Nokia 2012 Annual Report Download - page 85

Devices & Services operating expenses, excluding special items and purchase price accounting
related items, to an annualized run rate of approximately EUR 3.0 billion by the end of 2013. We have
pursued a range of measures, including:
• Reductions within certain research and development projects, resulting in the closure of our
facilities in Ulm, Germany and Burnaby, Canada;
• Consolidation of certain manufacturing operations, resulting in the closure of our
manufacturing facility in Salo;
• Focusing of marketing and sales activities, including prioritizing key markets;
• Streamlining information technology, corporate and support functions; and
• Divestments of non-core assets, such as the sale of Vertu and Nokia’s headquarters in
Finland completed in the second half of 2012.
Since we outlined our new Devices & Services strategy in February 2011, as of December 2012, we
have reduced our total Nokia Group level headcount by a total of approximately 34 600 employees. Of
this, approximately 25 800 reductions came from Devices & Services and corporate common.
As of December 31, 2012, we had recognized cumulative net charges in Devices & Services of
approximately EUR 1.4 billion related to our restructuring activities under in 2011 and 2012, which
included restructuring charges and associated impairments. While the total extent of the restructuring
activities is still to be determined, we currently anticipate cumulative charges in Devices & Services of
approximately EUR 1.6 billion before the end of 2013. We also currently anticipate cumulative
restructuring related cash outflows in Devices & Services of approximately EUR 1.4 billion before the
end of 2013, of which approximately EUR 1.1 billion had been incurred as of December 31, 2012.
In the past, our cost structure has benefited from the cost of components eroding more rapidly than the
price of our mobile products. Recently, however, component cost erosion has been generally slowing
primarily driven by Devices & Services’ smaller scale, a trend that adversely affected our profitability in
2010, 2011 and 2012, and may do so in the future.
Our Devices & Services business is expected to continue to be subject to risks and uncertainties, as our
Smart Devices business unit continues to broaden its portfolio of Windows Phone 8 based products and
our Mobile Phones business unit continues to bring more smartphone features and design to our Mobile
Phones portfolio. Those risks and uncertainties include, among others, the timing, ramp-up, quality and
demand for our new products, including our Lumia and Asha devices; further pressure on margins as
competitors endeavor to capitalize on our transition; and uncertainty in the macroeconomic environment.
Please see section Item 3D, “Risk Factors” and “Forward-Looking Statements”.
Longer-term, we continue to target:
• Devices & Services net sales to grow faster than the market, and
• Devices & Services operating margin to be 10% or more, excluding special items and
purchase price accounting related items.
Microsoft Partnership
In February 2011, we announced our partnership with Microsoft to bring together our respective
complementary assets and expertise to build a new global mobile ecosystem for smartphones. The
partnership, under which we have adopted and are licensing Windows Phone from Microsoft as our
primary smartphone platform, was formalized in April 2011.
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