NOKIA

Executive summary This report is an analysis of the mobile phone industry on Nokia and its various strategies. It shows the history of the mobile phone industry and how Nokia has penetrated the Indian market and dominated as the market leader. It also focuses on the emergence of smart phones and the market position of Nokia in this category and the analysis of various strategies implemented by Nokia. The industry analysis, SWOT analysis, PEST analysis and strategy analysis have been carried out in this report.

Table of contents

INDUSTRY ANALYSIS

INTRODUCTION

An industry is a group of firms producing a similar product or service. The industry environment has a significant bearing on the firm s strategic actions. Therefore, industry analysis must be carried out in a systematic way to find the attractiveness of a particular field and the competitive position enjoyed by a firm within that area. The basic purpose of industry analysis is to assess the relative strengths and weaknesses of an organization relative to other players in the industry. It tries to highlight the structural realities of a particular industry and the extent of competition within that industry Through industry analysis, an organization can find whether the chosen field is attractive or not and assess its own position within the industry. Industry analysis helps to find out a) The growth potential of the industry b) The profitability of the industry c) The relative abilities of players in that industry. d) Competitive position

Mobile industry

The

first

hand-held

mobile

phone

was

demonstrated

by Dr.

Martin

Cooper of Motorola in 1973, using a handset weighing 2 kg. In 1983, the DynaTAC 8000X was the first to be commercially available. In the twenty years from 1990 to 2010, worldwide mobile phone subscriptions grew from 12.4 million to over 4.6 billion, penetrating the developing economies and reaching the bottom of the economic pyramid. The dynamic mobile industry spans thousands of companies large and small- from handsets makers such as Nokia, Samsung and Apple, to service providers like Airtel, Vodafone, and BSNL. Etc. Like PCs, mobile phones are becoming increasingly sophisticated and most advanced devices now incorporate microprocessors, memory, operating systems, applications and core components such as LCD screens and keypads. End-users and operators are demanding applications and functions from the PC industry. Given this complexity, it is virtually impossible for any single handset manufacturer to retain industry leading expertise across the rapidly evolving spectrum of hardware and software technologies.

In India

The cellular phone industry is one of India's rapidly growing industries. Since the industry came into being in the mid 1990s, its average per annum growth rate has been a phenomenal 85 percent. By the end of 2002, the Indian cellular phone industry had over 10 million subscribers. The National Telecom Policy 1999 was an important landmark in the development of the cellular telecom industry in India; the tariff rationalization and policy regulation introduced in the Policy helped the industry grow at the pace it did. The years 2001 and 2002 saw an increase in level of competition in the industry with more operators being given licenses, and fixed line providers also entering the mobile market. India s mobile phone industry is one of the fastest growing industries in the world. Mobile phones in India were formally launched in august 1995. For the first few years after the advent of mobile phones, monthly subscriptions were added to the tune of 0.05 to 0.1 million in India. Subsequently the subscriber base stood at 10.5 million in December 2002. The Indian mobile phone industry has entered a phase of boom due to many proactive measures taken by various licensors and regulators. Two Million mobile subscribers were added every month in India from 2003 to 2010. The first mobile phone was launched in India during 1990s and the first mobile phone company was Nokia. The First Mobile service provider was Modi Groups in 1995 and it was started in Kolkata.

NOKIA

Nokia Corporation is a Finnish multinational communications corporation that is headquartered in Keilaniemi, Espoo a city neighboring Finland's capital Helsinki. Nokia was established in 1865 as a wood pulp mill by Knut Fredrik Idestam. Finnish Rubber Works acquired Nokia Wood Mills as well as Finnish cable works. These companies merged together to form Nokia corporation in 1967. The seeds of the current incarnation of Nokia were planted with the electronics section of the cable division in 1960s. In the 1967 fusion, that section was separated into its own division and began manufacturing telecommunications equipment. Today Nokia is engaged in the manufacturing of mobile devices and in converging Internet and communications industries, with over 132,000 employees in 120 countries, sales in more than 150 countries and global annual revenue of over 42 billion and operating profit of 2 billion as of 2010. It is the world's largest

manufacturer of mobile phones: its global device market share was 31% in the fourth quarter 2010, up from an estimated 30% in third quarter of 2010 but down from an estimated 35% in the fourth quarter of 2009. Nokia's estimated share of the converged mobile device market was 31% in the fourth quarter, compared with 38% in the third quarter 2010. Nokia produces mobile devices for every major segment and protocol, including GSM, CDMA and W-(CDMA).

Nokia

offers

Internet

services

such

as

applications,

games,

music,

maps, media and messaging through its Ovi platform. Nokia's subsidiary Nokia

Siemens Network produces telecommunication network equipment, solutions and services. Nokia is also engaged in providing free digital map information and navigation services through its wholly owned subsidiary Navteq. Nokia also has greater dependency on England based company duo namely Symbian Corporation for its mobile operating system and OVI for its mobilebased application software development and distribution, which has made Nokia as highest-selling mobile-phone vendor within the past few years. On 11 February 2011, Nokia announced a partnership with Microsoft which will mean most future Nokia smart phones will be powered by the Windows Phone 7 operating systems.

Corporate structure
Divisions Since July 1, 2010, Nokia comprises three business groups: Mobile Solutions, Mobile Phones and Markets The three units receive operational support from the Corporate Development Office, led by Kai istm, which is also responsible for exploring corporate strategic and future growth opportunities. On April 1, 2007, Nokia s Networks business group was combined with Siemens carrier-related operations for fixed and mobile networks to form Nokia Siemens Networks, jointly owned by Nokia and Siemens and consolidated by Nokia.

Corporate governance The control and management of Nokia is divided among the shareholders at a general meeting and the Group Executive Board (left), under the direction of the Board of Directors (right). The Chairman and the rest of the Group Executive Board members are appointed by the Board of Directors. Only the Chairman of the Group Executive Board can belong to both, the Board of Directors and the Group Executive Board. The Board of Directors' committees consist of the Audit Committee, the Personnel Committee and the Corporate Governance and Nomination Committee. The operations of the company are managed within the framework set by the Finnish Companies Act, Nokia's Articles of Association and Corporate Governance Guidelines, and related Board of Directors adopted charters. Stephen Elop is the current president and CEO and Group Executive Board Chairman of the Nokia Corporation since September 21, 2010.

Nokia in India

Nokia entered the Indian market in 1994. The first ever GSM call in India was made on a Nokia 2110 mobile phone on its own network in 1995. The tariffs levied on importing mobile phones were as high as 27%, usage charges were at Rs.16per minute and hence, at these high rates consumers did not take to mobile phones. Later on, even though the rats were slashed considerably, mobiles were still considered to be a luxury commodity. However, the biggest breakthrough for mobile phones in India was when incoming calls became free after the launch of Airtel(GSM) segment and the CDMA segment . Nokia also had to face tough competition from other powerful global players like, Motorola, Sony, and Siemens etc.

When Nokia entered India, it concentrated on the high end segment because of the tariff constraints in India. Only the affluent could afford mobile phones. However, increase in purchasing powers due to increase in income and standard of living as a result of outsourcing, globalization and the number of educated and skilled people in India presented a good opportunity for Nokia to expand.

Gradually, mobile phones started becoming necessities. The mid and low-income segments also became targets for mobile phone companies. In fact, many in India have made a direct transition, which is a person who never owned a landline, went straight to mobile phones. Therefore, we saw slow growth in the initial few years and a phenomenal growth in the past few years.

Nokia chose to aim the youth market focusing on students in the range 13-21 as their market research showed that youths were receiving large amounts of pocket money and most have no real commitments to spend it on. A good portion of the youth segment also started earning well thanks to the BPO and call centre explosion in India resulting in disposable income and need for a higher standard of living. Later, it tried to tap the potential of the lower end and rural markets as well.

Why Nokia succeeded in Indian mobile market?

y

The power of focus: focusing on one and the only business and i.e. mobile phones or handsets and infrastructure related to it.

y y

The Distribution Edge: When it comes to distribution, Nokia's lead is clear. Investment in Manufacturing: The other big investment area that has set Nokia apart from other telecom firms is manufacturing facilities and R&D. Nokia has several R&D centers and labs in India. More importantly, it established a $150 million handset manufacturing facility in Chennai in 2005.

uilding the Brand: Here Nokia faced a problem because Nokia range available in India extends from Rs 1,499 ($37) at the lower end to Rs 45,000 ($1,125) at the high end, but now with years of being in operation they have created a brand for themselves. This they have done by the concept of One Model replacing the other as per need and desire.

Products for India: The Nokia story in India has not been about grafting a model that has worked abroad. In fact some of the models - are unique to India. For example a mobile set having a flashlight, or torch.

Levels of Market Segmentation The company has found a new way of connecting with its consumers. It has embarked upon a brand new retail strategy that is based on the classification of its consumers into four major groups that segment consumers in terms of product usage, income level and lifestyle. The classification is based on an extensive survey - the Nokia Segmentation Study - involving 42,000 consumers from 16 countries. The survey studied the impact that lifestyle choices and attitudes have on the mobile devices purchased by consumers and how they use them. The company is following separate marketing strategies for the four different segments that emerged from this survey. The advertising campaigns for the segments are also different. Nokia s entire product portfolio has now been re-aligned towards these four groups to address the specific needs of each. The first of these segments is Live . This segment comprises first time users whose basic need is to stay in touch, with voice as the main driver. This segment would be served basic handsets which would be low on features and price. These will be functional phones and the target group for these phones range from SEC C (low socio-economic class) to SEC A1+ (very high socioeconomic class) markets. The second segment Connect comprises more evolved users who look for more functionality, features and connectivity. Accordingly, phones in this segment would have GPRS, camera and music capabilities.

The next two segments, Achieve and Explore , consist high-end users who would be offered Nokia s top-end handsets. For example, Achieve segment comprises company executives who need to have business functionalities in their phones. Nokia s E-series (Enterprise series) is aimed at this segment with handsets having Qwerty keyboards and full Internet capabilities. Explore would be the most prominent segment for the company in the coming years. This segment comprises high lifestyle users. This segment would see the most vibrant growth in the coming years. The phones aimed at this segment will focus on five different functionalities: applications, imaging, mobile TV, music and gaming. The company is fast developing the ecosystem to support these functionalities. Nokia acquired music solution and content provider LoudEye and GPS solution provider Gate5. It has also launched its most high profile handset, which boasts of having a 5 megapixel camera and GPS capabilities apart from iPod quality music. There is an increasing demand for convergence and multiple functionalities in high-end handsets. The N-series is aimed to address this demand.

Downfall Nokia has always been one of the leading phone companies throughout the world and has one of the biggest market shares in India. However, its global market share dropped to below 30% as the world's top cell phone maker continued to lose ground to rivals. Facing fierce competition, Nokia has lost its position as the industry's innovative leader. Apple has overtaken Nokia to become the world's largest handset vendor in revenue terms, selling a record 18.6 million iPhones. Even the products from Nokia failed to reach the customer satisfaction and experience as the handsets started revealing lot of flaws as compared to the competitor s products for e.g., the E Series model E 61 looked like blackberry but behaved nothing like it with web browser without support for any full internet sites. The N Series model N97, lacked proper camera structure and had faulty GPS system. But the major problem was regarding the lock button mechanism as it kept bouncing back. Nokia market share in India fell from 56.2% in 2008 to54.1% in 2009 as the local players grabbed 17% market share. In 2010, its market share dipped down to 52.2%. Samsung gained the market share 10% to 17.4% in 09-10. LG s market share increased marginally from

4.5% to 5.9%. Micromax has been one of the major winners, from nothing to 4.1%

Industry analysis on Nokia

SWOT analysis Strengths

y y Brand awareness Largest number of distribution and selling networks High quality and professional team in HRD dept. Strong financial aspect User friendly and high re-sale value

Weakness
y y Not good at software Increasing dissatisfaction levels in its smart phone

y Slow performance of software y Very few service centers in India

y y

y Low after sales service

y Presence across 150 countries Opportunities

y Huge loyal customer base y With wide range of product, features and
different price range can have competitive advantage.

Threats y Rapidly changing industry y Emergence of other mobile companies y Growing demand of WLL network can drop
sales.

y Can increase sales and market share

during telecom penetration at its peak

y Threat of entry from new players y Chances of missing Inflection point is high y On providing cheap phones, new features,
new style and type, good after sales service by the competition

y Since the increase in standard of living in

India, has to target right customers at the right time.

y Can use its infrastructure business to

reduce the bargaining power of mobile operators.

Strategic diagnosis of Nokia

Product analysis With the introduction of Nokia OVI App Store, Nokia entered the range of smart phones as a competitive strategy. This turned out to be confusing mix of Microsoft technology and abandoned Nokia indicatives. Since the embrace with Microsoft Windows Phone 7 as Nokia s future smart phone technology and preferred market partner, Nokia has been gushing negative news for app developers. It delayed the launch of its Meego devices and shut down its Music Unlimited service. In April 2011 Stephen Elop, CEO, stated that Nokia needed to cut over 1 Billion Euros in expenses from its global handset business by 2013. After spending 5 years promoting Ovi as an app ecosystem and market hub, in May, Nokia disclosed that it would phase out its Ovi brand altogether by 2013, turning whatever is left standing of Ovi s 40,000 mobile apps, productivity and entertainment services into a vanilla offering called Nokia services. These

moves may be financially expedient, but they are not going to win over many innovative new smart phone app developers or customers who already prefer other smart phones. When compared to Apple s iPhone, Nokia s N97 is more feature-rich. Yet it managed to sell only 500,000 phones in first quarter of its launch in comparison with 1,000,000 iPhones in first week of its launch. This is because of lack of customer satisfaction with Nokia s smartphones.

The following table shows the customer satisfaction index:

iPhone Android Blackberry Nokia Windows

92% 77% 73% 66% 66%

Since, Nokia is at the bottom of the satisfaction index, it indicates lack of user experience and customer satisfaction. Segmentation analysis Broadly, the smartphones segment can be classified into 3 types of users: y Entertainment users y Communication users y Information users Nokia has well defined products for each of these users. N series is targeted for entertainment users; E series is targeted for communication users. But somehow, Nokia is not successful in reaching the targeted users for their products. The common usage characteristic between entertainment and communication users is access to internet. Entertainment users connect to internet to download

music, applications and games and also to connect to social sites. Communication users connect to internet to interact with others through e-mail, chat etc.so internet usage is critical for both the users. However internet usage statistics of Nokia smartphones in comparison with its market share is not convincing and satisfactory. In fact, the internet usage statistics in Nokia is declining. So it is evident that Nokia smartphones are not bought by the target customers. This is a clear mismatch between the product and its consumers as it is not reaching the intended consumers. Product line analysis Nokia has a broad range of products for this particular segment much more than any other mobile manufacturer. Nokia is launching lots of product and has been able to get new models in to the market faster than its competitors. It changes the entire product lines/series faster like the panel, software feature, memory size, screen etc. Value chain analysis

Supply chain

Operation

Distribution

Sales

Marketing

Service

In most of the geographic locations, telecom operators exert control in distribution, sales and marketing and they influence the total sales of smartphones, so part of the value chain is critical for strategic analysis. Telecom operators device specific 3G plans for each mobile manufacture bundle the plans along with the smart phone and sell it through their distribution

channel. As the internet usage of Nokia smartphones is not convincing and hence telecom operators do not have any additional incentives to sell Nokia smartphones.

Strategy formulation
Product differentiation Nokia is fast catching up with its competitors through exclusively launched OVI Store . There is a projection that application downloads from all application stores by 2014 will be $6.67 billion. So consumers would value applications a lot and Nokia cannot afford to stay behind. The strategy of Nokia is not to be a leading applications provider for smartphones, but to ensure that its competitors do not gain sufficient competitive advantage through applications. Nokia has to nullify the competitive advantage that its competitors have gained out of applications by offering application developers an ideal platform through its OVI store. It has to focus on increasing the user satisfaction index. Though it is leader in hardware, its reputation is at stake in software.

Cost differentiation

Nokia Apple Samsung Blackberry LG HTC Motorola Sony Ericsson

30.7 36.4 13.3 15.4 4.2 5.1 -0.1 -0.1

The above table clearly indicates operational efficiency of Nokia . Nokia has sufficient financial leverage to engage in price wars with all its competitors except Apple. However, Nokia can set a benchmark for operating profits in smart phone industry which will bring lots of pressure on all the competitors by investors, shareholders of the respective companies. The competitors in an attempt to increase their operating profits might take wrong steps and finally stumble. They might also leave the industry provided their cost of exit is low. Cost leadership will give Nokia an invincible position against its competitors. Against Apple, Nokia can become aggressive and fight head on with it.

Nokia competitive strategy

Mass market

Low cost mass market strategy

Brand differentiation Strategy

Low cost niche Niche market market strategy

Focus differentiation strategy

Cost advantage

Product differentiation

Functional strategy y Nokia has to reduce its product portfolio and release lesser products and target the right kind of audience. It should focus on releasing a product that would challenge the likes of iPhone and Galaxy. y Since the competitors are not targeting the information users, perhaps Nokia can consider entering the market through some innovative product. y There is not a clear target for Nokia in their aim to reach all major consumer segments. They need to connect emotionally, for example, they can begin by changing the names of the devices (N Series and E Series) because there is no emotional connection. y It should develop products and services that solve specific customer problems and fit into their lifestyles. y Nokia has currently two operating systems (Symbian & Maemo) and both are open source. It has to clearly define a roadmap for both the

operating systems. Maemo is a new community and efforts should be focused towards increasing the strengths of the community. y Brand Nokia has a global appeal, creating a sub- brand and communicating to the global audience is costly. Therefore, branding low-end and high-end mobile phones does not make that big of a difference. y Mobile phones and smartphones are an evolving industry, so Nokia has to keep a tight vigil on the inflection points. Disruptive changes in technology occur at inflection points and they will bring a huge change to the entire industry, missing such inflection point will be suicidal.

Corporate strategy Nokia is currently divesting few of its business that does not add value and so it should stop divestments and concentrate its resources and energy on smartphones business as the market has huge potential for growth and it can add lot of value.

Conclusion Nokia is concerned about mobility and the continuous convergence between media. They are willing to create value by combining smart services and devices to deliver solutions for consumers. They define their strategic objectives as: y Irresistible solutions and vibrant ecosystems. y Direct and continuous customer relationships y Best devices  Broadening their geographic reach  Broadening their device base will grow their service business

y Smart services  Creating relevant and personalized services  Target: 300 million people using their smart services by 2012 Though it continues to face difficult market conditions, the company is making progress on the new strategy. From smartphones to mobile phones, from services to user interface design, and from improved device experiences to developer tools, Nokia has outlined actions for growth. Earlier this year, we outlined a comprehensive strategy to change our course, said Stephen Elop , president and CEO of Nokia Innovation is at the heart of our strategy, and today we took important steps to demonstrate a new pace of innovation at Nokia. It s the beginning of a new era for Nokia.
Handset market share for 2nd quarter
Brand Units Sold Market share Market share QoQ Change (%) (in millions) 2nd quarter 1st quarter, 2009 103.2 52.3 29.8 14.9 40.47 % 20.51 % 11.69 % 5.84 % 5.41 % 16.08 % 40.43 % 19.91 % 9.83 % 6.39 % 6.3 % 17.14 % Market share YoY Change (%) 2nd quarter, 2009 -0.61 % 5.12 % 2.36 % -3.62 % -2.81 % -0.45 %

Nokia Samsung LG Motorola Others

0.039999999999999 % 41.08 % 0.6 % 1.86 % -0.55 % -0.89 % -1.06 % 15.39 % 9.33 % 9.46 % 8.22 % 16.53 %

Sony Ericsson 13.8

41

Income statement

Dec 31, 2010

Dec 31, 2009

Dec 31, 2008

Dec 31, 2007

Dec 31, 2006

Net sales
56,324 58,742 70,587 74,559 54,271

Cost of sales
(39,317) (39,731) (46,405) (49,290) (36,613)

Gross profit
17,008 19,011 24,183 25,269 17,657

Research and development expenses

(7,780) (8,469) (8,307) (8,246) (5,143)

Selling and marketing expenses

(5,145) (5,637) (6,097) (6,396) (4,374)

Administrative and general expenses

(1,480) (1,641) (1,787) (1,723) (879)

Impairment of goodwill
(1,301)

Other income
632 484 585 3,376 689

Other expenses
(488) Operating profit 2,747 1,716 6,913 11,660 7,243 (731) (1,663) (619) (707)

Share of results of associated companies Dividend income

3 4 1 1 43 8 64 37

Interest income
183 161 497 520 297

Interest expense
(337) (348) (258) (63) (29)

Net realised gains (or losses) on disposal of investments Net fair value gains (or losses) on investments Net gains (net losses) on derivatives
(8) (27) 8 7 (3) (4) 27 1 3 (6) (25)

Other financial income

97 26 24 63 73

Other financial expenses

(171) (42) (43) (35) (24)

Net foreign exchange gains (or losses) Financial income and expenses
(378) (380) (3) 349 273 (142) (183) (227) (118) (41)

Profit before tax

2,370 1,379 6,918 12,074 7,553

Tax
(588) (1,006) (1,505) (2,223) (1,791)

Profit
1,782 373 5,413 9,851 5,762

(Profit) loss attributable to noncontrolling interests Profit attributable to equity holders of the parent
2,455 1,277 5,551 10,521 5,683 673 904 138 670 (79)

Consolidated financial position, assets

31-Dec-10 Capitalized development costs 53 Goodwill 7,594 Other intangible assets 2,558 Property, plant and equipment 2,593 Investments in associated companies 180 Available-for-sale investments 707 Deferred tax assets 2,118 Long-term loans receivable 85 Other non-current assets Non-current assets Inventories 3,348 Accounts receivable, net of allowances for doubtful accounts Prepaid expenses and accrued income Current portion of long-term loans receivable Other financial assets 502 Investments at fair value through profit and loss Available-for-sale investments 5,005 Liquid assets Available-for-sale investments, cash equivalents 6,214 7,485 1,209 5 15,894

31-Dec-09 205 7,411

31-Dec-08 340 8,710

31-Dec-07 552 2,021

31-Dec-06 331 702

3,959 2,676 99 794 2,160

5,447 2,909 134 713 2,732

3,443 2,792 475 498 2,268

393 2,114 296 380 1,068

66 9 17,379 2,673

38 14 21,036 3,526

15 64 12,128 4,200

25 11 5,320 2,051

10,045 5,786 52

11,439 6,523 20 472 831 3,393 4,224 6,857

13,146 6,317 141 1,439

16,355 4,483 228 349

7,771 3,294

146

1,771 1,771 5,348

7,160 7,160 6,900

6,615 6,615 2,700

Bank and cash Cash and cash equivalents Current assets Total assets

2,589 10,074 36,020 51,915

1,637 8,494 33,844 51,223

2,375 7,723 34,062 55,097

3,103 10,003 42,777 54,905

1,952 4,652 24,529 29,850

Consolidated statement of financial position, liabilities and stockholders equity

31-Dec-10 Share capital 326 Share issue premium 414 Treasury shares, at cost -880 Translation differences 1,095 Fair value and other reserves Reserve for invested nonrestricted equity Retained earnings 13,933 Capital and reserves attributable to equity holders of the parent Non-controlling interests 2,451 Total equity Long-term interest-bearing liabilities Deferred tax liabilities 1,356 1,868 2,487 1,406 271 21,538 5,629 2,381 21,139 6,352 3,204 22,982 1,198 3,746 25,318 296 121 15,917 91 19,087 14,522 18,759 16,275 19,777 20,254 21,573 14,680 15,795 4 4,195 182 99 4,543 475 86 4,602 -238 34 4,817 -45 -18 -976 2,618 4,594 2,719 400 615 940 3,573 353 342 359 325 31-Dec-09 31-Dec-08 31-Dec-07 31-Dec-06

Other long-term liabilities 117 Non-current liabilities 7,102 8,314 3,782 1,876 523 95 96 174 161

Current portion of long-term loans Short-term borrowings

154 1,222

63 1,042 351 7,095 2,591

18 4,981 1,286 7,273 2,366

253 1,043 269 10,330 2,956 4,925 1,275 326

Other financial liabilities 593 Accounts payable 8,096 Social security, VAT and other taxes Wages and salaries 821 Deferred revenue 1,043 Advance payments 1,555 Other Accrued expenses and other liabilities Provisions 3,437 Current liabilities 23,276 Total liabilities 30,378 Total shareholders equity and liabilities 51,916 30,083 51,223 32,116 55,097 29,587 54,905 13,933 29,850 21,769 28,334 27,710 13,410 3,896 5,000 5,428 3,149 4,250 9,774 4,938 9,322 5,743 9,776 5,435 10,388 3,005 5,010 783 741 735 400 331 679 926 1,263 330 2,105

Consolidated statement of cash flow

12 months ended Profit attributable to equity holders of the parent Depreciation and amortization 2,350 (Profit) loss on sale of property, plant and equipment and available-for-sale investments Income taxes 588 Share of results of associated companies Non-controlling interest -673 Financial income and expenses 253 Transfer from hedging reserve to sales and cost of sales Impairment charges 146 Asset retirements 49 Share-based compensation 62 Restructuring charges 325 Customer financing impairment charges and reversals Settlement of a pension plan 212 Other income and expenses -12 Adjustments (Increase) decrease in shortterm receivables (Increase) decrease in inventories 2,803 4,859 -173 4,829 1,853 2,451 440 624 1,250 -364 23 103 333 253 50 259 1,446 207 92 67 -29 380 63 3 -349 -273 -904 -138 -670 79 -1 1,006 -43 1,505 -8 2,223 -64 1,791 -37 -256 2,557 -159 2,251 -15 1,761 -2,722 940 -5 31-Dec-10 2,455 31-Dec-09 1,277 31-Dec-08 5,551 31-Dec-07 10,521 31-Dec-06 5,683

1,700

1,641

-743

-3,134

-2,336

-679

917

447

-358

111

Increase (decrease) interestfree short-term borrowings Loans made to customers

2,074

-2,434

-3,247

4,375

1,179

23 Change in net working capital Cash generated from operations Interest received 146 Interest paid -312 Dividends received 1 Other financial income and expenses, net Income taxes paid, net 3,117 8,374

76 201 6,337 -3,544 6,836 883 13,258 -1,047 7,087

179 -367 3

579 -216 8

529 -86 18

310 -24

-673 -1,201

-183 -1,311

-271 -2,478

-63 -2,128

71 -1,535

Net cash from operating activities Acquisition of Group companies, net of acquired cash Purchase of current availablefor-sale investments, liquid assets Purchase of investments at fair value through profit and loss, liquid assets Purchase of non-current available-for-sale investments Purchase of shares in associated companies Additions to capitalized development costs Long-term loans made to customers Proceeds from repayment and sale of long-term loans receivable

6,336

4,657

4,459

11,527

5,910

-146

-42

-8,299

369

-682

-11,376

-4,013

-931

-7,006

-4,248

-857

-996

-165

-136

-168

-184

-116

-44

-43

-33

-37

-20

-39

-182

-229

-168

-381 180 238

-15 74

Recovery of impaired longterm loans made to customers Proceeds from (payment of) other long-term receivables Proceeds from (payment of) short-term loans receivable Capital expenditures

364 3 -3 3 3 -1 -21 7 -174 -4 263

-901 Proceeds from disposal of shares in Group companies, net of disposed cash Proceeds from disposal of shares in associated companies Proceeds from disposal of businesses Proceeds from maturities and sale of current available-forsale investments, liquid assets Proceeds from maturities and sale of investments at fair value through profit and loss, liquid assets Proceeds from sale of noncurrent available-for-sale investments Proceeds from sale of fixed assets Net cash used in investing activities Proceeds from stock option exercises Purchase of treasury shares Proceeds from long-term borrowings Repayment of long-term borrowings 1 -28

-761

-1,237

-1,044

-858

7 187 9,529

57 87 2,480

4 57 6,492

7,199

6,675

442

155

110

20

14

73

22

28

143

75

105

38

-3,214

-3,082

-4,052

-1,054

1,328

74

1,441

61

-4,344 5,591 994

-5,577 168

-4,449 74

640

-8

-300

-47

-23

-9

Proceeds from (repayment of) short-term borrowings

174

-4,073

4,024

965

-181

Dividends paid -2,016 Net cash used in financing activities Foreign exchange adjustment 297 Net increase (decrease) in cash and cash equivalents -36 -68 -22 -2,216 -2,851 -2,570

-2,050

-1,209

-998

-2,151

-5,596

-6,554

-67

2,211

542

-1,812

4,855

616

Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period

7,864

7,952

9,535

5,147

4,036

10,074

8,494

7,723

10,003

4,652