諾基亞 (NOK) 2002 Q3 法說會逐字稿

Welcome.

My name is Cheryl.

And I would like to welcome you to Nokia's third quarter midquarter conference call.

All lines have been placed on mute.

If you would like to ask a question during the question and sorry -- and answer session, please press star and the number 1.

If you would like to withdraw your question, please press star and the number 2.

As a reminder, if you are on a speaker phone, please pick up your handset before presenting your question.

I would now like to turn the call over to our host, Miss Ulla James.

Thank you.

Welcome to Nokia's third quarter conference call.

My name is Ulla James, Vice President of Investor Relations.

And with me is JOrma Ollila, the Chairman for Nokia and Olli-Pekka Kallasvuo, our CFO.

We'll be making forward-looking statements.

These statements are predictions that involve risks and uncertainties..

Actual results may, therefore, differ materially from the results currently expected.

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 details on pages 10 to 17, in Nokia's most recent form 20-s for the year 2001.

And also in our press release issued today.

Our aim is to finish this call in approximately one hour.

For your convenience, we are running a supporting slide presentation of the conference call on www.Nokia.com.

A replay, together with the slides will be available on the web two hours after the call ends today.

A telephone replay number will also be available until Friday night.

During the third quarter, Nokia's net sales increased 2% year on year to $7.2 billion.

The pro forma rates profits increased by 14% to euro, resulting in a pro forma of 16.9%.

Diluted earnings per share increased by 13% to 18 euro cents.

The share in Africa region was 55 cent on net sales.

Asia Pacific, 26.

And Americas region, 19%.

Sales in Nokia Mobile Phones grew by 7%, to 5.6 billion euro, with a proforma operation margin of 22.2%.

Nokia network sales declined by 7% to 1.5 billion euro, with a proforma operating margin of 5.2%..

Sales in Nokia ventures organization decreased to 89 million euro, generating a pro forma operating loss of 25 million euro.

The common group expenses, consisting of head office and Nokia research center totaled 85 million euro.

As a result of continuing good profitability and excellent working capital management, Nokia generated a positive cash flow of 2.2 billion euro during the third quarter alone.

The third quarter, net debt to equity ration, i.e. gearing was minus 52% in comparison to minus 42% just a quarter ago.

In the end of September, our net cash position was 7.3 billion euro.

With this, it is my pleasure to hand over to Jorma Ollila.

Thanks, Ulla.

Ladies and Gentlemen, during the second quarter conference call, I said that we would begin to see the start of a recovery in the handset market.

And today, I'm pleased to confirm that during the third quarter, the recovery, indeed,, continued.

Europe in particular, showed remarkable momentum, as operators and end users welcomed the feature the brought to the market in a number of attractive handset productions.

This trend will be further enhanced during the fourth quarter.

As a vast number of phones with color and MMS support enter the mass volume segments.

The third quarter witnessed a rapid development in the mulitmedia messaging area..

More than 50 operators in Europe and Asia have now introduced MMS service.

Operators recognize openness roaming and interoperability as the service was launched and they are working hard at achieving the critical milestones for positive user experience.

We expect to see the necessary interoperability and roaming between networks and countries in place by the end of the year.

The uptake of the advanced mobile services will eventually drive increased capacity requirements and demands for faster data speeds in the networks.

To meet these demands, the vast majority of mobile operators are representing approximately 85% of the subscribers, are following the seemless evolution.

While edge offers enhanced capacity in existing frequencies, ultimately, wide band CDMA will provide the most cost-efficient solution for large traffic volumes in the near frequency batch.

On September 26th, we introduced the Nokia 6650.

The world's first gpp-compliant, dual mode, wide band cmo.

The phone has received approval both in Europe as well as Japan and is ready to start shipments for operator-controlled, live network testing.

The first deliveries are scheduled within the first half of next year.

As a company, Nokia is in a truly unique position, thanks to our end-to-end offering, we can take advantage of the momentum and make the necessary investment into the network technologies, which will enable us to be the most competitive player when the investments resume.

Now, I would like to spend a few minutes discussing some of the key points for each of the business groups, beginning with Nokia Mobile Phones.

During the third quarter, while the mobile handset industry continued its recovery, Nokia Mobile Phones experienced the highest level of year-on-year revenue growth it has had in the last 15 months, along with maintaining the industry-leading level of profitability.

Since the beginning of the year, we have announced the 24 new products and started to ship 25.

Our average selling prices developed positively during the third quarter as the new product introduction started to weigh in our product mix.

Going into the fourth quarter, our planned additional new product launches, as well as rollout of the earlier announcements will bring the total number of new product shipments for the year to over 30.

Also during the third quarter, we saw continued progress in mobile software licensing, as we announced a serious fixing licensing agreement.

This means that the current license fees, Samsung together with Nokia account for approximately 60% of the handset market.

This provides good anecdotal evidence of the use of friendly user interface.

A study by Nokia has provided very positive feedback by the product's appeal as well as new and user communication needs.

A high percentage of the users, 85%, actually, claims to have used the device to take images at least a few times a week, while 38% said they used the imaging capables several times a day.

The level of satisfaction with a product was very high. 98% of the users, who had owned the 7650 for two months were satisfied with the product.

These results are especially encouraging as this is the first of its kind product on the market.

We strongly believe that it will be a competitive advantage to be able to offer products with this level of complexity and future richness in such a user friendly format.

The launching of Nokia 3650 for mass volume consumer markets, which is expected to ship at the beginning of next year, has continued to heighten the end user and operator interest in the series 60 user interface around the world.

Now, a few words about the global handset market development.

Our preliminary market research indicates a global mobile phone sell-through market in the region of 103 units for the third quarter.

This represent the a strong year-on-year growth of about 13%..

And also a healthy seasonal growth of 8% in comparison to the second quarter handset volume of 95 million units.

Our early calculation also indicates that there were approximately 1.07 billion mobile subscribers in the end of September.

The year-on-year market growth was strongest in Europe and Africa region, where we saw a robust rebound after a year of lackluster development.

The growth in Asia Pacific and the Americas region was below the global average of 13%, with particular weakness in Latin America.

The industry channel inventory diminished during the quarter.

We estimate the U.S. channel inventory to be less than 20 days, which is clearly below industry levels.

Our shipments of 287 million units, we expect the sell-through market to reach 400 million units worldwide.

All the regions have estimated to show growth in excess of 5%, led by the Asia Pacific-Europe regions and followed by the Americas.

In the fourth quarter, we expect normal seasonality with double-digit sequential growth in comparison to the third quarter volume of 103 million units.

Nokia's third quarter handset volume of 37 million, resulted in a year-on-year growth of 17%.

Clearly exceeding the overall handset market growth of 13%.

Our sales volumes grew very strongly in the Europe and Africa region, exceeding even the strong overall market growth and leading to substantial market share gains.

The market share remains stable in Asia Pacific but we saw a temporary weakening in the Americas, Latin America in particularly.

In the fourth quarter, we expect substantial increase in our market share, leading to a new record level.

Our product offering, with several new products, currently ramping up, is looking stronger than ever.

September order inflow, together with low channel inventories is very encouraging, indeed, on the top of this all, we have also managed to secure an excellent position in the leading holiday campaigns, in different parts of the world.

And now, a few comments on Nokia Networks.

Sales in Nokia Networks were slightly lower than expected, reflecting tough market conditions in Asia Pacific, particularly in China and in Europe.

This was only partly offset by strong development in the Americas where the deliveries of GSM edge networks are proceeding well.

In the end of the third quarter, we had delivered edge-capable gsm equipment to 23 operators across all existing GSM equipment worldwide.

This makes Nokia the first vendor to ship Edge worldwide.

We believe well over 100 of our GSM customers will deploy Edge within the next few years.

Therefore, we have also made a commitment to bring GSM Edge handmarkets to the market this year.

And multimode handsets in 2003/2004 time frame.

Since September last year, we have been shipping wideband CMA equipment to our customers, and now 12 months later, we are rolling out 25 commercial networks is and have another 17 wideband system trials under way.

The third quarter marks the commencement of wideband revenue for multimode functionality were achieved.

We recognized revenue of 50 million euros in September to Japan, UK, Austria and Sweden.

The technology rollout is proceeding according to plan, and we expect to reach the next milestone dual mode functionality in the fourth quarter.

The second milestone will enable us to recognize an additional 400 million euro in the fourth quarter.

The wideband CMA revenue, including the ongoing single-mode is expected to be somewhere over 500 million euros in the fourth quarter.

And now, a few comments about the customer financing.

In the end of Septmeber, our customer financing totaled 2.6 billion euros.

The outstanding on balance sheet, long-term customers totaled 13 billion euros and the off balance sheet were 117 billion euros.

The undrawn commitments were down by 1.4 billion euros from the end of June.

The reduction of the total customer financing from 4.2 billion euros to 2.6 billion euros, from just a quarter ago, is a reflection of the 306 million euro writeoff, relating to mobile com, cancelatin of mobile comcommitments and other undrawn 3-G commitments.

This is the indication that there is little need for customer financing in the current environment.

Like others in the industry, we are actively pursuing the reduction in our financing commitment.

I'd also like to mention a few words about our balance sheet and cash flow.

Due to good profitability and working capital management, the robust cash generation continued.

In spite of wideband CD ma of 405 million euros, our cash flow from operations was 2.2 billion euros in the third quarter.

During the first nine months of the year, we have generated net cash from operating activities of 4.5 billion euros, in comparison to 3.9 billion euros a year ago.

Our net debt to equity ratio was minus 52% in the end of September, reflecting a remarkable development in comparison to minus 42% in the end of June.

In the end of September, we had 8 billion euros in cash, and our net cash position was 7.3 billion euros.

And as the last item for this conference call, I'd like to discuss Nokia guidance for the fourth quarter and for the full year 2002.

For the fourth quarter, we currently expect Nokia sales to be between 8.9 and 9.2 billion euros, representing a growth of 2 to 5% year on year.

We also expect diluted pro forma EPS to range between 23 and 25 euro cents, resulting in a year 2002 diluted pro forma to 79-81eruo cents.

In the foruth quarter, we also expect that common group expenses will be at apprioximately 50 million euros and we also expect that the share of the results of the associated companies to be charge of 5 million euros and financial income would be 30 million euros.

Minority interests are expected to remain at the same level as in Q3 and the pro forma based tax rate is expected to be in the regional 30%.

Our profitability outlook really does remain strong.

Pro forma operating margins for both Nokia Mobile Phones and Nokia Networks are expected to remain approximately on third quarter levels.

Nokia is expected to generate a pro forma operating loss of 30 million euros in the fourth quarter.

Our net operate being cash flow was 4.5 billion euros during the first nine months of the year.

And we expect the robust cash flow to continue also in the fourth quarter.

Ladies and Gentlemen, I'd like to conclude by saying that the current environment really does highlight the fact that we have two distinctively different businesses today.

First of all, the handset business, which represents approximately 80% of our revenues, and about 90% of our profits.

That -- this business is seeing good opportunity for near-term momentum as more than 1 billion individual consumers are being tempted to services offering color, pictures, excitement, and fun.

Our competitive position in the handset business is better than ever.

And we see it supporting our market share targets, sustaining our profitability, and strong cash flow generation.

The second business that we have, the network business, represents the remaining 20% of revenue and 10% of our profits.

The outlook for this business is determined by a limited number of network operators, most of whom are facing harsh, economic conditions, making the timing of any new investments difficult to predict.

In the near term, we do not see any major catalysts which would materially change the current outlook.

However, thanks to our solid handset business, and Nokia sound financial position, we have the strategic flexibility to make the R&D investments required to become the strongest vendor in the infrastructure market when it eventually turns around.

Because of this, we see limited parallels with our fortunes and those of the overall telecommunication industry.

Indeed, our future will be largely determined by the consumer-driven handset business and our enduring capability to provide the world's billion-plus user-friendly devices and services.

Thank you, Jorma.

And before the operator repeats the conference call instructions, let me remind you to please reserve your question to one.

Although this call has been made publicly available, we have reserved the opportunity to ask questions to the financial community only.

Please go ahead.

Thank you, miss James.

I would like to remind everyone, in order to ask a question, please press star, then the number 1 on your telephone keypad at this time.

If your question has been asked and answered, you may withdraw by pressing star, then the number 2.

If you are on a speaker phone, please pick up your handset before asking your question.

We will pause for just a moment to compile the Q&A roster.

Your first question comes from Angela Dean of Morgan Stanley.

Thanks.

Well, after such good results, I'm going to be rather unfair and ask you about just one area that didn't go quite so well.

Your market share, can you explain what was going on in the Americas?

Was that just a declining tdma market?

Or were you actually losing market share and perhaps TDMA to Motorola?

And looking beyond from the regional point of view, what makes you confident you're going to start gaining market share again?

Well, the -- there was a particular situation in Latin America where the market was lower, and we lost a little share in the CD ma, where we had very strong position.

With the product transition under way there.

In the U.S., the -- it's really a question of whose product are in the major campaigns, and we we had a quarter when we were in very few campaigns, starting in a major way in some of the key campaigns in September.

And that already is changing the picture very dramatically.

It really does impact across the board, particularly in CDMA.

So in the U.S., there was a slight decrease in share, as we have explained.

But the overall situation, as I'm sure, Angela, you appreciate, will, every single quarter this year, we have had clearly higher market share than comparable quarter previous year.

And third quarter has always been a low point for us.

The seasonality works in a funny way.

It's been a pattern.

And if you look at the fourth quarter, there are -- it's not only the low channel inventory and the fact that we have tremendous -- we are well-placed, and we are in the campaigns, particularly in the U.S., where campaigns do matter.

But it's also the orders that we saw flowing in towards the end of September and how October has started, which, together with a product range that we have, really put us in a very confident position about where we stand in terms of not only the volume of our own sales effort, but also the share vis a vis our competition.

I think there's a pretty good feel based on the model share as we speak and what has happened in the last four weeks.

And going and preparing to the holiday season.

Okay.

Well, sounds very good.

I'm not quite sure in that case why you're still just talking about 400 million units?

It seems barely double-digit sequential growth you're talk about on that basis, when all the signs of low inventory in the channel suggests it should be at least as strong --

400 is the sell-through that we are talking about.

So the channel inventory doesn't really play a role here.

So the -- in that sense, the 400 is the 400, whatever the channel inventory.

But the demand is healthy, I guess?

Demand is healthy.

And I think the 400 figure that we gave out three months ago is -- you know, it's a solid figure.

But we don't see that it would be significantly above from what we see right this week.

Okay.

Thanks.

Your next question comes from Richard Kramer of Ariti.

Thank you very much.

In the first-quarter call, I think you mentioned when Nokia margins were 10%, you felt pretty good about improving the magins there.

And it seems 3-g followed the plan that you had.

Could you explain in more detail why the margins are now down to a level that at least in the last decade, I can't recall seeing in Nokia Networks, and what your plans are for not just the next quarter but into the future?

Do you plan to take costs out of that snbs will you accept a lower level of margin and wait for recovery?

What's the general plan there?

And also, if you could comment generally about what you're going to do about this enormous cash pile you have?

Thanks.

Yeah, you know, this is a business which is extremely volume sensitive.

And when the 2-g outlook has changed in the last three to four months, then obviously the view on where the margins would be would change.

And, you know, this is the change with which we have seen in every other respect, you know, things are on plan.

The revenue recognition, the impact of 3-G, with initially lower margins, as we have said, you know, play a role.

But that was well-planned.

But the 2-G volumes that we have seen happening, have impacted the margins significantly.

And therefore, you know, that's the picture that has changed.

And we, just like everybody else, did not see the trough continuing as it has been in the third quarter.

And how are we being look auto it?

Are we going to continue cutting costs?

Yes.

We are looking at every way to cut costs.

But we're not looking at this as a business that will endlessly continue shrinking and then reach zero at some point.

So obviously we'll have to look forward in terms of our R&D capability.

So we're not -- we're looking at every penny on costs.

And I think we have proven we're pretty good at that.

We have been able to adjust real well.

But there will be a demand for more functionalities, et cetera in the networks and with the medium term, you know, when the market will recover.

We want to be ready as the top player, number one player in this industry.

So we will not cut to zero our R&D budget.

It's far from it.

So that -- that's why the forecast that fourth quarter margins will be about the same level, and we, you know, we obviously are unhappy about that.

I've said earlier that sort of -- that the 12% margin is something that I would be happy in a down cycle.

So yes, we are not happy with what is going on.

We feel pain every day.

But I don't think you should do stupid things in a downturn like that.

Just do your best capability.

That's exactly what we have done.

We'll continue to do.

But not make a compromise from the level that we think needs to be sustainable for the long term, really long -- medium or long term competitiveness for us in this business.

Then cash, well, I think the strength of the balance sheet is something which we just feel really good about.

And we do not have a new set of plans for use of the cash.

Thank you.

Thank you.

Thank you.

And we'll go for the next question.

Your next question is from Voytek Istolevich of Bear Stearns.

Good morning.

I was curious if you could give us a little update on -- you didn't mention anything on your CDMA position.

One is from a short-term position.

And longer term, as you're planning to gain market share, you know, do you need to gain significant amount ofmarket share in CDMA.

Can you give us where you are, what's your market share right now and kind of outlook for the next few quarters for your position in the business?

I think, Voytek, as we have said observe, to go significantly over 40% and, you know, to really continue our stride here, as we -- as we have set out, we need to gain significant share in the CDMA arena.

And that is what we will do.

We are very disappointed that it has taken much more time and effort than what we thought it would.

So CDMA has really been obviously the reason why our market share gain has been fine, okay, but not dramatic as it was for three previous years.

And, you know, as such, we are pleased how the market share is developing because it's going the right way.

But -- by the -- but the, the CD ma situation obviously calls for our success in 1-x, where we have some good products which are now in the market, and there will be more in the next, three to five months.

You know, new models.

So we feel we will be much better placed in the immediate future and the next couple of quarters than we have been in the last two months or so.

Also, obviously, we are following very closely the evolution in the Chinese market and just watch this pace.

Would you expect CDMA enhancements would be up significantly in Q4, compared to your third quarter?

Our CDMA sales will be up in the next quarter, yes.

We'll take the next question, please.

Your next question is from Paul Sagala of Sanford Bernstein.

You just mentioned China.

I was wonder figure you could give us an idea of the market over there.

How is the market growth proceeding?

It appears to be fits and starts this year.

Also, you give us an idea of where your market share stands, visa vi -- vis a vis.

It is one of the market shares in the development.

The subscriber increase continues to be good.

And obviously, also the replacement market which there hasn't been much of until today, has started to evolve.

And there's been a lot of interest to mount the media messaging phones.

So I think there will be interesting developments in the Chinese market.

Growth continuing somewhat slower paced on average for two years, but continuing with good subscriber growth and obviously different technologies that will also stimulate growth.

I think our market share has been reasonably stable.

It could have gone just a tiny bit down in the third quarter.

But -- but we have a very solid position, and our goal that we want to be in the short term, we want to be number one in the country, is something, which is reflected in our marketing efforts, and in the way we rebuild our distribution, for us to be a lot stronger.

And obviously, that includes that we are having a close look at the CDMA market.

Thank you.

Thank you.

And we'll take the next question, please.

Your next question is from Sophia Gouchen from UBS Warburg.

Hello?

I have two questions, please.

The first is, since you're guiding towards flat margins sequentially in networks, should we assume that given the volume implications that means that volumes will be flat?

And secondly, could you comment on why you think it will be in the fourth quarter.

Hello?

I'm sorry.

We had a mute here.

So, first of all on the revenue question, 2 to 5% revenue growth in the quarter for the company and we expect that to apply to both of our businesses, both handsets, as well as the network businesses.

So no flat growth as you said.

But we do expect some growth vis a vis.

Growth margin which also means sequentially growth.

The growth margins were down a bit.

And that's due to the decreased gross margin in the network business because of the lower margin initially in the initial transfer of deliveries in the 3-G equipment.

There was no appreciable change in -- there was the same level of gross margin in the mobile phone business.

Thank you.

And we'll take the next question, please.

Your next question is from Richard Windsor from Numera.

So far you have said nothing about 2003.

I was wondering if you are still looking at something like the 10% growth guidance you gave us in the June meeting?

The -- the 2003 is something which we have always commented on in the connection of January announecement, so last week of January, you will hear about the exact guidance in the fourth quarter.

So in the same way, in January, we'll comment on that.

And I think industry trends, I think you can conclude some key trends from what we have indicated in the course of today in our announcements as well as in this conference call.

Okay.

Thank you.

Thank you.

And we'll take the next question.

Your next question comes from Mike Walkly of RBC Capital Markets.

Great.

Thank you.

Your ASB's were up sequentially in Q3 versus Q2, Can we expect thar trend in Q4, given the mix of higher end phones?

ASBs will not go down.

That remains to be seen.

Obviously the mix will -- you see, the mix will in the holiday season this time have two elements in it.

If you go back, you look at '99, 2000, or 2001 final quarter, compared to the third quarter, there's a high -- there always has been, because of the holiday season, there has been a bigger portion of the low-end phones in the mix.

You know, obviously that sort of a trend does apply, also, this time.

But now, what we are getting is we have such an important product transition, not only with Nokia as such bringing interesting new products to the market in the medium or high end, but particularly with the multii media messaging and new services coming on stream, starting from, you know, including the biggest operators as well as the smaller ones in the key markets and particularly in Europe.

So that sort of supports the high-end mix.

And also, you might add that the replacement market is now somewhat over 50%, which it never had been before.

So that would support somewhat of a higher-end mix emphasis.

But because this low end traditional mix element, probably still there.

So I'm not -- I don't expect dramatic changes in the ASB.

I think that would be the sort of safe bet, looking at what are the different factors influencing here.

Thank you.

Thank you.

And we'll go for the next question.

Your next question is from Tim Long of Credit Suisse First Boston.

Thank you.

If I could just get more clarification on the industry numbers.

Seems like the Q2 numbers were higher than you previously talked about, 93 million up to 95.

If you could just clarify where that change came from regionally or maybe technology wise.

And I guess secondly, looking into the Q3 growth looks go 8% on sell-through yet only 10% on sell-through into Q4.

So I guess the question is, do you see muted seasonality?

You know, what's the reasoning for lower than we've everybody seen growth into Q4, given all the new services and products out there?

Thank you.

Yeah, well, I think the sort of 2 1/2 weeks into the next quarter, it really is very difficult for anybody with whatever the size or shape of the crystal ball, it really is very difficult to make any accurate forecasts or what the previous quarters' sell-through was.

It is impossible.

Nobody can forecast that.

So this 93-95, you are absolutely correct.

We have raised our estimate after what we thought the second quarter and more accurately would have been.

And it comes bits and pieces here and there.

There is no one area which you could take up.

You know, not one single.

It comes from everywhere.

Just a little bit higher.

Muted seasonality?

Well, I don't think the economy is exactly flying at this point of time.

So you just might see some cautiousness on the part of not only me but also by a few consumers who are out there.

So if that muted seasonality, I think that's about it.

It's -- the consumer demand is there.

The enthusiasm to the new product is there.

But there is such a slowdown in the economies that one I think is very reasonable in forecasting this kind of a takeup of -- or demand.

Thank you.

Thank you.

And we'll go for the next question.

Your next question is from Stewart Jeffrey of Lehman Brothers.

Hi there.

Thanks.

I was just wondering if you could give us what your view is on operators and branding handsets and trying to take control of user interface, whether you see that as threat or positive for the industry and perhaps what conditions Nokia would also join in those kind of activities?

Yeah, I mean, with -- with us being sort of more than 20 years in the cellular business, there has been moves to look at branding by the operators.

And that's -- that's obviously, you know, one way of looking at it.

It has not been a significant trend in the last couple of quarters.

We do not see that there would be a broad trend in the industry.

To that effect.

For the very simple reason that distribution and how you manage the whole of the -- the whole set of the issues which are involved.

It is not just putting a logo on the phone.

There's a number of other things you have to do.

And therefore, one would not expect that to happen in a broad scale.

Yes, the efforts are interesting.

We are talking to all the key initiatives that there are by the operators.

And I think we are pleased to be one of the first to be contacted, and usually there's a good and healthy dialogue.

And that includes recent efforts.

I don't see that as being either a tremendous effort in terms of how you can drive the market or in any other respect changing the scene in the industry.

Thank you.

And we'll go for the next question.

Your next question comes from Alexander Peter.

Yes.

Hi.

I would like you to go a little more about your asp development going into Q4 because the newer development still stays at minus 10%.

I was wondering at which moment we would break your decline and eventually see the effect of the new products coming in massively into Q4 and Q3.

Thank you.

Yeah, you know, obviously here, the question is about how the different forces are influencing the asps.

There's a lot of competition, particularly in those areas where you have lots of low-end phones in the emerging countries, where the bulk of the demand is based on, you know, based on consumers who want to -- who don't want to spend much more than $100 on the phone, if even that.

So the relationship which the replacement demand and the new subscribers have a place to grow and then within the replacement demand, what kind of a portion of that will be phones with high-value added features and functionalities?

I think that they are quite naturally, this year, with such a big part of the new subscribers coming from the, merging economies.

It was not -- from the emerging economies.

It was not that difficult to see the asb downward trend, which you described, much less in the second half, by the way, which is interesting to note.

And therefore, we will be gradually coming to a stable asb situation, if not even one that has been stirred up.

So that's -- that, you know, there was clear turn of the trend after the first half.

And we will be we'll be following very closely on how that will continue.

We are optimistic about our own asb development.

And let's see, how powerful those positive forces are, that's really the question.

That we have ahead of us.

Let me also make a comment here.

I think the economic -- the speed with which the economies grow in the developed markets will have a lot to do with how the takeup of the higher-end phones will develop.

You know, strong replacement demand with lots of high-end phones there will be encouraged and strongly supported by stronger economic growth.

And we're not exactly having that right now in the short term.

So I think that could be a factor that you could build into your models.

Thank you.

Thank you.

And we'll go for the next question.

Your next question is from Brian Modove of Deutsche Banc, go ahead.

Your line is now open.

Yes.

Couple of questions.

First, what level do you think ASPS would levelize?

And what do you think are the most important barriers to you or most difficult challenges in terms of gaining market shares?

Is it the ODMS the Asian vendors?

What do you think is the biggest trend in your market share?

Enhance us.

Thank you.

Well, the ODMS have not been the key issue here.

I think the market share development really is more up to us ourselves, and how we can continue our -- the excellence of our internal machinery in bringing in the product in a timely fashion and continuing to get the cost benefits because we are the cost leader, and we will be.

And it's just a question of the degree.

You know, how fast can we run ahead of others at a particular point in time?

That has been the case in all key segments.

And we just want to continue that.

I think it's up to us, not in terms of a group of competitors.

I think, you know, clearly there was some mention of the CD ma to go well beyond 40%.

The CD MA starts to play a role.

The -- and I think it's very clear that with the takeup of the new services influencing the replacement demand, you know, we will benefit from the operators and ourselves being able to work out the multidifferent ways of how you can use the phones.

So the faster the development of the industry dinamibs towards data services, the better our opportunities will be to continue to gain share.

There are a couple of points here.

But it is not the cost issue that I think you were getting at with the players and ODMS.

It -- that has -- doesn't play a role.

All right.

We'll take the next question, please.

Operator: Your next question comes from Sam May of U.S.

Bancorp Piper Jaffray.

Hi.

You mentioned decrease during the quarter.

Can you comment on your visibility into Q4 and for channel inventories?

And can you give us any color on interfaces, the differences between CMA and your view now on channel differences?

Thank you.

Yeah, the -- thanks.

The -- first of all, there's no difference in channel inventory in terms of -- it doesn't change with protocols.

So it's the same situation.

With all the -- with all the protocols.

And as per the channel inventory.

So they are low in the U.S. in every -- in all areas.

The -- then our visibility to the fourth quarter, I think it's just as good as on any other year, with fourth quarter, probably a little better, even.

As we speak.

So, -- so the vict is pretty good in late -- visibility is pretty good in late November and then obviously the takeup of the channel has characteristics which are difficult to predict at this point.

So we are at least in as good a position as we can be, not worse definitely.

Do you think channel inventories will decrease during the fourth quarter?

Depends on the end user demand, which I suppose the channel has been able to forecast, but you never know.

There are factors, as we all know, which are totally unpredictable.

Great.

Thank you.

Thank you.

And we'll take one more question, please.

Your final question is from Mr. Lindbergh.

Yes.

I would like to come to sales grips for the fourth quarter.

I think you indicated seasonality in your network business and your handset division.

And it seems to be something like 25% or so.

If you, then, turning back to networks at the same time had approximately the same wideband CD MA say 430 to 500 or so, then my simple math here shows that your GSM would move from approximately 1 billion in the third quarter to something that stands higher, 1.4 if not 1.5 billion.

Could you comment if that rashlt is correct -- rationality is correct and what would lead to that stunning seasonality and 40 to 50% upswing to make the numbers add up?

Thank you.

Yeah.

There is a clearly higher auto book situation for the gsm.

And that particularly is being explained by the fact that the U.S. is very good in gsm edge on the 40 quarter, compared to the third quarter.

And it's not really that dramatic when you look at the investment plans and our role with the key customers in gsm edge in the U.S.

So that's based on auto bookings.

So we feel pretty good about where we stand, in terms of the expectation for revenue in the fourth quarter.

And whatever the brand of the calculator, that is correct.

Thank you very much.

Thank you, Ladies and Gentlemen.

This concludes our conference call.

I would just like to remind you that during the call today, we have made a number of forward-looking statements, with a number of risks and uncertainties.

Actual results may differ materially.

Factors that can cause such differences can be found on pages 10 to 17 in our form 20 ask also in our press release issued today.

And just a couple of housekeeping matters, I would first like to remind you about Nokia's year-end strategy uptake, which is scheduled for the evening of the second and third of December in Dallas.

And the agenda of the further details of the event will be communicated to you shortly.

Then another master of your contact in master relations, as many of you might have seen, moving to the Nokia Mobile Phones communications department.

And Blanca will be coming to [Hal Sinky] and replacing at the beginning of the year.

Now, for the third quarter, already, Blanca will be there as your contact as needed.

And also, in terms of your daily contracts, please use those to the best of your extent.

Thank you very much.

And have a nice day.

This concludes today's conference call.

You may now disconnect.