Nokia 2005 Annual Report Download - page 68

Nokia Group’s operating profit for 2004 decreased 13% to EUR 4 326 million compared with
EUR 4 960 million in 2003 primarily due to the lower profitability in Mobile Phones partly offset
by improved operating profit in Networks and Multimedia. Our operating margin was 14.7% in
2004 compared with 16.8% in 2003.
Results by Segments
Mobile Phones
The following table sets forth selective line items and the percentage of net sales that they
represent for the Mobile Phones business group for the fiscal years 2004 and 2003.
Year ended Year ended
December 31, December 31, Percentage
2004 Percentage of 2003 Percentage of Increase/
As revised Net Sales As revised Net Sales (decrease)
(EUR millions, except percentage data)
Net sales .................. 18 521 100.0% 20 976 100.0% (12)%
Cost of sales ................ (12 045) (65.0)% (11 989) (57.2)%
Gross profit ................ 6 476 35.0% 8 987 42.8% (28)%
Research and development
expenses ................. (1 196) (6.5)% (1 026) (4.9)% 17%
Selling, general and
administrative expenses .... (1 417) (7.7)% (1 986) (9.4)% (29)%
Amortization of goodwill ..... (77) (0.4)% (82) (0.4)% (6)%
Operating profit ............. 3 786 20.4% 5 893 28.1% (36)%
Mobile Phones business group 2004 net sales decreased 12% to EUR 18 521 million compared with
EUR 20 976 million in 2003. At constant currency, Mobile Phones business group net sales would
have decreased by 5%. Despite an increase in volumes, sales were negatively impacted by a
decline in prices. In the second quarter of 2004, we reduced the prices of certain of our products,
which contributed to our stated aim of improving our market share sequentially towards the end
of the year, but adversely impacted sales for the remainder of 2004. In addition, while our product
mix started to improve towards the end of the year, this only partially offset the negative impact
of the price reductions and our mix being more weighted towards the low end entry phones in
low penetration markets during the earlier part of the year. A significantly weaker US dollar also
negatively impacted Mobile Phones net sales during 2004 compared with 2003.
Mobile Phones 2004 gross profit decreased by 28% to EUR 6 476 million compared with
EUR 8 987 million in 2003 primarily as a result of lower net sales while we were not able to
reduce product costs at the same rate. This represented a gross margin of 35.0% in 2004 compared
with a gross margin of 42.8% in 2003.
Mobile Phones 2004 R&D expenses increased by 17% to EUR 1 196 million, with the target to bring
more new competitive products to the market, compared with EUR 1 026 million in 2003. In 2004
R&D expenses represented 6.5% of Mobile Phones net sales compared with 4.9% of its net sales in
2003.
In 2004, Mobile Phones SG&A expenses decreased by 29% to EUR 1 417 million as a result of lower
marketing and advertising expenses partially due to delays in ramp-ups of new products and
postponed marketing campaigns, compared with EUR 1 986 million in 2003. In 2004, SG&A
expenses represented 7.7% of Mobile Phones net sales compared with 9.4% of Mobile Phones net
sales in 2003.
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