Nokia 2006 Annual Report Download - page 68

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 2005 and 2004.
Year Ended Year Ended Percentage
December 31, Percentage of December 31, Percentage of Increase/
2005 Net Sales 2004 Net Sales (Decrease)
(EUR millions, except percentage data)
Net sales ****************** 20 811 100% 18 521 100.0% 12%
Cost of sales *************** (14 331) (68.9)% (12 045) (65.0)% 19%
Gross profit **************** 6 480 31.1% 6 476 35.0% —
Research and development
expenses **************** (1 245) (6.0)% (1 196) (6.5)% 4%
Selling and marketing
expenses **************** (1 541) (7.4)% (1 300) (7.0)% 19%
Administrative and general
expenses **************** (68) (0.3)% (96) (0.5)% (29)%
Other operating income and
expenses **************** (28) (0.1)% (21) (0.1)% 33%
Amortization of goodwill **** — — (77) (0.4)% (100)%
Operating profit ************ 3 598 17.3% 3 786 20.4% (5)%
Mobile Phones business group 2005 net sales increased 12% to EUR 20 811 million compared with
EUR 18 521 million in 2004. At constant currency, Mobile Phones business group net sales would
have increased by 15%. Sales growth was strongest in China followed by AsiaPacific, Europe and
Middle East & Africa. Net sales declined in North America and to a lesser extent in Latin America. Net
sales in 2005 increased as a result of strong demand for the Nokia 6230 mid range family, including
the Nokia 6230i (Nokia’s highest revenue generating phone in 2005), the entry level Nokia 1100
family and the Nokia 2600. Volume growth was partially offset by declining ASPs.
Mobile Phones 2005 gross profit was EUR 6 480 million, virtually the same level as 2004. This
represented a gross margin of 31.1% in 2005 compared with a gross margin of 35.0% in 2004. This
decline reflected a higher proportion of sales of lower priced entry level phones, driven by strong
demand in emerging markets where our share is high.
Mobile Phones 2005 R&D expenses increased by 4% to EUR 1 245 million, with the target to bring
more new products to the market, compared with EUR 1 196 million in 2004. In 2005, R&D expenses
represented 6.0% of Mobile Phones net sales compared with 6.5% of its net sales in 2004.
In 2005, Mobile Phones selling and marketing expenses increased by 19% to EUR 1 541 million as a
result of higher investments in marketing and advertising in order to introduce more new products,
compared with EUR 1 300 million in 2004. In 2005, selling and marketing expenses represented 7.4%
of Mobile Phones net sales compared with 7.0% of its net sales in 2004.
In 2005, Mobile Phones operating profit decreased 5% to EUR 3 598 million compared with
EUR 3 786 million in 2004, with a 17.3% operating margin, down from 20.4% in 2004. This decline
reflected a higher proportion of sales of lower priced entry level phones, driven by strong demand in
emerging markets where our share is high, in addition to an increase in operating expenses as
explained above.
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