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NOKIA: SURGING AHEAD IN CHINA

"In China, the world's single-largest GSM market, people are enjoying more benefits from the rapid development of wireless telecommunication technology, creating greater expectations of value-added and lifestyle enhancing features. Nokia is dedicated to developing products that cater to the needs of Chinese-speaking users with specific products and services. " 1

- Pertti Simovaara, General Manager, Nokia Mobile Phones, China

"Our aim is to maintain our leading position in China and to continue to ¥row as the most preferred partner within the Chinese mobile communications industry. "

- Jorma Ollila, Chairman and CEO, Nokia.

"As the world's leading enabler of mobile Ufe, Nokia has already become the number one 3G mobile infrastructure and solution partner for China area operators. We expect to continue to be the undisputed market leader in the Chinese mobile market. " 3

- David Ho, CEO, Nokia China

INTRODUCTION

By 2005, Nokia Corporation (Nokia), the largest manufacturer of mobile devices in the world, was the leading mobile phone brand in China with 31% market share [Exhibit - 1]. Nokia's sales in Greater China (the mainland, Hong Kong and Taiwan) increased by 28% in 2005, as compared to the previous year and accounted for revenues of about $4.5 billion. The company was able to surge ahead of its competitors through continuous R&D efforts that enabled it to customise its mobile phones according to the regional tastes and preferences. Nokia offered inexpensive phones for the mass markets, without compromising on the quality and attracted customers with its competitive pricing. It also restructured its sales force network to reach the Jow-end customers in the rural markets and gained rapid penetration across the length and breadth of the country. An industry analyst remarked, "To regain its number one position (in China), Nokia has taken two decisive measures - offering more low-end mobile phones with prices below 1,000 Yuan (US$120) and focusing on rural markets. Coincidently, they have gone through an evolution of their traditional sales model and established a more short sales network

1 "Nokia demonstrates new Chinese input technology for mobile phones", http://press.nokia.com, October 26tto 1998

2 Steinbock, Dan "Nokia's China Ambition", www.bjreview.com

3 "Nokia Conference Showcases New Products, Services and Solutions for All Aspects of Mobile Life", www.nokiausa.com. November 251h 2005

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closer to customer." 4 China was further anticipated to be the single largest market for the company with an estimated total mobile subscriber base of 630 million by 2010. Nokia aimed to capitalise on the increased potential through its extensive market knowledge of the country. David Ho, the CEO of Nokia China, observed, "Strong brand power, broad product portfolio, expanded distribution channels, and accurate marketing strategies contributed to Nokia's success in the terminal market. Nokia launched 20 new handset products in the Chinese market, covering high, middle and entry-level market segments. Furthermore, we have also strengthened our relationship with operator customers. Nokia distribution channels now cover over 300 cities across the country." 5

Despite its success, analysts were skeptical of Nokia's profitability and predicted a challenging future of the company in China with entry barriers reducing gradually. They opined that with increased focus on the low-end market, Nokia faced huge risks of a flat bottom-line. The local manufacturers were also expected to provide competition to the company. However, Colin Giles, senior Vice President of customer and market operations of the company, refuted such observations and asserted, 'We do intensive brand tracking that shows that not only are our devices selling well, but our sales are growing in tandem with the strength of the Nokia brand, and product quality. We have found that Nokia leads the pack throughout the country."

NOKIA - CONNECTING PEOPLE

"8y connecting people. we help fulfill a fundamental human need for social connections and contact. Nokia builds bridges between people - both when they are far apart and face-io-face - and also bridges the gap between people and the information they need. n7

Nokia was the world's largest manufacturer of mobile devices and was the leading equipment, services and solutions provider to the network operators across the globe. Based in Finland, the company had manufacturing facilities in 9 countries and R&D centres in about 11 countries. Nokia was initially founded as a wood-pulp mill in 1865 by Fredrik Idestam. The name 'Nokia' was derived from the town Nokia where it was originally established. In 1898, Finnish Rubber Works Ltd was established nearby and used the Nokia brand to manufacture boots for the military. Later in 1912, Finnish Cable works was founded as a separate company, manufacturing telephone and telegraph cables. After the First World War, Finnish Rubber Works acquired both Nokia wood mills and Finnish Cable Works and continued using the Nokia brand name for its different sets of products. Finally, in 1967, all the three companies merged together and formed the Nokia Corporation. In the 19805, Nokia augmented its telecommunications division and introduced the first fully-digital local telephone exchange in Europe in 1982. Eventually, in the early 19905. the company decided to make its telecommunications division its core business segment and divested its paper, rubber, footwear, chemicals, cables and television businesses.

Gradually, Nokia established itself as the leading telecommunications equipment manufacturer in the world. By 2005, Nokia's mobile devices were being used in more than 130 countries and were an integral part in everyday communications, entertainment and business activities. According to the Businessweek magazinellnterbrand Global

4 Zhang, Jessy "Nokia", www.cityweekend.com. March 31s1 2005 5 Ibid.

I "Nokia Conference Showcases New Products, Services and Solutions for All Aspects of Mobile Life". op.cit

7 "Mission: Connecting People", www.nokia.com.July 2004

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Brand Scorecard, Nokia was ranked the world's sixth most valuable brand in 2005 and was valued at $26.45 billion. In 2005, the company generated net sales of Euro 34.2 billion with an operating profit of Euro 4.6 billion [Exhibit - 2]. Bulk of the revenues was accounted by Europe [Exhibit - 3] while China was the single largest market by net sales [Exhibit - 4]. Nokia was organised into four business groups - Mobile Phones, Multimedia, Enterprise Solutions and Networks. These business groups were supported by two horizontal groups, namely Customer and Market Operations, and Technology Platforms [Exhibit - 5].

The Mobile Phones division connected people through mobile voice and data capabilities across a wide range of mobile devices. Nokia primarily targeted high-volume category sales and focussed on customer-ease through its entire product-creation process. Its product portfolio included innovative features that appealed to all the market segments. In 2005 itself, Nokia introduced 41 new mobile devices, of which 32 were in the mid and high range while the remaining 9 were at the entry level category. The highend Nokia 6230 and Nokia 6230i models were the highest revenue generating phones of the company in 2005 and were the industry's best selling devices in Europe during each month of the year. The division accounted for about 61 % of the total revenues in 2005 [Exhibit - 6].

The Multimedia division provided multimedia experiences to consumers in the form of advanced mobile devices and applications, and enabled consumers to create, access, consume and share their experiences with others through radio technoloqles". Through this division, Nokia targeted early adopters and technology leaders and offered products with superior features like meqa-plxel" cameras, multi-gigabyte 10 memories, stereo sound, high resolution videos and WLAN11 connectivity. Eddy Rizk, Senior Communications Manager, Nokia Middle East and Africa, remarked, "By constantly developing new technologies to support the increasing convergence of work and play on mobile devices, Nokia is both reinforcing its leadership and helping shape the wireless future . .,12 In 2005, the multimedia business exhibited 63% growth compared to 2004 due to an increasing demand for converged mobile devices with advanced imaging, music, web browsing and e-mail functionality. The company emerged as the undisputed leader in 3GIWCDMA devices during the year, with high sales of models like Nokia 6680, Nokia 6630 and Nokia N70.

The Enterprise Solutions segment helped to improve the performance of business groups and institutions worldwide through extended mobility facilities. It offered mobile connectivity solutions based on end-to-end mobility architecture, and focussed on business devices, IP network perimeter security 13 and mobile connectivity solutions. It also provided fixed lP network security solutions and extended corporate telephone systems to Nokia's mobile devices. The division accounted for 3% of the total revenues in 2005 and the best-selling models in this category were the Nokia 9500 Communicator

8 Radio technology means that phones don't need to be plugged into sockets

9 Mega-pixel refers to one million pixels. Pixel is the unit for determining the quality of the Image and higher the number of pixels, greater Is the quality of the image.

10 Multi-gigabyte refers to one billion bytes, which is a unit for measuring information storage capacity.

11 A WLAN is a wireless local area network that uses radio waves as its carrier and gives a network connection to all users in the surrounding area.

11 "Nokia: World's 6th Most Valuable Brand; Only Cellphone Maker in Top 10", http://wbt.syscon.com, August 7th 2005

13 IP (Internet Protocol) network security solutions provide a filtering mechanism to secure the perimeter of the network and control access to network by monitoring the traffic flow.

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and Nokia 9300 enterprise smartphone 14. Through this business group, Nokia advised UK and EU governmental organisations as well as industry bodies on Internet security and provided IP network perimeter security appliances to over 80% of UK financial institutions.

The Networks division offered network infrastructure, communications and related services to mobile operators and service providers across the globe. It allowed operators to monitor both service quality and equipment performance, and provided professional back-up services. By the end of 2005, Nokia had more than 150 mobile network customers in more than 60 countries and served over 400 million subscribers. The segment accounted for 19% of the total revenues of the company in 2005.

The Consumer and Market Operations group managed the marketing, sales, sourcing, manufacturing and logistics facilities of the various divisions of the company, including Mobile Phones, Multimedia and Enterprise Solutions division. On the other hand, the Technology Platforms group supported the overall technology management of the company and delivered leading technologies to Nokia's business groups as well as to the external customers.

In 2005, Nokia produced 56 new models, as compared to 36 in 2004. It identified strong areas of consumer behaviour like music, TV, photography and gaming and introduced specific handsets to tap these markets. Nigel Rundstrom (Rundstrom), head of Nokia's multimedia handset unit, commented, "We're looking at the core consumer behaviors, where people spend their time and money, and what products they use. There are four or five key ones in the consumer space, and then more for the enterprise. We want to connect people to their passions. That is our rnantra.v" The Nseries brand of Nokia was designed for optimal photography, music and TV, while the N-Gage brand focussed on gaming. Rundstrom added, "Gaming is part of consumer behavior that is very strong and it's only a question of the right solution for the opportunity. There's no way we can ignore that opportunlty.?" The N90 was the first Nseries brand launched and contained a 2-megapixel camera-phone with Carl Zeiss 17 optics, flash 18, macro-mode 19 for closeups and video recording features. The N92 brand was built on Digital Video BroadcastHandheld (DVB-H) technology and enabled TV signals to be viewed on the handsets.

In order to generate further growth in the company, Nokia aimed to expand its mobile voice market as well as leverage on its consumer mobife multimedia business. It aimed to focus on markets with low mobile subscription rates relative to the size of the population and on geographic areas where it was more economical to build wireless infrastructure than fixed-line networks. It further intended to capitalise on markets where wireless networks were being widely promoted as replacement to the fixed-line services by local telecom operators. Nokia aimed to identify and generate revenues from the most profitable and fastest growing segments of the consumer multimedia business by anticipating the technological demands of the consumer and developing innovative products and services. Olli-Pekka Kallasvuo, the President and COO of the company, commented, "The industry is consolidating around a few key players. At the same time it

14 A smartphone Is any electronic handheld device that integrates the functionality of a mobile ~hone, Personal Digital Assistant (PDA) or other information appliance.

5 Smith, Brad "Spin It Forward", www.wirelessweek.com.January 1st 2006 16 Ibid

17 Carl Zeiss Is a leading international group of companies operating worldwide in the optical and 0f,to-electronic industry.

1 Flash is an animated graphics technology and format from Macromedia.

" A macro-mode lens is a particular type of lens mode that allows users to get very close to objects so that they appear greatly enlarged In the picture.

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is increasing in complexity, as both devices and customer demands grow more sophisticated. The winners will be the ones that can master this complexity and offer appealing products to a broad range of customers. On both these counts, we believe Nokia has the elements key to success."20

MOBILE PHONE INDUSTRY IN CHINA

In China, the communications equipment market (which included LANs21 , WANs22, routers'", telephones and exchanges) exhibited a steady growth with rising disposable income and subsequent opening up of the economy after its entry in the WTO in 2001. The communications equipment market generated total revenues of $22 billion in 2004 and for the five-year period from 2000-2004, witnessed a CAGR of 4.1 % [Exhibit - 7]. The industry was antiCipated to maintain the healthy growth rate in the future as well. During 2004-2009, the market was forecasted to have a CAGR of 6.8%, with an estimated value of $30.5 billion by the end of 2009 [Exhibit - 8]. The communications equipment market was broadly categorised in two segments - the telephony & terminals segment and the networking segment. In 2004, the telephony & terminals segment accounted for 92.3% of the total industry revenues and generated $20.3 billion, while the remaining 7.7% was contributed by the networking segment ($1.7 billion).

The first mobile phone network in China was launched in 1987. The mobile phone market was relatively new in the country and was anticipated to expand rapidly as the world's single largest market by value and volume. Over the years, the mobile subscription rate exhibited a steady growth rate [Exhibit - 9] and overtook the number of fixed-line users in 2003 [Exhibit - 10]. By the end of 2004, mobile penetration was 26% with a total subscriber base of 334 million. In particular, the mobile phone market generated total revenues of $10.2 billion in 2005, from sales of 78.96 million units, with a CAGR of 8.6% for the five-year period from 2001-2005 [Exhibit - 11]. According to the Chinese Ministry of Information Industry, the number of mobile phone users increased to 409 million by the end of March 2006 and for every 100 people, 30.3 people had mobile phones. By 2010, it was estimated to reach a value of $12.7 billion with a CAGR of 4.6% during 2005-2010 [Exhibit - 12]. Liu Cai, Vice Chairman and Secretary General of China Institute of Communlcatlons". said, "China's mobile phone industry continues to have a big space for future growth. In the coming few years, the number of China mobile subscribers will increase to 50 million people per year. With the growth of the user base and voice service, the business for mobile data, other non-voice services and new applications will thrive. Stronger cooperation and technology innovation among communication networking operators, equipment and system developers and content providers will be the key to maintaining the fast growth of the wireless communications ma rket. ,,25

20 "Nokia Capital Market Days 2005: Nokia defines strategy and targets for continued profitable ~rowth", http://press.nokia.com, December 1'1 2005

A LAN (Local Area Network) is a communications network that serves users within a confined ~eographlcal area.

A WAN (Wide Area Network) is a communications network that uses such devices as telephone lines, satellite dishes, or radio waves to span a larger geographic area than can be covered by a LAN.

23 A router is a network device that fOlWards packets from one network to another.

24 The China Institute of Communications, founded in 1979, is an academic organisation of communications scientists and technicians.

25 "Texas Instruments and China's wireless industry leaders gather to discuss state of wireless In China", http://focus.ti.com, October 18"' 2005

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The mobile phone industry of Mainland China was broadly divided into three basic supplier groups. The first-tier companies included foreign-owned or foreign-invested firms such as those established by Nokia. The second-tier manufacturers were mostly locally owned enterprises and dominated the supplier base, while the third-tier companies included design house or solutions providers. The Chinese manufacturers integrated multimedia and network capabilities in their handsets to match the increased demands for feature-rich, value-added mobile phones. Superior features like digital still camera, video recording, PDA26 tools, Bluetootrr", wireless LAN and GPS28 capabilities were incorporated in the handsets to meet the emerging trends in technology. In 2005, handset display was more of TFT-lCD29 type rather than the erstwhile STN-lCD30 one. During the first nine months of 2005, 35% of the mobile phones sold were priced between 1,000 and 1,500 Yuan, while 36% were below 1000 Yuan. The best selling 20 models included 4 handsets priced below 600 Yuan, 8 priced between 600 and 1,100 Yuan, 4 priced between 1,100 and 1,500 Yuan and the remaining 4 above 1,500 Yuan. The low-end mobile market was the most rapidly growing segment of the industry, with majority of the manufacturers focusing their attention on it. The local manufacturers like Ningbo Bird and TCl were being increasingly outdone by foreign brands like Motorola and Nokia. With reduced operating margins, the Chinese manufacturers were forced to look for other markets outside the country. The market share of the domestic phones reduced from around 40% to 30% in 2005. On the other hand, Nokia was gradually emerging as the sole leader in the country.

NOKIA'S STRATEGY IN CHINA

Nokia started its operations in China in 1985 and sold its first analog cell phone, NMT 450 in 1986. It began to sell its GSM cell phones in 1991 and gradually, in the late '90s, emerged as one of the leading mobile brands in the country [Exhibit - 13]. In 1998, Nokia generated total sales of $2 billion from its Chinese operations and the subscriber base for its GSM phones increased to about 10 million in China itself. In order to cater to the increasing demands of the domestic as well as the neighbouring countries, Nokia established a manufacturing factory called Nokia (Suzhou) Telecommunications Co. Ud., in Jiangsu province in China. Furthermore, in 1999, it began to step up its activities and invested $1 billion to set up seven manufacturing facilities and one R&D centre. By 2001, Nokia emerged as the market leader in China with 30% market share, followed by Motorola and Ericsson.

However, by late 2002, Nokia was losing in competition to its rivals like Motorola and other local manufacturers. Unlike the local manufacturers, Nokia struck to its traditional large-size phones and ignored the increasing demands for flip phones. Analysts also criticised Nokia for being relatively slow in promoting phones with camera and MP3 functions. On the other hand, Motorola introduced a range of new models from traditional dual-band, triple-band cell phones to GPRS31 and CDMA32 mobiles. The wide

26 Personal digital assistant (PDA) is a handheld computer device for managing contacts, a.ppoinbnents and tasks.

2 Bluetooth provides a way to connect and exchange information between devices like personal digital assistants (PDAs), mobile phones, laptops, PCs, printers and digital cameras via a secure, low-cost, globally available short range radio frequency.

28 The Global POSitioning System (GPS) is the only fully-functional satellite navigation system. 29 TFT LeDs are a variant of liquid crystal display which use thin-film transistor technology to improve their image quality.

30 STN (Super Twisted Nematic) LCD offer a comparatively lesser quality picture resolution.

31 General Packet Radio Service (GPRS) is a mobile data service available to users of GSM mobile phones.

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array of product-line with enhanced features appealed to all the consumers and by the third quarter of 2002, Motorola had 28.9% market share, followed by Nokia (25.7%), TCl (11.4%) and Ningbo Bird (7%). Motorola also established over 500 repair and maintenance networks across the country to provide improved after-sales services. The local brands like TCl and Ningbo Bird invested heavily on advertisements and introduced models that were cheaper and fashionable. At the same time, they had extensive dealer network facilities that enabled them to have wider penetration in the rural markets.

In order to regain its position in the market, Nokia decentralised its organisation and increased its sales offices from 3 in 2003 to about 70 in early 2006. It reorganised its dealer distribution network [Exhibit - 141 and instead of the erstwhile 8 national distributors, it had 50 provincial distributors by early 2006. For about 20% of the market it used the wholesale channel and dealt directly with 45% of the market [Exhibit - 151. Nokia entered into agreements with various provincial-level sales agents and delivered its products directly to sales agents in second or third-tier cities like Xi'an and Changzhou in Jiangsu Province. At the same time, it invested heavily in new computer systems that enabled it provide detailed sales data and monitor the performance of the individual retail outlets. Colin Giles, manager of Nokia's China handset business, commented "Tomorrow, I will be able to tell you what happened tOda~ in the top 4,500 outlets. In a week's time, I will be able to tell you about 30,000 outlets." 3

By December 2004, Nokia launched 3128 clamshell" models in China. The company introduced China-specific models [Exhibit - 161 that made use of software developed exclusively for the Chinese consumers. Nokia was one of the first mobile manufacturers in the world to introduce a Chinese user interface and Chinese Short Message Services (8M8) facilities. Its Chinese input technology worked on the traditional mobile phone keypad, through which users could input any combination of Chinese characters, latin alphabets, numbers and punctuation marks. The input menu supported more than 9,000 commonly used Chinese characters and provided several widely used pronunciationbased and character-based input methods to meet the preferences of different users. Long Teng. General Manager of Nokia Beijing R&D Center, remarked, "When we are designing our products, we consider mainly how our users can use the phones more easily and conveniently."35

Nokia also reduced the price of its phones to make it more affordable among the masses. Till 2002, Nokia was one of the most expensive brands in China, with average prices ranging above 2,000 Yuan ($240). In order to gain wider acceptance, the company began to offer low-end mobile phones with prices below 1.000 Yuan ($120) targeted specifically to the rural markets. The competitive pricing further enabled Nokia to gain strategic advantage over Motorola, whose models were available at an average price of over 1,500 Yuan ($180). At the same time, Nokia continued to launch high-end phones (priced as high as 5,208 Yuan or $625) for customers who required state-of-theart technology features like streaming video quality and MP3 players.

32 Code-Division Multiple Access (COMA) Is a digital cellular technology that uses spread-spectrum techniques.

33 "Nokia Connects", www.buslnessweek.com. March 2"th 2006

34 In deSign, clamshell is a form resembling the shell of a clam. with the ability to open up in the same way. When the clamshell Is open, the device is ready for use.

35 "Nokia", op.cit

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Nokia gained the number one position in the Chinese market in July 2004 and aimed to continue its leadership position through continuous R&D initiatives. In 2004, Nokia's R&D spending was 3.7 billion Euros representing 12.8% of its net sales. By the end of August 2005. Nokia opened a mobile infrastructure R&D centre in Chengdu, the capital city of Sichuan Province in West China. It was the sixth overall R&D unit of the company in China and the second 3G R&D unit and was scheduled to develop mobile applications based on 3G and IP Multimedia Solutions for the Chinese as well as the global markets. David Ho (Ho), the CEO of Nokia China, said. "Nokia is delighted to establish a new R&D center in this part of China. This marks another important step forward for Nokia in implementing its localization strategy.,,36

China was also the logistics hub of Nokia and played a strategically important role as the global manufacturing base of the company. By 2005. Nokia had about 15 manufacturing facilities across the globe and 4 of them were located in China. The company deployed Beijing and Dongguan units in Guangdong Province for mobile devices and shifted the base station production unit from Beijing to Suzhou in Jiangsu Province. It further planned to increase its manufacturing facilities in the country as the mobile subscriber growth was expected to almost double within the next five years, with replacement market growing in urban areas and mobility access increasing in the rural markets. Ho observed. "The opportunities in China comprise robust market growth, 3G in horizon, availability of local talent and resources, and declining trade barriers:>37

Nokia anticipated to tap the huge market potential in China through the Nokia Connect Market Expansion Toolkit, which allowed shared use of resources in the radio network without affecting the service expectations of the existing customers. Rauno Granath, Director of the New Growth Markets of the Networks division of the company said, "The Nokia Connect Market Expansion Toolkit allows operators to develop diverse service offerings at different prices to meet the needs of both current segments and new, lowerspending ones in a profitable way. Networks are typically dimensioned according to their busy hour usage, often resulting in a great deal of idle capacity at other times. This new, more affordable service offering made possible by Nokia encourages lower spending customers to make their calls outside of peak hours, thus resulting in more efficient use of resources. The main benefit for lower spending users is that they can now afford to use mobile services - maybe for the first time ever.,,38

With market saturation in the developed countries, China was emerging as the leading market for Nokia, with top seJUng models in almost all the different tiers of the market [Exhibit - 17]. Jorma Ollila, Chairman and CEO of the company commented, "Nokia has built a thorough business in China over the past 20 years, and grown together with China's mobile industry. In the first nine months of 2005, we sold 23 million handsets in Greater China, a year-on-year increase of 77%. For the combined Mainland China, Hong Kong and Taiwan markets, we now have an estimated device market share of well over 30%. Moving forward, we will build on this tremendous strength to further grow our R&D, manufacturing, investment, market position and innovation capabilities in China. With the expected launch of 3G services, we believe China will enter a new era of mobility and will playa significant role in the global market. ,,39

36 Steinbock, Dan "Nokia's China Ambition", www.bjreview.com 37 Ibid

38 "Nokia spurs subscriber growth in New Growth Markets with mobility solutions", http://press.nokia.com. March 30th 2006

39 "Nokia conference showcases new products, services and solutions for all aspects of mobile life", http://press.nokla.com, November 25th 2005

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However, industry experts believed that Nokia would face great challenges to maintain its leadership position in the fiercely competitive market. They also opined that with increased focus on the low-end market and with multi-level sales channel and pricecutting measures, Nokia's profitability would be harmed. However, Colin Giles, senior Vice President of customer and market operations of the company, asserted, "We had over 30-percent market share in the greater China area at the end of last year, and in 01 (first quarter, 2006) our market share further strengthened on a pretty healthy product mix. Everything is in a good position for us to continue to strengthen moving forward ."40

Exhibit-1

Nokia's Market Share in China in 2005

PERCENT

Source: "Nokia Connects", www.businessweek.com. March 27th 2006

- r--

o

Exhibit-2

Nokia's Operating Profit in 2005 (in million Euros)
EURm 2005 2004 (hange, %
Net sales 34191 29371 16
OperatIng proflt 4639 4326 7
ProfIt before taxes 4971 4705 6
Net proflt 3616 3192 13
R&D 3825 3776 1 Source: "About Nokia", www.nokla.com

40 "Nokia eyeing more market share In China", http://news.inq7.net, April 30th 2006

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Exhibit-3

2005 Net Sales of Nokia by Market Region North America, 8%

Latin America 8%

Europe,42%

Africa, 13%

Asia Pacific, 18%

Source: "About Nokia", www.nokia.com

Exhibit-4

Nokia's 10 Largest Markets (by Net Sales) in 2005

EURm 2005 2004 20()3
C!llna 3403 Z 678 2023
USA 2743 3430 4488
UK 2405 2269 2711
mota 2022 1369 1064
Cermanv 1982 1 730 2297
1~l.Issl;! 1410 946 569
Italv 1160 384 1003
Spain 923 76.:: 1'4:3
Saudi Arabia 897 750 547
France 870 604 867
Source: "About Nokia". www.nokia.com
Exhibit- 5
Nokia Busi ness Group Structure TedllHllogy PlatfOFmS

Source: "China and India raise Nokia's expectations", www.iht.com. March 31"12006

Exhibit- 6

2005 Net Sales by Business Groups (in million Euros)

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Jan. 1- Dec. 11 ZOO5 2004
EURm % EURm ~o Change
Mobile Phones 20811 61 18521 63 12
MulUmedla 59S1 17 3676 12 63
EnterprISe SolutIons 861 3 839 3 3
N~tworks 6557 19 6431 22 2
Inter-buSIness groupellmlnat1ons -19 - -96 - -
Nokia Group 34191 100 29371 100 16 Source: "Nokia In 2005", www.nokia.com

Exhibit-7

China's Communications E ui ment Market Value from 2000-2004

RMB yuan
Year $ billion billion % Growth
2000 18.8 155.4
2001 21.4 177.5 14.20%
2002 19.6 162.8 -8.30%
2003 20.5 169.9 4.40%
2004 22.0 182.5 7.40%
CAG R, 2000-2004: 4.1% 25
20
c 15
.2
-
-
:.a 10
~
5
0 ~$ billion

....... %Grov.1h

20.0%
15.0~,c,
10.0% ~
e
5.0% (i)
...
0
0.0'1v ~
:r
-5.0%
-10.0°,(, 2000

2002

2004

Source: "Communications Equipment in China", http://search.epnet.com

2001

2003

11

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Exhibit-a

China's Communications E ui ment Market Value Forecast for 2004-2009

RMB yuan

Year $ billion billion % Growth

2004 2005 2006 2007 2008 2009

CAG R, 2004-2009:

22.0 182.5 7.40%
23.6 195.8 7.30%
25.3 209.3 6.90%
27.0 223.4 6.70%
28.7 238.2 6.70%
')~ - 253.1 6.20%
.... V.b
6.8% ~$billion

~% Gro'lvth

35 30 25

7.6~1c. 7.4% 7.2% 7.0% 6.8% ~ 6.6~{i 0

6.4% ~

10 6.2% -' 6.0%

5 ~8%

o +-...._- ...... -...____.-......,~__......,.--- ........ __ ....&.. ......... -+ 5.6%

::

.2 20

:0 15

2004 2005 2006 2007 2008 2009

Source: "Communications Equipment in China", http://search.epnet.com

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Exhibit-9

Steady Growth Rate of Mobile Subscription in China

Total Subs (Millions) Penetration

6DOr-----------------------~------------------------~·40%

35%

400

30%

)00

25%

20%

200,

15%

10%

100

5%

2003 2004 2005 2006 2007

Source: Ho, David "Nokia in China", http://media.corporate-ir.net, May 31" 2004

Exhibit-10

Mobile Subscriber Base overtakin Fixed-line Subscribers

Millions

400~--------------~~~----------~

200+-----~------------~~---

O+-~,_--Ir---r~~~_T----r--~~-,r_~~~~~ 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Wer04

o Rxed subs .l\Ibbile subs

Source: Ho, David "Nokia in China", http://media.corporate-ir.net, May 31· 2004

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Exhibit -11

China's Mobile Phone Market Value from 2001·2005

RMB yuan
Year $ billion billion % Growth
2001 7.3 60.5
2002 8.1 66.8 10.50%
2003 8.3 68.7 2.70%
2004 8.4 69.6 1.40%
2005 (e) 10.2 84.1 20.80%
CAGR,2001-2005: 8.6% 12
10
c 8
0
- 6
:s
w 4
2
0 I rs billion

25.0°.{.

20.0%

':R. 15.0% 0 o

10.0% i

:::r

2001

2003

2004

2002

2005

Source: "Mobile Phones In China", http://search.epnet.com

14

Exhibit -12

China's Mobile Phone Market Value Forecast for 2005·2010

306-403-1

RMB yuan

Year $ billion billion % Growth

2005 (ej 2006 2007 2008 2009 2010

10.2 10.6 11.2 11.9 12.3 12.7

84.1 87.7 92.9 98.9

101.6 105.5

CAGR.2005·2010:

20.80~~.

4.30% 6.00% 6.40% 2.70% 3.90%

4.6%

14
12
10
.c: 8
0
-
:.0 6
...".
4
2
0 E::a s billion

...,._% Growth

25.0~{'
20.0%
15.0% . ~
.,
C'>
...
0
10.0% ~
:::r
5.0% 2005 2006 2007 2008 2009 2010

Source: "Mobile Phones in China", http://search.epnet.com

Exhibit-13

Markel Share of China's Cellular Handset Markel, 1998 and 1999

Campan, lI.rbtShare 1998 Matkethte1999
MQtoroia 29% 32%
No~a 25% 30%.
EriC8SOl1 22% 18%
Chine~ companies 1% 5%
Oiher 23% 16% Note: Other includes Alcatel, NEG, Panasonic, Philips, Qualcomm, Siemens, Sony and Samsung

Source: "China's Cellular Market Begins to Fulfill Its Enormous Potential", http://pulse.tiaonline.org. February 2000

15

306-403-1

Exhibit-14

Nokia's Distribution Chain in China

2001 I

Y

2003

2004

PD

FD

National Distributors

I Branch Office I Provincial Fulfillment
Distributors Distributors

, •
2nd tier
wholesalers
r
I Wholesaler I WKA I

I Retailers II RKA I

CONSUMERS Source:

306-403-1

Use of Wholesale

Nokia Deals Directly

45% of th£t Market

Source: Giles, Colin "Nokia in China", http://library.corporate-ir.net, August 25 2005

Exhibit-16

Nokia's Customised Phones for China

Global

Local

Source: Giles, Colin "Nokia in China", http://library.corporate-ir.net, August 25 2005

11

306-403-1

o ta s OP e Ing 0 e S In Ina
Tier1/2 Tier3 Tier4/5
NOKIA 3120 . NOKIA ~100 NOKIA 1100
NOKIA 3100 m NOKIA '3120 NOKIA 3100
NOKIA 7260 " NOKIA '1100 NOKIA 3120
NOKIA 1100 "III NOKIA '7260 NOKIA 7260
NOKIA 2300 NOKIA 2300 I NOKlO. 6020
"
NOKIA 6020 1 NOKIA 6020 .. NOKlO. ~300
MOTOROLA V3 NOKIA 3108 MOTOROLA V3
NOKIA 6108 NOKIA '2600 "~ NOKIA 3108
NOKIA 2600 :~ NOKIA '3220 NOKIA 2600
SONY ERICSSON T290C NOKIA '6108 ., . NOKIA 3220
MOTOROLA C157 • MOTOROLA C157 ~~ of NOKIA 6108
NOKIA 3220 IL MOTOROLA V3 MOTOROLA C157
MOTOROLA C381 MOTOROLA C381 > SONY ERICSSON K700C
NOKIA 3108 \' PHLIPS XENIUM9@9C I~ MOTOROLA C381
NOKIA 6100 111011 NOKIA 6100 .~ SAMSUNG SGHE338
SONY ERICSSON K700C .,; SAMSUNG SGHX458 PHILIPS XENIUM9@9C
NOKlO. 3230 SAMSUNG SGHC208 a NOKIA 6100
SONY ERICSSON K300C " SAMSUNG SGHX468 ,: SONY ERICSSON T290C
PHILIPS XENIUM9@9C MOTOROLA V171 a SAMSUNG SGHX458
a
NOKIA rr610 I.~ MOTOROLA E398 •. !:IIb MOTOROLA C115
Source: Giles, Colin "Nokia in China", htt :lIl1bra .cor orate-ir.net, Au ust 25" 2005 Exhibit-17

N kO 'T S 11° M d I . Ch·

p

ry p

9

18

306-403-1

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February 25th 2005

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November 29th 2005

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2001

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February 25th 2005

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February 24th 2005

19