諾基亞 (NOK) 2003 Q3 法說會逐字稿

Thank you for participating in Nokia's 2003 third quarter conference call.

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

At this time I would like to welcome everyone to Nokia's 2003 third quarter conference call with our host, Miss Ulla James, Vice President of Investor Relations.

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

After the speakers' 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 keypad and questions will be taken in the order they are received.

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

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

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

Miss James, you may begin.

Thank you.

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

I'm Ulla James, and with me today is Jorma Ollila, Chairman and CEO of Nokia and Olli-Pekka Kallasvuo CFO of Nokia.

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

These statements are predictions that involve risks and uncertainties.

Actual results may therefore differ materially from 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 detail on pages 11 to 18 in our 2002 Form 20-F, and also in our press release issued earlier 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 Nokia.com/investor.

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 third quarter 2003 net sales were 6.9 billion Euro, down by 5%, but up by 4% at cost of currency compared with the third quarter 2002.

Pro forma operating profit was 1.2 billion Euro and the pro forma operating margin 17.3%.

Diluted pro forma EPS was 18 Euro cent, the same as a year ago.

Geographically sales [inaudible] strongest in the Americas region while sales in Asia-Pacific and Europe, Middle East and Africa region declined compared to the third quarter 2002.

The Europe, Middle East and Africa region accounted for 54% of net sales, the Americas and Asia-Pacific region 23% each.

Sales in Nokia Mobile Phones were flat year-on-year at 5.6 billion Euro at the pro forma operating margin of 22.4%.

At constant currency, Nokia Mobile Phone sales were up by 9%.

Nokia Networks sales at 1.2 billion Euro were down by 21% year-on-year and at constant currency down by 13%.

Nokia Networks achieved a breakeven.

Sales in Nokia's [inaudible] organization decreased by 27% to 82 million Euro, generating a pro forma operating loss of 55 million Euro.

The group [inaudible] consisting of Nokia head office and research center were 29 million Euro.

Before I hand over to Jorma, I would like to cover a few additional items.

Nokia capital markets days are scheduled for November 24th and 25th in Dallas.

On the 24th we'll be discussing at length the new Nokia structure and [inaudible] targets.

On the 25th we'll be offering concurrent small group streaming sessions covering a variety of topics from CDMA to China.

The registration Web site will be opening shortly.

You know the currency issue has been confusing to many.

Instead of going into details during this call of how we expect to determine currency rates, we have provided a very basic guide as an appendix to the conference call slides that should help you.

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

Please go ahead.

Thank you, Ulla.

Ladies and gentlemen, the third quarter represented the sixth consecutive quarter of healthy mobile phone industry volume growth.

In fact, the year-on-year industry volume growth of 15% exceeded even our reasoned expectations.

Despite the sudden surge of volume of flexibility and size enabled us to capitalize on the trend and grow our market share to 39% from the level of 36% a year ago.

Although we continue to expect the infrastructure market to contract by 15% or more this year, we began to see evidence of infrastructure market stabilization.

The case for 3G has been proven and the operator rollout schedules are being reconfirmed, if not even brought forward in some cases.

One of the landmarks for Nokia in the third quarter was the announcement of the new organization starting next year.

For a while the three cornerstones for our strategy have been to first of all, expand mobile voice, secondly, drive consumer multimedia, and thirdly, bring extended mobility to the enterprise.

In the spring 2002 we started the ground-breaking work to drive this strategy by setting up nine separate business units in Nokia Mobile Phones.

These nine business units will now be evolved into three independent business groups, which together with Networks as the fourth business group can better take into account the new business dynamics.

They also have the ability to drive our convergence and growth ambitions in the most agile and flexible fashion.

As the current Nokia Mobile Phones umbrella structure will be dismantled, essential resources will be moved to the common horizontal entities.

The strong horizontal layers will take maximum advantage of the economies of scale across Nokia.

Sales marketing and operations will offer a platform mainly for terminal product to be efficiently manufactured and distributed to customers.

The technology unit will provide technologies and product or software platforms for Nokia's business groups and even external customers.

We will create a highly interdependent and tightly-knit structure.

The units focusing on strategy, research, venturing and business infrastructure will contribute to both strategic strength and operational excellence for all businesses.

Once implemented, I believe this new structure will make us one of the most modern and agile organizations in the technology sector.

I recognize the additional challenges I will personally encounter when steering this matrix organization.

But I do feel very energized by the renewal of the company, and I know the other members of my management team feel the same.

Due to the unprecedented success, Nokia Mobile Phones has grown to a size where it currently represents 80% of our net sales and over 100% of Nokia's net profits.

This has obviously diminished the transparency over time.

The frustration has been felt by you, I'm sure, when you have not been able to see and analyze the appropriate business dynamics driving our Mobile Phones business, as well as by us as we have not been able to demonstrate the solid performance of the currents core Mobile Phones business and the simultaneous sizeable investment we are making in the new business areas, multimedia and enterprise.

Starting from the first quarter result announcement, we will be reporting the relevant P&L items together with other relevant data for each of the four business groups.

Our intention is also to provide you with the 2003 quarterly pro forma results restated according to the new structure sometime during the first quarter.

So, please be patient until then.

I would now like to move on to cover the current two main business groups starting with Nokia Mobile Phones.

The third quarter handset market volume of 118 million units corresponding to 15% volume growth was somewhat higher than originally anticipated.

With our volume of 45.5 million units, we grew 23% year-on-year, clearly faster than the market, reaching a market share of 39% from the 36% level a year ago.

I regard this as an excellent illustration how our scale benefits enabled us to capitalize on a situation where there was a sudden surge in demand.

The mobile phone market growth year-on-year was strongest in the Europe, Middle East and Africa region, while the Americas and Asia-Pacific regions grew slightly lower than the total market.

Stronger than anticipated growth appears to be driven by a combination of factors.

Firstly, in Europe and North America we believe that caller and operator promotions drove the demand.

Secondly, in the U.S. the operators are also preparing for what is local number portability scheduled for November.

Thirdly, Brazilian and India markets have been stimulated by new entrants, which have pressured incumbent operators to defend their market position.

And fourthly, the Chinese market continues its recovery after SARS.

Of the various technologies, GSM, CDMA and PDC, grew basically in line with overall year-on-year market growth, while PDMA volumes continued to decline.

Nokia's market positions strengthened in the Americas across all the technologies.

We have achieved major market share gains in Latin America where our market share currently exceeds the global 39% level.

In the U.S.A. we're the clear market leader and we are well positioned to make further gains during the holiday season.

The strong momentum in CDMA continued with our CDMA market share doubling from a year ago to the mid-teens.

Going into the fourth quarter, we see an opportunity for a major increase in our CDMA volumes in India, China and the U.S.

We have now achieved the number one position in the Chinese GSM market.

Our distribution strategy's bearing fruit and Nokia brand is stronger than ever supported by competitive product offering from low end to localized feature-rich devices like the pin based Nokia 6108.

CDMA shipments to China Unicom will further contribute to strengthen our position in this market.

The third quarter sales of 5.6 billion Euros as well as the pro forma operating margin of 22.4% remained on last year's level.

At constant currency, sales would have grown by a total of 9%.

The year-on-year ASPs were grown 19% in the third quarter.

Currency movements made up half of the ASP decline, and the other half was driven mostly by mixed shift towards more entry-level phones in the rapidly growing emerging markets and the U.S.

In the third quarter our new product revenue ratio was also on a somewhat lower level, as we were preparing ourselves for the ramp up of the new models for the holiday season.

Sequentially the ASPs were down 9%.

Currency movements made up half of the ASP decline, the rest was driven by the mix.

Nokia has been the leader in bringing down the cost of ownership in the emerging markets.

We continue to bring unique products to these markets with a highly compelling package of great features, high quality and industry-leading brand at an affordable price.

These markets are providing us with an excellent opportunity to capture incremental sales, and because of Nokia's world-leading cost structure and brand, they allow us to achieve excellent profits as well.

Going into the fourth quarter, we see industry developing well.

The industry channel [inventory] situation has improved in all the geographical areas, leading even to occasional stock outs.

In China, the mobile phone channel inventories have declined as well, and the new MII instituted measures are expected to improve the situation further.

Our channel inventories have been healthy in China, and we have been able to respond to the pickup in demand well.

Outlook for the fourth quarter indicates a further acceleration of the market to year-on-year growth in the mid-teens culminating in full year 2003 volume of 460 million units.

I expect Nokia volume growth in the fourth quarter to exceed the overall market growth.

Our offering is being strengthened by the ramp up of several significant new products, such as the Nokia N-Gage, the new imaging phones, Nokia 6600, Nokia 3660, the GSM [inaudible] CDMA-based Nokia 7600, and the highly competitive entry level camera phone, the Nokia 3200 series.

I'm looking forward to a quarter that is expected to bring Nokia new volume and market share records.

And now a few words on Nokia Networks.

Although I do not see any rapid recovery in the infrastructure market, there are several factors which make us feel better about the infrastructure market than a couple of quarters ago.

The operator financials and balance sheets have improved significantly.

The new networks are getting more resilient and stable and more handsets are available supporting higher data rates.

The industry as a whole is becoming more consumer-driven, and we have an increasing amount of content available.

Obviously there is still a lot of work to be done, particularly in the area of roaming and interoperability.

But the fundamental question around the future viability of the 3G seems to have been allayed.

Operators are in fact confirming the rollout schedules, and as I said earlier, some are even speeding things up.

Nokia Networks' third quarter sales of 1.2 billion Euros was down by 21%, being down 13% at constant currency from the last year's level.

As you remember, we started to recognize 3G revenue a year ago.

During the third quarter of last year, we recognized 430 million Euros, and during the fourth quarter another 370 million Euros.

This makes a year-on-year comparison challenging as the amounts mentioned relate to work which had been carried out over a period of 12 months.

I'm very pleased that Nokia Networks was able to deliver a slight profit in the third quarter, demonstrating the success of the restructuring measures taken in the first half of this year.

The third quarter provided further evidence of the confidence the leading operators have put in our wideband CDMA infrastructure solution.

Orange renewed its contract with a three-year agreement insuring a continued strong market share for us.

And after a thorough evaluation, [STARHAB] in Singapore selected us as the sole supplier.

Nokia's wideband CDMA end-to-end system consisting of network applications and handsets is mature for large-scale network launches.

I believe we currently have the most complete wideband CDMA functionality in the market, including the 3G-2G interworking.

Currently eight operators have commercially launched wideband CDMA networks, and Nokia is a supplier to four of those.

By the end of September we had supplied 27,000 wideband CDMA base stations, which is more than any other vendor, making us the market leader in radio access networks.

More than 20 Nokia customers in 13 countries are currently rolling out commercial networks and all together we have 50 wideband CDMA trials underway or completed.

Based on current operator plans, over 50 wideband CDMA networks are expected to be in commercial use by the end of next year.

I believe that with Nokia's end-to-end network capabilities we are well-positioned to capitalize on this.

Before closing, I'd like to mention a few words about some Nokia balance sheet items and cash flow.

Capital expenditure continued at a very low level of 122 million Euros, although slightly higher than in the recent quarters.

During the quarter we increased our mobile phone production capacity, made some line renewal for new product ramp ups.

We do not, however, expect any fundamental change in the level of capital expenditure going forward.

The third quarter net operating cash flow, driven by excellent profitability, was 1.2 billion Euros.

As a result, the overall cash position increased to 10.8 billion Euros from 9.9 billion Euros a quarter ago, despite the 450 million Euros that we spent on the share buy back program.

The net debt to equity ratio, i.e. gearing, reached a new record level of minus 70% in the end of September.

The share buy back program initiated in the second quarter continued.

During the third we repurchased 34 million shares, and during this year we have cumulatively purchased 54 million shares for a total of 751 million Euros.

As the last item for this conference call I'd like to discuss the fourth quarter guidance.

For the fourth quarter we currently expect Nokia Mobile Phones sales to be flat to slightly up year-on-year, and Nokia Networks sales to be 1.4 billion Euros.

Nokia Mobile Phones operating margins are expected to remain at an excellent level.

And Nokia Networks is expected to reach breakeven.

The fourth quarter diluted pro forma EPS is estimated to range between 21 and 23 Euro cents.

In the fourth quarter we also expect shares of associated companies and minority interests to remain on the same level as in Q3.

Financial income is expected to be at third quarter level and tax rate on reported earnings to be slightly over 30%.

Thank you, Jorma.

We would like to continue with our Q&A session.

In order for us to be able to remember and answer the questions properly, please try to limit yourself to one question only.

Operator, please go ahead.

Thank you, Miss James.

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

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

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

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

Your first question comes from Alec Shutze of Goldman Sachs.

Thanks very much.

Looking at the fourth quarter, there's obviously going to be a wide range for interpretation of where ASPs will go.

So, ignoring currency for the moment, could you just give us an idea of the ASP trends you are seeing globally, maybe just in terms of North America, Asia and then Europe, as well?

Thanks very much.

And this will be just on a sequential basis, if you don't mind.

Thank you.

Well, obviously this is -- it's a little bit difficult to address that one because ASP, you know, we don't drive our business on ASPs.

We drive our business in order to make a profit.

And if you look at our performance, we have had a remarkably stable level of profitability and high level of profitability.

So, if you look at what drives that profitability, it is market share.

And obviously, then you have to look at how you are competitive in terms of different segments in the market, i.e. in each of the key segments.

And then, when you end up being competitive, then you end up with a good profitability.

And that's the thought process, and that's how we drive the business.

So, the -- you know, explaining, you know, what are the trends, it's not quite -- you know, it sort of misses the point when you emphasize or put the focus on the ASPs.

Yeah, I completely understand.

And making a few observations here, obviously the key thing here is that if you look at the current year, the emerging market growth has been exceptionally fast during the last two quarters particularly, second quarter and third quarter of this year.

And the mix change, which has been driven by that as well as in our case the major impact of the dollar-Euro exchange rate since we are the archetype of a company recording our revenues in Euros and having about 50% of our sales, net sales in U.S. dollars, the translation, you know, by mathematics affects very significantly.

And about half of the quarterly ASP change that we had sequentially to the third quarter was represented by the exchange rate.

And that's not a surprise if you look at the currency.

U.S. dollar is 16% weaker at the end of September compared to what it was 12 months ago.

So, if you look at the trends, you could look at it regionally and you could look at it in terms of some other parameter.

Looking at it regionally, obviously we see that in Asia the growth in volume has been particularly high because of India and China.

In the Americas region, Brazil and U.S. have been low end emphasized.

And if you look at the mix in Europe, Russia and Eastern Europe has brought in an element.

I wouldn't be surprised if this element of the emerging markets would be a little bit less of the case in the fourth quarter in the overall picture.

But perhaps that's also explained partly by the fact that we sort of -- I sort of indicated in my introduction, i.e. that we have a number of products particularly on the high end which are coming to the market.

So, our product renewal rate is a little higher in the fourth quarter.

So, that will also impact the ASPs from our angle.

So, perhaps that discussion sort of opens up that one a bit.

But I really would like to stress that we don't drive our business on ASPs.

Also, there is this indication that in between the lines here and in some other places there's been some sort of undue price pressure.

We haven't seen that.

And that you can see from the margin that we demonstrated in the third quarter compared to what we saw 12 months ago.

So, we do not see any undue price pressure.

We run our business based on the profitability.

And the ASPs as they have worked out have actually served us very well in getting to the level of profitability that we have targeted.

Thank you.

We'll take the next question, please.

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

Thank you.

Maybe we can talk just a little more about about CDMA.

It appears you're doing a great job in gaining share in CDMA.

I was just curious maybe the profitability for CDMA since a lot of your phones are maybe on the lower end and how that maybe impacts your overall mix on the ASP front.

Yeah, I think the -- if we look at the CDMA market, we really are pleased with the very steady progress that we have made in CDMA now in the last three quarters.

So, it's really a consistent, good progress having some of these key operators, Sprint and Verizon in the U.S., Unicom in China, as well as Reliance in India as our customers, all of them in volume, you know, shipping in volume as we speak.

So, we really are very pleased with how that has worked out.

The business model, the dynamics as it is in CDMA has a slightly lower EPS as an average, has a slightly lower margin.

But it is good business.

We are getting a good, healthy margin, and we just love to get that business and really make progress in that segment.

Thank you.

Let's take the next question, please.

Your next question comes from Richard Windsor of Nomura.

Hi.

Good afternoon.

Just looking on the network side.

I guess the implication is that the profitability in the fourth quarter is going to fall despite the fact that you expect a seasonal pickup in revenues.

I was just wondering is that due to WCDMA shipments increasing as a portion of overall sales?

Well, I do not see a dramatic change in the mix.

We are talking about a similar mix as earlier on 2G, 2.5G additions, or network upgrades will continue, as will the rollout of the 3G.

I think I would really say that we feel good about reaching breakeven, but there is quite a bit of variation in the mix between what kind of product you ship from one quarter to other, and it's more of that rather than the technology mix issue, which we really haven't got here.

It depends on whether you have the coronet work elements, whether you have the radio network elements, or whether you have more software than hardware and how you are getting your customer acceptance, whether it's in one quarter or the beginning of the next.

So, it's not something that is really a 2G-3G issue here.

But wouldn't you generally expect margins to go up if revenues pick up quite significantly?

I was just quite surprised that the margins were going to go down.

Well, I'm not seeing a big -- you know, this is normal variation.

This is not -- this sort of variation you'll see with anybody, ourselves and anybody else in this business.

So, this is not a big, big variation.

But when the revenue goes up, yes, we will expect the margin to pick up.

That's definitely the case.

That's -- that has been the trend and that will be the trend in this business.

Okay.

Thank you.

We'll take the next question, please.

Your next question comes from Wojtek Uzdelewicz of Bear Stearns.

Thank you.

Jorma, in terms of in major opportunities you can have sort of gaining market shares in CDMA, and you're off to a good start.

We saw today that Verizon and a couple other recently announcements.

But this is still very much on the low end or mid-low end where you're attacking.

What about, really, though, the opportunity could be for you to grow low market share in the mid to the high end?

But in North America and Asia especially in CDMA, we're seeing a lot of demand for the clamshell phones.

What's your thinking?

What's your strategy?

And then the opposite wins that you have is EVDO as well as the BREW which is a Qualcomm operating system.

How do you see over the next six, nine months you're doing in that space, if you could kind of give us a little bit of your strategic vision?

Okay.

I think the -- first of all, we want to be present in all the key segments of the CDMA market.

And we have introduced our first CDMA camera phone, or imaging product, as we would say.

And that phone will be shipping initially Latin America in Q4 and is a good indication of how we will be moving.

Then if we look at the form factors, we will be moving to a broader set of form factors, also with CDMA, including clamshells with time.

So, you will see all of that.

And then finally, if we look at the way we are equipping our phones with the enabling platforms, software platforms for the service offering for different operators as their requirements evolve, there will be a multitude of different solutions.

The Verizon phone that we are shipping now, the 3589-I has a BREW capability in it.

So, we're agnostic to a technology solution there and will have other product, which are BREW enabled.

And if we look at the broader set of products and opportunities in CDMA, we are working with a number of multimedia segment products which will hit the market in 2004 and '5.

So, the product road map is a very exciting one and it has all the same elements with time that our GSM wideband CDMA portfolio does have.

Thank you.

Thank you.

We'll move on to the next question, please.

Your next question comes from Keith Westhead of Deutsche Bank.

Thanks very much.

I just wanted to ask on the impact of currency in the quarter, you've given a disclosure of the impact on revenues and average selling prices.

I wonder if you could comment on how -- I appreciate it's difficult to untangle, but how it impacted the various cost lines how EPS and net income might look on a constant currency basis?

Well, the -- if we look at the -- you know, broadly the way it is our exposure comes from two aspects.

First of all, there is, as you said, the well-discussed translation exposure, which -- with the impact on the top line.

And I think that is quite significant.

That's something which is a matter of mathematics.

And there's nothing much we can do about it now that the decision very clearly is that we -- our accounting currency is the Euro.

So, the dollar movements, as strong as they are, have a major impact on the top line.

The other impact clearly is that -- is the issue of economic risk.

We have certain fixed cost elements which are stronger in Finland and other Euro-based countries than in other countries.

So, there is an element that is hitting our cost, but when you think about it in terms of the totality, it is not major.

So, either way the currencies have been moving, it would really make sense to make a point that our profit line is reasonably neutral to the currency movements.

We are also taking measures through a well worked out currency hedging strategy which has evolved during the last 20 years and we survived the dollar up in 1985 to '86 because we had major elements in place already at that time, as we did other swings.

So, the currency hedging which we do usually with a nine to 12-month timespan, which affects the key cost of sales element, which both has natural hedge features as well as under our hedging actions, you know, lead into a situation where we are reasonably neutral in terms of our bottom line.

And I think we have communicated this both when the dollar moved significantly up as well as now when it has moved significantly down.

So, we have learned to be very consistent here.

And we feel that for an industrial company this is really the way to run a railway.

You want to make your money and satisfy your shareholders in a stable way over your bottom line performance, which is not affected fundamentally by the currency movements.

And unfortunately, that puts a little bit of pressure on the outside world to understand the swings in top line.

So, let's hope that the top line movements are being fully studied and understood.

Sometimes I'm not so sure, but I hope things will develop up for the better there.

Thank you.

We'll take the next question.

Your next question comes from Tim Luke of Lehman Brothers.

Thank you.

I was wondering.

Jorma, if you could just touch on some of the factors that have impacted the SG&A line, which seemed to be, I think, 655 in the first quarter, then it went up to 903 in the June quarter, and I think that you had valued it to be up sequentially in the September period, but it was down fairly sharply in the September period.

At the same time the gross margin seems to have seen some volatility, being 42.5% in June, and then moving lower in the third quarter.

What are some of the forces at work there?

And perhaps how do you see it going forward?

Thank you.

The only SG&A item, or the SG&A trend which is significant in terms of understanding the trends of our key businesses is the uptick in the Mobile Phones marketing campaigns, which started in the third quarter and will continue even stronger throughout the fourth quarter.

Otherwise the SG&A has been business as usual.

I think in the second quarter was there next order item, which might have ticked up the cost.

That I don't have in my head now.

The Nokia Networks restructuring absolutely was part of that.

And so, that 399 million you should deduct.

And then you come into a trend line which I think is pretty self-explanatory so that when you add that or put in a factor for start-up campaign during the third quarter for NMP and continuation of that in the fourth quarter, then you will come to an understanding of the trend line.

By the way, the 399 has been distributed between the R&D and SG&A line, obviously.

And the gross margin?

And then the gross margin, I think you get certain mixed uses which are affecting the gross margin.

So, it was down a bit on the third quarter, which really is an impact of a temporarily somewhat lower cost of the new product as a proportion of the total.

We're continuing to have over 30% of our product as new, i.e. introduced in less than six months.

But that proportion was a little lower in the third quarter and will be again pretty high on the fourth quarter so that you get the positive opportunity in the coming quarter for the gross margin.

I do not see a fundamental pressure in the gross margin as we go forward.

So, we are basically working along the lines of where we have been in the last couple of quarters.

Thank you.

We'll take the next question, please.

Your next question comes from Kulbinder Garcha of CSFB.

Just one question on your guidance of Q4.

If you put in basically flat to slightly up sales or even flat sales in Mobile Phones, and to get to an EPS of 21 to 23 Euro cents it would suggest that your operating margins might actually remain flat or even go down sequentially in handsets.

Normally it would be the case that they go up.

Is that just conservatism on your behalf, or is there additional specific investments in new projects which is going to mean the margin has a strong seasonality as it would historically in the handset business?

Thanks.

Yeah, I think the fourth quarter guidance really reflects the difficulty of seeing the impact of a number of different factors affecting the margin.

I think we can safely say that we are talking about the same level of high margins to be maintained in Mobile Phones with not dramatic variation.

It could be up, could be a bit down, but basically on the same level.

You have the Q4 marketing cost, as I just noted.

You have the impact of our new products where there are a number of them which have been just introduced and are on the market.

And some of them are being rolled out this week and next week.

So, we feel good about how ready we are in terms of getting the volumes out.

And certainly, as I indicated from the market picture, the demand is there.

So, I think we -- there's a certain amount of stability that inherently is there in terms of how we can see the fourth quarter to shape up.

I think earlier on when we were working based on the developed markets three or four years ago, usually the fourth quarter had a higher proportion of low end or entry level phones in the mix.

Now the different factors that we have in play are not so sure, but there's probably an element of that historical thing in play, as well.

But there are a number of new factors, and particularly in our case the new product element certainly.

Okay.

Thank you.

We'll take the next question.

Your next question comes from Paul Sagawa of Sanford Bernstein.

It's heartening to see the 3589-I on sale at Verizon stores here in New York.

I'm really curious about the delivery schedules for the camera phones, the imaging phones that you have on schedule for the fourth quarter, particularly the 3200, 6600 and the 3620, 3660.

Have there been any delays?

Will we see them safely in stores in time for the full Christmas selling season?

Also, if you could give us a bit of a projection as to what percentage of your phones you believe in the fourth quarter might have a camera included?

Thank you.

Okay.

You are, Paul, you are really well tuned into all these numbers.

I mean, I have to shape up and make sure I got them all.

But you were spot on.

So, all of the phones that you mentioned are shipping in the fourth quarter.

So, we do not have delays.

We really are working well and both our operational as well as the component are in good shape.

So, we will ship those all well in fourth quarter.

And as well as the 6225.

So, if you look at the high end, you know, what's the proportion of that out of the total?

The share of color in terms of value now accounts for about 50% of the total.

And that we expect to grow significantly in the fourth quarter.

And if you look at the value of camera phones, we expect that to be in the range of 20% of the total in the fourth quarter.

We are well on our way to that as we speak.

So, we feel good about that.

And that just shows that it's changed towards the higher end offerings is happening.

Obviously simultaneously you have in terms.

So, volume simultaneously a very strong show from the emerging countries.

But that -- we'll have to do that business, as well.

Thank you very much.

Thanks, Paul.

We'll move on to the next question, please.

Your next question comes from Jeffrey Schlesinger of UBS.

Thank you.

Jorma, following up on some of these new product cycles like imaging, given where the market is now from both a service perspective as well as product perspective, what is your expectation from when imaging will really begin to take off?

You've talked about the network affect in the past and what it takes to get to critical mass.

As you see the world today, the price of the service the type of products that are out there, what's your expectation for when you believe this value proposition will be put in place?

Thank you.

Obviously this year has been the first year when we have seen that take off.

And if we have by Christmas we are at 20% of the total volume having imaging capability, that will mean that during the year 2004 you will see the significant networking effect to have traction.

And the second half would then really start driving the volume in the networks to MMS and otherwise.

So, if we look at the imaging as a functionality, you will basically see in no time, in a matter of a few quarters you will see in all of our major phone categories other than the entry phones you will see an optical module, a camera of some sort imbedded.

And if you look at the 3200, which is what some people would already call an entry level phone that we're shipping today, that has a camera.

So, it sort of shows the way.

And I think we, you know, we want to be driving that phenomena very strongly.

But in an answer to you, if we discuss this time of next year, second half of next year, then I think we will have some significant show of what the network effect in this respect really means.

Thank you.

We'll take two more questions, please.

Your next question comes from Tim Long of Banc of America Securities.

Thank you.

Jorma, could you just give us a sense, you talked about some good growth in Asia and in the emerging markets.

Could you give us a sense as to the contribution on a unit or a value basis of the Indian and Chinese markets?

And also, could you just touch on how the ASP developments have been in those markets so we can get a sense as to what that's doing to the overall corporate ASP profile?

Thank you.

Yeah, I think if you're looking at two markets like China and India, you know, these are two markets where it is even more pronounced than in some others that taking an average of ASP of any other factor, you know, really distorts the picture because you have a very strong high end segment, but most of it obviously, is low and middle, entry level and middle range phones.

So, you really have to look at how the segments are performing.

And we're getting a healthy margin.

That's our main driver, a healthy margin from both of those markets.

And that's coming from both the high end and middle range as well as entry.

If you look at how the ASPs have evolved, I think China we have seen a healthy development.

Yes, ASPs are down a bit, but we continue to drive that with some real good cost effective products and get a good margin.

India, perhaps a little more pronounced reduction in ASPs, but still with our tremendous market share in India and the volume benefit that helps us to drive some of those product segments, you know, that is also a market we're really pleased to be in.

Okay.

Should we think of this -- could these markets be 15 to 20% of your units is that the type of scale?

We're not looking at country by country volumes here.

So, we're not disclosing that.

They're significant.

Okay.

Thank you.

We'll take the last question, please.

Your last question comes from Per Lindberg of DKW.

Thanks very much.

I have two questions here, if I may, regarding the Networking business.

It seems a little bit of a discrepancy between what you say on the one hand qualitatively about overall demand, that it is discernibly picking up, that you see stronger momentum from your wideband CDMA customers.

Why, then, is that not reflected in your year-on-year comparisons?

You had a 21% decline in the third quarter outside the lower end of your guidance.

For the fourth quarter your 1.4 billion in guidance sales would imply a one-third reduction year-on-year.

And you booked wideband CDMA richly in the third and the fourth quarter of last year.

And the second question I have is also related to your margin guidance.

You did say, now, breakeven in the fourth quarter, yet the sales level should be about the 200 million richer than the third quarter's.

Why should we not anticipate an improved operating margin for you in the fourth quarter?

Thank you.

Okay.

I think both of your questions, if I may say so, have been covered in our previous discussion here during the last 55 minutes.

There was a paragraph, and you can all find that on our Web site in the text that I had in my introduction where I pointed out that in the second half of last year, in the third and fourth quarter we had all together about 800 million Euros worth of revenue recognition of third generation equipment which had been shipped and delivered to the customers during the past 12 to 14 months.

So, it was an accumulated revenue recognition which was really realizing a longer period of deliveries.

So, the revenue comparison to the third and fourth quarter of this year is not really a very good comparison when we look at the total Nokia Networks revenue that we did have in the third quarter and that we're expecting to have in the fourth quarter.

There was also a question earlier which was exactly the same as your question relating to the higher expectation of revenue in the fourth quarter sequentially and that we are cautiously only saying that it might be breakeven that we are getting on the operating profit.

It's really a question of mix.

Not so much between 2 and 3G, but really depending on what sort of product category, whether it's coronet work elements, whether it's radio networks, whether it's software rather than hardware or vice versa, which does mean that there's a variation.

And with everybody in a business like ours, whether it's smaller or bigger than we are, this sort of variation that we have here in the margins as it seems is really a small variation and often the variations are bigger ones.

So -- because there are shifts in these shipments.

So, I hope that clarifies the point.

And your sales in the third quarter, the negative 21% three months ago, actually, five weeks ago you reiterated the 15 to 20% decline year-on-year, that seems to suggest that you have had some shortfalls compared with your expectations in absolute [Euro] terms.

Certainly not.

Certainly not.

We were actually more than -- we did what we expected or a little better because the comparison to last year is not exactly the right reflection of the market because there was the accumulated revenue recognition last year.

So, the market change is 15 to 20 down, and ours is better than that, if you really make an apples to apples comparison based on what I explained just a minute ago, as well as 25 minutes ago for the first time.

But surely three months ago you must have been aware of your sales level comparison when you gave the guidance of 15 to 20% year-on-year decline.

No, this was the market.

No, no, we delivered exactly what we expected.

And the currencies have had an impact.

If you look at three to four months ago, the currencies, if there was -- they had a bigger impact than the discrepancy that you noted.

Thank you.

And ladies and gentlemen, this concludes our conference call today.

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

And actual results may therefore differ materially from the results currently expected.

Factors that could cause such differences have been identified in more detail on pages 11 to 18 in Nokia's Form 20-F and also in our press release issued today.

Thank you and have a nice day.

That concludes Nokia's 2003 third quarter conference call.

You may now disconnect.