諾基亞 (NOK) 2007 Q3 法說會逐字稿

At this time I would like to welcome everyone to the Nokia third quarter 2007 earnings call. After the speakers remarks there will be a question-and-answer session. (OPERATOR INSTRUCTIONS) I would now turn the call over to Mr. Bill Seymour, head of investor relations. Sir, you may begin.

Thank you. Ladies and gentlemen, welcome to Nokia's third quarter 2007 conference call. I'm Bill Seymour, head of Nokia investor relations. Olli-Pekka Kallasvuo, President and CEO of Nokia, and Rick Simonson, CFO of Nokia, are with me today. During this call -- this briefing and 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 economic and industry conditions, as well as internal operating factors. We have identified these in more detail on pages 12 to 24 in our 2006 20-F and our press release issued today. Our aim is to finish this call in approximately one hour. To view the supporting slides while listening to the call, please log on to Nokia .com/investor. A replay of this call will be available until Thursday the 1st and the call will be archived on our website.

I would like to quickly remind you of this year's capital market days, which we are again combining with Nokia World. Nokia World will be held on December 4th and 5th in Amsterdam. Nokia capital market days events will take place on the 4th, including executive presentations, breakout sessions, and dinner with management. CMD attendees are invited to all CMD and Nokia World events on both days. We sent out a reminder last week for CMD and if you don't have that, you can contact the IR team or visit our website. We've also put some information at the end of the slide set for you to review.

Olli-Pekka, please go ahead.

Thanks, Bill, and good morning and good afternoon. The third quarter was an exciting one for Nokia. Our device business continued its excellent performance, with volume and market share both up nicely. The gross margin of the combined device business continued at the strong level, and operating margin was up for the fourth quarter in a row. This strong growth and profitability helped drive diluted EPS up 74% year on year, excluding special items. And Nokia Siemens Networks operating results improved during the quarter. The integration and cost synergies are on track, but as you know, the overall communications, infrastructure market remained challenging and NSN has more work to do to ensure the competitiveness of its cost factor and product portfolio. In August we announced our new internet services brand, Ovi, and two weeks ago we announced our acquisition of NAVTEQ, a leader in mapping, navigation and location-based services.

Let's take a closer look at the overall device market and our device business. We estimate third quarter mobile device market was 286 million units, growing 17% year on year and 9% sequentially. The slide shows our third quarter market estimates. On to the product highlights for the third quarter. The entry-level Nokia 1110 and 1600 families were again the top volume products for us. We sold big volumes of the Nokia 1116, which was featured in China Mobile's low-end program in Q3. The Nokia 1200 and 1208, our new entry-level phones, based on our single chip platform started to ship during the quarter. We also started to ship the Nokia 2630 at ACUDA in the third quarter. In the mid range, the Nokia 6300 continued its good momentum, shipping over six million units, and was again our number one revenue and profit device for the quarter. The Nokia 5200 music phone family also continued to be a very solid contributor for us.

During the quarter, we started shipping the Nokia 6555, wideband CDMA clam shell device for the U.S. This phone is designed exclusively for AT&T, and it has a good initial demand. And we started to ship both the Nokia 6500 classic, and 6500 slide at the end of the quarter. Nokia N series multimedia computers had volumes of well over nine million units. The Nokia N73, N70, and N95 again the big products for Multimedia during the quarter,. The N73 and N95 were in the top three for Nokia in terms of revenue and profit for Q3, and the N95 volumes are up over 10% sequentially. On to Enterprise Solutions. The Nokia E65 was their best selling product, continuing to see good demand in Q3. During the quarter we saw very healthy underlying demand for our new communicator, the Nokia E90. However, component issues prevented us from shipping as many units as we could have. Fortunately, the issues have now been resolved and we are now shipping the E90 in volumes.

Now for the important products for the fourth quarter. In the entry level, the highest volume devices are expected to be the Nokia 1600 and 1110 families. However, we expect the Nokia 1200 and 1208 will ramp to big volumes, and we also expecting healthy volumes of the Nokia 2630 at ACUDA. In the mid range, we expect that the Nokia 6300, the Nokia 5200 family, and the Nokia 3110 we will sell in the highest volumes. We should also see good volumes of the Nokia 6500 classic. And I'm happy to announce that last week we started shipments of the new Nokia 5310, the express music, our very sleek music device. I personally feel this product has a lot of potential.

In Multimedia the significant products are expected to again be the Nokia N73, N70, and N95 multimedia computers. Last week, we announced the availability of the Nokia N95 eight gigabyte and the Nokia N81. The new N95 is the continuation of the N95 line, with a lot to display and more on-board memory. The Nokia N81 is designed for mobile entertainment, with special capabilities for gaming and music. We expect that the new Nokia N95 and N81 will be prominently featured in holiday sales programs. For Enterprise Solutions, we estimate the key volume product will still be the Nokia E65 and as I said, the E90 communicator is now shipping in volume. We also expect that the new Nokia E51 enterprise smartphone will ship this quarter. As we've said, we are ramping a record number of new products in the fourth quarter. This is going pretty well, but there's still a lot of difficult work left to be done.

On to Nokia Siemens Networks. NSN made good progress in Q3, but clearly more improvement is needed. Rick will talk more about NSN's financials and synergy progress, but let me just touch a few highlights. NSN had good performance compared to the second quarter, with both sales and operating margins improvement. The Company also had some significant firsts, from being selected to provide the first commercial Internet HSPA system for TeraStar to deploying the first hybrid backhaul solution in a live network. The market dynamics that we talked about on the Q2 call remain through today, including accelerating changes in operator business models, rapid growth in data volumes, the rising importance of markets, such as China and India, and the emergence of our low-cost competitors. In light of this tough market, there is no doubt that NSN has work -- much more work to do.

And last quarter we talked about management taking decisive action to expand and accelerate its synergy efforts. Those efforts are under way. NSN expanded its cross-selling, resulting in almost 30 new deals in Q3. With new contracts like those at Henan MCC in China, and a multivendor IP network maintenance agreement with Deutsche Telecom. NSN service business won some exciting new deals in Q3, such as network implementation, consulting systems integration and care services for Chunghwa Telecom in Taiwan.

Now I will pass over to Rick for more on the finances.

Thanks, Olli-Pekka. Let me cover Nokia over all and our device businesses financials first and then we'll move to Nokia Siemens Networks. In the third quarter Nokia net sales were up almost 3% sequentially. Nokia's gross margin was 34.3% and was up over 300 basis points from Q2. The combined device business' gross margin was stable in the third quarter. This was impressive since we did not ship any new significant -- or any new products in significant volumes during the quarter. Gross margins in the Mobile Phones business group were up even as the proportion of very low priced devices grew significantly in Q3; more on this in a minute. Gross margins held up nicely in our combined devices business, however we need to continue to execute well in order to maintain the current levels. We need to make sure our product portfolio remains competitive and we need to continue to introduce iconic products. We must remain vigilant in taking out cost where we can.

Nokia's operating margin was 14.6% in Q3, excluding special items. The 14.6% Nokia operating margin included the negative impact of EUR 144 million associated with the NSN purchase price accounting items. The operating margin of the combined device business continued its strong trend and was up for the fourth quarter in a row, as mentioned earlier. Mobile Phones operating margin was up 150 basis points sequentially, driven by its improved gross margin and some OpEx leverage. Multimedia's operating margin was up almost 150 basis points sequentially, driven by lower OpEx as a percentage of sales. Enterprise Solutions operating margin continued to be strong in quarter three, but was negatively impacted by the hiccup in the ramp of the E90.

As I said earlier, gross and operating margins in Mobile Phones business group were up again nicely this quarter. This was the case, even as the proportion of volume from the entry level grew again in quarter three. In fact, the volumes we sold under EUR 30 were up very significantly in the quarter. The sub-EUR 30 market is growing fast and we estimate it will be as much as 20% of the total device market in 2007. Our main competitors seem to be steering clear of this market, but Nokia's very strong here and we make good money in this segment. We've been doing high-20s gross margin in our broad entry segment for several quarters, and of course, OpEx in entry level is relatively speaking low. This gives us very healthy operating margins in the entry level. We talk a lot about our position in entry level but as you know our strength in mid-range portfolio and our leading position in smartphone market have been critical elements in the recent margin improvement. In fact, in quarter three we had about 50% share of the smartphone market and over 40% of our absolute gross profits came from this segment.

OpEx was down sequentially in our combined devices business, driven largely by lower sales and marketing expenses. Several of our key products during the quarter were capacity constraint, so there wouldn't have been much benefit to spend more on sales and marketing in Q3. Research and development spending was at our plan levels for the third quarter. Looking for the fourth quarter, we believe OpEx will be up in our device businesses on an absolute basis, and up slightly as a percentage of sales. We expect sales and marketing to be up significantly in quarter four, given the ramp-up of all of the new products and the typical market dynamics in Q4. As we said in our press release, our overall volumes for the third quarter were somewhat constrained by component shortages. In the fourth quarter, both seasonal market growth and expected high demand for Nokia products are expected to result in some constraints. However, we have moved very quickly to secure the components we need, and if it can be found, I think our people are best in the world at digging up incremental supply.

Nokia's third quarter device average selling price was EUR 82, down sequentially from EUR 90 in quarter two. The lower sequential ASP in Q3 was primarily the result of a significantly higher mix of entry device sales, especially in the under EUR 30 category that I just spoke about. Overall pricing pressures in the market have been normal, as expected, and our own pricing moves have reflected that situation. The reported Nokia tax rate in quarter three was 19%. There were two main drivers of the lower rate in the third quarter. During Q3, the statutory tax rate in Germany was reduced by approximately ten percentage points. In addition, to some benefit to Nokia's effective tax rate in the quarter, this event required Nokia to revalue Nokia Siemens Networks deferred tax liabilities in Germany. This revaluation resulted in a reduction to Nokia Siemens Networks tax liability of approximately EUR 70 million. Of course, since Nokia Siemens Networks is 50% owned by Siemens, Siemens gets 50% of the positive impact, so only half of the EUR 70 million fell to Nokia's bottom line. Nokia and Nokia Siemens Networks operate in over 150 countries globally and changes in tax rates in different jurisdictions are not unusual.

The second reason for the lower tax rate was a shift in our quarter three sales mix to countries with a lower tax rate. While we've been running at a lower tax rate than our estimated 26% so far in 2007, we're still estimating a tax rate for Nokia of approximately 26% in the future. This is justified given NSN's exposure to higher tax jurisdictions and the likelihood of Nokia's device sales mix shifting somewhat to higher tax jurisdictions.

Now let's look closer at Nokia Siemens Networks financials. Last quarter we said we expected the operating results of NSN to improve in the second half. We did a good job of stabilizing the business and I think the results are encouraging. Net sales were up 7% sequentially with the strongest sequential growth in the mobile and services businesses. Nokia Siemens Networks operating margin was actually a positive 3.0%, excluding special items and items associated with purchase price accounting. For your reference, we put a slide in the appendix of this presentation that lays out where all the special items and the PPA hits the NSN profit and loss statement.

Let me give you an update on the synergy and the integration project -- excuse me, progress for Nokia Siemens Networks. Overall, NSN remains on target to deliver against its EUR two billion synergy goal. Personnel restructuring is well under way and reductions are on plan. Restructuring activities are ongoing in approximately 70 countries. Since its inception, Nokia Siemens Networks direct personnel related to the cost synergies have been reduced by approximately 2,300, with some acceleration in quarter three. NSN has been executing a shift to low-cost growth markets, led by the Company's global services hub in India and its R&D activities in China. To date NSN has reduced its real estate footprint by approximately 200 buildings, approximately half of the year-end 2008 goal. In terms of direct sourcing, Nokia Siemens Networks has completed negotiations with its 25 top suppliers that count for 45% of the direct sourcing volume. It is now focusing on accelerating progress with the remaining suppliers.

Culture development remains a focus area for Nokia Siemens Networks management. Progress has been made here as well. Third quarter saw the launch of Nokia Siemens Networks company values. Leadership and employee development programs have been put in place, banded compliance training continues, and there is an ongoing focus on employee enablement to ensure that all employees have clarity about the roles and the expectations. Overall we think the third quarter shows that the Nokia Siemens Networks is heading in the right direction. They know what needs to be done and the organization's well aligned to act accordingly in the coming months and quarters. Last quarter we said we were accelerating our previous EUR 1.5 billion synergy target from 2010 to the end of 2008. This is well under way.

In addition, we said that we have targeted a further EUR 500 million in annual cost synergies, bringing the toas -- bringing the total cost synergy target to EUR two billion. We have now identified those additional savings. As we said today in our press release, we now estimate that there will be slightly above EUR two billion in total charges, associated with the EUR two billion in annual cost synergies. The total restructuring charges recorded to date, are EUR 991 million. We estimate that we will take the majority of the remaining restructuring charges in the fourth quarter of this year. We estimate that most of the additional cost synergies and charges will come from items such as refinement in certain components of Nokia Siemens Networks product portfolio.

Let me now summarize the total special items for Nokia in the third quarter. During the quarter,there was a net negative EUR 26 million of special items. All of the special items are outlined on the slide and in the press release. Excluding these special items, the third quarter operating margin was 14.6%, versus a reported 14.4%, diluted EPS, EUR 0.40, both including and excluding special items. The Nokia Siemens Networks EUR 144 million of the items associated with purchase price accounting are included in the NSN's operating margins and the Nokia earnings per share. You can do the math, but if you exclude these items, along with the net negative impact of EUR 26 in special items, the EPS would have been slightly higher than the EUR 0.40.

Let's now look at some of Nokia's balance sheet and cash flow items. Inventory was up in the third quarter sequentially, which is typical in preparation for the fourth quarter seasonality. Accounts receivable was also up in quarter three, driven by Nokia Siemens Networks. Advice accounts receivables were down in the quarter. Total operating cash flow in the quarter was EUR two billion. Cash flow from our devices business was very strong. Again, it was offset by Nokia Siemens Networks negative cash flow, which was approximately EUR four million in the quarter -- EUR 400 million in the quarter. Our cash and other liquid assets totaled EUR 9.2 billion at the end of the quarter.

Let's take a look at currencies. The reported third quarter year-on-year net sales growth was 28%. In a constant currency, it was 32%. The U.S. dollar had a negative impact on our net sales both year on year, and sequentially. The U.S. dollar has continued to weaken and now stands at around 1.42 to the Euro. We're expecting that the recent fall in dollar may have some negative impact on our net sales in quarter four. For our outlook for Nokia, Nokia Siemens Networks, and the industry, please refer to the earnings release and the slide.

Now, back to Olli-Pekka.

Thanks very much, Rick. I'd like to talk a little more about our progress in our internet services strategy which included the recent introduction of Ovi, our new internet services brand name. The mobility industry is converging and our vision is to make it easy for people to unlock the full potential of the internet. As we've said before, we can't put this internet services strategy together by ourselves. This is why we made a string of acquisitions over the last year to build our portfolio; Loudeye in music, gate5 in navigation, Twango in file sharing, Enpocket in mobile advertising, and of course the pending acquisition of NAVTEQ, a leader in mapping, navigation and location-based services. We are seeking to expand from a pure play -- hardware play company, to a hardware company with software and services. We believe there are two primary benefits of this. First, services will be a source of incremental revenue and margin. Second -- and this is extremely important -- we believe the link created between our mobile devices and mobile services will result in stickiness with the consumer.

Nokia brings great assets to the table; a company that thrives on change, the number five brand in the world, the best logistics and distribution [machine] in the world, we believe the best global consumer understanding, and with the more than 900 million people out there using Nokia devices, the biggest customer base of any consumer durables company in history. We were very excited to announce last week a broad internet service corporation with Telefonica. We believe that we can bring value to operate (inaudible) services and we will continue to work closely with our operator customers and with other partners across the globe. We've really made great progress from top to bottom in our device product portfolio over the last year. This has translated into improved market share in margins and great bottom-line growth. Demand for our product in Q3 and going into Q4 has been strong. But of course, the competition isn't standing still and has actually improved in the second half of this year. and we assume the level of competition will be greater next year. I'm not just talking about our (inaudible) and our competitors like Motorola. When we look ahead, we will be and are competing more and more against players like RIM and Apple. I'm paranoid about all of the competition and this paranoia is shared in our organization. This keeps us focused on execution and innovation. Thank you very much.

Thanks, Olli-Pekka. We will now continue with the Q&A session. Please limit yourself to one question only. Operator, please go ahead assembling the queue.

(OPERATOR INSTRUCTIONS) Your first question comes from Mike Walkley with Piper Jaffray.

Great, thank you very much. Olli-Pekka, I was just wondering if I could follow up on your new internet services offering. There is some investor concern that key operators will not support some of your key high-end devices such as N81 and N95 due to Ovi and your new services offering. Could you comment on this and your conversations with carriers about Ovi?

Excellent. I very much thank you for the question. I really wanted to get that one. So definitely -- I'll discuss this in two parts. I'll start with the internet services and then move over to the first part of your question. So we announced the agreement with the -- on the corporation with Telefonica and I will say that is a good example of things that you will see. We have ongoing discussions with many other operators over most of the world and you will hear much more about that going forward. Very, very good talks. And from our point of view, we can bring a lot to the table. When it comes to the services we can bring to the table the global service platforms. This will require a lot of investment, a lot of maintaining -- maintaining the capabilities and the operators I believe are increasing the seeing value in that. And we also see value in what the operators can bring to the table and a lot of value. And the corporation with Telefonica is, like I said, the best possible example of that so far. And it's very clear that the operator -- the mobile operator, and other operators for that matter. are the most natural partner and ally for us here when it comes to this area. I'm personally very confident that we can make good progress here and partner in a very meaningful way.

Now then your first question related to the support of certain -- there's been some media discussion on this one, and I can -- hence the question. So we are getting good support from different operators in Europe and elsewhere when it comes to the key products that I think you are referring to. We will get a good support for the N95 eight gigabyte, and you will see, like I said, that product being featured quite extensively in the holiday campaigns, and the same is and will be applicable to N81. Again, you will see more visibility in these products are only now starting, and in that way -- in that way, of course, have not been visible in the market place so far, but you will see a lot of good support from the operators also with these ones, including the UK -- very much including the UK. So even there I don't see any reason to be concerned. Vice versa, I really look this totally the SMA to opportunity like we have indicated.

Great, thank you.

Next question.

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

Thank you. Just a question on the outlook, if I could. I think in past Q3s you've talked more about the abnormal seasonality. You're 15% when looking at the industry unit volume in Q4, press release didn't really have that. I think, Rick, you mentioned something about normal seasonality. Is that related to component issues and are we expecting a little less than normal seasonal growth for the industry this quarter? And related to that, normally we do see share gains. Would you say that just being conservative on the flattened-out market share in the quarter? Thank you very much.

Yes, Tim. I think you have to put all of this in the backdrop of pretty big seasonality going Q2 to Q3 here in terms of up about 9%. And so in that context, I think what we're saying in our forecast here, kind of normal seasonality around the numbers that were you talking about feels pretty reasonable. Now, as mentioned, in terms of the component issue, we're seeing both a strong growth was evident in third quarter for the overall industry. You think about this kind of [normalinal] seasonality plus or minus a little bit in the fourth quarter. That means the volumes overall are still pretty big in the industry. And then combined with good demand for the breadth of the Nokia portfolio, that's why we're talking about there is a little bit of -- a little bit of tightness in some of our components and that has had a little bit of effect as we go into Q4. But as mentioned, feel pretty good about how our sourcing people are able to go out there and find everything available.

Thank you.

Thanks, Tim. Next question?

The next question comes from Tim Boddy of Goldman Sachs .

Tim, or next question? Next question, please?

Hello?

Are you there now?

Can you hear me?

Yes, sure.

Great. Okay. So the question was about the low end and about your gross margin prospects. Given that we, at least historically, have seen some improvement there as new platforms come to market and what's interesting here is the margin still seems to be improving even before the single chip is really ramped. Could you just help us understand what is driving that and how you see that playing out through the fourth quarter and into next year? Thank you.

Okay, thanks, Tim. (inaudible) So as we indicated we have been seeing very, very good market demand in the sub-EUR 30 segment and like Rick said, the competition seems to be steering away from that market. And I think what has happened here is basically we have been able with our volumes and with our marketing money really to make it very, very difficult for the competitors to match what we can offer here. I would like to highlight the fact that in the markets where we are selling these products, we're also selling other products, and we are putting heavy advertising behind the Nokia brand. Not necessarily in the entry segment, but we are putting a lot of Nokia marketing money behind our product -- other products there and there is a big, big overflow of that marketing money there to support our process and also in the sub-EUR 30 segment. And this part of the economics of scale very rarely get discussed, but I think it's very important to understand it. Also in marketing this -- the economies of scale, the matter becomes relevant.

And of course, the single chip point that you are picking up relates to the overall effort and our ability to take the cost base down when it comes to all levels -- all market segments, not only the entry. And there we are seeing steady progress happening, but we are talking about -- we are talking about evolution here as opposed to revolution. There is not one technology or solution, be it single chip or something else, that can completely change the name of the game. It's simply evolution, getting down with the cost base, this is one item there, and the difficulty of making that happen plays in our favor. There are no tricks that are possible in this part, and that's why it's an evolutionary process to take the cost base down in order to be more price competitive.

Thanks, Tim. Next question, please.

Your next question comes from Stuart Jeffrey with Lehman Brothers.

Thanks. I have a question on the ASPs. I just wanted to perhaps get a bit more detail around what's going there. Obviously there's a big mixed shift toward low end, but could you perhaps also talk around how your ASPs are trending within specific markets? Are we seeing on a like-for-like basis some solid ASP trends or are we also seeing ASPs trend down across the board? And then also, as we look into Q4 and next year, you're launching a lot of new things and even in the low-end segment -- the entry-level segment some aspirational low-end phones, like the Barracuda, and on a like-for-like basis should we be expecting that perhaps to boost ASPs going into Q4? Thanks.

Yes, Stuart, this is Rick. As we said overall, we've been talking about this throughout the year that the ASPs for the industry were going to come down and that's mainly a function of if anybody in the industry could deliver valuable products to those growing segments. We've been able to do that I think pretty demonstrably and that's going to continue, so that's the primary driver. Now to your question in terms of markets or regions and where is it. Well, everybody knows that we're having a lot of growth obviously in new subscribers and places like India and China continues, Indonesia. We're having -- seeing Africa come on in a big way that we started talking about late last year. And those. of course. account for the majority of the increase in this sub-EUR 50 and sub-30, more importantly, the Euro device markets. But we're also seeing that there is significant development and volume coming from pre-paid markets in parts of more established Europe, for instance, and that's had some impact on the overall ASP in the industry. And again, we can take advantage of it profitably there, just as we can in what people would consider the emerging markets. But that's a function across the whole industry and a dynamic that I think people haven't quite paid enough attention to.

For us, in terms of our product mix, as well as we look out a little bit, we've had a little bit of a pickup in the U.S. market relative in this quarter, and of course, that has tended to be a little lower ASP market for us. Also in the third quarter, you saw -- and Olli-Pekka mentioned about China CMCC, and we continue to do good business with them in the -- what people call the ultra low end. Remember, it was just a few quarters ago where people thought we had missed that completely, and that was going to be a problem, but we're in there strongly working with them. So those do have pressure on driving the ASP down.

Thanks, Stuart. Next question, please?

Your next question comes from Rod Hall of JPMorgan.

Yes, hello. I just had another question on this low end. It seems like every time we -- every quarter we come to, we're talking about lower and lower numbers on the ASPs -- the average ASP's and now we're talking about a EUR 30 category and below. The question I've got is do you see -- when you look at the road map over the next couple of years, do you so he any floor to the production price of phones? Are you slowing down in your ability to decrease the prices that you can produce at or do things still look like you've got lots of runway ahead?

Olli-Pekka here. Yes, we have some runway ahead. But like I said, it's very clear that you need a lot in order to be able to take the road, of course, down here. You need more volumes. You need research and development there. It's not something that happens automatically, so you need to invest in R&D in order to get your low -- a cost base down here and it's an evolution. And the point here is not to be as cheap as possible. The point here is to be cheaper than the competition in order to make money, and that, I think, we really can continue to be here in a major way. And then you add to that, again, the -- [we'll] discuss topics of marketing -- marketing money that I just spoke about, the distribution, retail, logistics. And it is the winning formula here, and in that way there's a lot of potential and possibility here to continue to make good business in this sector.

Thanks. Next question?

Good, thank you.

Your next question comes from Richard Kramer with Arete.

Thank you very much. Olli-Pekka, I would like to understand a little bit more the scope of the paranoia that you laid out and especially with this week's announcements about the series 60 software platform refresh. When you're talking about going after competitors like Apple and RIM, as well as your traditional competitors, perhaps Google and others, can you give us a little better sense of how you're planning to do that? Is it that you're going to ratchet up the pace of change of the portfolio refresh? Is it using the profits that you have for co-marketing deals and market reach that these guys can't match? I mean, we've watched now Enterprise for three years or so with $1 billion or more of R&D spend without really making a dent in RIM. What specifically will you do to start to keep these guys at bay and perhaps increase your own market share? And then just one other simple question. The last time we saw Nokia move to a new organization there was some disruption in the business. What are you doing to ensure that, as you move to the new organization at the end of this year and into next year, we're not going to see a similar disruption like we saw three or four years ago? Thanks.

Okay, first start with the last part here. Yes, it's a good question. We are working extremely hard here in order to make the transition here as smooth as possible. Extremely hard. We've been working for a long time. I think I know what we are doing. There's of course always the new change in organization in a major way. There's some hassle. But at the same time, if I look at what the Nokia people are feeling here and how excited they are about this, the way -- about what we are doing here now, there's a lot of energy and it is so intuitive, it's so meaningful to them. And what I'm basically saying here is what (inaudible) changing this organization here, we are aligning our structure to our strategy and that's fundamentally very, very important. And we will be able to get efficiency savings here. We will be able to get new excitement in place. And we will be a better -- and we will be able in a better way to tap the -- to (inaudible) our efforts to the different segments of the market. So of course this is a -- the organization change here is, of course, a net positive. That's very clear. We just need to be able to manage that and we have been paying a lot of attention to that.

Now, then, RIM and Apple, so I think it's extremely important here that we have -- not now, but quite a while ago, we have identified that we need to look at these competitors, some different business models then our traditional competitors do have. But I'm really paying a lot of attention here on what Apple and RIM, as an example -- as examples, are doing. And this, of course, will in practice mean that we will invest more money in the areas where we feel we need to be able to not only match that competition but beat that competition. And it's a bit different with Apple than RIM, but basically it requires much more flexibility and attention to that one. I would claim you took the RIM example here up and you spoke about the Enterprise and so forth. I would claim the way we have been now able to develop series 60 as a platform will enable us going forward to exploit our full portfolio of products into Enterprise and in the (inaudible) segment. And when it comes to e-mail, as an example, why should that be limited to enterprise phones only? And that must and it can be with series 60 really something that we will include in our total offering. And this volume and this possibility here will open up a lot more possibility. This was not the case two years ago when we needed to concentrate in Enterprise devices in order to be able to ramp up e-mail and the like. Now it will be possible in a bigger scale. And in fact, you will see quite a lot in that space going forward and there's a lot of attention here.

Okay. Thank you.

Thanks. Next question, please.

Your next question comes from Mark McKinney with M Tech Research. Mr. Mckinney, your line is open. I think that question has been withdrawn. And the next question comes from Edward Snyder with Charter.

Thank you very much. It's clear that you've done a little bit better in North America here but you're still continuing to struggle. A couple of things. I know you've had problems with some of the carriers in terms as to the products that you wanted to port out there. Are you trying to try some type of alternative marketing strategic, maybe something more in a retail channel as you're doing in Europe? And do you believe that your internet strategy and some of the multimedia phones will open up some of the carriers in North America where your previous models, especially N series, have not been able to gain any traction there?

Okay, thanks for the question. Yes, you are right when you said that we made some progress in terms of markets in the third quarter in the U.S., but we are not home and [drive]. That's very clear. A lot needs to be done and a lot needs to be improved. But I think we will see a good continuation of the trend here. But I've said it earlier, it will be 2008 that will be the critical year, and there you really need to look at different operator strategies separately. You need to look at the Verizon Wireless strategy, AT&T, T-Mobile, Sprint, as well.

But coming to the latter part of your question, so, yes, we have been -- have started to sell our multimedia computers in the U.S. through alternative channels. It's very small. It's very small in the total context and in that way, saves wise, profit wise, is not meaningful at this point in time. But I think we are building here something. We are building here the demand within the U.S. consumers to multimedia computers like we make them, and this is something that I think will become more relevant going forward. We have even -- as the U.S.-based people here might have noticed, we have had advertising campaigns in the New York area and in California, also when it comes to N95, and we have seen quite some traction here interest wise. But definitely, until this becomes more meaningful on a bottom-line basis it will take a while.

Next question, please.

Your next question is from Richard Windsor with Nomura.

Good afternoon. A quick one. I wonder if you could give us an update on the intellectual property situation. I think last quarter you gave us an idea of how much you'd booked in terms of payments to Qualcomm and I wonder if you could give us an idea of what regions are you making assumptions for in terms of making those IPR assumptions? Thank you.

Yes, Richard, this is Rick. Compared to Q2, we made a payment of $20 million to Qualcomm. We believe that it forms kind of a fair, reasonable compensation for the potential use of their essential patents in Nokia, UMTS handsets, also during the third quarter, so nothing's really changed from Q2 to Q3, frankly. And we'll continue in this pattern. We'll make adjustments if necessary, if the facts change, but so far it doesn't appear that they are changing. And remember, in terms of how we see our overall provisioning and cost for total UMTS, or WCDMA royalties, we've communicated that small change and that one-time impact was in the second quarter. But again, as I said there, it was very much a tertiary or lowered driver in terms of some incremental improvement in the gross margin from Q1 to Q2, and here, going from quarter two to quarter three there hasn't been any change in that so there really isn't any story there.

And is it a global payment that you're making or are you assuming that you're paying in certain regions?

I'm not able to go into more detail on that I'm afraid, Richard, so I'll have to leave it there.

Okay, thank you.

Thanks, Richard. And operator, this will be the last question. Thank you.

Your last question is going to be from [Alexander Feters] with Exane.

Yes, hi. Congratulations for great results, firstly. I would like to look a little bit into how the geographic growth panned out in this quarter, and I find it interesting to see that sequentially Asia isn't that strong. Europe, on the other hand, seems to be quite strong there. Maybe you could give us a little bit of explanation on that, and how you see that progressing in Q4? And then there's one thing I didn't quite understand on components, you're not very specific in the press release on when -- in which segment that has played a role. You talked a lot about the E90 for Q3, but I'm wondering which other areas were affected in terms of product range and whether that had an effect on your market share in Western Europe in Q3? Thanks.

Yes, let me -- this is Rick. Let me take the component and then Olli-Pekka will give you more color in terms of the regional growth dynamics. In terms of components, as we said, we were somewhat constrained, but it was really across a number of things. The one that got the most play -- or visibility in the third quarter was related to a microphone and speaker element in the Enterprise device E90. Again, because that was a new device and unique device, there was a lot of demand for that and we had to actually stop shipping that during parts of the quarter. But across the whole portfolio, it was kind of the normal things in a building market. We had some juggling we had to do around screens, LCDs, around this microphone, which has not (inaudible) effect on other products. Plastics, as simple as you do you have the right covers in the right place. A little bit of juggling around some of the battery supplies. But overwell, as I say, I think it was pretty well handled. It didn't constrain us unduly, but it did have some impact and we're seeing a little bit of that still going in the fourth quarter. So it's really just a summation of a number of things, none of them that are in and of themselves that significant. Olli-Pekka?

Yes, and the markets. So what we experienced in the third quarter, we had a very good (inaudible). We made very good progress in China when it comes to market share, then also in the U.S., and some in Asia-Pacific, and then Latin America and Europe, we're more like flat. But I really feel our markets, in fact, in Europe was better in the sell out, than in the sell in, and in that way that really has been reflected in our channel (inaudible) and in a positive manner. And overall the totality here is that we -- when it comes to volumes we went from 38 to 39, so we took the market there, but then I look at another dimension of market share here, profit market share, I think we took much more.

Okay. Thank you.

Thank you very much.

Ladies and gentlemen, this concludes our conference call. I'd like to remind that you during this conference 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 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 12 to 24, in our 2006 20-F and in our press release issued today. Thank you and have a nice day.

This concludes today's conference. Thank you for participating. You may now disconnect.