History and Development of the Nokia

History and Development of the Nokia

 Nokia is the world's largest manufacturer of mobile devices and a leader in mobile networks. Nokia connects people to each other and the information that matters to them with mobile devices and solutions for voice, data, imaging, games, multimedia and business applications. We also provide equipment, solutions and services for our operator and enterprise customers. For 2004, Nokia's net sales totaled EUR 29.3 billion (USD 39.6 billion) and net profit was EUR 3.2 billion (USD 4.3 billion). At the end of 2004, we employed 55,505 people and had production facilities in nine countries, research and development in 12 countries, sales in over 130 countries, and a global network of sales, customer service and other operational units.

During our 139-year history, Nokia has evolved from its origins in the paper industry to become a world leader in mobile communications. In 1967, we took our current corporate form as Nokia Corporation, a corporation under the laws of the Republic of Finland. This was the result of the merger of three Finnish companies: Nokia AB, a wood pulp mill founded in 1865, which took its name from the nearby Nokia River; Finnish Rubber Works Ltd, a manufacturer of rubber boots, tires and other rubber products founded in 1898; and Finnish Cable Works, a manufacturer of telephone and power cables founded in 1912.

Nokia entered the telecommunications equipment market in 1960 when an electronics department was established at Finnish Cable Works to concentrate on the production of radio transmission equipment. During this time Nokia diversified into other industries as a hedge against economic cycles.

In the 1980s, we strengthened our position in the telecommunications, consumer electronics and personal computer markets. We introduced the first fully digital local telephone exchange in Europe in 1982 and the world's first car telephone for the Nordic Mobile Telephone analogue standard that same year. Since then, Nokia has introduced mobile phones across all major cellular standards. In 1987, we acquired the consumer electronics operations and part of the components business of Standard Elektrik Lorenz of Germany, as well as the French consumer electronics company, Oceanic. At the beginning of 1988, Nokia became the largest technology company in the Nordic region after the purchase of Ericsson's information systems division.

Basic industry and non-telecommunications operations including paper, personal computer, rubber, footwear, chemicals, power plant, cable, aluminum and television businesses, were divested during the period from 1989 to 1996. In the early 1990s, we made a strategic decision to make telecommunications our core business, with the goal of establishing market leadership in every major global market. Our organizational structure also evolved to consist of two main business groups, Nokia Mobile Phones and Nokia Networks. A venturing arm called Nokia Ventures Organization was later created to foster new businesses. Over the course of the decade, the relative financial contribution of the two main business groups fluctuated. However, by the end of the 1990s, Nokia Mobile Phones came to represent the largest part of our business, and together with Nokia Networks accounted for substantially all of our net sales.

Finland's competitive business climate and emphasis on innovation have contributed to our success. From the beginning of the telecommunications era, there have been several telecommunications operators in Finland. These companies were not required to purchase equipment from national suppliers, providing a spur to competition in the domestic market. The need to export products to other markets to achieve substantial volume growth encouraged us to develop our business and products in an international environment and build a leading competitive position.

Regulatory and technological reforms also have played a role in our success. Deregulation of the European telecommunications industries since the late 1980s stimulated competition and boosted customer demand. Nokia introduced the world's first car phone for the Nordic Mobile Telephone analogue standard in 1982. It weighed approximately 10 kilograms, or 22 pounds, and was used primarily as a business tool. The technological breakthrough of GSM, which made more efficient use of frequencies and had greater capacity in addition to high quality sound, was followed by the European resolution in 1987 to adopt GSM as the European digital standard by July 1, 1991. Later, GSM technology proved to be an efficient carrier of data. The first GSM call was made with a Nokia phone over the Nokia-built network of a Finnish operator called Radiolinja, and in the same year, Nokia won contracts to supply GSM networks in other European countries. During this period, GSM was also established as a standard in several Asian countries, opening important new markets for us. Our expertise in GSM and earlier analogue technologies laid the foundation for our subsequent success in the broader mobile communications industry, as Nokia has introduced mobile phones and devices across all major cellular standards.

Since the early 1990s, mobile telecommunications penetration has grown rapidly, and the global user base at the end of 2004 was estimated at approximately 1.7 billion subscribers. We further estimate that there will be approximately 2 billion subscribers by the end of 2005 and approximately 3 billion subscribers by 2010. Our mobile devices are now used by virtually every demographic segment of the population, as devices for communications, business, a source of entertainment and even as fashion accessories. Moreover, mobile communications is continuing to evolve, creating new opportunities in mobile imaging, games, entertainment, media and enterprise use. This is taking place as the mobile communications, information technology, media and consumer electronics industries are converging in some areas into one broader industry.

On January 1, 2004, Nokia reorganized its structure to further align the company's overall structure with its strategy, to better position each business group to meet the specific needs of diverse market segments, and to increase Nokia's operational efficiency and maintain our economies of scale. As a result, we began 2004 with an organizational base from which to make progress in expanding mobile voice, driving consumer multimedia and bringing extended mobility to enterprises.

Today, Nokia has four business groups: Mobile Phones; Multimedia; Enterprise Solutions and Networks. In addition, we have two horizontal groups: Customer and Market Operations and Technology Platforms. For a detailed description of our business, see "Item 4.B Business Overview."

Nokia is not a capital-intensive company in terms of fixed assets, but rather invests in research and development, building the Nokia brand and marketing. We expect the amount of capital expenditure during 2005 to be somewhat higher than in 2004 and to be funded from our cash flow from operations. During 2004, Nokia's capital expenditures totaled EUR 548 million compared with EUR 432 million in each of 2003 and 2002. For further information regarding capital expenditures see "Item 5.A Operating Results" and for a description of capital expenditures by business segment see Note 3 to our consolidated financial statements included in Item 18 of this Form 20-F.

Nokia maintains listings on four major securities exchanges. The principal trading markets for the shares are the New York Stock Exchange, in the form of American Depositary Shares, and the Helsinki Exchanges, in the form of shares. In addition, the shares are listed on the Frankfurt and Stockholm stock exchanges. Our principal executive office is located at Keilalahdentie 4, P.O. Box 226, FIN-00045 Nokia Group, Espoo, Finland and our telephone number is +358 (0) 7 1800-8000.

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