NOK

Business Context and Reporting Period

This Form 20-F covers Nokia Corporation for the fiscal year ended December 31, 2004. Nokia is the world's largest manufacturer of mobile devices and a leader in mobile network equipment. Effective January 1, 2004, the company reorganized its structure into four business groups: Mobile Phones, Multimedia, Enterprise Solutions, and Networks, supported by two horizontal groups (Customer and Market Operations; Technology Platforms). The company operates globally with production facilities in nine countries and sales in over 130 countries.

Key Financial Metrics

Per Share Data (Basic): Earnings per share were EUR 0.70 in 2004 compared to EUR 0.75 in 2003. The Board proposed a dividend of EUR 0.33 per share for 2004.

Material Changes Versus Prior Period

• Revenue Decline: Net sales decreased 1% to EUR 29.3 billion. At constant currency, sales would have grown 6%. The decline was driven by a weaker US dollar (which accounts for over 50% of sales) and price reductions in the Mobile Phones segment to regain market share.
• Profitability Pressure: Operating profit fell 14% to EUR 4.3 billion. The Mobile Phones segment saw a 36% drop in operating profit due to lower sales and an inability to reduce product costs at the same rate as price cuts. Conversely, the Networks segment turned an operating loss of EUR 219 million in 2003 into a profit of EUR 878 million in 2004, driven by higher sales and improved 3G contract profitability.
• Market Share Dynamics: Nokia's global mobile device market share declined from an estimated 38% in 2003 to 32% in 2004. Volume growth was 16% (207.7 million units), but average selling prices (ASP) dropped 17% to EUR 110.
• Customer Financing: Total customer financing (outstanding and committed) decreased by 93% to EUR 59 million from EUR 877 million in 2003, significantly reducing credit risk exposure.

Guidance, Outlook, and Risks

Outlook: Management expects the mobile device industry to grow approximately 10% in volume in 2005, though value growth is expected to be lower due to price erosion. The infrastructure market is expected to be slightly up in 2005. Nokia aims to lower its R&D expenses to 9-10% of net sales by the end of 2006.

Management Commentary: The company is focusing on product competitiveness, customer satisfaction, and R&D effectiveness. A reorganization of R&D activities in the Multimedia business group (specifically games) was announced in January 2005. The company plans to continue share buy-backs in 2005 with up to EUR 5 billion, subject to authorization.

Risks and Contingencies:

• Price Erosion: Intense competition and the need to lower prices to maintain market share continue to pressure margins.
• Exchange Rates: The strengthening of the euro against the US dollar negatively impacts reported sales and operating profit.
• Intellectual Property: Increasing complexity of technology raises the risk of infringement claims and licensing costs.
• Health Litigation: Nokia is a defendant in class action suits in the US alleging health risks from mobile phone use without headsets; the company believes these claims lack merit.
• Customer Financing: While exposure has decreased, providing financing to network operators remains a competitive requirement in some markets.

Key Facts for Investor Verification

• Verify the sustainability of the 14% decline in operating profit, specifically the margin compression in the Mobile Phones segment versus the recovery in Networks.
• Monitor the impact of the strong euro on future revenue growth, given that over 50% of sales are generated in US dollars.
• Assess the success of the 2004 price reduction strategy in stabilizing market share, which had dropped to 32%.
• Review the progress of the R&D restructuring in the Multimedia segment and the target to reduce R&D spend to 8% of mobile device sales by 2006.
• Confirm the status of the proposed EUR 0.33 dividend and the execution of the EUR 5 billion share buy-back program in 2005.