Nokia Corporation ;

i ~ . UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK IN RE NOKIA OYJ (NOKIA CORP.) CASE NO. 04 Civ. 2646 (KAK) SECURITIES LITIGATION CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF FEDERAL SECURITIES LAWS JURY TRIAL DEMANDE D Lead plaintiffs Generic Trading of Philadelphia, LLC ("Generic"), Martin Bergljung an d Gerald Hoberman, by their attorneys, for their Consolidated Class Action Complaint (th e "Complaint") allege the following based upon knowledge with respect to their own acts and upo n other facts obtained through an investigation made by and through plaintiffs' counsel, whic h included a review of United States Securities and Exchange Commission ("SEC") filings b y Nokia OYJ (Nokia Corp.) ("Nokia" or the "Company"), as well as securities analysts reports and advisories about the Company, press releases, analyst conference calls, and other publi c statements issued by the Company and posted on their website, media reports about the Company and information learned from interviews of Nokia former employees and other knowledgeabl e persons. Based upon the substantial facts already uncovered, plaintiffs believe that substantia l additional evidentiary support will exist for the allegations set forth herein after a reasonabl e opportunity for discovery. 2498821 NATURE OF THE ACTIO N This is a securities class action on behalf of purchasers of the securities of Noki a between October 16, 2003 and April 15, 2004 (the "Class Period"), seeking to pursue remedie s under the Securities Exchange Act of 1934 (the "Exchange Act") 2 . Defendant Nokia is a Finnish limited liability company with its executive office s located at Keilalahdentie 4, FIN-00045 Nokia Group, P .O. Box 226, Espoo, Finland, and it s principal United States offices at 6000 Connection Drive, Irving, Texas, 75039 . The principal trading markets for Nokia securities are the New York Stock Exchange, in the form of America n Depository Receipts ("ADRs") (where about 25% of Nokia's securities traded),and the Helsink i Exchange (where about 60% of Nokia's securities traded), in the form of shares . In addition, throughout the class period, the shares were listed on the Frankfurt, Stockholm and Paris stock exchanges, and Nokia's shares were traded on the London stock exchange until November 2003 . Nokia's securities were actively traded on each of these exchanges, all efficient market s throughout the Class Period . As of the end of 2003, Nokia's average number of shares exceede d 4.7 billion. On April 6, 2004, the day that Nokia first announced its disappointing first quarte r 2004 ("1Q04") financial results, Nokia lost about $17 billion of its market capitalization . 3 . For several years, Nokia has been the world leader in mobile communications , offering voice-centric mobile telephones, or cell phones, primarily marketed to consumers, operating on three major digital transmission technologies, Time Division Multiple Acces s ("TDMA"), Global System for Mobile Communication ("GSM") and Code Division Multiple Access ("CDMA") . Nokia also marketed, with much less success, sophisticated or "smart" cel l phones, devices and communications systems and solutions to businesses, multimedia and 2 2498821 gaming devices (its "N-Gage" product) and worked with phone service operators (such as AT&T) throughout the world to enhance their mobile systems networks. For the fiscal year ended December 31, 2003, Nokia's net sales totaled $37. 1 billion and its net profit totaled $4 .5 billion. The company currently has approximately 50,000 employees, maintains production facilities in nine count ries, and sells its products in over 130 countries . 4. For years, Nokia dominated the TDMA market, where it held up to a 75% market share, and the GSM market, particularly in Western Europe, where its market share peaked in first quarter 2003 ("1Q03") at 52.5% . Beginning in 2002, and throughout the class period, in the United States, one of Nokia's major markets, Nokia's market share was severely damaged by the shift by certain major U.S . phone service operators away from the TDMA technology to GSM technology, and even more by those operators who shifted from the TDMA to the CDM A technology. Until 2003, Nokia did not competitively market CDMA phones to major operators in the United States, choosing to attempt to develop its own chipset rather than license the preferred CDMA chipset developed and furnished to Nokia's competitors by Qualcomm. Only in mid 2003, did Nokia begin to successfully market low-end CDMA phones to the major systems operators in the United States, but it continued to lag far behind in the development of CDMA phones, including the more advanced color and camera CDMA phones . In 2003, Nokia also lost market share in both the United States and Europe, as a result of its reluctance to customize phones for major phone service operators, including Verizon, Sprint, T-Mobile . Vodafone and Orange SA . 5. Most importantly, however, beginning in 2002 Nokia's product roadmap began to deteriorate and Nokia failed to develop new and competitive phone designs . Instead of tendin g 3 2498821 to its core business and upgrading the features and quality of its mobile phones, Nokia poure d approximately 80% of its research & development budget to launch a series of ill-conceived "smart phones" that were too bulky or costly for most consumers . With respect to Nokia's core products, engineers in Nokia's product development and research and development ("R&D" ) were permitted only nine to twelve months to plan and develop a new mobile phone, resulting i n an erosion in product quality. Corners were cut, particularly on the mid-range phones that fuele d the phone replacement market . Nokia held weekly meetings to address the quality issue s plaguing Nokia handsets that had been raised by operators . Approximately two years is require d to properly develop, release and "ramp-up" a new cell phone . 6. The weaknesses in the design of Nokia's product portfolio were well known within the company by early 2003 and stemmed from senior management's view that, base d upon its historical dominance of the market, Nokia could freely disregard its customers ' preferences. Thus, beginning in 2002 and into 2003, senior Nokia officers flatly rejected repeated requests to develop a "flip" or clamshell phone design despite customer surveys an d other input indicating Nokia was losing more than 15% of U. S . sales due to this portfolio shortcoming. Similarly, Nokia was unwilling to modify its production facilities and invest in improved color resolution through mega-pixel phones and other features demanded by it s customers. As a result, the Nokia brand became associated with low-end products, e.g., it was often the "free" or "penny" phone offered as a promotion by operators, and Nokia becam e increasingly dependent on new first-time customers in developing countries where Nokia' s phones sold at lower prices . Throughout 2002 and until fourth quarter 2003, the average sellin g price ("ASP") of Nokia's phones steadily dropped, sequentially, from quarter-to-quarter . 4 2498821 Nokia has historically been highly secretive about its phone road map and provided few details that would allow visibility into its trends in performance to market analysts and investors. In 2003, to compensate for its product development problems, Nokia conducted two major reorganizations in which thousands of employees were laid off or transferre d including from the new products marketing and development office in Irving, Texas, its interne t communications office in Mountain View, CA, and from the Company's 300 employee Broadband Systems Division in Santa Rosa , CA, which the Nokia closed completely in February of 2003. 8. Despite the common knowledge within Nokia of its product portfolio shortcomings, beginning in October 2003, with the announcement of Nokia's third quarter 200 3 ("3Q03") results; at a two-day conference in Dallas , Texas in November 2003 that Noki a sponsored for market analysts following Nokia's stock; and throughout January 2004, Nokia' s CEO and other senior officers aggressively touted the strength of its cell phone product portfolio and road map, (a schedule of planned new products in development and to be delivered into th e marketplace in future periods), falsely representing that Nokia's purportedly superior product s were the primary reason for its financial success, healthy phone ASPs and growing market share. In fact, Nokia's strong performance in late 2003 was an aberration . In fourth quarter 2003 ("4Q03"), despite Nokia's weak product line-up, a long-term downward trend in Nokia ' s phone market share and in its ASPs was momentarily interrupted when a massive surge in consume r demand caused component shortages at Nokia's major competitors, thereby suppressing thei r sales to Nokia's benefit. In January 2004, despite knowing Nokia's true problems with its phon e portfolio and product roadmap, and the looming resumption of the negative trend in the ASPs of 5 2498821 Nokia's phones that would necessarily flow from these product deficiencies, the defendant s issued guidances to market analysts of expected increases in Nokia sales of 3% to 7% in 1 Q04, as well as increases in its earnings per share . In January 2004, Nokia's CEO also announced that , based upon Nokia' s "current momentum ," he expected Nokia to further improve its phon e market share, particularly in Europe . 9. Even at Nokia's annual shareholders' meeting held on March 25, 2004 -- a mere two weeks before the disclosure of its shockingly poor 1 Q04 phone sales performance -- Nokia' s CEO continued to falsely represent that Nokia's purported success was attributable to its "strong " and "very competitive" phone portfolio : We reached these goals in part due to our strong product portfolio.

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