Nokia 2010 Annual Report Download - page 81

ecommerce specialists. For example, by making assets such as our locationbased services and a
number of Microsoft’s web assets available for other original equipment manufacturers and partners
to use, we aim to bring further scale to our ecosystem, an important driver of future advertising
based revenue streams.
Increasing Challenges of Achieving Sustained Differentiation and Impact on Overall Industry Gross
Margin Trends
Although we expect the mobile device industry to continue to deliver attractive revenue growth
prospects, we are less optimistic about the mobile device industry’s gross margin trends going
forward. The creation and momentum of new ecosystems, especially from established internet players
with disruptive business models, has enabled handset vendors that do not have substantial software
expertise to develop an increasingly broad and affordable range of smartphones and other connected
devices that feature a certain user interface, application development and mobile service ecosystems.
At the same time, this has significantly reduced the amount of differentiation in the user experience
in the eyes of consumers. We believe that as it becomes increasingly difficult for many of our
competitors to achieve sustained differentiation, this may depress overall industry gross margin
trends going forward.
Our ability to achieve sustained differentiation of our mobile products is a key driver of consumer
retention, net sales growth and margins. We believe that the three pillars of our new strategy create
a solid foundation for sustained differentiation across our mobile product portfolio and our future
financial performance.
Through our planned partnership with Microsoft and the Windows Phone ecosystem, we plan to focus
more of our investments in areas where we believe we can differentiate and less on areas where we
cannot, leveraging the assets and competencies of our ecosystem partners. As a consequence, we are
working to reduce our overall R&D expenditures in our devices and services business over the longer
term. Areas where we believe we can achieve sustained differentiation include:
•
Unique experiences. We believe that we have an opportunity to differentiate through a
collection of experiences on Nokia devices, supported by our productization capabilities. For
example, bringing together our bestinclass photographic and imaging capabilities with our
locationbased, geopositioning and other assets to create unique and differentiated
experiences.
•
Distinctive design. We have a long history of bringing iconic and signature designs to both
smart devices and mobile phones. We believe that having a distinctive “Nokia” design is a key
element of our strategy.
•
Local and global approach. Although we are a global company, we have significant local
presence and capabilities to ensure we are able to capitalize on local developer and ecosystem
opportunities. Services such as Nokia Life Tools and Nokia Money as well as our ability to
launch regional and country specific initiatives give us a unique opportunity to differentiate in
a number of high growth markets where our market position and brand are strongest. We
believe our ability to combine our scale and localization provides an important opportunity to
differentiate our mobile products.
•
Compelling hardware. We believe that in areas such as imaging, advanced sensors, GPS,
accelerometers and gyroscopes, we have an opportunity to continue to differentiate our
offering across a broad range of price points.
•
Brand. As the devices business is a consumer business, brand is a major differentiating factor
with broad effects on market position and pricing. The Interbrand annual rating of 2010 Best
Global Brands positioned Nokia as the eighth mostvalued brand in the world. In addition,
Nokia has been ranked No. 1 in The Economic TimesBrand Equity’s annual ‘Most Trusted
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