NOKIA – BUY Equity Research • IT • 5 January 2011 • Jyske Markets

Will 2011 be a good year for the ?

We generally expect that 2011 will be a good year for Nokia and we expect thus improvements with respect to products as well as earnings. This will hopefully also affect the share price. We maintain our BUY recommendation with a price target of

EUR 14. We should, however, like to point out that Nokia remains a share for investors with a high risk tolerance.

This is why we expect 2011 to be a good year:

1. New CEO: We had a positive first impression of Nokia’s new CEO . We think that Elop is still in the early phases of the fight – and ‘the red card’ cannot yet be ruled out. This being said, we assess that Elop’s mind-set and actions are exactly the medicine that Nokia has needed for quite some Publisher: time. With Elop at the helm, we assess that Nokia’s chances of a comeback in the market Jyske Markets have increased. So have the chances of a successful recovery of Nokia’s earnings capacity/operating Vestergade 8-16 margin. Elop may turn out to be Nokia’s largest jewel! DK - 8600 Silkeborg

2. OS gets a new lift: 2011 will be the year when the Symbian OS will be Senior Equity Analyst Robert Jakobsen comparable to Android and Apple’s iOS 4. Nokia is expected to launch 4-5 updates to Symbian OS in the +45 89 89 70 44 course of 2011. The first update will come in Q1 2011. Every update should recover some of the ground [email protected] lost to its rivals. Particularly a better user interface and a new web-browser have a high priority. The many updates will make it possible for Nokia to pass on the innovation quickly to the customers, which Equity Analyst should be received well. Lars Terp Paulsen

Translation: Translation Services Price trend Fundamental valuation Undervalued 12

11 Risk High News flow Negative 10 12-month price target 14 9 Current price 8.03 8 Accounting figures and key figures 7 (EUR million) 2009R 2010E 2011E 2012E 6 Sales 40,984 41,804 43,476 44,997 j f m a m j j a s o n n j Operating profit 3,245 2,508 3,522 4,185 Nokia DJ EURO STOXX Pre-tax profit 960 2,708 3,672 4,335 Share information

Profit margin 8% 6% 8% 9% High/low latest 12 months 12/7 Read more equity ROE 6.8% 10.7% 15.7% 18.4% Price trend (3/12 months) 7%/-13% research reports on ROIC 8.5% 24.5% 24.3% 28.8% - relative to DJ EUROSTOXX 4%/-8% www.jyskemarkets.com EPS 0.2 0.4 0.6 0.8 Market value (EURm) 30,072

P/E 64.5 19.3 12.0 9.3 Free float 100% Disclaimer: EV/EBITA 12.7 9.4 6.7 5.6 Avg. daily volume (EURm) 150 Please see the last P/B 2.0 2.1 2.0 1.9 NOK1V.FH page Dividend 0.4 0.4 0.5 0.5 Bloomberg NOK1V FH

Source: Jyske Bank & Bloomberg

NOKIA – BUY Equity Research • IT • 5 January 2011 • Jyske Markets 3. MeeGo: 2011 will also be the year when Nokia will launch the MeeGo operating system of which we have high expectations. MeeGo is Nokia’s new high-performance linux-based operating system which is tailor-made to the high end of the smartphone market. We anticipate that the first MeeGo smartphone (N9) will be launched at the end of H1 2011 (according to wiki.MeeGo.com, version 1.2 will be launched in week 16 or 17).

Stepehen Elop has publicly announced that MeeGo seems promising but he want to allocate more time to the development of MeeGo. We point out that the public details about MeeGo’s look, user-friendliness & performance are very scarce.

A successful MeeGo launch should be a material price trigger. On the other hand, a disappointing MeeGo will also disappoint investors.

4. Apps momentum? 2011 will presumably be the year when the volume of Apps* on Store is no longer a parameter which keeps potential customers away. Nokia recently announced that over the past 12 months as many as 400,000 developers have joined Nokia. This indicates that Nokia’s targeted stake on attracting the attention of independent Apps developers is beginning to have an effect. This should result in a solid lift in the number of Apps on Ovi Store in 2011 and hence remove/reduce a factor where Nokia is today lagging behind its rivals. *i.e. software programmes and games downloaded to the phone.

5. New : Also in 2011 we expect to see high growth rates in the smartphone market and hence it will account for a higher share of total sales and earnings at Nokia. Apart from E7 and the first MeeGo smartphone (both phones have been delayed from 2010) Nokia has only indicated that we will in Q2 and Q3 see more Symbian OS smartphones. Stephen Elop has then closed for early announcements of Nokia smartphones which may not be launched until 6-12 months later. In future, Nokia will launch the phones much closer to the launch date. A procedure which we definitely prefer. The many delays have only disappointed potential customers and invetors, which contributed to squeezing the share. It is, of course, difficult to have blind faith that Nokia’s 2011 smartphones will meet customers’/investors’ expectations. But on the other hand, it is our impression that Nokia’s newest smartphones (N8 and C7) have been met with a fine reception and are still selling well. In addition, E7 seems promising and ”spy photos” of N9 (MeeGo) are also promising.

6. Cost-cutting measures make their impact: Stephen Elop has been given carte blanche by the board of directors to implement the initiatives needed to strengthen Nokia’s competitiveness. This also includes carte blanche to make cost-cutting measures. In connection with the release of its Q3 accounts Nokia announced that the number of employees (primarily R&D) was reduced by approx. 1,800 people. We expect that Elop will launch more cost-cutting programme in 2011. Combined with our clear expectations that Nokia will in 2011 have better software solutions and hardware/phones on the shelves than was the case in (large parts of) 2010, Nokia should also be able to strengthen its competitiveness and earnings power in 2011.

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NOKIA – BUY Equity Research • IT • 5 January 2011 • Jyske Markets Price triggers in 2011:

CES in early January: CES is the world’s largest consumer electronics fair which will be held in Las Vegas from 6 to 9 January. Nokia will participate, and it has given rise to many speculations as to whether Nokia will disclose new products and services. If Nokia decides to announce new smartphones, an announcement of the E7 smartphone is most realistic. A smartphone which is expected to be launched in the beginning of 2011. E7 is remarkable, among other things, for a 4” touch screen and the reviewer-praised slide-out keyboard and screen. There are speculations in the market that Nokia will offer a status on the MeeGo operating system. We consider it less likely, however, that Nokia will also present the first MeeGo smartphone – the launch date is still too far away.

Capital-markets day on 11 February: We anticipate that Nokia’s new management led by Stephen Elop will release Nokia’s new strategy plan. Other items which will presumably be on the agenda:

1) Nokia’s forecast for 2011. We expect that Nokia will guide a fair advance in the EBIT margin in the mobile-phone division, boosted by an improved product mix as well rationalisations. We anticipate that Nokia will guide a maintenance of the global market share following a loss of market share in 2010. In 2011, Nokia will have a better basis of comparison compared with large parts of 2010 (Q1-Q3) when Nokia in actual fact had no smartphones targeted at the high end of the market. As appears below, we expect to see 7% y/y sales growth at Devices & Services with an EBIT margin of 11.3% which should be seen in comparison with the 10.8% we estimate for 2010.

Jyske Bank’s expectations of Nokia’s 2011 accounts: Anticipation of Nokia’s 2011 accounts (EURm) 2011 2010 Growth y/y Consensus Sales by segment Devices & Services 31023 29021 6,9% Networks 12493 12369 1,0% mv 1111 966 15,0% Sales 44306 42035 5,4% 44787 Operating profit (Non-IFRS) Devices& Services 3516 3140 12,0% Networks 80 60 32,6% Navteq 238 233 2,1% Operating profit (excl. extraord. costs) 3630 3187 13,9% 3439 EPS 0,69 0,60 14,6% 0,67 Number of sold mobile phones (m) 492 460 6,9%

2) new cost-cutting measures and comments on how, when and how much Nokia plans to lift its EBIT margin in the coming years.

3) new MeeGo details – for instance it is not unlikely that Nokia will show the first live demo of MeeGo 1.2 (test version) and tell about the customers’ (telecoms operators’) first impressions of MeeGo. In addition, we anticipate that Nokia will announce when and how many MeeGo smartphones Nokia will launch in 2011.

4) Nokia will inevitably tell about the long-term plans for Symbian OS (especially now that Nokia has taken over the development (previously ) and is implementing the multiplatform Qt development tool) and may also indicate which functions users may look forward to in 2011. It is crucial that Nokia in 2011 continues to catch up with Symbian’s 3 overhang in relation to its rivals.

NOKIA – BUY Equity Research • IT • 5 January 2011 • Jyske Markets

Breakthrough in the US: With better smartphone products and services on the shelves, the odds of a breakthrough in the US have markedly improved.

Up to now, Nokia has not been present in the US market (which is also the most attractive smartphone market), due primarily to weak smartphones as well as no reimbursements from the four major telecoms operators in the US (AT&T, Verizon Wireless, Sprint and T-Mobile). With N8, C7 and soon E7 as well as a new operating system, Nokia’s competitive situation has improved. A reimbursement agreement with one or more US providers does not seen unrealistic in 2011.

Developing countries: It seems that Nokia is right, in relation to the loss of market share in developing countries, that it can to a high degree be attributed to the current lack of selected components. Although we also saw a lack of components in Q4, we anticipate that the market will be back to normal in H1 2011. It should be borne in mind that we expect that Nokia will in 2011 lose moderate market share in selected markets where the group today has an ”unusually” high market share. Nokia is primarily losing market share to local producers.

Spin-off of NSN: 2011 may be the year when Nokia decides to spin off the whole or part of its 50% stake in the Nokia Network joint venture. Investors will be positively surprised about the price obtained (compared with NSN’s historical performance). If the entire stake is sold, it will also be positive that the Nokia management can now focus 100% on the mobile-phone business (Devices & Services).

Highest risks in 2011: Apart from our reciprocal price triggers (i.e. a disappointing capital-markets day, poor accounts, solid loss of market share in developing countries etc.), we see the following as the highest risks in 2011:

MeeGo delayed: The MeeGo operating system is delayed several times because the Nokia management is dissatisfied with the quality. A situation which will resemble Symbian OS/N8 in 2010.

The shortage of components continues: This constitutes a threat against Nokia’s growth opportunities as well as an expansion of its EBIT margin.

Costs are reduced at too slow a pace: Nokia is much too slow reducing its variable and operating costs.

USD strengthening: Nokia loses its competitiveness due to a solid strengthening of USD.

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NOKIA – BUY Equity Research • IT • 5 January 2011 • Jyske Markets New smartphones rapidly lose momentum: It turns out that Nokia’s new smartphones (N8, C7 and soon E7) rapidly lose momentum, and Nokia does not manage to launch new successful smartphones targeted at the high end of the market.

Cultural shock: Seen from the point of view of investors Stephen Elop will be the right medicine for Nokia. It is, however, not certain that the Finnish employees share the view. A culture clash which may turn out to influence employee satisfaction and hence the ability to catch up with Nokia’s overhang.

Rising competition from Chinese and other low-cost producers: They pose a threat to Nokia’s cheap mobile phones as well as more advanced phones. Not only in the developing countries (where Nokia today has a strong position) but also in the West. ZTE and Huawei are not yet well-known names among Western consumers. But they are determined to attain a breakthrough. For instance we have in connection with our monthly check of smartphone sales in December seen that Chinese ZTE (with the ZTE Blade smartphone) is beginning to perform well in the Swedish market. If this trend spreads to other countries and the customers begin to accept the cheap Chinese phones, it will give rise to keener competition.

Huawei U8150 IDEOS and ZTE Blade

Source: Huawei and ZTE

Disappointing accounts and downgrades: If we see downgrades or disappointing accounts, it may kill the confidence in the company and scare away the shareholders.

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NOKIA – BUY Equity Research • IT • 5 January 2011 • Jyske Markets Peer group Company P/E(2010) P/E(2011) EV/S(2010) EV/S(2011) EV/EBITDA(2010) EV/EBITDA(2011) NOKIA 13,3 11,0 0,6 0,6 6,6 5,5 MOTOROLA 26,0 17,5 0,9 0,8 8,2 6,8 9,7 10,0 1,0 1,0 5,3 5,3 LG ELECTRONICS 74,1 14,3 0,9 0,9 58,8 16,5 RESEARCH IN MOTION (NAS) 9,7 9,1 N/A N/A NA NA APPLE 16,7 14,3 3,0 2,6 10,7 9,0 HTC 18,7 13,7 0,1 0,1 0,5 0,4 ERICSSON 'B' 14,2 12,7 0,9 0,9 6,1 5,3 ALCATEL-LUCENT N/A 14,6 0,3 0,3 5,2 3,5 ZTE 'A' 25,4 20,7 0,9 0,8 10,5 8,4 Weigthed Average 16,3 12,9 2,0 1,7 9,4 7,2 Mean 24,1 12,8 1,1 1,0 12,4 6,7 Premium compared with weighted avg. -18% -14% -69% -66% -30% -24%

Scenario analysis

Beta 1.05 1.15 1.25 WACC 9.3% 9.8% 10.3%

Optimistic scenario: 1 p.p. higher sales growth and EBIT margin 15.4 14.5 13.7 Basic 13.2 12.4 11.7 Pessimistic scenario: 1 p.p. slower sales growth and EBIT margin 11.2 10.5 10.0

Note: the optimistic scenario is based on 1 percentage point higher sales growth and a 1 percentage point higher profit margin in all 10 years of the budget period – the opposite applies to the pessimistic scenario. Source: Jyske Bank

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NOKIA – BUY Equity Research • IT • 5 January 2011 • Jyske Markets

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NOKIA – BUY Equity Research • IT • 5 January 2011 • Jyske Markets

Jyske Bank covers the following companies within IT Company Recommendation Analyst Dell BUY Robert Jakobsen Electronic Arts BUY Robert Jakobsen Ericsson SELL Robert Jakobsen Intel SELL Robert Jakobsen BUY Robert Jakobsen Nokia BUY Robert Jakobsen Oracle SELL Robert Jakobsen Samsung SELL Robert Jakobsen SAP BUY Robert Jakobsen

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NOKIA – BUY Equity Research • IT • 5 January 2011 • Jyske Markets Disclaimer & Disclosure Jyske Bank is subject to supervision by the Danish Financial Supervisory Authority.

Jyske Bank's analysts are subject to the recommendations of The Danish Securities Dealers Association on the handling of conflicts of interest in investment banks.

The research report is based on information which Jyske Bank finds reliable, but Jyske Bank does not assume any responsibility for the correctness of the material nor for transactions made on the basis of the information or the estimates of the report. The estimates and recommendations of the research report may be changed without notice. The report is for the personal use of Jyske Bank's customers and may not be copied.

This report is an investment research report.

Conflicss of interest Jyske Bank has prepared procedures to prevent and preclude conflicts of interest thus ensuring that research reports are being prepared in an objective manner. These procedures have been incorporated in the business procedures covering the research activities of Jyske Markets, a business unit of Jyske Bank.

Moreover, equity analysts at Jyske Bank cannot trade in companies and papers for which they prepare research reports. Jyske Bank may, however, hold positions, have interests in or business relations with the companies that are analysed. The research report has not been presented to the company prior to its release. The analysts receive no payment from persons interested in individual research reports.

Read more about Jyske Bank's policy on conflicts of interest at www.jyskebank.dk/terms

Jyske Bank's share recommendations - current allocation

Allocation of recommendations, Danish shares (number) Allocation of recommendations, all shares (number)

14 25 12 20 10 8 15

6 10 4 5 2 0 0 Buy Accumulate Neutral Reduce Sell Buy Accumulate Neutral Reduce Sell

Source: Jyske Bank Source: Jyske Bank Financial models Jyske Bank employs one or more of the following models: Discounted cash flow (free cash flow), Economic Value Added and the dividend model to determine the fundamental value of a company. The fundamental value is compared to a relative valuation based on multiples such as P/E and EV/EBITA. The recommendation and the price target are moreover adjusted for the expected news flow and the market sentiment based on knowledge of the industry and company-specific circumstances. Jyske Bank’s recommendations take into account the expected development in the equity market, the various sectors and company-specific circumstances.

Risk Investment in this share is associated with a risk. Movements in the equity market, the sector and/or news flows, etc. regarding the company may affect the price of the share. See the front page of the research report for our view of the risk associated with the share. The risk factors stated and/or calculations of sensitivities in the research report are not to be considered all-encompassing. If the share is traded in a currency other than the investor’s base currency, the investor accepts an FX risk. In connection with an ADR or similar papers, the FX risk exists relative to the currency in which the underlying share trades.

Update of the research report The planned update of the report will be prepared immediately upon the release of the company’s financial statements. See the front page for the initial date of publication of the report. All prices stated are the latest closing prices before the release of the report, unless otherwise stated.

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NOKIA – BUY Equity Research • IT • 5 January 2011 • Jyske Markets Recommendation Return relative to the performance of the general equity market

BUY >5% ACCUMULATE 0 to 5% NEUTRAL 0% REDUCE 0 to -5% SELL < -5%

Source: Jyske Bank

Share recommendation concepts Our recommendations are relative to the market development and are based on an evaluation of the forecast return within the coming 12 months. The forecast return is the difference between the current price and our 12-month price target (the price target includes the projected dividend). A positive recommendation (BUY or ACCUMULATE) is based on expectations that an investment in the share will yield a return above the general equity market. On the other hand, a negative recommendation (REDUCE or SELL) implies that we expect an investment in the share to yield a return below the general equity market.

Since our recommendations are relative and risk-adjusted, it is possible to compare our recommendations across sectors and risk categories. In addition, the potential is stated in absolute terms via our price target. It should be borne in mind, however, that the recommendation is the anchor. A BUY recommendation is a BUY recommendation until the recommendation has been changed, also in the event that price increases have taken the price "too close" to the price target.

The future and historical returns estimated in the research report are stated as returns before costs since returns after costs depend on a number of factors relating to individual customer relations, custodian charges, volume of trade as well as market-, currency- and product-specific factors. It is not certain that the share will yield the stated expected future return/s. The stated expected future returns exclusively express our best assessment.

Contacts for institutional customers

Kim Sejdelin Christensen Manager, Sales Desk, Equities +45 87 57 82 81 [email protected] Klaus Andersen Senior Account Manager +45 87 57 82 89 [email protected] Anders Isager Senior Account Manager +45 87 57 82 90 [email protected] Tina Ammitzbøl Georgi Senior Account Manager +45 87 57 82 85 [email protected] Michael Lyngsø Senior Account Manager +45 87 57 82 86 [email protected] Jens Johansen Senior Account Manager +45 87 57 82 88 [email protected]

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