諾基亞 (NOK) 2008 Q1 法說會逐字稿

Good morning, my name is Dennis and I will be your conference operator today. At this time I will like to welcome everyone to the Nokia first quarter 2008 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (OPERATOR INSTRUCTIONS)

I will 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 first quarter 2008 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 -- briefing and call we will be making forward-looking statements regarding the future business and financial performance of Nokia and the 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 10 to 25 in our 2007 20-F and in 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 go to the IR site. You may also note that for your background information we have provided additional slides in the appendix. A replay of this call will be available until next Thursday and the call will be archived on our website. As you know, the reorganization of our device businesses has taken effect from the beginning of this year. The three mobile device business groups -- Mobile Phones, Multimedia and Enterprise Solutions -- and their supporting groups were replaced by a new reportable segment; Devices & Services. In addition, Nokia Siemens Networks continues to be a separate reportable entity. Our financial disclosure now reflects this change and last week we provided you with a regrouping of the 2007 full year and quarterly results according to new reportable segments, including the P&Ls and the special items applicable for all four quarters. You can also find them on the IR website.

A few other comments on the new reporting. The way we calculate device ASPs has changed. Device ASPs used to include services net sales but starting this year we are excluding it. We are also providing the comparable 2007 figures as we report throughout the year. It doesn't make a big difference now or in 2007, but the point is we want to provide you with a more pure device ASP going forward as our service revenue is expected to grow. On that note we are now providing you the net sales of our services and software business as a part of Devices & Services. You can find this in the financial section of our earnings release, and for your reference in Q1 it was EUR84 million.

I'd also like to again mention that we continue to separately disclose every quarter the Nokia Siemens Networks purchase price accounting, or PPA, items related to the formation of NSN and you can find those underneath the special items in our earnings release. At the Q1 level adjusting for PPA would increase Q1 EPS by approximately EUR0.01 additional on top of the EUR0.38. Since these costs are related to the formation of NSN as opposed to the results of the underlying business, we continue to encourage you to exclude them when submitting your EPS for consensus, like First Call or SME, for example. In the future, in reference to our product portfolio we will talk about the different categories of our device businesses, which are; Entry, Connect, Live, Explore, and Achieve. We have provided a guide to these categories in the appendix of the slides for your help.

With that, Olli-Pekka, please go ahead.

Thanks Bill, and good afternoon and good morning. So let me start by saying I am satisfied that we were able to follow up the excellent performance of Q4 with a solid performance in Q1 and let's look at the first quarter more in detail. So, we have strong profitability even given the seasonal drop in net sales, with Nokia operating margin down a bit over 1 point sequentially, excluding special items. Nokia Siemens Networks delivered a positive margin. Even with the seasonal challenges in Q1 it's operating margin reached 2.4%, excluding special items and PPA. All in all, we had an excellent year-on-year performance. Net sales was up 35% at constant currency, our device market sale was up 3 points, operating profit was up 39%, gross was up 39% excluding special items, and EPS earrings per share was up 46% excluding special items.

Let's take a closer look now at the overall device market and our device business. (inaudible) first quarter the mobile device market totaled 295 million units, growing 17% year on year and down 12% sequentially. We have maintained our estimate for the device market in 2008, which we estimate will grow by approximately 10%. However, now we expect the device market to decline in value in 2008 in Euro terms. The change from the previous estimate of value (inaudible) for this market primarily reflects the negative impact of the recently weakened U.S. dollar. In fact, according to our estimates, the market is expected to clearly grow in value terms on a constant currency basis.

The market this year looks similar in many ways to last year where industry growth will be driven by emerging markets, with strong growth in markets like India, China, Brazil and Africa. Let's talk about Europe. Some markets are growing nicely, some are okay, and some are showing little or no growth this year. Western Europe, in particular, seems to be seeking direction. On the other hand, Europe is much more than just western Europe and we see good volume and value growth in many eastern European countries, Russia, and especially in the Eur-Asian countries. According to our estimates our overall global market share was up 3 points year on year and down a bit less than 1% sequentially. Our share was up sequentially in the emerging markets. Our sell-in share in Middle East and Africa was down sequentially; however, the sell-out data shows a more positive development.

Our share in Latin America was up significantly in Q1 on a sequential basis and was estimated to be over 40%, something I feel is very noteworthy. We have been successful in selling a full product range in Latin America, with good sales, for example, of our music products like the Nokia 5310. And in China our sale was flat sequentially despite not participating in the low-end black and white part of the recent China mobile bundle. As we said in our guidance, we intend to take share in Q2 as we continue the benefits from our strong position in the fastest growing part of the market and we also see potential for positive market sale momentum in most of our key regions.

On to the product highlights for the first quarter. In Entry, the new Nokia 1200 and 1208 were the biggest volume products, together shipping over 30 million units during the quarter. The Nokia 2630 Barracuda and the Nokia 1650 also had good volumes, each shipping over 5 million units in the quarter. The Nokia 1110 and 1600 families have continued their ramp down and are getting close to end of life. In Connect, the Nokia 6300 continued to be very strong, shipping over 6 million units in the first quarter. During the quarter, the Nokia 6500 Classic and 6500 Slide, combined, did over 3 million in units. Both of these products, they are very good value and profit contributors for Nokia.

In Live category, the Nokia 5310 and 5610 Express Music devices shipped over 4 million units combined and like the 6500 family, they are very good value and profit contributors. In Explore, Nokia N-series multimedia computers had volumes of close to 10 million units during the Q1. The N95 devices continued to do well, especially the new N95, 8 gig, and together shipped over 3 million units to be again the number one profit contributor for Nokia. In Achieve, meaning the Achieve category, Nokia E-series had volumes of almost 2 million units during Q1. The Nokia E65 and E51 continued to be the best selling products. During the quarter, we shipped 16 -- 14.6 million convert devices in total.

Now to important products going forward. In Entry, in Q2 we expect that the Nokia 1200 and 1208 will continue to be the biggest in volumes. We are also expecting the Nokia 2630, again Barracuda, to continue to ship in high volumes. As we move into Q3 we expect the new Nokia 2680, our first Slide device for entry markets, and the new Nokia 1680, our lowest price device with both GPRS and camera, this will be good additions to the portfolio. In Connect we expect that the Nokia 6300 and the Nokia 6500 family will be the big sellers in Q2. As we move into Q3, we are very excited by the new Nokia 6210 Navigator, which has HSDPA, GPS, and Nokia Maps 2.0, with internal compass, and the new Nokia 6220, which has HSDPA, GPS, and a 5 megapixel camera through the mid range.

In Live, in Q2 we expect that the Nokia 5310 and 5610 Express Music devices will continue to be the big sellers. The Nokia 5000 will ramp up in Q3, providing a megapixel camera, QVGA display and a music player. In Explore, for the N-series the significant products in Q2 are expected to again be the Nokia N95 and N73 multimedia computers. We should start to see a refresh of the Explore portfolio starting with the N78 by the end of Q2 and then the N96 in Q3. In Achieve, in these areas we expect the key products in Q2 will be the Nokia E51 and the Nokia E65.

We do not have a lot of new products that we'll start shipping in Q2. However, our portfolio will go through a significant renewal starting at the end of this quarter and into Q3. You have seen some of these products already, but we plan for a lot more to come in the second half that you have not seen and that we are really excited about. Products like the ones we call [Laile] and Gadget, which will bring a new degree of desirability for our portfolio for high-end future devices, especially when combined with some of the consumer-focused services we plan to have later this year.

I would like now to cover our new soft band service business. In Q1 we introduced Nokia Maps 2.0. In addition to the world-class car navigation Nokia Maps 2.0 adds Walk, a pedestrian-focused navigation feature. Pedestrian navigation efficiently walks you from A to B with visual turn-by-turn guidance, giving you information about your location, and your surroundings. It's a feature unique to Nokia Maps 2.0 and it's a significant differentiator to other navigation products on the market today.

We also announced Share on Ovi, which is a free media-sharing service that makes it easy to upload, share and reuse your personal media through your mobile, desktop and other connected devices to the people of your choice.

Nokia continued to expand the Nokia Music Stores geographical reach by opening additional stores in Germany, Netherlands, Finland and Ireland. We will expand 11 markets in the first half of 2008, including all major western European markets and Australia and Singapore in the Asia-Pacific. With more than two million tracks from both major and independent labels, international and local artists, the Nokia Music Store allows customers to browse, download, stream and synch, add it to a PC or download directly to a mobile device.

Last week Nokia had the global launch of the Nokia N-Gage, a mobile game service with more games, additional compatible devices and an expanded online offering. N-Gage is compatible with the Nokia S60 3rd Edition Nokia devices, such as the new Nokia N81 and Nokia N95 8GB, but we also have great backwards compatibility with existing devices, including hit products such as Nokia N73 and Nokia N95. N-Gage brings exceptional games developed by leading publishers, such as EA Mobile, Gameloft and Glu Mobile, and selected games published by Nokia. Also related to services, during Q1 Orange and Nokia signed a memorandum of understanding in order to partner on value-added services, such as location-based services, maps, mobile advertising and gaming. That takes the list of major global operators who we have our service agreement with to four; Orange, Vodafone, Telefonica and [TIM].

And then onto Nokia networks -- Nokia Siemens Networks. NSN has now completed its first 12 months of operations and overall the progress has been difficult, but steady. Despite the typical seasonal weakness of the first quarter, NSN delivered a positive operating profit, excluding special items and PPA. The quarter benefited from effective cost control with the synergy-related reductions starting to flow through to the P&L. In the first quarter, NSN had good progress in key markets and product areas including: Stronger-than-expected performance in the China region, particularly in the services care business line; good software sales, important for overall margins; and strong progress continued in LTE with the launch of the NSN LTE solution for radio and core networks, which allows operators an easy path for upgrading existing networks. In summary, in an extremely challenging market environment NSN has been running its business well and executing on its integration and the restructuring.

And now I'll pass over to Rick for more on the financials.

Thanks, Olli-Pekka. Let me give some color on Nokia overall finances, with Devices & Services first and then followed by Nokia Siemens Networks. Devices & Services net sales were down 17% sequentially and were up 13% year on year. Nokia's device average selling price in the first quarter 2008 was EUR79, down from EUR83 in the fourth quarter. Again, as Bill said, the device ASP now excludes net sales from services and software business for Q1 and the comparison numbers. The lower sequential ASP was primarily due to a higher mix of lower-priced products, a mix shift to lower ASP regions and, to a lesser extent, the negative impact of the weaker U.S. dollar. Looking a bit deeper into the sequential ASP developments, ASPs were up in China, Europe, Middle East and Africa, and North America. ASPs were sequentially down in APAC and Latin America. As we look at average selling prices for the second quarter, we anticipate the currency may have a negative impact. I'll discuss that a bit later. I would also point you to the appendix of this slide presentation where again we lay out the factors that we believe can impact ASPs, both positively and negatively.

Device & Services gross margin was down only slightly sequentially. On the last earnings call we said that we expected OpEx would be up sequentially in Q1 in Devices & Services and it was up a little over a 100 basis points as a percentage of sales, excluding special items. The increase in OpEx explains the majority of the sequential decline in Devices & Services operating margin from 22.8% in Q4 to 21.2% in quarter one. Over the last few years we've made good progress -- very good progress in cost management, a leader in the industry, and we've had a lot of initiatives in place to lower costs and we've been able to successfully leverage our global scale.

In this regard it'd be naive for us not to acknowledge some recent developments across the grobe -- globe. You're all aware of the increases in commodity prices and certain labor price increases in some parts of the world over the last few months. Of course, we would expect that a sustained increase in these kind of things would have some impact on us in the industry going forward.

Having said that, we are working hard to get the annual overall cost declines we expect. Things are a bit tougher, no doubt, but our organization is the best in the world at managing its supply chain and its cost and we believe that we will fare much better than our competition in managing these costs to the declines that we expect.

A few comments Nokia Siemens Networks financials. As Olli-Pekka pointed out, NSN delivered positive margins in the seasonally-weak quarter one. Net sales were down 26% sequentially, which primarily reflected the drop-off from the seasonally-strong quarter four, Nokia Siemens Networks operating margin was 2.4%, down from 4.3% in Q4, excluding special items and items associated with purchase price accounting related to the formation of NSN. Going forward, NSN is fighting continued pressure on gross margins from the aggressive pricing environment in the market to a mix shift to emerging markets. However, there are things that we can do to counter balance the effects on margins, particularly continue to execute on the cost synergies.

There may also be an opportunity to increase the proportion of software sales. The ground work has been initiated and we saw some encouraging results in quarter one, but it's too soon to do any more than point out the work and the progress that we've seen here recently. As is evidenced in Nokia's operating cash flow for Q1, cash flow and working capital management remain a focus and a challenge at NSN and they continue to focus on improving the working capital across the business. For your reference we've put a slide in the appendix of this presentation that lays out how the special items and the purchase price accounting impact Nokia Siemens Networks P&L. In terms of the synergy and the integration process for Nokia Siemens Networks, let me just reiterate that NSN remains fully on track to deliver against its EUR 2 billion cost synergy target.

So let's take a look and summarize the total special items for Nokia in the first quarter. The items added up to a -EUR333 million. All the special items are outlined in the slide and in the press release today. Excluding these special items the first quarter operating margin was a very strong 14.7% and diluted EPS was EUR0.38, excluding special items. The Nokia Siemens Networks EUR120 million of items associated with purchase price accounting from the formation of NSN are included in NSN's operating margins and Nokia earnings per share.

If you exclude these items, along with a net negative impact of the EUR333 million and special items, EPS would have been slightly higher than the EUR0.38. As Bill mentioned at the top of this call, Nokia Siemens Networks restructuring costs in quarter one totaled approximately EUR100 million. We estimate that Nokia Siemens Networks restructuring charges will be higher in quarter two than in quarter one.

Next let's look at some of Nokia's balance sheet and cash flow items. Our cash and other liquid assets totaled EUR10.4 billion at the end of the first quarter. For working capital, inventory was down 3% sequentially in the first quarter. Main reason for the smaller-than-normal decline was that NSN's inventories were up sequentially. Accounts receivable was down 7% sequentially in the first quarter. Again, the primary contributor here was Nokia Siemens Networks, where accounts receivables developed negatively in the quarter. Accounts payable overall were down 21%.

Total operating cash flow in first quarter was EUR757 million. This is down significantly from the Q4 level and driven primarily by working capital. The main reason for the weaker working capital was at Nokia Siemens Networks, where they clearly slipped a bit from the better working capital management we had in Q4. And in fact, NSN had an increase in networking capital of approximately EUR600 million in Q1. Also, to a lesser degree our Devices & Services business didn't help in this respect as much as we would like, and perhaps implementing the reorganization change in Q1 didn't give us any help there either. But let me reiterate here, we fully expect to improve on working capital in quarter two, both at Nokia Siemens Networks and in the Devices & Services business. The targets are in place, actions are happening right now and there's absolute accountability on this.

Let's take a look quickly at an update on the share buyback. During the first quarter, we repurchased 59 million shares. Since April 2007, we have bought back EUR4.5 billion of stock and after the annual general meeting in May, we intend to start -- subject to shareholder approval -- the new EUR4 billion annual buyback program, which has been previously announced. So we've mentioned currencies a few times here on the call. The reported first quarter year-on-year net sales growth was 28%, but at constant currency would have been 35%. The weaker U.S. dollar had a negative impact, both year on year as well as sequentially on our net sales and for that matter, on our device average selling prices, as well.

The impact on operating profitability from the weaker dollar was clearly smaller, as we have a significant dollar cost base. In addition, we hedged the residual currency exposures in order to protect the operating profitability. This is business as usual. As you know, the dollar has weakened considerably since the first quarter and now stands at around $1.59 to the Euro, already almost 10% lower than our average P&L rate for Q1. So we're expecting that the recent fall in the dollar may impact our net sales in Q1 as a result and perhaps the device ASP. As to our outlook for Nokia, NSN and the industry, please prefer to the earnings release and the related slide.

Now I'll hand back to Olli-Pekka.

Thanks very much, Rick. So in closing, the team delivered strong profitability in Q1 as we continued to focus on delivering results while making the necessary investment in the future. As you know, Nokia has been making substantial investments in software and services and we plan to continue to do so. This investment totalled hundreds of millions of Euros last year. We don't have a great deal to show financially for this investment today, but we believe there's a huge opportunity here and to service -- have services I expect to give us incremental growth, incremental margin and other significant benefits in the future. And currently none of our traditional competitors are making these types of investments.

We think the importance of scale, brand, and distribution in the device business cannot be underestimated. These core advantages will be especially important as we move more into services. Scale gives us the ability to make large, long-term investments. It took years of investment to build our world-class brand and distribution, which provide us with distinct advantages in this and any environment. Now, we are leveraging our scale to invest in creating next generation services for our customers. Many companies in our industry today, and some who have exited the market, have struggled because of lack of scale. We believe this will continue and we expect to continue the benefit from our scale. As we look into the near term, we are targeting market share gains in devices in Q2 and we are excited about the products we have coming, especially in the second half. Thanks 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.

(OPERATOR INSTRUCTIONS) The first question will come from the line of Tim Boddy with Goldman Sachs. Please go ahead with your question. Once again, the first question from the line of Tim Boddy from the line of Goldman Sachs. Please go ahead.

Tim?

Tim?

Hello?

Let's take the next question. We'll come back to Tim in a second here.

I believe Tim's line's open now. Tim?

Yes, go ahead, Tim, thanks.

Okay, am I live?

Yes, are you.

There we go, fantastic. So the question was in terms of looking at volume growth in the industry, you stayed with the 10% outlook, but in the first quarter, we saw more like 15% growth and in the second quarter your guidance implies about the same. So implicit in your guidance is a very significant slowdown in the second half of the year in unit growth to something like mid to high single digits. Is this just caution on your part or is your concern, as you mentioned, western Europe or perhaps more towards the emerging markets where, although you didn't mention it, I guess the rising cost of food prices could start to have an impact on net additions, which is still probably the largest single factor driving the handset markets?

I'll take that. So I think it's quite difficult to answer this question other than saying that overall our understanding of the market size in volume has remained the same and in that way the -- we have not changed our estimate for the 10% and I think that's a good estimate for the full year. But the way we see it at the moment, very much is the same as we saw in -- when making the estimate. The latter point you are making I think it's a bit -- a bit too far and a mobile phone, a mobile device, that's a necessity item to people who have understood how their lives can be changed, can changed. You need to communicate. You need to be in contact with your family. You need to do your business, as well, in markets where people very often are self-employed, and in that way, I think that's a pretty remote aspect that you are taking up there.

Okay, next question. Thanks, Tim.

Your next question will come from the line of Mike Walkley with Piper Jaffray.

Great, thank you. I just wanted to get a little bit more color on the ASPs. I understand how the declining dollar impacts ASPs, but in terms of your outlook, are there any pockets of inventory on the high end or is there an increased mix shift to the low end? And then in constant currency terms as you look into new products launching in the back half of the year, how would you think about your ASP trends?

Yes, Mike, thanks. The ASP thing it's important to back up a little bit and look at what we said coming into the year -- actually what we said coming into the previous year. We said that on the industry overall average selling prices are expected to decline and we also said that's a good thing for Nokia. It may not be good for others, but it's good for Nokia because we're able to deliver sales growth there. That's where we're best positioned. We can deliver margin and we can deliver incremental cash flow. All of that remains true, we reiterated that today, and so, I really don't see a change there.

The fact that the dollar has declined quite dramatically and the fact that we're a Euro-reporting company, just exacerbates that, but that's just math. It doesn't change the basic setup of how we see the market this year and how we see it continuing. 50% approximately of our sales are dollar or dollar linked. You have to understand that -- as you know, of course, that it's not just the U.S., so that's why you get a little bit of exacerbation of that.

Otherwise I would say it developed pretty much as we would expect. We saw strong growth in the emerging markets. That's where we're best positioned, so that mix shift, as I mentioned, is important. In the fourth quarter -- obviously in the fourth quarter you expect to have a higher percentage of some of the very high volume -- or high-value products because it's a seasonal phenomenon. And again we should see good ability to get value growth in the high end with positioning of the right products and the right combined services and as Olli-Pekka pointed out, we're setting up pretty well with that, as he explained, as we exit Q2 and going into the second half.

If I could add to that simply. In fact we had sequentially higher ASPs, we as a Company, in China and in Europe and so China ASPs were up, European ASPs up and in fact two other regions were up, as well. So in that way it's a pretty sort of complex [formal] and in that way sort of simple conclusions here are simply not possible nor necessary.

Thanks, Mike. Next question.

Your next question will come from the line of Andrew Griffin with Merrill Lynch.

Hi, thanks for taking my question. I had a question on your converged device market share, which seems to have fallen significantly in the last couple of quarters, obviously partly driven by the fact that Apple has created new markets with iPhone. Given the converged device is such a significant growth profit contributor and a significant ASP contributor, can you talk about what your plan is to regain that share over the next 12 months?

Yes, sure and of course, our (inaudible) in the convert devices is our share and positions is better than our average position, but having said that, it's very clear and we need to understand that there's a situation here where we have upside and we should not concentrate on the downside. And in that way the latter part of your question is extremely important and really, of course, as always this can happen and should happen by introducing devices that are exciting to the marketplace. Great products create great demand and I was alluding to that in my opening when I said do you -- we've got something that you have not seen, but I have seen, and it's definitely -- we'd add the excitement in this category.

I would also like to point out that our whole services strategy here is based on the thinking that we can add value and the excitement to the device itself by combining the device and the service in a manner that this is seamless to use, easy to use and exciting to the consumer. And in that way, a big part of the services investment, in fact, will be monetized through support through the ASP in the devices, i.e. through the hardware business model. And this combination of services and exciting devices, this is a cornerstone of our strategy here when it comes to converts devices all in all, and I see so much opportunity here and I was making some references to Navigation as an example in my opening. So this is really where we can gain a lot and it's very exciting that none of our traditional competitors have had articulated anything like that when it comes to their strategy. I see a lot of upside here.

Okay, next question, please. Thanks.

Your next question will come from the line of Stewart Jeffrey from Lehman Brothers.

Hi, there, thank you. I had a question on the product portfolio. As we started the year you were all very optimistic about the pipeline of new products and things seem to be a little bit quieter than perhaps you might have anticipated, with you now talking about many of these launches being in early Q3, so I was just trying to understand has there been anything that has caused any delay, any technical difficulties, what gives you the confidence that the products will role out in volume in early Q3? And then perhaps take us through, is there implicit in that comment a little bit of a warning to margins in Q2 that if you don't have too many new products you're going to have use price and margin to gain that market share? Thank you.

Yes, there is always some volatility -- or cyclicality when you are introducing new products and it's not out of the ordinary here in any way. And in fact, when we are making the references to the second half of the year, so we're not talking about only products that will be introduced in Q3. We're talking about products that will be in the marketplace initially towards the end of Q2, as well, and I think we have a pretty good handle. We have a very good handle on the schedules here and of course it's very, very soon in fact so we really know what's going to come out here and also the combination to services here will be extremely important. I think we are in a situation in Q2 where we have a solid portfolio of products tested in the marketplace and that have been ramped up and in that way we have a lot of flexibility when it comes to our supply. We can adjust our situation in the marketplace in a very flexible way because the ramping up has happened and I see that flexibility -- and I emphasize that flexibility to give us a really good possibility to take market share also in Q2.

Can I add, sir, to that, just a couple of points. We've talked about over the last few quarters, our new product revenue in Q4 '07, as we talked before, was over 40% and in Q1 it was slightly over 40%, as well, and we talked about at the time that those are very high numbers and you obviously have variability in that because I don't think the market and consumer can consume and take a -- continually a new product so that has to moderate a bit and so you have a little bit of up and down there. So we've come off of two very strong quarters of new product revenue. We'll have a little less of that in quarter two and then we do strong refresh in the back of the half of the year. Overall, though, it really puts us on a good continuous level, we believe, for 2008 and that's what you look to manage and have that flexibility that Olli-Pekka mentioned?

Thank you.

Thanks, Stuart. Next question, please.

Your next question will come from the line of Rod Hall with JPMorgan.

Yes, hi, thanks for taking my question. I just want to come back to Nokia Siemens Networks, the performance is disappointing at the revenue level and the margins really aren't coming up that much and I wonder if, Olli-Pekka, you could talk us through again what is the synergy with handsets, point number one? I know you get asked that question -- have been asked that question a few times but I'd just like to hear your thoughts on that again. And also, if you guys could comment maybe more specifically on what is happening in that market. We've supposedly seen some pull back and aggression from the likes of Erickson and -- or just wondering, has there been any stability at all, any improvement in the pricing environment?

Okay, I'll start and Rick might want to complement. He looks like that, at least. (LAUGHTER) So you look at Nokia Siemens Networks and you look at the overall market situation in networks during the last year, so it's very clear that markets have been extremely competitive and in that way, more action was needed than might have been seen 18 months ago. But now if I look at the progress the team has made during the first year of operation, you might say -- and I respect your opinion -- that the results in the first quarter were disappointing. I would use the word encouraging, and looking at the way this has been pulled together and looking at how we now see the activity running. That will not take away the competitive situation. That's very clear and that remains very tough, but at the same time great progress here in realizing these synergies and it's one team, it's one unit, very (inaudible). So in that way I'm encouraged and that is the word I personally would use and that will not take anything away from the difficult situation in the marketplace. Rick?

Yes, a couple things to add there, I think. Obviously, we've said market that it doesn't give you anything. You have to go out and get it. You have to make it happen. We're doing that with the synergies. We're doing that with the execution of the strategy and really leveraging on the coming together of Nokia Networks and Siemens Com., so that remains. But you've got to look also in the industry, because I think we're seeing definitively that growth of data at the operators really is happening and that's something that we've got to take advantage of on the vendor side. So, it's there, that will happen. That's a good medium to long-term trend.

And when you talk about combination with the handsets, we've never overplayed that, but we've said there are things that if you execute well can be to your advantage. And I think if you think about long-term evolution, LTE, and what's happened in the last six months in terms of operators' decision of what the migration to which fourth generation technology and how many now have come on LTE. DoCoMo in Japan, they're coming off their island, Verizon Wireless in the U.S. coming off of the CDMA path, others that were already on WCDMA, going to LTE. A lot of that had to do -- and I think Nokia from the devices side, and Nokia Siemens Networks from the infrastructure side, were instrumental in helping to educate and convince operators that that's a very efficient, very productive evolution path to meet the incredible increase in data needs that we're going to see when we get to fourth generation.

So that's an area that I think gives some example of reason to see a little bit more order in the industry when you look out of how it's going to evolve to fourth generation. That doesn't speak to the quarter. I support Olli-Pekka's comments that encouraging develops in the quarter. Quarter one is always a tough one for the infrastructure industry and I think the team performed well there and we've got the focus on the improvements, as I said, that we need on networking capital, so you're going to see improvements there.

Okay, Rick. Could I just follow up on one thing you said there on the data growth? You guys -- have you guys got any view on how close to capacity fill we're getting on these data networks. I realize there's a lot of laptop broadband, in particular, starting to take up in some of these markets, any views on that when we may see some of these first upgrades, and also how much confidence you've got that the upgrades will be as profitable as prior network upgrades have been?

Yes, it's very clear that if one looks at increase of data in the networks, so a lot more capacity will be needed. There's no doubt about this. This will, of course, differ from carrier to carrier, they all have their specific situations, but overall, the capacity needs will be quite big here. And now -- then it's a question about how to monetize that and to monetize there is some challenge. I'm sure it's applicable both to the operator community as well as the vendors and this exactly is the big question for the industry. The capacity needs definitely will be there.

To do a little product plug, our Nokia Flexi base station, which is the WCDMA base station, is upgradeable by a software upgrade, so that's one kind of an innovation and thing that we're doing to make sure that we can provide that excess capacity and do it in a cost-efficient way so that way you have a better opportunity to get the margin that you would expect there, but time will tell.

Okay. Thanks a lot, guys.

Thanks, next question, please.

Your next question will come from the line of Gareth Jenkins with UBS.

Yes, thanks for the question. Just a couple if I could. In terms of the Middle East and African market you lost market share significantly Q over Q, and I just wondered, you mentioned -- you made a comment on sell-out versus sell-in and I just wondered what gives you confidence into Q2 that your share goes up?

And then just secondly one for Rick, you mentioned some pressure on the cost side, I just wondered whether you could give us a sense of how much of your costs are related to input prices going up and how much of your cost side of things are in areas where input price has come down, so I'm thinking billing materials and semiconductors? Thanks.

Yes, Olli-Pekka here. I think this is an -- the region -- a region this one, as well as the Sahara and Africa were all (inaudible). There's quite a lot of volatility here and in that way I wouldn't draw any real conclusion on the volatility of the markets. The market data is not sufficient. The market data is not reliable in the same way as elsewhere, and in that way there's this type of volatility. I wouldn't be throwing conclusions here. The reference to the sell-out market share speaks to the same point. It's really clear that the sell-in, sell-out differ more in this area than elsewhere and in that way you need to look at the totality. Overall, looking at the market share picture in Q2, like I said I think our flexibility overall, including this area, will put us in a good position to look at more market share and we definitely are the market leader in that area.

Yes, Gareth, on the question of input cost, let me be very clear. One, overall our cost of production -- cost of goods goes down and it continues to go down. We drive that down. We have very specific targets. We execute on that and we've shown quarter after quarter, year after year we do that better than anybody else by having built a supplier network that is both -- delivers us the quality and the price that we need. It's sustainable to make sure that we exercise our -- let's say our buying power there we think well. So in terms of that, obviously, though, some of the raw materials that form some of the components in the bill of material have gone up, so what we have to do is fight to make sure that we get the other methods that we have to drive down the price.

My point is that's a little bit more challenging. I think though, frankly again, when you look at it on a comparative basis, anywhere where there's a little bit of challenge because of commodity or input-related prices I think we're going to do better than the competition.

Thanks.

Next question, please.

Your next question will come from the line of Sherief Bakr with Citi.

Thank you very much. Just wanted to come back to your comments regarding the potential for economic slowdown in Europe. Could you perhaps give us some color as to either what you're seeing now or what you anticipate seeing over the coming quarter or two and how much of that is assumed in your -- or implied in your revised average selling price or value growth forecast of the market in '08? Thanks.

Yes, I think on that one, let me remind that what we said here in terms of the value. The volume we reiterate, the value, if there hadn't been this decline in the U.S. dollar we wouldn't have any update here. There's value growth in the industry, so that's first and foremost. What we pointed out today was the obvious, there's a consumer slowdown in the U.S. I think everybody's aware of that. We're less affected then others, but it does have an effect. And we said also that we also have our heads up to any possible slowdown in Europe. We can't define that at this point and as Olli-Pekka mentioned, in some markets we're seeing growth in our own execution better than expectation of plan. On other markets in western Europe it's at expectations and plan. In a few it's a little bit off, but that's not untypical of any quarter and if you look at the expanded definition of Europe, we have very clear volume and value growth. So we just try to call it like we see it and because of the FX change it requires the clarification that we made, but without that it wouldn't be much of a message.

Yes, I would add to that that if you think that we are somehow trying to tell you that there is a slowdown in Europe that relates to the overall economic situation, that's wrong. We're not trying to do that. In fact, I'm not at all in a position to make the call to say that that will be case. We are seeing a normal market situation in Europe. We are, of course, cautious businessmen and persons, and in that way we are looking at different scenarios, but there's no reason to make that call right now. No reason.

Could I just quickly follow up on your share -- taking market share in Q2. You mentioned you'd expect to take share in most of your major regions. Would you include Europe in that in the second quarter?

Yes, I think it has to be a goal to any quarter, so it's very clear that the thinking and strategy goes in the way that we take markets there because that's the overall strategy. Of course, we always play tactics because we need to -- like I've said many times, to maximize the bottom line. To your Europe-specific question, the target is to take markets in a very meaningful way in Europe in Q2.

Thank you.

Thank you, next question, please.

Your next question will come from the line of Tim Long with Banc of America.

Two parter if I could. First, Olli-Pekka, on the market share front following up on your comments on Q2, you referred a few times to not having a lot of new products in Q2 and you talked about gaining some share in Europe, so how is it that you gain share and should we expect that to get better in the second half when you have the new products? And second question is, just talk a little bit about the U.S. and some of the strategies there. Is it a pretty weak quarter? What's the outlook for the U.S. market and focus products in the second half? Thank you.

Yes, the European situation is very clear and I've twice already referred to the flexibility we do have now with a portfolio that has been ramped up, and it might not sound that exciting, but flexibility and the ability to respond to the market and customer needs in that way, it's extremely important here when it comes to market share. I think we are in a very good position there to take market share and at the same time maximize our bottom line, and that's why I'm pretty sort of -- pretty, pretty confident in saying that the target to take market share in a sustainable and meaningful way in Europe in Q2, as well, is there.

The U.S., it's a different type of situation, obviously, and I've said many times here as well today it's not only one European market. We have -- now, as we speak, we have taken down our old business model in CDMA, that's happening as we speak. And at the same time -- in the same way, right as we speak, we are ramping up our new CDMA business model and in that way, this is the first quarter of this year as well as the early parts of the second quarter of the bottoming of our CDMA activity in Europe. And looking at the corporation, we do have it in the U.S. -- CDMA activity in the U.S.

And looking then at the second half the -- it's very clear that the new model will ramp up and that will be seen in our numbers -- in our market share numbers in the U.S. in the second half. Of course, at the same time, the cooperation with AT&T, T-Mobile on the GSM (inaudible) CDMA side continues and we are intensifying that. We have increased our resources in San Diego to do U.S.-specific R&D and this is similarly sort of -- very much the same strategy and it continues and we are very committed to following that through.

Okay, thank you.

Thank you, next question, please.

Next question will come from the line of Mark Sue with RBC Capital Markets.

Rick, with everything going on with FX and the impact to the top line, what about the earnings line and perhaps your increased diligence to reduce variable expenses in this type of environment and subsequently your ability to grow earnings year on year?

Yes, Mark, I think just to reiterate, when you have a change in the dollar and you have 50% of your sales coming from dollar or dollar-linked then you get the impact at the top line. But as we said, that's -- what we work to do is through our natural hedge based on where we source in dollar linked and where we sell, then we try to cover the resulting at the profit level and we've done a very good job of that, so there's no story or no change there. In terms of variable costs in general, I think we've shown that we have a very good grip on that. I pointed out that in going forward we'll manage those appropriately. We've got the right ability to do what we have to do and focus the organization to make sure that we don't spend a Euro more than we need to and we only spend where it delivers top line, where it delivers gross margin and where it delivers something value to the customer. So, nothing different there. The currency movements don't change that. It doesn't change your strategy and it doesn't change the fact that we've got a very experienced organization to drive that and we align our incentives accordingly, as well, which is always important.

Clearly, we should have good year-over-year earnings growth nevertheless?

Well, as we said, we don't give earnings guidance yearly or quarterly but we've said there's growth in the industry, both in volume, there's growth in value if you knock out this crazy currency effect. Nokia has the broadest portfolio and we intend to grow in 2008, so to me that feels like unchanged from what we said at the beginning of the year.

Absolutely.

Thank you.

Okay, this will be the last question, operator. Thanks, Mark.

And today's final question will come from the line of Kulbinder Garcha with Credit Suisse.

Hi, yes, thanks. A quick question for Olli-Pekka and Rick. Specifically, the comments you make about economic uncertainty at the end of your value guidance, am I right in understanding therefore that so far there hasn't been a huge impact and specifically, what I'm really getting at, have you seen any change in replacement rates, the rate which consumers are upgrading or replacing their terminals, either in western Europe or North America? Have you seen cost of subsidies or any kind of different approach from your actual customers that maybe means the high end of the market is softening relatively rapidly? And the second question is, there's been a lot of supply chain news flow over the past three or four months, which I'm sure you've seen. Your volumes seems to have largely come in line with what you seasonally would have expected, so are you managing your supply chain any differently than, say, this time last year?

So, when it comes to your first question -- I think you had three -- so all I can do, I think I can repeat what I said earlier about the situation and what I said about Europe and I think I was very clear on that one. When it comes to the replacement rates, we have not seen -- and we have data on this one, so we have not seen any meaningful change to the replacement rates in the European region nor elsewhere either, so in that way that's very clear. And the last one was the supply chain, whether we manage it in the same way, and I think we do. Perhaps I didn't understand the real meaning of the question.

I think there, Kulbinder, no change and yes, we've seen the different supplier datas and I'll give my warning again, be careful of individual data points in the supply chain, either interpreting them overly negative or overly positive. I think they send all of us wrong more often than they send us right. We met or exceeded the volumes that I think we and everybody else expected in spite of those data points in the supply chain, so nothing different there.

Okay. Thank you.

Real good, thanks.

Thanks, Kulbinder. Ladies and gentlemen, this concludes our conference call. I would like to remind you that during the 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 10 to 25 in our 2007 20-F and in our press release issued today. Thank you and have a nice day.

Ladies and gentlemen, this does conclude the Nokia first quarter 2008 earnings conference call. You may now disconnect.