Nokia 2007 Annual Report Download - page 72

Results of Operations
2007 compared with 2006
Nokia Group
The following table sets forth selective line items and the percentage of net sales that they represent
for the fiscal years 2007 and 2006.
Year Ended
December 31,
2007
Percentage of
Net Sales
Year Ended
December 31,
2006
Percentage of
Net Sales
Percentage
Increase/
(Decrease)
(EUR millions, except percentage data)
Net sales ................. 51058 100.0% 41 121 100.0% 24%
Cost of sales .............. (33754) (66.1)% (27 742) (67.5)% 22%
Gross profit ............... 17304 33.9% 13 379 32.5% 29%
Research and development
expenses ............... (5647) (11.1)% (3 897) (9.5)% 45%
Selling and marketing
expenses ............... (4380) (8.6)% (3 314) (8.1)% 32%
Administrative and general
expenses ............... (1180) (2.3)% (666) (1.6)% 77%
Other operating income and
expenses ............... 1888 3.7% (14) 0.0%
Operating profit............ 7985 15.6% 5 488 13.3% 45%
For 2007, our net sales increased 24% to EUR 51 058 million compared with EUR 41 121 million in
2006. At constant currency, group net sales would have grown 28% in 2007. Our gross margin in
2007 was 33.9% compared with 32.5% in 2006. This improvement in our gross margin primarily
reflected an improving device portfolio across the range, especially in the Mobile Phones business
group. The improved gross margin from the device business was partly offset by a weaker gross
margin in Nokia Siemens Networks, compared to the gross margin in Nokia’s Networks business
group in 2006. The 2007 results of Nokia Siemens Networks are not directly comparable to 2006, as
the first quarter 2007 and full year 2006 included Nokia’s former Networks business group only.
Research and development, or R&D, expenses were EUR 5 647 million, up 45% from EUR 3 897 million
in 2006. R&D expenses represented 11.1% of net sales in 2007, up from 9.5% in 2006. The increase in
R&D as a percentage of net sales was primarily due to the formation of Nokia Siemens Networks,
which added Siemens’ carrierrelated operations and associated R&D expenses. Research and
development expenses have been higher as a percent of sales for both Nokia’s former Networks
business group and Nokia Siemens Networks than for the Nokia Group. Research and development
expenses for the device business represented 6.6% of its net sales in 2007, down from 7.1% in 2006,
reflecting continued efforts to gain efficiencies in our investments. R&D expenses increased in Mobile
Phones, Multimedia and Nokia Siemens Networks and decreased in Enterprise Solutions. In 2007,
Nokia incurred restructuring charges of EUR 439 million related to R&D activities representing 0.9% of
net sales in 2007.
In 2007, selling and marketing expenses were EUR 4 380 million, up 32% from EUR 3 314 million in
2006, reflecting increased selling and marketing spend in all business groups to support new product
introductions and the higher level of our net sales.
Selling and marketing expenses represented 8.6% of our net sales in 2007, up from 8.1% in 2006.
The increased selling and marketing expense was also impacted by the formation of Nokia Siemens
Networks, which added Siemens’ carrierrelated operations and associated selling and marketing
expenses. Selling and marketing expenses have been higher as a percent of net sales for both our
former Networks business group and Nokia Siemens Networks than for the Nokia Group. Selling and
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