Full opinion text
OPINION AND ORDER KARAS, District Judge. (ECF Case) This securities class action was brought by persons who purchased Nokia Corporation (“Nokia”) American Depository Receipts (“ADRs”) or foreign shares from October 16, 2003 to April 15, 2004 (the “Class Period”). The Consolidated Amended Class Action Complaint (“Consolidated Amended Complaint” or “CAC”) alleges that Defendants, Nokia and a number of its officers — Jorma Ollila (“Ollila”), Pekka Ala-Pietila, Matti Alahuhta, Richard A. Simonson, Olli-Pekka Kallasvuo (“Kallasvuo”), and Anssi Vanjoki (“Van-joki”) — violated Section 10(b) and 20(a) of the Securities Exchange Act of 1934 (“the Exchange Act”) and Rule 10b-5 promulgated thereunder. Defendants move to dismiss the Consolidated Amended Complaint for failure to state a claim upon which relief may be granted, pursuant to Fed.R.Civ.P. 12(b)(6), and for failure to plead fraud with sufficient particularly as required by Fed.R.Civ.P. 9(b). For the reasons set forth below, Defendants’ Motion to Dismiss is GRANTED and the Consolidated Amended Complaint is dismissed. I. BACKGROUND A. Nokia’s Relevant Financial History Unless where otherwise indicated, the following facts are taken from the Consolidated Amended Complaint and do not constitute findings of the Court. Nokia, a Finnish corporation, is one of the world’s leading cell phone manufacturers. For the fiscal year of 2003, Nokia’s net sales totaled $37.1 billion and its net profits totaled $4.5 billion. The company has approximately 50,000 employees, maintains production facilities in nine countries, and sells a variety of communication devices in over 130 countries. Nokia is a publicly held company whose stock is primarily traded on the Helsinki Exchange, and the New York Stock Exchange (where approximately sixty percent of Nokia’s securities are traded), in the form of ADRs. Nokia shares were also listed throughout the Class Period on the Frankfurt, Stockholm, and Paris stock exchanges and were traded on the London stock exchange until November 2003. Nokia’s communication devices operate using three major digital transmission technologies: Time Division Multiple Access (“TDMA”), Global System for Global Communications (“GSM”), and Code Division Multiple Access (“CDMA”). Nokia also introduced a gaming device, the “N-Gage” in late 2003. During all relevant periods, Jorma Ollila was Nokia’s Chairman of the Board and Chief Executive Officer, Pekka Ala-Pietila was Nokia’s President and an Executive Board Member, Matti Alahuhta was Nokia’s Executive Vice President, Chief Strategy Officer, and an Executive Board Member. Beginning January 1, 2004, Richard A. Simonson was Nokia’s Chief Financial Officer and an Executive Board Member. Olli-Pekka Kallasvuo preceded Simonson as Nokia’s CFO and was also Nokia’s Executive Vice President, General Manager of Mobile Phones Division, and an Executive Board Member. During the Class Period, Anssi Vanjoki was a Nokia Executive Vice President, General Manager of its Multimedia Division, and an Executive Board Member. The class, represented by Generic Trading of Philadelphia, LLC, Martin Bergljung, and Gerald Hob-erman, consists of parties who purchased Nokia’s common stock during the Class Period. From October 2003 through March 2004, Nokia reported growth in its cell phone market share and made projections of expected increases in cell phone sales of three to seven percent for the first quarter of 2004 as well as increases in its earnings per share. Nokia attributed its success for the fourth quarter of 2003 to Nokia’s purported superior products, healthy Average Sale Price (“ASP”), and growing market share. Plaintiffs allege, however, that Nokia’s increased • cell phone sales and its positive stock performance in the fourth quarter of 2003 were an aberration that was not driven by Nokia, but by a massive surge in consumer demand for cell phones that caused component shortages for Nokia’s competitors, thereby suppressing their sales and benefitting Nokia. During this fourth quarter upsurge in Nokia’s performance, the Consolidated Amended Complaint alleges that Defendants were aware of various factors that would negatively impact Nokia’s financial results. In contravention of applicable securities laws, however, Defendants failed to disclose this information to investors and actively misled investors by claiming Nokia’s strategy was responsible for Nokia’s aberrant positive performance in the fourth quarter of 2003 and projected growth of three to seven percent in the first quarter of 2004. Despite industry-wide growth, on April 6, 2004, Defendants made a pre-quarterly announcement that sales had declined by two percent during the first quarter of 2004. On the day following this announcement, Nokia shares fell sixteen percent, a single day market capitalization loss of $17 billion. Ten days later, on April 16, 2004, Defendants released Nokia’s first quarter 2004 financial statements which showed a fifteen percent decrease in sales of its core cell phone business and stated that Nokia’s sales would continue to be depressed in the next few quarters. The April 16, 2004 revelations caused Nokia’s stock to drop an additional nine percent in one day, an $8 billion loss in market capitalization. B. The Consolidated Amended Complaint The Consolidated Amended Complaint alleges that Defendants made several materially misleading statements throughout the Class Period related to the strength of Nokia’s product portfolio, Nokia’s product pipeline, and the N-Gage’s introduction. It also alleges that Nokia manipulated its reported quarterly and year-end revenues in 2003 in violation of accounting standards, including United States Generally Accepted Accounting Principles (“GAAP”). The eighty-two-page CAC relies on eleven allegedly fraudulent statements made by and/or, on behalf of, Defendants. According to Plaintiffs, all of these statements were false and misleading in violation of the securities laws. The CAC further relies on seven post-Class Period statements to establish that the earlier statements were knowingly false when made. For the sake of clarity and completeness, both sets of statements are listed here. The statements are in chronological order. In a troubling number of instances, Plaintiffs have relied on selective quotations from Defendants’ statements. Portions of statements not included in the CAC, but clearly incorporated by reference in the CAC, are included here for context in italics. Allegedly False Statements 1. On October 16, 2003, Nokia issued a press release announcing that it had met its third quarter sales and earnings per share targets. The release, attributed to Nokia’s CEO Jorma Ollila, stated: Following an announced commitment two years ago to strengthen our position in the global CDMA handset market, I am very happy to say that we have now doubled our share to the mid-teens from the same quarter last year. We expect to see continued momentum in CDMA going into the fourth quarter as we increase shipments to China, India and all major U.S. CDMA operators. Recent months have marked our entry into a number of new and exciting areas of mobility. We have introduced several camera phones, begun shipments of games devices and announced half a dozen phones for new growth markets. The Nokia N-Gage has just gone on sale at 30,000 stores around the world to a very positive initial consumer response. Many outlets sold out of the device during the first day of release. Following on from this, we are seeing strong order intake from distributors and retailers.... (Am. Compl. ¶ 86; Defs.’ Ex. 0) 2. On October 16, 2003, Ollila and Ulla James, hosted Nokia’s “Third Quarter 2003 Earnings Conference Call” with market analysts. a) Ollila stated on this conference call that: Of the various technologies, GSM, CDMA, and PDC, grew basically in line with overall year-on-year market growth, while PDMA volumes continued to decline. Nokia’s market positions strengthened in the Americas across all the technologies. We have achieved major market share gains in Latin America where our market share currently exceeds the global 39% level. In the U.S.A. we’re the clear market leader and we are well positioned to make further gains during the holiday season. The strong momentum in CDMA continued with our CDMA market share doubling from a year ago to the mid-teens. Going into the fourth quarter, we see an opportunity for a major increase in our CDMA volumes in India, China and the U.S. We have now achieved the number one position in the Chinese GSM market. Our distribution strategy [is] bearing fruit and Nokia brand is stronger than ever supported by competitive product offering from low end to localized feature-rich devices like the pin based Nokia 6108. Outlook for the fourth quarter indicates a further acceleration of the market to year-on-year growth in the mid-teens culminating in full year 2003 volume of 460 million units. I expect Nokia volume growth in the fourth quarter to exceed the overall market growth. Our offering is being strengthened by the ramp up of several significant new products, such as the Nokia N-Gage, the new imaging phones, Nokia 6600, Nokia 3660, the GSM [inaudible] CDMA-based Nokia 7600, and the highly competitive entry level phone, the Nokia 3200 series. I’m looking forward to a quarter that is expected to bring Nokia new volume and market share records. (Am. Compl. ¶ 89; Defs.’ Ex. N) b) In the question and answer portion of the conference call, analyst Mike Walkley asked, “[m]aybe we can talk just a little more about [] CDMA. It appears you’re doing a great job in gaining share in CDMA. I was just curious maybe the profitability for CDMA since a lot of your phones are maybe on the lower end and how that maybe impacts your overall mix on the ASP front.” (Defs.’ Ex. N) In response, Ollila said: Yeah, I think the — if we look at the CDMA market, we really are pleased with the very steady progress that we have made in CDMA in the last three quarters. So, it’s really a consistent good progress having some of these key operators, Sprint and Verizon in the U.S., Unicom in China, as well as Reliance in India as our customers, all of them in volume, you know, shipping in volume as we speak. So, we really are very pleased with how that has worked out. The business model, the dynamics as it is in CDMA has a slightly lower EPS as an average, has a slightly lower margin. But it is a good business. We are getting a good, healthy margin, and we just love to get that business and really make progress in that segment. (Am. Compl. ¶ 90; Defs.’ Ex. N) c) A Bear Stearns analyst asked, “in terms of in major opportunities you can have sort of gaining market shares in CDMA, and you’re off to a good start---But this is still very much on the low end or mid-low end where you’re attacking. What about, really, though, the opportunity could be for you to grow low market share in the mid to the high end? But in North America and Asia especially in CDMA, we’re seeing a lot of demand for the clamshell phones. What’s your thinking? What’s your strategy?” (Defs.’ Ex. N) Ollila responded: Okay. I think the — first of all, we want to be present in all the key segments of the CDMA market. And we have introduced our first CDMA camera phone, or imaging product, as we would say. And that phone will be shipping initially Latin America in Q4 and is a good indication of how we will be moving. Then if we look at the form factors, we will be moving to a broader set of form factors, also with CDMA, including clamshells with time. So, you will see all of that. And if we look at the broader set of products and opportunities in CDMA, we are working with a number of multimedia segment products which will hit the market in 2004 and 2005. So, the product road map is a very exciting one and it has all the same elements tvith time that our GSM wideband CDMA portfolio does have. (Am. Compl. ¶ 91; Defs.’ Ex. N) d) A Sanford Bernstein analyst asked about the delivery of camera phones scheduled for the fourth quarter of 2003, whether there were any delivery delays, and whether these phones would be in stores in time for the 2003 Christmas selling season. He also requested a projection “as to what percentage of [Nokia’s] phones you believe in the fourth quarter might have a camera included?” (Defs.’ Ex. N) Ollila answered: ... all of the phones you mentioned are shipping in the fourth quarter. So, we do not have delays. We really are working well and both our operational as well as the component are in good shape. So we will ship those all well in [the] fourth quarter.... So, if you look at the high end, you know, what’s the proportion of that out of the total? The share of color in terms of value now accounts for about 50% of the total. And that we expect to grow significantly in the fourth quarter. And if you look at the value of the camera phones, we expect that to be in the range of 20% of the total in the fourth quarter. We are well on our way to that as we speak. So, we feel good about that. And that just shows that it’s changed towards the higher end offerings is happening. Obviously, simultaneously you have in terms. So, volume simultaneously a very strong show from the emerging countries. But that — we’ll have to that business, as well. (Am. Compl. ¶ 91; Defs.’ Ex. N) e)Analyst Tim Long asked about Nokia’s growth in the Chinese and Indian markets and the ASP developments in those markets. Ollila responded: I think if you’re looking at two markets like China and India, you know, these are two markets where it is even more pronounced than in some others that taking an average of ASP of any other factor, you know, really distorts the picture because you have a very strong high end segment, but most of it obviously, is low and middle, entry level and middle range phones. So, you really have to look at how the segments are performing. And we’re getting a healthy margin. That’s our main driver, a healthy margin from both of those markets. And that’s coming from both the high end and middle range as well as entry. (Am. Compl. ¶ 92; Defs.’ Ex. N) 3. On November 24-25, 2003, Nokia hosted a “Capital Markets” conference in Dallas, Texas for market analysts covering Nokia. Various Nokia executives made presentations at the conference. a) Ollila gave an introductory speech at the conference updating Nokia’s fourth quarter outlook for 2003 and outlined the various Nokia segment presentations to follow: Nokia’s own mobile phone volumes have progressed really well in line with our plan and we have had a really encouraging stability in our ASP’s during the quarter, sequentially, and I think that really speaks well for what is happening in the marketplace and how our strategy is working. When we look at the view for infrastructure market, it has evolved as indicated earlier, and Nokia networks’s performance well in line with the plans that we have outlined, so the stabilization in the markets, our restructuring has really paid off and we can go ahead with, with a very encouraging morale atmosphere in our organization and the way that is paving the future with our customer base. So based on how the quarter has evolved so far, we believe that we’ll be able to achieve the Qi guidance both in terms of the sales as well as EPS as indicated to you. First of the business groups is the mobile phones. It will continue to offer a unique global range of highly competitive mobile phone products for large consumer segments.... The economies of scale obviously to be exploited to make sure that we get the lowest cost structure and that we get the fast product renewal to ensure product competitiveness which has been our strength in the past. We expect multimedia business group to reach, break even by the end of next year, 2001. This is an area where we know we can really make it big, where there are tremendous growth opportunities, we have know-how, where we can bring mobility to many of these areas, particularly the games imaging, media products, and we have the concepts to make it happen. We also have the partnership network so this is an area where we feel that you will see the new Nokia happen in the next three to five years. But finally, my final comment will be around the key things that I feel will maintain the competitiveness, will make the competitiveness of Nokia in the future. Things that will make Nokia to achieve the great results we have in mind, which I’m sure you will expect us to have in the years to go. First of all, it’s all about products. We are a product company. It’s all about product range, the segmentation. The product cycles are being accelerated. That’s the push for the market, how we can respond to that, and the fact that industry is becoming highly competitive. We feel this area is number one among the factors for us. (Am. Compl. ¶¶ 96-98; Defs.’ Ex. M) b) Olli-Pekka Kallasvuo gave a presentation at the conference about Nokia’s mobile phone unit: Cost leadership will continue to be of extreme importance and I think we really need to continue to be cost leaders in all categories. So the thinking, okay let’s leave the low-end if you will aside, and concentrate on mid-end, if there is a concept like mid-end, and the high-end and really kind of escape to that direction, I don’t think it is a winning strategy. Cost leadership in all segments of the market will continue to be our strategy, and obviously the fact that one can get the volumes there by being present in all segments, it’s extremely important ivhen it comes to your volume benefit and also in the so-called low end you can exploit modularity in a mature way. Well Pertti was mentioning about art and science. I think here we’ve got an example. This is both art and science, when it comes to segmentation. Unfortunately my time will not allow [me] to talk about this more, but I think there’s a lot of benefit we can bring to the table by continuing to segment the market in a way that makes sense from the sales and branding point of view, and this low end mid range high end thinking continues to be overly simplistic. Now, before moving to the cost leadership I want to tackle CDMA briefly. Not other segments of this business I will simply make some comments on the CDMA, there being many questions here. I’m sure there will be more during the course of today and obviously especially in when you are in the U.S. CDMA attracts a lot of attention. So obviously we’ve got, we’ve made some very good progress in CDMA this year and we are making that progress right now as we speak. We have doubled our market share and we really can in a very realistic way target even higher market share here. So why is this happening now? I think it’s very simple. For a long time I think we were under-investing in CDMA when it comes to R & D. We basically did not necessarily completely understand the complexity there is in the CDMA market, and really didn’t seem to get there [no matter] how hard we always tried. In the summer of 2000 we made important decisions to increase our investments in CDMA, really made a commitment saying that now we simply need to pay more [attention] by investing more to get the sustainable position and then really catch the other players in the industry. And I think this what we are seeing now is simply a consequence of that decision. Money being spent, invested, of course there again that’s expense while doing so, and we are seeing the results. I think we are now in a situation where we really are competitive when it comes to CDMA engine. And the engine really is well performing. And now really it’s time for us to make the expansion based on that engine to other, to more categories of the market, cover more segments, more high-end if you will. The possibility to that is right there, and we are doing right now. And then of course also drive CDMA to convergence and push, for instance, Symbian to CDMA. And the beauty here is that when doing so, the commonality between different standards, between CDMA markets and GSM markets will increase. When you move to the higher layers of software and application platforms, you really can benefit more from the commonality there between CDMA and GSM, and I think that will increase our competitive position here. (Am. Compl. ¶¶ 100-02; Defs.’ Ex. M) c) An analyst posed a series of questions concerning CDMA strategy at the conference. The questioner said that “in terms of CDMA strategic directions, if I look you guys [ha]ve done a really good job in gaining and you have a really good momentum now in CDMA but at the same time we’re seeing [others roll out competition] ... if you look at longer term, you have a good position ... do you feel like you need to also control the network side of the business ____ The second question ... Olli-Pekka Kallasvuo related somewhat to CDMA but also the clamshells, clamshells tend to have a little bit more moving parts, higher warranty repairs, little higher assembly costs, and especially same thing applies to CDMA which tends to have a little much more customization for individual carriers. As you start building expanding in those two subsegments do you expect that, is that going to have some negative impact on your operating margins in the core handsets or do you think ... [that it] shouldn’t have much of an impact at all?” (Defs.’ Ex. M) Ollila responded: So but to be quite honest you know, this time we are getting closer because this we have, we have really worked on and thought about and you know, now we are getting into a situation that there probably would be benefit because we are getting into new areas. There are different complexities, there are the service platforms, etcetera, etcetera. And you know, not to go anything deeper to it but this is something that we have worked on, lets leave it at that. (Am. Compl. ¶ 103; Defs.’ Ex. M) Kallasvuo supplemented Ollila’s response (in a portion not contained in the CAC): About the design and the clamshell question you know, I’ve said many times before in situations like this and elsewhere that Nokia’s brand value is such that we are not designing me too products and we took some time to look at you know, how we are going to approach this clamshell thing. We have now introduced the first product and I am absolutely convinced that this is going to be one of the highest margin products in this industry once we get it out in volume in January, and it will not sell because it’s a clamshell, it will sell because it’s beautifully styled. (Defs.’ Ex. M) d) Anssi Vanjoki also made a presentation at the conference about multimedia, including camera phones and gaming devices: If we look at the current camera industry which equals about [a] hundred million devices, why should we not count this industry to be the addressable market for Nokia as well? I have at least started to count it as my market. What’s special in making a camera? After all in two years we became [the] world’s largest manufacturer of cameras .... Right now we see our cameras are exactly what’s there. There are a number of megapixels and multiple megapixel cameras available in the market but first of all are they affordable to the consumer? The answer is no. Secondly, is the whole imaging chain to take use of these cameras existing and in balance? The answer is again no. But next year this is not going to be so anymore. The whole imaging chain is able to support this kind of camera, and Nokia’s early selection of technology to go with Pima sensors in the cameras is really starting to pay off for us in a big manner. And in this way we can make the right cost, right cost balance for sophisticated imaging devices. At the same time we need to involve all those [other] market makers into this. Games are hot. Christmas is coming. And this year we participate in that market in a grand scale. We have brought the first N-Gage unit to the market and we have started the games business also in the publishing side. If there are hot areas in games it’s online and it’s mobile. What N-Gage does, it puts these two hot areas together and makes it truly hot. It’s not going to be one Christmas phenomenon and we are not expecting that the first Christmas is going to make it for us, but when we have gone through three cycles, i.e. three Christmases, because game industry peaks to the tune of Christmas, then we can say whether we have this market in the pocket or not. The starting’s very good. We are tracking this business, we are seeing repeat orders come in and in certain markets which are more prone for this we see the whole thing starting to work just as we have planned. Currently the games offering is not very wide but it is growing rapidly and by the end of 200k we will have more than 100 games supported and next summer will be very important because then the first games that have been from the first row of code [have] been developed for online mobile multiplayer games will hit the market. (Am. Compl. ¶¶ 105, 107; Defs.’ Ex. M) e) Later in the presentation, someone inquired: “on N-Gage when can we expect an update to the first generation hardware platform that would deal with some of the limitations of the first product, and second I know you don’t want to get into a month by month sales figure for N-Gage but with the initial ramp would it be a help if you give us some sort of update on the 400,000 units shipment for N-Gage that you gave earlier in the quarterf?]”' (Defs.’ Ex. M) Vanjoki responded: Those few hundred thousand people who up to now have bought the unit are really critical for us because they are the first true customers who have paid their own money for the devices. And they want to give us feedback. They are giving us feedback and the great thing in comparison to many other devices that been brought to the games market is that we have the N-Gage arena. We have an online connection with these people and we are getting a lot of feedback. This feedback is converted already today into activity into our R & D and I expect that when the next cycle, i.e. Christmas 2004 comes, we have fixed any of those things that the consumers today are not liking in this product, so definitely we are taking action in this area and like I said you know, we are here for the long haul with the games industry. The starting is really very good and the endorsement of the key players in this business gives us good feeling that the long haul will actually pay off. (Am. Compl. ¶ 108; Defs.’ Ex. M) f) Another analyst asked about the general sentiment that operators do not want to see Nokia gain in market share. He asked Vanjoki to “comment on what you think the marketshare development will be and how your relationship with operators might need to change such that your brand does not, since it’s ahead of them in their brand rankings, become a threat to their plans to offer their own brand services[?]” (Defs.’ Ex. M) Vanjoki responded: Yeah. I think that it is the same for anybody in any business that if you have a strong partnership with somebody and that represents a majority in your business dealing with the partner you start to sort of suspect that you know, is this right? And then it is very much a behavioral question. If the other party behaves in a way that is encouraging the cooperation rather than in a way that is all the time setting it in question then I think the true partnership can be found. This is what we have found with the big operator groups around the world where the main driver in fact is the trustworthiness of the partnership and the behavior that you show. If we would behave in a way that would give a reason for operators to shoot for something else, then I’m sure that you know, they would use their power much stronger than what it is today. I think it is only natural for any operator or any other business where you are part of the chain that you want to sort of hedge your bets and you want to enable other people as well to play in the equation and as such we have nothing against this as long as we always have the same chance, and so far I can only report that we’ve had the same chances as the newcomers. (Am. Compl. ¶ 110; Defs.’ Ex. M) g) Ollila closed the Capital Market presentation with some comments: At the same time we are seeing a replacement market which is at the level today than what we thought it would be a few years back or a little higher. Share of the total industry we estimate to be total industry volume shift we expect to be well over 60 percent this year and somewhat bigger in 2004. So when we look at the percentage of phones replaced from the subscriber base we can see that this renewal rate has, is changing. It’s not a curve which goes down. It’s actually recovering and the renewal rate has experienced a turning point, seems to be stabilizing at 25 percent, and really does represent a significant and interesting and sort of annuity for a company like ourselves with the kind of customer loyalty, brand recognition that we have. So growing customer base, growing base of subscribers providing through the renewal rate, an interesting opportunity for a company like ourselves. When we look at the market we are back on the growth path after a disappointment in 2001 and not much of a recovery to write home about in 2002. But this year growth of more than 10 percent, 460 million units, perhaps a bit stronger you might say. Yes, perhaps a bit stronger. In 2004 growth of more than 10 percent allowing an interesting opportunity that is given a little bit of a hint also from the stabilization of the ASP’s in the fourth quarter, as I noted first thing at noon when we kicked off. This 40 percent target was very well set I feel because it was not an easy one, but at the same time attainable, and we are getting very, very close in the fourth quarter, so let’s revisit that topic in January, February, when we’re, when we’ll be able to communicate to you more. So we look at gaining share, continuing to do that, also in 2004. That’s the way we set our business goals. Then if we look at our strategic areas this year. Early this year in January and February we were quite explicit that there are three areas where we want to set our sights and make sure that we will do better towards the year end. First of all the, it was the issue of the U.S. We did not have much fun in terms of our market position evolution in the U.S. But now with the vastly improved product portfolio, greatly improved share in CDMA, and first time ever in all the major U.S. carrier quarter four campaigns, us being included, it means that we are now in a very strong position in the U.S. In China our marketshare has improved during the last four or five months with our China-specific products and distribution, and we have gained our number one position back in GSM and we have entered the CDMA market, so our position in China is well stabilized and Colin Giles who has done a great job in a very challenging marketplace will be available to you tomorrow and he has some pretty good stories to tell. And then finally in CDMA, I think Olli-Pek-ka already told about that. We have doubled our share. We, you know, when we set our sights on something we get results. And I think that our CDMA effort is a good testament for that. And you’ll hear more about all these three things tomorrow. (Am. Compl. ¶¶ 112-113; Defs.’ Ex. M) 4. In a press release dated January 8, 2004, Nokia stated: Nokia Mobile Phones sales in the fourth quarter of 2003 increased to approximately EUR 7 billion, up 4% year on year (versus the previous guidance of flat to slightly up) due to better than expected market development leading to strong Nokia unit volumes. Due to this and a favorable product mix, Nokia Mobile Phones’ pro forma operating margin continued at the excellent level of between 24% and 25% for the quarter. At the moment, Nokia is not in a position to comment on overall mobile industry volume growth for the fourth quarter 2003. However, Nokia Mobile Phones’ fourth quarter unit volumes were 55.3 million. (Am. Compl. ¶ 116; Defs.’ Ex. B) Ollila is quoted in the release saying: The strong seasonal development in both Nokia Mobile Phones and Nokia Networks exceeded even our own expectations. High volumes and an excellent mix in Nokia Mobile Phones delivered healthy sales and an average selling price that was up sequentially. Nokia Networks results were impacted by stronger than expected year-end operator investments and product mix which resulted in much stronger than expected sales and stronger than expected operating profits. (Am. Compl. ¶ 117; Defs.’ Ex. B) 5. On January 22, 2004, Nokia hosted an earnings call in conjunction with the release of its fourth-quarter and year-end results for 2003. a) In this call, Ollila discussed 2003 and projected for the first quarter of 2004: For Nokia Mobile Phones 2003 was a great year. Nokia Mobile Phones was able to deliver record volume and record sales and profit.... At constant currency, sales growth was an impressive 12%. For the first quarter, we currently do expect first of all that Nokia net sales will grow between 3 to 7%. Secondly, that the diluted reported EPS will range between 17 and 19 euro cents. The good momentum of the handset industry is expected to continue also in the first quarter. We project the market volumes to grow somewhat over 20% year-on-year versus 11% market growth a year ago in the first quarter. With our current product lineup gaining momentum we expect to grow volumes faster than the market. I also feel encouraged by our product pipeline for the rest of the year. These new products and product concepts will enable us to further strengthen our overall competitiveness. (Am. Compl. ¶¶ 119-20; Defs.’ Ex. C) b)Ollila also discussed Nokia’s ability to forecast demand: The higher than expected robust industry demand during the fourth quarter [2003] resulted in a very healthy level of channel inventories at year-end. In spite of some tightness of supply in the market, ive were able to deliver according to our plan but our ability to capitalize on the upside during the biggest sequential volume ramp-up in the history of mobile phone industry was limited. Vendors with previously high channel inventories were able to benefit from the unexpected demand while the ones with lean channel inventories experienced occasional stock-outs. I would now like to comment briefly on the importance and some of the issues relating to the mobile phone industry volume estimate and the relevance of that to us. Nokia deploys internal bottom-up process in the market forecasting. Our aim is to have a fact-based market understanding both globally and on [a] country level in order to support our internal planning. I believe our market estimates historically have been pretty accurate for several reasons. We have exceptionally good visibility throughout the channel as we are present in most of the country markets. Distribution channels as well as in most of the technologies, and in most of them we are also the market leader. With our performance, we have demonstrated that we have been able to forecast demand with a high degree of accuracy and our view of the market side is also shared by the other leading mobile phone manufacturers. I also believe that any attempt to measure a truly global market of several hundreds of millions is always an estimate, even at best. (Am. Compl. ¶¶ 121, 125; Defs.’ Ex. C) c) In response to a question from analyst Paul Sagawa regarding future projected ASPs, Ollila explained: I think there are good chances for us to get better there, but I would like to hasten to add that as I’ve said in my previous comments, you know, we don’t run the business based on ASP[]s, and I really want to underline that Paul. We manage this based on revenue, market share to drive profits. So this is how we want to optimize it, and when we look at how the earnings, the margin level and the overall earnings developed, it was just tremendous in the fourth quarter. So ASP was not something that we would follow or that I would get reports weekly or something, but I do get reports weekly on revenue and on how we feel we are doing against our competition and how our share is evolving. So those are the parameters which then drive the profits which we have in mind. So the ASP is something which is a little bit of an end product of all that, and all I can say is that, yes, there’s a good chance of doing better than the constant currency 5%, but I don’t have a figure that I would be ivorking against, because it’s not a parameter in my model which I have in my head and in front of me. (Am. Compl. ¶ 122; Defs.’ Ex. C) d) During the call, Ollila also discussed the positive fourth quarter of 2003: In the fourth quarter Nokia delivered a record volume of 55.3 million phones representing a sequential volume increase of 10 million units, and a sequential growth of 22%. A shift to color and to more feature-rich devices together with an increase in the newness of our product portfolio were the drivers for the positive 2% sequential ASP development in the fourth quarter. (Am. Compl. ¶ 123; Defs.’ Ex. C) e) During the call, Ollila also discussed Nokia Mobile Phones’ strong year in 2003: For the first time in Nokia Mobile Phones history, annual gross margins exceeded 40% driven by newness of the portfolio, improving quality, and continuing efficiency gains. (Am. Compl. ¶ 124; Defs.’ Ex. C) f) In the question and answer portion of the call, an analyst asked, “[o]n your [market] share it doesn’t seem to have risen last year significantly on the last six months although you reach your strategic objectives in China and CDMA, in America you’re reaching them. Do you feel there’s a chance you’re perhaps hitting a ceiling on your market share now that, or what really has to happen for that share to hit 40% in 2004, do you think?” (Defs.’ Ex. C) Ollila responded: Well I think that loe wouldn’t have had any problem in getting more share had we wanted to go down in price going in the low end. So that’s the general statement. And then, obviously, we have a situation where we, as I noted I my opening comments, we, in the fourth quarter, we were constrained in shipping more than what we actually did, so I don’t think, so we are very relaxed about the 40% and the target, and the 38% that we achieved, because we know that we are in that ballpark, can be reached. It’s not, it would not have been beyond our reach had we planned a little bit better the volumes in the low end, so we certainly have not reached the ceiling. That’s really the conclusion from that. (Am. Compl. ¶ 126; Defs.’ Ex. C) g)Another analyst asked about Nokia’s projected market share for Europe in the first quarter of 2004. Ollila responded: On Europe, we expect to gain share in Q[l] in Europe. It’s a major market for us. Our product positioning worked really well in the fourth quarter, particularly in the high end, and our, some limited availability in the low end and also unwillingness then to move price meant that share was not what we had in mind in the fourth quarter, but we did very well there. Now there is scope to do a bit better and when I commenced earlier on the momentum of the final quarter of last year continuing to the first quarter, I think that’s really Europe, which one can refer to more than to any other region. (Am. Compl. ¶ 127; Defs.’ Ex. C) 6. On February 6, 2004, Nokia filed with the SEC its Form 20-F for the fiscal year of 2003. The 20-F included sections on “Risk Factors,” “Core Business Strengths,” and “Operating and Financial Review and Prospects.” The 20-F also contained certification statements from various Nokia executives. a) “Risk Factors” — Plaintiffs allege the following factors from that nine-page section are misrepresentations: Changes in the mobile communications industry require us to develop complex, evolving technologies to use in our various businesses, some of which are new to us. If we fail to develop these technologies or successfully commercialize them as new advanced products and solutions that meet the demands of the market, or fail to do so on a timely basis, or if the evolution of our operating environment is slower than anticipated leading to delays in the deployment and acceptance of new services, it may have a material adverse impact on our business, our ability to meet our targets, and our results of operations. Despite our recent reorganization, we may not be able to commercialize new products and services successfully or profitably, or respond fast enough to the changes in the industry. The technologies, functionalities and features on which we choose to focus may not achieve as broad customer acceptance as we expect. This may result from numerous factors including the availability of more attractive alternatives or a lack of sufficient compatibility with other existing technologies, products and solutions. In our mobile device businesses, we seek to maintain healthy levels of sales and profitability through offering a competitive portfolio of mobile devices, growing faster than the market, working to improve our operational efficiency, controlling our costs, and targeting timely and successful product introductions and shipments. For us a competitive portfolio means a wide and balanced mix of commercially appealing mobile devices with attractive features, functionality and design, covering all major user segments and price points. We may experience difficulties in adapting our supply to the demand for our products, ramping up or down production at our facilities, adopting new manufacturing processes, find the most timely way to develop the best technical solutions for new products, or achieving manufacturing efficiency and flexibility, whether we manufacture our products and solutions ourselves or outsource to third parties. Such difficulties may have a material adverse effect on our sales.... [A] failure could occur at any stage of our product creation, manufacturing and delivery processes, resulting in our products and solutions not meeting our and our customers’ quality, safety and other corresponding requirements, or being delivered late, which could have a material adverse effect on our sales, our results of operations and reputation and the value of the Nokia brand. Should we fail to implement the new organizational structure effectively and smoothly, the efficiency of our operations and performance may be affected, which may have a material adverse impact on our sales and results of operation during 2004, and possibly also thereafter. (Am. Compl. ¶ 130; Defs.’ Ex. Q) b) “Core Business Strengths”- — Plaintiffs selected one of the five listed core business strengths as a misrepresentation: Strong Product Offering: Our strong product offering goes beyond voice-centric mobile phones to include entirely new functional categories of mobile devices, such as enhanced communicators, entertainment and gaming devices and media and imaging phones. (Am. Compl. ¶ 132; Defs.’ Ex. Q) c) “Operating and Financial Review and Prospects” — Plaintiff selectively quotes from this twenty-one-page section, from a subsection entitled “2008 compared to 2002”: Our gross margin in 2003 improved to 41.5% compared to 39.1% in 2002, with the improvement coming primarily from Nokia Mobile Phones and to a lesser extent from, Nokia Networks. In 2003, the clear improvement in the quality of our mobile phones resulted in a lower quality cost per phone than in 2002. Also the product mix consisted of slightly more lower-end phones with lower product costs, and contributed to a lower average cost per phone. Depreciation of the U.S. dollar and also the Japanese yen also contributed to a lower average cost per phone because more than 50% of our mobile phone components are sourced in U.S. dollars and approximately 25% in Japanese yen. All these factors together decreased cost of sales in Nokia Mobile Phones. Net sales of Nokia Mobile Phones reached their highest level ever at EUR 23,618 million in 2003, representing an increase of 2%, compared to EUR 23,211 million in 2002, driven by the consumer uptake of color-screen and camera phones, Nokia’s growing presence in growth markets, and Nokia’s increased share of the US, China and CDMA markets. While Nokia Mobile Phones volumes grew by 18%, net sales were adversely affected by the weak U.S. dollar. At constant currency, Nokia Mobile Phones net sales would have grown by 12% year on year. Sales growth in Europe, Middle-East & Africa was to a large extent offset by lower sales in the Americas and Asia-Pacific. Nokia Mobile Phones launched 40 new products during 2003 with an emphasis on more advanced devices, CDMA technology, entry-level phones and market localization. Of the new products launched, 31 models had color screens, 14 models had cameras and 24 models were MMS-enabled. There were 12 Nokia camera phone models on the market by year-end. We strengthened our position in three strategic areas by attaining the number one market position in the United States and the number one position in GSM in China, as well as significantly increasing global CDMA market share. (Am. Compl. If 135; Defs.’ Ex. Q) d) The CAC also includes statements regarding the Symbian Operating System, in which Nokia “would soon seek to acquire a controlling share,” noting that the operating system: has wide support from the mobile industry as well as a very active and large group of applications developers and operators .... At the moment, revenue from our software licensing activities is immaterial. (Am. Compl. ¶ 136; Defs.’ Ex. Q) e) The CAC also quotes the Form 20-F certification statements of Jorma Ollila and Richard A. Simonson. (Am. Compl. ¶¶ 138-39; Defs.’ Ex. Q) 7. On February 6, 2004, Nokia also issued its 2003 Annual Report to Shareholders. The Report included a section titled “Review by the Board of Directors” and “Risk Factors.” a) The CAC quotes from the Review by the Board of Directors from a subsection titled “Nokia Mobile Phones in 2003”: For the full year 2003, Nokia volumes reached a record 179 million units, leading to an estimated market share slightly above 38%. Nokia Mobile Phones broadened and revitalized its product portfolio by launching 40 new products during 2003 with an emphasis on more advanced devices, CDMA technology, entry-level phones and market localization. In addition to focusing on innovation and design in the portfolio in 2003, Nokia also made good progress in improving the quality of its processes and products, leading to concrete results. (Am. Compl. ¶ 141; Defs.’ Ex. J) b) Plaintiff also quotes from the Risk Factors section: Changes in the mobile communication industry require us to develop complex, evolving technologies to use in our various businesses, some of which are new to us. If we fail to develop these technologies or successfully commercialize them as new advanced products and solutions that meet the demands of the market, or fail to do so on a timely basis, or if the evolution of our operating environment is slower than anticipated leading to delays in the deployment and acceptance of new services, it may have a material adverse impact on our business, our ability to meet our targets, and our results of operations. Reaching our targets depends on numerous factors, such as our ability to offer products and solutions that meet the demands of the market and to manage the prices and costs of our products and solutions, our operational efficiency, the pace of development and acceptance of new technologies, our entry into new business areas, and general economic conditions. Depending on those factors, some of which we may influence and others of which are beyond our control, we may fail to reach our targets and we may fail to provide accurate forecasts of our sales and results of operations Our sales and results of operations could be adversely affected if we fail to efficiently manage our manufacturing and logistics, or fail to ensure that our products and solutions meet our and our customers’ quality, safety and other corresponding requirements and are delivered in time. If we are unable to effectively and smoothly implement the new organizational structure effective January 1, 2004, we may experience a material adverse impact on our operations, sales, and results of operations. (Am. Compl. ¶ 143; Defs.’ Ex. J) 8. On February 23, 2004, Nokia hosted a press conference at the Cannes World Congress. a) Plaintiffs cite various statements Olli-la made at the conference: The third area of opportunity in today’s mobile industry continues to be voice, where there is, tremendous growth, as well as innovation insight. We move into 2004 building on the base of strong development in 2003, last year. (Am. Compl. ¶ 145; Defs.’ Ex. S) Imaging is, today, the most important application in the mobile multi-media. Camera phones became a huge success last year, with the global market volumes exceeding 70 million units. Nokia has been in the forefront in bringing high quality imaging devices to the market, and the Nokia 6600 is the greatest example, where we have combined high quality camera and advanced smart phone functionality into an easy to use package. I’m happy to. share with you today that the Nokia 6600, after its introduction to the market last October, has become the world’s best selling smart phone, with volumes to date exceeding two million units. (Am. Compl. ¶ 146; Defs.’ Ex. S) b) When questioned about Nokia’s relationship with Vodafone, Ollila responded: I’ll be very brief. The — because the nature seems to talk as well. So the, I think we’re very pleased with the dialogue we have had with Vodafone relating to that 2-1/2 G Vodafone Live Implementation, particularly the success of 6600, as well as the 3 or 4 other phones that are part of the Vodafone Live are good, good omen going forward, because we have some very good, very interesting, exciting discussions underway as Arun [Arun Sarin, Vodafone CEO] indicated about how we can get new products, 3G products particularly, into the market as part of the Vodafone offering and, we will work very well with a number of our other operator customers because that’s the way the collaborative approach needs to work, going forward, and, and I think the Vodafone and Nokia cooperation has been really exemplary in the respect. (Am. Compl. ¶ 148; Defs.’ Ex. S) 9. On March 17, 2004, Nokia executives held a press conference at a trade show, known as CeBIT, in Hannover, Germany. a) The executives made statements concerning the N-Gage: It’s been five months, or actually five months and ten days, to be exact, that we introduced the N-Gage game deck to the market. Our expectation at the time was that it will be hard, it will be challenging, and it will be interesting. And we certainly receivefd] what we’ve expected. But also, what we’ve expected is consumer behavior online, and ive’ve also received that. So from an online perspective, it’s truly been also what we’ve expected. And clearly we’ve broken the ice on the online area with the rich games of N-Gage. But ensuring on the mobile online story is the fact that N-Gage is also the number one device on downloadable games, as you can see of the statements of some of our stakeholders. Whether it’s Java games or Symbian downloada-ble games, you can always say that has been a success. • For us, again, that’s a very assuring, because the N-Gage device is actually used for what it was intended to be used for, mobile gaming. It’s the right track and we’re building on it. (Am. Compl. ¶ 150; Defs.’ Ex. T) b) The Nokia presenters were later asked why the N-Gage’s selling price had so rapidly fallen since it was introduced to the market. Pasi Polonen responded: I can answer that concerning the pri[c]e point. The first pri[c]e point was, obviously too high, so that’s why it was changed. (Am. Compl. ¶ 151; Defs.’ Ex. T) c) Another questioner noted that Nokia had stated that the 3G and Series 60 devices were selling well and inquired whether this would have any sustainable impact on Nokia’s average selling price. Polonen responded: The average selling price is, you know, for this device as being 3G or being Series 60 devices, are clearly above our normal mobile phone, so the more we sell there it has a positive impact on Nokia’s average selling price, if that’s what you are meaning. I’m meaning [unintelligible]. I think definitely we’ll see new functionality adding also value at the terminal, so people will buy it, new device, mobile devices with higher price in the future because they provide more. (Am. Compl. ¶ 153; Defs.’ Ex. T) 10. On March 25, 2004, Nokia held its annual shareholders meeting in Helsinki, Finland. Ollila made a few statements at that meeting that are referenced in the CAC: 2003 was a record year for the mobile handset industry and for Nokia Mobile Phones.... ■ Nokia Mobile Phones reached not only record profits, but also higher-than-ever sales and volumes. (Am. Compl. ¶ 155; Defs.’ Ex. R) There are several factors which impacted positively on our net sales — for instance, high sales volumes of Nokia Mobile Phones and a favorable product mix. Nokia Networks’ restmcturing had a positive impact on Nokia’s profitability. The actions already showed results in the fourth quarter as Nokia Networks’ profitability improved. During the year [2003], Nokia was able to reach several important strategic milestones: we attained the number one market position in the United States in mobile phones and the number one position in GSM mobile phones in China. We also significantly increased our global CDMA handset market share. We reached these goals in part due to our strong product portfolio. As we have earlier stated, we launched 40 new products last year. This was a record number of mobile device launches for Nokia during one year. This year, we expect to launch a similar number of products. I strongly believe that our product portfolio continues to be very competitive. (Am. Compl. ¶ 156; Defs.’ Ex. R) In the game industry, Nokia has a long-term strategy. We are currently developing this business area and budding the N-Gage brand. After N-Gage was introduced, we have conducted several surveys among gamers. Based on the results, we can say that the N-Gage brand and the completely new ways of mobile gaming it offers are already well recognized. (Am. Compl. ¶ 158; Defs.’ Ex. R) With our strategy and our new organization, we are well positioned to take advantage of the next growth phases in our industry as well as offer the benefits of mobility to consumers, businesses and the global community. Even in a challenging environment, we have built a strong base for the next growth phase. (Am. Compl. ¶ 159; Defs.’ Ex. R) 11. On March 25, 2004, Nokia also issued a press release in connection with the annual shareholder meeting. The release quotes Ollila: Nokia launched a record 40 new mobile devices last year, and we expect to launch a similar number in 2004.... Our product portfolio will continue to be very competitive. (Am. Compl. ¶ 157; Defs.’ Ex. P) Statements that Allegedly Establish Defendants’ Earlier Statements were False when Made 12. On April 6, 2004 Nokia conducted their First Quarter 2004 Update call. a) Ollila stated in his opening comments: For the first quarter, Nokia net sales are expected to decline by 2% year on year versus a guidance of S to 7% growth year on year ... Nokia market share development was positive in Latin Ameñca China and the rest of Asia remained stable. Due to some gaps in our product portfolio, mainly in the mid range, we were not able to maintain our market position and fully capitalize on the positive market development in Europe and the U.S. Sales of the mobile phones business group were below expectations. Sales declined in Europe and Asia year on year. In Europe, the decline was driven by somewhat lower than expected volume and a product mix more weighted towards the low end. In Asia, Nokia’s volume development was positive. But sales were negatively impacted by the mix shift towards the low end. While our product portfolio in the first quarter was not at its strongest, we believe that during this year with around W product launches we expect to see improvement in our market position in the coming quarters. (Am. Compl. ¶ 164; Defs.’ Ex. I) b)In the question and answer portion of the call, an analyst asked, “I was wondering, if you look at the key element, which seems to be some vulnerability in your product portfolio in, I think you specifically mentioned Europe and the U.S. I was wondering, what steps you might be looking at in order to alleviate that, and what sort of time line do you think it may take for that direction to change? Would it be something that would you begin to expect in the second quarter, or what sort of time line?” (Defs.’ Ex. I) Ollila responded: I think if we look at the particularly mid range, you know, we saw early on last year that what might be happening is that we are not fully competitive, so certainly we have started to take measures. So if you now look at what is happening this year, we have launched seven new models and have started shipping five products that have — that ivere launched last year. Most of them addressing the — the areas of vulnerability, as you said. They will be more phones coming to the market that will be launched in the second quarter as well as in the second half. And all of those mil have a meaningful impact during 200b. With around bO phones totally being launched, we expect that this will be a typical year in that respect. But in the early part of the year we will not be quite as competitive in those segments that we did — than we have been earlier and that we will feel that we will be towards the end of the year. It’s particularly GSM clam shell, mid-range classic and some of the high-end must have areas. (Am. Compl. ¶ 165; Defs.’ Ex. I) c) Another analyst asked, “[i]s it just a problem with the midend, or have you been losing share, do you think, or have you been seen more share pressure in other regions outside of Europe or is it just in the midend?” (Defs.’ Ex. I) Ollila responded: Our strength in Asia, including China, as well as Latin America, has compensated somewhat, but the way in which we have not been able to grow with the market in Europe and the U.S. where our share has been very, very strong, incidentally, U.S. has been impacted by the shift from TDMA to GSM, and Europe we have a very high share in many of the countries. And the gap really comes from the mid-range. That’s where it is coming from. And I — I think I would hold on to that when we have analyzed what’s happening in the market. (Am. Compl. ¶ 166; Defs.’ Ex. I) d) Another analyst asked how Nokia planned to regain its share in the “midend of the market,” and what potential cost implications this would have. (Defs.’ Ex. I) Ollila responded: I don’t think there’s anything specific there. It’s really that the product portfolio which is in the product road map which will make a difference. There’s no trick. We have certainly had a quiet spell in our product road maps. We will improve, and there will be — there will be a better coverage of the key segments in that mid-range. And generally speaking, our competitiveness obviously we’ll continue to improve through a better cost — it’s not simply unattractiveness of design but always question of having a flow of products which are — which are cost efficient, vis-a-vis the niche of the market, so you can maintain a healthy profitability, which is obviously our goal. So, yes, design does play a role, and the different form factors which we will cover better to when we move towards the second half of this year. And some of the issues which we have [ ] addressed in the road maps which are in place. So it’s not that we start tomorrow and then