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Nokia meets analysts in London: Expects high growth to continue and targets leadership position in main segments
December 03, 1998
-- has manufactured 100 million mobile phones cumulatively
Nokia´s management is meeting in London today with almost 300 telecommunication analysts and other financial community representatives to provide an update on the Company´s business and strategies as disclosed during the year. In his remarks, Jorma Ollila, Nokia´s President and CEO, reaffirms Nokia´s belief that Nokia will continue to achieve strong, profitable growth.
"While there are a number of broader economic factors which at present make forecasting difficult, we believe in the continued strong growth in our chosen areas of the telecommunications industry. For 1999 we therefore maintain our sales growth target of 25-35%." Ollila also says that Nokia expects its profitability to be above industry average and its cash flow from operations to be positive in 1999.
Due to its growth targets, Nokia will continue to recruit new employees in large numbers. At the end of September, Nokia had more than 42,000 employees worldwide, up from 36,650 at the end of 1997. This growth, together with Nokia´s leadership position in the industry, will put the corporate culture to new tests.
"We have become one of the established players - an industry leader by most measures. What this means is that the key strategic objective we identified in 1992 - to focus on the fastest growing sectors in telecommunications with high added value on a global basis - while still relevant - are no longer enough. Our strategic intent, quite simply, is to achieve industry leadership in the most attractive global communications segments," Ollila says.
"Being an industry leader also means realizing your own limitations. Implicit in this approach is the willingness to take the appropriate actions to strengthen core competencies when needed", Ollila says. Nokia has made a series of announcements over the past 12 months on cooperations, partnerships, equity investments or acquired companies with skills and critical competencies.
"While many of these can be characterized as technology acquisitions, there have also been clear market elements in some of them. For example, the acquisition of Ipsilon, now part of Nokia Telecommunications, allowed us to approach Internet Service Providers (ISP) and operators with new product offerings. Over the coming months and years you may expect to see and hear about new partnerships and new acquisitions - some of a purely technological nature, and some with market elements included," says Ollila.
Ollila also notes that over the past couple of years Nokia has on average exceeded the level of 50% Return on Net Assets, thus creating real economic value added. He states that management´s plans for R&D investments and capacity enhancements are the means through which management believes Nokia will be able to provide a high return on net assets also in future years.
Explaining the industry model, Ollila states in his speech that the key elements for Nokia include R&D, the increasing role of segmentation and brand in the terminal industry, the emergence of volume products in the infrastructure industry, and the changing operator landscape as the result of ongoing deregulation and the convergence of technologies. As Nokia sees it, the responsibility of management is, to its best capability, to create long-term shareholder value by finding the optimal balance between growth, investments for the future and near-term profitability.
In her presentation, Sari Baldauf, President of Nokia Telecommunications, focuses on three key technology trends: Mobility, Data and Fixed and Mobile Convergence. "GSM, an open and global standard, is the backbone of a new communications culture, with the mobile phone becoming an essential part of people´s everyday lifestyle." Baldauf notes that subscriber growth is not the only key trend in mobile communications but usage growth is equally important. "Where penetration rates are high in advanced markets, we have actually seen a shift towards the usage per subscriber increasing - not decreasing as was previously the case."
Explaining the future mobile usage growth, Baldauf says that the GSM markets have embraced wireless data. "This is a key driver for mobile usage growth. Wireless data at services will have an increasing role in the future, alongside the provision of other value-added services. Various applications will benefit from total mobility and wireless data. These include: Wireless Internet, wireless access to corporate Intranets, wireless electronic commerce, wireless imaging including videophone and wireless conferencing."
Baldauf also points to the wireless and Internet Protocol (IP) conversion: "These are key steps on the road-map for the evolution to third generation, with the GSM core network being developed to facilitate the provision of third generation personal multimedia services. The first of these stepping stones saw the emergence of High-Speed Circuit Switched Data this year, with General Package Radio Services following next year."
Matti Alahuhta, President of Nokia Mobile Phones uses the UMTS Forum estimate of wireless market exceeding 2.5 billion subscribers by the year 2015 in his presentation. "This estimate may seem radical, but historically the telecommunication industry has time and again exceeded all predictions made."
"Nokia´s cumulative mobile phone production volume has now reached the threshold of 100 million mobile phones. During 1997 Nokia sold a total of 21.3 million mobile phones and during several weeks this year the company sold more than one million units a week. In October, together with its 3rd quarter interim results, Nokia announced that it believes it has reached the global leadership position as a mobile phone manufacturer."
According to Alahuhta, Nokia now estimates that mobile phone subscriber penetration in Finland by the end of the year will be around 55% and that another five markets will by the same time reach 40% to 50% penetration. Nokia currently foresees the world´s leading countries reaching 60% to 70% subscriber penetration levels in the very near future. Additionally, in many markets people have started to acquire more than just one mobile communication device, and eventually this trend could drive the mobile phone unit penetration levels in certain markets even beyond 100%. "In fact, the upgrade market will be the main driver for growth in the very near future. Currently, it constitutes approximately 30-40% of the annual mobile phones sales volumes. We expect that its share will rise to 50% by the year 2000," says Alahuhta.
Pekka Ala-Pietilä, Executive Vice President of Nokia and deputy to Jorma Ollila, states that as one of the world´s leading telecommunications companies, Nokia sees itself well positioned to exploit new growth possibilities in the new arena emerging from the convergence of telecom, datacom and IT industries. "Our intension is to actively utilize this opportunity."
"We have talked a lot about the importance of growth - sustainable growth over 25% in revenue terms per annum. On the top of the growth we drive from our existing businesses we have set up a special organization Nokia Ventures Organization, which is dedicated to looking for new business opportunities aimed at returning high growth and profitability in the 2-5 year perspective," says Ala-Pietilä.
Olli-Pekka Kallasvuo, Nokia´s CFO as of January 1, 1999, states in his presentation that according to its strategy, Nokia will support the widest possible use of the Euro from the very beginning. "Not only will the Euro positively impact business between the 11 Euro countries, the Euro is also poised to become a major global currency on par with the US dollar. The Euro economy, formed by these 11 countries, is one of the largest in the world. With 290 million people and a GDP of nearly 700 billion dollars in 1996 the Euro-zone is second only to the United States."
According to Kallasvuo, for Nokia the introduction of the Euro will decrease the foreign exchange risk to be managed, it will facilitate the investment of liquid funds and it will decrease the costs of cash management. "For Nokia, this means that savings will offset the costs associated with the transition to the Euro already during the first year. We have traditionally had a strong foothold in Europe, with over 50% of our sales coming from the region. At the same time the majority of our production, R&D and total staff are Europe-based."
Talking about Nokia´s strong commitment to R&D, Kallasvuo states that it will continue and that the company will also continue its successful brand building efforts. "While we will make significant increases in both R&D and SG&A in absolute terms, we do not foresee a major change in relative terms." Kallasvuo also notes that management expects that the company´s tax rate will slightly increase from its present level.
It should be noted that certain statements herein which are not historical facts, including, without limitation those regarding1) the timing of product deliveries; 2) expectations regarding market growth and developments; 3) expectations or targets for growth and profitability; and 4) statements preceded by "believes", "expects", "anticipates", "foresees", or similar expressions, are forward-looking statements. Because such statements involve risks and uncertainties, actual results may differ materially from the results currently expected by the Company. Factors that could cause such differences include, but are not limited to 1) general economic conditions, such as rate of economic growth in the Company's principal geographic markets or fluctuations in exchange rates; 2) industry conditions, such as the strength of product demand, the intensity of competition, pricing pressures, the acceptability of new products introductions, the introduction of new products by competitors, changes in technology or the ability of the Company to source components from third parties without interruption and at reasonable prices and the financial condition of the Company's customers; 3) operating factors, such as continued success of manufacturing activities and the achievement of efficiencies therein, continued success of product deployment or inventory risks due to shifts in market demand; 4) the impact of acquisitions, including extraordinary or nonrecurring charges as well as the costs and risks associated with absorbing and managing the businesses acquired; 5) the uncertainties, costs and risks associated with Year 2000 issues; as well as 6) the risk factors specified in the Company's Form 20-F for the year ended December 31, 1997.
Full texts of the speeches by Jorma Ollila and Olli-Pekka Kallasvuo can be found at http://www.nokia.com/company/finance/
Nokia is the world's leading mobile phone supplier and a leading supplier of mobile and fixed telecom networks including related customer services. Nokia also supplies solutions and products for fixed and wireless datacom, as well as multimedia terminals and computer monitors. In 1997, net sales totaled FIM 52.6 billion (USD 9.8 billion). Headquartered in Finland, Nokia is listed on five European Stock Exchanges and on the New York Stock Exchange (NOK.A), has sales in 130 countries and employs more than 42,000 people world-wide.
Contact information:
Lauri Kivinen, Senior Vice President, Corporate Communications, tel. + 358 9 1807 495
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