Capital Markets Day 2007 Rick Simonson Chief Financial Officer 1 2007 Nokia Capital Markets Day 2007
Revenue growth and strong margins 2 2007 Nokia Capital Markets Day 2007
EPS growth outpacing sales and volume growth 50% 40% Q1-Q3 2006 Q1-Q3 2007 44% 30% 20% 25% 29% 10% 10% 0% Mobile device net sales Mobile device units Diluted EPS* * Excludes special items and purchase price accounting related items 3 2007 Nokia Capital Markets Day 2007
Making money in all device segments In Nokia s case, don t equate low-end with poor profitability Product Mix (Unit Volumes) EUR 0-30 EUR 31-75 EUR 76+ Total Device Operating Margins* 30% 20% 10% 0% EUR 93 ASP 36% 22% 42% 15 % Q3'06 * Excludes special items EUR 82 ASP 39% 21% 23 % Q3'07 41% 4 2007 Nokia Capital Markets Day 2007
Margin improvement 40% 30% Device Gross Margin % Nokia Gross Margin % Device Operating Margin % 20% 10% Q3'06 Q4'06 Q1'07 Q2'07 Q3'07 Excludes special items and purchase price accounting related items Nokia Operating Margin % 5 2007 Nokia Capital Markets Day 2007
Active portfolio management Actual product refresh example EUR 40 Product Revenue The final quarters of Product A s life 37% spread* Direct Product Cost 16% spread* 10 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 * Not equivalent to gross margins 6 2007 Nokia Capital Markets Day 2007
Active portfolio management Actual product refresh example EUR 40 Product Revenue 42% spread* The final quarters of Product A s life overlaps with the launch of Product B Direct Product Cost 36% spread* 10 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 * Not equivalent to gross margins 7 2007 Nokia Capital Markets Day 2007
Mobile Phones gross margins Gross Margin 35% Nokia Nokia 6500 6500 Slide Classic 30% Nokia 1100 Nokia 1600 Nokia 5200/5300 XpressMusic Nokia 6300 Nokia 8600 Luna Nokia 7900 Nokia 2630 Barracuda Nokia 5310 25% Nokia 7373 Nokia 1200 Q3'06 Q4'06 Q1'07 Q2'07 Q3'07 4Q'07 Nokia 1208 8 2007 Nokia Capital Markets Day 2007
Multimedia gross margins Gross Margin 45% Nokia N95 8GB 40% Nokia N70/N73 Music Editions; Nokia N91 8GB Nokia N95 Nokia N81 35% Nokia N810 Q3'06 Q4'06 Q1'07 Q2'07 Q3'07 4Q'07 9 2007 Nokia Capital Markets Day 2007
Enterprise Solutions gross margins Gross Margin 50% Nokia E51 45% Nokia E65 Nokia E90 Communicator 40% Q3'06 Q4'06 Q1'07 Q2'07 Q3'07 4Q'07 10 2007 Nokia Capital Markets Day 2007
Sustainable core virtues Scale: 39% market share in Q3 07 vs. #2 at 15% Brand: #5 worldwide and #1 in Asia Quality: Low failure rates and warranty costs Manufacturing and logistics: Leading the Fortune Global 500 Distribution: Substantial lead in China, India, and MEA IPR: #1 share of WCDMA essential patents Sources: Nokia estimates; Interbrand; AMR Research; Fairfield Resources International 11 2007 Nokia Capital Markets Day 2007
Core virtue Scale 40% Estimated Handset Market Share Percent of Top 5 Profits 39% 67% 70% 30% 50% 20% 30% 10% 10% 0% Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Q1'07 Q2 07 Q3 07-10% Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Nokia Motorola Samsung LG Sony Ericsson Our scale + geographic diversity + broad product portfolio Source: company reports = Tough for others to win by just focusing on a particular geography or product segment 12 2007 Nokia Capital Markets Day 2007
Core virtue Brand Strength of preference will only buy this brand 30 % 25 % 25 % 20 % 15 % 10 % 5 % 0 % Q3'06 Q4'06 Q1'07 Q2'07 Q3'07 Source: Nokia Brand Study, Q3 2007 Nokia Motorola Sony Ericsson Samsung LG 13 2007 Nokia Capital Markets Day 2007
Core virtue Supply Chain #1 out of Fortune Global 500 1 2 3 4 5 Source: AMR Research, 2007 14 2007 Nokia Capital Markets Day 2007
Core virtue Distribution India Nokia in ~100% of total ~100K points of sale China Middle East & Africa Nokia in ~100% of total ~120K points of sale Nokia in ~80% of total ~80K points of sale Source: Nokia estimates 15 2007 Nokia Capital Markets Day 2007
Core virtue IPR 35 Cumulative R&D* (EUR billions) WCDMA essential patents** 30 Nokia 25 20 Nokia 30% 15 10 5 0 1991 1992 1993 16 2007 Nokia Capital Markets Day 2007 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 11% Qualcomm *Source: company reports **Source: Fairfield Resources International, 2007
Market share gain in 2008? Combination of #1 - #3 could yield 1%+ share gain* #1: Mathematical benefit Nokia s > 50% entry-level share in Q3 07* Assumption: Entry level devices grow approximately 2x faster than the overall market in 2008 #2: Mathematical benefit Nokia s ~50% converged devices share in Q3 07* Assumption: Converged devices grow approximately 3x faster than the overall market in 2008 #3: Mathematical benefit Nokia s ~50% GSM, ~35% WCDMA, & ~5% CDMA share in Q3 07* Assumption: GSM/WCDMA grows significantly faster than CDMA in 2008 * Nokia estimates 17 2007 Nokia Capital Markets Day 2007
Internet services 18 2007 Nokia Capital Markets Day 2007
Reinvesting in the business for growth Media Sharing Email and Device Management Digital Music Platform Location Based Services Mobile Advertising Mobile Gaming * Navigation and Mapping * NAVTEQ acquisition pending 19 2007 Nokia Capital Markets Day 2007
Internet Services 2010 Market Opportunity EUR 100 billion* for core markets that Nokia focuses on Navigation Messaging Gaming Music Communities Digital Imaging Video & TV * Nokia and external analysts estimates 20 2007 Nokia Capital Markets Day 2007
Services and software revenue model fee based now ad driven later Target opportunity: # of expected customers: Ad revenues All people Hundreds of millions Recurring subscription and transactional revenues Primarily higherincome people Tens of millions 21 2007 Nokia Capital Markets Day 2007
> 4 billion people expected to use mobile devices in 2010* Internet capabilities pervasive* Java devices: ~60% Web browser (XHTML or HTML): ~60% High speed connection (3G+): ~30% Convergence trends continue* Camera: ~60% Music player: ~50% Email: ~50% Navigation/GPS: ~20% Smartphones: ~20% *Nokia estimates 22 2007 Nokia Capital Markets Day 2007
Financial targets 23 2007 Nokia Capital Markets Day 2007
Nokia financial targets 2006 CMD TARGET* Operating Margin 15% Devices (MP & M) 17% Nokia Siemens Networks 10%+ 2007 CMD TARGET* Operating Margin** 16-17% Devices & Services** 20% +/- Nokia Siemens Networks** Increasing to 10% Q1-Q3 07 ACTUAL 14% 19% 1%*** * Next 1 to 2 years; does not include pending acquisition of NAVTEQ ** Excludes special items and purchase price accounting related items *** Includes Q2 07 and Q3 07 only; Nokia Siemens Networks began operations on April 1, 2007 24 2007 Nokia Capital Markets Day 2007
Other financial targets 2008E * Tax Rate 26% Capex (m EUR) ~900 Depr. and Amort. (m EUR) ~875 Common Group Functions (m EUR expense)** ~200 * Approximate estimates for full year; does not include pending acquisition of NAVTEQ. ** Excludes special items. Beginning 2008, Devices & Services will include approximately 2/3 of the expenses previously reported under Common Group Functions. 25 2007 Nokia Capital Markets Day 2007
Decreasing the volatility of OPEX (as a percent of net sales) Sequential Percentage Point Change in OPEX* 10 % 8 % 6 % 4 % 2 % 0 % -2 % -4 % Q1'03 Q3'03 Q1'04 Q3'04 Q1'05 Q3'05 Q1'06 Q3'06 Q1'07 Q3'07-6 % -8 % -10 % * Excludes special items and purchase price accounting related items 26 2007 Nokia Capital Markets Day 2007
New organizational structure strategic and financial benefits Mobile Phones Multimedia Enterprise Solutions Common Group Functions Old Opportunities for synergies and savings Harmonization of product roadmaps Elimination of overlaps in R&D Elimination of overlaps in sales and marketing Devices & Services Common Group Functions New 27 2007 Nokia Capital Markets Day 2007
Nokia aligned with shareholders interests 28 2007 Nokia Capital Markets Day 2007
Quarterly Cash Flow EUR millions 2,500 Net cash from operating activities Operating profit* 2,000 1,500 1,000 500 0 Q1'06 Q2'06 Q3'06 Q4'06 Q1'07 Q2'07 Q3'07 * Excludes special items and purchase price accounting related items 29 2007 Nokia Capital Markets Day 2007
4 900 Diluted share count (millions) 4 700 4 500 4 300 4 100 3 900 Distribution of excess cash to shareholders 13 12 11 10 9 8 7 6 5 4 Cash level 30 2007 Nokia Capital Markets Day 2007 Diluted share count Down 18% 3 700 3 500 Q1'04 Q2'04 Q3'04 Q4'04 Q1'05 Q2'05 Q3'05 Q4'05 Q1'06 Q2'06 Q3'06 Q4'06 Q1'07 Cash (EUR billions) Q2'07 Q3'07
Return on Equity latest reported fiscal year 70% 60% 50% 40% 36% 30% 20% 10% 0% DELL NOK IBM RIMM AAPL CSCO ERIC QCOM MOT GE GOOG HPQ PG INTC Source: Company reports 31 2007 Nokia Capital Markets Day 2007
Distributions to Net Income latest reported fiscal year 150 % 135% Share Repurchases/Net Income Dividends/Net Income 100 % 50 % 0 % HPQ INTC NOK MOT DELL CSCO IBM PG GE QCOM RIMM ERIC AAPL GOOG Source: Company reports 32 2007 Nokia Capital Markets Day 2007
Stock option dilution latest reported fiscal year 14% 12% 10% 8% 6% 4% 2% 2% 0% ERIC NOK GE RIMM GOOG AAPL MOT QCOM PG INTC HPQ IBM DELL CSCO Source: Company reports Dilution = exercisable options / (exercisable options + basic shares outstanding) 33 2007 Nokia Capital Markets Day 2007
Quarterly Disclosure beginning Q1 2008 Press release will include: Net sales, gross margins, operating expenses, and operating margins for our reportable segments: Devices & Services Nokia Siemens Networks NAVTEQ s mapping business (post closing of the pending acquisition) Nokia device ASPs Estimated industry device volumes and Nokia estimated device market share Nokia mobile device volume by geographic area Nokia converged device volumes Nokia Siemens Networks net sales by geographic area Special items and Nokia Siemens Networks Purchase Price Accounting related items Industry and Nokia Outlook section 34 2007 Nokia Capital Markets Day 2007
Quarterly Disclosure beginning Q1 2008 Changes in presentation: ASPs will exclude services Common Group Functions Devices & Services will include approximately 2/3 of the expenses previously reported under Common Group Functions ; historical amounts will be provided on an adjusted basis for comparison In addition, we will provide commentary on: Factors that impact our business performance Industry device volumes by region Industry device volumes by technology (i.e. GSM/CDMA/WCDMA/Other) Product highlights Nokia Siemens Networks integration Share buybacks Impact of currency fluctuations We are always trying to improve and we welcome your feedback 35 2007 Nokia Capital Markets Day 2007
Summary Strategic focus on Internet services Nokia Siemens Networks integration and synergies on track Nokia is growing Strong margins and good product portfolio execution Nokia is aligned with shareholders interests 36 2007 Nokia Capital Markets Day 2007
Thank you. 37 2007 Nokia Capital Markets Day 2007