諾基亞 (NOK) 2008 Q2 法說會逐字稿

Good morning, my name is Regina, and I will be your conference operator today. At this time I would like to welcome everyone to the Nokia second 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 would now turn the call over to Mr. Bill Seymour, head of Investor Relations. Sir, you may begin.

Ladies and gentlemen, welcome to Nokia's second quarter 2008 conference call. I'm Bill Seymour, head of Nokia Investor Relations, Olli-Pekka Kallasvuo, President and CEO of Nokia, Kai Oistamo, head of Nokia's Device unit, and Rick Simonson, CFO of Nokia, are with me today. During this briefing and call we will be making forward-looking statements regarding the future business and financial performance of Nokia and its 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 20F and in our press release issued today. Our aim is to finish this call in approximately one hour. To view supporting slides while listening to the call go to the IR site. You may also note for your background information we have provided additional slides in the appendix to this presentation.

A replay of this call will be available until next Thursday and the call will be archived on our website. As you saw today, we made some format changes to our earnings release. First, we modified the table on the first page so it breaks out key items both reported and excluding special items. We also provided for the first time EPS excluding special items and excluding NSN-PPA. And we provided constant currency information on the -- on net sales for Nokia devices and services, Nokia Siemens Networks. You can also find in these figures in the table in the financial highlights section of the release. And you can also find in this -- the device ASP constant currency information in the financial highlights section of the release in the highlights on the first page. With that, Olli-Pekka, please go ahead.

Thanks. Good morning, and good afternoon. Let me start by saying that I'm happy with our performance in the second quarter. I think that there are several things to be pleased about for the quarter. Our device market sales were up both sequentially and year on year. Device and services operating margin were solid in the quarter helped by good and prudent cost control. Services and software saw strong growth in net sales in its early phase of rollout, and Nokia Siemens Networks had an encouraging quarter with good net sales growth and solid margin improvement.

We had some other very significant developments. Last month Nokia announced plans to acquire Symbian Limited and at the same time Nokia and nine other industry leaders established the Symbian Foundation. As of today a total of 30 companies have publicly given their support and commitment to the Symbian Foundation and more than 150 have expressed interest in joining. And last week we completed our acquisition of NAVTEQ. Taking a quick look ahead to the rest of the second half, I want to say that I feel good about the new devices we plan to be selling. In fact, the feedback has been very positive on many of those devices and we look forward to updating you soon.

Now, let's take a closer look at the overall device market and our market share in the second quarter. According to our estimates, the mobile device market was 303 million units in the quarter, up 15% up year on year and up 3% sequentially, which was in line with normal seasonality. Today we're updating our forecast for the 2008 device market. We now forecasted the market will grow by 10% or more in volume in 2008. We feel comfortable with this estimate even that we are already more than half-way through the year and based on how we see the state of the market today. According to our estimates our overall global device market sale was 40% in Q2, up 2% year on year and up 1% sequentially. Sequentially our share was up in all regions except China and Latin America. Sequentially our market sale was down slightly in Latin America, but it was up eight points year on year. Our sale was up nicely sequentially in Europe and we have good share gains in many markets such as Spain, Italy and the UK.

Our device volume was up almost 80% sequentially in the US, giving us a good share gain for the quarter. While I'm happy about making progress in the US, we have a lot more work to do until I'll be satisfied with our position there. We estimate we lost a bit of share in SMART phones in the second quarter, but not a big surprise to us given our lack of new SMART phones selling in volume in the second quarter. However, our portfolio will improve. So far this year we have already publicly announced 10 new SMART phones that will sell in the second half. Additionally, we expect to announce several more, some of which will hit the market before the end of the year. But bear in mind that the SMART phone market does not represent the entire higher end of the market. The 3G/WCDMA is a representation of the higher end of the market and we estimate our 3G/WCDMA market sale was up 3% sequentially in the second quarter. Now, I will hand over to Kai to cover devices.

Thanks, Olli-Pekka. Let's take a look at product highlights for the second quarter. As Olli-Pekka said, portfolio was pretty similar to the first quarter. [In entry] the Nokia 1200 and 1208 were the biggest volume products again together shipping almost 14 million units during the quarter. In connect Nokia 6300 was the best-selling product the second quarter. During the quarter the combined volumes of Nokia 6500 classic and 6500 slide were up sequentially. [In live] Nokia 6310 and 5610 expressed music devices were again the leading sellers in the category. In explore, Nokia N series volumes were up sequentially to cover over 10 million units during second quarter. The Nokia N95 products continued to do well with volumes up to over 20% sequentially in second quarter. In achieve, Nokia E series had volumes in almost two million units during second quarter. The Nokia C65 and E51 were the best selling products there.

As Olli-Pekka said we expect to have a good line of products for the rest of this year. In fact, we announced 21 new products in the second quarter alone, covering low-end mid-range and the high-end, and they are more announcements to come. There are a lot of new products with great potential, but let me highlight a few. Let's start with Nokia E71 which started to sell at the end of June. We are really excited about this device and the feedback and demand from our customers has been very good. It is beautifully engineered phone with great looks, slim build and fantastic ergonomics. It has wonderful battery life, a superb screen, effective GPS and mobile [laser]. Better than all that it is reasonably priced. These are not my words. They are actually from review last week from a popular online publication, Trusted Reviews, but I do agree with every word that they said.

As you can see from the slide, we have compared it to [bold] and Nokia E71 stacks up more than well. It is the world's thinnest device with -- which is impressive given the specs. It has very impressive operating times, it has 850PA, 3.2 mega pixel camera, GPS, Wi-Fi, a music player, stainless steel casing and the list goes on and on. Perhaps more importantly, the E71 supports a simple two-step setup for e-mail accounts from more than 1,000 ISPs around the world, including Gmail, Yahoo! mail and Hotmail and it also supports the corporate e-mail solutions, including Microsoft exchange and Nokia Intellisync wireless e-mail solution. And we are not done improving the e-mail experience on our devices. There is more to come here soon. You can get an early peek at the new beta consumer push e-mail service at Email.Nokia.com.

I'd like to briefly touch on the next product in our highly successful N95 franchise, the Nokia N96 which we expect to start selling in this quarter. We believe that N96 will help extend the success of the N95 devices. There are plenty of reasons to upgrade to the N96. The N96 is truly optimized for media consumption including video and mobile TV. It is thinner than N95, features more memory, 16 gigs, a larger and brighter display and offers up to five hours video playback, 14 hours of music playback and up to four hours of TV playback. We expect this product will do well and will be ranged globally. In our mid-range, our Connect business, we've recently announced a bunch of new products that we are excited about, including the ones listed on this slide. The Nokia 6210 Navigator and HSDPA series 60 device with built-in compass for pedestrian navigation. The Nokia 6220, HSDPA series 60 device that brings a lot of specs and a 5-megapixel camera to the mid-range, and the very sleek Nokia 6000 which comes in clam shell or a slide version. All are recent and very good additions to our mid-range offering. The Nokia 6210 and 6220 have already started shipping and the Nokia 6600 devices are expected to ship during this quarter.

I want to emphasize the importance of mid-range as if significance can sometimes be lost between the mass volumes of the entry and the innovation on the high end. The mid-range is actually the largest part of the overall device market, making up over 50% of the total value of the market according to our estimates. So it is very important to Nokia that we have a strong offering here. We surely have not taken off -- our eye off the ball in the entry level. We believe that we have the best product range, leading brand, lowest cost, most efficient supply chain, widest distribution and the highest quality in the industry.

Our recent addition -- announcements clearly demonstrate that we can offer the most diversified range in the entry level. For example, the Nokia 6280, the first slide device for the entry level, the Nokia 1680, the lowest-priced device with both GPRS and camera ,and the Nokia 5000, our first megapixel device for under EUR100. There is definitely a lot of opportunity to innovate in the entry level and we intend to continue to be the leader in this market.

Let's talk about for a moment about touch input devices. We are fully committed to bringing out to the market a complete portfolio of touch devices from the mass market -- for the mass market, the high end and even at the low end. Playing up the Nokia strengths we aim to appeal to the broadest possible market and leverage our advantages in brand, scale, platforms, manufacturing and distribution. Our first touch device will be aimed solidly at the volume part of the market. It is competitively [specked], especially considering the price point. This product is scheduled to be out in the second half. Following our first consumer touch UI product, our platform approach to the software will allow us to roll out touch across our entire range from top to bottom. It is just a matter of Nokia choosing what features and what specs do we want to include. For instance, the screen size GPS, Wi-Fi, quality of the camera, or maybe even a QWERTY keypad. With that I would like to hand back to Olli-Pekka.

Thanks, Kai. I would like to cover our new software services business. It had EUR119 million in net sales during Q2 up from EUR84 million in the first quarter. We had a lot of activity in this business recently. Sony, BMT Music Entertainment and Warner Music have now both signed up to support Nokia with music. With these two and Universal Music, which we signed up last year, we estimate over 80% of the global [natures] music catalog will be available on [Nokia.com] with music when it launches later this year. During the quarter we opened new Nokia online music stores in Australia, France, Italy, the Netherlands, Singapore and Sweden. This brought the total number of stores to 10 by the end of the quarter, and the plan to have a total of 14 open by the end of this year.

The N-Gage mobile games service became commercially available during the quarter. The service allows consumers to download N-Gage games on any of the tens of millions of compatible Nokia devices. Feedback so far on the service has been positive. Also during the second quarter, Nokia Maps 2.0 was released. Nokia Maps 2.0 not only improved car navigation but also new features like walk, (inaudible) navigation, multimedia city guides and satellite and hybrid images. We also announced the acquisition and in fact the closing this week of Plazes, which we believe will help Nokia to accelerate its vision of bringing people and places closer together in line with our broader services strategy.

Although we are still in the early stages of building a services business, our unique advantages from the scale of our devices business are already clear. One example is that the estimate of 150 million of our devices currently used have a download client with stakes people write to the applications store their consumers can buy applications. This is something that we are not yet fully leveraging. It presents a compelling opportunity going forward. We've also had some early success in bundling navigation services with our device sales. In other words, when you buy a selected device at the store, we offer the navigation service with that device for a period of time. In Q2 we sold over 4.5 million GPS-enabled devices, bundling navigation together with over 50% of those. This really demonstrates the power of Nokia's scales that we are aiming to bring to bear in our services business.

And then onto Nokia networks -- Nokia Siemens networks. Ready for that? During the second quarter Nokia Siemens Network continued to make encouraging progress in a challenging market. It was the first quarter where we have a year-on-year comparison for NSN, and the growth and improvement in margins was impressive. Importantly during the quarter one can see the NSN benefits starting to flow to the P&L. Good progress has been made in lowering operating expenses. Given the change in competitive landscape, still more needs to be done in this area. The gross margin has also been notching up over the last year, reflecting cogs, synergies increased, discipline and positive mix changes.

Notwithstanding the progress noted about, it will probably not come as a surprise to any of you that the market remained difficult. The competition remains tough. I think the [Anderson] leadership team has struck the right balance for this market. Clear focus on profitability and cash, rather than market share and growth at any cost. Prudent portfolio management with a goal of driving growth in some parts of its business while optimizing other parts for profitability. A rigorous cost control including productivity improvements beyond synergy savings, strengthening its software solutions capability to drive differentiation and market growth. And leveraging its greatest asset buildup over the years, namely its large install customer base. In this way NSN will assure it is able to successfully able to invest to meet the long-term needs of its customers. And now I'll pass over to Rick for more on the financials.

Thanks, Olli-Pekka. Let me get some color on Nokia overall financials, then move to devices and services and followed by Nokia Siemens Networks. In quarter two Nokia gross margin excluding special items was 34.6%, down approximately 180 basis points compared to quarter one. On a reported basis devices and services net sales were down 2% sequentially and down 1% year-on-year. However, on a constant currency basis devices and services net sales were up 1% sequentially and up 6% year-on-year. We delivered very good device unit growth up 6% sequentially and 21% year-on-year. I think this really illustrates the power of the brand, the distribution, the broad product portfolio and the global diversification.

Nokia's device average selling price in the second quarter was EUR74, down from EUR79 in the first quarter. The lower ASP was due to a higher mix of lower priced products and was significantly impacted by the weaker US dollar. In fact, approximately 40% of the sequential decline in ASP was caused by currency moves. The devices and services gross margin was 36.1%, down approximately 240 basis points from Q1. The impact to gross margins was expected, given a shift to lower-end products, a considerable drop in our revenue from new products, and a shift to lower margin regions. We expect to deliver improved product portfolio execution in the second half of the year with exciting new products in the low end, mid range and importantly the high end as well. As Kai said, customer reaction to many new devices has been very positive. In Q2 on a sequential basis, device and services OpEx excluding special items was down in absolute terms and down 130 basis points as a percentage of sales. Our solid operating expense performance mitigated the decline in gross margin resulting in only one point sequential decline in devices and services operating margin to 20.1% for Q1 -- Q2, from 21.2% in quarter one.

Last quarter we further emphasized the importance of cost management. Clearly our execution in Q2, especially in OpEx management was very good. Of course, as we launch a significant number of new products in the second half, we would expect our sales and marketing to increase sequentially in quarter three. But I'm pleased with the improvements we're making in terms of the OpEx discipline at Nokia as well as our continued ability to manage product costs. Two comments on Nokia Siemens Networks in the financials. In the seasonally strong quarter two, Nokia Siemens Networks generated strong net sales growth. Net sales were up 20% sequentially and up 18% year-on-year. The company saw broad strength across major geographic regions in product categories, including: radio access, transport, core and services.

Just as a reminder, Q3 and Q4 are the seasonally stronger periods for the infrastructure market. In quarter one and quarter three are typically the seasonally weaker quarters. In quarter two Nokia Siemens Networks gross margin, excluding special items, was 31.4%, up approximately 100 basis points compared to Q1. And in a tough industry environment NSN delivered improved gross margins due to better product mix and cost of goods sold related synergies. NSN's operating margin excluding special items and PPA related to the formation of NSN was 6.7%, up from 2.4% in quarter one. This improvement was driven by good net sales growth, gross margin performance, as well as improvements made in operational efficiency. Nokia Siemens Network quarter two results are encouraging, however NSN continues to operate in aggressive pricing environment and the geographic mix continues to shift towards emerging markets. Those dynamics have not changed. Therefore, it is appropriate for NSN to remain focused on executing its cost synergy targets. Nothing comes easy in this business.

NSN's cash flow in quarter two was somewhat improved. But improving consistency of NSN's cash flow and working capital management is very important. This is an area where we need to stay focused. More work ahead in this point. For your reference we've put a slide in the appendix of the presentation, it lays out how the special items and the formation PPA hit NSN's profit and loss statement. In terms of the synergy and integration process for Nokia Siemens Networks, let me just reiterate that NSN remains on track to deliver its EUR2 billion annual cost synergy target. The total special items for Nokia in the second quarter added up to a negative 600 -- excuse me, a negative EUR460 million. All of the special items are outlined on the slide and in the press release. So at the total Nokia level, excluding these special items, the second quarter operating margin was 14.7%.

Diluted earnings per share was EUR0.37, excluding both the special items and the NSN formation PPA items. Now, let's look at some of Nokia's balance sheet and cash flow metrics. Our cash and other liquid assets totalled EUR8 billion at the end of the second quarter. When it comes to working capital, inventory was down slightly sequentially in the second quarter, accounts receivables up sequentially in the second quarter, but only slightly as a percentage of sales. The increase primarily reflected a greater proportion of sales in countries with typically longer payment times. Accounts payable was up sequentially, basically in line with sales. So total operating cash flow in the quarter was EUR1.5 billion. Operating cash flow improved from the first quarter level of EUR757 million, but I think we can do more to improve our working capital management in both devices and services and Nokia Siemens Networks.

As always let me give you an update on the share buy back. During the second quarter we used EUR1.5 billion to repurchase 84 million shares or over 3% of the company. This was significantly higher than the average over the last four quarters which was EUR1.1 billion or 49 million shares per quarter. We believe the buying back the stock is a good way to return capital to shareholders especially at recent price levels. Since 2004 Nokia has reduced its share count by more than 22%. That's more than one billion shares. At May 8th at all right annual general meeting we received shareholder approval to buy back up to 370 million shares until the end of Q2, 2009. The new buy back mandate from our board is for EUR4 billion until the end of Q1, 2009. To help you calibrate what's left in the authorization since the annual general meeting in May, we've used EUR1 billion of the EUR4 billion so far to buy back stock under that authorization.

On to currencies. On a reported basis quarter two year-on-year Nokia net sales were up 4%, on a constant currency basis net sales up 11%. Sequentially net sales were up 4%, on a constant currency basis, net sales up sequentially 7%. The impact on operating profitability for the weaker dollar was clearly smaller as a significant portion of our costs are transaction dollars or dollar-linked currencies. Our outlook for Nokia NSN and the industry is attached in the slide and the appendix. Please refer to that.

Finally, I'd like to brief you on two additional items. Our acquisition of NAVTEQ and revenue recognition as applied to some of our new services. Regarding NAVTEQ, very pleased. We closed this on a timely basis and without conditions. Beginning in quarter three, NAVTEQ will be a Nokia-reportable segment. The acquisition was funded using half cash, half debt. The debt was raised in the US commercial paper market. We expect NAVTEQ to be slightly dilutive to EPS in 2008 and approximately neutral in 2009 and accretive thereafter, excluding purchase price accounting-related items arising from the NAVTEQ acquisition. So then on a reported basis Nokia expects NAVTEQ to be slightly dilutive to EPS, the remainder of 2008 and the years 2009 and 2010, accretive thereafter.

Nokia currently expects to recognize approximately EUR2 billion of intangibles related primarily to the navigable map, database and customer relationships. We expect these intangibles to be amortized over approximately five years. So net of deferred taxes we expect the impact on our consolidated profit and loss account of the purchase price accounting relating items arising from the NAVTEQ acquisition, to be approximately EUR250 million on an annual basis.

And then switching gears to revenue recognition for certain services. We've clearly seen early success and good growth in our software and services business, and increasingly this business involves selling services which are delivered over time. And so we will have an increasing proportion of our revenues, which are deferred and then recognized over time. This effect will be noticeable beginning in Q3. We will, of course, give you clarity as the business developments -- or, excuse me, as the business develops, and as increasing amounts of revenue are expected to be related to certain services. Now back to Olli-Pekka.

Thanks very much, Rick. In summary, and this will be a very short summary, in fact. I am pleased with the final performance of our device business and Nokia Siemens Networks. We were able to deliver good margins in large part to the very good operational discipline. As we look to the rest of this year, we have a lot of new products coming in all product segments, which we are really excited about. And with that, thank you very much.

Thanks, Olli-Pekka, we'll now continue with the Q&A session. Please limit yourself to one question only. Operator, please go ahead.

(OPERATOR INSTRUCTIONS) Your first question will be from the line of Stuart Jeffrey with Lehman Brothers.

Hi, there, thank you. Quick question on your margin structure. I think Rick mentioned in your slide show presentation that gross margins you expect to do better during the course of this year. That's the way it sounded anyway. You got a lot of new products coming through, so your product portfolio refreshes as we go into Q3 and Q4. So that all I guess points towards a margin improvement as we continue through Q3 and into Q4. Could you just talk around anything that might stop that from happening, especially the ASP coming through, you're no longer talking about competition driving ASP declines as the competitive environment has eased slightly.

Okay. Olli-Pekka.

Okay. Thanks for the question. You're almost like putting words in my mouth, and -- but I'll give my own answer here. So in that way -- I mean, this gross margin question, of course, comes up quite often and I very often repeated the answer in the same way. We don't try to maximize gross margins every month or even quarter. We manage our business in order to maximize the bottom line, and we manage our business in order to take market share in a way that is sustainable, and of course we have given operating profit indications. We have said -- as we started the year we said 20% plus or minus and that is what we delivered in the second quarter. I'm referring of course to the devices business only. And that thinking I think will continue here, and we will manage our business in bearing in mind those targets I was referring to. And in that way I think that strategy and that way of managing the business will ultimately benefit the shareholders in the best possible manner.

Next question, please.

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

Great. Thank you. Just a little different twist to that question. In the past you indicated you would shoot for a revenue mix in your device business of around 35% of revenue in a given quarter. Can you help us what Q2 was and how we should think about that mix in the second half of 2008? And also while low and still growing how should we still think of the high end products as it relates to ASPs and maybe constant currency for the back half of the year?

Rick, please.

Yes, Mike, this is Rick. I think you were referring to new product revenue. As we talked a lot, if you could dial this in constantly every single quarter, you would probably wish to run that somewhere in the -- in the 30%s, low to mid-30%s, and this quarter we were closer to 20%. So we were pretty low in what's defined as new product revenue. But remember as I talked before, we had just come off two quarters where we were at 40% or above. So that doesn't mean that you were a portfolio that was stale or old. Quite the opposite. It was well refreshed.

And that's why you can do what Olli-Pekka said, as we went into the quarter we can take sustain market share and deliver 21% operating margin off the devices and services. So, that's going to come up, obviously. We expect that the new product revenue to come up in quarter three and quarter four compared to quarter two, for the reasons that Kai articulated with a number of new products that are shipping. But we will continue to see the low end grow, as we did in Q1 and Q2, all things else equal that obviously has ASP pressures down. As we said before, that is a good thing with Nokia because we can make profits there. So that is the dynamic that is going on around new product revenue.

Next question. Thanks, Mike, next question, please.

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

Thank you. And then that same question, there's a very strong performance in the margins, Rick, and it sounds like you're saying you're seeing more seasonal. Can you just give us a sense when you talk about improving mix, how structural that improvement in mix is, is that services or what is going on there in regional? And secondly, it's just related, can you confirm whether NSN was break-even or positive in terms of operating free cash flow, and what you think you could do more on in terms of networking capital from here? Thank you.

Olli-Pekka, please.

I will start and I'll ask Rick to comment on the other part of the second question. In fact, so of course, if you look at the the cyclicality in the [Anderson] business and you are referring to the business mix, so there is some fluctuation there, of course, on a quarterly basis when it comes to when it comes to the business mix, when it comes to business lines or product lines in that business, and then of course when it comes to the distribution of sales between different markets. So that type of fluctuation will continue to be there. Rapid changes in the mix will not happen, simply because of the nature of the business. And in that way I would not emphasize that aspect here too much at this point of time. It's very clear that we do have quite a lot of ambition when it comes to the services business in NSN, and that's been one of the focus areas, but that is more like a longer-term progress question.

Okay. And, Gareth, to my favorite cash flow, yes, we did have an operating profit cash flow on a clean basis with NSN in the quarter, and that is great, fantastic. But we're not satisfied. Simon and his team is not satisfied. Eric and the CFO is not satisfied there. We still need to improve on overall networking capital management, and we have got the eye on the ball there. We have got the metrics. We've got the teams operating that way. So I think that we can do better there. Of course, now, we're still executing the cost synergies and that costs cash. We did a couple of acquisitions in the first half as well, but we think that is a good use of cash. But on operating cash flow we snuck into the black in the quarter.

Thanks.

Thanks, next question, please.

Your next question will be from Tim Long with Banc of America.

Thank you. Just a question on China and the emerging markets, if I could. I know you mentioned some share loss in the quarter. I'm assuming that's kind of related to the bundling at the low end. But looking at the overall market in China, there is obviously a lot of events going on there now. What is your view on the overall market and how long we might see some impact from the restructurings and maybe the earthquake and the economy. And in your view has any of the weakness in the overall Chinese market showed signs in India or any of the other emerging markets at this point? Not really evident in your numbers overall, but I'm just curious if any countries stood out as maybe more of an issue. Thank you.

Olli-Pekka, please.

Yes, thanks. I think that's is a very important question. Looking at -- we were referring to some loss of market share in China, but I think we need to put that into the context, as well. We have come from a level of 20% market share in China to approximately 40% of the market in a matter of couple of years, three years plus, and in that way we saw very, very good progress. It is very clear that totally seasonal fluctuation can happen, and, of course, a lot of that is related to the China mobile super low-end deal that I almost would like to use the expression, if I may, that we decided not to participate in. And in that way, and that's a decision that we have to have to make on an ongoing basis trying to look at the best interests of our shareholders and the bottom line here.

And then it comes to, then, the question, and I think it is an important question, when it comes to overall situation in China, the earthquake, and so forth. So I think the overall China continues to be solid. I think we had some impact from the earthquake. I mean, the market at one point of time, but China is a huge, huge market, and in that way I think the severity or significance of that I think was quite often complete I did in some commentary and I think that public (inaudible) now as we speak.

I read some interesting data on China today. I think they announced their growth numbers and inflation numbers today, when it comes to the month of June. I think the growth was a bit down and so was inflation. And in that way I think it is nothing fundamental to report and I can't add anything to this. I am an observer here, of the economy. But nothing fundamental to report there. I think we just need to pay a lot of attention as a company now on China, and make sure that we can continue to see positive development of our market position in that market. I think that's definitely something that is on the agenda here.

Okay. And impact on other regions?

Well, I think China is one market and very much a market on its own right, so I don't think you can extrapolate anything as such in that way. But, I mean , this is more like a general comment here. But

Thank you.

Yes, I think, Tim, we called out in the press release the growth in some of the other areas and I think India and others is a big market, and we had our best period ever in the month of June in terms of selling the most we ever sold in India. They're putting on EUR7 million more [so subs] in a month, and they're faced with all of the same sort of economic reality that we're all aware of. But they have a deep growing entry level. They have a strong middle range. And as we talked many times, don't forget about India in term of high end and high priced devices. So I think it is a very representative market in that way. Brazil is clicking along well, as well.

Okay. Thank you.

Next question, please. Thanks.

Your next question will be from Andrew Griffin from Merrill Lynch.

Hi, there, thank you. Just again along the market. You moved your market outlook from 10% to 10% or more. I wonder if you can give any more granularity on what in particular made you more confident about the market this year?

Rick.

Yes, in 10% or more it really is just as we said at this point in the year, with everything factored in, we feel good about 10% or more. We have said approximately 10% previously. The drivers that we outlined at the beginning of the year remain firmly in place to get us there. You are going to have higher unit growth in the emerging markets, and that's continuing. And we just talked about a couple of the biggest markets there: China, India, Brazil, I should mention, Russia has a big element of that market, as well, the high end, and others. And, Europe's developing like we thought at the beginning of the year in that sense, not a big change. So there's nothing new in how you get to 10% or more. We just have better visibility and good confidence as we look out from here to the end of the year.

I just wondered, given you you have half a year under your belt now, whether there is any particular surprises, either positive or negative regionally, in the data you collected?

No, as I say, there isn't anything to write home about that.

Okay. Thank you very much.

The next question, please.

Your next question will be from Mark Sue with RBC Capital Markets.

Thank you. Rick, maybe if you can help us understand the trajectory of devices operating margin improvements. What part is variable and what is fixed in sales and marketing? And how should we think about the incremental spend in the unit per new device? A what I'm trying to get to, if we should see a flattish devices operating margins in the near term and a sharp ramp in the fourth quarter or a more gradual build?

Rick, please.

Yes, Mark, thanks. As we said, I think we demonstrated pretty well here over the last couple of years, quarter by quarter, that we have a pretty good amount of flexibility to work the variable parts of the OpEx and sales and marketing in a way that assures that we have a good chance of reaching that 20%-plus/minus target that we set out. There is a fair amount of that. What you have to watch for you have to make sure you're spending enough to maintain the bid in the long term. And I think we're doing that. And that is another reason why in Q3 we're going to bring sales and marketing spend up particularly the marketing spend and that's consistent with the new product launches.

But we've seen our brand improve, we're the number one brand of any consumer brand in many parts of the world, we're in the top three to five in any measure globally. Our customer response in terms of preferences to purchase preferences return have been good and in many cases we've seen some improvements over the last two years. So all of those say we're getting the balanced right in what to do in a short-term quarter to adjust to hit the plus and minus, but also really, not just sustain the brand but build the brand.

R&D is a different thing. You don't have a whole lot of flexibility within a quarter on R&D and you wouldn't want to jeopardize the platform development and product developments that are so critical to exploit our scale and our innovation that is coming to jerk those around too much in the quarter. So we don't do a whole lot of that. But we have brought down -- or excuse me, we have improved our R&D as a percentage of net sales, and we reached that target that we had set out some time ago of getting around the 8% level in devices some time ago, so we continue to work to improve there.

As a percentage, maybe [rise] or slightly down and then the balance?

Well, as I said before, in terms of OpEx, we expect sequentially an increase in the amount in Q3 versus Q2, both absolute and as a percentage of sales. And we don't give operating margin targets quarterly, but we're working within the guidance that we gave in December at capital markets in terms of 20% plus/minus that remains. There is nothing new to update there.

Okay. That's helpful.

Your next question will be from the line of Tim Boddy of Goldman Sachs.

Yes. I wanted to ask about component costs. And obviously as we see inflation increase in emerging markets which is where a lot of your supply chain is located, there is some concern about from the raw material side but also the wages side, not only in your own business but in the indirect suppliers to your business. Can you just comment on what trends you're seeing there, and the extent to which -- at what point we may see any increased cost pressures surface, if at all? Thank you.

Hey, Tim, this is Rick, yes. When you first said a lot of the sourcing located in emerging markets, I didn't quite understand the connection, but then you went to wages. But remember, wages is a very, very small component of our cost component, and what we look to do is maximize the quality, the flexibility and minimize the total cost. And I think the way we've got our production sites and our sourcing is set has shown to be doing that in a pretty good way. The other thing to remember is that market share more than two and a half times bigger than our closest competitor and five times greater than each of the next three, we have lot more ability to manage through these situations than anybody else. So again that is -- wages in certain markets isn't something that I would call attention to.

But I guess just to follow up on that, if we look at the totality of costs, whether it be raw materials or oil price related costs in the distribution chain. When you look in the whole picture, are you seeing upward pressure, and if so, at what point would see he see it come through to your business, or is it not just a big enough thing to worry about?

Oh, no, we worry about costs, prudently. We're paranoid enough on costs. But yes, we talked about this in the last quarter. I called that out that -- And it isn't -- I shouldn't say upward pressure, but less ability to drive down at the rate that we had over the previous two years and we got a lot of benefit there of not even meeting our targets, but actually -- And what I said was this year was going to be a different one where you have got to work hard to reach your targets, but you aren't going to get upside benefit from driving prices even lower. So sure, there is some pressure there, but that's what we talked about in Q1. We delivered in Q2 in spite of that and we got the levers better than anybody else in any environment in Q3 and Q4. But yes, there is pressures.

Next question is from Richard Kramer with Arete Research.

Thanks very much. Olli-Pekka, a couple of quarter says ago you mentioned, specifically RIM and Apple as new competitors. And this quarter you mentioned there was share loss on SMART Phones. Can you talk through competitive dynamics as new product portfolios roll out? What are the targets and the drivers in terms of taking back market share? If it's going to be music, maybe you could touch on some of the costs related there. If it is e-mail, maybe you can fill news as to when you will have a full enterprise offering, versus RIM. And can you really talk through how it is that SMART Phone share might rise and when we might see that to start to happen? Thanks.

Okay. We'll take Kai first.

-- very good question but since we have Kai available here this time, so I'll let him to take.

Yes. So, first of all, on the competitive dynamics, of course, we acknowledge there are new competitors in the marketplace. We look at our range going to the second half. As I said in my part, we feel very good about the new products that we have coming, that we have launched, new 10 SMART phones that we'll be selling in the second half and there will be more to come and which will be -- we will be selling also before the end of the year. So I think that will help our competitiveness. On one particular situation where we had in a second quarter pretty much the same portfolio as we had in the first -- third quarter.

And then I want to really emphasize the solution part which Olli-Pekka talked about in terms of a music, in terms of a e-mail, in terms of a navigation. Starting with products like I talked about the Nokia 6210 navigator. As the name says, it is about navigation. It is about the consumer promise with the product and the navigation service seamlessly integrated to the consumer. I think we have a -- clearly an opportunity to drive the market into the direction. Again, it is the results that we have seen now in the bundling as Olli-Pekka said, during the second quarter, I think got quite promising having GPS-enabled devices shipped in the second quarter bundled with navigation service as an example.

And when you think about your core market, which is Europe, where the high-end SMART phones are so important to profitability, we've seen now in a couple of quarters where the market has been flat. Has something structurally changed or should we look for this rebound or improvement in market share in SMART phones?

There is no big structural change in Europe. There is some decline in terms of SMART phone growth, but it is the fact that growing part of the market on an ongoing basis.

Yes, let me add here. This is Rick. The SMART phone market, it isn't Europe only our stronghold. As I pointed out after quarter one at a conference only about 20% of our volumes are western Europe. We are globally important in SMART Phones, not just western Europe.

Yes, and maybe I just add one more point there. We have done quite extensive segmentation work during the first half of the year, looking at how the consumer segment base really is developing, and what do consumers going forward, what they will sort of prefer, and what type sort of solutions they will be asking. And this segment has been extremely extensive, possibly one of the biggest segmentation works ever done by a company on the consumer space. And it is clearly illustrating or demonstrating that the market is moving up in terms of the engagement of the consumers. In that way we are really seeing a -- quite a rapid progress in the engagement, technology engagement, solutions engagement, in all markets, by the way, including the US, quite interestingly, which was low in this respect earlier. This is extremely encouraging when it comes to the implementation of our strategy, meaning combining devices to services and in that way delivering solutions. There will be increasing consumer demand for this, and it clearly supports our thinking, and I think this is very, very noteworthy.

Okay. Thank you.

Next question, please.

Your next question will be from Sherief Bakr with Citi.

Thank you very much. Just a question relating to the US, where clearly you have made some progress this quarter. I just wanted to get a sense as to whether you are now seeing much more positive momentum that will continue into the second half. And relating to that, what -- sort of what the margin structure looks like in the US, what impact that could have given a very competitive environment, you talk about lack of economies of scale, given -- only having four customers. And what potentially could be the likely impact of having to spend more sales and marketing ahead of new product launches? And sort of really relating to that, if you really are expecting to gain share in the US, what types of products -- are you expecting to launch a lot more SMART phones into the US market through the back half of the year or is it going to be continue more low and mid-range products? Thanks.

Kai and then Rick.

If you look at the second quarter our market share in North America 5% -- five percentage points up, and it was really driven by, if I mention two products, 5310 express music with T-Mobile and 6555 with AT&T. It's also noteworthy that we got the first CDMA product now approved by Verizon, and thus giving us confidence on our CDMA strategy, and that, of course, is an essential part of the share gains going forward.

Yes. Thanks, Kai. And then, Sherief, to your question about kind of margin structure costs structure, let us remind ourselves of a couple of things. The US market for all vendors is one with margin structure is lower. But also put in perspective, Nokia historically we have been for some years having a very low presence there, and we've been in the very low end. We have had a low ASP there. And I think it would be crazy not to move up the stack, which is exactly what Kai's strategy is that he just talked about, and gain more value there. So for us there is upside even in market that all of us know is not a market that has as great a cost margin structure as some of the other regions. So in that sense, yes, but, we're going to be working up through the mid and the high range to compliment the low end, as we try to execute our strategy successfully there.

Thanks. Operator, this will be the final question, thank you.

Your last question will be from Mark McKechnie with [AmTech].

Great, thanks, I appreciate it. Just a quick one. Your charges in the quarter, can you -- did you break them out on the income statement, how they fall through on gross margins, R&D and SG&A?

Yes, Mark, we did, in the Bochum charges for the site closure in Germany, as we said there in the press release, impacts device operating profit. All of that, at the operating expense and other expense line, none of it hit the cogs.

Okay. And then since that was already answered, on NAVTEQ, have you seen any change in fundamentals since you've bought them, relative to their forecasts? And then also would the layering in of that, is that going to be reported in devices and services or would that be accretive or dilutive relative to the margins to that -- relative to that 20%?

Yes. Mark, on NAVTEQ, as is we've said, it will be a reportable segment. So Nokia in Q3 will have devices and services reported as a reportable segment with full visibility through the P&L. Nokia Siemens Network full visibility through the P&L and NAVTEQ full visibility through the P&L. So you'll get to see plenty there, we'll see how it develops. To tell you the truth I haven't done an operational financial review, yet. We just bought them a couple of days ago. So give me a little time there. You guys have seen what their operating margins have been in the recent one year, 18 months, and they're higher operating profit than our devices and services, and of course we broke out, as I did on the call, very detailed what we think overall the accretion and dilution. So hopefully that helps you. But we're going to give you plenty of visibility into the NAVTEQ segment as we report into Q3 and Q4. So give us a couple of weeks.

Thanks. Good quarter, gentlemen.

Thanks.

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 differ materially from the results currently expected. Factors that could cause such differences can be external, such as general economic and internal operating factors. We've identified these in more detail on pages 10 to 25 in our 2007 -- (audio ended).