieving greater acceptance in our overall market or in certain parts of it. We may also face difficulties accessing certain technologies preferred by our current and potential customers and consumers, or being able to offer those at acceptable prices. Further, if the technologies we invest in do not achieve the success we anticipate, this may result in impairment charges related to those technology assets. Additionally, even if we do select and have access to the technologies that customers and consumers ultimately want, we or the application developers, content providers or other third parties that work with us may not be able to bring our products and services, including applications and content, and their combinations to the market at the right time.

 

Certain mobile network operators require mobile devices to be customized to their specifications with preferred features, functionalities or design and co-branding with the mobile network operator’s brand. Currently, this is particularly the case in North America and in certain individual markets in the Asia-Pacific region where sales to mobile network operators represent the major percentage of our sales. Moreover, the increased concentration among the mobile network operators, particularly in North America, has resulted in fewer customers whose purchase preferences may differ from our current product and services portfolio, and in increased reliance on fewer larger customers. In certain geographic markets the network operators require mobile devices to be based on local technology standards in mobile communications, such as the TD-SCDMA standard in China. As a result, we produce mobile devices for certain operators or geographic markets in smaller lot sizes, which may negatively impact our economies of scale, profitability and after-sales service capabilities. In addition, customization for network operators could possibly erode the Nokia brand.

The competitiveness of our products and services and their combinations is also influenced by the value of the Nokia brand and our ability to communicate effectively about our mobile devices, particularly our converged mobile devices, to the target audience through consistent and focused marketing messages. Increasingly, we need to position the Nokia brand as representing the same high quality and desirability in our converged mobile devices as in our traditional mobile devices. Further, a number of factors, including actual or even alleged quality issues or defects in our products and services and their combination, may have a negative effect on our reputation and erode the value of the Nokia brand. Insufficient investments in marketing and brand building could also erode the value of the Nokia brand. Any impairment of our reputation or erosion of the value of the Nokia brand or failure to optimize the Nokia brand in the marketing of our mobile devices could have a material adverse effect on our capacity to retain our current customers and consumers and attract new customers and consumers and on our business, sales and results of operations.

 

Our sales and profitability have been, and continue to be, driven to a significant extent by our success in the traditional mobile device market. Increasingly, however, our sales and profitability depend on our success in the market for converged mobile devices. Our failure to effectively, timely and profitably adapt our business and operations to the developing requirements of the converged mobile device market could have a material adverse effect on our business, results of operations, particularly our profitability, and our financial condition.

 

Our sales and profitability have been, and continue to be, driven to a significant extent by our success in the traditional mobile device market. We believe that our scale and resulting low cost structure, world-class sourcing, manufacturing, logistics and distribution network, supported by one of the strongest intellectual property portfolios and the Nokia brand, provide us with a competitive advantage in the development, production, marketing and sale of traditional mobile devices. Such devices range from basic mobile phones focused on voice capability to mobile devices with a number of additional functionalities such as Internet connectivity. During the past several years, the traditional mobile device market has been characterized by declining average selling prices and increasing pressure on profitability, as well as intense competition and less product differentiation.

 

The mobile communications industry continues to undergo significant changes in response to the increasing maturity of the traditional mobile device market. Traditional mobile voice communications, the Internet, various means of messaging, media, music, entertainment, navigation, location-based and other services, personal computing and other consumer electronics are converging in many areas into one broader industry. Increasingly, people are using mobile devices to access digital content and web services and share their experiences. Converged mobile devices are based on programmable software platforms, can run applications such as email, web browsing, navigation and enterprise software, and can also have built-in music players, video recorders, mobile TV and other multimedia features. Increasingly, such devices are becoming more affordable for a wider population. The software that powers converged mobile devices has also become increasingly sophisticated, providing greater opportunities for the development of services, including applications and content, that enrich the experiences people have with their mobile device. A consumer’s choice of device is increasingly influenced by the quality and compatibility of the software and/or services and the resulting user experience, in addition to the quality of the hardware. During the past several years, the converged mobile device market has been characterized by growing volumes, high average selling prices and attractive profitability, as well as intense competition particularly from new entrants, and heightened media and consumer attention.

 

We have made significant investments during the past several years to address the developing requirements of the converged mobile device market, particularly in the areas of mobile Internet access, various means of messaging, media, music, entertainment, navigation, location-based and other services, and we are working to deliver those services in an easily accessible manner to our customers and consumers. Going forward, we believe that in order to succeed in the converged mobile device market we need to combine the hardware, software and services elements in our mobile devices in a manner that creates a rich user experience, allows compatibility with other

relevant technologies and positively and timely differentiates us from our competitors. Our past performance in the traditional mobile device market does not guarantee our success in the converged mobile device market. In particular, our competitive advantages in the traditional mobile device market are alone not sufficient for success in the converged mobile device market. Additionally, we believe that our success in the converged mobile device market will be driven by, among other factors, our ability to achieve in a timely manner the following priorities:

 

 

To address these priorities we have made, and are continuing to make, significant changes to the way we do business. We may, however, have less experience, technological and innovative skill in this market segment compared with our established traditional mobile device market segment, or we may fail to reach adequate scale and profitability or fail to generate additional revenue through business models customary in the businesses converging with the mobile communications business such as online advertising. Our success in the converged mobile device market also depends on the acceptance by the market, including our mobile network operator customers, of our expanding services and on the network operators’ strategies regarding their own offering of services. If we are not successful in achieving our converged mobile device priorities and their desired outcomes in a timely manner, our business will become increasingly focused and dependent on the traditional mobile device market. If that occurs, and if the current trends in that market continue, this could have a material adverse effect on our business, results of operations, particularly our profitability, and financial condition.

 

Our converged mobile device business has required and continues to require significant investment to innovate and grow successfully. Such investments may include research and development, licensing arrangements, acquiring businesses and technologies, recruiting specialized expertise and partnering with third parties. Those investments may not, however, result in technologies, products and services and their combinations that achieve or retain broad or timely market acceptance or are preferred by application developers, content providers and, ultimately, our customers and consumers. We have also made, and may make in the future, such investments through strategic acquisitions to acquire key technologies, content and expertise to enhance the competitiveness of our converged mobile devices. We may, however, fail to successfully complete business acquisitions or integrate the acquired businesses or retain and motivate their key employees; identifiable intangible asset amortization and the acquisition of businesses that may carry higher earnings multiples than Nokia

may have a dilutive effect on our profits; the future valuations of acquired businesses may decrease from the purchase price we paid and result in impairment charges related to goodwill or other acquired assets; and if all or a portion of the purchase price is paid in cash, this may have an adverse effect on our cash position. Moreover, due to our financial targets and need to manage costs and prioritize our investments, future investments in our converged mobile devices may be delayed or insufficient to reach or maintain the necessary scale and market position to compete effectively and profitably in the longer term.

 

Competition in the various markets where we do business—traditional mobile devices, converged mobile devices, digital map data and related location-based content, and mobile and fixed network infrastructure and related services—is intense. Our failure to maintain or improve our market position or respond successfully to changes in the competitive environment in those markets may have a material adverse effect on our business, sales and results of operations.

 

We experience intense competition in every aspect of our business and across all markets of our products and services and their combinations. The mobile communications industry continues to undergo significant changes due to numerous factors, including the increasing maturity of the traditional mobile device market and the ongoing digital convergence and the resulting growth of the converged mobile device and related services market. Overall, participants in the mobile device market compete with each other on the basis of their product and services portfolio, including design, functionalities, breadth of services, user experience, software, quality, compatibility, technical performance and price; operational and manufacturing efficiency; supply chain efficiency, including sourcing, logistics and distribution; marketing; customer support; and brand. However, mobile device markets are increasingly segmented and diversified, and we face competition from a growing number of participants in different user segments, price points and geographical markets as well as layers of the product using different competitive means in each of them. This may make it more difficult and less cost efficient for us to compete successfully across the whole mobile device market against more specialized competitors and to leverage our scale and other competitive advantages to the fullest extent. The increased segmentation and diversification of the mobile device market may also have a negative impact on our ability to accurately estimate and forecast the global and regional industry volumes and value of the mobile device market and, consequently, the actual industry volumes and value of the mobile device market may from time to time be higher or lower than estimated or forecasted by us.

 

Traditional Mobile Devices: Competition continues to be intense in the traditional mobile device market from both traditional mobile device manufactures, as well as other participants such as mobile network operators offering devices under their own brand. In this market, participants compete primarily on the basis of the lowest total cost of ownership for basic voice and messaging mobile phones, as well as the ability to offer mobile phones that balance cost of ownership with style and added locally relevant functionality, such as Internet connectivity, applications and content. Some of our competitors, particularly new entrants, have used, and we expect will continue to use, more aggressive pricing and marketing strategies, different design approaches and alternative technologies which consumers may prefer over our offering of mobile phones.

 

Additionally, some competitors have chosen to focus on building mobile phones based on commercially available components, software and content, in some cases available at very low or no cost, which may enable them, at times, to introduce their products and services faster and at significantly lower cost to them and the consumer than we may be able to do. More recently, we are facing competition from vendors of both legitimate, as well as unlicensed and counterfeit, products with manufacturing facilities primarily centered around certain locations in Asia and other emerging markets. The entry barriers for these new market entrants are relatively low as they are able to take advantage of licensed and unlicensed commercially available free or low cost components, software and content. Some of our competitors may also benefit from governmental support in their home countries and other measures that may have protectionist objectives. These factors could reduce the

price competitiveness of our traditional mobile devices and have a material adverse effect on our sales.

 

Converged Mobile Devices: The competitive environment, including the competitive means, in the converged mobile device market differs from the traditional mobile device market. Competition in the converged device market is focused on the ability to bring a range of services, including applications and content, and advanced smartphone technologies together to address the market for feature-rich mobile devices offering Internet access, various means of messaging, media, music, entertainment, navigation, location-based and other services. The ability to create a rich user experience for consumers and to attract third parties to develop and provide a wide variety of applications and content are important competitive factors in the converged mobile device market. As a result, we face competition not only from traditional mobile device manufacturers that make converged mobile devices, but also from companies in related industries, such as Internet-based product and service providers, network operators, business device and solution providers and consumer electronics manufacturers, some of whom now manufacture their own mobile devices rather than just certain layers of the devices. Some of those competitors may have more experience, skills, speed of execution and scale in certain segments of the converged mobile device market, such as Internet services; be viewed as more attractive partners for application developers and content providers resulting in more potentially appealing services for consumers; have a stronger market presence and brand recognition for their converged mobile devices; or generally be able to adjust their business models and operations in a more effective and timely manner to the developing requirements of the converged mobile device market. Further, as the industry now includes increasing numbers of participants that provide specific hardware and software layers within our converged mobile devices and services and their combinations, we also face competition at the level of those layers rather than solely at the level of complete products and services and their combinations. In some of those layers, we may have more limited experience and scale than our competitors.

 

Some competitors may also provide competing software, such as software platforms, and services for free or at substantially lower prices to other competitors of ours, thereby facilitating their entry into the converged mobile device market with potentially lower cost devices. This may negatively impact demand for our converged mobile devices if we are not able to provide similar offerings. We believe our scale and other competitive advantages in the traditional mobile device market are alone not sufficient to compete successfully in the converged mobile device market. If we cannot respond successfully to the competitive requirements in the converged mobile device market, our business and results of operations, particularly our profitability, may be materially adversely affected.

 

Digital Map Data and Related Location-based Content: In order to be competitive, NAVTEQ’s digital map data and related location-based content needs to be positively differentiated from that of its competitors through the quality, accuracy, freshness, relevance and richness of content, and the availability of services to enable the use of, and payment for, such content. With respect to digital map data and related location-based content, several global and local companies, as well as governmental and quasi-governmental agencies, are making more map data with improving coverage and content, and high quality, available free of charge or at lower prices. Aerial, satellite and other location-based imagery is also becoming increasingly available. Those developments may encourage new market entrants, cause business customers to incorporate map data from sources other than NAVTEQ or reduce the demand for fee-based products and services which incorporate NAVTEQ’s map database. If we cannot positively differentiate our digital map data and related location-based content from our competitors’ similar offerings or if we fail in finding competitive business models for our business customers, our business and results of operations, particularly our profitability, may be materially adversely affected.

 

Mobile and Fixed Network Infrastructure and Related Services: The competitive environment in the mobile and fixed network infrastructure and related services market continues to be intense and is characterized by equipment price erosion, a maturing of industry technology and intense price competition. Moreover, mobile network operators’ possible saving targets are reducing the amount of

available business resulting in increased competition and pressure on pricing and profitability. Nokia Siemens Networks competes with companies that have larger scale and higher margins affording them more flexibility on pricing, while some competitors may have stronger customer finance possibilities due to internal policies or governmental support, for example in the form of trade guarantees, allowing them to offer products and services at very low prices. The recently announced plan by Nokia Siemens Networks to improve its financial performance and increase its profitability, which includes a reorganization of its business units, may consume significant time, attention and resources of Nokia Siemens Networks management and result in its customers being more intensively targeted by competitors during the plan implementation period. If we cannot respond successfully to the competitive requirements in the fixed network infrastructure and related services market, our business and results of operations, particularly our profitability, may be materially adversely affected.

 

Any actual or even alleged defects or other quality, safety and security issues in our products and services and their combinations, including but not limited to the hardware, software and content used in our products, or any loss, improper disclosure or leakage of any personal or consumer data collected by us, made available to us or stored in or through our products and services, could materially adversely affect our sales, results of operations, reputation and the value of the Nokia brand.

 

Our products and services and their combinations are highly complex, and defects in their design, manufacture and associated hardware and software have occurred and may occur in the future. Due to the very high production volumes of many of our mobile devices, even a single defect in their design, manufacture or associated hardware, software and content may have a material adverse effect on our business. Our converged mobile devices incorporate numerous functionalities, feature computer-like and consumer electronics-like hardware and are powered by sophisticated software. This complexity and the need for the seamless integration of the hardware, software and services elements and compatibility with other relevant technologies to create a rich user experience may also increase the risk of quality issues in our converged mobile devices. Further, our mobile device portfolio is subject to continuous renewal which, particularly during periods of significant portfolio renewals, may increase the risk of quality issues related to our new devices. In the network infrastructure business, the undisturbed functioning of large mobile and fixed telecommunications networks may depend, among other things, on the proper functioning of our products and services. We make provisions to cover our estimated warranty costs for our products and services. We believe that our provisions are appropriate, although the ultimate outcome may differ from the provided level which could have a positive or negative impact on our results of operations and financial condition.

 

Defects and other quality issues may result from, among other things, failures in our own product and service creation and manufacturing processes, failures of our suppliers to comply with our supplier requirements or failures in products and services created jointly with collaboration partners or other third parties where the development and manufacturing process is not fully in our control. Prior to shipment, quality issues may cause failures in ramping up the production of our products and shipping them to the customers in a timely manner as well as related additional costs or even cancellation of orders by customers. After shipment, products may fail to meet marketing expectations set for them, may malfunction or may contain security vulnerabilities, and thus cause additional repair, product replacement, recall or warranty costs to us and harm our reputation. In case of issues affecting a product’s safety, regulatory compliance or security, we may be subject to damages due to product liability, or defective products or components may need to be replaced or recalled. With respect to our services, quality issues may relate to the challenges in having the services fully operational at the time they are made available to our customers and consumers and maintaining them on an ongoing basis. The use of NAVTEQ’s map data in our customers’ products and services, including Ovi Maps and our mobile devices, involves a possibility of product liability claims and associated adverse publicity. Claims could be made by business customers if errors or defects result in a failure of their products or services, or by end-users of those products or services as a

result of actual or perceived errors or defects in the map database. In addition, the business customers may require us to correct defective data, which can be costly, or pay penalties if quality requirements or service level agreements are not satisfied.

 

Our mobile devices and related accessories are also subject to counterfeiting activities in certain markets. Counterfeit products may erode our brand due to poor quality. Such activities may affect us disproportionately due to our leading market position in mobile devices. Furthermore, our products and services are increasingly used together with hardware, software or service components that have been developed by third parties, whether or not we have authorized their use with our products and services. However, such components, such as batteries or software applications and content, may not be compatible with our products and services and may not meet our and our customers’ and consumers’ quality, safety, security or other standards. Additionally, certain components or layers that may be used with our products may enable our products and services to be used for objectionable purposes, such as to transfer content that might be illegal, hateful or derogatory. The use of our products and services and their combinations with incompatible or otherwise substandard hardware, software or software components, or for purposes that are inappropriate, is largely outside of our control and could harm the Nokia brand.

 

Although we endeavor to develop products and services that meet the appropriate security standards, such as data protection, we or our products and services and their combinations may be subject to hacking, viruses, worms and other malicious software, unauthorized modifications or illegal activities that may cause potential security risks and other harm to us, our customers or consumers and other end-users of our products and services. This may affect us disproportionately due to our leading market position in mobile devices, many of which feature industry leading third-party software, solutions and services, as hackers tend to focus their efforts on the most popular products and services. Due to the very high volumes of many of our mobile devices, such events or mere allegations of such events may have a material adverse effect on our business.

 

In connection with providing our products and services and their combinations to our customers and consumers, in particular with converged mobile devices, certain customer feedback, information on consumer usage patterns and other personal and consumer data is collected and stored through our products and services and their combinations either by the consumers or by us. Loss, improper disclosure or leakage of any personal or consumer data collected by us, made available to us or stored in or through our products and services could result in liability to us and harm our reputation and brand. In addition, governmental authorities may use our products or services and their combinations to access the personal data of individuals without our involvement, for example, through so-called lawful intercept capability of network infrastructure. Even perceptions that our products and services and their combinations do not adequately protect personal or consumer data collected by us, made available to us or stored in or through our products and services or that they are being used by third parties to access personal or consumer data could impair our sales or our reputation and brand value.

 

We are a global company and have sales in most countries of the world and, consequently, our sales and profitability are dependent on the development of the mobile and fixed communications industry in numerous diverse markets, as well as on general economic conditions globally and regionally.

 

Our sales and profitability depend materially on the development of the mobile and fixed communications industry in numerous diverse markets in terms of the number of new mobile subscribers and the number of existing subscribers who upgrade or replace their existing mobile devices and the growth of the investments made by mobile network operators and service providers. In certain low penetration markets, in order to support a continued increase in mobile subscribers, we continue to be dependent on our own and mobile network operators’ and distributors’ ability to increase the sales volumes of lower cost mobile devices and on mobile network operators to offer affordable tariffs and tailored mobile network solutions designed for a low total cost of ownership. In highly penetrated markets, we are more dependent on our own and mobile network operators’

ability to successfully introduce value-added products and services, such as converged mobile devices that drive the upgrade and replacement of devices, as well as ownership of multiple devices. NAVTEQ is dependent on the development of a wide variety of products and services that use its data, the availability and functionality of such products and services and the rate at which consumers and businesses purchase those products and services. Nokia Siemens Networks is dependent on the pace of the investments made by mobile network operators and service providers. If we and the mobile network operators and distributors are not successful in our attempts to increase subscriber numbers, stimulate increased usage or drive upgrade and replacement sales of mobile devices and develop and increase demand for value-added services, including content and applications, or if mobile network operators and service providers invest in the related infrastructure less than anticipated, our business and results of operations could be materially adversely affected.

 

As we are a global company with sales in most countries of the world, our sales and profitability are dependent on general economic conditions globally and regionally. The traditional mobile communications industry has matured to varying degrees in different markets and, consequently, the industry is more vulnerable than before to the negative impacts of deteriorations in global economic conditions. Our net sales and profitability were negatively impacted in 2009 by, among other factors, the deteriorated global economic conditions, including weaker consumer and corporate spending, constrained credit availability and currency market volatility. The demand environment, in particular for mobile devices, improved during the latter part of 2009 as the global economy started to show initial signs of recovery. However, there can be no assurances that a sustainable global recovery is underway and about the impact and the timing of any such recovery in the various markets where Nokia does business. Accordingly, if these initial improvements are only temporary or if there is a continuation of, or further deterioration in, the current global economic conditions, this may result in our current and potential customers and consumers postponing or reducing spending on our products and services and their combinations. In addition, mobile network operators may reduce the device subsidies that they offer to the consumers or attempt to extend the periods of contracts that obligate the consumer to use a certain device and postpone or reduce investments in their network infrastructure and related services. The demand for digital map information and other location-based content by automotive and mobile device manufacturers may decline in relation to any further contraction of sales in the automotive and consumer electronics industry.

 

In addition, any further deterioration in the current global or regional economic conditions may:

 

 

 

We currently believe our funding position to be sufficient to meet our operating and capital expenditures in the foreseeable future. However, adverse developments in the global financial markets could have a material adverse effect on our financial condition and results of operations. For a more detailed discussion of our liquidity and capital resources, see Item 5B. “Liquidity and Capital Resources” and Note 33 of our consolidated financial statements included in Item 18 of this annual report.

 

Our business and results of operations, particularly our profitability, may be materially adversely affected if we are not able to successfully manage costs related to our products and services and their combinations, and to our operations.

 

We need to introduce cost-efficient products in a timely manner with new or enhanced functionalities and services, manage proactively the costs related to our portfolio of products and services and their combinations, manufacturing, logistics and other operations and mitigate adverse impacts of exchange rate fluctuations related to such costs. If we fail in any of these efforts, this could have a material adverse effect on our business and results of operations, particularly our profitability. We believe that our market position in mobile devices provides economies of scale and, therefore, a cost advantage in many areas of our business compared to our competitors. However, in certain areas of our converged mobile device business, such as software development, applications and content, we do not have a similar scale and cost benefit. Currency fluctuations may also have an adverse impact on our ability to manage our costs and on our cost advantage relative to certain of our competitors who incur a material part of their costs in other currencies than we do. If we fail to maintain or improve our market position and scale compared to our competitors across the range of our products and services, as well as leverage our scale to the fullest extent, or if we are unable to develop or otherwise acquire software, applications and content cost competitively in comparison to our competitors, or if our costs increase relative to those of our competitors due to currency fluctuations, our relative cost advantage may be eroded, which could materially adversely affect our competitive position, business and results of operations, particularly our profitability.

 

During 2009, we increased our cost-efficiency to adapt to the market situation. We need to continue to manage our operating expenses and other costs to maintain cost efficiency and competitive pricing of our products and services and their combinations. Any failure by us to determine the appropriate prioritization of operating expenses and other costs, to identify and implement on a timely basis the appropriate measures to adjust our operating expenses and other costs accordingly or to maintain reductions could have a material adverse effect on our business, results of operations and financial condition.

 

The products and services we offer are subject to natural price erosion over their life cycle. In addition, the average selling price of our traditional mobile devices has declined during recent years and it may continue to decline in the future. Factors that adversely impact the average selling price of our mobile devices include the extent to which our customers and consumers do not upgrade their mobile devices, postpone replacement or replace their current device with a lower-priced device, and

the extent to which our product mix and sales are weighted towards lower-priced products and our regional mix is weighted towards emerging markets where lower-priced products predominate. Moreover, some of our competitors may continue to reduce their prices resulting in significantly lower profit margins than is customary in this industry, which would lower the average selling price of our devices if we chose for competitive reasons to lower our prices. Our inability to lower our costs at the same rate or faster than the price erosion and declining average selling price of our devices could have a material adverse effect on our business and results of operations, particularly our profitability.

 

Nokia Siemens Networks also operates in a market that has been and will continue to be subject to price erosion driven by a number of factors including the competitive nature of the market. In 2009, Nokia Siemens Networks achieved savings both in procurement and production costs as well as operating expenses. The inability to continue to lower its costs and expenses however, could have a material adverse effect on Nokia Siemens Networks’ business and results of operations, particularly profitability. In 2009, Nokia Siemens Networks announced a plan to further lower operating expenses and other costs to improve its financial performance and increase profitability. If Nokia Siemens Networks is unable to execute its plan effectively and timely or if the plan fails to achieve the desired results, that may have a material adverse effect on our business, results of operations and financial condition.

 

Our net sales, costs and results of operations, as well as the US dollar value of our dividends and market price of our ADSs, are affected by exchange rate fluctuations, particularly between the euro, which is our reporting currency, and the US dollar, the Japanese yen and the Chinese yuan, as well as certain other currencies.

 

We operate globally and are therefore exposed to foreign exchange risks in the form of both transaction risks and translation risks. Our policy is to monitor and hedge exchange rate exposure, and we manage our operations to mitigate, but not to eliminate, the impacts of exchange rate fluctuations. Significant volatility in the exchange rates may increase our hedging costs, as well as limit our ability to hedge our exchange rate exposure in particular against unfavorable movements in the exchange rates of certain emerging market currencies. Further, exchange rate fluctuations may have an adverse affect on our net sales, costs and results of operations, as well as our competitive position. Exchange rate fluctuations may also make our pricing more difficult as our products may be re-routed by the distribution channels for sale to consumers in other geographic areas where sales can be made at more favorable exchange rates by those channels. Further, exchange rate fluctuations may also materially affect the US dollar value of any dividends or other distributions that are paid in euro as well as the market price of our ADSs. For a more detailed discussion of exchange risks, see Item 5A. “Operating Results—Certain Other Factors—Exchange Rates” and Note 33 of our consolidated financial statements included in Item 18 of this annual report.

 

We depend on a limited number of suppliers for the timely delivery of sufficient quantities of fully functional components, sub-assemblies, software, applications and content and for their compliance with our supplier requirements, such as our own and our customers’ and consumers’ product quality, safety, security and other standards. Their failure to deliver or meet those requirements could materially adversely affect our ability to deliver our products and services and their combinations successfully and on time.

 

Our manufacturing operations depend on obtaining sufficient quantities of fully functional components, sub-assemblies, software, applications and content on a timely basis. In mobile devices, our principal supply requirements are for electronic components, mechanical components, software, applications and content, which all have a wide range of applications in our products. Electronic components include chipsets, integrated circuits, microprocessors, standard components, printed wiring boards, sensors, memory devices, cameras, audio components, displays, batteries and chargers, while mechanical components include covers, connectors, key mats, antennas and mechanisms. Software, applications and content include various third-party software, applications and content that enable various functionalities and services to be added into our products, such as Internet access,

various means of messaging, media, music, entertainment, navigation, location-based and other services. Nokia Siemens Networks’ components and sub-assemblies sourced and manufactured by third-party suppliers include Nokia Siemens Networks-specific integrated circuits and radio frequency components; servers; sub-assemblies such as printed wire board assemblies, filters, combiners and power units; and cabinets.

 

In some cases, our dependence on third-party suppliers has increased as a result of our strategic decisions to outsource certain activities, for example parts of our own chipset R&D and to expand the use of commercially available chipsets. In addition, a particular component may be available only from a limited number of suppliers. Suppliers may from time to time extend lead times, limit supplies, increase prices or be unable to increase supplies to meet increased demand due to capacity constraints or other factors, which could adversely affect our ability to deliver our products and services and their combinations on a timely basis. Moreover, a supplier may fail to meet our supplier requirements, such as, most notably, our and our customers’ and consumers’ product quality, safety, security and other standards, and consequently some of our products and services and their combinations may be unacceptable to us and our customers and consumers, or may fail to meet our quality controls. In case of issues affecting a product’s safety or regulatory compliance, we may be subject to damages due to product liability, or defective products, components or services may need to be replaced or recalled. In addition, a component supplier may experience delays or disruption to its manufacturing processes or financial difficulties or even insolvency or closure of its business, in particular due to difficult economic conditions. Due to our high volumes, any of these events could delay our successful and timely delivery of products and services and their combinations that meet our and our customers’ and consumers’ quality, safety, security and other requirements, or otherwise materially adversely affect our sales and results of operations or our reputation and brand value. See Item 4B. “Business Overview—Devices & Services—Production“and “—Nokia Siemens Networks—Production” for a more detailed discussion of our production activities.

 

Possible consolidation among our suppliers could potentially result in larger suppliers with stronger bargaining power and limit the choice of alternative suppliers, which could lead to an increase in the cost, or limit the availability, of components that may materially adversely affect our sales and results of operations. The intensive competition among our suppliers and the resulting pressure on their profitability, as well as negative effects from shifts in demand for components and sub-assemblies, may result in the exit of certain suppliers from our industry and decrease the ability of some suppliers to invest in the innovation that is vital for our business. Further, our dependence on a limited number of suppliers that require purchases in their home country foreign currency increases our exposure to fluctuations in the exchange rate between the euro, our reporting currency, and such foreign currency and, consequently, may increase our costs which we may not be able to pass on to our customers.

 

Many of the production sites of our suppliers are geographically concentrated. In the event that any of these geographic areas is generally affected by adverse conditions that disrupt production and/or deliveries from any of our suppliers, this could adversely affect our ability to deliver our products, services, and their combinations on a timely basis, which may materially adversely affect our business and results of operations.

 

We are developing new technologies, products and services, including applications and content, in collaboration with other companies. We believe that success in the converged mobile device market in particular requires such collaboration and partnering. If any of those companies were to fail to perform as planned or if we fail to achieve the collaboration or partnering arrangements needed to succeed, we may not be able to bring our products and services to market successfully or in a timely way and this could have a material adverse effect on our sales and results of operations.

 

We are increasingly collaborating and partnering with third parties to develop technologies, products and services, including applications and content. These arrangements involve the commitment by

each party of various resources, including technology, research and development efforts, and personnel. Our ability to collaborate and partner successfully is increasingly important to the success of our converged mobile devices and the Internet and other services we incorporate into our devices. Although the objective of the collaborative and partnering arrangements is a mutually beneficial outcome for each party, our ability to introduce new products and services and their combinations that meet our and our customers’ and consumers’ quality, safety, security and other standards successfully and on schedule could be hampered if, for example, any of the following risks were to materialize: we fail to engage the right partners or we are unable to collaborate and partner effectively to reach the targets set for the collaboration; the arrangements with the parties we work with do not develop as expected; the technologies provided by the parties we work with are not sufficiently protected or infringe third parties’ intellectual property rights in a way that we cannot foresee or prevent; the technologies, products or services supplied by the parties we work with do not meet the required quality, safety, security and other standards or customer needs; our own quality controls fail; or the financial condition of our collaborative partners deteriorates which may result in underperformance by the collaborative partners or insolvency or closure of the business of such partners. Any further deterioration of the global economic conditions may decrease the number of collaborative partners and limit the ability of the remaining collaborative partners to invest in their technologies, products and services. Our increasing reliance on collaborative partnering for Nokia-branded or co-branded products and services and their combinations may result in more variable quality due to our more limited control which may have a negative effect on our reputation and erode the value of the Nokia brand. Any of these events could materially adversely affect our sales and results of operations.

 

Our sales and results of operations could be materially adversely affected if we fail to efficiently manage our manufacturing, service creation and delivery as well as logistics without interruption or make timely and appropriate adjustments, or fail to ensure that our products and services meet our and our customers’ and consumers’ requirements and are delivered on time and in sufficient volumes.

 

Our product manufacturing, service creation and delivery as well as logistics are complex, require advanced and costly equipment and include outsourcing to third parties. These operations are continuously modified in an effort to improve efficiency and flexibility of our manufacturing, service creation and delivery as well as logistics and to produce, create and distribute continuously changing volumes. We may experience difficulties in adapting our supply to meet the changing demand for our products, both ramping up and down production at our facilities as needed on a timely basis; maintaining an optimal inventory level; adopting new manufacturing processes; finding the most timely way to develop the best technical solutions for new products; managing the increasingly complex manufacturing process for our high-end products, particularly the software for those products; or achieving manufacturing efficiency and flexibility, whether we manufacture our products and create our services ourselves or outsource to third parties. We may also face challenges in retooling our manufacturing processes to accommodate the production of devices in smaller lot sizes to customize devices to the specifications of certain mobile networks operators or to comply with regional technical standards. Further, we may experience challenges in having our services fully operational at the time they are made available to customers and consumers, including issues related to localization of the services to numerous markets and to the integration of our services with, for example, billing systems of network operators.

 

We may also experience challenges caused by third parties or other external difficulties in connection with our efforts to modify our operations to improve the efficiency and flexibility of our manufacturing, service creation and delivery as well as logistics, including, but not limited to, strikes, purchasing boycotts, public harm to the Nokia brand and claims for compensation resulting from our decisions on where to locate our manufacturing facilities and business. Such difficulties may have a material adverse effect on our business and results of operations and may result from, among other things, delays in adjusting or upgrading production at our facilities, delays in expanding production

capacity, failure in our manufacturing, service creation and delivery as well as logistics processes, failures in the activities we have outsourced, and interruptions in the data communication systems that run our operations. Such failures or interruptions could result in our products and services not meeting our and our customers’ and consumers’ quality, safety, security and other requirements, or being delivered late or in insufficient or excess volumes compared to our own estimates or customer requirements, which could have a material adverse effect on our sales, results of operations, reputation and the value of the Nokia brand.

 

Our products and services and their combination include increasingly complex technologies, some of which have been developed by us or licensed to us by certain third parties. As a consequence, evaluating the rights related to the technologies we use or intend to use is more and more challenging, and we expect increasingly to face claims that we have infringed third parties’ intellectual property rights. The use of these technologies may also result in increased licensing costs for us, restrictions on our ability to use certain technologies in our products and services and/or costly and time-consuming litigation, which could have a material adverse effect on our business, results of operations and financial condition.

 

Our products and services and their combination include increasingly complex technologies, some of which have been developed by us or licensed to us by third parties. As the amount of such proprietary technologies and the number of parties claiming intellectual property rights continues to increase, even within individual products, as the range of our products and services and their combination becomes more diversified and we enter new businesses, and as the complexity of the technology increases, the possibility of alleged infringement and related intellectual property claims against us continues to rise. The holders of patents and other intellectual property rights potentially relevant to our products and services and their combination may be unknown to us, may have different business models, may refuse to grant licenses to their proprietary rights, or may otherwise make it difficult for us to acquire a license on commercially acceptable terms. There may also be technologies licensed to and relied on by us that are subject to infringement or other corresponding allegations or claims by others which could impair our ability to rely on such technologies. In addition, although we endeavor to ensure that companies that work with us possess appropriate intellectual property rights or licenses, we cannot fully avoid the risks of intellectual property rights infringement created by suppliers of components and various layers in our products and services and their combinations, or by companies with which we work in cooperative research and development activities. Similarly, we and our customers may face claims of infringement in connection with our customers’ use of our products and services, and such claims may also influence consumer behavior.

 

In many aspects, the business models for mobile services have not yet been established. The lack of availability of licenses for copyrighted content, delayed negotiations, or restrictive copyright licensing terms may have a material adverse effect on the cost or timing of content-related services offered by us, mobile network operators or third-party service providers, and may also indirectly affect the sales of our mobile devices.

 

Since all technology standards, including those used and relied on by us, include some intellectual property rights, we cannot fully avoid risks of a claim for infringement of such rights due to our reliance on such standards. We believe that the number of third parties declaring their intellectual property to be relevant to these standards, for example, the standards related to so-called 3G mobile communication technologies, including 3GPP and 3GPP2, as well as other advanced mobile communications standards, is increasing, which may increase the likelihood that we will be subject to such claims in the future. While we believe that any such intellectual property rights declared and found to be essential to a given standard carry with them an obligation to be licensed on fair, reasonable and non-discriminatory terms, not all intellectual property owners agree on the meaning of that obligation and thus costly and time-consuming litigation over such issues has resulted and may continue to result in the future. While the rules of many standard setting bodies, such as the European Telecommunication Standardization Institute, or ETSI, often apply on a global basis, the enforcement of those rules may involve national courts, which means that there may be a risk of different interpretation of those rules.

From time to time, some existing patent licenses may expire or otherwise become subject to renegotiation. The inability to renew or finalize such arrangements with acceptable commercial terms may result in costly and time-consuming litigation, and any adverse result in any such litigation may lead to restrictions on our ability to sell certain products and services, including applications and content, and could result in payments that potentially could have a material adverse effect on our operating results and financial condition. These legal proceedings may continue to be expensive and time-consuming and divert the efforts of our management and technical personnel from our business, and, if decided against us, could result in restrictions on our ability to sell our products and services, including applications and content, require us to pay increased licensing fees, substantial judgments, settlements or other penalties and incur expenses that could have a material adverse effect on our business, results of operations and financial condition.

 

Our patent license agreements may not cover all the future businesses that we may enter; our existing businesses may not necessarily be covered by our patent license agreements if there are changes in Nokia’s corporate structure or in companies under Nokia’s control; or our newly-acquired businesses may already have patent license agreements with the terms that differ from similar terms in our patent license agreements. This may result in increased costs, restrictions to use certain technologies or time-consuming and costly disputes whenever there are changes in our corporate structure or in companies under our control, or whenever we enter new businesses or acquire new businesses.

 

We make accruals and provisions to cover our estimated total direct IPR costs for our products and services and their combinations. The total direct IPR cost consists of actual payments to licensors, accrued expenses under existing agreements and provisions for potential liabilities. We believe that our accruals and provisions are appropriate for all technologies owned by others. The ultimate outcome, however, may differ from the provided level which could have a positive or negative impact on our results of operations and financial condition.

 

Any restrictions on our ability to sell our products and services and their combinations due to expected or alleged infringements of third-party intellectual property rights and any intellectual property rights claims, regardless of merit, could result in material losses of profits, costly litigation, the payment of damages and other compensation, the diversion of the attention of our personnel, product shipment delays or the need for us to develop non-infringing technology or to enter into a licensing agreement. If licensing agreements were not available or available on commercially acceptable terms, we could be precluded from making and selling the affected products and services, or could face increased licensing costs. As new features are added to our products and services and their combinations, we may need to acquire further licenses, including from new and sometimes unidentified owners of intellectual property. The cumulative costs of obtaining any necessary licenses are difficult to predict and may over time have a negative effect on our operating results. See Item 4B. “Business Overview—Devices & Services—Patents and Licenses”, “—NAVTEQ—Patents and Licenses” and “—Nokia Siemens Networks—Patents and Licenses” for a more detailed discussion of our intellectual property activities.

 

Our products and services and their combination include numerous Nokia, NAVTEQ and Nokia Siemens Networks patented, standardized or proprietary technologies on which we depend. Third parties may use without a license or unlawfully infringe our intellectual property or commence actions seeking to establish the invalidity of the intellectual property rights of these technologies. This may have a material adverse effect on our business and results of operations.

 

Our products and services and their combination include numerous Nokia, NAVTEQ and Nokia Siemens Networks patented, standardized or proprietary technologies on which we depend. Despite the steps that we have taken to protect our technology investment with intellectual property rights, we cannot be certain that any rights or pending applications will be granted or that the rights granted in connection with any future patents or other intellectual property rights will be sufficiently broad to

protect our technology. Third parties may infringe our intellectual property relating to our non-licensable proprietary features or by ignoring their obligation to seek a license.

 

Any patents or other intellectual property rights that are granted to us may be challenged, invalidated or circumvented, and any right granted under our patents may not provide competitive advantages for us. Other companies have commenced and may continue to commence actions seeking to establish the invalidity of our intellectual property, for example, patent rights. In the event that one or more of our patents are challenged, a court may invalidate the patent or determine that the patent is not enforceable, which could harm our competitive position. Also, if any of our key patents are invalidated, or if the scope of the claims in any of these patents is limited by a court decision, we could be prevented from using such patent as a basis for product differentiation or from licensing the invalidated or limited portion of our intellectual property rights, or we could lose part of the leverage we have in terms of our own intellectual property rights portfolio. Even if such a patent challenge is not successful, it could be expensive and time-consuming, divert attention of our management and technical personnel from our business and harm our reputation. Any diminution of the protection that our own intellectual property rights enjoy could cause us to lose some of the benefits of our investments in research and development, which may have a negative effect on our business and results of operations. See Item 4B. “Business Overview—Devices & Services—Patents and Licenses”, “—NAVTEQ—Patents and Licenses” and “—Nokia Siemens Networks—Patents and Licenses” for a more detailed discussion of our intellectual property activities.

 

Our sales derived from, and assets located in, emerging market countries may be materially adversely affected by economic, regulatory and political developments in those countries or by other countries imposing regulations against imports to such countries. As sales from those countries represent a significant portion of our total sales, economic or political turmoil in those countries could materially adversely affect our sales and results of operations. Our investments in emerging market countries may also be subject to other risks and uncertainties.

 

We generate sales from and have manufacturing facilities located in various emerging market countries. Sales from those countries represent a significant portion of our total sales and those countries represent a significant portion of any expected industry growth. Accordingly, economic or political turmoil in those countries could materially adversely affect our sales and results of operations and the supply of devices and network infrastructure equipment manufactured in those countries. Further, the economic conditions in emerging market countries may be more volatile than in developed countries and the purchasing power of our customers and consumers in those countries depends to a greater extent on the price development of basic commodities and currency fluctuations which may render imported products too expensive to afford. Our business and investments in emerging market countries may also be subject to risks and uncertainties, including unfavorable or unpredictable taxation treatment, exchange controls, challenges in protecting our intellectual property rights, nationalization, inflation, currency fluctuations, or the absence of, or unexpected changes in, regulation as well as other unforeseeable operational risks. See Note 2 to our consolidated financial statements included in Item 18 of this annual report for more detailed information on geographic location of net sales to external customers, segment assets and capital expenditures.

 

Changes in various types of regulation and trade policies in countries around the world could have a material adverse effect on our business and results of operations.

 

Our business is subject to direct and indirect regulation in each of the countries in which we, the companies with which we work and our customers do business. As a result, changes in various types of regulations, their application and trade policies applicable to current or new technologies, products and services including applications and content may adversely affect our business and results of operations. For example, changes in regulation affecting the construction of base stations and other network infrastructure could adversely affect the timing and costs of new network construction or expansion and the commercial launch and ultimate commercial success of those networks. Export

control, tariffs or other fees or levies imposed on our products and services and environmental, product safety and security and other regulations that adversely affect the export, import, pricing or costs of our products and services, as well as new services including applications and content related to our products, could also adversely affect our sales and results of operations. For example, copyright collecting societies in several member states of the European Union claim that due to their capability to play and store copyrighted content, mobile devices should be subject to similar copyright levies that are charged for products such as compact disc, digital video disc or digital audio players. Any new or increased levies and duties could result in costs which we may not be able to pass on to our customers or in higher prices for our products and services and their combinations, which may impair their demand. In addition, changes in various types of regulations or their application with respect to taxation or other fees collected by governments or governmental agencies may result in unexpected payments to be made by us.

 

The impact of changes in or uncertainties related to regulation and trade policies could affect our business and results of operations adversely even though the specific regulations do not always directly apply to us or our products and services, including applications and content. In addition to changes in regulation and trade policies, our business may be adversely affected by local business culture and general practices in some regions that are contrary to our code of conduct. Further, our business and results of operations may be adversely affected by regulation and trade policies favoring the local industry participants as well as other measures with potentially protectionist objectives which host governments in different countries may take, particularly in response to difficult global economic conditions.

 

Our operations rely on the efficient and uninterrupted operation of complex and centralized information technology systems and networks. If a system or network inefficiency, malfunction or disruption occurs, this could have a material adverse effect on our business and results of operations.

 

Our operations rely to a significant degree on the efficient and uninterrupted operation of complex and centralized information technology systems and networks, which are integrated with those of third parties. All information technology systems are potentially vulnerable to damage, malfunction or interruption from a variety of sources. We pursue various measures in order to manage our risks related to system and network malfunction and disruptions, including the use of multiple suppliers and available information technology security. However, despite precautions taken by us, any malfunction or disruption of our current or future systems or networks such as an outage in a telecommunications network utilized by any of our information technology systems, attack by a virus or other event that leads to an unanticipated interruption or malfunction of our information technology systems or networks could have a material adverse effect on our business and results of operations. Furthermore, any data leakages resulting from information technology security breaches could also materially adversely affect us. Also, failures to successfully utilize information technology systems and networks in our operations may impair our operational efficiency or competitiveness which could have a material adverse effect on our business and results of operations.

 

If we are unable to retain, motivate, develop and recruit appropriately skilled employees, our ability to implement our strategies may be hampered and, consequently, could have a material adverse effect on our business and results of operations.

 

We must continue to retain, motivate, develop through constant competence training, and recruit appropriately skilled employees with a comprehensive understanding of our current and future businesses, technologies, software, products and services. This is particularly the case in our converged mobile devices business where we need highly-skilled, innovative and solutions-oriented personnel. While we have reduced our personnel through various targeted measures due to difficult global economic conditions and may need to do so further in the future, we seek to create a corporate culture that is motivating, encourages creativity and continuous learning as competition for skilled personnel remains keen. We are also continuously developing our compensation and benefits

policies and taking other measures to attract and motivate skilled personnel. Nevertheless, we have encountered in the past, and may encounter in the future, shortages of appropriately skilled personnel, which may hamper our ability to implement our strategies and materially harm our business and results of operations.

 

An unfavorable outcome of litigation could have a material adverse effect on our business, results of operations and financial condition.

 

We are a party to lawsuits in the normal course of our business. Litigation can be expensive, lengthy, disruptive to normal business operations and divert the efforts of our management. Moreover, the results of complex legal proceedings are difficult to predict. An unfavorable resolution of a particular lawsuit could have a material adverse effect on our business, results of operations and financial condition.

 

We record provisions for pending litigation when we determine that an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertain nature of litigation, the ultimate outcome or actual cost of settlement may vary materially from estimates. We believe that our provisions for pending litigation are appropriate. The ultimate outcome, however, may differ from the provided level which could have a positive or negative impact on our results of operations and financial condition.

 

See Item 8A7. “Litigation” for a more detailed discussion about litigation that we are party to.

 

Allegations of possible health risks from the electromagnetic fields generated by base stations and mobile devices, and the lawsuits and publicity relating to this matter, regardless of merit, could have a material adverse effect on our sales, results of operations, share price, reputation and brand value by leading consumers to reduce their use of mobile devices, by increasing difficulty in obtaining sites for base stations, or by leading regulatory bodies to set arbitrary use restrictions and exposure limits, or by causing us to allocate additional monetary and personnel resources to these issues.

 

There has been public speculation about possible health risks to individuals from exposure to electromagnetic fields from base stations and from the use of mobile devices. A substantial amount of scientific research conducted to date by various independent research bodies has indicated that these radio signals, at levels within the limits prescribed by safety standards set by, and recommendations of, public health authorities, present no adverse effect on human health. We cannot, however, be certain that future studies, irrespective of their scientific basis, will not suggest a link between electromagnetic fields and adverse health effects that could have a material adverse effect on our sales, results of operations and share price. Research into these issues is ongoing by government agencies, international health organizations and other scientific bodies in order to develop a better scientific and public understanding of these issues.

 

Over the past nine years Nokia has been involved in several class action matters alleging that Nokia and other manufacturers and cellular service providers failed to properly warn consumers of alleged potential adverse health effects and failed to include headsets with every handset to reduce the potential for alleged adverse health effects. All but one of these cases have been withdrawn or dismissed, with one dismissal currently on appeal. In addition, Nokia and other mobile device manufacturers and cellular service providers were named in five lawsuits by individual plaintiffs who allege that radio emissions from mobile phones caused or contributed to each plaintiff’s brain tumor.

 

Although Nokia products and services and their combinations are designed to meet all relevant safety standards and recommendations globally, even a perceived risk of adverse health effects of mobile devices or base stations could have a material adverse effect on us through a reduction in sales of mobile devices or increased difficulty in obtaining sites for base stations, and could have a material adverse effect on our reputation and brand value, results of operations as well as share price.

Nokia Siemens Networks

 

In addition to the risks described above, the following are risks primarily related to Nokia Siemens Networks that could affect Nokia.

 

In response to its declined market share and deteriorated financial performance, Nokia Siemens Networks announced in 2009 a plan to improve its financial performance by reducing operating expenses and other costs and increasing profitability. If Nokia Siemens Networks is unable to execute its plan effectively and timely or if the plan fails to achieve the desired results, that may have a material adverse effect on our business, results of operations and financial condition.

 

The market share and financial performance of Nokia Siemens Networks deteriorated in 2009 and the competitive environment in the mobile and fixed network infrastructure and related services market continued to be intense. In response to this, Nokia Siemens Networks announced in November 2009 a plan to improve its financial performance and increase its profitability. The plan includes a reorganization of the company’s business units to provide a more customer-focused structure, as well as extensive operating expense, production overhead and procurement cost reductions. The plan also includes a global personnel review with possible reductions.

 

Executing this plan may consume significant time, attention and resources of Nokia Siemens Networks’ management which could harm its business. Nokia Siemens Networks customers may be more intensively targeted by competitors during the plan implementation period. Further, the possible personnel reductions may result in reduced productivity and dissatisfaction among employees and lead to loss of key personnel. These factors may have a more pronounced adverse impact due to Nokia Siemens Networks having been subject to various restructuring measures in the past. If Nokia Siemens Networks fails to execute its plan successfully, its market share may decline further which could result in the loss of scale benefits and reduce its competitiveness and its financial performance may deteriorate further. See Item 4B. “Business Overview—Nokia Siemens Networks—Overview” and Item 5A. “Operating and Financial Review and Prospects—Operating Results—Principal Factors and Trends Affecting our Results of Operations—Nokia Siemens Networks” for more details.

 

As part of its strategy to increase its competitiveness Nokia Siemens Networks has expanded its enterprise mobility infrastructure as well as its managed services, systems integration and consulting businesses through acquisitions and collaborative arrangements, such as partnering with third parties. Nokia Siemens Networks expects to make further investments in these areas in a focused manner. If Nokia Siemens Networks fails to increase its competitiveness through these and other measures or if there is a further deterioration of Nokia Siemens Networks financial performance, this may have a material adverse effect on our business, results of operations and financial condition, and we may need to make further impairment charges.

 

Nokia Siemens Networks is a company jointly owned by Nokia and Siemens and consolidated by Nokia. Accordingly, the financial performance of Nokia Siemens Networks, including the announced measures targeted to improve it, may also require further support from the shareholders of Nokia Siemens Networks in the form of additional financing, guarantees, consents or agreements by the shareholders regarding measures planned by its management, or through other means. If Nokia Siemens Networks fails to achieve such support from its shareholders, our business, results of operations and financial condition could be materially adversely affected.

 

The networks infrastructure and related services business relies on a limited number of customers and large multi-year contracts. Unfavorable developments under such a contract or in relation to a major customer may have a material adverse effect on our business, results of operations and financial condition.

 

Large multi-year contracts, which are typical in the networks infrastructure and related services business, include a risk that the timing of sales and results of operations associated with those

contracts will differ from what was expected when the contracts were entered into. Moreover, such contracts often require the dedication of substantial amounts of working capital and other resources, which affects our cash flow negatively, or may require Nokia Siemens Networks to sell products, services and solutions in the future that would otherwise be discontinued, thereby diverting resources from developing more profitable or strategically important products. Any non-performance by Nokia Siemens Networks under those contracts may have significant adverse consequences for us because network operators have demanded and may continue to demand stringent contract undertakings, such as penalties for contract violations.

 

Providing customer financing or extending payment terms to customers can be a competitive requirement in the network infrastructure and related services business and may have a material adverse effect on our business, results of operations and financial condition.

 

Customers in some markets sometimes require their suppliers, including Nokia Siemens Networks, to arrange, facilitate or provide financing in order to obtain sales or business. They may also require extended payment terms. In some cases, the amounts and duration of these financings and trade credits, and the associated impact on our working capital, may be significant. In response to the tightening of the credit markets in 2009, requests for customer financing have increased in volume and scope. However, during 2009, Nokia Siemens Networks reduced the amount of financing it provided directly to its customers. Rather, as a strategic market requirement Nokia Siemens Networks has primarily arranged and facilitated, and plans to continue to arrange and facilitate, financing to a number of customers, typically supported by Export Credit or Guarantee Agencies (“ECA’s”). In the event that those agencies face future constraints in their ability or willingness to provide financing to Nokia Siemens Networks’ customers, it could have a material adverse affect on our business. Nokia Siemens Networks has agreed to extend payment terms to a number of customers, and it will continue to do so. Extended payment terms may continue to result in a material aggregate amount of trade credits. Even when the associated risk is mitigated by the fact that the portfolio relates to a variety of customers, defaults in the aggregate could have a significant adverse effect on us.

 

We cannot guarantee that Nokia Siemens Networks will be successful in arranging, facilitating or providing needed financing, including extending payment terms to customers, particularly in difficult financial market conditions. In addition, certain of Nokia Siemens Networks’ competitors may have greater access to credit financing than Nokia Siemens Networks does that could adversely affect its ability to compete successfully for business in the network infrastructure sector. Nokia Siemens Networks’ ability to manage its total customer finance and trade credit exposure depends on a number of factors, including its capital structure, market conditions affecting its customers, the level and terms of credit available to Nokia Siemens Networks and to its customers, the cooperation of the ECA’s and its ability to mitigate exposure on acceptable terms. Nokia Siemens Networks may not be successful in managing the challenges connected with the total customer financing and trade credit exposure that it may have from time to time. While defaults under financings and trade credits to Nokia Siemens Networks’ customers resulting in impairment charges and credit losses have not been a significant factor for us, these may increase in the future. See Item 5B. “Liquidity and Capital Resources—Structured Finance,” and Note 33(b) to our consolidated financial statements included in Item 18 of this annual report for a more detailed discussion of issues relating to customer financing, trade credits and related commercial credit risk.

Some of the Siemens carrier-related operations transferred to Nokia Siemens Networks have been and continue to be the subject of various criminal and other governmental investigations related to whether certain transactions and payments arranged by some former employees of Siemens were unlawful. As a result of those investigations, government authorities and others have taken and may take further actions against Siemens and/or its employees that may involve and affect the assets and employees transferred by Siemens to Nokia Siemens Networks, or there may be undetected additional violations that may have occurred prior to the transfer or violations that may have occurred after the transfer of such assets and employees that could have a material adverse effect on Nokia Siemens Networks and our reputation, business, results of operations and financial condition.

 

Public prosecutors and other government authorities in several jurisdictions have been conducting and in some jurisdictions are continuing to conduct criminal and other investigations with respect to whether certain transactions and payments arranged by some current or former employees of Siemens relating to the carrier-related operations for fixed and mobile networks that were transferred to Nokia Siemens Networks were unlawful. These investigations are part of substantial transactions and payments involving Siemens’ former Com business and other Siemens’ business groups which were and are still under investigation.

 

The internal review by Nokia Siemens Networks and Nokia is complete. Siemens has informed us that its own investigation is also complete. Although the government investigations of Siemens by German and United States authorities have been concluded and resolved, investigations in other countries continue, as well as investigations of Siemens employees and other individuals. Accordingly, until these investigations are complete and the matter resolved, it is not possible to ensure that Siemens employees who may have been involved in the alleged violations of law were not transferred to Nokia Siemens Networks. Nor is it possible to predict the extent to which there may be undetected additional violations of law that may have occurred prior to the transfer that could result in additional investigations or actions by government authorities. Such actions have, and could include criminal and civil fines, tax liability, as well as other penalties and sanctions. To date, none of the substantial fines imposed on Siemens by regulators in Germany and the United States has applied to Nokia Siemens Networks or Nokia. It is also not possible to predict whether there have been any ongoing violations of law after the formation of Nokia Siemens Networks involving the assets and employees of the Siemens carrier-related operations that could result in additional actions by government authorities. The development of any of these situations could have a material adverse effect on Nokia Siemens Networks and our reputation, business, results of operations and financial condition. In addition, detecting, investigating and resolving such situations have been, and might continue to be, expensive and consume significant time, attention and resources of Nokia Siemens Networks and our management, which could harm our business and that of Nokia Siemens Networks.

 

The government investigations may also harm Nokia Siemens Networks’ relationships with existing customers, impair its ability to obtain new customers, business partners and public procurement contracts, affect its ability to pursue strategic projects and transactions or result in the cancellation or renegotiation of existing contracts on terms less favorable than those currently existing or affect its reputation. Nokia Siemens Networks has terminated relationships, originated in the Siemens carrier-related operations, with certain business consultants and other third-party intermediaries in some countries as their business terms and practices were contrary to Nokia Siemens Networks’ Code of Conduct, thus foregoing business opportunities. It is not possible to predict the extent to which other customer relationships and potential business may be affected by Nokia Siemens Networks legally compliant business terms and practices. Third-party civil litigation may also be instigated against the Siemens carrier-related operations and/or employees transferred to Nokia Siemens Networks.

 

Siemens has agreed to indemnify Nokia and Nokia Siemens Networks for any government fines or penalties and damages from civil law suits incurred by either, as well as in certain instances for loss of business through terminated or renegotiated contracts, based on violations of law in the Siemens carrier-related operations that occurred prior to the transfer to Nokia Siemens Networks.

We cannot predict with any certainty the final outcome of the ongoing investigations related to this matter, when and the terms upon which such investigations will be resolved, which could be a number of years, or the consequences of the actual or alleged violations of law on the business of Nokia Siemens Networks, including its relationships with customers.

 

 

At Nokia, we are committed to connecting people, combining advanced technology with personalized services that enable people to stay close to what matters to them. Every day, more than 1.2 billion people connect to one another with a Nokia device—from mobile phones to advanced smartphones and high performance mobile computers. Nokia is a pioneer in advancing mobile technology to enrich people’s lives and helping to drive sustainability. Today, Nokia is integrating its devices with innovative services through Ovi, our Internet services brand, including music, navigation, media and messaging. Nokia’s NAVTEQ is a leader in comprehensive digital mapping and navigation services, while Nokia Siemens Networks provides equipment, services and solutions for communications networks globally.

 

For 2009, our net sales totaled EUR 41.0 billion (USD 58.7 billion) and operating profit was EUR 1.2 billion (USD 1.7 billion). At the end of 2009, we employed 123 553 people; had production facilities for mobile devices and network infrastructure in nine countries; sales in more than 160 countries; and a global network of sales, customer service and other operational units.

 

History

 

During our 145 year history, Nokia has evolved from its origins in the paper industry to become the world leader in mobile communications. Today, Nokia brings mobile devices and services to more than one billion people from virtually every demographic segment of the population.

 

The key milestones in our history are as follows:

 

 

 

Organizational Structure

 

We have three operating and reportable segments for financial reporting purposes: Devices & Services; NAVTEQ; and Nokia Siemens Networks.

 

Devices & Services is responsible for developing and managing our portfolio of mobile devices, which we make for all major consumer segments, as well as designing and developing services, including applications and content, that enrich the experience people have with their mobile devices. Devices & Services also manages our supply chains, sales channels, brand and marketing activities for mobile devices and services and their combinations, and explores corporate strategic and future growth opportunities for Nokia.

 

NAVTEQ is a leading provider of comprehensive digital map information and related location-based content and services for automotive navigation systems, mobile navigation devices, Internet-based mapping applications, and government and business solutions. NAVTEQ became a wholly-owned subsidiary of Nokia following the acquisition of NAVTEQ Corporation by Nokia in July 2008.

 

Nokia Siemens Networks, jointly owned by Nokia and Siemens and consolidated by Nokia, provides mobile and fixed network infrastructure, communications and networks service platforms, as well as

professional services, to operators and service providers. Effective January 1, 2010, Nokia Siemens Networks has three business units: Business Solutions; Global Services; and Network Systems.

 

For a breakdown of our net sales and other operating results by category of activity and geographical location, see Item 5 and Note 2 to our consolidated financial statements included in Item 18 of this annual report.

 

Other

 

We primarily invest in research and development, sales and marketing, and building the Nokia brand. However, over the past few years we have increased our investment in services, including acquiring a number of companies with specific technology assets and expertise. During 2010, we currently expect the amount of capital expenditure, excluding acquisitions, to be approximately EUR 650 million, and to be funded from our cash flow from operations. During 2009, our capital expenditures, excluding acquisitions, totaled EUR 531 million, compared with EUR 889 million in 2008. For further information regarding capital expenditures see Item 5A. “Operating Results” and for a description of capital expenditures by our reportable segments see Note 2 to our consolidated financial statements included in Item 18 of this annual report.

 

We maintain listings on three major securities exchanges. The principal listing venues for our shares are NASDAQ OMX Helsinki, in the form of shares, and the New York Stock Exchange, in the form of American Depositary Shares. In addition, our shares are listed on the Frankfurt Stock Exchange.

 

Our principal executive office is located at Keilalahdentie 4, P.O. Box 226, FI-00045 Nokia Group, Espoo, Finland and our telephone number is +358 (0) 7 1800-8000.

 

Devices & Services

 

The following discussion should be read in conjunction with Item 3D. “Risk Factors” and “Forward-Looking Statements.”

 

Overview

 

Since the early 1990s, mobile telecommunications penetration has grown rapidly. Today, the majority of the world’s population uses a mobile device for voice and text message communication. Increasingly, people are using multi-functional or converged mobile devices to access digital content and web services and share their experiences. Converged mobile devices are based on programmable software platforms, can run applications such as email, web browsing, navigation and enterprise software, and can also have built-in music players, video recorders, mobile TV and other multimedia features. Increasingly, such devices are becoming more affordable for a wider population. The software that powers converged mobile devices has also become increasingly sophisticated, providing greater opportunities for the development of services, including applications and content, that enrich the experiences people have with their mobile device.

 

With a broad range of mobile devices, an offering of services, including applications and content developed by Nokia and/or third parties, and a global production and sales network, Nokia addresses virtually every demographic and geographic segment worldwide. Increasingly, our resources are targeted at developing and offering unique and compelling combinations of mobile devices and services, together with the appropriate technological infrastructure, to create a rich user experience. We do, however, continue to offer both mobile devices and services on a stand-alone basis. More and more mobile devices, including many of our most affordable models sold predominantly in emerging markets, offer Internet connectivity and are equipped with GPS, and we believe that these features, especially in combination, will play a pivotal role in the future development of the market for mobile devices and services across different geographies. An important part of our services strategy is Ovi, our Internet services brand, under which we integrate many of our individual services to simplify as

well as enrich the experience people have with their Nokia mobile device. For example, the latest version of Ovi Maps for our smartphones includes high-end car and pedestrian navigation at no extra cost to the user. Another service is Ovi Mail, a free email service designed especially for users in emerging markets with Internet-enabled devices. Most of the world’s population will access the Internet and send an email for the first time using a mobile device rather than a PC, and it is Nokia’s aim to bring consumers around the world the tools they need to do that.

 

We currently address the needs of our customers in three categories—mobile phones, smartphones and mobile computers—which represent target segments for Nokia’s portfolio of mobile devices and services. In each of these categories, we deploy different software platforms for our mobile devices designed to balance usability, features and cost in a flexible manner. Our mobile phones are based on the Series 30 or Series 40 software platforms, our smartphones on the Symbian software platform, and our mobile computers on the Maemo software platform which, during 2010, will be merged with Intel’s Moblin software platform to create MeeGo, a unified software platform for future computing devices. By deploying different software platforms, Nokia is able to address a wide range of market segments, price points and user groups in virtually every geography worldwide, which we would not be able to do if we limited ourselves to deploying one software platform on our mobile devices. We describe our software platforms in more detail in the discussion of our Mobile Phones, Smartphones and Mobile Computers sub-units below. In addition to our Nokia-branded mobile devices, we also manufacture and sell luxury mobile devices under the Vertu brand. Vertu sells products through 70 Vertu stores and over 600 points of sale in over 60 countries.

 

A key part of our software strategy consist of cross-platform development technologies, or layers of software, such as Qt and Web Runtime, that run across different software platforms. Such technologies enable developers to create applications for a variety of software platforms in the mobile market. Qt technology is developed by Qt Development Frameworks, formerly Trolltech, which Nokia acquired in 2008, and Nokia has since brought Qt technology to Symbian and Maemo to simplify application development on those software platforms. By using Qt’s programming interface, developers are able to build their applications once and simultaneously deploy them on Symbian and Maemo as well as other mobile and desktop computing platforms without having to rewrite the source code. Over the past few years we have increased our research and development in services and supporting software and have made a number of strategic acquisitions, like Trolltech, to bring us the knowledge and technology that we believe we need to compete effectively in the design, development and deployment of our services.

 

Mobile Phones

 

Our Mobile Phones sub-unit addresses markets where there has been, and we believe there continues to be, significant potential for growth in mobile devices, as well as where we believe there is significant potential for growth in services. Mobile Phones covers our portfolio of mobile devices powered by the Series 30 and Series 40 software platforms, as well as the services and accessories we sell with them.

 

Our Series 30 software platform powers our most cost-effective voice and messaging phones. Those devices have voice capability, basic messaging and calendar features, and, increasingly, color displays, radios, basic cameras and Bluetooth functionality. They are targeted at consumers for whom a low total cost of ownership is most important. Series 30 does not offer opportunities for application development by third parties.

 

Our Series 40 software platform currently powers the majority of our mobile phone models and supports more functionalities and applications, such as Internet connectivity. Those devices are targeted at consumers for whom a balance between cost of ownership, functionality and style is most important. Series 40 is open to third-party developers to build Java and Adobe Flash Lite applications and content, which they can make available through Ovi Store, Nokia’s one-stop shop for applications and content. Applications and content for Series 40-based devices include games, video, wallpapers, ringtones and social networking applications.

New additions to our portfolio of mobile phones in 2009 included the following.

 

 

To create additional value for users of our Series 30 and Series 40-based mobile phones, we also offer a range of services that can be accessed with them. One such service is Nokia Life Tools, which enables consumers to access timely and relevant agricultural information, as well as education and entertainment services, without requiring the use of GPRS or Internet connectivity. During 2009, we launched the service in India and Indonesia, and we plan to introduce the service to additional emerging markets during 2010.

 

Nokia has also developed Ovi Mail, a free email service designed especially for users in emerging markets with Internet-enabled devices. The service can be set up and accessed without ever needing a PC. Ovi Mail launched in late 2008, and by March 2010 more than 6 million accounts had been activated. Ovi Mail is one of a number of Ovi-branded services that users of Nokia Series 40-powered mobile phones can access. More information about these Ovi-branded services can be found in the description of our Smartphones sub-unit below.

 

During 2009, Nokia introduced Nokia Money, a new mobile financial service. The service is targeted to be rolled out gradually to selected markets in 2010 and will be operated in cooperation with Obopay, a leading developer of mobile payment solutions, in which Nokia has invested. Through the service, people will be able to use their mobile device to manage their personal finances, pay for products or services, as well as add credit to their mobile account. In February 2010, Nokia commenced a commercial pilot in Pune, one of the largest metropolitan areas in India, in partnership with YES BANK.

 

Smartphones

 

Our Smartphones sub-unit brings a range of services and advanced smartphone technologies to a broad group of consumers, addressing the market for feature-rich mobile devices offering Internet access, entertainment, location-based and other services, applications and content. Our smartphones are advanced mobile devices optimized for creating, accessing, experiencing and sharing multimedia as well as business use. They are powered by Symbian, a software platform which supports a wide array of functionalities, and provides opportunities for the development of sophisticated applications and content by third parties. Symbian OS, used by Nokia and others in the industry, is the market-leading software platform for smartphones and has been developed by the Symbian Foundation, a non-profit entity, into an open and unified platform. Symbian OS became fully open source and royalty-free in February 2010. In other words, Symbian’s source code is available at no cost, and any individual or organization can now take, use and modify the code for any purpose, whether for a mobile device or for something else entirely.

 

With smartphones, we capture value from traditional single-purpose product categories, including music players, cameras, pocketable computers, gaming consoles and navigation devices, by bringing combinations of their various functionalities into a single device. While we continue to develop the

hardware components of our smartphones, our current focus is on software elements, such as developing the user interface and building the software components that enable the deployment by Nokia and third parties of services, including applications and content, on our smartphones. An equally important focus for us is the successful combination of the hardware, software and services elements to create a rich user experience that positively differentiates us from our competitors.

 

Smartphones are becoming more affordable for a broader range of consumer groups and geographic markets, as the cost of the relevant technology and hardware decreases. Nokia is increasingly targeting to design and offer lower-priced smartphones in order to cover a much broader range of price points.

 

Our smartphones category consists of our portfolio of mobile devices powered by Symbian, as well as the services and accessories we sell with them. New additions to our portfolio of smartphones in 2009 included the following.

 

 

We continue to develop Ovi, our Internet services brand, under which we integrate many of our individual services to simplify the user experience and differentiate ourselves from our competitors. With Ovi, our focus is on music, navigation, media and messaging, as well as on the tools that enable developers to create applications. All of our smartphones can access the full range of Ovi services, which users can combine as they want, as well as customize their view and experience with Ovi. Certain Ovi services can also be accessed by users of Nokia mobile devices powered by Series 40 and Maemo, as well as by users of certain devices offered by our competitors.

 

Highlights in the development of Ovi during 2009 included the following.

 

 

 

In addition, we continued to develop additional services for our smartphones. We also work closely with third-party companies, application developers and content providers in areas that we believe could positively differentiate our smartphones from those of our competitors. Highlights in 2009 included the following.

 

 

Mobile Computers

 

Our Mobile Computers sub-unit addresses the market for high-performance, high-end compact computing devices, as well as the services and accessories we sell with them. During 2009, we began shipments of the Nokia N900, based on Maemo 5, the latest version of the Linux-based Maemo software platform which Nokia has previously deployed on its Internet tablets and which, for the first time, supports cellular functionality. Maemo is software that has been developed for computers and its architecture is like that of PC software.

 

Following an agreement between Nokia and Intel in early 2010, Maemo is being merged with Intel’s Moblin software platform to form a single Linux-based and fully open source platform, MeeGo, for a wide range of computing devices, including pocketable mobile computers, netbooks, tablets, mediaphones, connected TVs and in-vehicle infotainment systems. By creating MeeGo, Nokia and Intel

plan to accelerate industry innovation and reduce time-to-market for a range of new Internet-based applications and services and exciting user experiences. MeeGo-based devices from Nokia and other manufacturers are expected to be launched later in 2010. As MeeGo will use Qt as its application framework, developers will be able to write applications using Qt that will be portable across Nokia’s devices based on MeeGo as well as our smartphones based on Symbian, increasing the opportunity for them to bring their creations to a larger audience. The plan to merge Maemo and Moblin follows Nokia and Intel’s initial announcement during June 2009 that they are working on developing a new class of device and chipset architectures for future mobile computing devices.

 

During 2009, Nokia widened its portfolio to include Nokia Booklet 3G, a new Windows 7-based mini-laptop, built for all-day mobility and connectivity. Encased in an ultra-portable aluminum chassis, the Nokia Booklet 3G runs for up to 12 hours on a single charge and has a broad range of connectivity options.

 

Sales and Marketing

 

Sales

 

Nokia has the industry’s largest distribution network, with over 650 000 points of sale globally alongside our own online retailing presence. Compared to our competitors, we have a substantially larger distribution and care network, particularly in China, India and the Middle East and Africa.

 

Nokia derives its Devices & Services net sales primarily from sales to mobile network operators, distributors, independent retailers, corporate customers and consumers. However, the total device volume that goes through each channel varies by region. In 2009, sales in North America and Latin America were predominantly to operator customers, sales in Asia-Pacific, China and Middle East and Africa were predominantly to distributors, and sales in Europe were more evenly distributed between operators and distributors.

 

Marketing

 

Devices & Services’ marketing activities are designed to develop and enhance the Nokia brand and increase sales. The Interbrand annual rating of 2009 Best Global Brands positioned Nokia as the fifth most-valued brand in the world, for the third consecutive year.

 

Our marketing activities are evolving in different ways. First, an increasing portion of our overall marketing spend is aimed at boosting revenues beyond the initial point of purchase, for instance by advertising the additional value consumers can derive from their Nokia mobile device—such as services, including applications and content. We do this by, for instance, generating increased direct dialogue with consumers to encourage them to activate their services, subscribe to new services and use new features and accessories. Secondly, digital marketing is accounting for a larger share of our overall marketing mix as consumption of media has shifted from traditional broadcast media towards the Internet. As part of this shift, we are also increasingly engaging consumers through our own media web-based channels. Thirdly, to drive marketing efficiency, we are focusing on fewer but bigger campaigns, organized around key themes, such as messaging and navigation, as opposed to single products.

 

Production

 

We operated ten manufacturing facilities for the production of mobile devices in nine countries around the world for the production of mobile devices as of December 31, 2009. Production at our plant in Salo, Finland, our plant in Beijing, China and our plant in Masan, South Korea is geared towards high-value, low-to-medium volume mobile devices. Vertu, our line of luxury mobile devices, is served by our manufacturing facility in the United Kingdom. Our six other production facilities—Komárom in Hungary, Cluj in Romania, Dongguan in China, Chennai in India, Manaus in Brazil and Reynosa in Mexico—concentrate on the production of high volume, cost-focused mobile devices. Our

manufacturing facilities form an integrated global production network, giving us flexibility to adjust our production volumes to fluctuations in market demand in different regions.

 

Each of our plants employs state-of-the-art technology and is highly automated. In 2009, we made significant capital investments in our plant in Chennai to expand its production capabilities.

 

Our mobile device manufacturing and logistics—which we consider to be a core competence and competitive advantage—are complex, require advanced and costly equipment and typically require outsourcing to third parties. Outsourcing has typically been utilized to adjust our production to seasonal demand fluctuations. During 2009, we had sufficient production to handle in-house the manufacturing volume of mobile device engines, which include the hardware and software that enable the basic operation of a mobile device, and as a result, we outsourced less than 1% of our manufacturing volume. This compared to 2008, during which outsourcing covered approximately 17% of our manufacturing volume of mobile device engines.

 

Overall, we aim to manage our inventories to ensure that production meets demand for our products, while minimizing inventory-carrying costs. The inventory level we maintain is a function of a number of factors, including estimates of demand for each product category, product price levels, the availability of raw materials, supply-chain integration with suppliers and the rate of technological change. From time to time, our inventory levels may differ from actual requirements.

 

Design and user experience

 

At Devices & Services, we endeavor to take a human approach to designing mobile devices, services and software. Using the customer feedback, information on consumer usage patterns and other consumer data collected by us, we are focusing on creating designs that consumers will want and love to use. This ethos is central to our design work and brand.

 

At the heart of our design approach is people—we are focusing our efforts on designing products and services and their combinations that are delightful and exciting to use. Our approach is to design the whole experience from the packaging to the product, to the icons and the whole digital interface. We understand that through thorough research, understanding of consumer trends, local studies, rapid prototyping of styles, shapes and interactions we would have key tools needed to create a portfolio of products and services and their combinations that are relevant to billions of people.

 

Based in China, Europe and the United States, our multi-disciplinary design team comprising more than 300 people includes psychologists, researchers, anthropologists, user experience experts and technology specialists representing over 30 different nationalities.

 

Research and Development

 

Devices & Services’ research and development (R&D) expenses amounted to EUR 3.0 billion in 2009. At the end of the year, Devices & Services employed 17 196 people in R&D.

 

Nokia’s portfolio of mobile devices, services and their combinations is centered around mobile phones, smartphones and mobile computers. Reflecting this approach to market, we have dedicated R&D teams addressing our short to medium-term needs in these areas. This set-up ensures that the teams have visibility of and accountability for the creation process from start to finish. It is also designed to support a better consumer experience as well as better time to market and R&D productivity. Horizontal teams address common elements across the portfolio, such as application and service frameworks, quality and delivery, and architecture and technology development. We have a strong Devices & Services R&D presence in Beijing in China; Copenhagen in Denmark; Greater Helsinki, Salo, Tampere and Oulu in Finland; Ulm in Germany; Bangalore in India; London and Farnborough in the United Kingdom; and San Diego in the United States.

 

Longer-term, more exploratory technology development comes under the scope of Nokia Research Center, a global network of research centers and laboratories Nokia maintains, in many cases in collaboration with outside partners. Nokia Research Center looks beyond the development of current

products, services, platforms and technologies, our corporate research center creates assets and competencies in technology areas that we believe will be vital to our future success. In recent years, Nokia Research Center has been a contributor to almost half of Nokia’s standard essential patents.

 

The center works closely with Nokia Devices & Services and Nokia Siemens Networks and collaborates with several universities and research institutes around the globe. These include the Massachusetts Institute of Technology (MIT), Stanford University, the University of California, Berkeley and the University Southern California (USC) in the United States; Cambridge University in the United Kingdom; Ecole Polytechnique Federale de Lausanne (EPFL) and Eidgenössische Technische Hochschule Zürich (ETHZ) in Switzerland; Aalto University, Tampere University of Technology and University of Tampere in Finland; and Tsinghua University and the Beijing University of Post and Telecommunication (BUPT) in China.

 

Nokia Research Center’s research agenda is focused on four core areas:

 

 

One research project at Nokia Research Center is ’Morph’, a concept that demonstrates the functionality that nano-technology might be capable of delivering: fully flexible materials, a revolutionary self-cleaning shell and transparent electronics. Every element of the Morph concept represents individual areas already being researched by Nokia Research Center, together with the Cambridge Nanoscience Centre.

 

Another research project at Nokia Research Center is ’Community-Enhanced Traffic’. This project, formerly known as ’Traffic Works’, has seen Nokia Research Center’s Palo Alto laboratory in California combine its research efforts with the University of California, Berkeley’s California Center for Innovative Transportation, to study how best to collect real-time traffic flow data from GPS-enabled mobile devices while protecting the users’ privacy. Building on the Ovi Maps service available today, this provides a glimpse into the future with the mobile device as a personal travel assistant.

 

Strategic Sourcing and Partnering

 

In line with industry practice, Devices & Services sources components for our mobile devices from a global network of suppliers. Those components include electronic components, such as chipsets, integrated circuits, microprocessors, standard components, printed wiring boards, sensors, memory devices, cameras, audio components, displays, batteries and chargers, and mechanical components, such as covers, connectors, key mats, antennas and mechanisms. Such hardware components account for the majority of our overall spending on sourcing.

 

We source chipsets from four different commercial suppliers: Broadcom, Infineon Technologies, Qualcomm and ST-Ericsson. We discontinued our own chipset development in 2007. Our multi-vendor strategy is aimed at increasing the efficiency of our research and development efforts by allowing Nokia to leverage external innovation through working with the best partner in a specific chipset development area, and by freeing our own R&D resources to focus on our core competencies in modem development and other areas central to Nokia’s growth strategy, such as services.

We also source software, applications and content from a global network of third-party companies, application developers, content providers and industry-leading technology providers. For instance, we obtain content from commercial partners in the music industry to offer an extensive catalog of digital music through Nokia Music Store and content from travel guide publishers to expand and enhance Ovi Maps. We have also formed a partnership with Microsoft to design a suite of productivity applications for Nokia’s smartphones, starting with Nokia’s business-optimized Eseries range of devices. Our efforts to expand the opportunities for third parties to offer their services, including applications and content, to Nokia users are part of our commitment to open innovation and collaboration as well as to ensure we can meet and exceed the demands of consumers.

 

Significant developments in sourcing during 2009 included the announcement that we are partnering with Qualcomm to develop advanced mobile devices for the Universal Mobile Telecommunications System (UMTS) standard, initially for the North American market; and with Intel to develop a new class of Intel Architecture-based mobile computing device and chipset architectures that will combine the performance of powerful computers with high-bandwidth mobile broadband communications and ubiquitous Internet connectivity.

 

Patents and Licenses

 

A high level of investment by Devices & Services in research and development and rapid technological development has meant that the role of intellectual property rights, or IPR, in our industry has always been important. Digital convergence, multiradio solutions, alternative radio technologies, and differing business models combined with large volumes are further increasing the complexity and importance of IPR.

 

The detailed designs of our products are based primarily on our own research and development work and design efforts, and generally comply with all relevant and applicable public standards. We seek to safeguard our investments in technology through adequate intellectual property protection, including patents, design registrations, trade secrets, trademark registrations and copyrights. In addition to safeguarding our technology advantage, they protect the unique Nokia features, look and feel, and brand.

 

We have built our IPR portfolio since the early 1990s, investing approximately EUR 40 billion cumulatively in research and development, and we now own approximately 11 000 patent families. As a leading innovator in the wireless space, we have built what we believe to be one of the strongest and broadest patent portfolios in the industry, extending across all major cellular and mobile communications standards, data applications, user interface features and functions and many other areas. We receive royalties from certain handset and other vendors under our patent portfolio.

 

We are a world leader in the development of the wireless technologies of GSM/EDGE, 3G/WCDMA, HSPA, OFDM, WiMAX, LTE and TD-SCDMA, and we have a robust patent portfolio in all of those technology areas, as well as for CDMA2000. We believe our standards-related essential patent portfolio is one of the strongest in the industry. In GSM, we have declared over 300 GSM essential patents with a particular stronghold in codec technologies and in mobile packet data. Our major contribution to WCDMA development is demonstrated by over 400 essential patent declarations and in LTE/SAE Nokia has over 150 essential patent declarations to date. Our CDMA2000 portfolio is robust with over 150 patents declared essential.

 

We are a holder of numerous essential patents for various mobile communications standards. An essential patent covers a feature or function that is incorporated into an open standard which is deployed by manufacturers in order to comply with the standard. In accordance with the declarations we have made and the legal obligations created under the applicable rules of various standardization bodies, such as the European Telecommunication Standardization Institute (ETSI), we are committed to promoting open standards, and to offering and agreeing upon license terms for our essential patents in compliance with the IPR policies of applicable standardization bodies. We believe that a company should be compensated for its IPR based on the fundamentals of reasonable cumulative

royalty terms and proportionality: proportionality in terms of the number of essential patents that a company contributes to a technology, and proportionality in terms of how important the technology is to the overall product. Nokia has agreed upon terms of several license agreements with other companies relating to both essential and other patents. Many of these agreements are cross-license agreements with major telecommunications companies that cover broad product areas and provide Nokia with access to relevant technologies.

 

Our products and solutions include increasingly complex technology involving numerous patented, standardized or proprietary, technologies. A 3G/WCDMA mobile device, for example, may incorporate three times as many components, including substantially more complex software, as our 2G/GSM mobile devices. The possibility of alleged infringement and related intellectual property claims against us continues to rise as the number of entrants in the market grows, the Nokia product range becomes more diversified, our products and solutions are increasingly used together with hardware, software or service components that have been developed by third parties, Nokia enters new businesses, and the complexity of technology increases. As new features are added to our products, services and solutions, we are also agreeing upon licensing terms with a number of new companies in the field of new evolving technologies. We believe companies like Nokia with a strong IPR position, cumulative know-how and IPR expertise can have a competitive advantage in the converging industry, and in the increasingly competitive marketplace.

 

Competition

 

Competition is intense in every aspect of our business and across all markets for our mobile devices and services and their combinations. The competitive landscape is also evolving as the traditional mobile device market increases in maturity and as ongoing digital convergence promotes the development of the converged mobile device market.

 

Participants in the industry continue to compete with each other mainly on the basis of their product and services portfolio, including design, functionalities, breadth of services, user experience, software, quality, technical performance and price; operational and manufacturing efficiency; supply chain efficiency, including sourcing, logistics and distribution; marketing; customer support; and brand. However, the critical factors that determine success vary by geographical market and product and services segment. For instance, price, brand and distribution are often the critical factors in the entry-level market, while in the market for smartphones other factors may take on greater significance, such as the ability of market participants to bring additional value to users of their devices through services, including applications and content developed by themselves and/or by third parties, and the quality of the overall user experience with their devices.

 

Nokia believes it has a number of competitive strengths, notably in its brand as well its scale, R&D and software platforms, intellectual property and supply chain, including sourcing, production, logistics and distribution. Building on these strengths, our aim has been, and continues to be, to have an optimally-sized offering of commercially appealing high quality mobile devices with aesthetically-pleasing and well-designed hardware and software, and a combination of value-adding functionalities—such as Internet access, various means of messaging, media, music, entertainment, navigation, location-based and other services—that are easy to discover and use for all major consumer segments and price points. A strong focus for Nokia is also in developing the user interface of our smartphones to make them more intuitive and providing added-value through services developed by Nokia and third parties that enrich the experience people have with their Nokia device and positively differentiate us from our competitors. To support the continued enrichment and development of Nokia consumers’ user experience, we have invested significantly in research and development across our four software platforms: Series 30, Series 40, Symbian and Maemo. Nokia is merging Maemo with Intel’s Moblin software platform to create a new software platform called MeeGo. These software assets are designed to balance usability, features and cost in a flexible manner across our wide range of market segments, price points and user groups.

Our principal competitors in mobile devices include traditional market participants such as LG, Motorola, Palm, Research in Motion, Samsung and Sony Ericsson. They also include more recent market entrants, such as Apple, Google, HTC and ZTE, as well as other participants traditionally active in other industries. Generally speaking, recent market entrants have included:

 

 

Our competitors use a wide range of strategies and tactics. Some of our competitors, in particular the new industry entrants, use aggressive pricing and marketing strategies, alternative design approaches and technologies. Competing software platforms include Android, developed by the Open Handset Alliance; Blackberry OS, developed by Research in Motion; iPhone OS, developed by Apple; and Windows Mobile, developed by Microsoft. Certain competitors choose to accept significantly lower profit margins than we are targeting. Certain competitors have chosen to focus on building products and services based on commercially available components and content, in some cases available at very low or no cost. Certain competitors have also benefited from favorable currency exchange rates. For instance, the depreciated level of the Korean won against the euro and US dollar continues to benefit our Korea-based competitors. Further, certain competitors may benefit from support from the governments of their home countries and other measures which may have protectionist objectives.

 

NAVTEQ

 

Overview

 

In July 2008, we acquired NAVTEQ Corporation, a leading provider of comprehensive digital map information and related location-based content and services for automotive navigation systems, mobile navigation devices, Internet-based mapping applications, and government and business solutions. By acquiring NAVTEQ, we are ensuring the continued development of our context and geographical services through Nokia Maps as we move from simple navigation to a broader range of location-based services, such as pedestrian navigation and targeted advertising. In January 2010, we introduced a new version of Ovi Maps for our smartphones which includes high-end navigation at no extra cost to the user, and we are using NAVTEQ’s comprehensive digital map information and related location-based content extensively in this offering. This new version of Ovi Maps includes high-end car and pedestrian navigation features, such as turn-by-turn voice guidance for 74 countries, in 46 languages, and traffic information for more than 10 countries, as well as detailed maps for more than 180 countries.

 

At the same time, NAVTEQ also continues to develop its expertise in the navigation industry, service its strong customer base and invest in the further development of its industry-leading map data, location-based services and technology platform. In December 2009, NAVTEQ’s service offerings were extended by combining the Nokia Interactive Advertising business, which is focused on providing technology and services for planning, creating, executing, measuring and optimizing mobile advertising campaigns, with NAVTEQ’s existing location-based advertising business. This enables NAVTEQ map and traffic data

customers to include location-based advertising in their location-based products and services and better focus on our activities in targeted advertising. Nokia Interactive Advertising was initially formed by Nokia following its acquisition of Enpocket in 2007, a company specializing in mobile advertising.

 

As of December 31, 2009, NAVTEQ had 4 571 employees in 44 countries. Highlights in 2009 included the following.

 

 

NAVTEQ’s map database enables its customers to offer dynamic navigation, route planning, location-based services and other geographic information-based products and services to consumer and commercial users. NAVTEQ provides its database to mobile device and handset manufacturers, automobile manufacturers and dealers, navigation systems manufacturers, software developers, Internet portals, parcel and overnight delivery services companies and governmental and quasi-governmental entities, among others. The products and services incorporating NAVTEQ map data include the following.

 

 

In addition, NAVTEQ has a traffic and logistics data collection network in which it processes traffic incident and event information, along with comprehensive traffic flow data collected through its network of roadside sensors, in order to provide detailed traffic information to radio and television stations, in-vehicle and mobile navigation systems, Internet sites and mobile device users. In 2009, NAVTEQ also began receiving GPS data records from Nokia devices for use in NAVTEQ’s traffic data products.

 

NAVTEQ’s map database is a highly accurate and detailed digital representation of road transportation networks in Europe, North America and other regions around the world. This database offers extensive geographic coverage, including data at various levels of detail for 78 countries on six continents, covering more than 17 million miles of roadway worldwide. Unlike basic road maps, NAVTEQ’s map database currently can have over 200 unique attributes for a particular road segment. The most detailed coverage includes extensive road, route and related travel information, including attributes collected by road segment that are essential for routing and navigation, such as road classifications, details regarding ramps, road barriers, sign information, street names and addresses and traffic rules and regulations. In addition, the database currently includes over 44 million points of interest, such as airports, hotels, restaurants, retailers, civic offices and cultural sites. In 2009, NAVTEQ continued to add new content to its database including junction views and city models. We believe NAVTEQ’s digital map has the most extensive navigable geographic coverage of any commercially available today.

 

Sales and Marketing

 

Sales

 

NAVTEQ provides its data to end-users through multiple distribution methods including retail establishments, the Internet, automobile, handset and mobile device manufacturers and their dealers, and other re-distributors. NAVTEQ also offers distribution services to its customers, including the manufacturing and shipping of digital storage media to automobile manufacturers and dealers or directly to end-users, as well as a complete range of services, including inventory management, order processing, on-line credit card processing, multi-currency processing, localized VAT handling and consumer call center support.

 

NAVTEQ licenses and distributes its database in several ways, including licensing and delivering the database directly and indirectly to its business customers and consumer end-users. In addition to the basic license terms that typically provide for non-exclusive licenses, the license agreements generally include additional terms and conditions relating to the specific use of the data.

 

The license fees for NAVTEQ’s data vary depending on several factors, including the content of the data to be used by the product or service, the use for which the data has been licensed, the geographical scope of the data and whether there is any advertising inventory associated with such data. The fees paid for the licenses are usually on a per-copy, per transaction or per subscription basis. NAVTEQ also produces and delivers database copies to automobile manufacturers pursuant to purchase orders or other agreements.

 

Marketing

 

NAVTEQ’s marketing efforts include a direct sales force, attendance and exhibition at trade shows and conferences, advertisements in relevant industry periodicals, direct sales mailings and advertisements, electronic mailings, Internet-based marketing and co-marketing with customers.

Technology, Research and Development

 

NAVTEQ’s global technology team focuses on developments and innovations in data gathering, processing, delivery and deployment of its map database and related content. NAVTEQ employs an integrated approach to its database, software support and operations environments and devotes significant resources and expertise to the development of a customized data management software system. NAVTEQ has also built workstation software to enable sophisticated database creation and the performance of updating tasks in a well-controlled and efficient environment with the ability to access the common database from any of its satellite offices and edit portions of the data concurrently among several users. NAVTEQ’s proprietary software enables its field force to gather data on a real-time basis on portable computers in field vehicles. Once the data has been gathered and stored on portable computers, NAVTEQ’s field force performs further data processing at its field offices before integrating the changes into the common database. NAVTEQ also incorporates community feedback received from local governmental entities and consumer feedback received from NAVTEQ’s Map Reporter and NAVTEQ’s business customers. NAVTEQ continues to work with its business customers, including Nokia, in order to enable consumers to more easily submit feedback that can further improve the data.

 

Patents and Licenses

 

NAVTEQ relies primarily on a combination of copyright laws, including, in Europe, database protection laws, trade secrets and patents to establish and protect its intellectual property rights in its database, software and related technology. NAVTEQ holds a total of 220 United States patents, which cover a variety of technologies, including technologies relating to the collection and distribution of geographical and other data, data organization and format, and database evaluation and analysis tools. NAVTEQ also protects its database, software and related technology, in part, through the terms of its license agreements and by confidentiality agreements with its employees, consultants, customers and others.

 

Competition

 

The market for map and related location-based information is highly competitive. NAVTEQ currently has several major competitors, including Google, Tele Atlas, which was acquired by TomTom, and numerous governmental and quasi-governmental mapping agencies that license map data for commercial use, as well as many local competitors in geographic areas outside of North America and Europe. Several global and local companies, as well as governmental and quasi-governmental agencies, are making more map data with improving coverage and content, and high quality, available free of charge or at lower prices. Aerial, satellite and other location-based imagery is also becoming increasingly available. Those developments may encourage new market entrants, cause business customers to incorporate map data from sources other than NAVTEQ or reduce the demand for fee-based products and services which incorporate NAVTEQ’s map database.

 

Nokia Siemens Networks

 

Overview

 

This section describes the business of Nokia Siemens Networks, a company jointly owned by Nokia and Siemens and consolidated by Nokia. Its operational headquarters are in Espoo, Finland, with a strong regional presence in Munich, Germany and a services business unit based in New Delhi, India. The Board of Directors of Nokia Siemens Networks is comprised of seven directors, four appointed by Nokia and three by Siemens, and Nokia appoints the CEO.

 

Nokia Siemens Networks provides mobile and fixed network infrastructure, communications and networks service platforms, as well as professional services and business solutions to operators and service providers. Nokia Siemens Networks has a broad product and services portfolio designed to address the converging mobile and fixed infrastructure markets and a global base of customers with

a presence in both developed and emerging markets and one of the largest service organizations in the industry.

 

Nokia Siemens Networks focuses on radio technologies, aiming at leadership in: GSM, EDGE, WCDMA/HSPA and LTE networks; core networks with increasing IP and multi-access capabilities; fixed broadband access, transport, operations and billing support systems; and professional services such as managed services and consulting.

 

In November 2009, Nokia Siemens Networks announced a reorganization of its business structure to align it better to customer needs. The reorganization, which came into effect on January 1, 2010, consolidated Nokia Siemens Networks five business units into three: Business Solutions, Global Services and Network Systems.

 

At the same time, Nokia Siemens Networks announced a plan to improve its financial performance and increase its profitability. The plan includes targeted reductions of annualized operating expenses and production overheads of EUR 500 million by the end of 2011, compared to the end of 2009, excluding special items and purchase price accounting-related items. Nokia Siemens Networks also announced in November 2009 that as part of that effort the company is conducting a global personnel review which may lead to headcount reductions in the range of about 7% to 9% of its employees. Nokia Siemens Networks estimated that total charges associated with these reductions will be in the range of EUR 550 million to be recorded mainly over the course of 2010. In addition to the operating expense and production overhead savings, Nokia Siemens Networks announced that it will target an annual reduction in product and service procurement costs related to cost of goods sold that is substantially larger than the targeted EUR 500 million in operating expenses and production overhead reductions. Nokia Siemens Networks began implementing the restructuring in March 2010 by, for instance, initiating consultation with local employee representatives in affected countries, including Finland and Germany.

 

At December 31, 2009, Nokia Siemens Networks had 63 927 employees, more than 600 operator customers in over 150 countries, and systems serving in excess of 1.5 billion subscribers.

 

Highlights from 2009 included the following.

 

 

 

Nokia Siemens Networks Business Units

 

As a result of the reorganization described above, Nokia Siemens Networks has the following three business units as of January 1, 2010.

 

Business Solutions is focused on helping customers generate new revenue and differentiate from the competition by providing a faster time to market for end-user services; enhancing billing and charging capability; automating and simplifying processes; addressing the challenges of convergence; and tapping into detailed subscriber data to deliver an individual customer experience. The unit includes the following businesses:

 

 

Global Services offers operators a broad range of professional services and a full range of network implementation and turnkey solutions. The Global Services organization operates a global and remote delivery model designed to assist in achieving a balance between cost competitiveness and market reach, using new automated technologies to speed responsiveness to operator needs around the world. Its consulting and solutions led approach is aimed at customers who are increasingly looking for a business partnership with network service suppliers and who need consultancy in relation to network management, applications and multi-vendor systems integration. Global Services consists of three businesses:

 

 

Network Systems focuses on providing both fixed and mobile network infrastructure, including Nokia Siemens Networks innovative Flexi base stations, core products, optical transport systems and broadband access equipment.

 

For wireless networks, Network Systems develops GSM, EDGE and WCDMA/HSPA radio access networks for operators and network providers. It also develops new technologies such as I-HSPA and LTE to support the uptake of mobile data services and introduce flat architecture for wireless and mobile broadband applications. The main products are base stations and base station controllers.

 

For fixed line networks, Network Systems focuses on transport networks, which are the underlying infrastructure for all fixed and mobile networks. Consumer applications, the needs of large enterprise, the growth of the Internet and new services have increased the demand for bandwidth. Network Systems provides the fundamental elements for high-speed transmission via optical and microwave networks, including packet-oriented technologies such as Ethernet and traditional protocols such as TDM. The business unit also provides a comprehensive portfolio for the wire line connectivity area such as digital subscriber line access multiplexers, and narrowband/multi-service equipment. Network

Systems aims to provide cost-efficient high bandwidth for access networks, enabling high quality “triple play” services such as high-speed Internet, VoIP and IPTV. Network Systems also develops core network solutions for mobile and fixed network operators. The main products are switches and different kinds of network servers and media gateways.

 

Sales and Marketing

 

Sales

 

The Customer Operations organization oversees and executes sales and product marketing at Nokia Siemens Networks. Customer teams and customer business teams, which handle larger, multinational customers, act as the company’s main customer interfaces to create and capture sales opportunities by developing solutions together with their customers. Sales of infrastructure equipment, software, solutions and services to customers are done predominantly directly or in some cases through approved Nokia Siemens Networks reseller companies.

 

Nokia Siemens Networks has organized its customer business teams on a regional basis. For the biggest global customers, dedicated account units beyond this regional structure are in place. Each of Nokia Siemens Networks’ customers is supported by a dedicated account team and for the largest operator groups there are also customer executive teams.

 

Marketing

 

In 2009, Nokia Siemens Networks combined its marketing organization with its communications organization. The Marketing and Communications unit supports Nokia Siemens Networks’ wide portfolio of products, software and services across all regions and customer business teams with a wide range of activities including marketing communications, branding, advertising, media campaigns, internal communications activities, exhibitions and events, customer marketing activities, testimonials, industry seminar, forums and thought leadership programs, many of which are executed in close collaboration with the company’s sales force, solution sales managers, business units as well as strategy and human resources.

 

Production

 

Operations handles the supply chain management of all Nokia Siemens Networks’ hardware, software and original equipment manufacturer (OEM) products. This includes supply planning, manufacturing, distribution, procurement, logistics, demand/supply network design and delivery capability creation in product programs.

 

As of December 31, 2009, Nokia Siemens Networks had eight manufacturing facilities worldwide: three in China (Beijing, Shanghai and Suzhou), one in Finland (Oulu), two in Germany (Berlin and Bruchsal), and two in India (Kolkata and Chennai).

 

In 2009 Nokia Siemens Networks closed manufacturing facility in Espoo, Finland to address the over-capacity in the mature European market.

 

Nokia Siemens Networks works with best-in-class manufacturing service suppliers to increase its flexibility and optimize costs. Approximately 20% of Nokia Siemens Networks production is outsourced.

 

Certain components and sub-assemblies for Nokia Siemens Networks products, such as company specific integrated circuits and radio frequency components are sourced and manufactured by third-party suppliers. Nokia Siemens Networks then assembles these components and sub-assemblies into final products and solutions. For selected products and solutions, suppliers deliver goods directly to our customers. Consistent with industry practice, Nokia Siemens Networks manufactures telecommunications systems on a contract-by-contract basis.

Nokia Siemens Networks generally prefers to have multiple sources for its components, but it sources some components from a single or a small number of selected suppliers. These business relationships are stable and typically involve a high degree of cooperation in research and development, product design and manufacturing to ensure optimal product interoperability.

 

Technology, Research and Development

 

The Chief Technology Office at Nokia Siemens Networks focuses on research, standardization, intellectual property rights, innovation, R&D services and platform development. It cooperates with universities, the IT industry, standardization and other industry cooperation bodies worldwide.

 

Nokia Siemens Networks research and development work focuses on wireless and wireline communication solutions that enable communication services for people and businesses. These include wireless connectivity solutions like GSM/EDGE, 3G/WCDMA, HSPA, TD-LTE and LTE and wireline connectivity solutions based on copper (ADSL, VDSL with Fiber to the curb, or FTTC, Fiber to the building, or FTTB), and fiber-based next generation optical access, or NGOA.

 

In the transport and aggregation domain, carrier ethernet, IP routing, IP traffic analysis and multi-access mobility are among the key focus areas. Within the applications domain, research and development focuses on service enabling, network value-added services, identity management, and subscriber and device profile data storage. It also focuses on peer-to-peer, or person-to-person services, IP connectivity session control (IMS) & VoIP, network/service/subscriber/device management, online and offline charging for post- and pre-paid subscribers.

 

Patents and Licenses

 

Nokia Siemens Networks seeks to safeguard its investments in technology through adequate intellectual property rights, including patents, patent applications, design patents, trade secrets, trademark registrations and copyrights. Nokia Siemens Networks owns a significant portfolio comprising IPR that was transferred from its parent companies at formation and IPR filed since its start of operations. Nokia Siemens Networks is a world leader in the research and development of wireless technologies, as well as transport and broadband technologies, and it has robust patent portfolios in a broad range of technology areas. The IPR portfolio includes standards-related essential patents and patent applications that have been declared by Nokia and Siemens. Nokia Siemens Networks has declared its own essential patents and patent applications based on evaluation of pending cases with respect to standards. Nokia Siemens Networks receives and pays certain patent license royalties based on existing agreements with telecommunication vendors.

 

Competition

 

In 2009, the competitive environment in the telecommunications infrastructure market was characterized by the continued rise of low cost vendors from China, namely Huawei and ZTE. These Chinese vendors have challenged the three major European vendors, Alcatel-Lucent, Ericsson and Nokia Siemens Networks, that emerged following the major industry consolidation that took place in 2007. Huawei, which has been a major competitor already prior to 2009, strengthened its global position during the course of the year to become the fourth major participant in the global equipment and services infrastructure market in 2009. The second Chinese vendor, ZTE, has also become a more visible albeit more distant, competitor during 2009, particularly in the fixed line market, but remained some distance behind its local rival and the three European companies.

 

The second major development in 2009 was the break-up of Nortel, which entered bankruptcy protection in January 2009. Many parts of the business have been sold in bankruptcy court, including the wireless carrier unit, Metro Ethernet Networks and GSM business.

 

In addition to the major infrastructure providers, our principal competitors in selected areas of the market also include Cisco, Motorola and NEC.

In services, the fastest growing part of the industry, which includes managed services (outsourcing), consulting, systems integration and hosting, vendors are judged on their ability to identify and solve customer problems rather than their ability to supply equipment at a competitive price. The competition is from both traditional vendors such as Ericsson, as well as non-traditional telecommunications players such as Accenture, HP and IBM. HP is active in the service delivery platform market and IBM is active, for example, in the billing and data center businesses. In addition to these companies, there are many other competitors, such as Fujitsu, Juniper, Samsung and Tellabs, which have a narrower scope in terms of served regions and business areas.

 

Conditions in the market for mobile and fixed networks infrastructure and related services remained challenging and intensely competitive in 2009, as the difficult conditions that emerged in 2007 continued and were exacerbated by the financial and economic crisis that emerged towards the end of 2008. The market continued to be characterized by equipment price erosion, a maturing of industry technology and intense price competition, and we believe the market is estimated to have declined in euro terms by approximately 5% in 2009 compared to 2008. Certain exchange rate fluctuations, particularly between the euro and the Swedish crown and between the euro and the Chinese yuan, have benefited some of our main competitors in 2009. Nokia Siemens Networks competes with companies that have larger scale and higher margins affording them more flexibility on pricing, while some of the competitors may receive certain governmental support allowing them to offer products and services at very low prices. Further, in many regions restricted access to capital caused operators to reduce capital expenditure and produced a stronger demand for vendor financing. Some of Nokia Siemens Networks’ competitors may have stronger customer financing possibilities due to internal policies or government support. Nokia Siemens Networks has decreased the amount of financing directly provided to its customers in 2009, but it has arranged and facilitated, and plans to continue to arrange and facilitate, financing to a number of customers, typically supported by Export Credit or Guarantee Agencies (“ECA’s”).

 

In radio networks businesses, the 2G (GSM) segment is facing intense price competition in emerging countries, where operators need to make large investments in networks but generally receive low revenues per customer. As a result, European vendors have all reported heavy downturns in these areas, where Chinese vendors are believed to be gaining share. In mature markets, there has been a slowdown in operator investments. Within the 3G segment, leading vendors are competing based on factors including technology innovation, such as lower energy consumption equipment, and less complex network architectures.

 

The fixed line market continues to be characterized by intense price pressure, both in terms of equipment price erosion due to heavy competition, especially from Asian vendors, and from declining tariffs, which are expected to continue to fall. Decreasing fixed line revenues combined with rising voice and data network traffic are expected to force network operators to invest in new business opportunities and continue their network evolution to converged IP/Ethernet- and wavelength-division multiplexing-based transport architectures. The global trend of subscribers moving to mobile communications from fixed communications is expected to continue, especially with the growth in the number of mobile subscribers in markets where it is not economically feasible to build a fixed network.

 

Compliance program

 

Nokia Siemens Networks has adopted high ethics and integrity standards. The company is committed to actively fight against improper business practices, including corruption, and Nokia Siemens Networks believes that as a multinational company it can play an important role in this area. Nokia Siemens Networks also believes that its efforts in this area can provide it with a competitive

advantage with customers who demand high ethical standards in their supply chain. Nokia Siemens Networks addresses improper business practices using a four-step strategy:

 

 

Nokia Siemens Networks’ Code of Conduct, which is identical to the Nokia Code of Conduct, defines boundaries between appropriate and inappropriate business behavior. According to the Code of Conduct, Nokia Siemens Networks employees must not engage in activities that may lead to conflicts of interest, such as any agreement or understanding regarding gifts, hospitality, favors, benefits or bribes, in exchange for gaining or maintaining business.

 

The Code of Conduct is supported by the company’s anti-corruption compliance program, which includes, among other things, a detailed handbook, training, and several reporting and help lines available for employees and external workers. A new ethical business training program was launched in January 2009, which is mandatory for all employees. By the end of December 2009, 82% of employees had completed the training.

 

Seasonality—Devices & Services, NAVTEQ and Nokia Siemens Networks

 

For information on the seasonality of Devices & Services, NAVTEQ and Nokia Siemens Networks, see Item 5A. “Operating Results—Overview—Certain Other Factors—Seasonality.”

 

Sales in sanctioned countries—Devices & Services, NAVTEQ and Nokia Siemens Networks

 

We are a global company and have sales in most countries of the world. We sold mobile devices and services through Devices & Services and network equipment through Nokia Siemens Networks to customers in Iran, Sudan and Syria in 2009. NAVTEQ did not have any sales to customers in these countries from the completion of our acquisition of NAVTEQ on July 10, 2008 to December 31, 2009. Our aggregate sales to customers in these countries in 2009 accounted for approximately 1.2% of Nokia’s total net sales, or EUR 511 million. Iran, Sudan and Syria are subject to US economic sanctions that are primarily designed to implement US foreign policy and the United States government has designated these countries as “state sponsors of terrorism.”

 

Government Regulation—Devices & Services, NAVTEQ and Nokia Siemens Networks

 

Our business is subject to direct and indirect regulation in each of the countries in which we, the companies with which we work and our customers do business. As a result, changes in or uncertainties related to various types of regulations applicable to current or new technologies, products and services could affect our business adversely. Moreover, the implementation of technological or legal requirements could impact our products and services, manufacturing and distribution processes, and could affect the timing of product and services introductions, the cost of our production, products and services, as well as their commercial success. Also, our business is subject to the impacts of changes in trade policies or regulation favoring the local industry participants, as well as other measures with potentially protectionist objectives that the host governments in different countries may take. Export control, tariffs or other fees or levies imposed on our products and services as well as environmental, product safety and security and other regulations

that adversely affect the export, import, pricing or costs of our products and services could adversely affect our net sales and results of operations.

 

For example, in the United States, our products and services are subject to a wide range of government regulations that might have a direct impact on our business, including, but not limited to, regulation related to product certification, standards, spectrum management, access networks, competition and environment. We are in continuous dialogue with relevant United States agencies, regulators and the Congress through our experts, industry associations and our office in Washington, D.C. New, partly local 3G telecom standards have been enacted in China that may affect product processers and success criteria of the vendors. Also, the European Union (EU) regulation has in many areas a direct effect on our business and customers within the single market of the EU. Various legal requirements influence, for example, the conditions for innovation for multifunctional devices and services, as well as investment in fixed and wireless broadband communication infrastructure. We interact continuously with the EU through our experts, industry associations and our office in Brussels.

 

Corporate Responsibility—Devices & Services, NAVTEQ and Nokia Siemens Networks

 

In the following description of our corporate responsibility activities, “Nokia” refers to Nokia excluding NAVTEQ and Nokia Siemens Networks.

 

We strive to be a leader in sustainability. While taking sustainability into account in everything we do, we are also looking beyond our own operations to how the more than one billion people owning a Nokia mobile device can enhance and enrich their lives in a sustainable way. Our innovations hold the potential for changing the way we live, from improving livelihoods to embracing more sustainable lifestyles. More than one billion people use a Nokia mobile device, and we believe that even small changes can make a big difference, for instance in the protection of our environment. We have a long track record of taking sustainability into account in all of our operations and products, and we continue to work to ensure that sustainability is reflected in the way we do business every day.

 

Customers—Corporate Responsibility

 

Accessibility of Nokia Devices

 

Accessibility is about making Nokia devices and services usable and accessible to the greatest possible number of people, including customers with disabilities. We have been working on accessibility concerns for more than ten years, and going into 2010 we continued to offer dozens of device features or applications aimed at providing greater accessibility for people with limitations in hearing, speech, vision, mobility and cognition. The Nokia Wireless Loopset LPS-5, for example, enables t-coil equipped hearing aid users to use a mobile device in a convenient way. We work together with representatives from disability organizations, regulators and academia to discuss accessibility priorities and development. During 2009, we offered new functionalities for accessibility, including:

 

 

Members of the Forum Nokia developer community have also introduced new voice feedback, screen magnification and other applications and services for mobile devices that complement Nokia’s offering addressing sensorial and physical challenges in mobile communications.

 

Employees—Corporate Responsibility

 

Values

 

We have a set of values developed by our employees around the world that reflects and supports our business and changing environment. The values act as a foundation for our evolving business culture and form the basis of how we operate: achieving together, to reflect how we reach out to others, encouraging them to work together with us and share risks, responsibilities and successes; very human, to reflect how we do business and work with each other; engaging you, to reflect how we engage our customers, our suppliers, and our own employees in what our company stands for; and passion for innovation, to reflect our curiosity about the world around us and our desire to improve people’s lives through innovation in technology.

 

We also encourage open discussion and debate within the business. An annual global employee survey is conducted as a way of getting feedback from our employees on a range of important issues, and we act on this feedback when designing our people policies and practices. It is also possible for employees to ask questions about our business, even anonymously, through the company Intranet—our internal Internet pages—and receive a prompt and openly published response.

 

To enrich its culture, Nokia Siemens Networks has five values: Focus on customer, Communicate Openly, Innovate, Inspire and Win together. Every employee of Nokia Siemens Networks is responsible for adopting these principles and using them to guide their actions. The values serve as the cultural cornerstones of the company.

 

Code of Conduct

 

Nokia’s Group Executive Board has recently revised the Nokia Code of Conduct, expanding some sections, such as those covering environmental and privacy issues. The revised Code came into effect on January 1, 2009 and is in place at Nokia, including NAVTEQ. Nokia Siemens Networks’ Code of Conduct is identical to that of Nokia’s.

 

At Nokia, the complete Code is available in 34 languages at www.nokia.com. A training program on the new Code began in the spring of 2009 and by the end of the year 85% of all Nokia employees had undertaken training on the Code. The training module is offered in 11 languages. Employees at Nokia Siemens Networks are also able to undertake training on the Code, and by the end of the year 82% had done so. Approximately 80% of employees at NAVTEQ have familiarized themselves with the Code. Training will continue during 2010 with the goal of ensuring that all Nokia, NAVTEQ and Nokia Siemens Networks employees have knowledge of the Code.

 

Nokia has an Ethics Office, established to support all Nokia employees with questions relating to the Nokia Code of Conduct and business ethics. The Ethics Office also supports NAVTEQ employees. The Ethics Office is headed by an Ethics Officer and there are various channels for reporting violations of the Code of Conduct. Employees may also report violations directly to the Board of Directors anonymously.

 

Nokia Siemens Networks also has an Ethics Office, supporting employees in matters relating to the Code of Conduct. A Compliance Officer works closely with the Ethics Office focusing specifically on anti-corruption measures. Both the Compliance Officer and Ethics Office have 24-hour help lines for employees and an anonymous reporting channel exists to report any violations.

Labor Conditions at Manufacturing Facilities

 

At December 31, 2009, Nokia had 22 935 employees working directly in production, including manufacturing, packaging and shipping, at our ten mobile device manufacturing facilities. During 2009, the injury and illness rate among all of our employees at our nine major production facilities was 0.49.

 

Nokia carries out in-depth assessments of labor conditions at all of our major production facilities every second year. During the intervening period, we also carry out re-assessments to ensure any necessary corrective actions have been made, and we conduct some internal surprise audits based on risk analysis. Assessments are carried out against a framework based on International Labour Organization conventions and the human rights declarations of the United Nations. To support the implementation of the framework, all manufacturing facility employees undertake training on the principles of the framework as part of their induction. The last assessments of our nine major mobile device manufacturing facilities were conducted by a professional external assessment company, STR-CSCC, in 2008, and the next in-depth assessments are taking place during 2010.

 

In addition to on-site assessments, Nokia also requests all nine of its major mobile device manufacturing facilities to conduct a self-assessment once a year using the E-TASC (Electronics—Tool for Accountable Supply Chains) self-assessment tool. E-TASC, a joint effort of the Global e-Sustainability Initiative (GeSi) and the Electronic Industry Citizenship Coalition (EICC), is a web-based information management system to help companies collect, manage, and analyze social and environmental responsibility (SER) data from their supply chain. Nokia also uses this self-assessment tool for its suppliers.

 

At December 31, 2009, Nokia Siemens Networks had 1 822 employees working directly in production, including manufacturing, packaging and shipping, at its production facilities. During 2009, Nokia Siemens Networks introduced a framework for managing labor conditions. The standard is based on International Labor Organization conventions and standardized Industry Code of Conduct, benchmarked against international labor laws and standards. The Nokia Siemens Networks Global Labor Standard, which defines performance indicators, has been integrated into Nokia Siemens Networks global employment policies and guidelines, specifying the guiding principles and common understanding in respect of decent working conditions for Nokia Siemens Networks operations worldwide. Based on this standard, Nokia Siemens Networks is building a management system to monitor and assess labor conditions, starting first with manufacturing operations. As the first step of implementation, the labor conditions status in each Nokia Siemens Networks manufacturing facility has been self-assessed through the E-TASC tool in 2009.

 

Promoting Diversity in the Workplace

 

Nokia and Nokia Siemens Networks are committed to promoting diversity and inclusion in the workplace and providing rewarding career development opportunities for all employees. At the end of 2009, 13.8% of senior management positions within Nokia were held by women, while 51.1% of senior management positions were held by people of non-Finnish nationality.

 

At December 31, 2009, 9.6% of senior management positions within Nokia Siemens Networks were held by women, while 41.3% of senior management positions were held by people of non-Finnish or non-German nationality.

 

Senior management positions are defined in the same way at Nokia and Nokia Siemens Networks. However, differences in the way they were defined in 2008 mean that the results are not directly comparable with those presented in Nokia’s annual report on Form 20-F for 2008.

 

Voluntary Attrition at Nokia

 

During 2009, the rate of voluntary attrition was 12.8% at Nokia and 8.0% at Nokia Siemens Networks.

Suppliers—Corporate Responsibility

 

Nokia

 

During 2009, we continued to work with suppliers to promote environmentally and socially responsible behavior through our supplier requirements, assessments, development programs and sourcing practices.

 

At December 31, 2009, 92% of our direct suppliers’ sites serving Nokia were certified to Environmental Management System (EMS) ISO14001. These certified suppliers accounted for more than 98% of our hardware purchasing expenditure during the year.

 

We have further increased the visibility of our suppliers’ environmental performance and target setting, concentrating on four key areas: energy consumption, carbon dioxide (equivalent) emissions, water consumption and waste generation. Looking at the suppliers of commodities (representing 70% of our overall expenditure on hardware) which have the highest impact from a life cycle analysis perspective, 93% have company-level reduction targets for energy, carbon dioxide (equivalent), water and waste in place and monitored. In 2010, we plan to extend this scope further as part of continuous improvement.

 

Regarding the European Union Regulation on Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH), we have continued to work with all our direct suppliers to ensure that necessary actions are in place to support regulatory compliance within the supply chain.

 

One expectation for suppliers is that they have a company-level Code of Conduct in place. Codes of conduct set out requirements in several areas, such as corruption, general business routines, health and safety, human rights, working conditions, social rights and environmental standards. We surveyed our suppliers’ Code of Conduct implementation and found that 92% met our requirements. Suppliers not meeting our expectations have been requested to take corrective action.

 

To monitor supplier performance against our requirements and promote sustainability improvements, Nokia conducts supplier self-assessments and on-site supplier assessments. In July 2009, we started to use the E-TASC (Electronics—Tool for Accountable Supply Chains) self-assessment questionnaire (SAQ) to replace our own self-assessment tool for labor, health and safety, ethics and environmental practices. E-TASC, a joint effort of the Global e-Sustainability Initiative (GeSi) and the Electronic Industry Citizenship Coalition (EICC), is a web-based information management system to help companies collect, manage, and analyze social and environmental responsibility (SER) data provided voluntarily by their suppliers. By the end of 2009, 14 Nokia suppliers had completed a total of 59 E-TASC SAQs, of which 12 were corporate-level SAQs covering overall company performance on environmental and social criteria, and 47 were facility-level SAQs covering performance at production, administrative and service unit level. The average corporate SAQ score was 89.5% and average facility SAQ score was 87.4%. A higher percentage score indicates a lower risk that the supplier’s labor, health and safety, ethics and environmental practices and processes are falling short of expectations. Conversely, a lower percentage score indicates a higher risk that the supplier is falling short of standards.

 

During 2009, we conducted 58% Nokia Supplier Requirements assessments and five in-depth labor, health and safety and environmental assessments. In-depth labor, health and safety and environmental assessments are typically conducted by Nokia at those suppliers in locations or industries with identified risk.

 

Nokia conducts an annual Supplier Satisfaction Survey. In 2009, the overall satisfaction survey result was 79%, on a scale where 0% represents an unacceptable level and 100% represents an excellent level. Overall satisfaction reflects how Nokia performs on areas such as planning and relationship management and whether other business expectations force suppliers to compromise on their environmental and ethical level of compliance. The overall satisfaction level of suppliers with respect to Nokia’s approach to corporate responsibility was 91%.

Going beyond our first tier of suppliers, we are also concerned about poor practices associated with some mine operations around the world. Although Nokia does not source or buy metals directly we want to ensure that extraction and trade of metals used within our products follows lawful and environmentally and socially responsible practices. For this reason we continued working with suppliers to build transparency of metal supply chains and continued our participation within the GeSI and EICC extractives working group.

 

Nokia Siemens Networks

 

All Nokia Siemens Networks suppliers must meet Nokia Siemens Networks’ global supplier requirements, which set standards for the management of ethical, environmental and social issues. This commitment is part of the contractual agreements with suppliers.

 

To monitor our suppliers, Nokia Siemens Networks conducts regular audits to identify risks, monitor compliance and raise awareness of its requirements, and shares best practice on corporate responsibility management. In 2009, Nokia Siemens Networks carried out 147 system audits to assess compliance with its supplier requirements. Nokia Siemens Networks also conducted in-depth labor conditions audits of six suppliers in China, India and Italy.

 

The annual Nokia Siemens Networks supplier satisfaction survey was conducted with 313 key suppliers. This survey again showed ‘business ethics and environment’ as the area on which Nokia Siemens Networks scored best, obtaining an overall score of 8.3 (scale 1-10). Based on the feedback of this survey, Nokia Siemens Networks considers that the basic requirements are understood well by the majority of its suppliers, and that suppliers find the requirements to be strict.

 

In 2009, Nokia Siemens Networks reviewed the status of its 150 top direct material suppliers (by spend), covering a total of 416 sites, to assess whether they continue to meet the requirements related to Environmental Management Systems. The review showed that approximately 76% of sites meet Nokia Siemens Networks requirements, and work continues with those suppliers who did not comply yet. The accuracy of these data has been confirmed to the extent possible and work in improving data collection process in this area will continue in 2010.

 

Nokia Siemens Networks held two workshops in 2009 for 15 suppliers in India to communicate supplier requirements, raise awareness and competence in corporate responsibility and drive improved standards further down the supply chain. Nokia Siemens Networks also piloted an Energy Efficiency program with 22 key suppliers, and shared best practices among the participants.

 

Nokia Siemens Networks continues internal competence building within the procurement teams and actively collaborates with other industry players to improve standards in the information and communications technology (ICT) supply chain through groups such as the GeSI. In 2009, Nokia Siemens Networks invited 22 key suppliers to join E-TASC, a common industry supplier assessment and auditing tool developed by the GeSI.

 

Society—Corporate Responsibility

 

Nokia

 

We engage in a variety of community projects around the world through partnerships that emphasize the input of local knowledge. While Nokia supports many ‘traditional’ philanthropy projects across the world, we also see the potential for mobile technology to promote social development. Mobile communications can transform the delivery of services in education, health, emergency management and environmental conservation. Importantly, it can also stimulate new or enhance existing livelihoods, especially for people in remote, rural and underserved locations. Highlights of our engagement in 2009 included the following.

 

 

 

Nokia Siemens Networks

 

During 2009, Nokia Siemens Networks provided assistance to people affected by natural disasters in the wake of flooding in Manila and Turkey, the earthquakes in Indonesia and Italy, and donated funds to international relief organizations. The company also demonstrated an emergency communications package, developed in collaboration with the Red Cross organization, which can be used to provide emergency communications when disaster strikes and disrupts existing communications networks. The work on this solution continues this year.

 

In 2009, Nokia Siemens Networks continued to provide education and capacity building activities throughout the world through a variety of projects, including educational activities for the handicapped, the elderly and the socially or economically disadvantaged. Many of these activities were run by Nokia Siemens Networks employee volunteers. Altogether, 2 100 volunteer hours were reported in 2009. A large proportion of the education work was invested in non-R&D university partnerships and vocational training activities, for example in providing scholarships to women in engineering in India and Indonesia.

 

Nokia Siemens Networks continues developing solutions supporting sustainable development in emerging markets. For example, during 2009 Nokia Siemens Networks continued to develop Village Connection, a cost-efficient solution that enables operators to extend their reach to remote villages.

 

In 2009, Nokia Siemens Networks continued its collaboration with London Business School and University of Calgary to produce the ‘Connectivity Scorecard’. The scorecard assesses performance against approximately 30 indicators of connectivity—including broadband, fixed-line, mobile and computing technologies—that contribute to a country’s social and economic prosperity.

 

Environment—Corporate Responsibility

 

Environmental management at Nokia

 

Nokia aims to be a leading company in environmental performance. Our vision is a world where everyone being connected can contribute to sustainable development.

In 2009, we continued to look for possibilities to reduce the environmental impact of our devices and operations at each stage of the product life cycle. Focus areas include materials used, energy efficiency, take back of used products, and eco services for our phones to help people to make sustainable choices and consider the environment in their everyday lives.

 

Our environmental work is based on global principles and standards. Our targets are not driven solely by regulatory compliance but are designed to go beyond legal requirements. Environmental issues are fully integrated in our business activities and are everyone’s responsibility at Nokia.

 

Nokia’s climate strategy

 

Nokia’s climate strategy includes specific targets covering areas that contribute to our direct and indirect carbon dioxide, or CO2, emissions. In 2009, the four main areas continued to be:

 

 

There is also evidence that information and communications technology (ICT) can help reduce the use of energy, thus slowing down global warming. ICT-based services and working methods such as remote work and videoconferencing can result in lower overall CO2 emissions. Also, environmental gains of dematerialization can also be significant. Convergence, or incorporating the functionalities of several products into one product, can further contribute to dematerialization and energy efficiency. In 2009, we continued to collect and communicate cases where mobile technology enables reductions of energy consumption and CO2 emissions.

 

Since January 2008, Nokia has been a member of WWF’s Climate Savers, a program where WWF, or World Wildlife Fund, and businesses collaborate to address climate change. Being a member of this program reinforces our commitment to energy saving in our operations, ways of working and products.

 

In 2009, Nokia joined the United Nations Global Compact’s Caring for Climate initiative, and participated in Earth Hour globally.

 

Nokia’s increased emphasis on remote working and videoconferencing has helped reduce business air travel by our employees, with carbon offsetting offering us the opportunity to compensate for the CO2 emissions caused by our remaining business air travel. ClimateCare, part of J.P. Morgan’s Environmental Markets group, has been chosen as our initial carbon offset provider and the carbon offsets should help fund projects around the world that focus on renewable energy and energy efficiency solutions.

 

Nokia’s ecosystem services

 

Nokia uses different kind of methods on analyzing its environmental impact in different phases of the product life cycle. Nokia recognizes the importance of evaluation of its value chain’s use of ecosystem services like water and fiber as well as its emissions, and has started to study these closer.

 

Recycling Nokia Devices

 

Up to 80% of a Nokia mobile device can be recycled and the rest of the materials are recovered as energy or material so nothing necessarily needs to go to landfill. We participate in collective recycling schemes with other equipment manufacturers for example in Europe, Australia, Canada and Columbia; have our own collection points for recycling used mobile devices and accessories in approximately 85 countries; and engage in local recycling awareness drives with retailers, operators, schools and other manufacturers and authorities around the world. These drives aim at increasing consumer awareness of recycling and their responsibility for bringing back their used devices for responsible recycling.

Additionally, we work with qualified recyclers around the world to ensure proper end of life treatment for obsolete devices.

 

During 2009, Nokia carried out voluntary local recycling drives to raise awareness in 27 countries. We launched many new take-back programs in the Middle East and Africa and now offer a take-back service in seven additional countries in these two regions. Our take-back project in India started in four major cities and was expanded to 20 more cities and to business customers during the year.

 

In 2009, Nokia continued to participate in financing the collection and treatment of electronic waste in different EU countries in accordance with requirements as set by the National Implementation of the European Union WEEE directive, or directive on Waste Electrical and Electronic Equipment. There are now national collection networks in operation to collect and treat all electronic waste from households, including batteries. During the year, Nokia further increased communication on recycling at country level with the introduction of localized recycling information on Nokia Internet pages.

 

Energy Saving in Nokia Devices

 

We are focused on introducing energy saving features throughout our product portfolio, including energy efficient chargers. Over the last decade, we have reduced the average no load energy consumption of our chargers by over 80%, and our best-in-class chargers by over 95%. We are on track to reach our target of reducing no-load power used by our chargers by 50% from 2006 to 2010.

 

Nokia was the first mobile manufacturer to put alerts into mobiles devices encouraging people to unplug their chargers, and we are incorporating such alerts across our range of mobile devices. In late 2008, based on a voluntary agreement, namely EU IPP, or the EU pilot project on Integrated Product Policy, Nokia together with other manufacturers created and took into use a Mobile Device Charger Energy rating. The star rating is based on the charger’s no-load power consumption and is shown as a specific label that raises awareness and encourages the use of more energy efficient chargers. All new Nokia chargers are specified to meet the criteria of voluntary agreements such as the EU Code of Conduct and US Environmental Protection Agency’s Energy Star as well as the highest four and five star criteria of EU IPP. In 2009, the majority of our new models shipped with our five star chargers. Our mobile devices have also started to feature Power Save Mode and energy-efficient OLED displays.

 

During 2009, we also published the results of a life cycle assessment we made of a typical Nokia mobile device. This assessment measured the energy consumed across the entire life cycle of the device, from the acquisition of raw materials and the production of the device to using it and, ultimately, recycling it when it reaches the end of its life. The amount of energy consumed during the entire life cycle is around 270 megajoules (MJ) (equal to emissions of approximately 17.5 kg C02e), of which 49% is consumed during the acquisition of raw materials and the manufacturing of components. Nokia’s mobile device production facilities account for 3% of the total energy consumption, transportation for 18%, the usage of the device for 30%, and recycling for 1%.

 

Materials in Nokia Devices and Packaging

 

All Nokia mobile devices worldwide are fully compliant with EU RoHS, or the EU directive on the restriction of the use of certain hazardous substances in electrical and electronic equipment. We have also voluntarily phased out PVC from all of Nokia’s mobile devices and enhancements. We are currently voluntarily phasing out the use of brominated and chlorinated compounds and antimony trioxide. At the end of 2009, 25 Nokia mobile device models, either already or soon available for purchase, were completely free of these substances.

 

Since the introduction of Nokia 3110 Evolve in 2007, we have continued to research and implement bio-based materials in selected parts of our products.

 

No Nokia devices and accessories contain substances included in the EU REACH candidate list of Substances of Very High Concern, which REACH requires to be reported. However, we voluntarily give full information on our substance management in the Nokia Substance List available on Nokia’s website.

 

We continue to improve our packaging solutions. The use of renewable, paper-based materials has been increased to over 95% of total packaging materials, and our packages are 100% recyclable. From August 2008, the sales packages of all new devices have been smaller than their earlier equivalents, and the reductions continue. Smaller and lighter packaging has also reduced transportation loads, and these factors together have also translated into significant monetary savings.

 

Promoting Sustainability through Nokia Services

 

Eco services have been developed to help people make sustainable choices and to consider environment in everyday life. A variety of eco services are freely downloadable in Nokia devices and Ovi Store. The beta-version of Green Explorer, introduced in December 2008, has been developed further in 2009. Green Explorer is a free service designed to promote sustainable travel and local living, featuring a combination of travel guide information and tips about sustainable travel shared by the users themselves. Green Explorer provides high quality content and is accessible with all PCs and mobile devices with a browser. We have also developed a widget, which allows users to access the most favorite data while being offline. Green Explorer provides information about local living in many destinations by WWF. Users can see all UNESCO’s World Heritage Sites in Ovi Maps through Green Explorer.

 

The Nokia Eco zone is a mobile destination that enables owners of Nokia devices to view and download a range of eco content varying from wallpapers and applications to links. This service can already be used with 200 million Nokia devices, and monthly around 300 000 downloads are made. Continuing the developments of we:offset, the world’s first CO2 emission offsetting tool for mobile devices, we launched versions of we:offset supporting our mobile devices running on the Series 40, Symbian and Maemo software platforms during 2009. The content of Eco zone is now available at Ovi Store.

 

At the beginning of 2010, we launched Climate Mission, a game focusing on climate change in a fun and playful way and which inspires users to think more about this important issue. The game consists of four different mini games and is available free of charge from Ovi Store.

 

Nokia Group Facilities: Energy, Emissions and Environmental Certifications

 

Nokia Group facilities consumed in 2009 92 GWh of direct and 1 131 GWh of indirect energy. This energy consumption caused 20 100 tons of direct and 413 500 tons of indirect greenhouse gas (CO2e) emissions. Direct energy means usage of gas and oil and indirect energy usage of electricity, district heating and district cooling in Nokia Group facilities. Without Nokia Group’s purchase of certified green energy, the above mentioned indirect emissions would have been greater by 107 300 tons.

 

Nokia Group has improved the energy efficiency of its facilities through a number of different projects in recent years. In 2009, Nokia created 35 500 MWh and Nokia Siemens Networks 3 100 MWh of new energy savings in technical building systems and both are on course to achieving the cumulative 6% energy savings target by 2012, compared to the baseline year 2006 (Nokia) or 2007 (Nokia Siemens Networks).

 

The water consumption of Nokia Group facilities was 2 167 000 m³ in 2009.

 

Nokia has the corporate level ISO 14001 certificate in place for all manufacturing sites.

 

Nokia: Electromagnetic Fields

 

All Nokia products, including mobile devices and base stations, operate below relevant international electromagnetic wave exposure guidelines and limits that are set by public health authorities, such as the International Commission on Non-Ionizing Protection (ICNIRP). Nokia is committed to making information,

such as device SAR (Specific Absorption Rate) values, available for consumers. For further information on environmental issues related to Nokia’s supply chain, see “— Suppliers — Corporate Responsibility — Nokia” above.

 

Nokia is also a member of Mobile Manufacturers Forum (MMF), an international association of telecommunications equipment manufacturers with an interest in mobile or wireless communications. The MMF was formed in 1998 to facilitate joint funding of key research projects and cooperation on standards, regulatory issues and communications concerning the safety of wireless technology, accessibility and environmental issues.

 

Nokia Siemens Networks: Environment

 

Nokia Siemens Networks’ environmental strategy is to achieve a net positive impact on the environment. It intends to achieve this through:

 

 

In 2009, Nokia Siemens Networks launched the industry’s most comprehensive range of energy solutions for telecoms operators, combining products and services. Designed to reduce the network operating costs of new and legacy telecommunications networks, these solutions can reduce power consumption and CO2 by exploiting more efficient technology and renewable energy.

 

Nokia Siemens Networks has deployed more than 390 sites running on renewable energy in 25 countries in Asia-Pacific, China, Europe, Middle East, Africa and Latin America. Renewable energy will be the first choice for remote base stations by 2011.

 

Nokia Siemens Networks has set targets for improving the environmental performance of its products and its facilities. Nokia Siemens Networks has been a member of the WWF Climate Savers program since June 2008, and is committed to improving the energy efficiency of base station products by up to 40 percent by 2012, reducing energy consumption of buildings by 6% by 2012 and increasing the use of renewable energy in company operations to 50 percent by the end of 2010. The emissions avoided by these actions will amount to approximately 2 million tons of CO2 annually compared to the 2007 level.

 

All of Nokia Siemens Networks’ production sites are included in the scope of the ISO 14001 certification.

 

Nokia Siemens Networks: Electromagnetic Fields

 

Nokia Siemens Networks supports the move by the World Health Organization to harmonize global regulations on electromagnetic fields based on the widely recognized guidelines issued by the International Commission on Non-Ionizing Radiation Protection. Nokia Siemens Networks engages with its customers, including mobile network operators, to make them aware of electromagnetic field issues and provides detailed instructions to ensure they operate equipment appropriately to keep local exposure within safe limits. This includes offering training where necessary for customers who need support in this area, particularly in emerging markets. Furthermore, an important part of Nokia Siemens Networks’ responsibility in this area is to engage openly in the global public debate and monitor the latest scientific studies on radio waves and health. Nokia Siemens Networks’ electromagnetic field specialists are members of relevant scientific organizations including the Bioelectromagnetics Society and the European Bioelectromagnetics Association, and participate in important scientific events.

 

The following is a list of Nokia’s significant subsidiaries as of December 31, 2009. See, also, Item 4A.“History and Development of the Company—Organizational Structure.”

 

 

 

 

At December 31, 2009, Nokia operated ten manufacturing facilities in nine countries for the production of mobile devices, and Nokia Siemens Networks had eight major production facilities in four countries. We consider the production capacity of our manufacturing facilities to be sufficient to meet the requirements of our devices and networks infrastructure business. The extent of utilization of our manufacturing facilities varies from plant to plant and from time to time during the year. None of these facilities is subject to a material encumbrance. See, also, Item 4B. “Business Overview—Devices & Services—Production” and “—Nokia Siemens Networks—Production.”

The following is a list of the location, use and capacity of manufacturing facilities for Nokia mobile devices and Nokia Siemens Networks infrastructure equipment.

 

 

 

 

Not applicable.

 

 

This section begins with an overview of the principal factors and trends affecting our results of operations. The overview is followed by a discussion of our critical accounting policies and estimates that we believe are important to understanding the assumptions and judgments reflected in our reported financial results. We then present a detailed analysis of our results of operations for the last three fiscal years.

 

Nokia has three operating and reportable segments: Devices & Services; NAVTEQ; and Nokia Siemens Networks. As of January 1, 2008, our three mobile device business groups, Mobile Phones, Multimedia and Enterprise Solutions, and the supporting horizontal groups, were replaced by an integrated business segment, Devices & Services. Results for Nokia Group for the year ended December 31, 2007 have been regrouped for comparability purposes according to our current reportable segments.

 

On July 10, 2008, Nokia completed the acquisition of NAVTEQ Corporation. NAVTEQ is a separate reportable segment of Nokia starting from the third quarter 2008. The results of NAVTEQ are not available for the prior periods. Accordingly, the results of NAVTEQ for the full year 2009 are not directly comparable to the results for the full year 2008.

As of April 1, 2007, Nokia results include those of Nokia Siemens Networks on a fully consolidated basis. Nokia Siemens Networks, a company jointly owned by Nokia and Siemens, is comprised of the former Nokia Networks and Siemens’ carrier-related operations for fixed and mobile networks. Accordingly, the results of Nokia Group and Nokia Siemens Networks for the years ended December 31, 2008 and 2009 are not directly comparable to the results for the year ended December 31, 2007, as our results from January 1 to March 31, 2007 include our former Networks business group only.

 

For a description of our organizational structure see Item 4A. — “History and Development of the Company — Organizational Structure.” Business segment data in the following discussion is prior to inter-segment eliminations. See Note 2 to our consolidated financial statements included in Item 18 of this annual report. The following discussion should be read in conjunction with our consolidated financial statements included in Item 18 of this annual report, Item 3D “Risk Factors” and “Forward-Looking Statements”. Our financial statements have been prepared in accordance with IFRS.

 

Principal Factors and Trends Affecting our Results of Operations

 

Devices & Services

 

The principal source of net sales in our Devices & Services business is the sale of mobile devices and services and their combinations. Our mobile device portfolio ranges from basic mobile phones focused on voice capability and mobile devices with a number of additional functionalities such as Internet connectivity to high-end converged mobile devices, including also mobile computers, which are based on programmable software platforms, can run applications such as email, web browsing, navigation and enterprise software, and can also have built-in music players, video recorders, mobile TV and other multimedia features. Increasingly, we are focused on developing unique and compelling combinations of mobile devices and services, together with the appropriate technological infrastructure, to enrich the experience people have with their mobile devices. Our strategy is to have a focused, optimally-sized offering of mobile devices and services and their combinations enabling us to effectively target all major consumer segments and price points, while meeting the local requirements and preferences of our customers in the different markets we serve. Our customers include mobile network operators, distributors, independent retailers, corporate customers and consumers. We increasingly collaborate and partner with third parties to develop and obtain technologies, products and services, including applications and content. We also target our mobile device portfolio to be competitive and appealing for application developers and content providers to develop applications and provide content for use in our devices.

 

In 2009, the global mobile device market was negatively impacted by difficult global economic conditions, including weaker consumer and corporate spending, constrained credit availability and currency market volatility. In particular, the devaluation of emerging market currencies impacted the purchasing power of consumers in emerging markets, where Nokia’s market position is strong. The demand environment for mobile devices improved during the latter part of 2009 as the global economy started to show initial signs of recovery. According to our estimates, in 2009 the industry mobile device volumes, based on the definition of the industry mobile device market we used in 2009, decreased by 6% to 1.14 billion units, compared with an estimated 1.21 billion units in 2008. Beginning in 2010, we are revising our definition of the industry mobile device market that we use to estimate industry volumes. This is due to improved measurement processes and tools that enable us to have better visibility to estimate the number of mobile devices sold by certain new entrants in the global mobile device market. These include vendors of legitimate, as well as unlicensed and counterfeit, products with manufacturing facilities primarily centered around certain locations in Asia and other emerging markets. For comparative purposes only going forward, applying the revised definition and improved measurement processes and tools that we are using beginning in 2010 retrospectively to 2009, we estimate that industry mobile device volumes in 2009 would have been 1.26 billion units.

 

Similarly, for comparative purposes only going forward, applying our revised definition and improved measurement processes and tools that we are using beginning in 2010 retrospectively to 2009, we estimate that our mobile device volume market share would have been 34% in 2009 on an annual basis. Based on the industry mobile device market definition used in 2009, our volume market share estimate was 38%. The respective quarterly market shares would have been 32% during the first quarter of 2009 (37% based on the 2009 definition), 35% during the second quarter of 2009 (38% based on the 2009 definition), 34% during the third quarter of 2009 (38% based on the 2009 definition) and 35% during the fourth quarter of 2009 (39% based on the 2009 definition). We are not able to apply our revised definition and improved measurement processes and tools retrospectively to our 2008 estimated industry mobile device volumes or our 2008 estimated volume market share due to lack of visibility and data. The industry mobile device volumes estimated for 2008 and Nokia’s volume market share estimated for 2008 are not comparable with the industry mobile device volumes estimates or Nokia’s volume market share estimates based on our revised definition.

 

Applying our revised definition of the industry mobile device market applicable beginning in 2010 on a comparable year-over-year basis,

 

 

The mobile communications industry continues to undergo significant changes due to numerous factors, including the increasing maturity of the traditional mobile phone market and the ongoing digital convergence and the resulting growth of the converged mobile device market. In order to address the different requirements of these markets, Nokia has established three sub units — Mobile Phones, Smartphones and Mobile Computers. We apply a “product mode of operation” within Mobile Phones and a “solutions mode of operation” within Smartphones and Mobile Computers.

 

 

We believe we have a number of competitive advantages, including scale, brand, manufacturing and logistics, strategic sourcing and partnering, distribution, R&D and software platforms and intellectual property.

 

 

We have built these competitive advantages through years of investment and intend to continue to invest, as appropriate, to maintain and enhance them. In the traditional mobile device market, we believe it is difficult to deliver sustainable earnings growth without all of these capabilities. In the converged mobile device market, while these capabilities continue to be relevant, net sales and profitability are driven by other, additional capabilities. Innovations that significantly improve the user experience are a key competitive factor in the converged mobile device market, and, as discussed below, we expect to deliver improvements to our user experience in 2010. We are also focused on building additional competitive advantages in the converged mobile device market by, for example, establishing an ecosystem of consumers, application developers and content providers, operators and other industry partners around our devices and services offerings. This effort to create a mutually beneficial ecosystem is also relevant for our mobile phones category.

 

A key non-financial metric we use to measure our progress in creating new competitive advantages is the number of active users of our services. We began using active users as an operational metric in mid-2009. It is a way to measure our progress as we develop and market new products and services and their combinations designed to acquire, retain and deepen our relationship with consumers. In the fourth quarter of 2009, our active users grew to 89 million, and we exceeded our second half 2009 target of 80 million. In January 2010, we implemented updated measurement tools to account for user activity and contactability and, consequently, we revised our active user definition. Applying the revised definition for comparative purposes only, our active users at the end of 2009 would have

been 62 million, and our target for the first half of 2010 is to reach 115 million active users. We continue to target 300 million active users by the end of 2011.

 

Our Devices & Services net sales and profitability are currently driven primarily by the following factors and trends:

 

 

Convergence of the Mobile Device Industry with the Internet and Personal Computer Industries

 

A new industry is being formed from elements of the mobile handset industry, the Internet industry and the personal computer industry. The media and content that were previously accessible on the Internet only through personal computers are now increasingly available for consumption on mobile devices. This has opened up new opportunities to create value for consumers through innovative new services offerings and user experiences. Many of these innovations are primarily software-driven. Companies with software expertise have been able to quickly bring innovations to market that make the underlying hardware capabilities of converged mobile devices easier for consumers to use.

 

The growth potential offered by the converged mobile device market has attracted new entrants, from the personal computer industry and from the internet industry, as well as from adjacent industries. Some of our competitors have entered the mobile device market with a high-end, vertically integrated offering supported by a large number of applications that are distributed through their proprietary application store. By focusing on this lucrative high-end, high margin segment, creating an applications ecosystem and offering consumers a modern, easy to use interface, these competitors have been able to quickly capture industry value share, particularly in developed markets. Some other competitors have entered the mobile device market with a new operating system, which enables handset manufacturers that do not have substantial software expertise to develop mid-to high-end converged mobile devices that feature a certain user interface and application developer ecosystem. The new competitors may also distribute co-branded devices developed together with so-called white label manufacturers. Our new competitors relying on business models customary in businesses converging with the mobile communications business, such as on-line advertising, may have opportunities and offerings in the converged mobile device market which may not be customarily available or possible for the traditional competitors in the mobile communications market. Further, our new competitors may also leverage their software expertise to continuously bring new innovations to market at a rapid pace, faster than typical hardware development cycles.

 

The growth potential in the converged mobile device market has also resulted in intense consumer and media attention. This attention may also be a contributing factor to the higher growth rate of this market segment compared to the traditional mobile device market.

 

Nokia is the world leader in the converged mobile device market by volume market share, and the convergence trend continues to provide new opportunities for Nokia to create and capture value. Nokia believes it has the potential to deliver user experiences that previously were only available through personal computers. In fact, in many parts of the world, especially in emerging markets, we expect consumers’ first Internet experience will be through a mobile device, as opposed to a personal computer. Whereas the industry convergence has been focused on the high-end of the market thus far, we believe there is strong consumer demand for rich user experiences at all price points and in all markets globally. These experiences will need to be localized in terms of content as well as pricing and distribution. Furthermore, Nokia endeavors to go beyond just offering traditional Internet capabilities. By leveraging the inherent social network and location awareness of mobile devices, we

are striving to deliver an even richer user experience compared to traditional Internet services. We also believe that there are additional opportunities to expand the value we offer to consumers. For example, in addition to offering our services in combination with our devices, over the longer-term, our services revenue generation model could include subscription renewals, transactional micro-payments and contextual advertising revenue — none of which have been significantly utilized to date by Nokia.

 

Converged Mobile Devices: As being connected to the Internet while on the move is changing the way the consumers communicate, we are focused on delivering mobile solutions that will be aware of social networks and location context. These solutions are designed to help consumers connect to the people, places and information that are uniquely relevant to them.

 

We integrate many individual services under Ovi, our Internet services brand, to simplify the user experience and differentiate ourselves from our competitors. With Ovi, we are focused on music services, location-based services, media services including our Ovi Store application distribution platform, and messaging services. We are now including walk and drive navigation in our selected smartphones at no extra cost to the consumer. We believe this will drive higher usage of location-based services, higher user engagement and increase the attractiveness of our location-based services platform to the application developer community. In the near-term, we believe that improving the discoverability and usability of our services will strengthen the competitiveness of our devices and support their selling prices. We expect this should also help us with customer retention.

 

Recently, much of the innovation in the converged mobile device category has emanated from the United States, which has a rich talent pool of software developers. To improve our software development capability, we acquired several Internet and services companies in 2009, including Dopplr, Plum, cellity, and Bit-Side. We also continue to actively recruit employees from leading Internet services companies. We currently have over 3 000 employees in the United States working on our services offerings.

 

Mobile Phones: Our Series 40 software platform supports Internet connectivity and is open to third-party developers to build applications and content. Applications and content available at the Ovi Store for Series 40-based devices include games, video, wallpapers, ringtones and social networking applications. In this way, Nokia seeks to leverage Internet capabilities to enhance the user experience, even on devices at lower price points where product differentiation is more difficult.

 

For example, Nokia has developed Ovi Mail, a free email service designed especially for users in emerging markets with Internet-enabled devices. The service can be set up and accessed without ever needing a PC. Ovi Mail launched in late 2008, and by March 2010 more than six million accounts had been activated.

 

Consumer Purchasing Decisions are Increasingly Driven by the User Experience

 

At the high end of the mobile device market, it is becoming increasingly important to offer an intuitive and user-friendly user experience of multiple services and applications. Consumers, particularly high-end consumers in developed markets, have shown through purchasing patterns that they value devices which have the flexibility to give them access to their preferred services by making them easy to discover and use. As more mobile consumers globally use applications and Internet services, consumer understanding will continue to be important in the creation of appealing and relevant localized services and consumer retention.

 

To improve our competitive position, we are increasingly focused on developing and offering unique and compelling combinations of mobile devices and services to create rich user experiences. We are also building direct and continuous relationships with consumers, and constantly obtaining and analyzing a complex array of customer feedback, information on consumer usage patterns and other personal and consumer data. This is important because greater consumer understanding may enable future innovations, including the delivery of new and more relevant content on a timely basis ahead of our competitors. For example, by offering location-based navigation services at no additional cost

to the consumer on many of our converged mobile devices, we believe the use and various usage patterns will increase significantly as consumers rely more on these services and should open new opportunities for Nokia and our partners to create additional value-added content. We believe the ability to understand the specific needs of different geographic markets and consumer segments and to localize services appropriately will be a key competitive differentiator. For example, music is popular across the globe, but each region has its own local music. In India, we offer over three million tracks on our music store, which is significantly greater than our closest competitor, which offers only about 100 000 tracks.

 

Most importantly, we are focused on improving the user experience of our four software platforms which are discussed below. Each platform has a strategic role in our overall portfolio. At the low and mid-range, we have two software platforms, Series 30 and Series 40. Above that, we have Symbian, designed to leverage our scale and global reach and to provide converged mobile devices at lower price points. And with Maemo, which will become the MeeGo software platform in 2010, we aim to deliver a leading user experience on a new class of focused high-end devices.

 

Converged Mobile Devices: In the converged mobile device category, our competitive advantages continue to be relevant. However, in the converged mobile devices category, net sales and profitability are increasingly driven by the user experience, which depends more on software that makes the device easier to use and services that allow users to personalize their devices, rather than hardware-based features such as cameras and general design and aesthetics. As we focus on delivering a rich user experience, we expect to reduce the number of smartphone models we offer. This should allow us to reduce the complexity of our development processes, quicken our time to market and focus more of our resources on user experience innovations.

 

Our smartphones are based on the Symbian software platform. We believe that we will be able to improve the user experience of Symbian with the release of Symbian3 targeted for mid-2010, which is expected to deliver a sleeker and more responsive user interface, enabled by graphics accelerated hardware and software. Additionally, we expect to improve the user experience by adding multiple home screen pages, introducing single tap interaction throughout the user interface and offering multi-touch pinch-zooming and intuitive multi-tasking. Before the end of 2010, we expect to release Symbian4, with a further redesign of the user experience intended to simplify interaction and layout, bring content to the fore and deliver a fast and consistent user interface.

 

Our mobile computers are based on the Maemo software platform, which will become the MeeGo software platform during 2010. Importantly, MeeGo provides device manufacturers with the freedom to tailor the user experience. With MeeGo, we plan to accelerate industry innovation and reduce time-to-market for a range of new Internet-based applications and services, including Ovi, and exciting user experiences. Our mobile computers are targeted to have the power, memory, full Internet and multi-tasking capabilities we expect today with personal computers.

 

Converged mobile device volumes are also affected by the level of mobile device subsidies that mobile network operators are willing to offer to end-users in the markets where subsidies are prevalent. Recently, we have seen network operators shifting the focus of their subsidy programs to emphasize higher-end products that are sold in conjunction with contracts that include both voice and data usage. In order for us to have a converged mobile device portfolio that operators will find financially attractive to subsidize, it is important that we continue to develop our converged mobile device user interface and create services that are easy to discover and intuitive to use. We intend to continue to provide support for operator customizations, which are valued by operators because it allows them to differentiate their offerings.

 

Mobile Phones: Our mobile phones are based on our proprietary Series 30 and Series 40 software platforms. In the mobile phones category, hardware-based features such as cameras, memory, color screens, music players, materials and general design and aesthetic improvements continue to drive the majority of customer purchase decisions. Additional functionalities such as Internet connectivity, services and applications are also becoming important at mid-range price points. Thus, Nokia

continues to provide a wide range of mobile phones with differentiated hardware features as well as software capabilities to meet the needs of consumers globally; from mid-range devices for consumers that want to use Internet services to ultra low-end devices for first-time mobile phone users in emerging markets.

 

In the mobile phone category, we expect affordable touch screen and QWERTY keyboards to grow in popularity, and we expect the adoption of services to increase. In order to ensure the longer-term competitiveness of our mobile phones portfolio, we are investing in hardware and usability innovations specifically for this category. In 2010, we plan to introduce touch displays, QWERTY keyboards and dual SIM cards in the mobile phone category.

 

Competitive Ecosystems are Developing in the Converged Device Market

 

In the market for converged mobile devices, new ecosystems are developing around major software platforms, including Symbian, MeeGo, Android and Apple’s iPhone. In addition, other industry players, including handset vendors such as Samsung, Palm, RIM, as well as operators such as Vodafone and China Mobile, have created their own proprietary marketplaces for services and applications. This could potentially lead to a fragmentation of developer efforts and commoditization of device hardware.

 

Ecosystems are also developing as many industry players begin to believe that a completely closed and vertically integrated strategy may result in capability gaps due to the pace of innovation. Thus, the ability to partner in mutually beneficial ways is becoming increasingly important. For example, we are partnering with Microsoft to target enterprise customers, and we are also planning to offer Microsoft’s Office suite on our Symbian-based smartphones. In the first case, we and Microsoft collaborate to create an enterprise-class solution, and Microsoft provides industry-leading enterprise sales capabilities. In the second case, we provide Microsoft with distribution on the industry’s most pervasive smartphone platform, and Microsoft provides us with industry-leading enterprise productivity applications.

 

In order to maintain our market leadership position in both mobile phones and converged mobile devices, we are striving to differentiate ourselves as an attractive partner for application developers, content providers and other collaborative partners seeking access to mobile consumers. Nokia is taking an open approach towards creating a large, sustainable ecosystem intended to drive our mutual success. We are leveraging global technology platforms and partnerships in order to offer devices and services that are designed and priced appropriately for the preferences of consumers in different markets globally. We are focused on building a large and engaged community of active users and developers, as well as improving the application development tools we offer to our developer community.

 

Building on the functionalities of converged mobile devices and enhancing their value for consumers, we continue to develop Ovi, our Internet services brand, under which we continue to integrate our services to simplify the user experience and differentiate ourselves from competitors. Ovi is a global platform, which we believe gives us the benefits of scale. Simultaneously, our Ovi platform is designed to support localized services offerings; for example, local content and local operator billing integration. Combined with our distribution capabilities, we believe this is a significant competitive differentiator in a number of markets globally. Ovi Store had over one million downloads a day in February 2010, and Nokia expects continued strong growth during 2010.

 

Our community of partners is growing — including developers, operators, content companies and other industry players — with strategic as well as financial objectives that are closely aligned. Compared to our competitors, we believe that we generally provide more opportunities to share the economic benefits from services and applications sales. For example, operators can integrate their billing systems with our Ovi Store and then share the revenue from applications sales. In this way, we are collaborating with operators and building ecosystems at a local level to support the delivery of services.

We are continuing to invest in our growing developer community, which now includes over four million registered members. We expect to deliver an improved application development toolkit for developers in the first half of 2010. This will include Qt for high performance applications and services, including graphics-heavy games and core device applications, such as music player and photo album, and a common Web Runtime for more general application development for a broad and extensive range of applications, such as GPS for location, phonebook and calendar. Through our partnership with Intel to form MeeGo, we are uniting the worldwide Maemo and Moblin applications ecosystems and open source communities. This is designed to build scale around Qt, which is the development environment for MeeGo. For application developers, MeeGo extends the range of target device segments to include pocketable mobile computers, netbooks, tablets, mediaphones, connected TVs and in-vehicle infotainment systems. Further, our simplified and integrated development toolkit should also enable developers to leverage our open services, building on our September 2009 launch of a beta Ovi software development kit.

 

By leveraging Symbian, we plan to offer a range of converged mobile devices that increasingly target different consumer segments and price points. Compared to other smartphone software platforms, we believe that Symbian’s scale and Nokia’s strategic sourcing relationships should enable lower device hardware costs and that Symbian’s support for operator and local market customization should broaden the reach of our smartphones. We expect to introduce additional touch screen and QWERTY keyboard smartphones and to bring prices to levels that should enable more affordability for a wider population.

 

Increasing Maturity of the Traditional Mobile Device Market

 

Industry volume growth in traditional mobile phones is primarily driven by increased mobile device penetration in emerging markets. Key factors that influence the new subscriber market include the affordability of devices and operator service plans. The four billion mobile subscriptions mark was reached in the beginning of 2009, indicating that future new subscriber growth requires targeting increasingly financially constrained customers in increasingly rural areas.

 

Also, due to the emergence of certain chipset suppliers and related ecosystems of industry participants in China, entry barriers have been lowered. Such chipset suppliers enable mobile devices to be built by manufacturers that have relatively little industry experience. However, the potential to participate in the mobile device industry has attracted a large number of Chinese manufacturers which build devices based on such offerings, contributing to less product differentiation in the traditional mobile phones category.

 

Some of our competitors in the traditional mobile device market, in particular new market entrants, have used, and we expect will continue to use, more aggressive pricing and marketing strategies, which have contributed over the past several years to declining industry ASPs and increasing pressure on profitability. These competitors may simply be willing to accept profit margins that are lower than those targeted by us.

 

In the mobile phone category, we believe our competitive advantages — including our scale, brand, manufacturing and logistics, strategic sourcing and partnering, distribution, R&D and software platforms and intellectual property — continue to be highly effective and our competitive position strong. Price competition continues to be robust, particularly from handset vendors based in China and Korea. However, we believe we provide the highest level of quality at any given price point. In emerging markets, this is the core of our brand promise and, we believe, a key driver of purchase decisions for consumers.

 

We also believe that our Series 30 and Series 40 mobile phone platforms provide the industry’s most efficient platforms for product creation and offers market leading flexibility for operator variant creation. To create additional value for users of our Series 30 and Series 40-powered mobile phones, we also offer a range of services that can be accessed with them, such as Nokia Life Tools, Ovi Mail, Nokia Maps, and Nokia Money. For example, with Nokia Life Tools, consumers can access timely and

relevant agricultural information, as well as education and entertainment services, without requiring the use of GPRS or Internet connectivity. During 2009, we launched Nokia Life Tools in India and Indonesia, and we plan to introduce the service to additional emerging markets during 2010.

 

Nokia is continuing to invest in Series 40, and we plan to bring a touch experience to the platform in 2010. We also intend to bring QWERTY keyboard and dual SIM card support to this platform in 2010. Our movement to commercial chipsets rather than custom chipsets should also enhance the cost efficiency of this platform. By innovating to deliver new value to users at the high end of the traditional mobile phones category and focusing on cost throughout the range, we believe we can continue to differentiate our mobile phones, support our selling prices and expand the value of this product category.

 

Operational Efficiency and Cost Control

 

The factors and trends discussed above influence our net sales and gross profit potential. In addition, operational efficiency and cost control have been and are expected to continue to be important factors affecting our profitability and competitiveness. We continuously assess our cost structure and prioritize our investments. Our objective in the current economic environment is to maintain our strong capital structure, focus on profitability and cash flow and invest appropriately to innovate and grow in key strategic areas. We plan to continue to shift the mix of our investments towards areas that we believe will lead to longer-term differentiation of our mobile devices from the consumer perspective.

 

Costs of sales of Devices & Services are comprised of the cost of components, manufacturing, labor and overhead, royalties and license fees, the depreciation of manufacturing machinery, logistics costs, cost of excess and obsolete inventory, as well as warranty and other quality costs. The unprecedented currency volatility we experienced towards the end of 2008 and in 2009 has impacted our costs. In particular, we have taken action in 2009 to reduce our devices sourcing costs in the Japanese yen which has appreciated significantly relative to the US dollar and the euro. These measures included price negotiations with our suppliers and shifting the sourcing of certain components to non-Japanese suppliers. During 2009, we decreased sourcing of device components based on the Japanese yen from approximately 25% to approximately 18% of our total costs of sales.

 

In addition, we have taken action to reduce operating expenses. In 2009, we reduced our Devices & Services operating expenses — research and development expenses, selling and marketing expenses, administrative and general expenses — by approximately 10% compared to 2008. Actions included the closure of certain Nokia facilities, the streamlining of Nokia’s research and development organization, temporary lay-offs in production and measures to increase efficiency in certain global support functions. We target to continue to exert discipline over our cost structure, including improving the efficiency and effectiveness of our research and development investments.

 

NAVTEQ

 

NAVTEQ’s objective is to be the leading provider of comprehensive digital map data and related location-based content and services, including traffic information, to corporate customers. NAVTEQ’s strategy is to enhance and expand its geographic database and related dynamic content and services, thereby enabling NAVTEQ to grow its presence in applications and services created by automotive manufacturers, navigation system and application vendors, Internet application providers and mobile device manufacturers. By acquiring NAVTEQ, we are ensuring the continued development of our context and geographical services through Nokia Maps as we move from simple navigation to a broader range of location-based services, such as pedestrian navigation and contextual advertising. At the same time, NAVTEQ continues to develop its expertise in the navigation industry, service its customer base and invest in the further development of its industry-leading map data, location-based content and technology platform.

Location-Based Products and Services Proliferating

 

A substantial majority of NAVTEQ’s net sales comes from the licensing of NAVTEQ’s digital map data and related location-based content and services for use in mobile devices, in-vehicle navigation systems, Internet applications, geographical information system applications and other location-based products and services. NAVTEQ’s success depends upon the development of a wide variety of products and services that use its data, the availability and functionality of such products and services and the rate at which consumers and businesses purchase these products and services. In recent years, there has been an overwhelming increase in the availability of such products and services, particularly in mobile devices and online application stores for such devices. We expect this trend to continue, but we also expect that the level of quality required for these products and services and the ability to charge license fees for the use of map data incorporated into such products and services may vary significantly.

 

Price Pressure for Navigable Map Data Increasing

 

NAVTEQ net sales are also impacted by the highly competitive pricing environment. Google recently announced its decision to make turn-by-turn navigation available to its business customers and consumers on certain mobile handsets at no charge. In January 2010, Nokia introduced a new version of Ovi Maps for its selected smartphones that includes high-end walk and drive navigation at no extra cost to the consumer. We expect these offerings will increase the adoption of location-based services in the mobile handset industry, but we also expect it may result in additional price pressure from NAVTEQ’s other business customers, including handset manufacturers, navigation application developers, wireless carriers and personal navigation device (“PND”) manufacturers, seeking ways to offer lower-cost or free turn-by-turn navigation to consumers. Turn-by-turn navigation solutions that are free to consumers on mobile devices may also put pressure on automotive OEMs and automotive navigation system manufacturers to have lower cost navigation alternatives. The price pressure will likely result in an increased focus on advertising revenue as a way to supplement or replace license fees for map data.

 

In response to the pricing pressure, NAVTEQ focuses on offering a digital map database with superior quality, detail and coverage; providing value-added services to its customers such as distribution services; enhancing and extending its product offering by adding additional content to its map database and providing business customers with alternative business models that are less onerous to the business customer than those provided by competitors. NAVTEQ’s future results will also depend on NAVTEQ’s ability to adapt its business models to generate increasing amounts of advertising revenues from its map and other location-based content.

 

We believe that NAVTEQ’s PND customers will face competitive pressure from smartphones and other mobile devices that now offer navigation, but that PND’s currently offer a strong value proposition for consumers based on the functionality, user interface, quality and overall ease of use.

 

Quality and Richness of Location-Based Content and Services Will Continue to Increase

 

In addition to the factors driving net sales discussed above, NAVTEQ’s profitability is also driven by NAVTEQ’s expenses related to the development of its database and expansion. NAVTEQ’s development costs are comprised primarily of the purchase and licensing of source maps, employee compensation and third-party fees related to the construction, maintenance and delivery of its database.

 

In order to remain competitive and notwithstanding the price pressure discussed above, NAVTEQ will need to continue to expand the geographic scope of its map data, maintain the quality of its existing map data and add an increasing list of new location-based content and services. The trends for such location-based content and services include real-time updates to location information, more dynamic information, such as traffic, weather, events and parking availability and imagery consistent with the real-world. We expect that these requirements will cause NAVTEQ’S map development expenses to

continue to grow, despite a number of productivity initiatives underway to improve the efficiency of our database collection processing and delivery.

 

Global Economic Conditions impacting NAVTEQ

 

Sales of our map database on mobile devices including PNDs and handsets grew in 2009 despite unfavorable conditions in the consumer electronics industry primarily as a result of rapid deployment of navigation by handset providers globally and by wireless carriers in the US. We expect to see growth in navigation on mobile devices in 2010 while we believe that the global economic environment is only gradually strengthening. With this rapid growth and continued uncertainty in the automotive sector, we expect the percentage of NAVTEQ net sales derived from in-vehicle navigation to decline in 2010 compared with 2009 and the percentage derived from mobile devices to increase compared to 2009.

 

Nokia Siemens Networks

 

Nokia Siemens Networks provides mobile and fixed network solutions and related services to operators and service providers. The principal source of Nokia Siemens Networks net sales are the sale of telecommunications infrastructure hardware components throughout the network from the access element, core networks and transport; the software and solutions that configure and manage those networks, the voice and data traffic that flows through the networks as well as the information operators use to build, manage and enhance the services they offer to end-users; and the provision of network services, including the building of networks, maintenance and care services and, increasingly, network management for operators.

 

Nokia Siemens Networks’ mission is to help customers build more valuable customer relationships. The company endeavors to do this by improving efficiency in their key operational areas, in the network and services provided to end-users. Nokia Siemens Networks also seeks to enhance the communications experience the operators offer to their customers with their networks and their services. Nokia Siemens Networks’ products, solutions and services are designed to enable efficient low-cost connectivity, customer and content aware service delivery, flexible service creation and management and customer and service specific communications experience.

 

Nokia Siemens Networks’ net sales depend on various developments in the mobile and fixed infrastructure market, such as network operator investments, the pricing environment and product mix. In developed markets, operator investments are primarily driven by capacity and coverage upgrades, which, in turn, are driven by greater usage of the networks both for voice calls and, increasingly, for data usage. Those operators are increasingly targeting investments in technology and services that allow better management of users on their network, and also allow them to tap the value of the large amounts of subscriber data under their control. Also, in developed markets, the investments of network operators are driven by the evolution of network technologies and an increasing need for efficiency. In emerging markets, the principal factors influencing operator investments are growing customer demand for telecommunications services resulting from subscriber growth. In many emerging markets, this continues to drive growth in network coverage both from existing network providers and new entrants to markets.

 

Over recent years, the infrastructure industry has entered a more mature phase characterized by the completion of the greenfield roll-outs of mobile and fixed networks infrastructure across many markets, although this is further advanced in developed markets. Despite this, there is still a significant market for traditional network infrastructure products to meet coverage and capacity requirements, even as older technologies such as 2G are supplanted by 3G and LTE. As growth in traditional network products sales slows, there is an emphasis on the provision of network upgrades, often through software, as well as applications, such as billing, charging and subscriber management, and services, particularly the outsourcing of non-core activities to companies that provide extensive telecommunications expertise and strong managed service offerings.

Three principal trends have emerged in the infrastructure market over recent years that are likely to impact future net sales: the growth of data usage; the move towards managed services and outsourcing; and the focus on subscriber-centric services. These can be seen as having a complementary impact on the investment choices made by Nokia Siemens Network customers.

 

Growing Data Usage

 

The increased flow of data through telecommunications networks, particularly in developed markets, has begun to have significant implications for network development. Alongside traditional voice and data services, such as text messaging, end-users are beginning to access a wealth of media services through communications networks, including email and other business data; entertainment services, including games and music; visual media, including films and television programming; and social media sites. End-users increasingly expect that such services are available to them everywhere, through both mobile and fixed networks. These services are now accessed and used through multiple devices, including personal computers, through traditional broadband access lines as well as 3G data dongles, set-top boxes and mobile and fixed line telephones.

 

The growing popularity of feature rich smartphones that combine voice functionality, messaging, email, media players, navigation systems and other capabilities has been complemented by a proliferation of products and services in the market that both meet and feed end-user demand. The result has been a dramatic increase in data traffic through both mobile access and transport networks that carries the potential to cause network congestion. During 2009, the emergence of applications that are “always on” and therefore in constant contact with the network increasingly contributed to network congestion in certain networks and markets.

 

To cope with the growing traffic load within networks, operators are likely to need to invest increasingly in additional capacity, and in the speed and flexibility in their networks, both in the access networks and the backhaul that carries the data load as well as in the core networks that link them. That investment is likely at first to come in upgrades to existing 3G, core and backhaul networks and later in the move towards LTE, and it will require both hardware and software investment.

 

Nokia Siemens Networks has intensified and focused its investment in research and development in its network systems business and in the radio access area, particularly in 2008 and 2009, in order to offer the products and software that respond to the growing requirement of operators for efficient networks that can handle the data growth at reasonable cost. Within developed markets, investment in 3G networks has resulted in a slowing down in expenditure on 2G networks, although these remain important in many emerging markets, such as India.

 

Managed Services and Outsourcing

 

A second trend has been the acceleration in the development of the managed services market as operators are increasingly looking to outsource network management to infrastructure vendors. The primary driver for this trend is that managed services providers are able to offer economies of scale in network management that allow the vendor to manage such contracts profitably while operators can reduce the cost of network management. The outsourcing trend is also underpinned by many operators taking the view that network management is no longer either a core competence or requirement of their business and are increasingly confident that they can find greater expertise by outsourcing this activity to a trusted partner that can also improve quality and reliability in the network.

 

Nokia Siemens Networks believes that this trend will continue and that it could in future be driven by financial imperatives of its customers. While data traffic has grown at very high rates over recent years, fuelling the requirement for capital expenditure in networks, many operators have yet to see a corresponding growth in revenues from users, a dynamic that has the potential to threaten their profitability levels. As capital expenditure increases, some operators are looking to other areas to

sustain and grow profitability, and in particular many operators are looking to control their operating expenditure. In those circumstances, the outsourcing of the management of their network to infrastructure vendors such as Nokia Siemens Networks can be an attractive option.

 

In emerging markets, such as Africa and India, price pressure and competition in the end-user market has increased the financial pressure on many operators, and that in turn has resulted in a similar trend as operators have looked to control and cut costs through outsourcing network management.

 

By the end of 2009, the trend towards network management outsourcing was evident in every region of the world, and Nokia Siemens Networks has contracts in each of those regions. Nokia Siemens Networks believes that such a trend generates its own momentum in the market as vendors can increasingly demonstrate their capabilities with reference accounts and operators are exposed to their competitors taking steps that can enhance profitability and improve network quality and reliability.

 

Nokia Siemens Networks, which employs about 28 000 services professionals, continues to build its managed services capability to address the growing demand for outsourcing. It has developed a global delivery model that offers the benefits of scale and efficiencies both to Nokia Siemens Networks and its customers. The model is based on the delivery of services from three global network operations centers in Lisbon, Portugal and Chennai and Noida in India, the latter of which was opened in 2009. Increasingly, Nokia Siemens Networks is addressing opportunities in multi-vendor network management, where the customer network might be partially or even entirely comprised of network components manufactured and installed by other vendors.

 

Nokia Siemens Networks believes it has a strong competitive position in managed services and continues to invest and innovate to ensure that it can maintain and enhance that position.

 

Subscriber-centric Services

 

As operators in many markets see the growth of net new subscribers slowing or even stopping, they are increasingly focused on leveraging the value of the subscribers they have. As the acquisition of new subscribers to networks in such markets can be both difficult and expensive, customers look to limit “churn”, where end-users transfer to a rival service provider, as well as to increase the revenue derived from each user through the addition of value-added services, such as access to media and entertainment, social networking services and so on.

 

This often requires that operators invest in software and solutions that allow customers to enjoy an improved experience. One of the key foundations for this improved end-user experience is understanding an end-user’s behavior and preferences, which in turn allows the operator to tailor service offerings to the individual consumer. This not only includes services and applications, but also bespoke billing platforms and identity management solutions.

 

Nokia Siemens Networks continues to develop and enhance its offerings in this area. Nokia Siemens Networks believes it has the industry’s leading subscriber database management platform, complemented by flexible billing and charging platforms and other software and solutions that provide its customers with the tools, flexibility and agility required to respond to a rapidly changing end-user market. Nokia Siemens Networks also provides business process and consulting services that help to lead its customers through business transformation opportunities.

 

Pricing and competition

 

Over recent years, the telecommunications infrastructure market has been characterized by intense competition caused in part by the entrance into the market of low cost competitors from China, which looked to gain market share by leveraging their low cost advantage in tenders for customer contracts.

 

While there is some evidence in the market that the pricing environment is not as severe as it has been previously, the infrastructure industry, and in particular the products segment, remains highly

competitive and subject to price erosion. The pricing environment remained intense in 2009 and is expected to remain so in 2010.

 

Nokia Siemens Networks’ net sales are impacted by those pricing developments, which show some regional variation, and in particular by the balance between sales in developed and emerging markets. While price erosion was evident across most geographical markets, it was particularly intense in a number of emerging markets where many operator customers have been subject to financial pressure, both through lack of availability of financing facilities during 2009 as well as intense pricing pressure in their domestic markets.

 

Pricing pressure is evident in the traditional products markets, in particular, where competitors may have products with similar technological capabilities, leading to commoditization in some areas. Nokia Siemens Networks ability to compete in these markets is determined by its ability to remain competitive with its rivals in the area of price and it is therefore important for the company to continue to lower product costs to keep pace with price erosion. Nokia Siemens Networks achieved its targets for reducing product costs in 2009, and will need to continue to do so in order to provide its customers with high-quality products at competitive prices. There is currently less pricing sensitivity evident in the managed services market, where vendor selections are also determined by the level of trust and demonstrated capability in the field.

 

Outlook, targets and priorities for 2010

 

The general conditions that prevailed in 2009, in which the telecommunications infrastructure industry contracted as operators delayed or curtailed spending in response to economic concerns, are expected to stabilize in 2010. Nokia Siemens Networks expects the pricing and competitive environment to remain intense in 2010, and therefore estimates that the mobile and fixed infrastructure and related services market will be flat in euro terms in 2010, compared to 2009.

 

Nokia Siemens Networks’ performance in the infrastructure business is determined by its ability to satisfy the competitive and complex requirements of the market and its current and potential customers. Nokia Siemens Networks will need to continue to leverage and, in some cases, improve its scale, technology and product portfolio to maintain or improve its position in the market. We target for Nokia Siemens Networks to grow faster than the market in 2010, compared to 2009, primarily due to improved product competitiveness and continued momentum in services.

 

There are several factors that drive the profitability at Nokia Siemens Networks. First, there are the drivers of net sales discussed above. In addition, the scale, operational efficiency and cost control have been and will continue to be important factors affecting Nokia Siemens Networks’ profitability and competitiveness. Nokia Siemens Networks’ product costs are comprised of the cost of components, manufacturing, labor and overhead, royalties and license fees, the depreciation of product machinery, logistics costs as well as warranty and other quality costs. Nokia Siemens Networks’ profitability is also impacted by the pricing environment, product mix and regional mix.

 

In November 2009, Nokia Siemens Networks announced a reorganization of its business structure to align it better to customer needs. At the same time, Nokia Siemens Networks announced a plan to improve its financial performance and increase its profitability. The plan includes targeted reductions of annualized operating expenses and production overheads of EUR 500 million by the end of 2011, compared to the end of 2009, excluding special items and purchase price accounting related items. Nokia Siemens Networks also announced in November 2009 that as part of that effort, the company is conducting a global personnel review which may lead to headcount reductions in the range of about 7% to 9% percent of its approximately 64 000 employees. Nokia Siemens Networks estimated that total charges associated with these reductions will be in the range of EUR 550 million to be recorded mainly over the course of 2010. In addition to the operating expense and production overhead savings, Nokia Siemens Networks announced that it will target an annual reduction in product and service procurement costs related to cost of goods sold that is substantially larger than the targeted EUR 500 million in operating expenses and production overhead reductions. Nokia

Siemens Networks began implementing the restructuring in March 2010 by, for instance, initiating consultations with local employee representatives in affected countries, including Finland and Germany.

 

Nokia Siemens Networks plans to pursue acquisitions when assets are available and the associated purchase price of those assets provides the appropriate value. In particular, assets that enhance the scale of existing product and service business lines and that deepen relationships with key customers may be targeted.

 

Certain Other Factors

 

Exchange Rates

 

Our business and results of operations are from time to time affected by changes in exchange rates, particularly between the euro, our reporting currency, and other currencies such as the US dollar, the Japanese yen and the Chinese yuan. See Item 3A “Selected Financial Data — Exchange Rate Data.” Foreign currency denominated assets and liabilities, together with highly probable purchase and sale commitments, give rise to foreign exchange exposure.

 

The magnitude of foreign exchange exposures changes over time as a function of our presence in different markets and the prevalent currencies used for transactions in those markets. The majority of our non-euro based sales are denominated in the US dollar, but Nokia’s strong presence in emerging markets like China, India, Brazil and in Russia also gives rise to substantial foreign exchange exposure in the Chinese yuan, Indian rupee, Brazilian real and Russian ruble. The majority of our non-euro based purchases are denominated in US dollars and Japanese yen. In general, depreciation of another currency relative to the euro has an adverse effect on our sales and operating profit, while appreciation of another currency relative to the euro has a positive effect, with the exception of the Japanese yen, being the only significant foreign currency in which we have more purchases than sales.

 

In addition to foreign exchange risk of our own sales and cost, our overall risk depends on the competitive environment in our industry and the foreign exchange exposures of our competitors.

 

To mitigate the impact of changes in exchange rates on net sales as well as average product cost, we hedge material transaction exposures on a gross basis, unless hedging would be uneconomical due to market liquidity and/or hedging cost. Nokia hedges significant forecasted cash flows typically with a 6 to 12 month hedging horizon. For the majority of these hedges hedge accounting is applied to reduce profit and loss volatility. Nokia also hedges significant balance sheet exposures. Our balance sheet is also affected by the translation into euro for financial reporting purposes of the shareholders’ equity of our foreign subsidiaries that are denominated in currencies other than the euro. In general, this translation increases our shareholders’ equity when the euro depreciates, and affects shareholders’ equity adversely when the euro appreciates against the relevant other currencies (year-end rate to previous year-end rate). To mitigate the impact to shareholders’ equity, Nokia hedges selected net investment exposures from time to time.

 

During 2009, the volatility of the currency market decreased gradually after the first quarter of the year but remained elevated compared to levels during the first half of 2008. At the same time, the currency market liquidity conditions improved after the first quarter of 2009, especially compared to the second half of 2008. Overall hedging costs decreased during 2009 due to the low interest rate environment and declining currency market volatility.

 

In 2009, until the end of February the US dollar appreciated against the euro by 6.0%. After that, the US dollar depreciated by 12.0% and at the end of 2009 was 6.6% weaker than at the end of 2008.

 

The weaker US dollar towards the end of 2009 had a negative impact on our net sales expressed in euro as approximately 45% of our net sales are generated in US dollars and currencies closely following the US dollar. However, the depreciation of the US dollar also contributed to a lower

average product cost as approximately 55% of the components we use are sourced in the US dollar. During 2009, we increased the percentage of our direct material purchases in USD, as this helps to balance our net USD position. In total, the movements of the US dollar against the euro had a slightly negative impact on our operating profit in 2009.

 

In 2009, until the end of January the Japanese yen appreciated by 4.9% against the euro. After that, the Japanese yen depreciated and ended 5.5% weaker at the end of 2009 than at the end of 2008.

 

During 2009, approximately 22% of the devices components we used were sourced in the Japanese yen and, consequently, the depreciation of the Japanese yen had a positive impact on our operating profit in 2009. We have taken action in 2009 to reduce our devices sourcing costs in the Japanese yen, including price negotiations with our suppliers and shifting the sourcing of certain components to non-Japanese suppliers. At the end of 2009, we had decreased the amount of device components we source in Japanese yen to approximately 18% of our total costs of sales.

 

During 2009, the volatility of emerging market currencies was high during the first quarter of the year but leveled off during the following three quarters. In 2009, the Brazilian real appreciated 26.5% against the euro. The Chinese yuan, Russian ruble and India rupee depreciated 6.7%, 3.8% and 2.7%, respectively, against the euro.

 

In general, the depreciation of an emerging market currency has a negative impact on our operating profit due to reduced revenue in euro terms and/or the reduced purchasing power of customers in the emerging market. The appreciation of an emerging market currency generally has a positive impact on our operating profit.

 

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

 

For a discussion on the instruments used by Nokia in connection with our hedging activities, see Note 33 to our consolidated financial statements included in Item 18 of this annual report. See also Item 11. “Quantitative and Qualitative Disclosures About Market Risk” and Item 3D. “Risk Factors.”

 

Seasonality

 

Our Devices & Services sales are somewhat affected by seasonality. Historically, the first quarter of the year has been the lowest quarter of the year and the fourth quarter has been the strongest quarter, mainly due to the effect of holiday sales. However, over time we have seen a trend towards less pronounced seasonality. The difference between the sequential holiday seasonal increase in the Western hemisphere in fourth quarter and subsequent decrease in first quarter sequential volumes has moderated. The moderation in seasonality has been caused by shifts in the regional make-up of the overall market. Specifically, there has been a larger mix of industry volumes coming from markets where the fourth quarter holiday seasonality is much less prevalent.

 

NAVTEQ’s sales to the automotive industry are not significantly impacted by seasonality. However, NAVTEQ’s sales to navigation device and mobile handset manufacturers typically see strong fourth quarter seasonality due to holiday sales. As the relative share of licensing of NAVTEQ’s digital map data and related location-based content and services for use in mobile devices compared to in-vehicle navigation systems has increased during the last few years, NAVTEQ’s sales have been increasingly affected by the same seasonality as mobile device sales.

 

Nokia Siemens Networks also experiences seasonality. Its sales are generally higher in the last quarter of the year compared with the first quarter of the following year due to network operators’ planning, budgeting and spending cycles.

 

Accounting Developments

 

The International Accounting Standards Board, or IASB, has and will continue to critically examine current IFRS, with a view towards increasing international harmonization of accounting rules. This

process of amendment and convergence of worldwide accounting rules continued in 2009 resulting in amendments to existing rules effective from January 1, 2010 and additional amendments effective the following year. These are discussed in more detail under “New accounting pronouncements under IFRS” in Note 1 to our consolidated financial statements included in Item 18 of this annual report. There were no IFRS accounting developments adopted in 2009 that had a material impact on our results of operations or financial position.

 

Critical Accounting Policies

 

Our accounting policies affecting our financial condition and results of operations are more fully described in Note 1 to our consolidated financial statements included in Item 18 of this annual report. Certain of our accounting policies require the application of judgment by management in selecting appropriate assumptions for calculating financial estimates, which inherently contain some degree of uncertainty. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the reported carrying values of assets and liabilities and the reported amounts of revenues and expenses that may not be readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The estimates affect all our segments equally unless otherwise indicated.

 

We believe the following are the critical accounting policies and related judgments and estimates used in the preparation of our consolidated financial statements. We have discussed the application of these critical accounting estimates with our Board of Directors and Audit Committee.

 

Revenue Recognition

 

Sales from the majority of the Group are recognized when the significant risks and rewards of ownership have transferred to the buyer, continuing managerial involvement usually associated with ownership and effective control have ceased, the amount of revenue can be measured reliably, it is probable that economic benefits associated with the transaction will flow to the Group, and the costs incurred or to be incurred in respect of the transaction can be measured reliably. The remainder of revenue is recorded under the percentage of completion method.

 

Devices & Services and certain NAVTEQ and Nokia Siemens Networks revenues are generally recognized when the significant risks and rewards of ownership have transferred to the buyer, continuing managerial involvement usually associated with ownership and effective control have ceased, the amount of revenue can be measured reliably, it is probable that economic benefits associated with the transaction will flow to the Group and the costs incurred or to be incurred in respect of the transaction can be measured reliably. This requires us to assess at the point of delivery whether these criteria have been met. When management determines that such criteria have been met, revenue is recognized. We record estimated reductions to revenue for special pricing agreements, price protection and other volume based discounts at the time of sale, mainly in the mobile device business. Sales adjustments for volume based discount programs are estimated based largely on historical activity under similar programs. Price protection adjustments are based on estimates of future price reductions and certain agreed customer inventories at the date of the price adjustment. Devices & Services and certain Nokia Siemens Networks service revenue is generally recognized on a straight line basis over the service period unless there is evidence that some other method better represents the stage of completion. Devices & Services and NAVTEQ license fees from usage are recognized in the period when they are reliably measurable which is normally when the customer reports them to the Group.

 

Devices & Services, NAVTEQ and Nokia Siemens Networks may enter into multiple component transactions consisting of any combination of hardware, services and software. The commercial effect of each separately identifiable element of the transaction is evaluated in order to reflect the substance of the transaction. The consideration from these transactions is allocated to each separately identifiable component based on the relative fair value of each component. The consideration allocated to each

component is recognized as revenue when the revenue recognition criteria for that element have been met. The Group determines the fair value of each component by taking into consideration factors such as the price when the component is sold separately by the Group, the price when a similar component is sold separately by the Group or a third party and cost plus a reasonable margin.

 

Nokia Siemens Networks revenue and cost of sales from contracts involving solutions achieved through modification of complex telecommunications equipment is recognized on the percentage of completion basis when the outcome of the contract can be estimated reliably. This occurs when total contract revenue and the cost to complete the contract can be estimated reliably, it is probable that economic benefits associated with the contract will flow to the Group, and the stage of contract completion can be measured. When we are not able to meet those conditions, the policy is to recognize revenues only equal to costs incurred to date, to the extent that such costs are expected to be recovered. Completion is measured by reference to costs incurred to date as a percentage of estimated total project costs using the cost-to-cost method.

 

The percentage of completion method relies on estimates of total expected contract revenue and costs, as well as the dependable measurement of the progress made towards completing the particular project. Recognized revenues and profit are subject to revisions during the project in the event that the assumptions regarding the overall project outcome are revised. The cumulative impact of a revision in estimates is recorded in the period such revisions become likely and estimable. Losses on projects in progress are recognized in the period they become likely and estimable.

 

Nokia Siemens Networks’ current sales and profit estimates for projects may change due to the early stage of a long-term project, new technology, changes in the project scope, changes in costs, changes in timing, changes in customers’ plans, realization of penalties, and other corresponding factors.

 

Customer Financing

 

We have provided a limited number of customer financing arrangements and agreed extended payment terms with selected customers. In establishing credit arrangements, management must assess the creditworthiness of the customer and the timing of cash flows expected to be received under the arrangement. However, should the actual financial position of our customers or general economic conditions differ from our assumptions, we may be required to re-assess the ultimate collectability of such financings and trade credits, which could result in a write-off of these balances in future periods and thus negatively impact our profits in future periods. Our assessment of the net recoverable value considers the collateral and security arrangements of the receivable as well as the likelihood and timing of estimated collections. The Group endeavors to mitigate this risk through the transfer of its rights to the cash collected from these arrangements to third-party financial institutions on a non-recourse basis in exchange for an upfront cash payment. During the past three fiscal years the Group has not had any write-offs or impairments regarding customer financing. The financial impact of the customer financing related assumptions mainly affects the Nokia Siemens Networks segment. See also Note 33(b) to our consolidated financial statements included in Item 18 of this annual report for a further discussion of long-term loans to customers and other parties.

 

Allowances for Doubtful Accounts

 

We maintain allowances for doubtful accounts for estimated losses resulting from the subsequent inability of our customers to make required payments. If the financial conditions of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required in future periods. Management specifically analyzes accounts receivables and historical bad debt, customer concentrations, customer creditworthiness, current economic trends and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. Based on these estimates and assumptions the allowance for doubtful accounts was EUR 391 million in 2009 (EUR 415 million in 2008).

Inventory-related Allowances

 

We periodically review our inventory for excess, obsolescence and declines in market value below cost and record an allowance against the inventory balance for any such declines. These reviews require management to estimate future demand for our products. Possible changes in these estimates could result in revisions to the valuation of inventory in future periods. Based on these estimates and assumptions the allowance for excess and obsolete inventory was EUR 361 million in 2009 (EUR 348 million in 2008). The financial impact of the assumptions regarding this allowance affects mainly the cost of sales of the Devices & Services and Nokia Siemens Networks segments.

 

Warranty Provisions

 

We provide for the estimated cost of product warranties at the time revenue is recognized. Our products are covered by product warranty plans of varying periods, depending on local practices and regulations. While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, our warranty obligations are affected by actual product failure rates (field failure rates) and by material usage and service delivery costs incurred in correcting a product failure. Our warranty provision is established based upon our best estimates of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. As we continuously introduce new products which incorporate complex technology, and as local laws, regulations and practices may change, it will be increasingly difficult to anticipate our failure rates, the length of warranty periods and repair costs. While we believe that our warranty provisions are adequate and that the judgments applied are appropriate, the ultimate cost of product warranty could differ materially from our estimates. When the actual cost of quality of our products is lower than we originally anticipated, we release an appropriate proportion of the provision, and if the cost of quality is higher than anticipated, we increase the provision. Based on these estimates and assumptions the warranty provision decreased to EUR 971 million primarily due to lower sales volumes in Devices & Services in 2009 (EUR 1 375 million in 2008). The financial impact of the assumptions regarding this provision mainly affects the cost of sales of Devices & Services segment.

 

Provision for Intellectual Property Rights, or IPR, Infringements

 

We provide for the estimated future settlements related to asserted and unasserted past alleged IPR infringements based on the probable outcome of each potential infringement.

 

Our products and solutions include increasingly complex technologies involving numerous patented and other proprietary technologies. Although we proactively try to ensure that we are aware of any patents and other intellectual property rights related to our products and solutions under development and thereby avoid inadvertent infringement of proprietary technologies, the nature of our business is such that patent and other intellectual property right infringements may and do occur. Through contact with parties claiming infringement of their patented or otherwise exclusive technology, or through our own monitoring of developments in patent and other intellectual property right cases involving our competitors, we identify potential IPR infringements.

 

We estimate the outcome of all potential IPR infringements made known to us through assertion by third parties, or through our own monitoring of patent- and other IPR-related cases in the relevant legal systems. To the extent that we determine that an identified potential infringement will result in a probable outflow of resources, we record a liability based on our best estimate of the expenditure required to settle infringement proceedings. Based on these estimates and assumptions the provision for IPR infringements was EUR 390 million in 2009 (EUR 343 million in 2008). The financial impact of the assumptions regarding this provision mainly affects Devices & Services segment.

 

Our experience with claims of IPR infringement is that there is typically a discussion period with the accusing party, which can last from several months to years. In cases where a settlement is not reached, the discovery and ensuing legal process typically lasts a minimum of one year. For this

reason, IPR infringement claims can last for varying periods of time, resulting in irregular movements in the IPR infringement provision. In addition, the ultimate outcome or actual cost of settling an individual infringement may materially vary from our estimates.

 

Legal Contingencies

 

As discussed in Item 8A7. “Litigation” and in Note 28 to the consolidated financial statements included in Item 18 of this annual report, legal proceedings covering a wide range of matters are pending or threatened in various jurisdictions against the Group. We record provisions for pending litigation when we determine that an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertain nature of litigation, the ultimate outcome or actual cost of settlement may materially vary from estimates.

 

Capitalized Development Costs

 

We capitalize certain development costs primarily in the Nokia Siemens Networks segment when it is probable that a development project will be a success and certain criteria, including commercial and technical feasibility, have been met. These costs are then amortized on a systematic basis over their expected useful lives, which due to the constant development of new technologies is between two to five years. During the development stage, management must estimate the commercial and technical feasibility of these projects as well as their expected useful lives. Should a product fail to substantiate its estimated feasibility or life cycle, we may be required to write off excess development costs in future periods.

 

Whenever there is an indicator that development costs capitalized for a specific project may be impaired, the recoverable amount of the asset is estimated. An asset is impaired when the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is defined as the higher of an asset’s net selling price and value in use. Value in use is the present value of discounted estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. For projects still in development, these estimates include the future cash outflows that are expected to occur before the asset is ready for use. See Note 7 to our consolidated financial statements included in Item 18 of this annual report.

 

Impairment reviews are based upon our projections of anticipated discounted future cash flows. The most significant variables in determining cash flows are discount rates, terminal values, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. Management determines discount rates to be used based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are based on the expected life of products and forecasted life cycle and forecasted cash flows over that period. While we believe that our assumptions are appropriate, such amounts estimated could differ materially from what will actually occur in the future.

 

Business Combinations

 

We apply the purchase method of accounting to account for acquisitions of businesses. The cost of an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, equity instruments issued, and costs directly attributable to the acquisition. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date. The excess of the cost of the acquisition over our interest in the fair value of the identifiable net assets acquired is recorded as goodwill.

 

The determination and allocation of fair values to the identifiable assets acquired and liabilities assumed is based on various assumptions and valuation methodologies requiring considerable management judgment. The most significant variables in these valuations are discount rates, terminal values, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. Management determines discount

rates to be used based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are based on the expected life of products and forecasted life cycle and forecasted cash flows over that period. Although we believe that the assumptions applied in the determination are reasonable based on information available at the date of acquisition, actual results may differ from the forecasted amounts and the difference could be material.

 

Valuation of Long-lived and Intangible Assets and Goodwill

 

We assess the carrying amount of identifiable intangible assets, long-lived assets if events or changes in circumstances indicate that such carrying amount may not be recoverable. We assess the carrying amount of our goodwill at least annually, or more frequently based on these same indicators. Factors we consider important, which could trigger an impairment review, include the following:

 

 

When we determine that the carrying amount of intangible assets, long-lived assets or goodwill may not be recoverable based upon the existence of one or more of the above indicators of impairment, we measure any impairment based on discounted projected cash flows.

 

This review is based upon our projections of anticipated discounted future cash flows. The most significant variables in determining cash flows are discount rates, terminal values, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. Management determines discount rates to be used based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are based on the expected life of products and forecasted life cycle and forecasted cash flows over that period. While we believe that our assumptions are appropriate, such amounts estimated could differ materially from what will actually occur in the future. In assessing goodwill, these discounted cash flows are prepared at a cash generating unit level. Amounts estimated could differ materially from what will actually occur in the future.

 

Goodwill is allocated to the Group’s cash-generating units (CGU) and discounted cash flows are prepared at CGU level for the purpose of impairment testing. The allocation of goodwill to our CGUs is made in a manner that is consistent with the level at which management monitors operations and the CGUs expected to benefit from the synergies arising from each of our acquisitions. Accordingly, (i) goodwill arising from the acquisitions completed by the Devices & Services segment has been allocated to the Devices & Services CGU, (ii) goodwill arising from the acquisition of and acquisitions completed by NAVTEQ has been allocated to the NAVTEQ CGU and (iii) goodwill arising from the formation of and acquisitions completed by Nokia Siemens Networks has been allocated to the Nokia Siemens Networks CGU.

 

The recoverable amounts for the Devices & Services CGU and NAVTEQ CGU are determined based on a value in use calculation. The cash flow projections employed in the value in use calculation are based on financial plans approved by management. These projections are consistent with external sources of information, whenever available. Cash flows beyond the explicit forecast period are extrapolated using an estimated terminal growth rate that does not exceed the long-term average growth rates for the industry and economies in which the CGU operates.

 

In prior years we used a value in use calculation to determine the recoverable amount of the Nokia Siemens Networks CGU. In 2009 the value in use calculation resulted in a recoverable amount that was lower than the carrying amount for the Nokia Siemens Networks CGU. As a result, we performed an analysis to determine the fair value less costs to sell of the Nokia Siemens Networks CGU. The fair value less costs to sell of the Nokia Siemens Networks CGU exceeded its value in use. IFRS requires that recoverable amount is based on the higher of the value in use and fair value less costs to sell

and accordingly the current year goodwill assessment is based on a discounted cash flow calculation to estimate the fair value less costs to sell. The cash flow projections employed in the discounted cash flow calculation have been determined by management based on the best information available to reflect the amount that an entity could obtain from the disposal of the Nokia Siemens Networks CGU in an arm’s length transaction between knowledgeable, willing parties, after deducting the estimated costs of disposal.

 

The discount rates applied in the value in use calculation for each CGU have been determined independently of capital structure reflecting current assessments of the time value of money and relevant market risk premiums. Risk premiums included in the determination of the discount rate reflect risks and uncertainties for which the future cash flow estimates have not been adjusted. Overall, the discount rates applied in the 2009 impairment testing have decreased in line with declining interest rates and narrowing credit spreads.

 

In case there are reasonably possible changes in estimates or underlying assumptions applied in our goodwill impairment testing, such as growth rates and discount rates, which could have a material impact on the carrying amount of the goodwill or result in an impairment loss, those are disclosed below in connection with the relevant CGU.

 

The Group recorded an impairment loss of EUR 908 million in the third quarter of 2009 to reduce the carrying amount of the Nokia Siemens Networks CGU to its recoverable amount. The impairment loss was allocated in its entirety to the carrying amount of goodwill arising from the formation of Nokia Siemens Networks and from subsequent acquisitions completed by Nokia Siemens Networks. The impairment loss is presented as impairment of goodwill in the consolidated income statement. As a result of the impairment loss, the amount of goodwill allocated to the Nokia Siemens Networks CGU has been reduced to zero.

 

The recoverability of the Nokia Siemens Networks CGU has declined as a result of a decline in forecasted profits and cash flows. The Group evaluated the historical and projected financial performance of the Nokia Siemens Networks CGU taking into consideration the challenging competitive factors and market conditions in the infrastructure and related service business. As a result of this evaluation, the Group lowered its net sales and gross margin projections for the Nokia Siemens Networks CGU. The reduction in the projected scale of the business had a negative impact on the projected profits and cash flows of the Nokia Siemens Networks CGU.

 

We have performed our annual goodwill impairment testing during the fourth quarter of 2009 on the opening fourth quarter balances. During 2009, the conditions in the world economy have shown signs of improvement as countries have begun to emerge from the global economic downturn. However, significant uncertainty exists regarding the speed, timing and resiliency of the global economic recovery and this uncertainty is reflected in the impairment testing for each of the Group’s CGUs.

 

Goodwill amounting to EUR 1 227 million has been allocated to the Devices & Services CGU for the purpose of impairment testing. The impairment testing has been carried out based on management’s expectation of stable market share and normalized profit margins in the medium to long-term. The goodwill impairment testing conducted for the Devices & Services CGU for the year ended December 31, 2009 did not result in any impairment charges.

 

Goodwill amounting to EUR 3 944 million has been allocated to the NAVTEQ CGU. The impairment testing has been carried out based on management’s expectations and assessment of the financial performance and future strategies of the NAVTEQ CGU in light of current and expected market and economic conditions. The goodwill impairment testing conducted for the NAVTEQ CGU for the year ended December 31, 2009 did not result in any impairment charges. The recoverable amount of the NAVTEQ CGU is between 5 to 10% higher than its carrying amount. The Group expects that a reasonably possible change of 1% in the valuation assumptions for long-term growth rate or discount rate would give rise to an impairment loss.

The key assumptions applied in the impairment testing for each CGU in the annual goodwill impairment testing for each year indicated are presented in the table below:

 

 

 

 

The annual goodwill impairment testing conducted for each of the Group’s CGUs for the years ended December 31, 2008 and 2007 have not resulted in any impairment charges. The goodwill impairment testing for the year ended December 31, 2009 resulted in the aforementioned impairment charge for the Nokia Siemens Networks CGU.

 

The Group has applied consistent valuation methodologies for each of the Group’s CGUs for the years ended December 31, 2009, 2008 and 2007. We periodically update the assumptions applied in our impairment testing to reflect management’s best estimates of future cash flows and the conditions that are expected to prevail during the forecast period.

 

See also Note 7 to our consolidated financial statements included in Item 18 of this annual report for further information regarding “Valuation of long-lived and intangible assets and goodwill.”

 

Fair Value of Derivatives and Other Financial Instruments

 

The fair value of financial instruments that are not traded in an active market (for example, unlisted equities, currency options and embedded derivatives) are determined using valuation techniques. We use judgment to select an appropriate valuation methodology and underlying assumptions based principally on existing market conditions. If quoted market prices are not available for unlisted shares, fair value is estimated by using various factors, including, but not limited to: (1) the current market value of similar instruments, (2) prices established from a recent arm’s length financing transaction of the target companies, (3) analysis of market prospects and operating performance of the target companies taking into consideration of public market comparable companies in similar industry sectors. Changes in these assumptions may cause the Group to recognize impairments or losses in the future periods. The financial impact of these assumptions mainly affects Devices & Services segment.

 

Income Taxes

 

The Group is subject to income taxes both in Finland and in numerous other jurisdictions. Significant judgment is required in determining income tax expense, tax provisions, deferred tax assets and liabilities recognized in the consolidated financial statements. We recognize deferred tax assets to the extent that it is probable that sufficient taxable income will be available in the future against which the temporary differences and unused tax losses can be utilized. We have considered future taxable income and tax planning strategies in making this assessment. If circumstances indicate it is no longer probable that deferred tax assets will be utilized they are assessed for realizability and adjusted as necessary. At December 31, 2009, the Group had loss carry forwards and temporary differences of EUR 2 532 million (EUR 102 million in 2008) for which no deferred tax assets were

recognized in the consolidated financial statements due to loss history and current year loss in certain jurisdictions.

 

We recognize tax provisions based on estimates and assumptions when, despite our belief that tax return positions are supportable, it is more likely than not that certain positions will be challenged and may not be fully sustained upon review by tax authorities. In 2009, Nokia benefited EUR 203 million from the positive net effect from the development and outcome of various prior year taxes and changes in tax contingencies impacting Nokia taxes.

 

If the final outcome of these matters differs from the amounts initially recorded, differences may positively or negatively impact the income tax and deferred tax provisions in the period in which such determination is made.

 

Pensions

 

The determination of our pension benefit obligation and expense for defined benefit pension plans is dependent on our selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions are described in Note 5 to our consolidated financial statements included in Item 18 of this annual report and include, among others, the discount rate, expected long-term rate of return on plan assets and annual rate of increase in future compensation levels. A portion of our plan assets is invested in equity securities. The equity markets have experienced volatility, which has affected the value of our pension plan assets. This volatility may make it difficult to estimate the long-term rate of return on plan assets. Actual results that differ from our assumptions are accumulated and amortized over future periods and therefore generally affect our recognized expense and recorded obligation in such future periods. Our assumptions are based on actual historical experience and external data regarding compensation and discount rate trends. While we believe that our assumptions are appropriate, significant differences in our actual experience or significant changes in our assumptions may materially affect our pension obligation and our future expense. The financial impact of the pension assumptions affects mainly the Devices & Services and Nokia Siemens Networks segments.

 

Share-based Compensation

 

We have various types of equity settled share-based compensation schemes for employees. Employee services received, and the corresponding increase in equity, are measured by reference to the fair value of the equity instruments as at the date of grant, excluding the impact of any non-market vesting conditions. Fair value of stock options is estimated by using the Black-Scholes model on the date of grant based on certain assumptions. Those assumptions are described in Note 23 to our consolidated financial statements included in Item 18 of this annual report and include, among others, the dividend yield, expected volatility and expected life of stock options. The expected life of stock options is estimated by observing general option holder behavior and actual historical terms of Nokia stock option programs, whereas the assumption of the expected volatility has been set by reference to the implied volatility of stock options available on Nokia shares in the open market and in light of historical patterns of volatility. These variables make estimation of fair value of stock options difficult.

 

Non-market vesting conditions attached to the performance shares are included in assumptions about the number of shares that the employee will ultimately receive relating to projections of sales and earnings per share. On a regular basis, we review the assumptions made and revise the estimates of the number of performance shares that are expected to be settled, where necessary. At the date of grant, the number of performance shares granted that are expected to be settled is assumed to be two times the amount at threshold. Any subsequent revisions to the estimates of the number of performance shares expected to be settled may increase or decrease total compensation expense. Such increase or decrease adjusts the prior period compensation expense in the period of the review on a cumulative basis for unvested performance shares for which compensation expense has already been recognized in the profit and loss account, and in subsequent periods for unvested performance

shares for which the expense has not yet been recognized in the profit and loss account. Significant differences in employee option activity, equity market performance, and our projected and actual net sales and earnings per share performance may materially affect future expense. In addition, the value, if any, an employee ultimately receives from share-based payment awards may not correspond to the expense amounts recorded by the Group.

 

Results of Operations

 

2009 compared with 2008

 

Nokia completed the acquisition of NAVTEQ Corporation on July 10, 2008. NAVTEQ is a separate reportable segment of Nokia starting from the third quarter 2008. The results of NAVTEQ are not available for the prior periods. Accordingly, the results of Nokia Group and NAVTEQ for the full year 2009 are not directly comparable to the results for the full year 2008.

 

Nokia Group

 

The following table sets forth selective line items and the percentage of net sales that they represent for the fiscal years 2009 and 2008.

 

 

For 2009, our net sales decreased 19.2% to EUR 40 984 million compared with EUR 50 710 million in 2008. The decrease in net sales was primarily driven by the deteriorated global economic conditions during 2009, including weaker consumer and corporate spending, constrained credit availability and currency market volatility. The following table sets forth the distribution by geographical area of our net sales for the fiscal years 2009 and 2008.

 

The 10 markets in which we generated the greatest net sales in 2009 were, in descending order of magnitude, China, India, the United Kingdom, Germany, the United States, Russia, Indonesia, Spain, Brazil and Italy, together representing approximately 52% of our total net sales in 2009. In comparison, the 10 markets in which we generated the greatest net sales in 2008 were China, India, the UK, Germany, Russia, Indonesia, the US, Brazil, Italy and Spain, together representing approximately 50% of our total net sales in 2008.

 

Our gross margin in 2009 was 32.4% compared with 34.3% in 2008. The lower gross margin in 2009 resulted primarily from the decrease in net sales compared to 2008.

 

Research and development, or R&D, expenses were EUR 5 909 million, down 1% from EUR 5 968 million in 2008. R&D expenses represented 14.4% of our net sales in 2009, up from 11.8% in 2008. The increase in R&D as a percentage of net sales reflected a decrease in net sales in Devices & Services and Nokia Siemens Networks which was partially offset by a decrease in R&D expenses in Devices & Services and Nokia Siemens Networks. In 2009, R&D expenses included restructuring charges of EUR 30 million and purchase price accounting related items of EUR 534 million. In 2008, R&D expenses included EUR 153 million representing the contribution of the assets to the Symbian Foundation, restructuring charges of EUR 46 million and purchase price accounting related items of EUR 351 million.

 

In 2009, selling and marketing expenses were EUR 3 933 million compared with EUR 4 380 million in 2008. Selling and marketing expenses represented 9.6% of our net sales in 2009, up from 8.6% in 2008. The increase in selling and marketing expenses as a percentage of net sales reflected a decrease in net sales in Devices & Services and Nokia Siemens Networks which was partially offset by a decrease in sales and marketing expenses in Devices & Services. In 2009, selling and marketing expenses included restructuring charges of EUR 12 million and EUR 401 million of purchase price accounting related items. In 2008, selling and marketing expenses included a EUR 14 million reversal of restructuring charges and EUR 343 million of purchase price accounting related items.

 

Administrative and general expenses were EUR 1 145 million in 2009 and EUR 1 284 million in 2008. Administrative and general expenses were 2.8% of net sales in 2009 compared to 2.5% in 2008. Administrative and general expenses in 2009 included restructuring charges of EUR 103 million. Administrative and general expenses for 2008 also included restructuring charges of EUR 163 million.

 

In 2009, other income and expenses included restructuring charges of EUR 192 million, purchase price accounting related items of EUR 5 million, impairment of goodwill related to Nokia Siemens Networks of EUR 908 million, impairment of assets of EUR 56 million, a gain on sale of the security appliance business of EUR 68 million and a gain on sale of real estate of EUR 22 million in 2009. In 2008, other operating income and expenses included restructuring charges of EUR 446 million and EUR 152 million loss due to transfer of the Finnish pension liabilities to pension insurance companies.

 

Our operating profit for 2009 decreased 76% to EUR 1 197 million compared with EUR 4 966 million in 2008. The decreased operating profit resulted from decreased profitability of all reportable segments. Our operating margin was 2.9% in 2009 compared with 9.8% in 2008.

Results by Segments

 

Devices & Services

 

The following table sets forth our estimates for industry mobile device volumes and year-on-year growth rate by geographic area for the fiscal years 2009 and 2008. These estimates and the following discussion are based on our definition of the industry mobile device market used in 2009 and 2008.

 

 

 

 

According to our estimates, in 2009 industry mobile device volumes, based on the 2009 definition, decreased by 6% to 1.14 billion units, compared with an estimated 1.21 billion units in 2008. The global device market was negatively impacted in 2009 by the difficult global economic conditions, including weaker consumer and corporate spending, constrained credit availability and currency market volatility. The demand environment for mobile devices improved during the latter part of the year as the global economy started to show initial signs of recovery.

 

We estimate that emerging markets accounted for approximately 63% of industry mobile device volumes in 2009, based on the 2009 definition, unchanged from 2008. The devaluation of emerging market currencies impacted the purchasing power of consumers in emerging markets, where Nokia’s market share is strong. The entry-level device market (devices priced at 50 euro or under) continued to be one of the fastest growing segments for the market. This was particularly the case in 2009 where we estimate this part of the market represented approximately 48% of total industry volumes compared to 44% in 2008. We estimate the converged mobile device market was approximately 176 million units globally in 2009, growing from approximately 161 million units in 2008, despite of the decline in total industry mobile device volumes based on the 2009 definition.

 

At the end of 2009, we estimate that there were approximately 4.6 billion mobile subscriptions globally, representing approximately 67% global penetration. This is compared to approximately 3.9 billion mobile subscribers at the end of 2008 and approximately 58% global penetration.

The following table sets forth our mobile device volumes and year-on-year growth rate by geographic area for the fiscal years 2009 and 2008. The estimates of Nokia’s volume market share in the following discussion are based on our definition of the industry mobile device market used in 2009 and 2008.