As filed with the Securities and Exchange Commission on March 21, 20195, 2020

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20182019

Commission file number 1‑13202

Nokia Corporation

(Exact name of Registrant as specified in its charter)

Republic of Finland

(Jurisdiction of incorporation)

Karaportti 3Karakaari 7 FI‑02610 Espoo, Finland

(Address of principal executive offices)

Esa Niinimäki, Vice President,Deputy Chief Legal Officer, Corporate, Legal, Telephone: +358 (0) 10 44 88 000, Facsimile: +358 (0) 10 44 81 002,
Karaportti 3,
Karakaari 7, FI‑02610 Espoo, Finland

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 (the “Exchange Act”):

(1)   Not for trading, but only in connection with the registration of American Depositary Shares representing these shares, pursuant to the requirements of the Securities and Exchange Commission.

Securities registered pursuant to Section 12(g) of the Exchange Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Exchange Act: None

Indicate the number of outstanding shares of each of the registrant’s classes of capital or common stock as of the close of the period covered by the annual report. Shares: 5 635 945640 536 159.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting

company” or “emerging growth company” in Rule 12b‑2 of the Exchange Act. (Check one):

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ☐

International Financial Reporting Standards as issued by the International Accounting Standards Board ☒

Other ☐

Certain statements contained in this Annual Report constitute "forward-looking statements". Forward-looking statements provide Nokia's current expectations of future events based on certain assumptions and include any statement that does not directly relate to any current or historical fact. The words “believe”, “expect”, “expectations”, “anticipate”, “foresee”, “see”, “target”, “estimate”, “designed”, “aim”, “plan”, “intend”, “influence”, “assumption”, “focus”, “continue”, “project”, “should", "is to", "will”, "strive", "may" or similar expressions as they relate to us or our management are intended to identify these forward-looking statements, as well as statements regarding:

A)business strategies including the four pillars of Lead, Expand, Build and Create, market expansion, growth management, and future industry trends and megatrends and our plans to address them, including Future X;

B)future performance of our businesses and any expected future distributions and dividends;

C)expectations and targets regarding financial performance, results, operating expenses, cash flows, taxes, currency exchange rates, hedging, cost savings and competitiveness, as well as results of operations including targeted synergies and those related to market share, prices, net sales, income and margins;

D)expectations, plans, timelines or benefits related to changes in our organizational and operational structure;

E)market developments in our current and future markets and their seasonality and cyclicality, including forthe communication service providers,provider market, as well as general economic conditions and future regulatory developments;

F)our position in the market, including product portfolio and geographical reach, and our ability to use the same to develop the relevant business or market and maintain our order pipeline over time;  

G)any future collaboration or business collaboration agreements or patent license agreements or arbitration awards, including income from any collaboration or partnership, agreement or award;

H)timing of the development and delivery of our products and services, including our short term and longer term expectations around the deployment of 5G and our ability to capitalize on such deployment as well as use our global installed base as the platform for success in 5G, and the overall readiness of the 5G ecosystem;

I)the outcome of pending and threatened litigation, arbitration, disputes, regulatory proceedings or investigations by authorities;

J)restructurings, investments, capital structure optimization efforts, divestments and our ability to achieve the financial and operational targets set in connection with any such restructurings, investments, and capital structure optimization efforts including our 2019-2020 cost savings program;

K)future capital expenditures, temporary incremental expenditures or other R&D expenditures to develop or rollout new products, including 5G; and

L)the sustainability and corporate responsibility contained in the sustainability and corporate responsibility section of this annual report on Form 20-F.

These statements are based on management’s best assumptions and beliefs in light of the information currently available to it and are subject to a number of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from such statements. These statements are only predictions based upon our current expectations and views of future events and developments and are subject to risks and uncertainties that are difficult to predict because they relate to events and depend on circumstances that will occur in the future. Risks and uncertainties that could affect these statements include bybut are not limited to the risk factors specified under “Operating and financial review and prospectsRisk factors” of this annual report on Form-20 FForm 20-F and in our other filings or documents furnished with the U.S. Securities and Exchange Commission. Other unknown or unpredictable factors or underlying assumptions subsequently proven to be incorrect could cause actual results to differ materially from those in the forward-looking statements. We do not undertake any obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required.

Nokia Corporation is a public limited liability company incorporated under the laws of the Republic of Finland. In this annual report on Form 20‑F, any reference to “we,” “us,” “the Group,” “the company” or “Nokia” means Nokia Corporation and its consolidated subsidiaries and generally to Nokia’s Continuing operations, except where we separately specify that the term means Nokia Corporation or a particular subsidiary or business segment only or our Discontinued operations. References to “our shares” matters relating to our shares or matters of corporate governance refer to the shares and corporate governance of Nokia Corporation.

Nokia Corporation has published its consolidated financial statements in euro for periods beginning on or after January 1, 1999. In this annual report on Form 20‑F, references to “EUR,” “euro” or “€” are to the common currency of the European Economic and Monetary Union, references to “dollars”, “U.S. dollars”, “USD” or “$” are to the currency of the United States, and references to “Chinese yuan” or “Chinese yuan renminbi” or “CNY” are to the official currency of the People’s Republic of China. Solely for the convenience of the reader, this annual report on Form 20-F contains conversions of selected euro amounts into U.S. dollars at specified rates or, if not so specified, at the year-end rate of 1.14501.1234 U.S. dollars per euro, and conversions of selected euro amounts into Chinese yuan renminbi at specified rates or, if not specified, at the year-end rate 7.87517.8205 Chinese yuan renminbi per euro. The referred year-end rates wherewere the European Central Bank reference rates on December 31, 2018.2019. No representation is made that the amounts have been, could have been or could be converted into U.S. dollars or Chinese yuan at the rates indicated or at any other rates.

Additional terms are defined in the "Glossary of terms".

The information contained in, or accessible through, the websites linked throughout this annual report on Form 20‑F is not incorporated by reference into this document and should not be considered a part of this document.

Nokia Corporation furnishes Citibank, N.A., as Depositary, with its consolidated financial statements and a related audit opinion of our independent auditors annually. These financial statements are prepared on the basis of International Financial Reporting Standards as issued by the International Accounting Standards Board and in conformity with IFRS as adopted by the European Union (IFRS). In accordance with the rules and regulations of the SEC, we do not provide a reconciliation of net income and shareholders’ equity in our consolidated financial statements to the generally accepted accounting principles in the United States, or U.S. GAAP. We also furnish the Depositary with quarterly reports containing unaudited financial information prepared on the basis of IFRS, as well as all notices of shareholders’ meetings and other reports and communications that are made available generally to our shareholders. The Depositary makes these notices, reports and communications available for inspection by record holders of American Depositary Receipts (ADRs), evidencing American Depositary Shares (ADSs), and distributes to all record holders of ADRs notices of shareholders’ meetings received by the Depositary.

In addition to the materials delivered to holders of ADRs by the Depositary, holders can access our consolidated financial statements, and other information included in our annual reports and proxy materials, at nokia.com/financials. This annual report on Form 20‑F is also available at nokia.com/financials as well as on Citibank’s website at https://app.irdirect.net/company/49733/hotline/. Holders may also request a hard copy of this annual report by calling the toll-free number 1‑877‑NOKIA-ADR (1‑877‑665‑4223), or by directing a written request to Citibank, N.A., Shareholder Services, PO Box 43077, Providence, RI 02940‑3081, United States. With each annual distribution of our proxy materials, we offer our record holders of ADRs the option of receiving all of these documents electronically in the future.

Contents

We are at the dawn of a new era. Digital technologies – cloud computing, artificial intelligence, machine learning, the Internet of Things and 5G networks – areis changing our world. Nokia is driving innovation and the future of technology to power this digital age and transform how people live, work and communicate. Whole industries are being transformed. Networks are becoming faster and more responsive. Artificial intelligence and machine learning are allowing systems to sense their environment and react instantaneously. Digitalization and automation are making Industry 4.0 a reality. 

Nokia is addressing these changes around the globe. Our end-to-end portfolio of solutions and services is unique; our ability to partner with customers anywhere and address their needs is clearly demonstrated; and we are absolutely committed to quality, sustainability and integrity. Security is built in everything we do.

We pushare driving the boundaries of what is possibleinnovation for tomorrow and delivering the technology today to create new ways of connecting people, thingsmake businesses more productive, environments cleaner, workplaces safer, economies stronger, and services instantly and effortlessly. We build upon a foundation of integrity, quality and security. We helplives enriched. These are the expectations our customers navigate complex choices, drive productivity gains in physical and digital industries alike, and unlock new opportunities that provide extraordinary experiences in people’s lives each day.trust us to deliver.

Financial Highlightshighlights

“20182019 was the year 5G took off. We saw the first commercial deployment of 5G move forward in lead countries,rollouts, and Nokia was at the forefrontplayed a significant role helping customers in all leading markets. Many of this activity. In 2019our businesses performed very well – such as Nokia Enterprise delivering double-digit sales growth, IP Routing gaining significant market share and increasing profitability, and Nokia Software substantially expanding its profitability. We faced challenges in our Mobile Access and cash generation but know what we need to fix, and expect to see more organizations aroundimprove over the course of 2020 and start 2021 in a much stronger position.”

Connectivity with a purpose

If Nokia creates the technology to connect the world, takethen in 2019 the world got that little bit better connected.

2019 was the year 5G was launched into the mass market  – and we were in the pilot’s seat. We are the only company working with all the operators who have chosen their first steps5G vendor in creating the infrastructureearly adopter markets of the US, South Korea and Japan. That gave us firsthand experience of the enthusiastic welcome consumers are giving 5G – in Korea, for example, we expected around 3 million users by the end of the year, but the final total was closer to 5 million.

Those would be great figures at any time. But remember that this new technology cycle is still in its early stages – and consumer appetite is only part of the picture. As 5G becomes established in more markets, its increased capacity, reliability and responsiveness will unlock the Fourth Industrial Revolution, –profoundly changing the way cities, businesses and governments operate, and creating unprecedented opportunities for economic growth, human wellbeing and environmental sustainability.

That last point is critical. The evidence is clear: 5G can provide solutions to the pressing issue of climate change. Over time, 5G will improve material efficiency, resource efficiency and energy efficiency. The gains will be particularly striking in resource-intensive industries, such as mining and manufacturing.

And we are starting to get a taste of the potential of meaningful connectivity already before 5G fully arrives. In 2019, for instance, we helped small-scale farmers in Algeria automate their irrigation lines, leading not only to healthier crops but to less wasted water and greater crop yields. We helped the Japanese city of Sendai develop their crisis response system by using automated drones. And in Peru we are working with mining companies to reduce their environmental impact and improve employee safety.

The journey towards a better-connected, sustainable future also presents a huge business opportunity. According to World Economic Forum estimates, 5G alone can create over $13 trillion of global economic value across every conceivable industry, as well as over 22 million jobs, by 2035. Nokia is readywell positioned to benefit from this opportunity.

I will come back to that later in this letter, but first I want to explore our 2019 financial performance and explain what we are doing to improve in the areas where we have challenges.

Progress in a challenging year

Overall, we cannot be their trusted partner.”

Financial Highlights

Althoughcontent with our financial performance in 2018 was below our expectations overall, we exited 2018 with a strong finish, confirming our expectation of accelerated2019. Nokia Group net sales momentum as the year progressed. Indeed, we had a strong second half with every one of our Networks Business Groups delivering year-on-year growth,were up 1 percent globally (5 percent excluding China) excluding the impact of changes in foreign currency exchange rates. This droverates, and our operating margin was up by about 2 percentage points versus 2018.

But, at the same time, we had areas of remarkable strength across our business groups. IP Routing continued its strong momentum, gaining significant market share and improving profitability. Nokia Software delivered on its promise, with an operating margin that was up sharply from 2018. Nokia Enterprise also delivered exceedingly well, hitting its double-digit sales growth target and considerably outperforming the market. And Nokia Technologies increased its already excellent profitability.

Also, taking a regional perspective, we saw many good areas of performance. Our sales increased in Nokia’s netAsia Pacific, Europe, Latin America, and North America. Excluding the impact of changes in foreign currency exchange rates, sales forwere down by 2 percent in Middle East and Africa but that was still a good performance in the yearcontext of 1%,challenging market dynamics. In Greater China the market presents some unique challenges, and we saw a sales decline of 16 percent excluding the impact of changes in foreign currency exchange rates.

Our Networks business delivered approximately 2% growth in 2018, excluding the impact of changes in foreign currency exchange rates, fueledAs mentioned above, we were also chosen by the continued success of our end-to-end strategy and the conversion of a healthy pipeline into net sales. This allowed us to take share in certain segments of the market, while the overall market itself declined slightly. High customer engagement in multiple elements of our 5G portfolio sees us enter 2019 with a strong Networks order backlog. In Nokia Technologies, we maintained our strong growth track record with 11% year-on-year growth in recurring licensing revenue.

Reflecting this momentumearly adopter operators in the year, the Board of Directors will propose a maximum dividend of EUR 0.20 per share for 2018: a 5% increase compared to 2017.

Progress in our strategy

In our first pillar – leading in high-performance, end-to-end networks with Communications Service Providers – we have proven our capabilities as the commercialization of 5G begins. We proudly serve as a partner to most of 5G’s ‘first-movers’ with over 25 5G commercial deals and nearly 100 trials and pilots of the new technologies.

In our second pillar – expanding network sales to select vertical markets – from Sprint and Verizon in the US, to Softbank in Japan, to Korea Telecom in South Korea, amongst others; additionally, we support a widewere selected by Orange France and growing range of organizations as they evaluate how best to digitalize their operations. Enterprises are increasingly looking at dedicated networks to enable them to have full control over networking solutions that haveO2 in the characteristics they need for their business. Today we serve approximately 1 000 customers outside of our traditional Communications Service Provider base, bringing connectivityUK. This was down to some ofadmirable work across business groups and our customer organization teams. In 2020 we will work hard to maintain and increase the most complex, fast-moving industries on earth, including a number of new automotive, energy and transportation customers that placed their trust in our technologies in 2018.

In our third pillar – building a strong standalone software business at scale – we see clear signs of our strategy bearing fruit. Nokia Software is now a truly verticalized business, driven by a renewed sales organization, underpinned by simpler processes and boasting a modern, cloud-native common software foundation. The attractiveness of this proposition is borne out through strong 2018 sales momentum including wins with AT&T, BT, STC, Sky, Telenor One Europe and Verizon and the industry analyst research firm, Analysys Mason, ranked us the leading telecoms software company by revenue.

In our fourth pillar – creating new licensing opportunities – our successes in 2018 with existing and new licensee customers have validated our direction for Nokia Technologies. This year we have extended our patent licensing agreement with Samsung; signed a new multi-year patent license agreement with Chinese smartphone maker OPPO; and benefited from continued progress made by our brand licensee, HMD Global, which unveiled a range of new products throughout 2018 with production capacity to deliver on demand. We see further potential in licensing to smartphone makers and in other markets which are using our patented inventions, such as automotive, consumer electronics and IoT devices such as smart meters.us.

Accelerating our strategy

Given the considerable momentum of our strategy, and with the successful Alcatel Lucent integration and associated cost-saving program completed, we took steps during 2018 to accelerate the execution of our strategy and position our business for 5G leadership. Alongside a new program targeting EUR 700m in annual cost savings(1)by the end of 2020, these steps have led to a number of organizational changes that further strengthen our ability to deliver on our 2019 and 2020 guidance.

First, we have created a new Business Group, Nokia Enterprise, that consolidates a range of existing, fast-growing activities into one organization. Led by Kathrin Buvac, Nokia Enterprise will enhance our ability to capture higher-growth, higher-margin opportunities as companies progress with their digital transformations.

Second, we have tailored Mobile Networks’ operational focus on mobile radio products, led by Tommi Uitto, and consolidated all our Cloud Core activities and accountability into Nokia Software, under the leadership of Bhaskar Gorti.

We have also realigned Nokia’s customer-facing organization into two regional groups, to make sure our customer focus is as strong as possible. The first group covers the Americas, led by Ricky Corker. The second is responsible for Europe, Middle East & Africa and Asia-Pacific, led by

Federico Guillén who previously led

Improving execution in our access business

In 2019 the Nokia Group results were, however, impacted by the difficulties across our Mobile and Fixed Networks. Access businesses. Fixed Access continued to face challenges in the market transition from copper to fiber despite some initial signs of progress towards the end of the year. Going forward, we will continue to have a sharp focus on costs, and we have targeted selective expansion in new areas, particularly fixed wireless access.

The core of our profitability issues came from Mobile Access (a combination of our Mobile Networks and Global Services business groups), and in particular from high radio product costs in the early stages of 5G. Action is underway to overcome these challenges. First, teams across the company are working hard to optimize 5G product costs by addressing every possible part of product bills of materials, including semiconductors, where a transition to our system-on-chip “5G Powered by ReefShark” portfolio is critical.

Second, we want to maintain necessary scale in mobile radio products. This requires that we continue to convert existing 4G customers to 5G and confirm new Presidentones. In 2019 we did well here and ended the year with a 4G+5G market share in the range of Fixed Networks, Sandra Motley, is charged with continuing27 percent excluding China. Going forward, we want to stabilize this at approximately the same level.

Third, in 2019 we took significant steps to enhance commercial management and deal discipline to drive better performance in current contracts and improve outcomes in new ones. We will continue to push hard for further improvements this year and expect to see positive impact on the profitability of Mobile Access gradually over the year.

Finally, we further strengthened operational improvements in services, including increases in operational discipline and enhanced efforts to manage for margin and cash. I was pleased to see that in 2019 our hard work started to take hold, and we saw improvement in our Global Services operating margin in 2019 compared to 2018, even if we were still below what we believe we can achieve.

In 2020 we will publish quarterly updates on our operational progress in Mobile Access, as well as on cash generation, which will continue to be an additional area of focus.

Strengthening cash generation

In 2019 we put a structured program in place to improve our cash position, including a company-wide focus on free cash flow and release of working capital, strengthened relevant contractual terms with customers and suppliers, and reinforced controls across our supply chain and inventory management. As a result, we were able to reduce inventories to the Business Group while capturing new market opportunitieslowest levels since the beginning of 2018 and ended the year with a solid net cash position.

Going forward, we will continue to push hard to generate cash, and even though there may be headwinds related to the timing of Nokia Technologies’ cash flow and cash outflows related to restructuring in 2020, we expect these to be mitigated in the coming years.

Creating long-term value

In 2019 we made good progress against our strategic pillars and I am confident our strategy remains the right one and enables long-term value creation for its portfolio.our shareholders, customers, partners and employees.

These changes have strengthenedIn the first pillar of our organization, sharpenedstrategy – leading in high-performance, end-to-end networks with communication service providers – we continued to progress in 5G despite the aforementioned challenges in Mobile Access. By the end of 2019 we reached 62 5G commercial deals and launched 18 live networks with our focus, and added strong capabilitiescustomers. We demonstrated the power of our unique global end-to-end portfolio with an increased number of multi-business group deals in our sales pipeline. Our broad portfolio also means that even though 5G product costs negatively impact our near-term margins, we are well positioned to Nokia’s Group Leadership Team.

Thebenefit from the longer 5G investment cyclecycle. 

FromOur second pillar is about growing our enterprise and webscale business and leading the first trialsdigitalization of industries with private networks and industrial automation. In recent years we have successfully delivered what we promised we would: we expanded network sales into select vertical markets and positioned ourselves well in the industrial automation market, which we expect will be critical in the Fourth Industrial Revolution. And Nokia Enterprise’s results again in 2019 show high promise for the future.

The third pillar is about strengthening our software business with one Common Software Foundation. As noted above, 2019 was another strong year for us in this space, with leading industry analysts describing Nokia Software as the world’s leading telco software business. Through hard work in recent years, Nokia has grown into the overall market share leader across both telecom software and services combined.

We have also made good progress against our fourth pillar, diversifying our licensing business with new opportunities in patents, IoT and brand. Nokia Technologies has done a great job in creating new licensing opportunities in the consumer ecosystem, and we see meaningful growth opportunities in expanding our scope.

Operational excellence is the foundation for our strategic priorities. In addition to the first roll-outs, 2018 was the yearaforementioned actions in which 5G became acash, commercial reality. It is my firm beliefdiscipline and operational improvements in services, we are continuing with various actions across Nokia that we now stand at the start of a meaningful, long-term technology trend that bodes uniquely well for Nokia.will contribute to our commitment to reduce costs in 2020 by EUR 500 million compared to 2018. This will make us smarter, leaner and more competitive going forward.

5G will power networks that connect sensors, machines, platforms, systems and people in one seamless, automated ‘whole’. This fundamental shift in network design will require several different stages of investment, each of which leads naturally to the next. Nokia’s unique, end-to-end portfolio includes products and services for each stage of this process, leading to a virtuous cycle of investment that only Nokia can truly take advantage of.Working with integrity

The cycle has already begun with 5G radio access network (RAN) upgrades in ‘first-mover’ markets suchOne area bringing us added value – as the US, Korea, China and Japan, which our Airscale portfolio enables. As well as radio, these networks also need high-capacity connectivity to data centers, requiring backhaul network expansion. Demanda strong sense of pride – is the high level of integrity in the U.S. forway we work. We will discuss our IP and Optical Anyhaul offer shows this trend already taking shape.

With networks built, operators will then need fixed-wireless access to expand “last-mile” connectivity. With the most complete fixed-wireless access product set of any provider, we are well-placed to tap this opportunity.

In due course, ‘fast-follower’ countries will commence their 5G roll-outs. Yet, by this point, ‘first-mover’ countries will already have entered the second stage of 5G evolution. Here, the focus will shift to network virtualization and edge cloud and smart network fabrics will be required to connect these edge clouds, all playing to Nokia’s strengthachievements in cloud deployment and packet core.

Network slicing will follow, triggering a need for enhanced software that can control networks with high degrees of automation: our standalone software business and early moves in AI will allow us to capitalize.  

Simultaneously, many enterprises will choose to build their own private networks, meeting bespoke performance, reliability and security requirements. These networks will leverage the same end-to-end technologies as CSPs, but on a smaller scale. These will need to be plugged into national or global networks, creating a seamless ‘whole’, driving even greater network traffic and shifting the cycle back to the beginning.

No other global company touches every link in this cycle. No matter how early or late stage the investment, be it a ‘first-mover’ or ‘fast-follower’ geography, a Communications Service Provider innovator or a digitally-minded enterprise, Nokia’s end-to-end portfolio means that we can meet every 5G investment requirement that lies ahead.

Force for good

Digital technology increases productivity, reduces waste and connects the world, so it was pleasing that the radio networks we delivered to our customers served around 6.1 billion subscriptions worldwide this year, up about 10% from 2016. As the 5G era begins we will see even greater societal and industrial benefits.

Climate challenges remain critically important. We have worked hard to minimize the energy use of our products. Achievements included the first commercial liquid-cooled base station in the world, recognition as a leader by the CDP Climate rating, and achieving average energy savings of 43% for customers whose networks we modernized during 2018. These and many more examples of our sustainable development work can be founddetail in our People &and Planet Report, to bereport published in April, but I want to mention a couple of highlights from 2019.

In February our culture of integrity and our positive impact on the business community and wider ecosystems received recognition, with Ethisphere naming Nokia one of the World’s Most Ethical Companies for the third year. And in 2020, we are happy to see that recognition renewed for the fourth time.

In September we were among the frontrunner companies announcing our intention to recalibrate our emissions targets in line with the scientific consensus that the world needs to limit average rises in temperature to 1.5°C in order to avoid irreversible environmental damage.

In May 2019.we published our plan to close the “unexplained pay gap” in the company – a gap that cannot be explained by factors that drive pay at Nokia, such as performance, experience, job grade or location. By July that gap was closed, and we have regular checks in place to make sure it never returns.

Looking ahead

We continue to work hard to create long-term value for Nokia exits 2018 with strength, energy and purpose. The year has not been without challenges, but nevertheless,our customers, and more widely for industries, communities and societies. And, as explained in this letter, we have remained focuseda clear set of drivers to deliver on that promise.

Despite our commitmentsshort-term challenges in execution in our access business, I remain confident that we are taking the right steps over the course of this year to our customers, peopledeliver progressive improvement and shareholders. Our strategy is focused on the true areas of opportunity; our global team is committed, dynamic and capable of innovating and winning at the highest level; and our end-to-end portfolio has putto position us infor a great position to grasp the transformative 5G opportunity ahead.stronger 2021.

Rajeev Suri

President and CEO

(1)Excluding costs related to the acquisition of Alcatel Lucent and related integration, goodwill impairment charges, intangible asset amortization and other purchase price fair value adjustments, restructuring and associated charges and certain other items.

We are rebalancing for growth, putting Nokia aims at enabling massive consumer broadband and the heart of unprecedented opportunities in the Fourth Industrial Revolution to create the technology to connect the world.industrial automation revolution with large networks at scale.

In 2016 we identified six global megatrends that we believe continue to impact our current and potential customers, change the lives of people and impact business operations on a global scale. The Nokia Bell Labs Future X vision is directly aligned to these megatrends, providing opportunities for us to diversify into new growth areas.

The megatrends we have identified are:

Nokia Bell Labs has developed Future X, our vision of a future network architecture that addresses these megatrends in a holistic way. This is our guide to building networks that meet the future needs of our customers and address the inherent opportunities in the megatrends. The Future X vision encompasses the key domains of future networks: emerging devices and sensors, massive-scale access, converged edge cloud, smart network fabric, universal adaptive core, programmable network operating systems, augmented cognition systems, digital value platforms and dynamic data security. Besides this, we have defined five end-to-end solutions on the basis of Future X: 5G, distributed cloud, network slicing, security and industrial automation.

Simultaneously, driven by the megatrends and the resulting increasing relevance of networks to digitize business operations, we see a shift in who is investing in technology.

Our primary market with communication service providers (CSPs), in which we have a leadership position, is very large in size, but expected to provide a limited estimated growth opportunity, with growth mainly driven by 5G.

However, the megatrends are increasing the demand for large high-performance networks in other key industries. Webscale companies – such as Google, Microsoft and Alibaba – are investing in cloud technology and network infrastructure at an increasing scale. As other vertical marketsmarket segments such as transportation, energy, manufacturing and the public sector (TEPS)logistics, and governments and cities digitize their operations, they need high-performing, low-latency mission-critical networks as well. The same is true for TXLEs– technically sophisticated large enterprises, such as banks, that invest heavily in their own network infrastructures to gain a key competitive advantage.

Our “Future X for industries”Industries” network architecture combines the technologies that drive dramatic productivity improvements across a wide range of industry sectors. As technologies such as edge cloud supporting augmented intelligence and advanced security analytics as well as end-to-end 5G-capable networks become a reality, they will radically speed up the digital transformation of industries such as manufacturing, logistics, transportation and energy, as well as governments and cities. Nokia’s holistic approach is helping to drive a new era of productivity and human–machine interaction that is expected to unlock trillions of dollars of economic value in the next decade.

We are addressing both our primary CSP market and the newly identified growth opportunities in the Industrial IoT with our “Rebalancing for Growth” strategy. The strategy builds on our core strength of delivering large high-performance networks by expanding our business into targeted, higher-growth and higher-margin vertical markets.  

Our four pillarskey priorities

Our “Rebalancing for growth” strategy builds on our business portfoliosets the right direction for Nokia. We have focused it to reflect the progress so far and continued drive to create technology that serves people and businesses and includes the following four key priorities.accelerate further execution.

1.Lead

Lead in high-performance, end-to-end networks with CSPscommunication service providers

Our aspiration, strategy and position

Nokia is aintends to become the leading, trusted network equipment provider for end-to-end networks and the leader in this area todaycustomer intimacy. Our comprehensive portfolio of access, transport and software allows us to leverage our existing global customer sales channel to generate incremental sales opportunities across multiple network domains, and secure value throughout the network investment cycle. Over the long term, we aim to differentiate with end-to-end solutions that allow us to offer our customers guaranteed mission-critical performance, total cost of ownership savings, time-to-market gains and higher reliability. We expect our technology leadership to protect against the sustained price pressure in the CSP industry, where we focus our Mobile and Fixed Networks as well as our Global Services business on optimizing profit and cash and maximizing Nokia’s end-to-end 5G value proposition. We work relentlessly to drive advantage through strong technology, time to market and significantly lowering product costs in 5G. In addition, we leverage our differentiation in superior 4G network performance, the most comprehensive small cell portfolio and the leading position in 5G fixed wireless access and ultrabroadband optical fiber access solutions. We manage our IP Routing and Optical Networks businesses for growth, based on technological differentiation and leadership as well as market momentum. We strive to expand IP Routing based on product leadership with the FP4 chipset. Optical Networks is in a position of technological strength that will use our main competitive advantage – a near-100% end-to-end portfolio that we can deliver on a global scale – to maintain our leadership while managing for profitability.be further improved with the recently launched PSE-3 chipsets.

Our focus areas

Progress

2.Expand2.Grow

Expand network sales to select vertical marketsGrow the enterprise and webscale business and lead the digitalization of industries with private networks and industrial automation.

Our aspiration, strategy and position

We continue to expand into select vertical markets that have high-performance, carrier-grade networking needs: Web and cloud companies; transportation, energy, public sector (TEPS); and TXLE (large enterprises for which technology isIn 2019, Nokia accelerated its engagement with the enterprise customer market. Recognizing the growth potential of our business within this market, we created a strategic advantage). As the world becomes more digital and more automated, the kind of high-performance, low-latency networks once used almost exclusively in telecommunications are now needed by other organizations. This is especially true in organizations that own high-value, movable assets that are mission-critical. To address this growing need for high-performance networks,new business group, Nokia formed theEnterprise, effective January 1, 2019. Our Nokia Enterprise business group. Withgroup addresses mission and business critical networking requirements for asset-intensive industries. We build hyperscale cloud and private networks for our customers, and serve the following segments: webscale, transportation,  energy, manufacturing and logistics, governments and cities.

The Nokia Enterprise we have implemented a combined sales organization, a targeted portfoliogrowth strategy is based on three focus areas – scaling our enterprise networks business, further growing in the webscale segment, and new solutions that address our customers’ digitization andexpanding into industrial automation needs.with private networks.

Our focus areas

Progress

3.Build3. Strengthen

BuildStrengthen the software business with one Common Software Foundation.

Our aspiration, strategy and position

Nokia is recognized as the number 1 leader in telecoms software with a broad portfolio covering most segments of this growth market. Our aspiration is to further strengthen this position and consistently perform at par with the global leaders in enterprise software. Our strategy is to help our customers modernize from slow, siloed and monolithic systems that weigh them down today towards more agile, intelligent and lightweight solutions. Our multi-network and multi-vendor solutions enable our customers to run their business fast and intelligently based on closed-loop automation and smart cognitive technologies. Key to our differentiation is continued investment in our Common Software Foundation and leading architecture, and a product-centric business model. We have seen strong progress in building a standalone software business beyond the product-attached software model. We have implemented significant improvements: re-architecting many of our products, moving to become truly cloud-native, and creating a strong, experienced software business

Our position

With our existing software products, we are today a leader in the large and growing telecoms software market. Our ambition is to buildsales force. Based on this foundation, we strengthen the business and strengthen our position by building softwareaim for Digital Time. This means intelligently connecting humans, machines and data to boost productivity and thus create time for what matters the most. We help our customers to connect data across their business, network and operations and help them create insights for maximizing their investments – in time, relationships, revenue and productivity. By doing so, we aim to create a global software player that has a growth and margin profile like leading software companies. The basis for all our activities is diligent cost management, lean operations and a focus on developing and engaging our people.growth.

Our focus areas

Progress

4.Create4. Diversify

CreateDiversify the licensing business with new licensing opportunities in automotive, consumer electronics, IoT and brand.

Our aspiration, strategy and position

Our approach isWe intend to keepconsolidate our position as a leader in patent licensing business strong, creating new revenue streams from patent and technology licensing and brand partnerships.licensing. We own one of the broadest and strongest patent portfolios in our industry,the mobile communications sector, built from the innovation of Nokia, Nokia Siemens Networks and Alcatel Lucent. At the end of 20182019, our patent portfolio included around 20 000 patent families, and we filed patents on more than 1 300 new inventions during 2018.2019. We have successfully generated recurring revenue streams from all major mobile device players. We continue to invest in fundamental R&D from which we also file patents relevant to the 5G cellular standard to ensure our continuing leadership position and portfolio renewal. Our approach is to keep our patent licensing business with mobile device players strong and to target significant cash generation. At the same time, we diversify into new licensing domains in automotive, consumer electronics, and the Internet of Things, together with expanding our brand licensing, and manage these domains for growth.

Our focus areas

Progress

5.Operational Excellence

Operational excellence for new levels of efficiency, productivity and industry cost leadership

Our aspiration, strategy and position

Nokia takes action to improve its productivity and efficiency to assume the industry cost leadership position.

Operational excellence remains a source of competitive advantage for us and is the foundation of our strategy. Given the challenge of our main customers, the communication service providers, to monetize the strongly increasing traffic growth, their focus will remain on deploying and managing their networks in the most cost-efficient way. This leads to a focus on total cost of ownership for them and sustained price pressure for us as their supplier. To cope with this price pressure, we must continuously improve our efficiency, productivity and cost position.

Our efforts will continue with accelerated speed and focus to ensure sustainable profitability, cost efficiency and cash generation.

We are making progress in improving our performance and expect our turnaround to have firmly taken hold by the end of 2020. 

Our focus areas

Progress

Market overviewTechnology innovation will play a key role in achieving a more sustainable planet and better, healthier lives for all people.

We are driving the future of technology and transforming the way people and things communicate. Our leading research and development efforts, including the pioneering Nokia Bell Labs, are enabling innovations that will redefine our customers’ businesses as they deliver extraordinary experiences for individuals and enterprises. The fourth industrial revolution will enrich lives, economies and societies and we are dedicated to assuring that its unprecedented impact will be delivered in ethical and sustainable ways.

Research & development

As one of the industry’s leading investors in communication technology R&D, we drive innovation across entire networks, end-to-end. Our continuous product development in 5G, private wireless, intelligent analytics and automation, Internet of Things (IoT), and next generation software-defined networks  enables our customers to address the needs of a digitally connected world.

We have a global network of R&D centers, each with individual technology and competence specialties. The main R&D centers are located in Belgium, Canada, China, Finland, France, Germany, Greece, Hungary, India, Italy, Japan, Poland, the Philippines, Portugal, Romania, Slovakia, the United Kingdom and the US. The ecosystems around each R&D center helps us to connect with experts on a global scale and our R&D network is further complemented by cooperation with universities and other research facilities. In Belgium, China, Finland, France, Germany and the US, we have significant Nokia Bell Labs research activities where we are conducting disruptive research that focuses on the next phase of the connected world.

Nokia Bell Labs is the world-renowned industrial research and innovation arm of Nokia

Through our comprehensive end-to-end portfolioOver its nearly 100-year history, Nokia Bell Labs has invented many of productsthe foundational technologies that underpin information and services we are addressingcommunication networks and all digital devices and systems.

This research has resulted in nine Nobel Prizes, four Turing Awards, three Japan Prizes and a market that encompasses mobileplethora of National Medals of Science and fixed network access infrastructure, IP routing and optical networks, mobile and converged core networks,Engineering, as well as software platformsthree Emmys, two Grammys and applications.an Oscar for technical innovations. Nokia Bell Labs continues to conduct disruptive research focused on solving the challenges of the new digital era and innovating the technology that will define the next industrial revolution.

With Nokia Bell Labs, we search for the fundamental limits of what is possible, rather than being constrained by the current state of the art.

We look to the future to understand essential human needs and the potential barriers to enabling this new human existence. We then use our unique diversity of research intellects, disciplines and perspectives to solve key problems through disruptive innovations with the power to enable new economic capabilities, societal behaviors, business models and types of services – in other words, we drive human and technological revolutions.

Our personal livesresearch is focused on key scientific, technological, engineering or mathematical areas that require ten times or more improvement in one or more dimensions. We then combine these areas of research into the Future X Network architecture, which aims to bring these disruptive research elements together into industry-redefining solutions. These innovations are brought to market through our business groups or through technology and enterprises are becoming increasingly more digitized, driving exponential growth in data trafficpatent licensing. Nokia Bell Labs also engages directly with the market and in turn, drivingcustomers through our consulting practice to help define the demand for our portfoliopath to the future network with business model innovation and the optimum techno-economics. 

This model of highly reliabledefining future needs and high-performance networksinventing game-changing solutions to support massive connectivity.critical problems while advising the market on the path forward has been the constant mission of Nokia Bell Labs.

Our Annual ReportNokia Bell Labs focuses on Form 20-F for 2019 will reflect our new segment reporting structure, which separates the Networks and Software businesses. For more information, see Note 37, Subsequent events, in the Financial Statements section.three core areas of disruption:

Competition

The main competitors in our primary market are Huawei, Ericsson and ZTE, and in some markets we also encounter Samsung. We also compete with technology experts in some of our other market segments, such as Juniper Networks and Cisco in the IP networking and security segments, and Ciena, Adtran and Calix in the optical networks and fixed access segments. Both the optical networks and Nokia Software market segments, as well as the microwave transport market segment remain highly fragmented.

Sales and marketing

Nokia considers its customers in two distinct markets. Our primary addressable market consists of CSPs.communication service providers (CSPs). Our current enterprise business is relatively small in comparison with our operator business, but is growing fast.

The geographically dividedOur Customer Operations (CO) organizations areorganization is the primary interface with our CSP customers. The CO Americas organization focuses onis dedicated to our markets in North America and Latin America, while the CO EMEA & APAC organization is responsible for our Asia Pacific, & Japan, Europe, Greater China, India, and Middle East and Africa markets.

The CO organizations haveorganization has a comprehensive global presence (activeand is active in approximately 130 countries) and its120 countries. Its organizational structure ensures that our customers benefit from dedicated management attention and from our teams’ deep understanding of local markets. This approach enables Nokia to maintain strong customer relationships.

The priority of the CO organizationsIn addition to sales, Customer Operations is to serve our customers. And, since 2018, the CO organizations have beenalso responsible for bothproject delivery, and sales, ensuring strong alignment between our customer-facing sales and delivery teams in each account. Our “One CDM” (customer delivery manager) model provides a strong counterpart to our sales-focused customer team setup, ensuring that customers have a seamless experience when working with Nokia. This is particularly important given the value our customers putplace on Nokia’s end-to-end approach, which can provide a solutionprovides end-to-end fully integrated solutions to a pre-defined set of customer need basedneeds, for example, in the area of end-to-end security, or mission-critical systems.

Nokia also has a dedicated enterprise sales force with global presence, focused on portfolio elements from several of our business groups.selling to enterprise customers both directly and via channel partners. Partners include system integrators, consulting companies, distributors and value-added resellers.

The CO organization also works very closely with our sales and delivery colleagues in Nokia Software to ensure the right level of customer focus and expertise in this crucial area, and with our colleagues in Nokia Enterprise to make sure that we are efficient in developing and selling the solutions that will benefit both our CSP and enterprise customers. We strongly support our “Service-Provider-as-a-Partner” (SPaaP) sales approach, in which we work in partnership with operators to address customers in the enterprise space. This model is proving to be a successful route to market for CSPs as well as for Nokia.

Research & development

We are one of the industry’s largest R&D investors in information communication technology and we drive innovation across telecommunications and vertical industries to meet the needs of a digitally connected world. Product development is continually underway to meet the high programmability, agility and efficiency requirements of the next-generation software-defined networks that will accommodate mobile and fixed broadband, IoT, intelligent analytics and automation, which are used to forge new human possibilities.

We have a global network of R&D centers, each with individual technology and competence specialties. The main R&D centers are located in Belgium, Canada, China, Finland, France, Germany, Greece, Hungary, India, Italy, Japan, Poland, the Philippines, Portugal, Romania, the United Kingdom and the United States. We believe that the geographical diversity of our R&D network is an important competitive advantage for us. In addition, the ecosystem around each R&D center helps us to connect with experts on a global scale, and our R&D network is further complemented by cooperation with universities and other research facilities.

Mobile Networks

Market overview

The primary market for our Mobile Networks business group includes technologies for mobile access and microwave transport. This encompasses access network technologies ranging from 2G to 5G licensed and unlicensed spectrum for both macro and small cell deployments.

Business overview and organization

We see a strong initial appetite for 5G in the most progressive and advanced mobile markets, and we are the only end-to-end mobile network vendor working with the major operators in the U.S., China, South Korea and Japan. Nokia is rolling out technology today to prepare our customers for commercial launches when 5G devices and spectrum become available.

In Mobile Networks our goal is to be thea leader in 5G and provide the best value to our customers as they evolve their networks. In December 2017 the first 3GPP specifications were confirmed – including 5G New Radio (NR) – and since then, the technology and the market have moved fast. We continue to develop our 5G portfolio according to the latest 3GPP specifications, we have declared more than 2  100 patent families as essential for 5G, and are proud of the number of industry firsts that we have completed on the path to 5G commercialization. Furthermore,In November 2019 the independent analytics firm, IPLytics GmbH, ranked Nokia number 2 for ownership of granted patents declared as essential for 5G. We see a strong appetite for 5G across mobile markets, and we continue to invest significantlyare the only end-to-end mobile network vendor working with the major operators in the United States, China, South Korea and Japan. Nokia is rolling out technology today as our ReefShark processor family for baseband and RF. Our customers are moving fast as well: our first commerciallaunch 5G radio contract was signed in January 2018 with NTT DoCoMo in Japan based on 5G New Radio. As an industry, we have moved quickly from specifications to development, testing, and implementation in real networks. To this end, roughly half of our R&D personnel are fully focused on 5G and this is expected to increase as we continue to move personnel on a periodic and strategic basis. As we move from 4G to 5G, we aim to become a champion of continuous integration, continuous delivery and DevOps.

We have a large global installed base in 2G/3G/4G that is expected to provide us with the platform for success in 5G. We have more than 400350 customers in 4G/LTE and a robust AirScale platform, which can be upgraded from 4G to 5G. We built our AirScale portfolio and small cells, software and mobile transport solutions to work across all generations of technology and all relevant spectrum bands for efficient, simplified and optimized sites for our customers. In radio networks we build our access portfolio based on one architecture: Future X is the foundation of our reference architecture for all deployment models. The Nokia 5G Future X end-to-end product and services portfolio combines high-capacity 5G New Radio (NR), core, SDN-controlledsoftware-defined network (SDN)  -controlled “Anyhaul” transport, edge clouds, and software orchestration to provide a complete set of network capabilities for commercial 5G. At the Future X Lab Nokia enables customers to experience Nokia’s full end-to-end portfolio of 5G equipment, software and services, allowing communication service providers, enterprises and infrastructure providers to learn and understand the techno-economic power of a 5G end-to-end network to better serve their customers and unleash new value.

Nokia was involved in more than 100 5G technical engagements in 2019, with the total number of 5G commercial deals at 62 at the end of 2019.  A total of 18 of those 5G networks were live in 2019 in Asia Pacific, the United States, Europe, Middle East and Africa. Among them, we had live networks operating for SK Telecom, KT, and LGU+ in South Korea serving 5 million 5G subscriptions at the end of 2019; and AT&T, T-Mobile, Sprint and Verizon in the United States.  At the end of 2019, we also had two 5G deals with enterprise customers beyond communication service providers.

Competition

The mobile networks market is a highly consolidated market, as a whole, and our main competitors are Huawei and Ericsson. Additionally, there are twofour regional vendors, ZTE,  Samsung, Fujitsu and Samsung, that have an estimated market share of below 10%.NEC, as well as some new, small entrants, such as Altiostar, Mavenir, Parallel Wireless, JMA Wireless and Airspan. The microwave transport market segment however, remainsis more fragmented. There, besides Huawei and Ericsson, our key competitors include, for example, Ceragon, NEC and Aviat.

Global Services

Market overview

The Global Services business group’s marketgroup deploys, supports and operates communication service providers’ (CSP) and enterprise networks. This includes network infrastructure services and professional services for mobile networks in addition toand managed servicesoperations for the fixed, mobile, applications, IP and optical domains. In addition, new growth areas are network cognitive services and analytics, deploying and operating networks in public sector, energy and transport markets and introducing new business models for CSPs, such as our Worldwide IoT Network Grid (WING).

Business overview and organization

The services, solutions and multi-vendormultivendor capabilities of our Global Services business group helpguide CSPs in their digital transformation journey and enterprises in the transport, energy and public sectors (TEPS)help navigate through the evolving technology landscape, network complexity and data growth. We work with themCSPs to improve end user experience while providing support in day-to-day network planning, implementation, operations and maintenance.

OurThe Global Services offering allows Nokia to differentiate in the 5G market while helping operatorsCSPs prioritize their 5G investments and bring 5G-based services to the market faster. Nokia 5G Acceleration Servicesdigital services portfolio helps CSPs prepare for 5G business cases and assess the technical choices, plandesign and designdeploy end-to-end 5G networks that meet the end-to-end deploymentneeds of diverse 5G use cases such as cloud gaming, connected cars and manage the complexity of multi-vendor and legacy networks.autonomous factory robots. 

Our otherA key focus area in Global Services is empowering CSPs to transform to digital service providers. We are building a new digital architecture for the full life cycle of network design, deployment, operations and technical support – for both for legacy and cloud-based networks. We tap into advanced analytics, powered byThe Nokia AVA our cognitive service delivery platform,framework provides advanced AI and analytics as well as a common data lake to help boost network performance, operational efficiency and customer experience. Software robots speed up network upgrades – for example, 11 000 eNodeBs were upgraded in one night with 100% accuracy for a large tier 1 operator. We also help digital service providers to seize the possibilities of IoTInternet of Things (IoT) and enter new markets using Nokia Worldwide IoT Network Grid (WING), which provides seamless connectivity across geographical borders and technologies. We enable our customers to enter new markets rapidly and with low risk through pay-as-you-grow or revenue share models where,models.

Enterprise is a strategic growth area for example, WINGGlobal Services. We are enabling the digitalization of asset-intensive industries with connectivity-driven services and Nokia AVA’s Analytics Services are provided as-a-Service (aaS).

digital automation solutions. Our new digital service framework shortens sales cycles and drives rapid, repeatable service delivery helping our enterprise customers to minimize complexity. We have invested heavily in automation, data science and artificial intelligence. Our digital field force is empowered by augmented reality and video support from our Global Delivery Centers. In 2018 we completed the first successful deployments on our crowdsourcing platform. Our engineers process 6 million trouble tickets each year using artificial intelligence and help ensure the best experience for more than 1 billion subscribers worldwide.

Global Services introduced a new organizational structure effective in August 2018deploy private broadband networks to accelerate its strategy execution, drive efficienciesthe digitalization of industries, enabling higher productivity, operational efficiency and increased worker and asset safety. Our global expertise in managed services enables our enterprise customers to reap the established base businesses, such asbenefits of operational transformation, managed security and network deploymentoperations support for their new IP/MPLS and technical support, and capture new business opportunities, for example in analytics and Industrial IoT.mission-critical private LTE networks.

Competition

In a market segment that combines products and services as well as managed services, Nokia competes against Huawei,traditional network equipment providers such as Ericsson ZTE and Cisco,Huawei, while for the service-led businesses like cognitive, network analytics services and IoT and systems integration,enterprise services, we see other competitors such as Netcracker,Cisco, HPE, and IBM emerging in addition to Ericsson and Huawei.emerging.

Fixed Networks

Market overview

The primary market of Fixed Networks is the communication service providers (CSP). Fiber-to-the-home (FTTH) is now established as the main deployment model, but fiber-based access technologies, such as fixed wireless access (FWA), xDSL upgrades or cable upgrades, continue to be a valid complement. The key to make the universal “gigabit to the home” business case work – and connect more people, sooner – is to select the right tool for the job. 5G FWA is a new “tool” in the broadband toolkit, and sees significant interest. We build solutions not only to deliver a gigabit to every home, but also to bring that gigabit experience into the home using meshed Wi-Fi solution. Fixed Networks has been diversifying into new segments, including cable MSOs, non-traditional players like infrastructure wholesalers, and enterprise.

Business overview and organization

The Fixed Networks strategy is based on three pillars: fiber-based access infrastructure to bring a gigabit to every home; Wi-Fi solutions to bring a gigabit into the home; and cloud/virtualization solutions to automate and simplify the network. Innovation and thought leadership are a cornerstone of all three areas.

The first pillar of Fixed Networks strategy is about offering the right technology mix to deliver gigabit access to more people, everywhere.  It includes fiber, fixed wireless access, xDSL upgrades, and cable upgrades. Nokia is a leader in fiber access with a number 1 position in next-generation XGS-PON technology and remains a market leader in copper technologies, such as VDSL and G.fast. In 2019, we have expanded our portfolio with new fixed wireless access solutions, including 4G/5G outdoor receivers and indoor gateways. For cable operators, Nokia offers a similar toolkit consisting of FTTH and cable upgrades, and started to see traction across the globe.

The second pillar, delivering a gigabit to and into the home, is about ensuring the perfect connectivity throughout the home. Our Nokia Wi-Fi portfolio includes meshed Wi-Fi solutions to provide Wi-Fi coverage in every corner of the building. In 2019, we also added cloud-based controllers to not only manage and optimize Wi-Fi performance in single home, but also across buildings. We also introduced several new options (entry-level beacons and high-end beacons), resulting in 34 CSP references to date.

Finally, as networks combine different technologies and deployment models, they also become more complex. The third pillar of Fixed Networks strategy looks at simplifying and automating operations, with the cloud and virtualization playing a key role. Our Software-Defined Access Network (SDAN) solution takes an open and pragmatic approach, with concrete use cases like slicing and a smooth evolution path for the installed base. 2019 saw the first deployments. 

Competition

The competitive landscape in fixed access for CSPs has two major key players, Nokia and Huawei, who have the bulk of market share. ZTE, in third position, has been impacted by the United States components ban,  although to a fairly limited degree. Smaller players like Calix and Adtran in North America and Fiberhome in China have limited footprint and have an estimated market share smaller than 10% and no comparable breadth of portfolio.

IP/Optical Networks

Market overview

The primary market for our IP/Optical Networks business group includes routingIP, optical and opticalnetwork automation technologies and related services sold to CSPs.communication service providers (CSPs). Our comprehensive wide area networking (WAN) solutions enable CSPs to build and operate automated, secure, and high-performance networks at massive scale. They use them to interconnect people and things from any broadband access modality to – and among - edge clouds, central clouds, the Internet, and other services and data centers. This market includes technologies such asas: IP aggregation, edge and core routing, mobile packet core, wavelength division multiplexing, androuters, IP service gateways, packet optical transport networking solutions. We also have analyticsswitches, optical line systems, and end-to-end SDN solutions.network automation platforms.

A growing portion of our IP/Optical Networks revenue is derived from adjacent markets, which include customer segments like webscale companies and enterprises. In the enterprise segment, we address verticals like TEPStransport, energy and support hyperscalethe public sector as well as software-defined networking for health care, finance and retail enterprises. We address these mission-critical markets with our IP, optical and Nuage Networks portfolios.the same solution sets augmented with purpose-built variants to address unique requirements.

Business overview and organization

For our IP/Optical Networks business group, we provide the highly reliablehigh-performance and massively scalable networks that underpin the digital world’s dynamic interconnectivity. Our portfolio of robust and innovative software, systems and services play across multiple domains, from programmable IP and optical transport networks for the smart network fabric to analytics and software-defined capabilities for the programmable network operating system and more.

CSP networks are under tremendous pressure from cloud-based applications, ultra-broadband evolution and the Industrial IoT. Our IP and optical networking solutions reduce time to market and risk as CSPs launch new services, enabling rapid scalingrapidly scale them to meet surging demands, with optimal configurations.and add new features and functions in future. Our insight-driven network automation solutions help to further ensure that network services are delivered with consistent quality, reliability and security and that restorative actions are automatically initiated when any parameter varies beyond set limits. These carrier-grade attributes also address the needs of – and are valued by – our webscale, TEPStransport, energy, public sector and large enterprise customers.

The IP/Optical Networks product portfolio includes:

Competition

Our competitive landscape in this space includes Cisco, Juniper Networks, and Huawei, in addition to various specialized players in optical such asand Ciena.

Nokia Software

Market overview

As service providers and large enterprises seek to modernize their businesses by leveraging 5G, they are propelling a clear growth market in telecommunications. The Nokia Software portfolio is designedthe leading solutions provider in the telecoms software market.

The telecoms software market is driven by large-scale service and network operations automation, and by digital business transformation in support of communication service providers’ shift to help customers accelerate their digital reinvention5G. At the same time, 4G modernization will continue to drive investment in less developed markets. These market drivers are countered by 3G legacy decline and power the Fourth Industrial Revolution. Our network-agnostic and cloud-native software solutions:

In this business space we sell primarily to a CSP market and Nokia Software continues to expand into new vertical markets and emerging technologies.pricing pressure.

Business overview and organization

The Nokia Software business has an important edge over traditional software vendors. Rooted in our deep understanding of our customers’ networks, we bridge the gap between their business and their network with a level of intelligence unparalleled for our industry. Our mission is to help our customers operate in digital time – modernizing the slow, siloed and monolithic systems that weigh them down today with more agile, intelligent and lightweight solutions. By rebuilding our software applicationsBuilt on aNokia’s cloud-native Common Software Foundation we are increasing innovation velocity while at the same time ensuring that(CSF), Nokia’s multi-vendor and multi-network software solutions enrich and secure user experiences; automate operations and infrastructure; and enable new revenue streams and cost efficiencies. Nokia’s CSF ensures our products are easier to deploy, use and maintain. Our modern software solutions are based on five key principles: extremeeasy to deploy, integrate, use, scale and service. Nokia was the first to build a cloud-native software platform at scale in the telecoms software market.

Nokia Software’s business has two parts, Applications and Core. Nokia software applications provide solutions for digital experience, digital intelligence and digital operations, all designed to connect service providers’ business to their network. In January 2019, Nokia core networks portfolio was aligned inside Nokia Software. Nokia’s core network solutions span 5G, mobile broadband, and IoT; and simplify operations and enable new services and revenue streams.

Our strategy is to strengthen our software business at scale by further evolving our R&D and delivery functions and focusing our investments in the strategic areas of 5G, automation, actionable insight, high trust,portfolio integration, and digital innovation platforms.

Investment in a cloud-native CSF and multi-vendor/our multi-vendor, multi-network capabilities.

Theagnostic approach sets us apart from most large competitors. Against smaller players, Nokia Software portfolio contains:has the advantage of global delivery capabilities and a large installed base, backed by a broad, end-to-end portfolio.

Competition

Nokia is #1 in sales of telecomNokia’s software products and is one of only two large players in the market that are stable and growing, according to Analysys Mason. However, this market remains highly fragmented, with more than half of the market served by niche players or in-house custom solutions. As such, we see significant opportunity to increase our market share.

Our competitors fall into two categories: independent software vendors (ISVs) and network equipment providers (NEPs). The main ISV competitors are Amdocs, Netcracker and Oracle. This is an area whereOracle; in addition, we see increasing competition from niche, boutique software players. The main NEP competitors are Huawei and Ericsson, sellingwhich sell software as part of large infrastructure deals.

Many large telco software competitors are struggling to generate near-term growth until 5G deployments scale up; while the high number of small boutique software players adds competitive intensity to this market. Like most telecoms-related markets, telecom software is a buyers’ market with significant pricing pressure. It does, however, provide significant long-term opportunity for those vendors that can drive technology and operational leadership and set the pace of transformation in the industry.

Due to the fragmentation of the market, there remains significant growth opportunities for those companies able to consolidate the market through organic growth and/or acquisitions.

Nokia’s software business is number 1 in applications with about 9% estimated market share, while in core networks we have 25% estimated market share.

Nokia Enterprise

Market overview

In 20182019, Nokia successfully addressedaccelerated its engagement with the enterprise customer segment.market. Recognizing the growth potential of our business within this segment,market, we created a new business group, Nokia Enterprise, effective January 1, 2019. Our Enterprise business group addresses the mission-mission and business-criticalbusiness critical networking requirements offor asset-intensive industries such asindustries. We build hyperscale cloud and private networks for our customers, and serve the following segments: webscale,  transportation, energy, manufacturing,  and logistics, – as well as governments and smart cities. The business group also supports hyperscale networking for health care, finance and retail enterprises and webscale players.

Business overview and organization

Nokia has a strong track record of helping enterprises modernize the communications networks they rely on to supervisemanage and managecontrol a range of operations, employing technologies across the IP, optical, microwave, fixed and mobile access domains. To date we have deployed more than 1 000 such networks across our key target vertical markets. 

Today a range of enterprises are looking to harness major technology shifts in areas such as ubiquitous connectivity, analytics, cloud and the Industrial IoT to digitalize and automate critical processes and drive massive gains in business and industrial productivity. 

Enterprises can benefit from digitalization, better asset management, improved processes, deeper levels of network security and new business models that will arise from pervasive connectivity.

High-performance networking is at the nexus of these trends, addressing the demand for pervasive connectivity with smart network infrastructure (increasingly wireless) that seamlessly connects everyone and everything, everywhere. Our proven enterprise portfolio provides the foundation for more than 1 000 mission-critical networks, incorporating technologies from across Nokia’s Mobile and Fixed Access, IP/Optical Networks, Software and Global Services portfolios, coupled with enterprise-specific products for digital automation, analytics and IoT.Internet of Things (IoT). High-performance networking is at the nexus of these critical customer requirements, addressing the demand for ubiquitous connectivity with private network infrastructure (with an increased importance of wireless) that delivers seamless connectivity, data management and analytics to drive relevant and tangible business outcomes. Enterprise customers seek to harness advances in communications and Industrial Internet of Things (IIoT) technology and benefit from digitalization, efficient asset management, improved processes, deeper levels of network security, worker safety, and new business models that will arise from ubiquitous connectivity. Our proven enterprise portfolio provides the foundation for more than 1 300 mission-critical networks deployed across industries.

This end-to-endNokia's enterprise portfolio supports theour Future X for industriesIndustries network architecture developed by Nokia Bell Labs, a blueprint for future industrial networks that intelligently combines high-performance, ubiquitous access and intelligent IP/optical networks with agile multi-cloud-enabled solutions, analytics-driven digital value platforms and business applications – with security capabilities embedded at all levels – to support industrial automation. Future X for Industries provides a strategic framework for our enterprise portfolio.

A significant and strategic accomplishment in 2019 has been the acceleration of our enterprise portfolio with specific advances in private networks. By augmenting our IP/MPLS, Optics, GSM-R and other existing portfolios with private networks, we are providing customers with the performance and security they require as they digitize and transform their communications infrastructure and applications. We are also drivingcontinue to drive the adoption of multi-cloud, IoT and automation with strategic investments in emerging technologies such as SDN, data center and SD-WANSoftware Defined Networks  (SDN),  Software Defined Wide-Area network (SD-WAN) applications, and more. Notable developments in 2018 includedata centers.

Transportation

In the launchtransportation segment, Nokia continues to expand market penetration of the Nokia Digital Automation Cloud – our plug-and-play private wireless connectivity and automation platform designed for Industrial IoT applications; and the combination of Nokia’s 2018 acquisition of SpaceTime Insight with the company’s home-grown scene analytics innovations.

The Enterprise business group targets a select group of industries, which includes the following:

Transportation, energy and public sector (TEPS)

We expect our networks to be the foundation for next-generation smart grids that effectively match energy generation with demand and help power utilities explore new energy distribution models. We provide oil, gas and mining companies with private LTE networks to bring new levels of performance to a range of mission-critical operations, protecting lives and increasing productivity.

For railway, highway, aviation and maritime industries, we build operational technologyindustries. We deliver mission-critical networks and analytics that enable and support railway signaling, airport communications, air traffic control, digital signage and toll collection, and on-board broadband and infotainment.

Energy

In the energy sector, Nokia provides the mission-critical information network infrastructure and automation that is foundational in the transformation to next generation automated energy grids. We also provide oil, gas and mining companies with private networks that deliver new levels of performance and security to a range of mission-critical operations, protecting lives and increasing productivity.

Government and Cities

Nokia addresses the public sector from multiple principal perspectives. Nokia’s technology helpspublic safety portfolio provides first responders with real-time, broadband mission-critical communications that help to save lives supportingand manage crisis situations. These solutions support traditional two-way radio communications, while laying the foundation for advanced control centers and the data-rich mobile broadband services to enhance situational awareness and operational intelligence.

AsAdditionally, as cities seek to become smarter,deliver safer and higher quality of life for citizens, Nokia offers a platform-based approach to support the connectivity, data sharing and usage control capabilities needed for services such as smarter parking, lighting, traffic management and other municipal services. And we are partneringWe continue to partner with governments and new network providers to bring broadband to remote, unserved and under-served communities.

Hyperscale enterpriseManufacturing and Logistics

Nokia offers hyperscale enterprises a comprehensive solution setcontinues to help them meet their data needs while addressing stringent compliance, privacydiversify into the industrial sector by enabling Industry 4.0 transformations with private networks and security requirements. Nokiadigital automation solutions enablein the connectionsegments of enterprise branches to clouds, both publicmanufacturing and logistics. Our IIoT platforms, automation platforms and private wireless networking solutions help these customers to enableincrease productivity and reduce costs through the digitalization and automation of their users to use their business applications from anywhere, over any broadband network. Nokia delivers IP, optical and SDN solutions to enable this connectivity.operational systems.

Webscale companies

The webscale companies are a select group of enterprises that handle millions of transactions per day, demand hyper-efficiency in content delivery and support exceptional online experiences. We enable these companies to intelligently and instantaneously scale their services through automated cloud-based global service delivery platforms with robust cybersecurity features by leveraging our intelligent IP and optical networking solutions.

Competition

The competitive landscape for the enterprise space is broad and includes many specialized players focused on specific markets. TheFrom this broad perspective, the primary players active in supplyingwho supply high-performance networking and mission-critical fixed and mobile communications technologies across a range of market segmentsindustries include Nokia, Cisco, Juniper, Huawei and Ericsson. Reflecting more on Nokia’s strategic focus, the landscape can be more finely bifurcated between traditional private networks and private wireless. Within the private wireless area the key players are Nokia, Ericsson, Huawei and Commscope. From a technology perspective, private wireless competes with, and to some extent displaces, Wi-Fi technology. As such, Wi-Fi providers such as Cisco, HPE Aruba and Ruckus also appear on our competitive landscape.

Nokia Technologies

Patents and licenses

For more than 20 years, we have defined many of the fundamental technologies used in virtually all mobile devices and taken a leadership role in standards setting. As a result, we own a leading share of standard essential patents (SEPs) for GSM,the 2G, 3G, radio4G and 4G LTE technologies. We are a leading contributor5G standards. Our portfolio of cellular SEPs has continued to the development of 5G standardsgrow in recent years and declaredcomprises more than 1 4002 800 patent families declared to one or more of the standards, including more than 2 100 for the standard during 2018, with more to follow. We expect to also have a leading position in 5G standards essential patents.5G.

As part of our active portfolio management approach, we are continuously evaluating our collective assets and taking actions to optimize the size of our overall portfolio while preserving the high quality of our patents. At the end of 2018,2019, our portfolio stands at around 20 000 patent families, built on combined R&D investments of more than EUR 126129  billion over the last two decades.

We continue to refresh our portfolio from R&D activities across all Nokia businesses, filing patent applications on more than 1 300 new inventions in 2018.2019.

Operating and financial review and prospects

Contents

Business-specific trends

Networks businessand Nokia Software

We are a leading vendor in the network and IP infrastructure, software, and the related services market. We provide a broad range of products, from the hardware components of networks used by communicationscommunication service providers and increasingly by customers in other select verticals, to network agnostic software solutions, as well as services to plan, optimize, implement, run and upgrade networks. Our Networks businessreportable segment is conducted through six business groups:comprised of the following businesses: Mobile Networks,Access, Fixed Networks, Global Services, IP/Access, IP Routing and Optical Networks,Networks. Together with Nokia Enterprise and Nokia Software. These business groupsSoftware, these businesses provide an end-to-end portfolio of hardware, software and services to enable us to deliver the next generation of leading networks solutions and services to our customers. We aim for all six business groups to be innovation leaders, drawing on our frontline R&D capabilities to deliver leading products and services for our customers, and ultimately ensure our long-term value creation. For more information on the Networks business refer to “Business overview—Networks business” above.

Industry trends

The network and IP infrastructure, software and related services industry has witnessed certain prominentthree main trends in recent years, which have also affected our Networks business.and Nokia Software segments. First, the increase in the use of data services and the resulting exponential increasegrowth in data traffic has resulted inled to an increased need for high-performance, high-quality and highly reliable networks. This trend is one of the leading drivers for the start of the 5G cycle, which has been accelerated by communicationscommunication service providers, as evidenced by our growing order book.providers. The continuing increaserise in data traffic has, however, not been directly reflected in communicationsgrowth of communication service providers’ revenue. Consequently, there is an increased needimperative to be efficient and cost competitive for both communicationscommunication service providers and network infrastructure and services vendors.

Second, we are witnessing continued consolidation among communicationscommunication service providers, driven by their desire to provide a wider scope of services, especially through the convergence of disparate network technologies across mobile, fixed, and IP and optical networks. In order to improve networks in terms of coverage, capacity and quality, communicationscommunication service providers are continuing their transition to all-IP architectures, with an emphasis on fast access to their networks through copper, fiber, LTE and single RAN5G access and new digital services delivery. We are also seeing similar trends with cable operators, who are investing in the deployment of high-speed networks. Our end-to-end portfolio of products and services can be utilized to address both the fixed mobile convergence and the transition to all-IP architectures.

Third, we see an increasinga stronger demand for large high-performance networks in some key areas outside the traditional communicationscommunication service provider space, which we define as select vertical markets.space. Webscale companies and extra-large enterprises - such as Apple, Facebook, Google, Alibaba and Amazon - are investing in cloud technology and network infrastructure to build these high-performing, secure networks. In addition, other target vertical markets such as energy, transportation and the public sector are investing to build carrier-grade, mission-critical networks.

The first three pillars of our strategy are aligned with these industry trends for our Networks business.and Nokia Software segments. We continue to execute well on our strategy, with a particular focus on high-performance, end-to-end networks, expansion into new select verticals and building a new network-agnosticstrong software business. To accelerate this momentum and increase customer focus as the 5G era beings, we announced plans to realign parts of our organization according to our strategy on October 25, 2018.business at scale. More information about these plansour strategy can be found in “Business overview—Overview – Our strategy”Strategy”.

Additionally in 2019, we witnessed some customers reassessing their vendor selection strategies, in light of on-going security concerns. We have not seen any material business or market share impact of this in 2019, but is has the potential to slightly shift the vendor balance in certain regions and technology domains.

Specifically in China, where pursuing market share presents significant profitability challenges and the region has some unique market dynamics, we are executing against a clear strategic goal to improve our overall business mix in the region. Therefore, we expect to be prudent in 5G, while targeting more attractive opportunities with communication service providers in other parts of our business such as core, routing, transport, fixed access and LTE, as well as with enterprise and webscale customers.

Pricing and price erosion

While we experience varying levels of price erosion across our businesses, it is particularly evident in our Mobile Networks business group, given the highly standardized nature of the business.  In 2018,2019, we did not witness a dramatic changewitnessed increased competitive intensity in some accounts, as certain competitors sought to take share in the overallearly stages of 5G. Generally, at this stage of the cycle, strong 4G margins would be expected to offset the 5G competitive environmentpressure. However, as early 5G deals often include 4G, we experienced declines in our industry. We did witness some pricing pressure from a small number of large customers funding their 5G entry within their existing budget plans.4G margins in 2019.

Product mix

The profitability of our Networks businessand Nokia Software segments is affected by our product mix, including the share of software in the sales mix. This is particularly evident during large technology cycles, as initial deployments consist of a larger portion of hardware and services and less software. This ratio shifts more towards higher-margin software further into the cycle, as additional capacity and features are deployed. As the initial phases of deployments tend to be lower margin, this is offset by the ongoing deployment of previous generation technologies, which tend to be higher margin. This ratio shifts more towards higher-margin software further into the cycle, as additional capacity and features are deployed. In 2019, we experienced relatively high 5G product costs in Networks, as well as elevated levels of deployment services, consistent with being in the initial phase of 5G.

Products and services also have varying profitability profiles. For instance, our Ultra Broadband Networks and IP Networks and Applications reportableNokia Software segments offer a combination of hardware, software and services. Hardware and software whichproducts generally have higher gross margins, but also require significant R&D investment, whereas the Global Services reportable segment has offerings thatservices are typically labor-intensive, while carrying low R&D investment, and have relatively low gross margins compared to the hardware and software products.

Seasonality and cyclical nature of projects

Net sales in our Networks businessand Nokia Software segments are affected by seasonality in the spending cycles of communicationscommunication service providers, with generally higher sales in the fourth quarter, followed by generally lower sales in the first quarter. Also, we have recently witnessed that Networks and Nokia Software segments generate the majority of their respective operating profit and free cash flow in the fourth quarter.  In addition to normal industry seasonality, there are normal peaks and troughs in the deployment of large infrastructure projects. As an example, the 5G technology cycle has accelerated over the past year, as commercial deployments startedramped up in 20182019 and are expected to continue in 20192020 and

beyond. The timing of these projects depends on a number of factors, including new radio spectrum allocation, network upgrade cycles and the availability of new consumer devices and services, which in turn could affect the net sales of our Networks business.businesses.

Continued operational efficiency improvements

In 2018, our Networks business continued to focus on operational improvements across its business groups, in an effort to complete the cost savings program put in place following the acquisition of Alcatel Lucent. Upon completion of the Alcatel Lucent integration as ofand the end of 2018, we are now moving to the next phase of restructuring, where we will focus on optimization and ensuring that we are lean in every part of our business. In order to continue to make our Networks business more efficient, higher-performing and positioned for long-term success, we aim to further strengthen our productivity, efficiency and competitiverelated cost structure through strong operational discipline.

The average currency mix for Group net sales and total costs:

The financial information included in this “Operating and financial review and prospects” section as of December 31, 20182019 and 20172018 and for each of the three years ended December 31, 2019, 2018 2017 and 20162017 has been derived from our audited consolidated financial statements included in this annual report on Form 20‑F. The financial information as of December 31, 20182019 and 20172018 and for each of the three years ended December 31, 2019, 2018 2017 and 20162017 should be read in conjunction with, and is qualified in its entirety by reference to, our audited consolidated financial statements.

AtIn 2019, we had three reportable segments for financial reporting purposes: (1) Networks, (2) Nokia Software and (3) Nokia Technologies. We also present certain segment-level information for Group Common and Other as well as for Discontinued operations. We adopted our current operational and reporting structure on January 1, 2019. The reporting structure was revised to better reflect our strategy, organizational structure and the end of 2018,way the management evaluates operational performance and allocates resources. Previously we had two businesses: Nokia’s Networks business and Nokia Technologies, and four reportable segments for financial reporting purposes: (1) Ultra Broadband Networks, (2) Global Services and (3) IP Networks and Applications within Nokia’s Networks business; and (4) Nokia Technologies. We also present certain segment-levelSegment information for Group Common2018 and Other as well as2017 presented throughout this annual report on Form 20-F has been recast for Discontinued operations. comparability purposes according to the new operating and reporting structure. For more information on our operational and reporting structure, refer to Note 5, Segment information, in the consolidated financial statements.

In 2018 the Group2019 we applied IFRS 9, Financial Instruments, and IFRS 15, Contracts with Customers,16, Leases, for the first time. The financial information as of December 31, 20172018 and for the years ended December 31, 20172018 and 20162017 has not been restated for the effects of the new accounting standards.IFRS 16. Refer to Note 3, New and amended standards and interpretations, in the consolidated financial statements.

Continuing operations

For the year ended December 31, 2019 compared to the year ended December 31, 2018

The following table sets forth selective line items and the percentage of net sales for the years indicated.

Net sales

Net sales in 2019 were EUR 23 315 million, an increase of EUR 752 million, or 3%, compared to EUR 22 563 million in 2018. The increase in net sales was primarily due to an increase in Networks net sales, and, to a lesser extent, Nokia Software net sales. This was partially offset by a decrease in Group Common and Other and Nokia Technologies net sales.

The following tables set forth distribution of net sales by geographical area and net sales by customer type for the years indicated.

(1)All Nokia Technologies IPR and licensing net sales are allocated to Finland.

(1) Includes net sales of Alcatel Submarine Networks and Radio Frequency Systems, both of which are being managed as separate entities, and certain other items, such as eliminations of inter-segment revenues and certain items related to purchase price allocation. Alcatel Submarine Networks and Radio Frequency Systems net sales include also revenue from communications service providers and enterprise customers.

Gross profit

Gross profit in 2019 was EUR 8 326 million, a decrease of EUR 120 million, or 1%, compared to EUR 8 446 million in 2018. The decrease in gross profit was primarily due to lower gross profit in Networks, Group Common and Other and Nokia Technologies, partially offset by lower product portfolio integration-related costs and higher gross profit in Nokia Software. Gross margin in 2019 was 35.7%, compared to 37.4% in 2018. In 2019, gross profit included product portfolio integration-related costs of EUR 123 million, compared to EUR 548 million in 2018.

Operating expenses

Our research and development expenses in 2019 were EUR 4 411 million, a decrease of EUR 209 million, or 5%, compared to EUR 4 620 million in 2018. Research and development expenses represented 18.9% of our net sales in 2019 compared to 20.5% in 2018. The decrease in research and development expenses were due to a decrease in Networks, and, to a lesser extent, Nokia Software and Nokia Technologies research and development expenses. This was partially offset by an increase in Group Common and Other research and development expenses.

Our selling, general and administrative expenses in 2019 were EUR 3 101 million, a decrease of EUR 362 million, or 10%, compared to EUR 3 463 million in 2018. Selling, general and administrative expenses represented 13.3% of our net sales in 2019 compared to 15.3% in 2018. The decrease in selling, general and administrative expenses was primarily due to a decrease in Networks selling, general and administrative expenses, lower transaction and integration-related costs and, to a lesser extent, lower Nokia Software and Nokia Technologies selling, general and administrative expenses. This was partially offset by higher Group Common and Other selling, general and administrative expenses. Selling, general and administrative expenses included transaction and integration-related costs of EUR 50 million, compared to EUR 207 million in 2018.

Other operating income and expenses in 2019 was a net expense of EUR 329 million, a decrease of EUR 93 million, compared to a net expense of EUR 422 million in 2018. The net positive fluctuation in our other operating income and expenses was primarily due to a gain related to a defined benefit plan amendment, as well as the absence of charges related to fair value changes of a legacy IPR fund and lower charges related to divestments of businesses. This was partially offset by higher restructuring and associated charges and a net negative fluctuation in Group Common and Other operating income and expenses. Other operating income and expenses included restructuring and associated charges of EUR 435 million in 2019 compared to EUR 319 million in 2018.

In 2019, we recorded a non-cash impairment charge to other operating income and expenses of EUR 29 million, compared to EUR 48 million in 2018. 

Operating profit/loss

Our operating profit in 2019 was EUR 485 million, a change of EUR 544 million, compared to an operating loss of EUR 59 million in 2018. The change in operating result was primarily due to lower selling, general and administrative expenses, research and development expenses and a net positive fluctuation in other operating income and expenses, partially offset by lower gross profit. Our operating margin in 2019 was 2.1%, compared to approximately breakeven in 2018.

The following table sets forth the impact of unallocated items on operating profit/loss:

(1)Excludes costs related to the acquisition of Alcatel Lucent and related integration, goodwill impairment charges, intangible asset amortization and other purchase price fair value adjustments, restructuring and associated charges and certain other items.

Financial income and expenses

Financial income and expenses was a net expense of EUR 341 million in 2019, an increase of EUR 28 million, or 9%, compared to a net expense of EUR 313 million in 2018. The net negative fluctuation in financial income and expenses was primarily due to an impairment charge related to loans extended to a certain emerging market customer,  a recognition of interest expenses on lease liabilities within financial expenses,  following the adoption of IFRS 16, Leases, in 2019, as well as an increase in the costs related to the sale of receivables in 2019 compared to 2018. We sell trade receivables to various financial institutions without recourse in the normal course of business, in order to manage our credit risk and working capital cycle. The negative fluctuation was partially offset by income due to a change in the fair value of the financial liability related to Nokia Shanghai Bell, which positively impacted other financial income.

Profit/loss before tax

Our profit before tax in 2019 was EUR 156 million, an increase of EUR 516 million compared to a loss of EUR 360 million in 2018.

Income tax

Income taxes was a net expense of EUR 138 million in 2019, a decrease of EUR 51 million compared to a net expense of EUR 189 million in 2018. The change in net income taxes was primarily attributable to the deferred tax expense recorded in 2018 resulting from the write-off of certain deferred tax assets, primarily related to foreign withholding tax credits in Finland. This was partially offset by higher income taxes due to increased profitability and our regional profit mix in 2019 compared to 2018.

Profit/loss attributable to equity holders of the parent and earnings per share

The profit attributable to equity holders of the parent in 2019 was EUR 14 million, an increase of EUR 568 million, compared to a loss of EUR 554 million in 2018. The change in profit attributable to equity holders of the parent was primarily due to the improvement in operating profit, and, to a lesser extent, lower income tax expenses. This was partially offset by a net negative fluctuation in financial income and expenses.

Our EPS from continuing operations in 2019 was EUR 0.00 (basic) and EUR 0.00 (diluted) compared to negative EUR 0.10 (basic) and negative EUR 0.10 (diluted) in 2018.

Cost savings program

In 2018, following the completion of the Alcatel Lucent integration and the related cost savings program, we announced a new cost reduction program where we intend to target substantial savings while continuing to make further investments to drive future growth and higher returns. This cost savings program is expected to yield EUR 500 million of net benefits. Through the end of 2019, we made strong progress towards our 2020 target, realizing approximately EUR 200 million of savings. The remainder is expected in 2020.

In 2019, we recognized restructuring and associated charges of approximately EUR 450 million related to the current and past cost savings programs. In 2019, we had restructuring and associated cash outflows of approximately EUR 450 million related to the cost savings program. 

For the year ended December 31, 2018 compared to the year ended December 31, 2017

The following table sets forth selective line items and the percentage of net sales for the years indicated.