Nokia 2008 Annual Report Download - page 62

extremely limited visibility, we expect industry mobile device volumes in 2009 to decline by
approximately 10% from the approximately 1.2 billion units we estimate for 2008.
Our mobile device market share is driven by our ability to have a competitive product portfolio with
attractive aesthetics, design and combination of valueadding functionalities and services for all major
consumer segments and price points. Market share is also impacted by our brand, manufacturing and
logistics, distribution, competitive cost structure, pricing and how we differentiate our products from
those of our competitors. We believe that product differentiation will be based increasingly on service
innovations and how these services are integrated with devices to improve the user experience.
Consequently, we are investing to extend our leadership position in mobile devices and integrated
services. Our market share is also impacted by our regional and product mix. In 2008, for example,
our global device market share benefited from our strong market share in India, Middle & East Africa,
South East AsiaPacific and the entrylevel market. Our global device market share increased in 2008,
and we are targeting again to increase our market share in 2009. We believe that our global share
may benefit in 2009 from our continuously improving product portfolio and our competitive
advantages, which may enable us to navigate through the current difficult global economic conditions
in a relatively more stable manner than some of our competitors.
Our device ASPs are impacted by overall industry dynamics, in particular the increasing relative share
of emerging markets where lowerpriced products predominate, and competitive factors such as
pricing activities. Our ASPs are also impacted by our own product mix, as well as the overall
competitiveness of our product portfolio. We also respond in a tactical manner in certain product
segments and regions to pricing activities by our competitors in order to maximize our earnings in a
sustainable way. Also, global or local economic conditions may impact our device ASPs, in particular
as some of our customers may trade down to lowerpriced devices as a result of the current difficult
global economic conditions.
Operational efficiency and cost control have been and are expected to continue to be important
factors affecting our profitability and competitiveness. We continuously assess our cost structure and,
in the current difficult global economic conditions, we are taking action to reduce our overall costs
and prioritize our investments. Our objective in the current environment is to maintain our strong
capital structure, focus on profitability and cash flow and invest appropriately to innovate and grow
in key strategic areas.
Costs of sales of Devices & Services are comprised of the cost of components, manufacturing labor and
overhead, royalties and license fees, the depreciation of product machinery, logistics costs, cost of
excess and obsolete inventory, as well as warranty and other quality costs. The unprecedented
currency volatility we have recently experienced is impacting our costs, since at the end of 2008 we
sourced approximately 25% of our device components based in the Japanese yen, which has
appreciated significantly relative to the US dollar and the euro during the fourth quarter of 2008. The
positive financial impact of our Japanese yen hedges effective at the end of 2008 will end from
mid2009 onwards. We are taking action to reduce our devices sourcing costs in the Japanese yen,
including price negotiations with our suppliers and shifting the sourcing of certain components to
nonJapanese suppliers.
In addition, we are taking action to reduce operating expenses. At the beginning of 2009, our annual
operating expense run rate in our Devices & Services business was approximately EUR 6.7 billion on a
nonIFRS basis which excludes special items and purchase price accounting related items. We will
continue to adjust our cost structure through 2009 and 2010, and we are targeting an annualized
Devices & Services operating expense run rate of lower than EUR 6 billion, on a nonIFRS basis which
excludes special items and purchase price accounting related items, by the end of 2010, with a
majority of the targeted reduction in 2009. As a part of the measures needed to reach this target, in
the research and development we plan to continue to sharpen our focus on portfolio pruning and
prioritization of investment. We plan to invest in consumer Internet services in an increasingly
focused way. In sales and marketing, we plan to reduce spending related to specific products, and we
will endeavor to leverage themebased marketing to a much greater extent. In general and
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