mobile phones and cost leadership
TRANSCRIPT
1 © N OKIA 2003
Mobile Phones andCost Leadership
Olli-Pekka Kallasvuo
Executive Vice President andGeneral Manager
Mobile Phones
Nokia Capital Market Days 2003
2 © N OKIA 2003
Agenda
• New structure
• Business units
• Cost leadership
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Customer and Market Operations
TechnologyPlatforms
Research,Venturingand BusinessInfrastructure
MobilePhones Networks
EnterpriseSolutions
Shared Services
MultimediaMobilePhones
GSM voice centric and camera terminals
CDMA terminals
TDMA terminals
Mobile Entry Terminals
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Nokia - Mobile phone categories
Product style categories to meet different lifestyles and individual preferences
Entry Expression Active Classic Fashion Premium
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Appealing brand image and reputation
Capability to extend and embrace existing customer base
Compelling end user
experience
Winning End Users’ Hearts and Minds
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Business Units
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GSM voice centric and camera terminals
Mobile Entry Terminals
Price-functionality-style
Customisation & platformization
Renewal
Market share
Drive Penetration
Affordability
Ease of use
Brand
Quality
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• Shipping to major customers
• Sprint and Verizon in the USA
• Reliance in India
• Unicom in China
• Next steps: Expanding to higher price points
CDMA
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Defining cost leadership
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Nokia Mobile Phones vs. Dell
1 EUR = 1.17 USD
Source: Nokia managemen t reports, DELL fina ncials (both based or reported data)
Mobile Phones DELL30.Sep.03 01.Aug.03
USD USD
Sales (M) 6 575 9 778Sales / head 239 996 233 923Operating margin 22.0% 8.6%
Inventory days 24 4Cash conversion cycle (days) -79 -43
Net working capital -2 184 -3 177Operating cash flow (M) 1 640 1 552
Most recent Qtr
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Nokia – The Cost Leader
Total cost advantage = 25%+
Design forManufacturability
Sourcing In-HouseManufacturing
Sales and Distribution
Mastering the Demand-Supply Network
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Why is mastering the Demand Supply Network critical and difficult?
• 500,000 units per day
• 7 units per second
• 300-350 components per product
• 60,000,000,000 components a year
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Inventory Days of SupplyNokia Mobile Phones vs. Contract Manufacturers
102030405060
1Q/00 3Q/00 1Q/01 3Q/01 1Q/02 3Q/02 1Q/03 3Q/03
Days
Celestica
Flextronics
Jabil
NMP
Sole ctron
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Managing Inventory Days of SupplyNokia Mobile Phones
0
40
80
120
160
1995 1996 1997 1998 1999 2000 2001 2002 2003
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Example of Cost Savings Managing Supply Chain
Inventory Carrying Cost• Interest cost • Obsolescence • Price erosion of procured components• Warehousing cost
1995: ∼ 300 M€2003: ∼ 300 M€
Inventory Carrying Cost per Phone
31.7
1.830
10
20
40
1995 2003
EUR
-94%
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Sourcing• Continued reduction of component costs through
strategic partnerships
• Nokia provides one interface to suppliers
• Nokia has limited number of suppliers
1998 1999 2000 2001 2002 2003
Material purchases
Sales volume
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• Largest assembly to order manufacturer in the world
• Outsourcing used to balance volume fluctuation
• High capacity utilization in engine manufacturing and responsive final assembly to customer order
In-house Manufacturing
Manufacturing cost €/unit
0
10
20
30
1996 1997 1998 1999 2000 2001 2002 2003
EUR
Phones/Production headcount
0
200
400
600
800
1000
1200
1400
1996 1997 1998 1999 2000 2001 2002 2003
(in 1
0s)
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Yields and Quality
• Low yields create more manufacturing cost (redo) and scrap costs
• Low yields have lost sales opportunity cost
• Low quality causes high field failure rate
• High field failure rate creates high warranty costs
Warranty Cost
2001 2002 2003
Field Failure Rate
2001 2002 2003
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Sales and Distribution
• Nokia’s model is not “Push and Pray”
• Enables us to be closer to customer (saves time and cost)
Need for Flexibility
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160 Custom Transceivers 260 Sales Package Variants*
*May 2003
Assembly To Order Engine2 variants
• 1 for APAC
• 1 for Europe
Nokia 3510i variation
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Room for improvement?
• Inventory Days of Supply
• Inventory Carrying Cost
• Manufacturing cost/unit
• Manufacturing Yields and Quality
• Sales and Distribution
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