Nokia Oyj ADR NOK
Q3 2012 Earnings Call Transcript
Transcript Call Date 10/18/2012

Operator: Good morning. My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the Nokia Q3 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

I would now like to turn the conference over to Matt Shimao, Head of Investor Relations. Sir, you may begin.

Matt Shimao - Head of IR: Ladies and gentlemen, welcome to Nokia's third quarter 2012 conference call. I am Matt Shimao, Head of Nokia Investor Relations. Stephen Elop, President and CEO of Nokia; and Timo Ihamuotila, CFO of Nokia are here in Espoo with me today.

During this call, we'll be making forward-looking statements regarding the future business and financial performance of Nokia and its industry. These statements are predictions that involve risks and uncertainties. Actual results may, therefore, differ materially from the results we currently expect.

Factors that could cause such differences can be both external, such as general, economic and industry conditions, as well as internal operating factors. We have identified these in more detail on Pages 13 through 47 of our 2011 20-F and in our quarterly results press release issued today.

Please note that our quarterly results press release, the complete interim report with tables, and the presentation on our website include non-IFRS results information in addition to the reported results information. A complete interim report with tables available on our website includes a detailed explanation of the content of the non-IFRS information and a reconciliation between the non-IFRS and the reported information.

With that, Stephen, over to you.

Stephen Elop - President and CEO: Thank you, Matt, and thank you for joining us for the Q3 2012 earnings call. As we expected, Q3 was a difficult quarter in our devices and services business. However, we are pleased that Nokia group achieved operating profitability on an underlying basis, with a Q3 non-IFRS operating margin of 1.1%. We are encouraged that we continue to make progress against the business strategy we have outlined for Nokia.

Nokia Q3 represented the top transitional quarter for our Smart Devices business as we introduced consumers to the innovation ahead with the new line of Lumia products. In our mobile phones business the positive consumer response to our new Asha full touch smartphones translated into strong sales.

In Location & Commerce, we made progress establishing our platform offering which is in line with our plan to expand our location offering to more customers. And, Nokia Siemens Networks had a remarkable quarter in which we achieved record profitability on a non-IFRS basis and the Nokia Siemens Networks cash balance increased for the fourth quarter in a row.

While we continue to focus on transitioning Nokia, cash management remains a priority for our team. We were pleased to complete the sale of Vertu since the end of Q3 and we will continue dispose of non-core assets. Additionally, we are moving our organization through our restructuring faster than we expected.

That said, Nokia Group net sales were down sequentially, thus we are determined to carefully manage our financial resources, improve our competitiveness, return our Devices & Services business to positive operating cash flow as quickly as possible, and ultimately provide more value to our shareholders.

To achieve this, we are taking deliberate action across our five areas of revenue, Smart Devices, Mobile Phones, Intellectual Property Rights, Location & Commerce and NSN. I will take a moment to provide insight into each area.

First, I will comment on Smart Devices, where we are continuing to invest during our transition to Windows Phone. Just six months after signing the deal with Microsoft, we launched Lumia 800 and 710. Then we added the Lumia 610 and 900. Jointly with Microsoft, we grew the number of Windows Phone applications from 7,000 to more than 100,000. We're pleased that we were able to shift our engineering and manufacturing operations to a new smartphone platform as quickly as we did. As a referenced just last month we announced two new devices built on the Windows Phone 8 operating system, the Lumia 820 and the Lumia 920. Both devices are introducing experiences that are distinctly Nokia and on this basis, we believe that Lumia 920 is the most innovative smartphone to date. Operators, retailers and most importantly consumers are expressing strong interest in the new experiences Lumia will deliver. They are responding positively to a number of our innovations such as PureView which we believe allows people to capture great images and videos particularly in low light conditions when image stability is important; City Lens, which accurately helps people navigate their lives using augmented reality; our Location & Commerce business is helping us to differentiate Lumia; wireless charging which brings a new range of innovative gear like charging plates and speakers to Lumia. bold design and new colors and the many new experiences in the Windows Phone 8 operating system.

We are now focused on improving our sales and marketing capabilities as we bring the next-generation of Lumia devices to people. We are training more retail associates with Windows Phone 7. We will have more live Lumia devices in retail environments in our targeted markets than before and we are improving our retail experience to showcase both how Lumia stands out from the crowd and the new innovation in the Windows Phone 8 operating system.

Together with Microsoft and our operator partners, we are investing more in campaigns to increase the awareness of the Windows Phone operating system. We're driving marketing campaigns and demos tailored for both general retail stores and operator specific stores. In absolute terms Nokia, Microsoft and our operator partners have increased the amount of marketing spend for Lumia.

We expect Q4 to continue the transition as we begin to ramp up sales of the Lumia 820 and the Lumia 920. We expect both products to start selling in November. As we bring our new products into the market, we are planning a deliberate rollout where we focus our sales and marketing resources on select markets and key operator partnerships.

With a solid base, we plan to continue increasing the number of countries where we sell the new Lumia products in the first quarter of 2013. It is important to note that in addition to expanding the distribution of the products that have been launched to-date, it is our expectation that we will broaden our array of products across price points and markets during the course of 2013. It is our plan to bring additional innovation, like location-based services, PureView imaging technologies, and design to a wider range of price points. We also plan to broaden our offering to meeting the specific needs of our operator partners.

Second, I wanted to provide some perspective on mobile phones. It is our strategy to connect the next billion people to the Internet with our mobile phone products. To accomplish this we recognized in February 2011 that we needed to increase our innovation in our mobile phones business. As a result, we’ve launched more than a dozen Asha devices, including a range of dual sim products and low-end full touch products. The positive response from retailers, operators, and consumers has translated into strong sales. At the same time, the industry has recognized the advances in our innovation as noted most significantly by GfK, which has reclassified full touch Asha products as smartphones. In Q3 we shipped 6.5 million Asha full-touch smartphones, and in key markets like India, the Asha 305 was the number one selling smartphone during certain months.

Further, the ecosystem that supports our Mobile Phones business is healthy. On a daily basis, we are routinely seeing more than 17 million daily downloads from the Nokia store, of which, more than 50% are from Series 40 products. Overall, Nokia store daily downloads grew by 14% in Q3 including 22% growth from Series 40 daily downloads.

More than 500 of the Nokia developers have achieved more than 1 million downloads and companies like Indiagames, Pico Brothers, Offscreen technologies and Inode Entertainment just passed 100 million downloads. This results in a complete offering available for price conscious consumers.

As a result of these actions in Q3, mobile phones delivered a solid quarter with Q3 volumes increasing quarter-on-quarter to 77 million units. We enjoyed sequential sales growth and improved contribution margin. We have a new Mobile Phones management team in place that is making good progress and they are driving even more innovation across our Mobile Phones portfolio.

Shifting now to our third area of revenue generation, Intellectual Property Rights, we report this as part of Devices & Services Other. Nokia has one of the strongest patent portfolios in the industry, and naturally we make sure it's well protected and our intellectual property is appropriately licensed. In the first half of 2012, we filed more patents than any other six-month periods since 2007 and we continue with an aggressive pace. We will continue to manage the health of this portfolio while also ensuring that we are effectively monetizing its value through licensing negotiations, focused divestments and other forms of legal action.

Fourth, in our Location and Commerce business, we are seeing increased interest in location and mapping technologies from business customers, industry partners, developers and consumers. We are continuing to build on our leadership in the automotive, personal navigation and enterprise industries where we license our mapping data to businesses. Powering four out of five of the cars that are equipped with in-dash navigation, we are the leading company that provides end-to-end mapping and navigation solutions for the automotive environment. This spans across map content to the Location Platform and to mapping applications.

With our 25 years of experience in mapping, we are able to differentiate our smartphone offering with location applications such as Nokia Drive, Nokia Maps, Nokia City Lens, Pulse and Transport. As witnessed by the consumer response to our competitors maps, people do want to ensure their smartphone delivers accurate mapping information, so they can reliably navigate their lives.

Starting in the third quarter 2012, we are disclosing additional financial data for Location And Commerce which represent internal sales within the Nokia Group such as work with Lumia and external net sales. On the external side in September, BMW Mercedes, Pioneer, the Volkswagen Group, Hyundai and Garman each announced that they have selected content or additional content from Nokia's location business.

At the same time, we are creating a location-based services platform which we are extending horizontally to other customers. This platform increases the utility and value that we can provide to our partners and the developer community. Companies like Groupon, Microsoft, Yahoo! and Amazon are recognizing this value and are placing increased bets on both our platform and our data.

Lastly Nokia Siemens Networks had a record quarter. We have focused on restructuring and refocusing NSN through deliberate measures. In Q3 we are pleased to report that NSN delivered record profitability on a non-IFRS basis. NSN's net sales increased quarter on quarter and year on year to EUR3.5 billion. NSN achieved underlying profitability for the second quarter in a row and even with restructuring, the NSN cash balance increased for the fourth quarter in a row. NSN's focused strategy and solid execution is clearly translating into results.

NSN is implementing deep structural changes that go well beyond cost actions. In particular, NSN has focused efforts on product quality, innovation, and priority countries like Japan, Korea, and the US. Furthermore, NSN's leading technology position resulted in strong LTE growth in Q3. These are all encouraging signs that NSN is on track to strengthen its position as an industry leader and ultimately become a more independent entity.

In summary, we recognize that we must continue to focus on our cash situation, our sales and marketing execution, and our ability to deliver innovative products to people around the globe. As we discussed last quarter, there are specific measures on which we are focused as we move through this transition. These measures include; first, cash to ensure that we have the resources to manage through the transition; two, Lumia device volumes as a proxy for the progress we are making with new devices; three, devices gross margin as a demonstration of competitiveness; and fourth, continued progress against our restructuring as measured by decreasing OpEx. Clearly, we must make, continued progress in several other areas of our business like mobile phones and NSN, but the measures I just listed are of particular importance.

I would like to thank the thousands of Nokia employees who are working with us through the difficulties of a complex transition. Today, our employees have clear direction, they are focused on our most critical priorities, they are proud of the innovation in our new Asha, Lumia and Location-based products and we are all determined to deliver more value to our shareholders.

I will now turn it over to Timo to provide more details on the numbers.

Timo Ihamuotila - EVP and CFO: Thank you, Stephen. First, I would like to spend a bit of time taking you through the factors which impacted our cash in Q3 before providing more of an overview of the operational performance of our businesses in the third quarter.

We continue to have a strong focus on cash as we execute our strategy. On cash, my three key areas of focus are; first, returning Devices & Services to positive operating cash flow as soon as possible; second, that NSN continues to be self-funding in all aspects of its operations; and third, continuing to pragmatically monetize non-core assets.

In Q3, net cash and other liquid assets decreased by approximately EUR630 million sequentially, including a negative EUR130 million foreign exchange impact from translation of cash. The other major items impacting our cash balance during the quarter were, Nokia Group level net profit adjusted for non-cash items of positive EUR168 million, a negative impact from Nokia Group level net financial expense of approximately EUR300 million primarily due to foreign exchange realized losses, a negative impact from the Nokia Group level working capital related outflows of EUR200 million which included approximately EUR390 million of restructuring related cash outflows, Nokia Group level CapEx and acquisitions of EUR110 million and Nokia Group level cash tax expense of approximately EUR90 million. Excluding the restructuring related cash outflows, we generated a total of approximately EUR190 million cash from working capital in Q3. Cash inflows from working capital excluding restructuring in NSN and Location & Commerce were partially offset by cash outflows from working capital excluding restructuring in Devices & Services.

Now turning to NSN, NSN generated for the fourth quarter in a row in Q3, a positive cash flow. NSN contributed approximately EUR320 million to net cash from operating activities and generated cash from working capital even after restructuring cash outflows of approximately EUR180 million.

At the end of Q3, NSN's contribution to Nokia Group gross cash was approximately EUR2 billion and NSN's contribution to the Nokia Group net cash was approximately EUR620 million. As I have commented in recent quarters, NSN's restructuring program combined with the Company's focus on improving its financial performance is designed to enable the Company to end 2012 with higher net cash than at the end of 2011. Given NSN's solid execution thus far relative to its strategy, we have increased confidence in its ability to be self-funding in all aspects of its operations going forward.

Looking at non-core assets, earlier this month we completed the Vertu divestment, NSN completed the sale of its IPTV assets in two separate transactions earlier in the month as well. Both Nokia and NSN are continuing to explore further opportunities to monetize non-core assets.

At the group level, we ended the quarter with gross cash of EUR8.8 billion and net cash of EUR3.6 billion. We have a clean balance sheet with a strong liquidity profile. In addition our gross cash is conservatively invested and is broadly readily accessible.

Now on to a review of our operational performance in Q3. In Q3, Devices & Services net sales of EUR3.6 billion were down 11% sequentially and 34% year-over-year. Our Smart Devices net sales decreased 37% sequentially due to lower Lumia and Symbian net sales. This was partially offset by higher overall Smart Devices ASPs.

Looking at our Lumia volumes in more detail, we saw a sequential decrease in shipments to 2.9 million units, with declines in all regions, except for Middle East and Africa. From a product level view, we saw a sequential growth in the lower priced Lumia offering, more than offset by declines elsewhere in the Lumia portfolio.

In mobile phones net sales increased 3% sequentially due to higher volumes and stable ASPs. The higher volume was largely driven by strong sales start of our new Asha full touch smartphones during the quarter as well as sequential growth in our sub-EUR30 family of devices, which more than offset a sequential decline in our QWERTY volumes.

Our top five selling mobile phones had an ASP range of EUR12 to EUR76, reflecting good balance and breadth of product renewal. During the third quarter we shipped approximately 6.5 million Asha full touch smartphones, led by the Asha 305.

Devices & Services non-IFRS gross margin in Q3 was 18.5%, up 40 basis points sequentially. The increase was primarily due to higher IPR income recognized in Devices & Services Other, which more than offset gross margin declines in both Smart Devices and Mobile Phones.

In Q3 Devices & Services overall non-IFRS gross margin was positively impacted by approximately 110 basis points related to foreign currency hedging compared to the guidance I provided last quarter of approximately 150 basis points positive impact. At the present time, we expect a 40 basis points positive impact to Q4 gross margin related to hedging activities assuming static foreign currency rates at the end of Q3 levels, but this change due to inter-quarter fluctuations in rates.

In Q3, on a sequential basis, Smart Devices gross margin decreased from 1.7% to negative 3.5%. During the quarter, we recognized approximately EUR120 million of allowances in Smart Devices related to excess component inventory, future purchase commitments and an inventory revaluation. These allowances relate to our current Lumia products as we have further identified certain components on our books and components that we have committed to purchase that we now believe we will not be able to use.

In addition, we have reduced the carrying value of some of our inventory. Going forward, increases or decreases to Smart Devices inventory related allowances may be required in the future depending on several factors including future consumer demand, particularly related to our current Lumia products.

Looking at our underlying Smart Devices gross margin on a sequential basis, excluding the allowances we made in Q3 and Q2, it declined by approximately 728 basis points to 8.8% with Symbian gross margin at a higher level compared to Lumia. Mobile Phones gross margin decreased sequentially from 24.1% to 21.7%, primarily due to a higher mix of lower gross margin devices.

Moving on to OpEx, in Q3, Device & Services non-IFRS OpEx was EUR915 million, down 16% on a sequential basis and 19% year-over-year, reflecting OpEx control combined with structural actions we've taken. We continue to make very good progress on our cost reduction program.

At the end of Q3, Devices & Services and Corporate Common had approximately 38,000 employees, a reduction of approximately 15,500 compared to the year ago quarter and approximately 5,300 compared to Q2. Devices & Services non-IFRS operating margin was negative 7.4% in Q3, up sequentially from a negative 9.1% in Q2. The improvement was primarily due to lower OpEx and to a lesser extent slightly higher gross margin.

Now on to Location & Commerce; in our quarterly results press release, we have started to disclose internal and external net sales for Location & Commerce as we believe the primary factors influencing the long-term performance of these two categories are distinct. Internal net sales represent Location & Commerce sales in conjunction with Nokia devices, external net sales represents sales of content licenses, platform licenses and applications to customers other than Nokia. Currently Location & Commerce external net sales are predominately related to map content licenses. Over time, we expect external customers to increasingly use the Nokia Location Platform which enables new and innovative location services and applications.

The important point here is that as a key element of our strategy we are establishing a horizontal location services platform built on top of our industry leading location content. Our additional disclosure of internal and external net sales will allow you to follow our progress as we plan to scale up our licensing activities for the Nokia Location Platform.

Then back to results, reported net sales for Location & Commerce in Q3 were EUR265 million, down 6% sequentially, primarily due to lower internal sales to our Smart Devices unit. External net sales declined slightly sequentially due to lower map update sales in vehicle customers, almost entirely offset by the non-recurrence of the negative sales adjustment I called out last quarter.

In Q3 Location & Commerce non-IFRS gross margin was 80.4%, up 300 basis points sequentially. This was primarily due to the non-recurrence of the negative sales adjustment, which impacted Q2 as well as lower map update sales, which carry lower gross margin. Location & Commerce non-IFRS operating margin was 14% in Q3, down 50 basis points sequentially.

And then on to Nokia Siemens Networks; NSN had a stellar quarter, executing well against its focused strategy on restructuring program. Continuing from the solid performance last quarter, NSN achieved a record non-IFRS operating margin in the third quarter of 9.2% as well as solid cash flow generation for the fourth consecutive quarter.

In Q3, NSN reported the net sales were EUR3.5 billion, a 5% sequential increase. Services represented approximately 50% of NSN's Q3 net sales compared to slightly over 50% in Q2. On a year-on-year basis sales increased 3% in Q3, despite the exit of certain non-core businesses.

NSN’s non-IFRS gross margin in Q3 was 32.2%, up 560 basis points sequentially, reflecting unusually positive product and regional sales mix towards higher gross margin revenues, particularly in infrastructure equipment, driven mainly its priority markets including Japan and Korea.

NSN demonstrated strong execution in its priority markets as well as very good progress relative to their restructuring program, resulting in significant structural savings in both cost of sales and OpEx during the quarter.

At the end of Q3, NSN had approximately 60,600 employees, a reduction of approximately 14,300 compared to the year ago quarter and approximately 2,700 compared to Q2. NSN's non-IFRS OpEx declined by 5% sequentially and 15% year-on-year despite top line growth reflecting good cost control and focus consistent with the strategy. NSN's Q3 non-IFRS operating margin was 9.2%, up 840 basis points sequentially, primarily reflecting the stronger gross margin, lower OpEx and to a lesser degree, higher net sales.

In summary, we continue to see encouraging signs that NSN is on track to strengthen its position and be structurally better equipped to cope with its challenging industry backdrop in the future and ultimately becoming a more independent entity.

Now turning back to Nokia as a whole; first a quick breach from Nokia Group Non-IFRS operating profit of 1.1% positive to our non-IFRS EPS of negative EUR0.07. The biggest item aside from taxes and financial items was the EUR96 million for the 50% of NSN profit that is attributable to Siemens, which made in the line item called profit attributable to non-controlling interests.

In Q3, financial income and financial income and expenses net was negative EUR97 million, the higher expense on sequential basis were primary due to NSN foreign losses. Nokia taxes were unfavorably impacted by Devices & Services taxes as no tax benefits are recognized for certain Devices & Services deferred tax items. If Nokia's earlier estimate for these long rates tax rate of 26% had been applied, non-IFRS Nokia EPS would have been approximately EUR0.042 higher in Q3. As a reminder, going forward on a non-IFRS basis, we expect to record quarterly tax expense of approximately EUR50 million related to our Devices & Services business and approximately EUR50 million related to Nokia Siemens Networks business. We expect to continue to record taxes related to the Location & Commerce business at 26% rate,

Now turning to our guidance, in the press release, you will find the full details of our guidance, but I just wanted to highlight that we continue to operate with limited near-term term visibility in Devices & Services and NSN.

So in summary, as a CFO I am very focused on maintaining our strong financial position and improving our cash flow generation, particularly in Devices & Services. I am also focused on NSN's strong execution continuing, particularly regarding its cash generation and finally I am overseeing ongoing activities to pragmatically monetize non-core assets over time consistent with our strategic focus and priorities.

With that, I will hand it over to Matt for Q&A.

Transcript Call Date 10/18/2012

Operator: Michael Walkley, Cannacord Genuity

Michael Walkley - Cannacord Genuity: Congratulations on the strong improvements in NSN. I was just wondering if you could help us understand the sustainability of the NSN margins, do you believe this is now maybe a 5% to 10% operating margin business longer-term or maybe you could discuss some of the favorable mix for the second half of 2012? Thank you.

Stephen Elop - President and CEO: First of all in Q3 clearly we're very pleased with the extent to which NSN performed itself and also how that contributed to the establishment of overall profitability for Nokia Group on an operative basis. Clearly with our guidance for NSN for Q4 we've given some indication of how we think things net out in that time period, I'm also allowing for seasonality in Q4 and so forth. We're not updating our guidance as it relates to the long-term operating margin for NSN, which as we said in the past was in the 5% to 10% range. So, there's no update to that, but our overall Q4 guidance in the case that we do expect another strong quarter for NSN in Q4.

Timo Ihamuotila - EVP and CFO: So maybe if I may, Timo here. So we had really unusually good mix both in product as well geography and regarding product we had more sales proportionately in mobile broadband compared to services which contributed in line with the (NSN new) strategy as well as a better geographic mix concentrating more on the NSN focused markets particularly in APAC and in Japan and Korea, so those both contributed. But I want to highlight that we have also made really good progress on improving the operations, so also the cost of goods sold and OpEx improvements are impacting here and in that way as I said we think NSN is better positioned to deal with a possible industry backdrop if that would then happen during 2013.

Operator: Jeff Kvaal, Barclays.

Jeff Kvaal - Barclays: Steven, you had mentioned I think in some prior comments today that you felt that the upcoming year would be good year to make a dent in the ecosystem battle. Could you clarify a little bit of how you feel that Windows phone is positioned relative to the other ecosystems and then within Windows phone how are you feeling about your competition with Samsung and possibly HTC? Thank you.

Stephen Elop - President and CEO: First of all to give a strategic perspective on the ecosystem battle and particularly as I think broadly about 2013 there's a dynamic that we're seeing and hearing about and I think it's somewhat spilling out into the public discourse as well particularly in the U.S. and that is increasing concern amongst operators about the concentration of, if you like power that is landing with two particular ecosystems that are obviously quite strong out there today. And as many trends have swung from west to east in the most time period, I think you're going to see, and I certainly hope you will see a similar trend where operators starting in the west begin to say we need a third ecosystem to really begin to happen. We really need to double down or we need to cause it to happen. Certain operators in the west have made those decisions in the past to combat previous changes in technology or introductions of hit products and they've been successful in shifting things. So we're seeing a lot more energy being applied to. As you think about 2013 how do we truly begin to shift that third ecosystem into a position of increasing strength. Now what I matched that up against is that strategic imperative that we're hearing from operators against what they have seen from us. What they have seen from us is not just the Lumia 920 and 820, which you know as the first two devices that we're introducing in this next generation, but what they are seeing is now the full breadth of Nokia Smart Devices efforts from the last period of time being applied over the course of 2013. In other words, what they're seeing over the course of 2013 is the further advances in areas of innovation like PureView, like location-based services and so forth, they're seeing a broadening of price points and specific work we're doing with particular operators to give them advantage in their markets and a variety of other things. So what they're combining is this perspective that we got to get this third ecosystem really going with the full strength of the Nokia effort now being visible and we translate that into an opportunity that we look out as quite positive for 2013 as a whole. It begins in Q4. Now, clearly we're introducing the products, just first two of those products in November, we're doing that in very select markets with select operators. An interesting side effect of that, and this is indeed what we set out to do, is I can tell you that the absolute amount of marketing that's being spent against Lumia and Windows Phone where it's being launched. When you combine the investments by ourselves, by our operator partners through whom we leverage investment by doing specific work with them and with Microsoft's help those amounts are more than what we saw in the original Lumia lunches. So that gives us some encouragement as we get through this launch period certainly in Q4, Q1 and beyond, so I think that's good. Now to your second question, as it relates to our position in the ecosystem, it is very clear and has been right from the beginning that we established a unique relationship with Microsoft. That unique relationship means, for example, that we are their development partner with the current release of Windows Phone; that our engineers are working on a day-to-day basis with Microsoft; that our planning efforts around what will be in Windows Phone are jointly done and you see that in the products that are being introduced within the Windows Phone environment, regardless of what someone chooses to name their product, it is the fact that the Lumia products are the only devices out there that have unique forms of innovation like PureView, like the PureMotion HD display, like wireless charging, like the location-based services, and a variety of others. The point being that that close relationship with Microsoft translates into advantages in the ecosystem. Now I know there has been some commentary about the fact that certain OEMs have chosen to name their devices Windows Phone; that’s what they call them, and of course any OEM has the opportunity to call their devices Windows Phone if that’s the name they choose. In our case we chose to continue to use the Nokia brand and the Lumia product name, to highlight the fact that unlike the others who are delivering sort of the standard Windows Phone 8 experience on a standard platform, we actually stand for something more, and we have more innovation and more unique differentiation. So as it relates to competition within the ecosystem, I feel quite good. However, just to put a really important point on it, our focus is not on that at all. It's about competing with Android and competing with Apple. That's the principal competition.

Operator: Francois Meunier, Morgan Stanley.

Francois Meunier - Morgan Stanley: I would like to come back first with the margins in NSN which look to some extent a bit (too good) to be true in Q3, and the guidance for Q4 is very strong as well. How sustainable do you think those margins are going to be into next year because obviously the backdrop for this sector is pretty difficult. We’ve seen the results of ZTE at the beginning of this week, which were not very good. So, how sustainable do you think those margins are, especially if you are less aggressive on footprint? The other question is actually on the location business and I think that's it's very kind of you to split the external sites from the internal sites. Could you may be comment on the difference of profitably between external sites and internal sites for location please?

Timo Ihamuotila - EVP and CFO: So as I said NSN during Q3 had an unusually good product mix, but I also want to highlight that unusually good product mix is in line with NSN strategy and that we are guiding for 8% positive Non-IFRS operating margin for Q4. So it's important to note that NSN has also made sustained improvements in its operations in areas of quality, innovation and efficiency. For example, NSN now has 67 LTE contracts and had very strong growth in LTE business. So I think those are the drivers you need to take into account when you look into 2013. Then on Location & Commerce, we really do not split the profitability that way on external and internal. So unfortunately I cannot give more color on that question. We’re really trying to highlight the different dynamics of these businesses from top-line perspective here.

Operator: Gareth Jenkins, UBS.

Gareth Jenkins - UBS: I just wondered if you could give a sense, you have a given a sense on the operator push in terms of Window Phone 8. I wondered if you could just give a sense of the consumer pool that you see out there. I know it’s early days for Window Phone 8 but the consumer pool on Window Phone so far has been I guess somewhat one thing, and I just wondered how you see that going forward. Is there enough in the new feature set if you feel to put your prices out to higher levels with higher gross margins and then I have a follow-up if that’s okay.

Stephen Elop - President and CEO: With respect to the consumer poll, it's hard to judge because of course the devices are not in consumers hands and also something that obviously has been a deliberate part of both our strategy and Microsoft strategy is to go expose Windows Phone 8 and our product offerings in a series of steps. For example, Windows Phone 8 was shown for the first time in June, more capabilities were shown at our press conference on September 5 and of course there is still more to be shared in terms of the capabilities and what's going to be delivered that. Clearly, we’re using and will use much closer to specific device launches to continue to drive consumer interest. One of the things that I will say is that our decision to talk quite a bit about the 920 and 820 early in September. Obviously some months before device availability was a very deliberate decision to make sure that we were in the conversation as it relates to the range of devices that are going to be available from our competitors during this season. I'm sure many of you have seen the reviews, the comparisons, the comparisons of photography capabilities and so forth and clearly we've been very, very pleased with the reviews that we’re seeing there. So the signs are very positive, but of course we have to execute in-store in order to do that. Now as it relates to prices, clearly our intention with the next generation of products and so forth is to use those to improve gross margin overall for the Smart Devices business. You said you had a follow-up.

Gareth Jenkins - UBS: I guess the follow-up is, if Microsoft were to launch their own device would you see that as a stimulant to the ecosystem or a competitor?

Stephen Elop - President and CEO: I think it's certainly a stimulant to the ecosystem. As I said earlier we’re encouraging of HTC and Samsung and Microsoft or whomever to have devices in the market and to be making whatever investments that help spur the ecosystem on. As it relates to the competitive aspects of it, of course, anyone else in the ecosystem is some form of competitor. That being said, we’re very proud of the unique differentiation that we are bringing to the Windows Phone platform. When you look closely at what we're doing with those devices, it is innovation that we've invested in for a number of years. It's not something that's easily replicated or reinvented or anything like that. This is the results of taking those unpolished gems from our R&D labs and landing them in the Lumia product and of course that’s well protected by intellectual property and something that we would use to differentiate regardless of who our competition might be.

Operator: Jim Suva, Citi.

Jim Suva - Citi: Congratulations to you and your team at Nokia. Regarding the Windows 8 phone launch, can you just may be help us understand about the strategy or plan for the rollout, meaning should we expect a giant global rollout or more selective regions, and will you be pushing Windows 8 completely down your entire stack to compete against for the low end emerging market ASP?

Stephen Elop - President and CEO: So, in terms of the launch itself, we are starting very deliberately in select markets with select operators. So, I think we talked about this a quarter or two ago when we said one of the things we had learned from our first efforts with Lumia is going too broad too early tends to dilute the efforts and so we’re being very deliberate. Of course as I said a few minutes ago, that translates into the ability to leverage more money from our operator and Microsoft discussions by having a smaller number of concentrated efforts, so we like that a lot. Now, as it relates to price points for the devices, yes, it is our intent to push price points of devices lower and lower with Windows Phone. That relates to my comment earlier about the Lumia 920 and 820 being only the first two devices of the next generation of devices and clearly part of what we’ll be doing is pushing price points lower. I also want to relate this to the other really important part of our Devices & Services business, which is the mobile phones business. The Asha full touch products that we've introduced of which we sold 6.5 million in Q3 alone, are really doing well and are doing well as smartphones. Consumers in emerging markets are using those devices to connect to Facebook, to browse the Internet, to take advantage of what they perceive a smartphone needs to do, but one of the unique capabilities of those Asha products is they have been deliberately engineered for cost conscious consumers. In other words, when you're browsing the web, the compression capabilities that we’ve built into our proxy browser can reduce the data traffic by as much as 90%. The result is less money being spent on data plans. In the western markets with a Lumia product, with an Android product, with an Apple product, people aren’t quite as sensitive to that as they are in many of these markets. So we’re approaching that market differently. GfK designated those products as smartphones in recognition of how they're being used, but they’re a very different proposition that can compete effectively at those lower price points.

Operator: Stuart Jeffrey, Nomura.

Stuart Jeffrey - Nomura: Follow-up on that last Asha question actually. In the second half of last year, you did really well with (indiscernible) some your first Asha products. Then the momentum went out a little bit as you went through 2012, certainly in the first half? I’m a little bit concern that a similar dynamic might be coming now. We’ve got Asha doing very well with the all touch platforms, but we’ve got a significant ramp in very cheap Android phones coming out with third-party proxy browsers available on those as well. So I was hoping you could perhaps just give a bit more detail as to why you think – as the price difference perhaps between Android and Asha full touch starts to contract, how you keep that product going and we don’t get a repeat some of the issues that hits us in the first half of this year?

Stephen Elop - President and CEO: I think the commentary in the first half of this year is quite germane, because when you look at that closely the key driver of that was the fact that we were working on full touch. It’s part of the price point bands removing to full touch and full touch Android devices and so forth and we weren't there with the products at that moment of transition, we were a quarter or two later than that. I think that that explains some of what happened there and we recognized that. The work that we’re doing in the mobile phones group from an R&D perspective is very much focused on the innovation that we think is necessary in this space to continue to stay ahead and differentiate. So it is the case that you will see over the course of the next year and beyond a number of new products and new innovation introduced to specifically tackle this market and to compete on different terms with Android in those lower price points. So while full touch itself is innovation and it's good work at those price points, there are still some remarkable work ahead that will land in new products coming in the Asha product range. Lot of this has to do with how you operate in those lower price points and what capabilities you provide. You highlighted the proxy browser for example. Sure, there are third party proxy browsers if the user can get their hands on them, but our technology actually goes a step beyond that, it's not just the browsing capability that’s subject to the proxy affect and the reduction in traffic, but it’s the social interaction as well. So when you're using the Facebook app for example, you're getting data compression and other things. It’s a wide array of examples like that were built into the operating system from the beginning of Series 40 was this whole concept that the batteries got to last five days, the data cost have to be remarkably low. That’s something inherent in how the products have been designed as opposed to trying to take older versions of Android and cram them on cheaper hardware platforms.

Operator: Mark Sue, RBC Capital Markets.

Mark Sue - RBC Capital Markets: Steven and Timo, the big investor concern is that Nokia might run out of cash before Windows Phone builds a successful following. With the exclusivity and strong ties you point to with Microsoft, do you think they might double down and help you increase their platform payments to Nokia. If I look at net of platform payments and your royalty commitments I think it’s only incremental and it’s practically coming out of time when you need a lot of sales and marketing to ensure success of your new Lumia?

Stephen Elop - President and CEO: So I wouldn’t want to speculate on the future of the agreement with Microsoft or anything like that. I mean, our relationship with Microsoft is going very well…

Mark Sue - RBC Capital Markets: Does it get stronger or does it stay the same?

Stephen Elop - President and CEO: I think what you should expect to see is, I don't know how to characterize stronger, but it certainly gets better with each step that we take. What I mean by that is we now have a lot more experience working with them, now we've been their development partner through the full software cycle associated with Windows Phone 8. We’re continuing that. The planning process is now well underway for each of the subsequent versions, we’re working in lockstep with them on that as well as on the location based services side where I think one of the things that's interesting to note in the industry is the perceived importance of geospatial and location-based services has clearly gone up. That’s not just because of what happens on various other platforms with map quality and so forth. It's the recognition of these location-based services matter a great deal in resolving search in delivering great user experiences and so forth and remembering that Microsoft has a critical dependency on us for location-based services highlights the importance of this relationship working well in both directions. So it's a relationship that is very high-volume, very intense, very connected and at the end of the day we’re proud with, we’re proud of the work that’s been done. They love our devices. We love the work that they're doing with the operating system and we’re working with them every day to make it better.

Operator: Didier Scemama, Merrill Lynch.

Didier Scemama - Bank of America Merrill Lynch: I just would like to ask you about basically the outlook for the feature phone business on the medium-term basis. Clearly you are putting a lot of investments in the Asha product line and I am just wondering given that effectively all your competitors are going out of the market outside of the wide box market. How do you see the outlook in terms of volume and value on a five-year basis for this industry and I have a quick follow-up?

Timo Ihamuotila - EVP and CFO: Timo here, so clearly if we look at five years out that is a long time, but as we've said, we expect that market will continue to be a significant market. I think we have said 2015 out over EUR20 billion market and if you have a very strong market share as we are having currently from that market that is a large business. On top of that we need to take the possibility that we build further innovation on top of the Asha platform on the full touch and the push all the time the boundary higher as much as we can with technology and innovation we bring to the market. So I think that’s as much as we can say about long-term, but when you look at the marketing drivers they continue to be innovation but also the efficiency. I mean having 77 million of volumes will continue to give us also benefits on the efficiency side of the equation.

Didier Scemama - Bank of America Merrill Lynch: Just on the cash flow side I was just wondering if I add the cash contribution from NSN and also take off the EUR200 million subsidy for the platform coming from Microsoft. It looks like Nokia has burned about a $1 billion plus of cash during the quarter. Is that the right number?

Timo Ihamuotila - EVP and CFO: No, I don’t think that's the right way to look at it. So, basically if you look at the net cash from operations and NSN contribution to that which is EUR320 million. So we end up going like outside NSN being about minus 750, out of that big part is FX, finance and tax. So you could say EUR200 million to EUR250 million. We have about EUR200 million of restructuring and then the negative operative result is about EUR260 million. So I think that's more the right way to look at it. Then if you further split it to net working capital, we see maybe EUR50 million to EUR100 million change in net working capital in Devices & Services.

Operator: Richard Kramer, Arete.

Richard Kramer - Arete Research: Steven I'd like to challenge this notion that operators can shift consumers towards a third ecosystem given they’re really facing cash constraints in many markets and as you move west to east most of the markets are prepaid and less influenced by operators. So my question is, how do you draw the line between what's – from what you just said seems to S40 offering that you're going up against low-end android and some markets. The new efforts you have described about bringing low-cost Win Phone 7.5 products out and the initial Win Phone 8 pricing which doesn't seem to be significantly under rival platforms, will S40 be your third ecosystem or Win Phone or both and how would you manage that in terms of the different price points you need to hit in the market? Thank you.

Stephen Elop - President and CEO: Thanks for the question. Of course at the end of the day to your opening comment, consumers get to decide but of course having operator support the training, the incentives with sales people, the live devices in their hands and so forth can help to influence that and our studies have made that pretty clear. So, of course time will tell, but the consumers do ultimately get to decide. As it relates to the different platforms, our clear focus for a broad ecosystem offering is with Windows Phone, that's what we're doing. The offering with Series 40, I tend not to think about it as the same breadth of ecosystem or capability that you would see with either a fully functional android device or fully functional Windows Phone devices. As you get down to those lower and lower priced points, the actual capabilities tend to diminish or actually said from a consumer perspective the things that they're trying to do, the focus areas of their interaction tend to narrow somewhat in large part because of data constraints. So for example; Facebook, simple Internet browsing, messaging of some form, if you are on a BlackBerry device it might be BBM it might be WhatsApp and so forth. So what we actually expect to see is yes, Windows Phone prices will be pushed down and you'll see product offerings that take us lower and lower in price points, but we also think across the low band of prices we have an opportunity for very cost conscious consumers to give them a beautifully designed devices at significantly lower prices that gives them some of the basic smartphone capabilities as well as the ability to download certain forms of apps and so forth, but at those price points it still quite a while the lowest price point before things like true multitasking and other things that typify either Android or Windows Phone come into play. So, there's a lot of different dynamics there to consider. Final comment on your question, you're right that the tendency from West to East is that operators have less influence. However, in the vast majority of countries, the trend is towards more and more operator influence. We're seeing more of that in virtually every country and that is certainly the case. I used China as an example, where over the last 18 months the operators significantly changed the dynamics particularly at lower price points as they have driven programs to increase the number of subscribers at the expense of profitability.

Richard Kramer - Arete Research: Can I have a one quick follow-up on the U.S. market, 300,000 phones in North America last quarter, I mean at what point do you say there's just simply not enough volume there for Nokia to sustain the investment you need to make with the operators?

Stephen Elop - President and CEO: We think the United States is a very, very important market for signaling purposes. It's where much of the innovation is being experimented with or is being driven growth driven from and so forth. We also think the operators in the United States are the furthest along in their experiences with the other operating system partners and therefore are the most likely to be making investments in the third ecosystem. So we think it's a really, really important market and we do over-index in our investments on that market. Clearly we're in a transition quarter where having spent most of the quarter explaining to the U.S. population about the great innovations that are coming in Q4, one could reasonably expect that that would impact sales in Q3.

Operator: Tim Long, Bank of Montreal

Tim Long - Bank of Montreal: I just wanted to get to a comment in the outlook. You talked about lower seasonality in Q4, I think referring to Smart Devices. Could you just let us know what is causing that issue that is the industry issue, competitive issue and also how do you see seasonality in the Mobile Phone market into the fourth quarter? Do you see the same type of issues or do you think it's more seasonal because of where the product set is? Thank you.

Timo Ihamuotila - EVP and CFO: Timo here. So when you look at our guidance for Q4, we commented that we expect a lower than normal benefit from industry seasonality in Smart Device volumes in Q4 compared to the 6.3 million units of Smart Device volume we had in Q3. And in Q4, we are in ramp-up regarding the new Windows Phone product, so it's important to point that we expect to continue to ship also significant volumes in Windows Phone 7.5 as well as Symbian. So we need to take that into account when we look at it, but clearly we would expect if you just take that 6.3 million as some kind of a sort of fixed point then Symbian to go down, which would mean that Lumia would go up on totality. Then on Mobile Phones seasonality, yes, we would expect to see some seasonality regarding the Mobile Phones business given the holiday season.

Stephen Elop - President and CEO: If I can just close on the call, I think just starting overall, we see it as an important milestone for the Nokia Group overall to achieve our profitability on an operative basis. We think that's an important milestone. Clearly, we have more important milestones ahead, so even though while Q3 was a difficult quarter in Devices & Services, we are encouraged that we are making progress through this transition. Moving forward, we're very focused on managing our financial resources; improving our competitiveness; returning Devices & Services to positive operating cash flow and ultimately providing more value to all of you, our shareholders. So thank you for your participation today and we look forward to your comments in the days ahead.

Matt Shimao - Head of IR: Ladies and gentlemen this concludes our conference. I would like to remind you that during the conference call today we have made a number of forward-looking statements that involve risk and uncertainties. Actual results may, therefore, differ materially from the results currently expected. Factors that could cause such differences can be both external, such a general economic and industry conditions as well as internal operating factors. We have identified these in more detail on Pages 13 through 47 of our 2011 20-F and in our quarterly results press release issued today. Thank you.

Operator: Ladies and gentlemen, thank you all for joining today’s call, you may now disconnect.