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Mobile Phones andCost Leadership

Olli-Pekka Kallasvuo

Executive Vice President andGeneral Manager

Mobile Phones

Nokia Capital Market Days 2003

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Agenda

• New structure

• Business units

• Cost leadership

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Customer and Market Operations

TechnologyPlatforms

Research,Venturingand BusinessInfrastructure

MobilePhones Networks

EnterpriseSolutions

Shared Services

MultimediaMobilePhones

GSM voice centric and camera terminals

CDMA terminals

TDMA terminals

Mobile Entry Terminals

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Nokia - Mobile phone categories

Product style categories to meet different lifestyles and individual preferences

Entry Expression Active Classic Fashion Premium

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Appealing brand image and reputation

Capability to extend and embrace existing customer base

Compelling end user

experience

Winning End Users’ Hearts and Minds

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Business Units

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GSM voice centric and camera terminals

Mobile Entry Terminals

Price-functionality-style

Customisation & platformization

Renewal

Market share

Drive Penetration

Affordability

Ease of use

Brand

Quality

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• Shipping to major customers

• Sprint and Verizon in the USA

• Reliance in India

• Unicom in China

• Next steps: Expanding to higher price points

CDMA

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Defining cost leadership

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Nokia Mobile Phones vs. Dell

1 EUR = 1.17 USD

Source: Nokia managemen t reports, DELL fina ncials (both based or reported data)

Mobile Phones DELL30.Sep.03 01.Aug.03

USD USD

Sales (M) 6 575 9 778Sales / head 239 996 233 923Operating margin 22.0% 8.6%

Inventory days 24 4Cash conversion cycle (days) -79 -43

Net working capital -2 184 -3 177Operating cash flow (M) 1 640 1 552

Most recent Qtr

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Nokia – The Cost Leader

Total cost advantage = 25%+

Design forManufacturability

Sourcing In-HouseManufacturing

Sales and Distribution

Mastering the Demand-Supply Network

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Why is mastering the Demand Supply Network critical and difficult?

• 500,000 units per day

• 7 units per second

• 300-350 components per product

• 60,000,000,000 components a year

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Inventory Days of SupplyNokia Mobile Phones vs. Contract Manufacturers

102030405060

1Q/00 3Q/00 1Q/01 3Q/01 1Q/02 3Q/02 1Q/03 3Q/03

Days

Celestica

Flextronics

Jabil

NMP

Sole ctron

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Managing Inventory Days of SupplyNokia Mobile Phones

0

40

80

120

160

1995 1996 1997 1998 1999 2000 2001 2002 2003

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Example of Cost Savings Managing Supply Chain

Inventory Carrying Cost• Interest cost • Obsolescence • Price erosion of procured components• Warehousing cost

1995: ∼ 300 M€2003: ∼ 300 M€

Inventory Carrying Cost per Phone

31.7

1.830

10

20

40

1995 2003

EUR

-94%

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Sourcing• Continued reduction of component costs through

strategic partnerships

• Nokia provides one interface to suppliers

• Nokia has limited number of suppliers

1998 1999 2000 2001 2002 2003

Material purchases

Sales volume

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• Largest assembly to order manufacturer in the world

• Outsourcing used to balance volume fluctuation

• High capacity utilization in engine manufacturing and responsive final assembly to customer order

In-house Manufacturing

Manufacturing cost €/unit

0

10

20

30

1996 1997 1998 1999 2000 2001 2002 2003

EUR

Phones/Production headcount

0

200

400

600

800

1000

1200

1400

1996 1997 1998 1999 2000 2001 2002 2003

(in 1

0s)

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Yields and Quality

• Low yields create more manufacturing cost (redo) and scrap costs

• Low yields have lost sales opportunity cost

• Low quality causes high field failure rate

• High field failure rate creates high warranty costs

Warranty Cost

2001 2002 2003

Field Failure Rate

2001 2002 2003

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Sales and Distribution

• Nokia’s model is not “Push and Pray”

• Enables us to be closer to customer (saves time and cost)

Need for Flexibility

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160 Custom Transceivers 260 Sales Package Variants*

*May 2003

Assembly To Order Engine2 variants

• 1 for APAC

• 1 for Europe

Nokia 3510i variation

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Room for improvement?

• Inventory Days of Supply

• Inventory Carrying Cost

• Manufacturing cost/unit

• Manufacturing Yields and Quality

• Sales and Distribution

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