Nokia 2012 Annual Report Download - page 31

We also commit to certain capacity levels or component quantities which, if unused, will result in
charges for unused capacity or scrapping costs. For example, in 2011 and 2012 we recognized
allowances for excess component inventory and future purchase commitments related to our devices,
and may do so in the future. Increases or decreases especially to Smart Devices inventory related
allowances may be required in the future depending on several factors, including consumer demand
and continued ramp up particularly related to our new Nokia products with Windows Phone.
Additionally, with the proportionally increased bargaining power of other large manufacturers in the
mobile device and electronics industry, we may not be able to achieve as favorable terms as in the
past resulting in increased costs that we may not be able to pass on to our customers, as well as
lapses in the availability of certain components, especially in situations of tight supply.
Moreover, a supplier may fail to meet our supplier requirements, such as, most notably, our and our
customers’ and consumers’ product quality, safety, security and other standards. Consequently, some
of our products may be unacceptable to us and our customers and consumers, or may fail to meet our
quality controls. In case of issues affecting a product’s safety or regulatory compliance, we may be
subject to damages due to product liability, or defective products, components or services may need to
be replaced or recalled. Also, some suppliers may not be compliant with local laws, including, among
others, local labor laws. In addition, a component supplier may experience delays or disruption to its
manufacturing processes or financial difficulties or even insolvency or closure of its business, in
particular due to difficult economic conditions. Due to our high volumes, any of these events could
delay our successful and timely delivery of products that meet our and our customers’ and consumers’
quality, safety, security and other requirements, or otherwise materially adversely affect our sales and
results of operations or our reputation and brand value.
Possible consolidation among our suppliers could potentially result in larger suppliers with stronger
bargaining power and limit the choice of alternative suppliers, which could lead to an increase in the
cost, or limit the availability, of components that may materially adversely affect our sales and results of
operations. The intensive competition among our suppliers and the resulting pressure on their
profitability, as well as negative effects from shifts in demand for components and sub-assemblies,
may result in the exit of certain suppliers from our industry and decrease the ability of some suppliers
to invest in the innovation that is vital for our business. Our ability to source components efficiently and
on terms favorable to us could also be adversely affected if component suppliers who also operate in
the mobile products market choose to limit or cease the supply of components to other mobile device
manufacturers, including us. Further, our dependence on a limited number of suppliers that require
purchases in their home country foreign currency increases our exposure to fluctuations in the
exchange rate between the euro, our reporting currency, and such foreign currency and, consequently,
may increase our costs which we may not be able to pass on to our customers.
Many of the production sites of our suppliers are geographically concentrated, with a majority of our
suppliers based in Asia. In the event that any of these geographic areas is affected by any adverse
conditions that disrupt production and/or deliveries from our suppliers, our ability to deliver our products
on a timely basis could be negatively affected, which may materially adversely affect our business and
results of operations.
We may fail to manage our manufacturing, service creation and delivery as well as our logistics
efficiently and without interruption, or fail to make timely and appropriate adjustments, or fail to
ensure that our products meet our and our customers’ and consumers’ requirements and are
delivered on time and in sufficient volumes.
Our product manufacturing, service creation and delivery as well as our logistics are complex, require
advanced and costly equipment and include outsourcing to third parties. These operations are
continuously modified in an effort to improve efficiency and flexibility of our manufacturing, service
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