Nokia 2011 Annual Report Download - page 20

We may not be able to produce attractive and competitive feature phones, including devices
with more smartphone-like features, in a timely and cost efficient manner with differentiated
hardware, software, localized services and applications.
The feature phone market, also referred to as the mobile phone market and a traditional area of
strength for us, is undergoing significant changes. Today, a feature phone-specific ecosystem has
emerged involving very low-cost components and manufacturing processes. Speed to market and
attractive pricing are critical factors for success. In particular, the availability of complete mobile
solutions chipsets and software from low-cost reference design chipset manufacturers has enabled the
very rapid and low-cost production of feature phones by numerous manufacturers particularly in China
and India, which are gaining significant market share in emerging markets, as well as bringing some
locally relevant innovations to the market. Moreover, many mid-range to high-end feature phones
increasingly offer access to the Internet and applications and provide more smartphone-like features
and design, blurring the distinction between smartphones and feature phones. We are subject to
intense competition over the entire spectrum we address through our Mobile Phones business unit.
Recently, smartphones of other manufacturers, particularly Android-based smartphones, are reaching
lower price points, which is increasingly reducing the addressable market and lowering the price points
for feature phones.
Accordingly, we need to provide feature phones in a timely and cost-efficient manner with differentiated
hardware, software, localized services and applications that attract new users and connect new and
existing users to an affordable Internet and application experience. For higher-end feature phones in
particular, the platform is a differentiating element with the addition of new functionalities and possibilities
for customization and an improved user experience. If we are unable to produce competitive low-end and
high-end feature phones and preserve our market share and profitability of our feature phones business,
our business, results of operation and financial condition could be materially and adversely affected. Our
ability to achieve this is subject to certain risks and uncertainties, including the following:
• We may not be able to leverage our traditional competitive strengths of scale in manufacturing
and logistics, as well as in our marketing and sales channels for instance to increase the
speed to market of our feature phones in a sufficiently cost-competitive manner, particularly
with mobile operators and consumers requiring increasing customization to meet divergent
local needs and preferences.
• The addressable market for feature phones may further reduce in size if the higher-end price
points become dominated by more affordable smartphones, such as Android-based
smartphones. In some regions, especially Europe and China, overall market demand for
feature phones may decline further.
• The platforms that we deploy for our feature phones may not be sufficiently attractive, flexible
and cost efficient for application developers and other partners to create a vibrant ecosystem
for feature phones with increasingly smartphone-like features, such as Internet access and
applications.
• We may need to make significant investments to further develop platforms for devices from
our Mobile Phones business unit. There can be no assurances regarding consumer
acceptance of such platform developments or that the development costs would result in a
positive return on our investments.
• We may not succeed in innovating and developing sufficiently locally relevant services,
applications and content in a speedy and cost-efficient manner to attract and retain
consumers in multiple markets with divergent local needs and preferences.
• Management focus on the development and launches of our Nokia products with Windows
Phone and the creation of a successful ecosystem for Windows Phone smartphones with
Microsoft may result in less management focus on our feature phone business.
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