Nokia 2006 Annual Report Download - page 62

Results by Segments
Mobile Phones
The following table sets forth selective line items and the percentage of net sales that they
represent for the Mobile Phones business group for the fiscal years 2006 and 2005.
Year Ended Year Ended Percentage
December 31, Percentage of December 31, Percentage of Increase/
2006 Net Sales 2005 Net Sales (Decrease)
(EUR millions, except percentage data)
Net sales ****************** 24 769 100.0% 20 811 100.0% 19%
Cost of sales *************** (17 489) (70.6)% (14 331) (68.9)% 22%
Gross profit **************** 7 280 29.4% 6 480 31.1% 12%
Research and development
expenses **************** (1 227) (5.0)% (1 245) (6.0)% (1)%
Selling and marketing
expenses **************** (1 649) (6.6)% (1 541) (7.4)% 7%
Administrative and general
expenses **************** (79) (0.3)% (68) (0.3)% 16%
Other operating income and
expenses **************** (225) (0.9)% (28) (0.1)%
Operating profit ************ 4 100 16.6% 3 598 17.3% 14%
Mobile Phones business group 2006 net sales increased 19% to EUR 24 769 million compared with
EUR 20 811 million in 2005. At constant currency, Mobile Phones business group net sales would
have increased by 15%. Net sales growth was driven by strong volume growth, especially in the
entry level, and our ability to capture incremental volumes with our competitive entrylevel product
portfolio and strong logistics. Volume growth was partially offset by declining ASPs. Net sales
increased in all areas and were strongest in Latin America, followed by AsiaPacific, China, Europe,
Middle East & Africa and North America.
Mobile Phones 2006 gross profit was EUR 7 280 million compared with EUR 6 480 million in 2005.
This represented a gross margin of 29.4% in 2006 compared with a gross margin of 31.1% in 2005.
This decline in gross margin reflected a higher proportion of sales of lower priced entry level
phones, driven by strong demand in emerging markets where our share is high and also a lack of
broad acceptance of certain highend products in our portfolio.
Mobile Phones 2006 R&D expenses decreased by 1% to EUR 1 227 million compared with
EUR 1 245 million in 2005. In 2006, R&D expenses represented 5.0% of Mobile Phones net sales
compared with 6.0% of its net sales in 2005. The decrease reflected effective operating expense
control.
In 2006, Mobile Phones selling and marketing expenses increased by 7% to EUR 1 649 million as a
result of increased sales and marketing spend to support new product introductions, compared with
EUR 1 541 million in 2005. In 2006, selling and marketing expenses represented 6.6% of Mobile
Phones net sales compared with 7.4% of its net sales in 2005. This reflected improved productivity
due to effective cost control on selling and marketing expenses.
Other operating income and expenses in 2006 included EUR 142 million of charges primarily related
to the restructuring of our CDMA business and associated asset writedowns. Working together with
codevelopment partners, Nokia intends to selectively participate in key CDMA markets, with a special
focus on North America, China and India. Accordingly, Nokia is ramping down its CDMA research,
development and production, which will cease by April 2007.
In 2006, Mobile Phones operating profit increased 14% to EUR 4 100 million compared with
EUR 3 598 million in 2005, with a 16.6% operating margin, down from 17.3% in 2005. The increase
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