Nokia 2012 Annual Report Download - page 60

BlackBerry OS on its mobile devices and recently introduced devices running a new version of its
operating system, BlackBerry 10. Both Apple and BlackBerry have developed their own application
stores, through which users of their products can access applications.
Apple, which has already gained a strong position in the market for high-end smartphones and tablets,
has also used the strength of its ecosystem to further expand its offering of digital content through
other interfaces such as television sets. Similarly, Google has sought to extend the Android ecosystem
with its Google TV Internet-based television service. Many competitors, including Apple, Google and
Samsung, are pursuing a multi-screen strategy and building cloud technologies which enable
consumers to access services and content across different sized screens, from mobile devices to
tablets, personal computers and televisions.
Nokia offers smartphones based on the Windows Phone operating system. Windows Phone devices
can access the Microsoft-run Windows Phone Store for digital content and third-party applications. The
Windows Phone operating system is also being deployed on smartphones by others, including HTC,
Huawei, Samsung and ZTE. During our continued transition to Windows Phone through 2012, we
continued to ship devices based on an older smartphone operating system called Symbian. However,
after a decade-long history as part of Nokia’s portfolio, we are not creating any new devices based on
Symbian.
The significant momentum and market share gains of the global ecosystems around the Android and
iOS platforms have increased the competitive barriers to additional entrants looking to build a
competing global smartphone ecosystem, such as Nokia with the Windows Phone platform. At the
same time, other ecosystems are being built which are attracting developers and consumers, and
which may result in potential fragmentation among ecosystem participants and the inability of new
ecosystems to gain sufficient competitive scale.
We also face intense competition in feature phones where a different type of ecosystem from that of
smartphones is emerging involving very low-cost components and manufacturing processes, with
speed to market and attractive pricing being critical success factors. In particular, the availability of
complete mobile solutions chipsets from low-cost reference design chipset manufacturers has lowered
the barriers of market entry and enabled the very rapid and low-cost production of feature phones by
numerous manufacturers in especially China and India, which are gaining significant market share in
emerging markets, as well as bringing some locally relevant innovations to market. Such
manufacturers have also demonstrated that they have significantly lower gross margin expectations
than we do.
We also face competition from vendors of unlicensed and counterfeit products with manufacturing
facilities primarily centered around certain locations in Asia and other emerging markets which produce
inexpensive devices with sometimes low quality and limited after-sales services that take advantage of
commercially-available free software and other free or low-cost components, software and content. In
addition, we compete with non-branded feature phone manufacturers, including mobile network
operators, which offer mobile devices under their own brand, as well as providers of specific hardware
and software layers within products and services at the level of those layers rather than solely at the
level of complete products and services and their combinations. In the future, we may face competition
from established Internet companies seeking to offer smartphones under their own brand.
Our competitors use a wide range of other strategies and tactics. Certain competitors choose to accept
significantly lower profit margins than we are targeting. Certain competitors have chosen to focus on
building products and services based on commercially available components and content, in some
cases available at very low or no cost. Certain competitors have also benefited from favorable currency
exchange rates. Further, certain competitors may benefit from support from the governments of their
home countries and other measures which may have protectionist objectives.
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