諾基亞 (NOK) 2005 Q1 法說會逐字稿

Thank you for participating in Nokia's 2005 first-quarter 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 2005 first-quarter conference call with our host, Ms. 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 question-and-answer period. (OPERATOR INSTRUCTIONS).

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

Ms. James, you may begin.

Thank you.

Ladies and gentlemen, welcome to Nokia's first-quarter 2005 conference call.

I'm Ulla James, Vice President of Investor Relations.

Jorma Ollila, Chairman and the CEO Nokia, and Rick Simonson, CFO of Nokia, are with me today.

During the call, we will 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 the results currently expected.

Factors that could cause such differences can be both external, such as general industry and economic conditions, as well as internal operating factors.

We have identified these in more detail on pages 12 to 24 in our 2004 Form 20-F and also in our press release issued today.

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

To view the supporting slides while listening to the call, please log onto Nokia.com/investor.

For your convenience, a replay of the call will be available beginning two hours after the call and ends on Saturday midnight.

The replay will also be archived on our Web site.

With this, it is my pleasure to pass the call over to Jorma Ollila.

Jorma, please?

Ladies and gentlemen, I'm very excited about the solid Nokia execution in the first quarter, during which our net sales reached EUR7.4 billion.

This represents a year-on-year growth of 17% and our constant currency net sales growth was 19%.

Sequentially, our gross margins expanded slightly and Nokia operating margin remained stable in spite of the usual first-quarter seasonality.

We shipped 53.8 million mobile devices, a year-on-year volume growth of 20%.

New product introduction and greater share of multimedia and enterprise devices resulted in a solid ASP and hence the device revenue came well ahead of our expectations.

Network's revenue was broadly in line with earlier plans, while profitability substantially exceeded our expectations.

The overall mobile device market growth exceeded market consensus and Nokia earlier forecasts.

China and Asia-Pacific exceeded the estimates as the Chinese New Year period proved to be stronger than usual.

While in China, we were able to capitalize on that fast market growth.

The seasonal strength of Korean and Japanese markets impacted our overall market share adversely, as we do not have a material presence in those two markets.

Based on our preliminary market estimates, we believe our first-quarter market share was 32% and stable year-on-year, while declining 2 percentage points sequentially.

As said, the first-quarter mobile device market, at 170 million units, was slightly stronger than expected.

Year-on-year volume growth was up 20% and the 13% sequential decline was in line with the usual first-quarter seasonality.

North America had the usual seasonality after the Christmas period, while in Latin America the seasonal weakness was largely associated with Brazil, where the market temporarily slowed down as operators were forcing campaigns.

The Brazilian market has now picked up and we expect overall Latin American market to grow faster than the global average for the balance of the year.

In China, GSM had strong momentum, as the market is expanding to rural areas.

Simultaneously, the upgrade market, particularly to camera phones, is picking up in more mature regions.

In Asia-Pacific, Japanese and Korean markets were sequentially very strong, although down year-on-year.

Markets like India had less seasonal pick-up but continued solid year-on-year growth.

Middle East and Africa had no seasonality, and markets continued strong year-on-year growth.

In Europe, the upgrade market was driven by camera phones, while the share of wideband CDMA decreased slightly.

At 2.7 million units in the first quarter, 3G share is estimated to represent 5% of the total volume.

UK and Italy remain as the leading European 3G markets.

For Nokia, the good development in both China and Europe, Middle East and Africa continued.

In China, we are now number one by a clear margin with nine out of the top ten selling products in the biggest 121 cities.

Our strength in China continued to be product portfolio, quality and Nokia brand, together with a balanced and flexible distribution network.

In Western Europe, eight of our products made it to the top ten bestseller list, based on external estimates.

The Nokia 6230 was the Western European top seller with over 5% market share, while our entry portfolio continued to perform well.

Volume development in Middle East/Africa region was very strong, and demand of camera phones exceeded our plans.

In addition, our progress in wideband CDMA in Europe has been very positive.

Nokia's wideband CDMA unit shipments were up 30% sequentially in Europe.

Based on our market estimates, this would give us almost a 30% share in the European wideband CDMA market.

We expect our wideband CDMA share to continue to grow in Europe and globally throughout this year, as we continue to introduce new products, like the 6680, which will ship to multiple operators.

With the mobile device volume of 53.8 million and strong year-on-year growth of 20%, we believe our market share, at 32%, remained at last year's first-quarter level.

Sequentially, the share was down by 2 percentage points.

Half of the decline came from market share weakness in the Americas, where especially in North America our product portfolio is not where we want it to be.

The remaining impact of the decline relates to strong seasonality in Japan and Korea, in markets where we have very limited share.

The overall Nokia channel inventories are within normal range.

Increased sequential share of device revenue from multimedia and enterprise solutions had a positive effect on Nokia device ASPs and gross margins.

ASP was at a solid EUR110.

The biggest of revenue generators were Nokia's 6230, Nokia 1100, Nokia 6600, Nokia 6630, and Nokia 2600.

These five products jointly represent close to one-third of the total device revenue.

From a price point of view, these five products were very diverse, which illustrates the improving competitiveness of our portfolio across the board and in the mid-tier in particular.

We're making steady progress in product renewal.

In the first quarter, we announced 17 new products and started to ship 7.

The new product revenue ratio rose slightly.

In March, we started the transition from 6230, which is being replaced by a new Nokia 6230i with 1 megapixel camera.

Also, the last volumes of Nokia 3310 were sold in March, and the product has now been replaced by the Nokia 1100 series.

Over the life span of 4.5 years, Nokia 3310 sold no less than 126 million units.

The share of new product revenue is expected to continue to increase slightly in the second quarter.

Color camera and smartphones volumes developed positively.

Color now represents approximately 70% of our volume, up from two-thirds in the fourth quarter, and the share of camera phones is about 35%, up from 30% in Q4.

Smartphones accounted for 10% of volume and 25% of device revenue.

The first-quarter infrastructure market reflected normal seasonality and Nokia network's revenue of EUR1.4 billion came in slightly ahead of plan.

Sales momentum was the strongest in Latin America, A-PAC, the Middle East and Africa, where the new subscriber growth continued to drive operator investments.

Sales mix in Western Europe had a relatively high proportional 3G, while GSM sales were somewhat muted.

Network's profitability, at 15.4%, was very strong.

Our operating margin expectations, even towards the end of the quarter, were on much lower levels.

In March, our sales mix was positive, impacted by a high proportion of core network business, which traditionally has better-than-average profitability.

Meanwhile, also the share of new growth market business was somewhat lower than anticipated.

In addition, our continued effort with Accounts Receivables brought positive results in March, as we were able to collect some customer receivables previously provided for.

Rick will now cover these and also some other key financials in quite a bit more detail.

Thank you, Jorma.

Ladies and gentlemen, the first-quarter results speak highly for Nokia's execution capability.

With volume as planned and stability in ASPs, Nokia net sales reached EUR7.4 billion and a year-on-year growth of 17%.

Each of the four business groups grew year-on-year and improved sequential operating margins.

Nokia gross margin improved slightly to 37%.

Mobile device gross margin developed strongly as the share of multimedia enterprise solution sales with gross margins over 40% increased.

Nokia network's gross margins were strong for the reasons Jorma just articulated.

R&D, at 12.4% of net sales, is still clearly above our year-end 2006 target level of 9 to 10%, but I feel confident about the actual plans we have in place to reach the right levels.

The planned divestiture of our professional mobile radio business and the R&D reductions in multimedia are indicative of some of the actions that are focused to reduce R&D.

Combined with the ongoing efficiency gains, we have our targets, priorities and incentives aligned.

The first-quarter marketing spend came down after the heavy Christmas season.

Going into Q2, we see marketing activities, particularly in mobile phones and multimedia business groups, picking up, in parallel with the new product launches.

Let me move now to provide some clarity on the special items and resolve the differences to our earlier guidance.

First, special items -- we took a EUR15 million restructuring charge in multimedia R&D, and we had a further gain of EUR40 million from the sale proceeds of a proportion of our remaining holdings in the France Telecom bond.

The gain was booked as usual in financial income and expenses.

The net impact of these two items on EPS was negligible.

Second, let's look at the difference between our actual results and the previous guidance.

In our fourth-quarter 2004 conference call, we guided for a potential restructuring charge in the first quarter of multimedia business group of 60 to EUR80 million, which would have negatively impacted the EPS in the range of 1 to 1.5 Europe cents.

However, the multimedia restructuring charge was at a EUR15 million level and with very limited impact on EPS.

Again, as I mentioned, the gain from the France Telecom bond added another $0.01 to EPS.

Looking next at some of the balance sheet and cash flow metrics, inventory rotations slowed down by one day from the fourth quarter, but it's in anticipation of the second-quarter volume increases.

We believe we are at the correct and healthy inventory levels.

Our strong Accounts Receivable rotation improved by a day as a result of the ongoing work in networks and the normal good execution across the device businesses.

Capital Expenditure was at EUR112 million in the first quarter and was at seasonally normal levels.

For the full year, we continue to estimate CapEx at approximately EUR600 million, pretty much at last year's levels.

We have currently several ongoing projects to increase our production capacity in Hungary, Latin America and also our recently announced plans for a new factory in India.

During the quarter, we bought back 54 million Nokia shares using EUR651 million, which was the remaining balance of our 2004 annual general meeting authorization.

These 230 million shares were canceled in our AGM of April 7, giving shareholders the full benefit of the buybacks.

The first-quarter net operating cash flow was a strong EUR1.3 billion and as a result of good profitability and slightly lower net working capital.

I am particularly pleased to have realized this 42% increase in operating cash flow year-on-year. (indiscernible) was minus 94% and our cash and other liquid assets increased to EUR12.6 billion.

Let's take a quick look at some of the currencies.

The U.S. dollar continues to represent the biggest share of our foreign currency basket.

About half of our sales is done in either U.S. dollars or dollar-related currencies.

First-quarter reported sales growth was 17%, but on a constant currency basis, sales growth was 19%.

The first-quarter plan was based on a euro/U.S. dollar rate of 1.3345.

Actual average for the quarter turned out to be slightly better at 1.3153.

Going forward, our current second-quarter plan is based on a euro/U.S. dollar rate of 1.3226.

I discussed the expected IFRS changes and the impact on Nokia when we announced our 2004 results.

Two IFRS rule changes require retrospective application, which we have implemented.

We released yesterday our 2004 revised accounts so you could have the proper comparisons.

IFRS 2 requires companies to recognize the cost of share-based awards to employees over the grant date and vesting date.

For Nokia, this applies to 2003 stock option and 2004 stock option performance share and restricted share plans only.

The retrospective implementation of this reduced our 2004 operating profit by EUR62 million.

Revised IAS 39 no longer permits hedge accounting for treasury center foreign exchange netting, the method by which Nokia had historically used to hedge foreign currency exchange risk.

This change in the hedge accounting rules is retrospective for us as an existing IFRS user.

The retrospective implementation of revised IAS 39 increased our 2004 sales by EUR104 million and operating profit by EUR58 million.

The quarterly impact on sales fluctuated and was negative in the early part of the year, while changing to positive for the second half.

The combined impact of IFRS 2 and revised IAS 39 was an increase of EUR104 million net sales and a decline of EUR4 million in operating profit, so a lot of accounting change with little overall impact.

Coming to ASPs, the retrospective implementation of revised IAS 39 had an impact on our 2004 quarterly ASPs.

In the table you see, we presented the comparisons.

ASPs on the first line are based on the hedge accounting as done in 2004.

ASPs on the second line are based on calculation using revised IAS 39 standard.

Transitioning from one standard to another can be confusing but looking at the Q4 to Q1 ASP dynamics, it's fair to say that using either of the two accounting rules, the ASPs would have been sequentially up from our previously reported Q4 ASP of EUR107.

Going forward, our ASP calculations and disclosure will naturally follow the new revised IAS 39 standards.

Importantly, we have also changed our treasury center hedging practices to obtain hedge accounting treatment under the new rules.

With this, I'd like to turn it over to Jorma.

Jorma, please?

Thank you, Rick.

I'd like to conclude by covering the second-quarter guidance and overall industry outlook in a bit more detail.

For the second quarter, we currently expect that Nokia sales are to range between EUR7.9 billion and EUR8.2 billion and that Nokia diluted EPS is to range between 15 and 18 euro cents.

Just as a reminder, our 15 euro cents EPS second quarter last year included 3 euro cents of positive special items, so the comparable second-quarter EPS last year was 12 euro cents.

For the second quarter, we expect mobile device market to exceed 170 million units, slightly up sequentially.

We also expect Nokia to grow faster than market, i.e., to gain share.

We are now raising our 2005 forecast for the overall mobile device market as we expect the mobile device industry volume to reach approximately 740 million units.

This represents an annual volume growth of approximately 15% and we expect the value growth to be somewhat less.

In 2005, the mobile infrastructure market is expected to grow slightly in euro terms.

The drivers for the infrastructure business are expected to be the continued strong subscriber growth, 3G wideband CDMA, network modernization and services growth.

Our target is to grow faster than the market and gain share in both mobile devices and in infrastructure in 2005.

Looking at the results of the first quarter, it is evident that we are making progress on our top five priorities, great products, customer satisfaction, R&D effectiveness, better alignment of demand supply network and driving the Nokia into an advantage.

In the first quarter, we were able to see the benefits of an improving product portfolio, as we saw clear market share gains in the markets where our portfolio is the strongest, China and Europe, and also in our improved product mix, which in the first quarter was driven by an increasing share of multimedia and enterprise solutions.

This excellent performance by multimedia and the enterprise solutions was instrumental in helping Nokia device business deliver strong ASP and up margins in a traditionally difficult seasonal quarter.

I'm not really satisfied yet with our progress in reaching our goal of clear product leadership in the industry, but the foundation is excellent as we continue to build on our world-class brand and global leading scale manufacturing and logistics.

We are making solid progress.

With these valuable assets, we strive to continue to deliver value for shareholders, leveraging our already excellent financial flexibility and cash generation capabilities.

Thank you, Jorma.

We are now to continue with a Q-and-A session.

In order for us to be able to remember and answer the questions properly, would you please limit yourselves to one question only?

Operator, please go ahead.

Thank you, Ms. James. (Operator Instructions).

Tim Boddy with Goldman Sachs.

Thank you very much.

Congratulations on, yes, another excellent set of results.

I suppose, if we are looking at your ASPs, particularly under the new IFRS reporting, it seems you've now had five quarters of ASP stability.

So the question I have is, is this now the bottom for ASPs, or are we simply seeing the benefits of Nokia improving its position and recovering some lost ground in the mid to high end, at which point we may see ASP pressure resume?

Thank you.

I mean, that is obviously a very difficult question to answer.

I think the -- you know, clearly, if we look at the last couple of quarters and look at what competition has been reporting, we see quite consistently ASPs going down, whereas we have had the opposite because we clearly have had a strengthening of the portfolio, not one or two products here and there but actually broadly strengthening product portfolio, and that particularly coming from the mid end but also on the high end, and our strength has continued in the low end, where we have -- where we are holding a very, very strong share.

I think the -- when you look at the global market, you know, it's really a balance of how the subscriber growth in the emerging markets is continuing and how the replacement market is performing.

So, it's the balance between the two and I think the -- if we look at what has happened in the last six to nine months and particularly what will happen, in our view, this year is that the total number of subscribers is increasing faster than what we initially have thought, so thereby our 740 for the full year is not a high number.

I mean, it is -- you know, we feel that is where it's going to go and that will mean that the -- even if -- from our portfolio point of view, you could expect raising ASPs, and particularly the Franco be appearing that you will be seeing from here on will be quite apparent in the middle and the high range.

You might be expecting an increasing -- see increasing ASPs, simply looking at the portfolio but such a strong growth in the emerging economies will balance it most likely, so that we're looking and we would be quite happy in this current market situation with a flattish ASP development.

I think it kind of speaks well for our strength in every way, both in our product in the mid and higher range as well as our strength of market share, which is benefiting us when the emerging markets are booming.

Okay, thank you.

We will take the next question, please.

Wojtek Uzdelewicz with Bear Stearns.

Thank you.

Good numbers.

Congratulations!

Jorma, just a question -- you guys have done a very good job on the low end historically, built good profitability.

Now you've starting moving more towards the mid and the high-end, which I think was a weaker spot in the past.

That's very encouraging.

When you look at your product lineup, and -- what do you think -- what are you most optimistic from your product portfolio, or went you show, you talked to some customers with some of the products, among things like music downloading or push e-mail, or like you launch communicator?

Can you give us some sense from your mid and the high-end, how do you see the year playing out?

What's the things that get you more excited or what's the most constructive feedback you're getting from your customers as you share some of your development plans with them?

That gives us sort of confidence that you continue to regain that or expand your market share at the mid and the high end?

Yes, I mean, first of all, first of all, it will come from a variety of sources, Wojtek.

It's both within our mobile phone division, which has some real great products in their lineup for the second half of the year, particularly in camera phone segments, where 3G technology, etc., as well as from multimedia and the enterprise solutions.

When you look at the multimedia, music is very interesting, so we will have our own introductions of our music devices for later this year coming into shops and they will be very interesting, you know, very interesting imaging devices, etc.

So it is the breadth of the portfolio rather than one or two products, Wojtek, that we are getting the response to when we are sharing our views with the operators and the general otherwise.

So I don't think there's one area.

There's a lot of confidence which we are getting from the direct feedback, from the channel.

At the same time, and I think I might just add -- because when you said that you operationally have been strong in the low end, I tell you, we're not just looking at 1100 and looking at the huge numbers that we're shipping out to 3310.

We have both product concepts as well as a low-cost engine development, which continues to be underway in steps.

So, we will be very, very competitive however low you go.

That will continue to be a very important part of our concept of optimizing profit in different segments of the marketplace.

Inge Heydorn with Deutsche Bank.

Good afternoon.

Congratulations once again.

I would like to have a little bit more detail on the guidance on Q2.

My initial response is that the sales numbers are quite aggressive or quite ambitious, but the margin implied by the 15 to 18 cents on EPS is a quite cautious one.

Could you give us a little more detail why this is?

You already stated earlier that marketing expenses sequentially will be up but is that the whole explanation to the cautious guidance on the EPS level?

Yes, if I start and Rick can put his finance man touch into it.

I think, when we look at the revenue number, it's clearly based on what we know about our order book as we speak and you know, when we have come out today with a view on the revenue number.

There's a lot of -- there's a lot of good buzz in the market into the products that we announced in late last year and early this year and which are already shipping, so I think the second quarter really looks strong in that respect.

We are not sort of looking at announcing something next week and then hoping that we will have an impact of that in June.

It's rather things that we already are shipping and it's giving us quite a bit of confidence on how our share as well as volume are going to evolve in the second quarter.

Then on how that works into the bottom line, on the fixed-cost side, you know we look at R&D being flat and marketing costs gearing up sequentially.

We had high marketing costs in the fourth quarter, lower in the first quarter, and they will be higher in the second quarter because of a lot of the campaigns, a lot of, you know, a lot of introduction in volume of some of those products, as I indicated.

On the direct cost side, you know, it's obviously a mix question, which is not very easy to forecast in the early part of the quarter, which can then influence the margin and give you an upside if there is such.

I think we -- you know, this is a good guidance ,taking into account some of the competitive pressures, which there always are, so we necessarily have to be prudent but it also indicates a good level of confidence that we are making continuous, solid progress ,as I noted earlier.

Rick, do you want to add something?

Well, I think you had made a comment about the aggressive sales growth, but I would point out we are coming off of a fairly low level in Q2 at about 6.5 billion from 2004.

In terms of putting a qualitative adjective on the 15 to 18 euro cents, I don't put qualitative adjectives; it's just that's our best viewed ,as Jorma had pointed out, and we talked about the effect of marketing.

We've been very conscious of indicating that we believe we need to gradually take marketing up as a percentage of sales and we need to take it up while we bring R&D down.

Those don't always happen simultaneously within a quarter, as you know.

I think that explains the guidance that we have, both the topline and the EPS.

Thank you and we will go to the next question, please.

Mike Walkley with Piper Jaffray.

Thank you.

You talked about gaining share on the UMTS side.

I was wondering if, when you took up your numbers to 740, if you could share with us your breakout of WCDMA phones?

Then briefly for Rick, can you maybe put your share buyback -- share with us what share count is inherent in your Q2 guidance?

First of all, on the (indiscernible) hard to figure if this is one question, so I will -- (technical difficulty) -- to Rick.

But the first one, on the wideband CDMA, I think we said ,three months ago, that the full-year wideband WCDMA sales could reach 70 million.

You know, that was our early forecast for the year.

When we look at now what has happened in the first three months, or three and a half months, it has been somewhat slower than what we expected.

We would have expected a somewhat brisk take-up, so it's probably -- we're not going to probably not meet it, 70 million total global figure.

Our share in Europe is something really what we have been looking at.

Because of obvious reasons, we were not in the early phase in the Asian markets, Japan, etc.

So you know, we are pleased with what we've been able to do, and that perhaps can also be noted, that we never expected drama in terms of wideband CDMA take-up, so I think most other people have been more aggressive.

I think the development has been somewhat slower than what we expected but towards the end of the year, we will see a full year which is pretty healthy and we're certainly ready for that.

Rick, on the buyback?

Yes, Mike, thank you.

As I mentioned earlier, we cancelled the full 230 million that we bought back in the last cycle, so we're standing at about 4.43 billion share count, and we have authorization for the entire year's cycle, April '05 to '06, to buyback 10% or excuse me, 443 million shares, so you should use that 4.43 billion number because we don't predict at a time what our buying will be and we've got a whole year to execute.

Thank you and we will go to the next question, please.

Stuart Jeffrey with Lehman Brothers.

A quick question on Nokia network's margins obviously very robust in Q1, which you assign to the core networks as much as anything else.

Is there any implied margin softness in Q2 in your guidance?

Is there a sense that maybe some Indian contracts increase as a percentage of revenue?

You know, certainly the margin in the first quarter was higher than what we expected and what we indicated in our communication to you.

I think I said to you, in a conference call three months ago, that we would be looking at towards end of the year to be reaching a sort of a level of 14% and that that's kind of what we would be happy with and that early part of the year would be a somewhat lower.

Fine.

We are already there now and that is (indiscernible) some of those mix questions about the core network as well as the amount of deliveries into low-margin emerging economies were not quite as high as we expected.

Some shift to the second quarter, but I don't really see a particular softness as such. 15% is a little on the high side.

We need a good mix of some sort for that 15 to happen.

It could be a little lower because that's the kind of a steady-state that we indicated to you three months ago, and that's where we are.

But we're not far from what we think we should be able to execute in the second half as a matter of course.

(indiscernible) it's just about your lower gross margins and higher SG&A that takes the (inaudible) margins slightly down sequentially?

That could happen because, as we noted, the 15 is a little bit on the high side, so -- but the gross margin we expect to be basically on the 40% normalized level, so we're not far off here.

Thank you and will go to the next question.

Tim Long with Banc of America Securities.

Thank you.

Just a question on the component side.

Could you just let us know if there were any component issues impacting supply at all and at what magnitude in the quarter?

Also, it seems like there's some areas where excess supply components.

Could you just talk a little bit about any potential benefit on the margin side from better procurement or component pricing?

Thank you.

Yes, this is an area where one really feels good to talk about, because I think we have a component sourcing activity second to none in the world, including any industries with electronic gadgets, so our folks are just during a fantastic job.

When I look at the targets that we've set for the year on a quarterly basis, on how we plan or incentivize our people to get the component prices down with the volumes going up with quite significantly and with so many ramp-ups, etc., we have met those targets and they were aggressive targets.

So, if you look at our direct costs, they have been positively impacted by really good development in this area.

There were some sporadic shortages of certain components in the first two months, which led into some mix change in the mobile phone area, but those we could handle.

There is no glut (ph) of any particular components, and I think we are -- you know, it's normal hassle.

You know, you've got a problem today or several per week which you solve when the next week comes and you know, business as usual in that respect with good execution.

So, I don't think our volumes were constrained other than a bit in the first and second month during this quarter, based on product shortages.

There were some in the early part of the year, but now we are in good shape.

Thank you.

Thank you and we will go to the next question.

Kulbinder Garcha with CSFB.

Thank you.

A question to Jorma and Rick.

Could you please give us a bit more insight as to what's happening in the Americas, why you think you've lost share in Q1 and what the actions are in terms of a share recovery and more specifically when we could expect one toward (indiscernible) in 2005?

Thanks.

Well, I don't think there's anything that we would not have covered in the first quarter, in the annual conference call three months ago in January.

There has been a product transition and a lot of change in the operator arena.

With product transition, I mean transition from CDMA to GSM, and the changing role of CDMA in many ways.

We were not sharp enough in addressing those changes; we're not where we want to be in terms of our product portfolio now.

We are addressing those issues.

We're working much more closely now with the key operators who really want to work with us, and they are given us all the support in building a portfolio which will be competitive.

It will take a bit of time.

As I said three months ago, you will see sometimes towards the end this year, but really we're building it towards next year, and we take a long-term view here.

Obviously not happy with where we are, and we say it openly, but we will get there.

So do I understand it correctly?

You don't see many share recovery in the Americas in the Q2 guidance of improving share globally, (indiscernible) other regions I assume then?

I think we're taking a conservative view.

We are not putting any particular recovery to be there in the U.S.

It will take a bit more time.

That is a conservative view, I accept that, but I think it's better work that way.

Kulbinder, this is Rick.

I will add that we're going to continue to invest in the U.S. to realize this recovery but again, the timing of that and what we've articulated over the last 3 months isn't different.

We will continue to invest in what we need to do in the medium and the long term to turn things positive in the U.S, but it's work in progress and we need to look across to 2005 for that.

Just one other question, Rick, for you.

With regards to the long-term marketing guidance of 17 to 18% in devices, you're basically varying Q1 give or take and you've got the product portfolio that's going to continue to improve your shares (indiscernible) I understand the near-term volatility (indiscernible) in Q2.

So, if you just look at (indiscernible) your long-term margin guidance looks achievable ahead of schedule, would you agree with that?

Well, as you said, Kulbinder, our device margin looked at about 17% in Q1 but to my mind and I think we haven't talked enough here about the strength of mobile phones and their operating profit, 19.2% in the quarter, up even slightly from the fourth quarter last year, so we are at that 17 to 18% level.

I know many people were skeptical last year when we put that target out but if you execute well, if you really exercise the benefits that we have in scale, in brand, in logistics and the focus continuing on what we need to be to be the most competitive at whatever price, as Jorma said earlier, but I think those remain our targets.

No change there.

You know there is volatility quarter-on-quarter but those remain both aggressive but realistic targets and I think the results of the last two quarters show that that is realistic and achievable.

Thank you, Kulbinder.

We will go to the next question.

Edward Snyder with Charter Equity Research.

Thank you.

Back to North America, it's clear that you've got a product plan to regain share there too but does that include maybe ODM-ing devices from alternative suppliers that you've got a long-standing relationship with TI (sic) but obviously the market share in the U.S. has not recovered over several years of working on, for example, CDMA with the big mix of the sales here and knowing historically Nokia has not looked at alternative vendors in that regard but given the situation and kind of the continued problems you have in the market share here, would that be in the plan if we don't see a recovery in the next several quarters? (sic)

A couple of -- (indiscernible).

First of all, TI is our technology partner, and that's not an issue in terms of addressing the U.S. market.

It's a product portfolio, product-concept issue addressing the regional needs of a product portfolio more than anything else.

It's not the issue of TI versus TI's competitors and us not getting good service.

TI is a fantastic, good partner and is really part of our global success and has been so for the last ten years.

So I don't think that route is not usual to pursue.

I don't think there's any opening there but it's an issue about working with product concepts, working with the carriers so that they get the product that they appreciate, because it's a very carrier-driven market, as we all know.

We are certainly turning a number of stones around to make sure that we get things right, but we are convinced that we have those concepts and just watch this space, we will be coming.

Would you say that Nokia may be a bit more open to using ODMs for the American market, at least temporarily, than they have in the past?

Well, I don't think that business model is something that, long-term, will bring great gross margins and be a winning concept.

I think there's so much technology to be brought in.

Also, if you look at the U.S. marketplace, there will be wideband CDMA introduced before long; that will be a major shift.

ODMS will not be a particular help there; it's a grasp of the end-to-end concept and support of services, which is much more important.

ODMs can do a job in particular instances, but you know, we would -- as a matter of course, we would really look at this as a gap fill or as a temporary solution, but we are not religious, either.

But don't look at that as a solution.

I don't think it's a solution for anybody.

It can be for a quarter or two, but that is sort of a flash in the pan and would not work for us, who have local long-term -- global long-term ambitions to being a leader, which we are globally and we will simply need to consolidate that by addressing the regional needs in the Americas.

Thank you, why don't we go to the next question, please.

Jeffrey Schlesinger with UBS.

Thank you.

Rick, just to first clarify, you mentioned that R&D would be flat and that sales and marketing would be up.

Were you referring to the year-ago period or was that sequential?

Then the second part of my question is, what happened with respect to the outlook on the (indiscernible) that would be taken in the quarter?

What changed in the thought process that led to a significantly lower charge?

Is it now that you are more confident with the top line and you can grow your way to those R&D as a percent of sales figures versus cutting costs, or should we assume that the cost-cutting is over, there?

If you could help us understand what happened in the quarter, that would be great.

Thank you.

Okay.

First of all, the answer to your first question is that my reference was sequential, flat R&D marketing costs up.

Then secondly, what happened with the multimedia restructuring -- we went on with restructuring; we cut some fat and we cut some inefficiency and a couple of projects which were about to go nowhere.

Those actions just need to be taken every now and then.

We were able to reassign some real good teams to do other type of work, background technology work going for the future, very specific projects which certainly are something different than going nowhere.

So, there was a reassignment of people also across business groups, so this sort of announcement leads to a lot of healthy rethink within the organization.

That was part of what we wanted and that's exactly what we got.

You also, Jeff, noted that are you more confident?

Are we more confident about the top line number?

Well, if we look at the Q1 and the guidance of Q2, you know, certainly we are, because we are seeing Q1 happen and it was better than we expected even, and Q2 we see our workbook, we see what's happening, the strength of our product portfolio.

Yes, we are a bit more confident!

Are the cost cuts over?

I wouldn't like to answer that question.

I think our project of increasing the R&D efficiency has gone through its first phase, first step.

We have got some interesting, good results and we're going to the second and then the third step, and that will take us towards the end of 2006, when we have some of those -- where some of that, some of our metrics leads us.

So we feel that we are very well on track with that project, and what is so good to see is that the organization, you know, doesn't need to work under -- where is the next cut going to be?

They are now working on, you know, how do we get the project cycle time down and how do we improve efficiency in every, every different way?

That is very much ongoing.

That I think gives more confidence to us than many other things.

That's helpful.

Jorma, would you just comment on sales and marketing on a year-over-year basis?

Would you expect it to be up year-over-year?

I would, yes.

We will go to the next and our last question, please.

John Bucher with Harris Nesbitt.

Thank you.

Jorma, you answered the question on the R&D efficiency.

It sounds like you are largely through the first phase and the next phase will go through 2006.

I'm wondering, on the enterprise side specifically, you talked about some progress that you're expecting in new devices and mobile phones in the second half.

Might we expect the same in the enterprise side in the second half, or when might we see an expansion of that portfolio?

Thank you.

You know, we always knew when we were drafting our business concept and how we will address this with Mary, when she joined us 15 months ago -- we always knew that this is going to be a much different job from what we typically have seen in the mobile devices, where you get a good product out and you then win the customer confidence and there you go; the distribution does the rest for you and then you start working with the next concept after what you have learned.

Now, this is much more difficult now with enterprises because you've got to bring the corporate CIOs and the demanding executives, SMAs (ph), etc,. a solution which addresses many other things than just the device.

The has to be the supporting software; there has to be the securities solution; there has to be the end-to-end experience.

Very often, there is a server solution involved, be it access to e-mail in one form or the other, and we are not working on a typical 18-month timescale that a handset or a device project or a business would be.

Clearly, we hope there will be signs of improved volumes towards the end of this year, but it's really 2006 that we're looking at.

There will be interesting product introductions this year but really, the major impact will come in 2006.

We're very pleased with the progress in the way in which we've been able to profile the product concepts, so you know, we know what to do long-term.

Now, it is a question of working those concepts through and putting it in practice.

As I said, this will be more difficult but the pay-off will then be more sustainable and longer-lasting than it typically is in a quickly-changing device business.

Thank you, John, and thank you, ladies and gentlemen.

This concludes our conference call.

I would just like to remind you that, during the call today, we have been making a number of forward-looking statements that involve risks and uncertainties and actual results may differ materially from the results currently expected.

Factors that could cause such differences can be identified in more detail on Pages 12 to 22 in our 2004 Form 20-F also in our press release issued today.

Thank you, and have a nice day.

This concludes today's conference call.

You may disconnect at this time.