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Year 2000 Readiness Disclosure
November 16, 1998
As the passing of the current millennium approaches, attention is increasingly focused on the fact that our world is heavily automated with widespread use of processors. Certain programming languages and conversions of systems currently in use include the two-digit year presentation, a shortcut taken to conserve computer memory. This practice has resulted in what has become known as the "Year 2000 issue".
The Year 2000 issue may materialize if the computers or systems fail to recognize that the year 1999 is followed by the year 2000, the year 2000 is a leap year (29 days in February), or 99 or 00 does not mean the end of the file. Due to this failure, a misfunction might occur in products/processes using a microprocessor with two-digit year presentation. Nokia has established processes to evaluate and manage the possible risks and costs associated with the issue. This issue has been analyzed from the standpoint of the equipment and services provided to customers, as well as the various information technology systems in use within the company.
In accordance with the Securities and Exchange Commission requirements, Nokia will publish quartely its Year 2000 Readiness Disclosure concerning the Company´s readiness to meet the information processing challenges of the Year 2000.
Nokia Year 2000 Readiness Disclosure at September 30, 1998
Nokia has established processes to evaluate and manage the possible risks and costs associated with the Year 2000 issues. These processes are a part of the Nokia Year 2000 Project, which has overall responsibility for the Year 2000 issues within Nokia. The Project includes: identifying the potential risk areas, increasing risk awareness, and introducing action plans and guide-lines for managing the Year 2000 issues. Activities are focused on products and systems, production systems, R&D systems, information systems (IM), facilities and supplier readiness. To Nokia, Year 2000 compliance means that neither performance nor functionality is affected by the date, prior to, during or after the year 2000, as more specifically defined by a committee of the British Standards Institution BSI.
The Nokia Year 2000 Project
The Nokia Year 2000 Project is managed by the Nokia Year 2000 Steering Group, which consists of representatives of all Nokia business units and the various Year 2000 subprojects. The Steering Group is appointed by and reports regularly to the Nokia Group Executive Board.
The Project is divided to subprojects addressing the Year 2000 issues in products and systems, production systems and R&D systems within each of Nokia´s business units (Nokia Telecommunications, Nokia Mobile Phones, Nokia Communications Products, Nokia Ventures Organization and Nokia Research Center). Year 2000 subprojects for information systems (IM), facilities and supplier readiness are Nokia-wide. All subprojects are global and report monthly to the Nokia Year 2000 Steering Group and to their respective business units.
Products and systems
Nokia is undertaking a comprehensive program to test and verify the Year 2000 related status of its product portfolio and to appropriately resolve the relevant Year 2000 issues. To date, based on testing and verification Nokia´s mobile phone products are either compliant, can be made compliant or are products that are not affected by the date code. Nokia plans to offer a relevant compliance solution for those products which to-date are not compliant but can be made Year 2000 compliant. Nokia aims to have such solutions available by the end of 1998.
To address the Year 2000 compliance issues for Nokia´s telecommunications infrastructure products, Nokia has grouped the products into three categories based on the products, Year 2000 compliance status and Nokia´s decision to provide or not to provide a technical solution for Year 2000 compliance. The product categories are: 1) products already Year 2000 compliant, 2) products to be made Year 2000 compliant, and 3) products that will not be made Year 2000 compliant. Products classified as already Year 2000 compliant have to date been verified to be Year 2000 compliant. For products classified as to be made Year 2000 compliant Nokia has decided that a technical solution for Year 2000 compliance will be made available during the first quarter of 1999. Products that will not be made compliant include a limited number of old products for which manufacturing has been terminated or for which newer products have been substituted.
Nokia´s infrastructure customers include those with maintenance agreements and those who do not have such agreements. To those customers who do not have such maintenance agreements, Nokia intends to offer on a contract basis Year 2000 compliance upgrading. However, notwithstanding these efforts, for certain telecommunications products or systems it may not be possible to identify the user or the location of such products or systems in order to determine whether they are Year 2000 compliant.
Production Systems, R&D systems and other information systems (IM)
Nokia has completed an inventory of its production systems in all business units and has categorized all such systems as critical or non-critical. Nokia aims to have all of those systems categorized as critical to be Year 2000 compliant during the first half of 1999. Nokia also continues to upgrade other production systems hardware and software and, in connection therewith, conducts tests for Year 2000 compliance. Nokia has plans in place to have its R&D related systems Year 2000 compliant during the first half of 1999.
Nokia has also completed an inventory of its other information systems and has identified such systems as critical or non-critical. For critical information systems Nokia plans to achieve Year 2000 compliance during the second half of 1999 at the latest.
Facilities
The detailed scope of the Year 2000 Project for Nokia facilities includes such matters as building management, security, telephones, heating and air-conditioning systems and general equipment. Nokia expects to have identified relevant Year 2000 issues for such systems and equipment during the first quarter of 1999 and to have completed the necessary upgrading during the second half of 1999 at the latest.
Suppliers
The Supplier Readiness sub-project focuses on materials, parts, products and information software that Nokia sources from third parties, which are then integrated or sold in connection with Nokia products and which are otherwise used by Nokia, as well as the readiness of Nokia´s suppliers for their continued performance into Year 2000. Nokia has categorized its suppliers as critical or non-critical and aims to verify the status of the materials, parts or products from all critical suppliers as well as their continued performance into the year 2000 during the first half of 1999.
Costs
Nokia´s direct Year 2000 cost estimate is currently FIM 450 million, including planned investments in addressing the Year 2000 issues in products and systems, production systems, R&D systems, information systems (IM), facilities and supplier readiness. To date, Nokia has used approximately 40% of the estimated aggregate amount. The Nokia Year 2000 Project has not resulted in deferral of spending for other systems and equipment as planned. Cost estimates may vary in the future and will be updated as Nokia learns additional information concerning the status of its and third parties´ Year 2000 compliance.
Risks and Contingency Plans
Nokia realizes that failing to correct material Year 2000 issues could result in an interruption in or failure of certain normal business activities and that such failures could have a material adverse effect on the company´s business, results and financial condition. Nokia is also connected to critical suppliers, financial institutions, customers and other business partners through computer systems, and failure of any of the critical interdependent information systems may materially and adversely affect Nokia.
Nokia´s Year 2000 Project is intended to identify and address Year 2000 issues in its products, systems, and facilities, and to evaluate Year 2000 readiness of third parties on whom Nokia relies, and to the extent Nokia determines that Year 2000 issues have not been appropriately addressed it intends to develop contingency plans and to take steps so that all such contingency plans are implemented during second half of 1999 at the latest. Due to general uncertainties related to the Year 2000 issues, partly resulting from the uncertainties of the Year 2000 readiness of suppliers and other third parties, the actual effects of the Year 2000 issues on Nokia will be unknown until Year 2000. However, Nokia believes that its Year 2000 Project is significantly reducing the level of this uncertainty and, together with the planned compliance programs as well as subsequent contingency plans, will reduce these risks.
It should be noted that certain statements herein which are not historical facts, including, without limitation those regarding 1) the projected extent and timing of Year 2000 compliance for Nokia´s products, systems, and facilities as well as those of third parties, 2) the estimated costs of Year 2000 compliance activities, including actions currently contemplated and actions, including contingency plans, decided upon in the future, 3) the estimated impact on Nokia´s business, results and financial condition of failures by it or third parties to adequately address Year 2000 issues, and 4) certain statements preceded by "believes", "expects", "aims", "intends", "estimates", "anticipates", or similar expressions, are forward looking statements. Because such statements involve risks and uncertainties, actual events may differ materially from those currently expected by Nokia. Factors that could cause such differences include, but are not limited to 1) additional information Nokia may discover concerning the status of Year 2000 compliance of the products, systems and facilities or those of third parties as part of Nokia´s Year 2000 Project, 2) failures of others, including public utilities, financial institutions, communications companies, transportation providers, customers, computer manufacturers and software providers, as well as other providers of resources of which Nokia relies, to identify, disclose and address Year 2000 issues accurately and on a timely basis, 3) the inability of Year 2000 consultants, experts and advisers to adequately identify and address Year 2000 issues as planned, 4) changes in technologies or methodologies used in identifying and addressing Year 2000 issues in products, systems and facilities, 5) the effectiveness and costs of contingency plans Nokia may develop as it learns more about the status of its own and others´ Year 2000 compliance an and readiness, and 6) factors that could affect Nokia´s business, results and financial condition generally, including the risk factors specified in Nokia' s Form 20-F for the year ended December 31, 1997.
Contact information:
Ms. Marja-Terttu Verho
Communications Manager, Nokia
Tel. +358 9 1807 286
Fax +358 9 962 409
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