Nokia 2012 Annual Report Download - page 33

volumes of many of our mobile products, even a single defect in their design, manufacture or
associated hardware, software and content may have a material adverse effect on our business. Our
smartphones, in particular, incorporate numerous functionalities, feature computer-like and consumer
electronics-like hardware and are powered by sophisticated software. This complexity and the need for
the seamless integration of the hardware, software and services elements and compatibility with other
relevant technologies may also increase the risk of quality issues in our smartphones. Further, our
mobile product portfolio is subject to continuous renewal which, particularly during periods of significant
portfolio renewals, may increase the risk of quality issues related to our products, in particular in
smartphones.
Defects and other quality issues may result from, among other things, failures in our own product and
service creation and deliveries as well as manufacturing processes, failures of our suppliers to comply
with our supplier requirements, or failures in products and services created jointly with collaboration
partners or other third parties where the development and manufacturing process is not fully in our
control. Prior to shipment, quality issues may cause failures in ramping up the production of our
products and shipping them to customers in a timely manner as well as related additional costs or even
cancellation of orders by customers. After shipment, products may fail to meet marketing expectations
set for them, may malfunction or may contain security vulnerabilities, and thus cause additional repair,
product replacement, recall or warranty costs to us and harm our reputation. In case of issues affecting
a product’s safety, regulatory compliance including but not limited to privacy or security, we may be
subject to damages due to product liability, and defective products, components or service offerings
may need to be replaced or recalled. With respect to our services, quality issues may relate to the
challenges in having the services fully operational at the time they are made available to our customers
and consumers and maintaining them on an ongoing basis. The use of our HERE business map data
in our customers’ products and services, including HERE Maps in our mobile devices, involves a
possibility of product liability claims and associated adverse publicity. Claims could be made by
business customers if errors or defects result in a failure of their products or services, or by end-users
of those products or services as a result of actual or perceived errors or defects in the map database.
In addition, business customers may require us to correct defective data, which could be costly, or pay
penalties if quality requirements or service level agreements are not satisfied.
We make provisions to cover our estimated warranty costs for our products. We believe that our
provisions are appropriate, although the ultimate outcome may differ from the provided level which
could have a positive or negative impact on our results of operations and financial condition.
Our mobile products and related accessories are also subject to counterfeiting activities in certain
markets. Counterfeit products may erode our brand due to poor quality. Such activities may affect us
disproportionately due to our brand recognition in various markets. Furthermore, our products are
increasingly used together with hardware, software or service components that have been developed
by third parties, whether or not we have authorized their use with our products. However, such
components, such as batteries or software applications and content, may not be compatible with our
products and may not meet our and our customers’ and consumers’ quality, safety, security or other
standards. Additionally, certain components or layers that may be used with our products may enable
them to be used for objectionable purposes, such as to transfer content that might be illegal, hateful or
derogatory. The use of our products with incompatible or otherwise substandard hardware, software or
software components, or for purposes that are inappropriate, is largely outside of our control and could
harm the Nokia brand.
32