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Statement Given by President & CEO Jorma Ollila in a Conference Call for Financial Analysts
December 15, 1995
When we announced the 8 month results we noted that the European TV market had declined and that the TV business was not satisfactory. We also noted that actions needed to be taken in order to prevent that situation from continuing in 1996. During the past months the TV market has continued to deteriorate leading to a situation where Consumer Electronics within Nokia General Communications Products (NCP) business group will incur a significant loss. The announcement of this situation yesterday took place immediately following a board meeting that reviewed the latest up-date on the situation.
In line with our statement in October steps have been taken and will be taken to rectify the situation. New management has already been appointed. You can expect an announcement on the nature of further action to be taken within a time period of 60 to 90 days.
As far as the whole NCP is concerned, the profits for the full year are expected to be positive barring any restructuring charges we might decide to make in 1995.
Finally, as far as TV's are concerned, I want to repeat what I said in October: We will take such steps that are necessary in order to prevent our TV businesses from becoming a disappointment to shareholders in 1996.
Regarding the mobile phone business it has been brought to our attention that a contradiction is perceived between recent statements regarding developments on the US market and yesterday's announcement that Mobile Phones will be somewhat below plan. Please allow me to clarify the situation: When we reported the 8 month figures we characterised the short term outlook for the US market as uncertain. This was done based on the possibility that the last part of the year could have shown a marked year-over-year decline. The situation has improved in this respect as the outlook now is more positive but remains below the level expected at the early parts of this year.
If we then look at the global mobile handset markets, outside the United States the growth has continued to be very strong. In this environment of high growth and increasing complexity we have now during the final tertial of the year experienced occasional growing pains in terms of logistics issues such as temporary component shortages. Such difficulties are part of the reason why growth and profitability have developed somewhat below plan. Because of these reasons, we have had lower sales volumes in the third tertial in comparison to very high volumes that were planned. In addition, R&D and brand building have continued as planned, consequently the decrease in sales volume has affected the profitability. The logistical issues are now being addressed. Also, as the global market continues to grow strongly, we expect future sales to continue to increase.
Looking into 1996 we see continued growth in the 30-45 % range in sales of telecommunications systems and mobile phones. We have not seen and are not forecasting a change in the underlying growth dynamics of our global telecom markets. The great potential continues to be there and there is, for instance, no reason to change our estimate of 350 million cellular subscribers in the world in year 2000.
Finally, some words about R&D. As a result of the continued shift towards the fast growing telecoms sector, which has been speeded up by recent divestures of power, tyres, cables and machinery, we now estimate that the R&D expenditure will increase. In addition the timeframe for the production of new services and products in both mobile handset and infrastructure business is such that we expect also this to have an increasing impact on R&D. So we estimate R&D could go up to 8 % of sales in 1996. This is both justified and necessary bearing in mind the great potential there is from 1997 onwards in certain very interesting new product areas like different PCS technologies.
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