Nokia 2007 Annual Report Download - page 80

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 in
operating profit was driven by strong net sales and effective operating expense control. Operating
profit was negatively impacted by a lack of broad acceptance of certain highend products in our
portfolio.
Multimedia
The following table sets forth selective line items and the percentage of net sales that they represent
for the Multimedia business group for the fiscal years 2006 and 2005.
Year Ended
December 31,
2006
Percentage of
Net Sales
Year Ended
December 31,
2005
Percentage of
Net Sales
Percentage
Increase/
(Decrease)
(EUR millions, except percentage data)
Net sales ................. 7877 100.0% 5 981 100.0% 32%
Cost of sales .............. (4800) (60.9)% (3 492) (58.4)% 37%
Gross profit ............... 3077 39.1% 2 489 41.6% 24%
Research and development
expenses ............... (902) (11.5)% (860) (14.4)% 5%
Selling and marketing
expenses ............... (780) (9.9)% (705) (11.8)% 11%
Administrative and general
expenses ............... (45) (0.6)% (38) (0.6)% 18%
Other operating income and
expenses ............... (31) (0.4)% (50) (0.8)% 38%
Operating profit............ 1319 16.7% 836 14.0% 58%
Multimedia business group 2006 net sales increased 32% to EUR 7 877 million compared with
EUR 5 981 million in 2005. At constant currency, Multimedia net sales would have increased 27% in
2006. Net sales were driven by a robust overall device market supporting sales of more than
16 million Nokia Nseries multimedia computers during the year, led by the Nokia N70 and Nokia N73.
Net sales growth was strongest in China followed by AsiaPacific, Latin America, Middle East & Africa
and Europe. Multimedia net sales declined in North America and continued at a low level in 2006.
Multimedia 2006 gross profit increased by 24% to EUR 3 077 million compared with EUR 2 489 million
in 2005. This represented a gross margin of 39.1% in 2006 compared with a gross margin of 41.6%
in 2005. The increase in gross profit was a result of the growth of the business but lower than the
growth in net sales. The gross margin declined primarily due to the price pressure in the market and
more expensive product concepts.
Multimedia 2006 R&D expenses were EUR 902 million compared with EUR 860 million in 2005,
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