諾基亞 (NOK) 2002 Q4 法說會逐字稿

Thank you for participating in Nokia's 2002 year end results conference call.

My name is Judy, and I will be your conference facilitator today.

At this time, I would like to welcome everyone to Nokia's 2002 year end results conference call with our host, Ms.Ulla James, Vice President, Investor Relations.

All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question and answer period.

If you would like to ask a question during this time, simply press star then the number 1 on your telephone key pad, and questions will be taken in the order they're received.

If you would like to withdraw your question, you may do so by pressing the pound key.

As a reminder, if you're on a speakerphone, please pick up your handset before presenting your question.

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

Ms. James, you may begin.

Thank you, Judy.

Ladies and gentlemen, welcome to Nokia's fourth quarter conference call.

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

And with me today is Jorma Ollila, CEO of Nokia, and Olli-Pekka Kallavuo, our CFO.

During the conference call today, we'll be making forward-looking statements regarding the future business and financial performance of Nokia and the mobile communications industry.

The statements are predictions, that's involved with some 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 conditions, as well as internal factors.

We have identified this in more detail on pages 10 to 17 in Nokia's most recent form 20-F for the year 2001, and also in our press releases shared today.

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

Four your convenience, we are running a supported slide presentation of the conference call on 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.

Nokia's sales in 2002 decreased by 4% to $30 billion Euro, generating a pro forma profit of 5.4 billion Euro, and a pro forma operating margin of 18.1%.

Diluted pro forma earnings per share increased by 4% to 82 Euro cents.

Geographically, the year 2002 sales growth was strongest in Europe.

While Asia-Pacific and Americas in particular declined.

Europe accounted for 50% of net sales, up from the 49% level a year ago.

The Asia-Pacific region decreased its share by 2 percentage points to 24%, and the Americas by 3 percentage points to 22%.

Our top ten country markets, which together represented 60% of our net sales, were at U.S., U.K., China, Germany, Italy, France, United Arabia, Thailand and Poland.

As a result of continuing excellence profitability and efficient working capital management, Nokia generated a net operating cash flow of 5.8 billion Euro during the year 2002.

The net debt to equity ratio, i.e., gearing, improved to minus 61% from minus 41% a year ago.

In the end of 2002, we reached our highest ever net cash position of 8.8 billion Euro.

During the fourth quarter, Nokia net sales increased by 1% to 8.8 billion Euro, generating a pro forma operating profit of 177 billion Euro and a pro forma operating margin of 18.7%.

Diluted pro forma earnings per share increased to 26 Euro cents from 24 Euro cents a year ago.

Sales in Nokia mobile phones reached previous years's fourth quarter level of 6.7 billion Euro at the pro forma operating margin of 24.7%.

Nokia network sales increased by 6% to 2.1 billion Euro, with a slight pro forma operating margin of 1.9%.

Sales in the Nokia Ventures organization decreased by 25% to 107 million Euro.

Generating a pro forma operating profit of 59 million Euro, which includes the net gain of 87 million Euro resulting from the successful Paypal investment.

The group expenses consuming of head office and research center totaled 88 million Euro.

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

Jorma, please go ahead.

Ladies and gentlemen, as we enter the year 2002, our expectations were for a fundamental change in the industry.

Technology transitions, which weighed on the industry in 2001, were expected to bear fruit with new services and applications and exciting mobile devices to support them.

Although the economy and world events continue to create uncertainty, our industry began to show evidence of a turnaround.

Looking into the dynamics in more detail, one can clearly see two distinctly different businesses emerging.

First of all, as a continuation of the recovery of the consumer-driven mobile phone business, which began in the second quarter.

Secondly, at operator driven infrastructure business, which continues to be subject to turbulent and unpredictable market conditions, will operate this focus on short-term cash flow instead of long-term capital investment.

For this condition, has further escalated as a result of far-reaching management changes throughout the industry.

In 2002, Nokia focused on the things we could influence.

Continued operating efficiencies, innovative products and brand development, and support for an industry where we see opportunity for growth.

We were once again able to secure a strong foothold and show impressive progress by introducing a record number of products, enabling us to grow our market share to record levels and continue our trend of exceptional profitability.

In spite of flat annual sales, we were able to improve our operating margins throughout the year and grow our EPS while simultaneously increasing our R&D and market spending, in order to build the long-term strategic position.

We were also delighted about the industry's overwhelming support for open mobile alliance OMA, as it clearly demonstrated the industry's commitment to drive further future growth, while [INAUDIBLE] market, based on open [INAUDIBLE].

The success of the multimedia messaging service highlights the importance of OMA ,as growth is expected to come via the expansion of mobile services.

It is enabling a new paradigm for consumers, as they move from voice to visual communications.

We are more than pleased with the accelerating uptake of the multimedia messaging.

With approximately 100 network operators in Europe, Asia, and Americas already offering services to millions of users.

As the first company to bring to market a GSM imaging device with Nokia's 7650, we demonstrated our ability to time the market with the most desirable and intriguing products.

And at the same time, demonstrating importance of the end to end capability.

The Nokia 7650 and subsequent introduction of Nokia 3650, our first imaging phone available also for the America's market, revealed the consumer's desire to expand its ability to communicate beyond voice.

Feedback from consumers has been extremely positive.

And with roughly 2 million units sold in the second half of 2002 alone, the Nokia 7650 and mobile imaging are driving an exciting market trend in mobile communications.

I would now like to say a few words about the different business groups, starting with the Nokia mobile phones.

For Nokia mobile phones, 2002 was the fifth consecutive year of solid market gains.

As we saw, our annual market share increase from 37 to 38%.

Marking a new record level and extending our lead even further away from our closest competitor.

The market share gains were backed by our ongoing product leadership and brand preference, and executed with an uncompromising annual profitability level of 22.8 and strong cash flow.

Looking at the fourth quarter, our preliminary market estimates indicate a global sale through mobile phone market of approximately 117 million units, representing a year on year growth of 11% and also a healthy seasonal uptick of 13%.

This leads us to believe that the total market volume for year 2002 grew by more than 5%, to approximately 405 million units.

Our calculations also indicate that the cellular subscriber base exceeded 1.125 billion at the end of the year.

During the fourth quarter, the mobile phone market growth was strongest in the Asia-Pacific region and Europe at around 15%, while the Americas grew only slightly.

For the full year, 2002, both the European and the Asia-Pacific regions grew approximately 8%, while the Americas mobile phone market grew by approximately 4%.

Global mobile phone channeling continues to be generally healthy, with only slightly excess at the end of 2002.

Nokia's channel situation has remained good in all regions, but we expect that the slight increase in the overall levels might have some impact on the business landscape during the first quarter.

In the fourth quarter, Nokia's mobile phone market share set a new record.

Our delivery volumes grew by an impressive 24% sequentially against the industry volume growth of 13%.

By shipping 46 million units in the fourth quarter, we reached an annual level of 152 million mobile phones sold.

This gave us an estimated annual market share of 38%, and a market share of 39% in the fourth quarter alone.

During the fourth quarter, our sales volumes grew strongly in Europe and Asia-Pacific, leading to substantial market share gains in those regions.

In the Americas, the development was somewhat weaker.

With the current market share of clearly about 30% in the U.S., we continue to be the market leader in the U.S. and in the Americas.

Our market share gains were driven by the strength of the product offerings.

In spite of shift in the demand mix in comparison to the earlier estimates, Nokia operations were capable of responding to the high demand with tremendous flexibility and efficiency, leading to the highest level of gross margins in the year.

Earlier this week, I was reading market comments regarding Nokia's profitability, which was described as being driven by strict grip on costs, product outsourcing, and a strong brand.

I would agree with two out of the three of these statements.

But state strongly that it was not the outsourcing, but once again, the in-house manufacturing, which enabled us to capitalize on the volume benefits and efficiency gains and ensure that the incremental margins stayed inside Nokia.

I have often said our business is not capital intensive, but R&D and brand heavy.

During 2002, we continued our R&D and brand investments on an even higher level than a year ago.

The R&D investments in [INAUDIBLE] were close to 1.9 billion Euros, an increase of 18% from the previous year.

The R&D investments now represent more than 8% of Nokia mobile phones net sales.

The brand building and marketing expenditure in Nokia mobile phones also continued to grow faster than the sales.

Looking into 2003, we expect the global mobile phone market to grow by 10% or slightly more.

In 2003, we will continue to build on our fundamentally strong global position.

At the same time, recognizing the challenges we have in CDMA, China and the U.S..

We have every reason to believe we'll be able to make progress in all of these areas and expect to grow our market share on a full-year basis.

Our continuous flow of new products, stemming out from nine new mobile phones business units, will further redefine the scope and scale of the market.

And now, let me turn to Nokia networks.

While significant development in terms of mobile data services took place in 2002, the overall mobile infrastructure spending continued to wain, as the operators restricted their overall network capital investment in preference to the short-term cash flow.

In fact, we believe the overall wireless infrastructure market contracted by 20%, while Nokia's addressable market declined slightly by approximately 15% in comparison to 2001.

We managed to grow our global market share slightly, and in the America's in particular, we achieved major market share gains.

Given the backdrop of last year's very challenging business environment, Nokia networks really distinguished itself in comparison to its competitors, as it continues to generate positive operating margins in each quarter, with simultaneous positive development on working capital.

We also continue to make good progress in the MMS market by securing well over 40 customers by the year end.

The rollover [INAUDIBLE] services is receiving a further boost, as we are ramping up the shipments of the Nokia 3650 in Europe and Asia-Pacific.

The product is also the first fully integrated GSM imaging phone, capable of supporting the imminent Americas MMS services as well.

The first Nokia delivered by [INAUDIBLE] networks will launch in Japan and was supported by the introduction and initial shipments of Nokia's first [INAUDIBLE] CDMA 3-G phone, the Nokia 6650.

This phone, along with the successful network launches, clearly shows that the industry is moving forward in its ambitions of continued commercial launches in the first half of 2003.

During the third quarter, we were able to recognize our first wide band CDMA revenue of 430 million Euros, as the technology milestones of the single mode revenue record mission were achieved.

During the fourth quarter, 317 million Euros of the Euro market revenue was recognized as the relevant milestones were reached.

In the fourth quarter, single mode wide band CDMA revenue was booked on an on going basis, and going forward, the same will happen to the Euro revenue as well.

The future phasing of wide band CDMA revenue will be more of a reflection of the rollout schedules, as the main technology milestones have now been reached.

As a reference to the earlier customer financing, I would like to give the following objects:

Over the last 12 to 18 months, we have substantially worked on reducing our customer financing exposure.

The current commitments of two billion Euros are substantially down from the 4.2 billion Euro level a year ago.

At the end of December, the outstanding on balance sheet long-term loans totaled 1.1 billion Euros.

And offbalance sheet, customer guarantees were approximately 90 million Euros.

In addition, we had undrawn financing commitments totaling close to 860 million Euros at the end of the year, resulting in total outstanding and committing customer financing of two billion Euros.

We see that -- the current industry environment materially increase -- that in the current industry environment, material increases in customer financing are not required.

Based on our experience in customer interface and current competitive environment in telecommunications industry in general, customer financing continues to be a request.

But to a much lesser extent, and with lower importance than during the past years.

Before the closing remarks, I would like it to mention a few words about the balance sheet cash flow and profit distribution.

Our working capital management has improved throughout the year, releasing close to 1 billion Euro.

We have managed to include the rotation of accounts receivables and inventories, hence leading to a substantial improvement in the overall network in capital rotation.

The capital expenditure for the year was only 432 million Euros, down from the 1 billion Euro a year ago.

Looking into 2003, we do not see any reason why the capital investment level would dramatically change.

Therefore, instead of being in a capital intensive company, we see ourselves investing heavily in R&D.

Last year, we spent 3.1 billion Euros in R&D, which represents slightly over 10% of our net sales.

The net impact of capital R&D in 2002 was 179 million Euros.

In Nokia mobile phones, the R&D expenditure was approximately 8% of net sales and Nokia networks roughly 15%.

Despite o our stringent cost cutting measures in the organization, R&D investments went up in absolute terms.

At the end of the year close -- at the end of the year, close to 20,000 Nokia employees representing 38% of our total personnel, were working in R&D.

As mentioned in the beginning of the call, our year 2002 net operating cash flow was 5.8 billion Euros, which resulted in a highest ever net position of 8.8 billion Euros and a net to debt/equity ratio, i.e., gearing, of minus 61%.

Today, Nokia board directors meeting announced its proposal for the annual general meeting on March 27th.

The board proposes a dividend of 28 Euro cents per share.

Additionally, the board proposes a share buyback program subject to the AGM's approval.

As you might recall, we have had the shareholder's approval for buybacks from the AGM last year, but due to the rules and regulations, the buyback authorization was effectively valid only until the end of last year.

As the last item for the conference call, I would like to discuss the guidance for the first quarter.

Of this year.

For the first quarter, we currently expect the Nokia mobile phones sales, expected to grow zero to nine percent year on year.

And Nokia total company sales to grow slightly less than the Nokia mobile phones.

The first quarter diluted pro forma EPS is projected to range between 15 to 19 Euro cents.

In the first quarter, we also expect shareholder results of associated companies, financial income, and minority interest to remain on the same level as in the Q4.

And tax on earnings to be in the region of 30%.

For the full year, we expect the mobile phones market to grow 10% or slightly more, with Nokia continuing to increase market share.

We believe average selling prices have bottomed out during the fourth and first quarter.

And are expected to grow gradually, trending up during the balance of the year 2003.

In the infrastructure business, we do not expect the market conditions to improve markedly during 2003, and we expect Nokia accessible market to increase by 5% to 10%.

Based on the foundation of a very robust product portfolio and our strong brand, we expect our competitive position to remain strong.

In addition, good profitability, together with low capital requirements, we expect to generate a robust positive cash flow also for the year 2003.

Thank you, Jorma.

Before I let the operator repeat the instructions for the conference call, I would just like to point out there was a little minor mistake about the Nokia successible market expected to decrease by 5% to 10% in the infrastructure, rather than increasing, but now, let the operator to repeat the instructions and we continue on the Q and A. Thank you.

Thank you Ms.James.

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

If your question has already been asked and answered, you may withdraw your question by pressing the pound key.

As a reminder, if you're on a speakerphone, please pick up your handset before presenting your question.

And we ask that you please limit yourself to one question.

We'll pause for a moment to compile the Q and A roster.

Your first question is from Alex Schutz of Goldman Sachs.

Thanks a lot.

Just a question in terms of the -- what's happening with ASP.

You're saying you expecting them to bottom out in the first quarter.

Looks like ASP's came in around 146 and a half in Euros.

Do you expect that ASP level to remain stable in the first quarter or do you think it could trend down again, is the first part of the question.

The second part, why such a large range in terms of guidance for EPS from 15 to 19?

Is it because you're worried about the inventory levels and you want to wait and see if the sell through pulls through the inventory levels?

Thanks a lot.

The ASP levels, we expect the Q1 ASP level to be the same as the Q4, so stable throughout the six month period.

And then you know, trending up to the year end.

And the forecast -- the guidance for the first quarter.

I think it's quite evident to all of us when we look around and open the morning paper that we're living in a particularly uncertain world, and it simply is natural caution, which is only human in these times to get a little broader range.

I don't think it's realistic in this times to -- of general uncertainty -- to be more precise than this.

We are cautious, yes.

That's correct.

But we are also realistic in terms of what -- what the times are.

We'll take the next question please.

Your next question is from Voytek Usolevich from Bear Stearns.

Thank you, good morning.

I don't know if you can answer during the next few, but it is more from a currency perspective.

We've seen a huge move dollar Euro obviously when you -- a year ago, when you sold a $100 phone that translated to one type of outcome.

Now, it is much different.

What is your exposure -- can you kind of give us a little bit of a sense of how much of the currency has actual impact on the Q1 guidance, or what your assumptions are in terms of your revenues of being a little bit softer?

How big exposure do you have to U.S. currency?

Or China has, for example, pegged their currency to the dollar.

It is very clear.

We have a major exposure in many different ways.

But particularly, you know, if you make a generalization, you could say that obviously the currencies have had an impact on the top line, through the translation exposure and that clearly is evident just like you indicate.

I think one would -- one would be equally realistic in saying that on the specialty or on the bottom line, the impact is not dramatic or material.

And I think this gives basically a good enough picture, a good illustration, of where we are.

And so not being -- this is what the world is, but the translation exposure on the top line clearly has an impact.

The related revenue for you in Q4.

Any idea how big was that?

Do you happen to know?

Maybe offhand?

Ok.

You're a really great guy to push this.

That's fine.

Thank you.

Obviously relates on the comparison point.

You know, of course, the fluctuation with the Euro and dollar has really happened last year and if you make the comparison point in the beginning of last year and then make another comparison at the end of the year, it is obvious there was major fluctuation.

If you make that comparison and look at what was the currency impact in that respect, throughout the -- throughout the year so definitely, there was a substantial impact, i.e., power of sales, would have been experience of the substance if we did record in dollars.

And through the translation exposure and accounting Euros so the outcome was not the same.

And so, there is not only one answer as to relates to the comparison point.

What is the currency you can pay up to, but obviously this is how the dynamics are in this situation.

Ok.

That's fine.

I'll check later.

Thank you, and we'll take the next question please.

Your next question comes from Angela Dean of Morgan Stanley.

ASPs, I guess about a year ago you were talking about flatish ASPs and rising ASPs for 2003.

We've seen 2002 decline about 7% or 8%, and I'm not sure if you're suggesting we will see a rise or not.

For the whole of 2003.

Maybe you could tell me, but generally, what is it that has changed to change the way ASPs have developed and what do you think are the reasons behind that?

Is it the currency?

Is it a change in the size of the high volume market?

Maybe if you can talk around what's going on that's influencing a different ASP development from the way we thought a year ago.

Yeah, Angela.

I think there are a number of factors there.

First, there is the currency that has an impact on the ASP development its own impact,t which you can quantify yourself.

We all can do that.

Then secondly, the increasing share of emerging markets.

In the sense that to the holiday season, the replacement in the developed markets, the replacement market, was not quite as much to where the high end as were all of us did.

It did -- as to what all of us did expect.

So, the holiday season did play a role.

And that's really where we saw it.

Also somewhat lower ramp up of some of the new products.

These will be what we thought during the first quarter.

So, so that's the general picture in 2002.

Then you say what are we forecasting?

I think you know, clearly, the Q4, Q1 stabilized level as we -- as we indicate, is lower level than a year ago and we are now seeing stable but trending up situation at this point of time.

So, depending on your comparison point, but compared to the Q4, Q1 level, we expect the ASP's for Nokia to be at the higher level in Q4 than what they are now.

I think that should clarify that, Angela.

And so, the first quarter is stable with the fourth quarter.

That's despite a -- you assuming that therefore the rather disappointing high end replacement market you saw in the holiday season continues.

Well, you know, the Q1 is always the slowest one.

Things don't really get going before March in the year.

And I think we have come to a certain level now which will continue, and then we'll be edging up from that level.

Okay.

Thanks.

But you can't say whether you'll be up for the year in ASP's.

Year end year for 2003?

That's a difficult one to judge, Angela.

Okay.

Thank you.

Your next question comes from Paul Sagala with Sanford Bernstein.

Yes, in the past, it's often taken over a year for -- we poor Americans to see the latest innovations in handset design show up in our stores.

With the developments in the industry, how will that gap close?

Certainly in GSM, I would imagine that the time between seeing it in a store in Helsinki and New York might shorten.

What might I look for?

Also, can you talk a little bit about the CDMA developments and when you may have a CDMA product on that's even -- offers the same -- some sort of comparable breadth to what you offer in GSM, and I guess I'll leave it at that.

Yeah, I think the technology transition in the U.S. is very much under way.

And it seems that the operators are continue to adjust the pace at which they will do that technology transition from CDMA to GSM, so that obviously -- we are dependent on the operator's plans and what sort of products they take to their promotion programs.

And whether that will drive the transition or whether they will be rather slow to go away from TDMA, so that obviously determines very much the pace through which you have the parity, if you want, between the European product functionalities and the same in the U.S.

Because the networks, during this year, in GSM, in all of the three GSM, GPRS carriers will be in good shape to carry the same kind of functionalities so it is a bit of a strategy question for the operators also to ask.

From them.

But I think we will be in good shape in that respect in the second half.

That's how it seems.

And I think the 3650 and the way it has been received will be -- will be received, in -- with the operators in the U.S., is a good signal.

The -- you know, on the CDMA product range, I think we'll have a significantly different product range in the second half of this year.

And that being conservative.

That's saying it is conservatively in terms of the timetable.

So, of this -- although it is disappointed very much with the progress there, but we are getting there and we will be very much in a different shape in the second half of this year.

And that obviously expands or extends to the other major CDMA markets, particularly Latin America, where we have a good hold.

Thank you.

Your next question comes from Richard Windsor of Numera.

Hi, good afternoon.

While we appreciate that there is more to margins than average selling prices, I was just wondering if you could give us an idea of which models had helped you to report such high margins on such low ASP's.

I mean, were there any extremely profitable high end phones or did you see a flood of new products into the low end?

Well, I think it is a -- it's really a combination of two things.

First of all, if you look at the volume of the product that we would call new, introduced within the past six months, it was about 35% in the second half of last year.

And so that's an impact of the new products.

So, you have a strong portion of the new product but fill the product which were introduced earlier and -- had high volumes and where the production runs along and we would -- you know, we have certain predictability in costs.

So, obviously when this is the picture, then what you can see is that both of these elements were enhanced to the excellent profitability level.

The existing low end products which -- which continue to bring good margin and which we can get out in millions and millions to the key markets and at the same time, the higher margins, somewhat higher margins, often not dramatically, but higher margins that we get from the new products.

So, a good combination of the two and I wouldn't single out any one product.

You know, when we look at our top ten contributors, either in terms of revenue, as well as in terms of -- in terms of margin, whether it's regularly, globally or whatever, it is a remarkably even contribution that you get from the top model.

So, it is not -- we're not dependent on one or two.

And that's really, Richard, where we get the stability of earnings and the stability of margin.

So, you can sort of take out one product out of our top ten and replace it with the product number 20, and add that in volume in its place and we will still get there, if you want.

That's really the beauty of -- of the way how we run the product portfolio.

And how we can manage it.

And it is partly because we haven't assigned all of these contracts which are fixed for a period, but we run our own logistics manufacturing on a poor method, which really does react in a matter of weeks.

And that's how the machine runs.

Thank you.

Your next question comes from Mike Walkly with RBC capital markets.

Great.

Thank you.

Just a quick question here on the inventory.

If you could just touch on maybe what regions you're seeing the inventory build.

Both you and Motorola say that your inventory levels are relatively healthy as a competitor inventory out there, and secondly, if you could just clarify what you think the industry units are for Q1.

You have a tough ASP comparison with Q1, so you're suggesting the volumes are up for the industry for Q1?

Thank you.

Yeah, I think what we're seeing is that the industry -- you know, I do underline that our own product inventory component that we have on our books, on our balance sheet that you can check, that's very healthy.

And so do we have the same situation in the channel.

It's lower than on the previous year-end level and it is normalized healthy level that our product levels are in the channel.

But we do understand there is -- you know, from our customers, that they have in the channel inventory in Asia and in the U.S. which is higher than the level that they would expect from our competitors.

So, that will impact the first quarter.

We'll have to get that one out first you know before we sort of get into the healthy flow.

Europe is reasonably good.

So, we understand that the levels are overall pretty healthy.

And then the industry volumes up year over year is my comment.

Thank you.

Your next question comes from Sofia Gouchen with UBS Warburg.

Hi.

Thank you.

Back on the ASP just briefly, can you maybe philosophically comment now with the new 2100 coming out, which is your roughly 100 Euro ASP phone.

How you expect the ASP to stay stable if a large part of the growth will come from emerging markets and you're bringing in very low-cost phones even with a successful new product cycle, and then secondly, on the margins, I'm wondering if we can just take this from another angle and maybe you can comment on in the years when the margin did go sub 20% such as 2001, and then in some quarters in '00, what really was driving that?

Maybe we can understand that from the flip side.

Well, Sofia, I'm not quite sure what the gist of the first part of your question was.

I mean how can we -- with a product like 2100, which is coming, how can we -- how can we get the same kind of ASPs when that is a low -- when that is a lower price.

Do I understand correctly that that is a lower price product than some others that we have introduced earlier?

And still the ASPs are stable.

No, I mean we got a healthy mix of products, so 2100, it is an important product, but there are other products which have higher ASPs.

And the overall mix that we see, how we see it working out in the first and second quarter, visibility is best gives us a very strong indication from that kind of an ASP.

ASP level.

And then second part of the question, as I take it, you are -- in 2000 and 2001, there were a couple of quarters when the margin sort of popped below 20% for one or two quarters and then was a little too shy to stay there and came back pretty quick.

And you were asking the reason?

Is that correct?

Yes.

I was just wondering if you could comment on the rationale for that.

Just so we know what some of the touch points are on margins that, you know, we should be cautious for, what drives the margin on the downside.

Because I think you've done a great job explaining to us what drives it on the outside.

Okay.

Okay.

Yeah, usually one has to try and explain it the other way but I think that 2002 -- 2000-2001 margins actually took place when our product renewal cycle just was not optimal.

So that our pipeline didn't bring out products to the right kind of segments in the right kind of volumes.

So that we would have had the same kind of stability that I did explain in my previous answer to a question about, you know, how does this work in terms of which products are bringing the returns.

So, it is a question of having the right renewal rate so that you got the old products, which get you the volumes and the stability of the earnings, as well as the new products, which you are bringing in and then growing their position with often higher margin because of the new functionalities.

So, this flow has to be managed right and I don't think we did an excellent job in 2000-2001.

And then there was a little dip.

But I think our goal is very clear.

We are shooting for 20% or higher margin and we -- that's our target and we think we'll get there also in 2003.

And if you look at now where we are, when we have 2003 ahead of us, we have a wonderful product range, there's more to come.

There's a lot in the pipeline which we have introduced, and then the commercial launching of shipping shipments, starting in number of cases throughout the first quarter and some early second quarter.

So we are, in terms of this pipeline, we are in good shape so therefore, I don't think we will have to start explaining this one again too soon.

Thank you.

Your next question comes from Tim Luke of Lehman brothers.

Thank you.

I was just wondering if you could give us some sense of the range of the scale of the inventories that you were alluding to.

If you think you've previously said that your inventories were in a range of five to six weeks or something like that.

Could you give us a sense of in Asia, where you see the industry inventory levels and where you see them in the U.S. if there is the two areas that have primarily been affected.

Just so we can measure that.

Thank you very much.

Yeah, I mean we have seen worse, so, this is not a big, big issue.

So, about -- but it is -- you know, there is -- in China, aggressive build-out of product positions by some operator -- by some vendors which affect the Chinese situation and in U.S., the holiday sales were not up to the expectation.

So, yes, they are higher, but it's not a dramatic situation.

It was worse last year, when we had a slow start and then kept going.

But this will affect somewhat -- difficult to put your finger more specifically.

Thank you.

Your next question comes from Richard Kramer of Arete.

Thank you very much.

If we look back over the past year, Nokia networks was typically a 20% margin business and then for -- about a year and a half until the mid of last year, double digit margin business.

Can you comment, now that it's swung into a break-even situation with about a quarter of the sales coming from 3G, can you comment on the profitability in 2003 and perhaps comment as well on the portion of sales you expect WCDMA either dual or single mode to respect, and could you also perhaps comment a little bit about why the U.S. market or the America's market was weak in particular.

Would you be blaming that on any issues, structural issues in Latin America, or do you think this is something that will resolve itself over the course of 2003?

Thank you.

Okay.

I think essentially what we're talking here in terms of the -- in terms of the -- networks margin is that you know, yes, there is -- there's heavy competition so there's price pressure on the 2G, but it is a healthy business only at high, fixed cost base and lower volume.

So, it is very difficult to carry a business on which has such high costs on such a low volume.

And there is only so much you can cut on the fixed costs without them -- without them touching sensitive areas about where you invest for the future.

So that's fundamentally the 2G story.

So, I wouldn't say that we are -- I wouldn't say we are in a sort of unhealthy situation.

Totally unhealthy in terms of the 2G deliveries, in that respect.

It is just the volume issue.

Then on the 3G, I think we have indicated quite clearly that in 3G, the thing he's happening than what happened in GSM in '91, '93.

You had initially lower margins in GSM for the first 18 months to two years then healthier margin levels.

This is exactly the process which is undergoing now in 3G.

So, when you combine these two factors, you get into a situation which doesn't look nice.

It is not nice to look.

It is not nice to be in the business.

That's for sure.

And there are no easy solutions, particularly when you have such a low propensity to invest with key customers there.

Wide band CDMA, something we want to give a right figure.

I don't have that, Richard, unfortunately.

It is a significant portion.

Increasing toward, you know -- lower -- beginning of the year, increasing toward the year end and 2004.

And will networks be profitable in 2003?

We certainly hope so.

Your next question comes from Jeffrey Schlessinger with UBS Warburg.

Thank you.

Jorma, you talked about progress and your increase confidence in terms of MMS and the services.

What do you think the remaining hurdles are that need to be overcome before, you know, we can talk about in a conference call about mass market adoption.

Thank you.

Yeah, I think we are getting that, Jeff, in MMS in terms of the roaming agreements and in terms of the interoperability.

I think those issues we start getting to be ironed out.

Now, in its own funny way, what we're seeing here is that it is -- that for the network effect to really start making an impact -- in order to really start seeing that gee, this is actually getting us some real juicy revenue and it is getting the article up, what we have seen in the past actually is that it doesn't happen immediately, you know, starting with 5% or 10% of the population, having -- you know, you need more people and then suddenly, the network happens.

If you want to look at the adoption curve of MMS, it is a very, very steep S-curve after a very prolonged waiting period so to speak, before the network is then suddenly -- you know, made it jump.

So, the S-curve is very sort of accelerated or very steep.

And I think the -- this is more or less what we are -- what we are getting here.

I know this sounds a bit sort of, you know, funny to say but this -- you know, this is a phenomena which you have seen in the adoption of many other phenomena.

Many other features, instruments being -- the main example.

So, the number of phones will -- that will have MMS capability will be dramatic -- during the 2003 and we will start seeing in certain markets, some real interesting community activity, which will then fuel a very sharp jump in MMS adoption.

That would be my forecast.

Just as a follow-up, given the cash flow in terms of the operators, how do you sense their willingness has changed to help find the pump for subsidies, marketing, et cetera.

Have you seen a change where they're willing to be more aggressive or are they still sitting on the fence and trying to let it happen just --

Why I'm saying it is this sort of a theoretic -- sort of a natural phenomena is based on the fact that I don't think we'll see dramatic advertising and a lot of work done on this -- on that specifically so the network effect will kind of take its hold not quite itself.

But there's a a lot of that.

Yes, the operators will start spending but it is -- it will not be dramatic.

It will be pretty controlled.

Thank you, and we'll take one more question, please.

Your final question comes from Thomas Langer of West LB.

Hello, hi.

Maybe we can address your networks business again and maybe -- can you comment on whether there was an unusually high share of nonseller business in Nokia networks this quarter?

You mentioned in the press release for 3 DSL and maybe you can quantify what the mix was in the quarter and also, can you give us your view on the overall wireless infrastructure market?

Not only your addressable market in 2003.

Thank you.

Okay.

I mean the non-cellular was not judged.

It will really make-or-break. -- the infrastructure is 90%.

So, that's the bulk of it.

It is not dramatic.

And if we look at the market estimates, the addressable market could be down 5% to 10% and the total market 10% during the year.

So, there was no change in the composition of your network sales until the fourth quarter, for example, compared to the third quarter.

No, there wasn't.

Thanks.

Thank you, Jorma.

Ladies and gentlemen, this concludes our conference call today.

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

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

And factors that could cause such differences have been identified in more detail on pages 7-17 in Nokia's form 10-AF, and also in our press release issued today.

So, thank you and have a nice day.

Thank you.

This concludes today's Nokia 2002 year end results conference call.

You may disconnect at this time.