諾基亞 (NOK) 2005 Q3 法說會逐字稿

At this time I would like to welcome everyone to Nokia's third quarter, 2005 earnings conference call with our host, Miss Ulla James Vice President of Investor Relations. [OPERATOR INSTRUCTIONS] I would now like to turn the call to our host, Miss Ulla James.

Miss James, you may begin.

Thank you.

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

I'm Ulla James Vice President Investor Relations.

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

One house keeping matter before we kick off.

Nokia 2005 capital market days will be held in New York City on December 1, and 2, at Hilton, New York.

The event will begin mid-day on the first with senior executive presentations and demos.

Followed by cocktails and dinner with Nokia management.

Day two will follow-up with a full day concurrent presentations.

The invitation for the capital market days will be going out later today and will contain registration details and hotel reservation information.

For further information please contact Nokia Investor Relations.

Looking forward to seeing you in New York.

Operator, we have a sound on the line.

During the call, we will be making forward-looking statements regarding the future business and financial performance of Nokia and the mobile communication 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 economic and industry conditions as well as internal operating factors.

We have identified these in more detail on pages 11 to 22 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 on to Nokia.com/investor.

For your convenience, a replay of the call will be available beginning two hours after the call ends Tuesday at noon.

The call will also be archived on our website.

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

Jorma, please go ahead.

Ladies and gentlemen, Nokia continued to show great progress in the third quarter.

During the quarter we shipped a record 66.6 million mobile devices.

Representing year on year growth of 29% and sequential growth of 9%.

Nokia also shipped its 1 billionth mobile phone during the quarter.

According to our market estimates, our third quarter device market share reached over 33%, up strongly year on year and sequentially stable.

Nokia continued to show strong revenue growth.

Revenue growing 18% year in year to 8.4 billion euros.

Third quarter operating profit grew 19% year on year and diluted EPS grew 33%.

This was Nokia's highest quarter EPS growth in almost five years.

Third quarter operating cash flow grew 140% sequentially to 1.2 billion euros.

During the quarter, we bought back almost 100 million shares.

Over double what we bought back in the second quarter.

Finally, I'm very happy to see that we continued to show great improvement in our product portfolio.

It's hard for me to remember a time in recent history when we have had a better reception for our new products.

During the third quarter, the mobile device industry reached an important landmark as the number of global subscriptions exceeded 2 billion representing 31% cellular penetration.

The third quarter mobile device market at 199 million units was stronger than expected with year on year volume growth of 25%.

And sequential growth of 9%.

On a sequential basis, the North American market was up slightly.

Latin America was down sequentially from a very strong seasonal second quarter, but still up over 30% year on year.

The China area market was up sequentially from a weaker seasonal second quarter.

The APAC market was up 11% sequentially.

The year on year growth in APAC was driven by over 40% growth in both India and southeast Asia Pacific markets.

The market in EMEA was up 16% sequentially and 30% year on year.

All reasons of EMEA grew sequentially but the strong year on year growth was driven mostly by Middle East and Africa which grew almost 60%.

According to our estimates, Middle East and Africa now represents over a quarter of the total EMEA market.

The wideband CDMA market was up over 40% sequentially.

With 12 million units shipped globally.

We estimate that the wideband CDMA market this year will be slightly below 50 million units.

Our third quarter mobile device market share increased year on year by 33%.

Sequentially our share was stable.

Year on year we grew share most significantly in China and APAC.

Our progress in China continues to be excellent.

Our share in China grew 12 percentage points year on year.

Nokia has strengthened its market share position globally and is number one in all of EMEA, number one in China, and number one in APAC.

Most importantly, Nokia continues to be number one in the fastest growing markets of the world.

We are number one in India, number one in Russia, number one in Middle East and Africa, and number one in southeast Asia Pacific.

Sequentially we grew share most notably in APAC and China.

Our share was down sequentially in Latin and North America.

In Latin America our sell-out share was down significantly less than our sell-in share.

Year on year market share development in EMEA was strong.

While sequential share in the region was stable.

In north and western Europe our share was up sequentially.

With well over 2 million units shipped in the third quarter, Nokia continues to be number one in the wideband CDMA market.

Nokia now has a very strong wideband CDMA product portfolio led by the Nokia 6630, 6680 and N-70.

The Nokia 6680 is the world's number one selling wideband CDMA phone.

We believe that our global market share will grow in the fourth quarter driven by gains in geographic regions and in wideband CDMA.

Overall Nokia and industry channel inventories remain within normal range.

Nokia third quarter device ASP of 102 euros was down 3% sequentially and 6% year on year.

The ASP decline continued to be driven by high growth in emerging markets.

However, the sequential ASP trend benefited from our success in China, APAC, and Europe, Middle East and Africa.

Nokia continues to have the most diverse product portfolio in the world.

In the entry level the Nokia 1100 family continues to be our top selling product family selling over 15 million units in the third quarter alone.

In the mid range, the highly successful 6230I was our fourth best seller in volume and our best seller in revenue.

In fact, the Nokia 6230 family has sold close to 22 million units cumulatively.

Making it the best selling mid range phone in history.

The Nokia 6230I is expected to hit record monthly volumes in Q4.

In the smartphone 3G segment, the 6630 and 6680 were not in the top ten for volume but were number three and number eight in revenue.

The 6680 was also one of our top three products in profit contributions.

In terms of other Q3 product highlights, entry level phones using Nokia's new low bus engine are ramping up well.

The Nokia 1600 and Nokia 6030 have already reached millions in volume and Nokia 1110 started volume ramp-up in September.

The Nokia 6101, the mass market clamshell phone has been very well received after only starting shipments in the second quarter, it was already one of our top ten phones in revenue in Q3.

The 6101 has been very popular in most regions, especially in the U.S. and Latin America and demand has outstripped supply.

The stainless steel Nokia 8800 with its sleek design has become the must-have premium product among the fashion and style enthusiasts.

Despite selling in comparatively lower volumes, given its premium segmentation in Q3 it was one of our top 20 phones in revenue and top five in profit contribution.

The smartphone market is one of the fastest growing and highest value segments in the device market.

Nokia continues to be number one in smartphones with over 50% market share.

In the third quarter, smartphones made up 11% of our device volume.

But were 26% of our revenue.

One of our first smartphones, the Nokia 6600 surpassed the 10 million mark in cumulative shipments in the third quarter making it the best selling smartphone in history.

Also in the third quarter, Nokia began shipping Blackberry Conmnect enabled Nokia 9300 enterprise smartphones and Nokia 9500 communicators to over 30 operators and distributors in Europe, Middle East and Africa, Asia Pacific as well as the United States including Cingular in the U.S.

The third quarter infrastructure market reflected normal seasonality and Nokia networks revenue of 1.6 billion euro was sequentially down accordingly.

Network revenue was down year on year in China, EMEA, and North America.

Revenue was up year on year up in APAC and Latin America.

Network revenue was down sequentially in Latin America, China, and EMEA while up sequentially in APAC and North America.

Wideband CDMA sales were approximately 20% of total network sales in the third quarter.

In the third quarter, Nokia won a $125 million managed services GSM EDGE network expansion deal with Bharti Tele-Ventures in India.

We also announced we would establish a global networks operations center in India by the end of the year reflecting the importance of our growing services business.

In 3G, wideband CDMA at the end of September there were $34.5 million 3G wideband CDMA subscribers globally.

And there are 88 networks in operation with Nokia supplying nearly half of these.

Rick will now cover the key financials in a bit more detail.

Thank you, Jorma.

Ladies and gentlemen, the third quarter results and our record device volumes speak highly for Nokia's execution capability.

As Jorma said year on year sales growth was 18% driven by strong performance of mobile phones and multimedia.

The mobile device market continues to be robust and demand for Nokia products continues to be extremely strong especially going into Q3.

As earlier predicted, Nokia gross margins trended down to 33.7%.

The decline was a result of lower gross margins in mobile phones, multimedia and networks.

Lower gross margins in mobile phones were driven primarily by a higher mix of entry level products.

Gross margins in multimedia were down due to normal product life-cycle related pricing reductions.

Networks gross margins declined largely due to the combined effects of a very competitive market, our investments in building a presence in the growing network services market and our ongoing push into the new growth markets.

During the quarter, we managed our cost well and OpEx decreased over 300 basis point sequentially as a percentage of sales.

The decrease was a result of the combined effect of lower research and development and marketing.

Both in absolute terms and also as a percentage of sales.

Even excluding the 87 million euro positive effect of one time items the third quarter OpEx would have been down sequentially by over 200 basis points.

Third quarter operating profit was up 19% year on year, and diluted EPS grew 33%.

Let's take a look at the special one time items.

In the third quarter, we recorded the following one time gains.

A 61 million euro gain from the divestiture of the TETRA business. 42 million of which was booked in networks and 19 million in multimedia.

Both were booked in other operating income for the respective business groups.

Secondly, 8 million euro gain from real estate sales.

The gain was booked in common group in other operating income.

And lastly 18 million euro gain in networks from the sale of a minority investment.

The gain was booked in networks and other operating income.

The total impact of these items was a positive 87 million euros in operating profit.

Reported operating profit was 13.7% in Q3.

Without the gain it would have been 12.6%.

The impact of the gains on EPS was a positive $0.015.

Let me now say a few words about Telsim, the operator in Turkey.

As has been publicly disclosed the Turkish government has announced its intentions to sell Telsim to the highest bidder in an auction scheduled in December.

As also previously reported Nokia has reached agreement with the government of settlement of our financial claims subject to the successful completion of the sale.

As of now, we do not have any Telsim one time items indicated in our plans, estimates nor any form of guidance.

And I do not see any currently in any of your models either.

Given the inherent uncertainty of this type of auction, I think this is the proper approach.

A few brief comments on currency.

The third quarter reported year on year sales growth was 18%.

On constant currency sales growth was 23%.

On a sequential basis currency impact on sales growth was negligible.

Going forward, our current fourth quarter plan is based on a euro/U.S. dollar rate of 1.2174.

Looking at the balance sheet and cash flow items, inventory increase is expected sequentially in the third quarter in anticipation of the strong holiday selling season.

Accounts receivables were down sequentially due to sales area mix.

The relative share in North and Latin America was down from the second quarter.

Operating cash flow was 1.2 billion euros in the third quarter, up more than double from the 510 million euros in the second quarter.

Capital expenditure 156 million euros flat with the second quarter.

For the full year we continued to estimate CapEx will be approximately 600 million euros, pretty much at last year's level.

Gearing was a minus 82% and our cash and other liquid assets was at 11 billion euros.

Down slightly from the second quarter as result of the sizable share buy-back in the quarter.

During the quarter we did repurchase 99.6 million Nokia shares for a total of 1.3 billion euros.

Both the number of shares and the value of our buy back was more than twice what we bought back in the previous quarter.

During the third quarter we employed the so called 10-B-51 Safe Harbor for our buybacks.

This allowed us using an automated trading algorrhythm to buy back shares in an unencumbered manner and to materially extend the repurchase period into the quarter.

We intend to employ the 10-B-51 for the fourth quarter buybacks as well.

As a reminder our current buyback program authorized by the last AGM is for 10% of the stock or a maximum of 5 billion euros.

Today we have repurchased 140 million shares for a value of 1.8 billion euros.

Our intention is to execute as much as possible of the buyback program which ends in March 2006.

With this I would like to turn it over to Jorma.

Jorma, pleas.

Thank you, Rick.

I would like to cover the fourth quarter market and as well as Nokia outlook.

We have once again raised moble device industry 2005 volume outlook and we now expect the overall mobile device market to reach approximately 780 million units.

The fourth quarter industry volumes are expected to reflect the usual holiday seasonality.

And grow compared with the third quarter 2005.

We feel very good about our position in the fourth quarter.

In the fast growing emerging markets we are leveraging our leading position number one brand, excellent quality, well placed logistics, and a renewed entry level offering.

In the developed markets we are capitalizing on the momentum of our vastly improved product portfolio from the entry level to 3G.

Nokia mobile device volume growth is expected to exceed the overall market growth in the fourth quarter.

With our market share expected to increase both year on year and sequentially.

Nokia's device average selling prices are expected to decline somewhat sequentially.

In the fourth quarter, the mobile device volumes from lower ASP regions especially Latin and North America are expected to represent significantly higher production of our overall device volumes sequentially.

We expect the overall infrastructure market in 2005 to be slight to moderately up compared with 2004 in euro terms.

Given that a significant part of operator's current investments is taking place in markets where our networks business has not historically had a presence such as Africa.

We expect our fourth quarter network sales to be down year on year after the exceptionally high level of Q4 sales levels last year.

Before we begin the Q&A, I would like to close with a few comments about our product portfolio.

Nokia is a product company and our success starts with our products.

I'm very proud of the inroads we have made over the last year.

So far this year we have launched 44 products.

The products we have launched increasingly showcase our strength in leadership, in design, form factor, color prints, cameras, et cetera.

We have also increased overall specifications and continue to strengthen our technology leadership.

With, for instance 3G Wi-Fi, Voice over IP, et cetera.

We are also addressing key new areas of growth.

We are executing strongly in imaging and we have also launched now dedicated music devices and enterprise products.

In the fourth quarter we start shipping 11 new products including three of the very popular slider phones, the Nokia 6111, 6270 and the mass market wideband CDMA 6280.

In addition, in the last few weeks alone we have launched a plurality of form factors and products for a variety of segments.

The Nokia 2652 the new entry level clamshell phone shipping already in this quarter.

The Nokia 3250 twist up music phone with dedicated music keys, capacity for up to 750 songs and a great too megapixel camera expected to ship in Q1.

Last week we introduced a Nokia E-series for enterprise starting with three great new handsets.

Nokia E-60, E-61, and E-70.

All with excellent specifications including wideband CDMA, Wi-Fi, and Voice over IP, and worldwide availability in Q1.

Yesterday we added three new phones to our highly successful fashion collection.

The Nokia 7360, 7370, and 7380.

All with great features designer materials and yet again shipping in Q1.

And we are not done yet.

We have more new product announcements coming.

Thank you, Jorma.

We are now to continue with the Q&A session.

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

Operator, please go ahead.

Thank you Miss James. [OPERATOR INSTRUCTIONS] Your first come calms from Tim Long of Banc of America Securities.

Just a question on one of the product transitions.

You mentioned that starting volume shipments in September of the 1110, could you talk a little bit about how quickly we should expect the 1110 to replace the 1100?

How many quarters should that take and will it be linear?

And also if you could just give us a sense of what the potential margin in ASP difference for that key product would be.

Thank you.

Yes, I think as I indicated, the new engine which is the base for that particular phone, 1110, has ramped up very well.

From the outset.

So we can expect a very speedy ramp up from here on.

I think a little speedier than what you would typically expect.

It is a very good base.

The engine gives a very good base for the product, and it is expected to -- only to take a couple of quarters to get very significant volumes as opposed to significance.

As opposed to significance.

So if you look at that engine and the 1110, it really will be bypassing 1100 in the course of Q1.

And as you know, 1100 has been a huge seller.

So it is a very speedy ramp-up.

The 1600 and the 6030 are also shipping in the same way at an accelerated pace compared to what we typically would see in ramp-ups for such products which at a very early phase reached volumes of tens of millions rather than millions.

So I think it's extremely encouraging to see our delivery organization being able to ramp-up that well now that the volumes are huge and approaching pretty fast a sort of 100 million mark, 100 million per quarter.

So with some of these key products you are getting tens of millions on a particular engine which is the base for those products.

So it's a very good one.

Obviously it's also good news in terms of margins because, yes, it has a higher margin contribution than the 1100 series would have -- would do.

With a -- combining those two in the next couple of quarters we have a lot of leverage in positioning the products and it really positions us well in terms of how we can cover the low end.

In a customer friendly way at the same time leaving us a nice bit of money on the table.

So yes, it is a good situation, something to look forward to.

And something that really gives us perhaps a little bit of perspective I hope to the analysts who are saying that a couple of percentage points of ASPs going down would be a big issue because it is not.

If we have this cost issue under control as we so nicely have going to this new engine and the family of phones.

It's also being demonstrated already in China with the 6030 which is doing very well.

So that's part of the story, so to speak.

But the 1110 as you said -- as you expected or suspected I understand is a case in point in how we cover the low end during the next four to eight quarters.

And that could help fend off the new competition in the low end?

It certainly will give them a run for their money.

Thank you, Tim.

And we will take the next question, please.

Your next question comes from Inge Heydorn with Deutsche Bank.

Two quick questions.

Firstly you mentioned already you had some problems in Latin America with inventory build-ups in Q2, that's a difference on how you are between the sell-out and the sell-in in the quarter.

Is that corrected now going into Q4?

And number two, Nokia networks margins were quite bad given that you had one time effects in the quarter, if you exclude them they was down at 6, 7% in Q3.

Could we expect the recovery already in Q4 in margins in networks or is it going to take a longer time?

Some of the inventories in Latin America, which there was, has been sorted out.

We are also moving with a improved portfolio to the Latin American markets.

So you can expect a clearly improved market share picture for us in Latin America in Q4.

So that -- that situation clearly is a kind of typical quarterly fluctuation which you see quite a bit in Latin America.

So yes, we want to keep you updated on those fluctuations both on inventory as well as shipments.

But -- and I note that our competitors typically don't do it on a quarterly basis in their releases and thereby a lot of people want to make much more out of it as if there was a huge build-up or a problem.

It's more of a typical fluctuation which Latin America being a case in point fluctuates more than other regions.

So that's sort of working out as expected and we will have a higher market share in Latin America after a better product portfolio.

Nokia network, yes, we are working on -- for an improved quarter.

Typically we have that on the fourth quarter.

No drama expected here, but obviously we are working very hard to get there.

Thank you.

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

Your next question comes from Wojtek Uzdelewicz with Bear Stearns.

Thank you.

A question kind of for you, Rick.

One of the concerns that are out there is deterioration, kind of the gross margin declining in the last few quarters.

And people were sort of asking you at a certain point there is only so much you can squeeze from the operating margins.

When we look next quarter, as well as sort of next year, how do you see -- you talked about some of the low end, you covered the low end that should start helping, certainly from the operating margins.

But either if you look at your high end offering do you expect to move up -- do you see that those gross margins find a stabilizing at certain level?

Or is this something we should better get used to and you're going to be offsetting with operating margins?

And could you give us one or two specific examples where you can squeeze -- when you can get the cost or a product mix shift that gives us more confidence because the stock is very attractive if we have 18, 17% operating margins on the handsets.

It's probably not as attractive if it's a low teens operating margin.

I'm just curious if you could walk us through those dynamics as you see the margin structure building growth and operating the next few quarters.

Sure Wojtek, this is Rick.

In the short term, as you say, we make sure in the very short term, i.e. in the quarters that when you have a little bit of gross margin pressure you manage that well with the OpEx and the overall and you see how well we delivered on that in Q3.

But that's not the answer long term.

The answer long term is product portfolio.

First off let's talk about that.

And Jorma just went over in the low end what we are doing.

We talked about how the new low-cost engine works there and it's, yes, that's OpEx you say, but it also gives you a pricing premium when you come in with a new product like that in the 1110.

It's not the same price as the 1100 and the 1600 has a color screen and that's a differentiator but it's built on the same platform, it's an inexpensive product for us.

So that's where you work the gross margin there on the low end.

And as you know, we have talked about, we have successive products coming there.

We are going to ramp these up into the tens of millions but that doesn't stop.

We have got another family that will come after that.

So we will do more than give the others a run for their money.

Each time you look to command a premium there as well as then handle the OpEx.

So that's the low end.

In terms of the high end, I think the proof is starting to show here as we release these products and they get great pull in the marketplace.

The 8800 is just a fantastic device and phone, it's beautiful.

It is getting a lot of pull.

And that works the gross margins.

You see what multimedia is doing around imaging, music, coming and EES as well.

We're going to have a nice product portfolio there that again, is going to give us some pricing there on the high end.

Along with that, of course, comes quality.

That's the other element of gross margin.

I think we have to bring a focus here that quality really matters in managing the warranty and the repair costs.

That, of course, goes across all products.

It's particularly critical in the low end.

You cannot afford to have anything but great quality.

So that's what we are working on to make sure that we work on the longer term in gross margins and not just rely on good inner quarter OpEx.

Rick, just could you just clarify something or maybe Jorma.

Historically when you guys talk about normal seasonality and you have done in the handsets historically that used to be over 20%, there were some as high as 27 but it never was less than 20%.

Is that kind of how we should be thinking about your handset business in Q4?

Sorry, can you repeat that?

Yes, when you talk kind of the normal historical pattern in your handset business.

As long as have I been following you guys and it's been awhile now, Q4 used to be this sort of -- for you at least, for handset sales it used to be at least 20% sequential increase.

There were some obviously higher, but let's assume the market maybe is not as good these days, but at least 20% kind of.

Is that the right way of thinking for Q4 sequential growth?

Yes.

I mean, Wojtek, if you look at it historically you are absolutely right.

So if you look at something 20, 27%, that's where we are.

And obviously nobody knows.

I cannot tell you whether it's 25.2 or where it's going to fall in.

We don't know.

You don't know.

Nobody knows.

I don't think the operators have decided on how they will push come second week of December.

They will decide in the first week of December to some of those certain actions.

So there really are variables affecting that.

But I think the -- you take your pick, you look at the economy, you look at the operator behavior, and then you look at the historical track record of 20 to 27% and there we are.

You guess is at least as good as mine.

Usually better.

Thank you.

Go to the next question, please.

Your next question comes from Tim Luke with Lehman Brothers.

Thank you.

Question for Rick.

Rick, with the R&D moving lower in the quarter, could you talk about how you see that shaping going forward and maybe on the SG&A side with -- would we expect the marketing expenses in the holiday season to be a little bit lower than the sales growth or how should we look at that?

Yes, Tim, on the -- the marketing spend is an outlaid line there in some detail.

We would expect that -- we're going to have the normal seasonality on the sales and then some in Q4.

And we are expecting that the absolute in marketing of course will go up in Q4.

But it's going to be more muted than the sales.

So that's reflecting what I was talking about in the last question.

In terms of R&D, we are progressing well there.

In terms of our targets that we laid out a little bit more than a year and I feel good about the progress that's being made there on R&D as a percentage of sales.

On an absolute basis, we've brought that to flat running for the year.

And again, we have a real strong focus on both R&D and sales and marketing compared to gross margins.

So that's how we get the organization aligned and incentivized on that.

So I think we are in good order there towards meeting our goals that we've set out on R&D.

And with respect to the slight decline you're expecting in the ASP level should we think about that being the same kind of percentage as it was this quarter?

Or should we think about it more the 5% range?

How would we think about that.

Now you are getting me into the precise guidance game.

We have been pretty consistent here talking since the second quarter about how ASPs were going to develop in the third and fourth quarter and I guess I will leave it at that.

The point is, as Jorma talked about, the somewhat decline in the ASPs really isn't the story when you can build off the low cost platform, the devices and the pull that you get from the marketplace there.

So we would expect that and again it just gets back to managing for overall--.

But it's the same kind of framework that you have been seeing?

Absolutely.

The same framework.

Thank you Tim and we will move on to the next question, please.

Your next question comes from Sandeep Malhotra with Merrill Lynch.

Thank you, hello, Jorma, hello, Rick, Ulla.

Congratulations on the introduction of new products, especially the E-61.

Could you comment a bit on your relationship with RIM, especially that you have given -- that you licensed Blackberry Connect and Nokia's new enterprise devices will be directly competitive with the Blackberry.

And the second part of my question is how do you see the size of this enterprise smartphone market evolving?

Very specific questions about -- but thanks.

First of all the relationship with RIM, I think that's -- we have talked to them for a long, long time.

We landed with them a contract some what, 18 months, two years ago.

We were the first one to talk to them because we saw the potential in E-mail.

Then the well-known and well publicized, even well advertised MPP issue surfaced and that put kind of a halt to the discussion on how we -- how one can implement our go-to-market strategy.

And with all of that, obviously that also made us to look at -- how do we find a strategy which long term will be customer friendly and enable us to bring value to the table to the Corporate customers with our unique capability on implementing handsets.

And handset features.

So that led us during the last 18 months or so to implement a strategy where we support a variety of E-mail solutions, not just RIM, even if we worked at a very early stage with RIM and that was -- that has been a reference to many people in their mindset, anyway.

And we launched our own business center concept.

Nokia business center as well.

Now, obviously the RIM relationship -- we have a contract with them and we will continue to implement, we will support RIM where we see it fit and where we see the customer wanting us to work with the RIM client and have them use the RIM capability and service, et cetera.

But this -- when you look at the other alternatives they have a lot of traction as well with many operators for understandable reasons.

So RIM is not the only one which has been looked at by both operators or by corporates.

And there is a lot of real good pull for our own business center concept.

Because they see a lot of benefit for using that kind of a capability.

It is an ascent market with a lot of potential.

So when -- from our point of view, if you really look at it, what happens here is that when we get our top of the line Series 60 base enterprise handsets into the marketplace in the first six months of next year, that will really be the start for us.

And over the next era after what has been a very good communicator driven Nokia enterprise effort.

And May and her team are doing just excellent work.

So I have a lot of expectation on what we can do next year in putting all those things which we have in the pipeline into the market.

In the capital markets day, in the early December in New York we will really be looking at all of that.

Not just our capability but -- and what our offering is, but also the market size and the real potential on how we see it for the enterprise solutions.

So -- but it just suffices to say at this point, that, yes, we see a lot of potential and I think one way of looking at it could be that you will really see the opportunity that Series 60 provides us when you will see the Series 60 news version next year with -- not only with some of those multimedia things like music, but particularly with what we can do in the area of enterprise.

So the Series 60 platform is -- just gives us a lot of unique stuff to put not only the E-mail client but a lot of those enterprise smart phones into a shape which gives us a very strong position in going towards the second half of next year.

Just a quick follow-up question, maybe this one is for Rick.

The gross margins on enterprise were up from 46% last quarter to 50.7 this quarter.

Is that more of a blip because the hardware sales aren't as strong?

And in the future should we be expecting the software component of the enterprise business to decline over a period of time as the hardware ramps?

As we said, the 9300 and the 9500 are really driving that higher gross margin in enterprise and that's as those have taken a higher percentage than the older messenger device portfolio in NES.

And again, we've said for some time that we've set the goal and the expectation based on what we believe this tip of this exploding market is going to offer that the ES is going to expect to be a high gross margin business.

And we've said for some time that we expect that in the high 40s.

And that's how we work on it and we are going to progress it through the first half of next year based on this refreshment of the product portfolio.

But given the small size of that portfolio, when you get a real big uptick from these great new communicator and smartphone products, 93, 9500, versus the older products and messenger that's why you get this blip up above 50.

Thanks very much.

That's very helpful.

Thank you Sandeep, and we will move on to the next question, please.

Your next question comes from Paul Sagawa with Sanford Bernstein.

Hi, Nokia has made it fairly clear that your newer products tend to have better margins than your older products in some sense during some of the more difficult quarters in 2004 part of the issue was an older product line.

I wonder if you could take -- just give us some idea about the -- what percentage of your current shipments come from products that have been introduced in the last year versus kind of where it was a year ago.

And then looking forward, you have a new design paradigm that's modular et cetera, would we expect then that that percentage of products that are new to go up as we look into 2006?

And does the new modular design paradigm give you any sort of advantages in terms of bringing products to market faster reducing the sort of useful lifetime of a phone so that you can -- you are refreshing the product line more quickly?

Thank you.

Yes, thanks Paul.

The -- if I start and then Rick, can then continue.

The -- if we look at the situation as we have gone from second quarter to third quarter, as an example, in the third quarter we had a higher share for new product revenue than was the case in the second quarter.

And our definition, we use a slightly different definition, for us a new product is something which has been in the market in volume for six months.

And when we go to the seventh month it's an old product and we are shooting to have 35, 40% in terms of new products at a particular quarter and when we get towards a higher end of that band, usually you will see a tick in the margin for that particular quarter.

And that's just one of those interesting parameters which we follow and gives us a very good clue and understanding.

We have gone nicely up in the last three or four quarters and we were nowhere near where we wanted to be in the course of 2004.

If we look at the Q4 and onwards, we expect to go up, but Q4 perhaps not by much -- rather stable or up a bit and then next year again because there have been quite a lot of introductions and so in the first half you will see an uptick.

But we are on the trend line.

We are on the way up and that's an extremely encouraging sign with the strength in ramp-up which we discussed earlier during this call it just gives a good feel going forward.

And Paul, you asked about fast to market, and I think we started to articulate and I think people are starting to understand the strategy about speed to market, but in different segments and using [Patri Corhonan's] "S" curve, so called "S" curve of the products here and you have got to be fast to market on the high spec, new design, cutting edge products and we rush that into the market.

You take advantage of that and then you bring those as you go up the "S" curve and we start to hit the mass volumes, you bring that across the platform and across the broader family of products to optimize there.

So again there is a different speed to market there on those products but there is a reason for it.

And then as you go further up the "S" curve you really maximize then your whole cost structure and the feature miss and again taking advantage of the platform.

So what we're -- were working that and I think you are starting to see the delivery of that with the pace and the rhythm of our new product lunches and leading in the high end with the right mix of specs, but yes, we are making that "S" curve strategy work and that does bring the appropriate products faster to market and then works to optimize that and take advantage of our platforms as you go up that so-called "S" curve.

You put 18% out as sort of a minimum future margin target.

Does that remain the target?

And also what kind of time frame should we be thinking about holding you to reaching those sorts of goals?

Well, Paul, first of all if we look at the margins in the third quarter which we have just announced in both mobile phones and multimedia 17% -- or 16.9% that's pretty close to 17 to 18 which was our target in the last -- that's the target.

It's really a good target and we have done pretty well against what is said to be some tough competition by some people.

And we clearly are well above the rest of the pack in terms of how we are performing today in terms of margins and we will be.

When we look at how we go forward, obviously we will discuss that in a couple of market days.

So in six weeks time.

Thank you Paul, and we will move on to the next question, please.

Your next question comes from Tim Boddy from Goldman Sachs.

Thanks very much.

I would like just to see this gross margin scene, hopefully not to death.

It's notable in the quarter but despite the sequential sales growth -- gross profits didn't increase.

It sounds like in Q4 we shouldn't expect gross margins to improve in handsets given a stable mix of your products and the deteriorating mix in terms of emerging markets as those develop.

But the networks business actually was a principal driver of disappointment if you like in Q3, or of weakness.

We haven't talked much about that.

Could you lay out just as you have for handsets when we could expect to see improving gross margins to network and whether, indeed, the long-term margin target for networks can be achieved without significant gross margin improvements there?

Thank you.

Yes, the -- I think your observation about the roll of networks is actually -- is absolutely correct.

And not very many people have picked it up.

Thanks for that.

The -- if we look at the network -- first of all, setting long-term targets.

What we do very simply is that our capital market day annually is the forum where we look at long-term targets.

We set the targets, we comment on how we feel about that.

Why we have set them.

And what is the status.

And we haven't done too badly if you look at where we have been after hours.

In December of last year.

But obviously this is a market that evolves either way.

There are positive factors, there are negative factors both in the devices as well as in the infrastructure which impact the operating margin.

The dynamics that then determine the operating margin and they come from the competitive situation, the effectiveness, gross margin and then our own OpEx actions.

On the handsets, obviously there are positives like the ramp-ups of the newer products we have, our position in the high end including 3G.

And in particular the breadth of the product range.

Then the negatives which have affected and will be there in one form or another.

First of all, the device shipments to America, when we are -- when one is moving to the -- more to the American market, the ASPs are lower in the Americas for both North as well as Latin America than the global average and the 3G portfolio will also move to a broader price band.

So when the volumes grow higher so that the average 3G ASPs is a bit lower and also so is the gross margins.

Those are some of those factors affecting that and we will comment in a longer term use on the -- of this in the capital markets day.

Then on the infraside, clearly we have seen the emerging markets to play a bigger role now in the last couple of quarters which have shifted the mix of our customer base with China and Europe being reasonably slow in investment.

At the same time we have had growth of services business which is lower margin so those are the main issues there.

What is a sustainable thing there?

Our goal of 14%.

How do we look at that?

Clearly the main point, even after articulating all the reasons that are impacting, clearly the main point is that this is particularly -- the operating margin is particularly sensitive to the volume.

We are at the very sensitive point in terms of how we are as a company because we have a very broad R&D base.

We really have a global delivery.

We are in China, we are in India.

We are all of APAC, Latin America, U.S., and our R&D across technologies is very broad.

So that delivery organization R&D cost means that we are a high cost operation and that's -- with the volumes of 1.5, 1.6 billion, yes, it's an issue to get the 14%.

It's not easy with the current factors that are impacting.

More discussion will follow on the capital markets day, but that's perhaps an introduction to that discussion.

If I might add there, you commented that networks in terms of contribution and in terms of the overall gross profit and again, going quarter to quarter, networks accounts for more than -- of that slight decline that we had going from second quarter '05 of approximately 50 million in total gross margin as you see a decline in 90 from networks.

So the device business is contributing greater gross margin on a sequential basis and on a year in year basis.

Thank you Tim, and we will take our last question, please.

And our final question comes from from Huffnine Malik from Citigroup.

Thanks.

I just wanted to ask a kind of wide ranging question in that, a few years ago your market share in Western Europe looked pretty much impregnable yet we have seen declines there since.

What makes you so confident that going forward we won't see something similar over the next few years with your share in emerging markets which is currently extremely high?

The emerging market share is strong.

The -- but so continues the Western European market share.

I don't think there has been a change in dynamics in Western Europe fundamentally.

There have been -- we have a higher share in certain markets than what we had two or three years ago.

We have some markets where there is a lower share.

That's very clear.

The basic dynamics has not changed.

The strength of our products, the distribution, the brand continue to be the main drivers in this business.

Particularly when the volumes get higher and they will continue to get higher.

If you then look at the emerging markets and the dynamics, the distribution has even a bigger role in the emerging markets than has been the case in Western Europe.

So the strength of distribution, the way we have built it through the last ten years, significantly differs from anything that has been done by anybody.

The strength of our portfolio, it's not about one or two products, it never was.

And we are expanding into the higher end.

And if you look at the quality when you have the complexity of the Chinas and the Indias and the Brazils of this world, that if your quality returns numbers are not correct, then you will be hit twice as hard as in the developed economies where the infrastructure to handle the repairs and other quality issues is much better.

So the -- and then obviously if you look at the statistics today and look at the brand statistics and the brand preference particularly in the emerging markets it is a very, very strong situation and the brand preference has historically had a very strong bearing to what the market share is and that indicator has -- proves very good.

If you then look at China as an emerging market, what can you do in an emerging market.

In a year we have increased our market share from about 20 to well over 30%.

And it's not about these emerging markets that are sort of stabilizing into some sort of a lower level where a player like ourselves could not use the position through the distribution and brand which I have just described in order to increase market share.

At the expense of the players who do not have those attributes in place.

So -- and in addition, if you look at the Chinas and the Indias, it's not about us being a low end player.

We are the leader -- for instance in China, we are the lead player in all price segments.

And that is the -- that gives us quite a lot of indication about what the -- what might be happening when we go forward.

So is it fair to say from all you said there that for you the really key structural barrier to entry in emerging markets compared to developed ones are the investments you have made in the distribution channel?

Well, it is one of the key, yes.

Thank you.

Thank you, Huff.

Ladies and gentlemen, this now concludes our conference call.

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

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 12 to 22 in our 2004 Form 20-F and also in our press release issued today.

Thank you and have a nice day.

Thank you for participating in Nokia's third quarter 2005 earnings conference call.

You may now disconnect.