Nokia 2010 Annual Report Download - page 27

revenue sources from the proposed Microsoft partnership and a reduction in our operating expenses,
particularly our research and development expenses.
Our products are subject to price erosion, both naturally over their life cycle and as a result of various
other factors, including increased price pressure. We have also in the past and may continue to
increase the proportion of devices sold at lower prices to reach wider groups of consumers,
particularly in our smartphones. Other factors that may adversely impact the selling price of our
mobile devices include the extent to which consumers do not upgrade their mobile devices, postpone
replacement or replace their current device with a lowerpriced device and the extent to which our
regional mix is weighted towards emerging markets where lowerpriced products predominate.
Moreover, some of our competitors may continue to reduce their prices resulting in significantly lower
profit margins than is customary or sustainable on a longterm basis in this industry, which would
lower the selling price of our devices if we chose for competitive reasons to lower our prices. Our
inability to lower our costs at the same rate or faster than the price erosion of our devices could have
a material adverse effect on our business and results of operations, particularly our profitability.
We may be unable to effectively and smoothly implement the new operational structure for
our devices and services business effective April 1, 2011.
We announced a new strategy, leadership team and operational structure for our devices and services
business on February 11, 2011 designed to focus on speed, results and accountability. Effective
April 1, 2011, there will be two business units: Smart Devices, focused on smartphones, and Mobile
Phones, focused on massmarket mobile phones. The new strategy and operational structure is
expected to have a significant impact on our operations and personnel, including substantial
reductions in personnel following the appropriate consultations, as well as the related costs of the
operational restructuring and personnel reductions.
The new strategy also involves changing our mode of working and culture to facilitate speed and
agility in our innovation, product development and execution and accountability for results.
Organizational changes of this nature consume significant time, attention and resources of our senior
management and others within the organization, potentially diverting their attention from other
aspects of our business. Additionally, when such changes are planned and implemented they may
cause disruption and dissatisfaction among employees, as well as fatigue due to the cumulative effect
of several other reorganizations in the past few years. As a result, employee motivation, energy, focus
and productivity may be reduced causing inefficiencies and other problems across the organization
and leading to the loss of key personnel and the related costs associated in dealing with such
matters. Moreover, our employees may be targeted aggressively by our competitors during the
implementation of our new strategy, and some employees may be more receptive to such offers
leading to the loss of key personnel. These factors may have a more pronounced adverse impact due
to the cumulative effect of the previous reorganizations. Should we fail to implement the new
operational structure effectively and smoothly and effect the changes in our mode of working and
culture, the efficiency of our operations and performance may be affected, which could have a
material adverse effect on our business and results of operations, particularly our profitability. See
“Item 4A. ‘‘History and Development of the Company—Organizational Structure” for more information
about our new operational structure.
Our sales and profitability are dependent on the development of the mobile and fixed
communications industry in numerous diverse markets, as well as on general economic
conditions globally and regionally.
Our sales and profitability are dependent on the development of the mobile and fixed
communications industry in numerous diverse markets in terms of the number of new mobile
subscribers, the number of existing subscribers who upgrade or replace their existing mobile devices
and the number of active users of applications and services on our devices. In certain low penetration
markets, in order to support a continued increase in mobile subscribers, we continue to be dependent
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