rick simonson chief financial officer - nokia corporation · 3 © 2006 nokia year on year growth...
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1 © 2006 Nokia
Financial Review
Rick SimonsonChief Financial Officer
2 © 2006 Nokia
Growth -more to come
3 © 2006 Nokia
Year on year growth rates for 2005 and 2006 (1st 9 months of year)
* 1st 9 months of 2005 and 1st 9 months of 2006** Excluding special items
20%
28% 28%23%
34%29%
0%
10%
20%
30%
40%
Net Sales Units EPS**
2005*2006*
4 © 2006 Nokia
Not a commodity - Winners need to master….
• Scale
• Brand
• Manufacturing and logistic challenges
• Technology
• Great and broad product portfolio
• Cost structure
• Quality
• IPR
5 © 2006 Nokia
Mobile device industry consolidation continues
10%
20%
30%
40%
50%
60%
70%
80%
90%
2000 2001 2002 2003 2004 2005 Q3 2006
Glob
al H
ands
et M
arke
t Sha
re
ROW
Top 5
Nokia estimates
6 © 2006 Nokia
Acceleration in consolidation: Share of the Top 2
40%
45%
50%
55%
60%
2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06
Nokia estimates
7 © 2006 Nokia
10%
15%
20%
25%
30%
35%
40%
2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06
Nokia vs. Motorola: global device unit share
Nokia estimates
Nokia
Motorola
8 © 2006 Nokia
How could Nokia gain unit market share in 2007?Combination of #1 - #3 Could Yield 1%+ Share Gain
• #1: Mathematical Benefit – Nokia’s Strong Position in Emerging Markets• Assumption:
• Emerging markets’ growth again double the developed markets in 2007
• Nokia’s share stable in 2007 in both emerging markets and developed markets from Q306 levels
• #2: Mathematical Benefit - GSM/WCDMA vs. CDMA• Assumption:
• GSM/WCDMA grows significantly faster than CDMA in 2007
• Nokia’s share stable in 2007 in GSM/WCMDA from Q306 levels and mid-single digit share in CDMA in 2007
• #3: Smaller Vendors Losing Share• Assumptions
• BenQ/Siemens have 2-3% global share (predominately in Latin America and Europe)
• The share of the non-Top 5 global vendors is approximately 15% and is highly fragmented
9 © 2006 Nokia
Why are we in the emerging markets?
Percentage of Total Nokia Device Gross Profit, 1Q-3Q06
India and China: ~ 20%
Rest of World: ~ 80%
10 © 2006 Nokia
Market value of adjacent markets
0
10,000
20,000
30,000
40,000
50,000
2006E 2007E 2008E
$ (M) Audio Players Cameras Navigation
Source: IDC Audio Players: portable digital music players and CD playersCameras: digital still cameras, digital and analog camcordersNavigation: portable GPS device (non-PDA)
11 © 2006 Nokia
Financial targets
12 © 2006 Nokia
Nokia financial targets
* Approx. estimates for full year** Next 1 to 2 years
10%+Nokia Siemens Networks
17%Devices (MP & M)
15%Operating MarginTARGET**
26%26%Tax Rate~700~700Capex (m EUR)~725~725Depr. and Amort. (m EUR)
2007E *2006E*
¤ Does not include full impact of Nokia Siemens Networks
¤
¤
13 © 2006 Nokia
Nokia R&D and efficiency targets
Efficiency targets• Ratios: Gross Margin to R&D and Gross Margin to Sales & Marketing targeted to
improve in 2007 vs. 2006
14%
8%
9-10%
Existing target: by end of 2006
19%
11%
13%
2004
18%
8%
11%
2005
NO
YES
YES
Report card: Estimated end
of 2006
Infrastructure
Devices
Nokia
R&D targets (% of sales)
14 © 2006 Nokia
Nokia aligned with shareholder interests
15 © 2006 Nokia
Return on Equity: Nokia vs. Tech Peers
*15 largest members of S&P Global 1200 Information Technology Sector Index
Calculation: last reported 12 months, ROE = Pro forma net income / Total Equity
Source: Company reports and Bloomberg
0%
5%
10%
15%
20%
25%
30%
35%
40%
Nokia Motorola Ericsson Broader Tech Index*
16 © 2006 Nokia
Operating efficiency – Cash flow
Euro (M)
0
1000
2000
3000
4000
5000
2004 2005 Q1–Q3 2006Operating Cash Flow = Net cash from operating activitiesFree cash flow = Operating cash flow - CAPEX
Free Cash FlowOperating Cash Flow
17 © 2006 Nokia
Distribution of excess cash to shareholders
4
5
6
7
8
9
10
11
12
13
Q403 Q104 Q204 Q304 Q404 Q105 Q205 Q305 Q405 Q106 Q206 Q306
Net C
ash
(Eur
o bi
llion
s)
3800
3900
4000
4100
4200
4300
4400
4500
4600
4700
4800
Dilu
ted
shar
e co
unt (
mill
ions
)
Cash level
Share count*
Down 14%
* Diluted
18 © 2006 Nokia
Dividends: What are Nokia’s peers doing?
Dividend payout ratio (5-year average)
Source: Bloomberg (last 5 fiscal years)* Last two years
0%
10%
20%
30%
40%
50%
Nokia HPSie
mens
Erics
son
Motoro
la
Inte
lQualco
mm
Microso
ft
Cisco Dell
Luce
ntNorte
l
Yield: ~2.5%Growth: 10%*
Dividend/Net Income ratio for Nokia’s peer group has traditionally been around 20%
19 © 2006 Nokia
Distributions to net income
Distributions to net income in 2005
0%
50%
100%
150%
200%
250%
Dell HPMicr
osoft
NokiaCis
co
Inte
lQualco
mm
Siem
ensMoto
rola
Ericss
onLu
cent
Nortel
Source: Bloomberg and company reports, latest reported fiscal year end
Share buybacks 2005Dividends 2005
20 © 2006 Nokia
Stock option dilution
Source: Nokia as per June 2006, other company reports latest reported fiscal year end Dilution assuming all outstanding options are exercisedDilution = Options outstanding / (Options outstanding + shares outstanding)
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Erics
son
Siem
ens
Nokia HPNorte
lMicr
osoft
Luce
ntMoto
rola
Qualcom
m Dell
IBM
Inte
lCis
co
21 © 2006 Nokia
Navigation and Mapping
Digital Music Platform
Email and Device Management
Reinvesting in the business
22 © 2006 Nokia
Summary
• Nokia is Growing – More to Come
• Financial Targets – Clear, Ambitious and Achievable
• Nokia is Aligned with Shareholder Interests
23 © 2006 Nokia