Nokia 2004 Annual Report Download - page 37

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Our principal supply requirements are for electronic components, mechanical components and
software. Electronic components include integrated circuits, microprocessors, standard components,
memory devices, cameras, displays, batteries and chargers. Mechanical components include covers,
connectors, key mats and antennas. Our products also incorporate software provided by third
parties.
Mobile Devices
The production and logistics for the device businesses of Mobile Phones, Multimedia and Enterprise
Solutions is managed by Customer and Market Operations, including control of the mobile device
factories. The organization is also responsible for the process development in the demand-supply
network, including Enterprise Solutions’ gateway business and network infrastructure business.
We consider our mobile device manufacturing to be a core competence and competitive
advantage. Our Customer and Market Operations organization currently operates ten mobile device
manufacturing plants in nine countries. Our US, Mexican and Brazilian plants primarily supply the
North and South American markets. Three major European plants, located in Finland, Germany
and Hungary, principally supply the European market and non-European countries that have
adopted the GSM standard. We have two plants in China and one in South Korea that primarily
supply the Asian markets. In addition, we have a manufacturing plant in the United Kingdom
serving Vertu.
We use outsourcing to add flexibility to our manufacturing activities. During 2004, outsourcing
covered an estimated 20%–25% of our manufacturing volume of mobile device engines.
In the past several years, we have made significant capital investments in order to automate our
mobile device manufacturing facilities further. Each of our plants deploys state-of-the-art
technology and is highly automated. Although our plants generally manufacture for the cellular
standards of local geographic markets, each plant is capable of providing mobile devices for most
of the world’s major standards. As a result, we believe we are able to respond rapidly to the
needs of different geographic markets as well as to take advantage of the flexibility of a global
manufacturing network. In 2004, we expanded our production capacity to meet increased demand
by adding production capacity. The biggest expansion was in Komaron, Hungary, where we
approximately doubled our production capacity. We also announced plans to invest in a new
facility for manufacturing mobile devices in India in 2005.
In line with industry practice, we source a large proportion of components for our mobile devices
from a global network of suppliers. Some of these components may experience some price
volatility from time to time. Management believes that our business relationships with our
suppliers are stable, and they typically involve a high degree of cooperation in research and
development, product design and manufacturing. We and our contract manufacturers then
assemble these components and activate the device with our own software. See ‘‘Item 3.D Risk
Factors—We depend on our suppliers for the timely delivery of components and for their
compliance with our supplier requirements, such as, most notably, our and our customers’ product
quality, safety and other standards. Their failure to do so could adversely affect our ability to
deliver our products and solutions successfully and on time.’’
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