Nokia 2011 Annual Report Download - page 92

• Joint developer outreach and application sourcing to support the creation of new local and
global applications, including making Windows Phone developer registration free for all Nokia
developers.
• Planning towards opening a new Nokia-branded global application store that leverages the
Windows Marketplace infrastructure. Developers would be able to publish and distribute
applications to hundreds of millions of consumers that use Windows Phone, Symbian and
Series 40 devices.
• Contribution of our expertise in operator billing to ensure participants in the Windows Phone
ecosystem can take advantage of our billing relationships with 112 operators in 36 markets.
We are paying Microsoft a software royalty fee to license the Windows Phone smartphone platform,
which we record as royalty expense in our Smart Devices cost of goods sold. We have a competitive
software royalty structure, which includes annual minimum software royalty commitments and reflects
the large volumes that we expect to ship, as well as a variety of other considerations related to
engineering work to which both companies are committed. We expect that the adoption of Windows
Phone will enable us to reduce significantly our operating expenses. For example, the Microsoft
partnership allows us to eliminate certain research and development investments, particularly in
operating systems and services, which we expect will result in lower overall research and development
expenditure over the longer-term for our Devices & Services business.
In recognition of the contributions that we are providing, we will receive quarterly platform support
payments from Microsoft. In the fourth quarter of 2011, we received the first quarterly payment of
USD 250 million (approximately EUR 180 million). We have started to recognize a portion of the
platform support payments as a benefit to our Smart Devices cost of goods sold. The total amount of
the platform support payments is expected to slightly exceed the total amount of the minimum software
royalty commitments.
The Microsoft partnership also recognizes the value of intellectual property and puts in place
mechanisms for exchanging intellectual property rights.
Continued Convergence of the Mobile Communications, Computing, Consumer Electronics and
Internet Industries
Value in the mobile handset industry continues to be increasingly driven by the convergence of the
mobile communications, computing, consumer electronics and Internet industries. As consumer
demand and interest for smartphone and tablets with access to a range of content has accelerated,
new opportunities to create and capture value through innovative new service offerings and user
experiences have arisen, with a greater emphasis and importance on software and ecosystem-driven
innovation, rather than standalone devices. These opportunities seek to capitalize on various elements
of ecosystems such as search services, maps, location-based services, e-commerce, social
networking, entertainment, communications and advertising. Capturing these opportunities requires
capabilities to manage the increased complexity and to provide an integrated user experience where
all these various elements interact seamlessly either in one device or across multiple devices and
electronic products. We expect these new opportunities to continue to emerge in 2012. We believe that
we are well-positioned with our new strategy and partnership with Microsoft, including our collective
goal to build a new global mobile ecosystem for smartphones, to capture a number of these
opportunities. In Mobile Phones, we plan to leverage our innovation and strength in growth markets to
connect the next billion people to the Internet and information. We also plan to drive third party
innovation through working with our partners to engage in building strong, local ecosystems for our
feature phones.
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