Nokia 2006 Annual Report Download - page 64

Multimedia 2006 operating profit increased 58% to EUR 1 319 million compared with EUR 836 million
in 2005, with an operating margin of 16.7% in 2006, up from 14.0% in 2005. The increase in
operating profit reflected the increase in sales of our Multimedia products and effective operating
expense control.
Enterprise Solutions
The following table sets forth selective line items and the percentage of net sales that they
represent for the Enterprise Solutions business group for the fiscal years 2006 and 2005.
Year Ended Year Ended Percentage
December 31, Percentage of December 31, Percentage of Increase/
2006 Net Sales 2005 Net Sales (Decrease)
(EUR millions, except percentage data)
Net sales ****************** 1 031 100.0% 861 100.0% 20%
Cost of sales *************** (582) (56.5)% (459) (53.3)% (27)%
Gross profit **************** 449 43.5% 402 46.7% 12%
Research and development
expenses **************** (319) (30.9)% (329) (38.2)% (3)%
Selling and marketing
expenses **************** (306) (29.7)% (221) (25.7)% 38%
Administrative and general
expenses **************** (75) (7.3)% (74) (8.6)% 1%
Other operating income and
expenses **************** (7) (0.6)% (36) (4.2)% (81)%
Operating loss************** (258) (25.0)% (258) (30.0)% —
Enterprise Solutions business group 2006 net sales increased 20% to EUR 1 031 million compared
with EUR 861 million in 2005. At constant currency, Enterprise Solutions net sales would have
increased 17% in 2006. Net sales growth was highest in China, North America, Europe, Latin America
and AsiaPacific. Net sales declined in Middle East & Africa. The Nokia Eseries sold almost 2 million
units since its introduction in the second quarter 2006.
In Enterprise Solutions, gross profit increased by 12% to EUR 449 million as a result of the growth of
the business, compared with EUR 402 million in 2005. This represented a gross margin of 43.5% in
2006 compared with a gross margin of 46.7% in 2005.
In Enterprise Solutions, R&D expenses in 2006 decreased by 3% to EUR 319 million due to effective
cost control. R&D expenses in 2005 were EUR 329 million. R&D expenses represented 30.9% of
Enterprise Solutions net sales in 2006 and 38.2% of its net sales in 2005.
In 2006, Enterprise Solutions selling and marketing expenses increased by 38% to EUR 306 million
reflecting increased sales and marketing spend primarily due to the launch of new Eseries products.
Selling and marketing expenses were EUR 221 million in 2005. In 2006, selling and marketing
expenses represented 29.7% of Enterprise Solutions net sales and 25.7% of its net sales in 2005.
Other operating income and expenses included restructuring charge for personnel expenses primarily
related to headcount reductions of EUR 8 million in 2006 and EUR 29 million in 2005.
Enterprise Solutions operating loss of EUR 258 million was flat in 2006 compared to 2005, with an
operating margin of (25.0)% in 2006 and an operating margin of (30.0)% in 2005. In 2006, higher
net sales and effective operating cost control were offset by the negative impact of a mix shift to
lowerend products.
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