Agenda

New structure
Mobile Phones and
•

Business units
Cost Leadership
•

• Cost leadership

Olli-Pekka Kallasvuo
Executive Vice President and
General Manager
Mobile Phones

Nokia Capital Market Days 2003

1 © N OKIA 2003 2 © N OKIA 2003

GSM voice centric and Nokia - Mobile phone categories

camera terminals
Customer and
Entry Expression Active Classic Fashion Premium
Market Operations Mobile Entry
Terminals
Mobile
Mobile Enterprise
Technology Phones
Phones
Multimedia Networks Solutions
Platforms
CDMA
terminals
Research,
Venturing
and Business
Infrastructure TDMA
terminals
Shared Services Product style categories to meet different
lifestyles and individual preferences
3 © N OKIA 2003 4 © N OKIA 2003

Winning End Users’ Hearts and Minds

Capability to extend and embrace
existing customer base

Business Units

Compelling Appealing
end user brand image and
experience reputation

5 © N OKIA 2003 6 © N OKIA 200

 GSM voice centric and camera terminals CDMA
Price-f unctionality-style
• Shipping to major customers
Customisation & platf ormization
• Sprint and Verizon in the USA
Renewal
• Reliance in India
Market share
• Unicom in China

• Next steps: Expanding to higher price points

Mobile Entry Terminals
Drive Penetration
Aff ordability
Ease of use
Brand
Quality

7 © N OKIA 2003 8 © N OKIA 2003

Nokia Mobile Phones vs. Dell

Most recent Qtr
Defining cost Mobile Phones DELL

leadership 30.Sep.03
USD
01.Aug.03
USD

Sales (M) 6 575 9 778

Sales / head 239 996 233 923
Operating margin 22.0% 8.6%

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

Net working capital -2 184 -3 177

Operating cash flow (M) 1 640 1 552
Source: Nokia managemen t reports, DELL fina ncials (both based or reported data)
1 EUR = 1.17 USD
9 © N OKIA 200 10 © NOK IA 2003

Nokia – The Cost Leader Why is mastering the Demand Supply Network
critical and difficult?

Design for Sourcing In-House Sales and

Manufacturability Manufacturing Distribution • 500,000 units per day
• 7 units per second
• 300-350 components per product
Mastering the Demand-Supply Network
• 60,000,000,000 components a year

Total cost advantage = 25%+

11 © NOK IA 2003 12 © NOK IA 2003

 Inventory Days of Supply Managing Inventory Days of Supply
Nokia Mobile Phones vs. Contract Manufacturers Nokia Mobile Phones
160

120
Sole ctron

Celest ica
60 80
50 Jabil

Days 40 Flext ro nics

30 40
20 NMP
10
1Q/00 3Q/00 1Q/01 3Q/01 1Q/02 3Q/02 1Q/03 3Q/03
0
1995 1996 1997 1998 1999 2000 2001 2002 2003

13 © NOK IA 2003 14 © NOK IA 2003

Example of Cost Savings Sourcing

Managing Supply Chain • Continued reduction of component costs through
Inventory Carrying Cost strategic partnerships
• Interest cost • Nokia provides one interface to suppliers
• Obsolescence
• Price erosion of procured components
• Nokia has limited number of suppliers
• Warehousing cost
Inventory Carrying Cost per Phone
40 Material purchases
1995: ∼ 300 M€ 31.7 Sales volume
2003: ∼ 300 M€ -94%
EUR

20

10
1.83
0
1995 2003 1998 1999 2000 2001 2002 2003

15 © NOK IA 2003 16 © NOK IA 2003

In-house Manufacturing
Yields and Quality
• Largest assembly to order manufacturer in the world
• Low yields create more manufacturing cost (redo) and scrap costs
• Outsourcing used to balance volume fluctuation
• Low yields have lost sales opportunity cost
• High capacity utilization in engine manufacturing and responsive final
assembly to customer order • Low quality causes high field failure rate
• High field failure rate creates high warranty costs

Field Failure Rate Warranty Cost

1400 Phones/Production headcount Manuf acturing cost €/unit
1200 30
(in 10s )

1000

800 20
EUR

600

400 10
200

0 0
1996 1997 1998 1999 2000 2001 2002 2003
1996 1997 1998 1999 2000 2001 2002 2003
2001 2002 2003 2001 2002 2003

17 © NOK IA 2003 18 © NOK IA 2003

 Nokia 3510i variation
Sales and Distribution
160 Custom Transceivers 260 Sales Package Variants*
Assembly To Order Engine
• Nokia’s model is not “Push and Pray”
2 variants
• Enables us to be clos er to customer (saves time and cost) • 1 for APAC
• 1 for Europe

Need for Flexibility

*May 2003

19 © NOK IA 2003 20 © NOK IA 2003

Room for improvement?

• Inventory Days of Supply

• Inventory Carrying Cost

• Manufacturing cost/unit

• Manufacturing Yields and Quality

• Sales and Distribution

21 © NOK IA 2003 22 © NOK IA 2003