Nokia 2011 Annual Report Download - page 36

modifications or illegal activities that may cause potential security risks and other harm to us, our
customers or consumers and other end-users of our products. Cybersecurity concerns may affect us
disproportionately due to our market position in mobile products, as hackers tend to focus their efforts
on popular products. Due to the very high volumes of many of our mobile products, and the evolving
nature of services and map data, such events or mere allegations of such events may have a material
adverse effect on our business.
In connection with providing our products to our customers and consumers, certain customer feedback,
information on consumer usage patterns and other personal and consumer data is collected and stored
through our products, in particular with smartphones, either by the consumers or by us or our partners
or subcontractors. Our developer sites may also require certain data to be provided by the developers.
Loss, improper disclosure or leakage of any personal or consumer data collected by us or that is
available to our partners or subcontractors, made available to us or stored in or through our products
could result in liability to us and harm our reputation and brand. Moreover, if data held by a developer
site is hacked or leaked, the developer may become unwilling to join or remain a part of our developer
ecosystems. In addition, governmental authorities may use our products to access the personal data of
individuals without our involvement, for example, through so-called lawful intercept capability of
network infrastructure. Even perceptions that our products do not adequately protect personal or
consumer data collected by us, made available to us or stored in or through our products or that they
are being used by third parties to access personal or consumer data could impair our sales, results of
operations, reputation and brand value.
Our business and results of operations, particularly our profitability, may be materially
adversely affected if we are not able to successfully manage the pricing of our products and
costs related to our products and our operations.
We need to introduce products in a cost-efficient and timely manner and manage proactively the costs
and cost development related to our portfolio of products, including component sourcing, manufacturing,
logistics and other operations. Historically, our market position and scale provided a significant cost
advantage in many areas of our business, such as component sourcing, compared to our competitors,
but our ability to leverage that advantage is now more limited. As well, we have benefited from the cost
of components eroding more rapidly than the price erosion of our mobile products. Recently, however,
component cost erosion has been generally slowing, a trend that adversely affected our profitability in
2010 and 2011, and may do so in the future. Currency fluctuations may also have an adverse impact on
our ability to manage our costs relative to certain of our competitors who incur a material part of their
costs in other currencies than we do. If we fail to maintain or improve our market position and scale
compared to our competitors across the range of our products, as well as leverage our scale to the
fullest extent, or if we are unable to develop or otherwise acquire software, applications and content cost
competitively in comparison to our competitors, or if our costs increase relative to those of our
competitors due to currency fluctuations, this could materially adversely affect our competitive position,
business and results of operations, particularly our profitability.
We need to manage our operating expenses and other internal costs to maintain cost efficiency and
competitive pricing of our products. Any failure by us to determine the appropriate prioritization of
operating expenses and other costs, to identify and implement on a timely basis the appropriate
measures to adjust our operating expenses and other costs accordingly, including the current
measures to achieve targeted reductions in our operating expenses, or to maintain reductions could
have a material adverse effect on our business, results of operations and financial condition. In
particular, our profitability could be materially adversely affected as we transition from our royalty-free
Symbian smartphone platform to the royalty-based Windows Phone platform if we are unable to offset
our higher cost of sales resulting from our royalty payments to Microsoft with new revenue sources
from the Microsoft partnership and a reduction in our operating expenses, particularly our research and
development expenses.
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