Nokia 2006 Annual Report Download - page 22

requirements, such as, most notably, our and our customers’ product quality, safety, security and
other standards, and consequently some of our products may be unacceptable to us and our
customers, or may fail to meet our own quality controls. In addition, a component supplier may
experience delays or disruption to its manufacturing processes or financial difficulties. Any of these
events could delay our successful delivery of products and solutions that meet our and our
customers’ quality, safety, security and other requirements, or otherwise materially adversely affect
our sales and our results of operations. Also, our reputation and brand value may be materially
adversely affected due to real or merely alleged failures in our products and solutions. See ‘‘Item 4.B
Business Overview—Production’’ for a more detailed discussion about our production activities.
Possible consolidation among our suppliers could potentially result in larger suppliers with stronger
bargaining power and limit the choice of alternative suppliers, which could lead to an increase in
the cost, or limit the availability, of components that may materially adversely affect our sales and
profitability.
Many of the production sites of our suppliers are geographically concentrated. In the event that any
of these geographic areas is generally affected by adverse conditions that disrupt production and/or
deliveries from any of our suppliers, this could adversely affect our ability to deliver our products
and solutions on a timely basis, which may materially adversely affect our sales and profitability.
The global networks business relies on a limited number of customers and large multiyear
contracts. Unfavorable developments under such a contract or in relation to a major customer
may adversely and materially affect our sales, our results of operations and cash flow.
Large multiyear contracts, which are typical in the networks industry, include a risk that the timing
of sales and results of operations associated with these contracts will differ from what was expected
when we first entered into such contracts. Moreover, such contracts usually require the dedication of
substantial amounts of working capital and other resources, which impacts our cash flow negatively.
Any nonperformance by us under these contracts may have significant adverse consequences for us
because network operators have demanded and may continue to demand stringent contract
undertakings, such as penalties for contract violations.
Furthermore, the number of our customers may diminish due to operator consolidation. This will
increase our reliance on fewer larger customers, which may negatively impact our bargaining
position, sales and profitability.
Our sales derived from, and assets located in, emerging market countries may be materially
adversely affected by economic, regulatory and political developments in those countries or
by other countries imposing regulations against imports to such countries. As sales from
these countries represent a significant portion of our total sales, economic or political
turmoil in these countries could materially adversely affect our sales and results of
operations. Our investments in emerging market countries may also be subject to other risks
and uncertainties.
We generate sales from and have manufacturing facilities located in various emerging market
countries. Sales from these countries represent a significant portion of our total sales and these
countries represent a significant portion of the expected industry growth. Accordingly, economic or
political turmoil in these countries could materially adversely affect our sales and results of
operations. Our investments in emerging market countries may also be subject to risks and
uncertainties, including unfavorable taxation treatment, exchange controls, challenges in protecting
our intellectual property rights, nationalization, inflation, currency fluctuations, or the absence of, or
unexpected changes in, regulation as well as other unforeseeable operational risks. See Note 2 to
our consolidated financial statements included in Item 18 of this annual report on Form 20F for
more detailed information on geographic location of net sales to external customers, segment assets
and capital expenditures.
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