諾基亞 (NOK) 0 Q0 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 mid-quarter update for third-quarter 2008 conference call.

(Operator Instructions).

Thank you.

I would now like to turn the call over to Mr.

Bill Seymour, Head of Nokia Investor Relations.

Mr.

Seymour, you may begin your conference.

Thank you.

Ladies and gentlemen, welcome to Nokia's mid-quarter update conference call for the third quarter 2008.

I'm Bill Seymour, Head of Nokia Investor Relations.

Rick Simonson, CFO of Nokia, is 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 30 minutes.

A replay of the call will be available until September 20.

The information for the replay of this call is in the press release issued today.

Nokia will report its third-quarter 2008 results on October 16, 2008.

Now I will hand over to Rick.

Let me just briefly go through what we said today in our press release.

Nokia today updated its mobile device market share outlook for the third quarter 2008.

And as we said, we now expect our mobile device market share in the third quarter 2008 to be lower than the second quarter 2008.

This compares to Nokia's earlier estimate provided when we came out with our second-quarter results on July 17, when we said we expected our mobile device market share in the third quarter '08 to be approximately at the same level sequentially.

We continue to target an increase in market share in the mobile devices for the full year 2008.

Nokia expects the overall market device in -- or the device market in 2008 to be impacted by the weaker consumer confidence in multiple markets.

However, we continue to expect industry mobile device volumes in 2008 to grow 10% or more from the approximate 1.14 billion units that Nokia estimated for 2007.

Nokia also continues to expect industry mobile device volumes in the third quarter 2008 to be up sequentially.

Our current estimate that Nokia's mobile device market share in the third quarter 2008 will be lower than previously expected is due to multiple factors.

These factors include Nokia's tactical decision to not meet certain aggressive pricing of some competitors, the overall market competition, including the entry markets, and the temporary impact of a slower ramp-up of a midrange Nokia device.

Nokia's strategy is to take market share only when the Company believes it to be sustainably profitable in the longer-term.

Nokia has not broadly participated in the recent aggressive pricing activity, and it believes that the negative impact to profitability would outweigh any short-term incremental benefits to device unit sales.

We expect the product launches and start of shipments to be on track during the remainder of the third quarter and the fourth quarter 2008.

And driven by Nokia's new products and services, Nokia continues to believe its product portfolio will be very attractive for the rest of the year.

Okay, operator, let's start with the Q&A please.

And just as a reminder, please limit yourself to one question only.

Thank you.

(Operator Instructions).

Jeff Kvaal, Lehman Brothers.

Rick, I was wondering, could you help us understand a little bit how consumer confidence is affecting the market if it is not changing the unit volumes for the year?

Yes, Jeff, thanks.

You know, it is important to understand that what we have said is there is still growth.

And we have reiterated the 10% or more and also sequential increase here on the quarter.

And it has been widely reported that the consumer confidence is impacting certain markets.

I don't really have anything I can add to that kind of overall GDP discussion.

It is pretty widely covered.

But that was one of the factors.

But there are multiple factors, as I said here, for the reasons we wanted to come out and give you visibility here today.

Okay.

So is the market -- is it manifesting itself for you in terms of unit volumes or ASPs or margin pressure?

Well, okay, so you have got a few questions there.

In terms of units, obviously, what we stated here today is we expect our market share to be somewhat down instead of sequentially flat.

So that relates to units.

And that -- a lot has to do also with, particularly, we have said that in certain markets and in certain areas, including in some of the low end, we are not meeting certain aggressive pricing that we believe may not be sustainable.

And so it really is not margins.

What we're talking about is units here.

So if I can step through, you asked about ASPs.

On average selling price, there is a number of puts and takes.

As I've said we have not broadly participated in aggressive price cutting.

That hurts units and aggregate sales, right?

But since some of that aggressive pricing by some of our competitors is going on, particularly in the low end, and we are not participating in all of that, that actually is a positive for ASPs in our case.

The fact that we had a slower ramp-up in this mid-range product, a mid-range product, is negative for our ASPs, all else held equal, right?

Because it is a mid-range product in the higher end of the mid-range.

And in the high end, it is important here to note there's really nothing to report on the high end has to ASPs.

Because one definition of high end at Nokia would be the combination of the E Series and the N Series, right, which are all smartphones.

And E Series has developed very well.

The E71, great reception in the marketplace.

You know that is our newest QWERTY smartphone.

E66, solid reception, really looks good in the market.

And with the N Series, we're beginning to flesh those out and with more to come in Q4.

So from this aspect on the high end it is kind of a wash on ASPs.

And then the final factor on ASPs that I'd point out is foreign exchange.

You know, it is too early to say how that impacts overall the quarter, because there's a lot of volatility in the FX market.

But so far this quarter, it has a little bit of benefit on ASP.

Does that kind of cover your question, Jeff?

Yes, thanks, Rick.

Tim Boddy, Goldman Sachs.

It would be very useful just I guess two aspects to the question.

Is it fair to assume that you would not have made this announcement if your market share had been down let's say by a point?

So the fact you have pointed it out indicates it should be down several points.

And then building on that, it would be helpful just to understand your confidence in your comment that this price competition is not sustainable.

Can you give us any more color on which regions and which competitors you are seeing the competition coming from?

And again why you're confident it is not, if you like, a sort of structural change in price dynamics in the mobile market.

Thank you.

Yes, thanks, Tim.

So kind of two points, market share and then the competitive question impact there.

And again, and the quarter is too early to estimate with precision.

But you know we are not talking several points here; we're talking about a change that then combined with the other factors that I mentioned, we felt that we had some visibility here, that it was fair view to give that and bring that to the market.

Again, as we said, it is too early to estimate with precision where our units are going to be in Q3, but we expect them to be in aggregate, just slightly down quarter on quarter.

And again, our product launches now the rest of the quarter are on track.

And they are for Q4, and we expect gains for the full year of 2008.

That is important to reiterate.

Because you have seen us before, we have had some volatility quarter to quarter in market share but we've continued on a trend of consolidating market share and bringing market share sustainably and profitably to Nokia, and I don't see a change in that trend when we look across a number of quarters.

So I feel good about that continuing.

And then the second part of the question I guess was around this competitive dynamic and sustainability of pricing environment.

Pricing is always competitive, always competitive.

But there's periods when the pricing is more aggressive and periods when the pricing is relatively more benign.

And right over the last couple of years, we have seen each of those examples in the marketplace.

And so we have got a lot of experience of how to handle them in the best way.

Recently, we have seen from a few competitors -- have become what we think is overly aggressive in certain markets.

And I guess it is our experience, and I think history and the facts show, that this may not be sustainable by all those competitors.

And so that is why we take the action we do, and I think we're walking our walk here in terms of -- or walking the talk; is that the appropriate way to put it?

That we only take market share when it is profitable, when it is sustainable.

And we're going to be prudently making the normal price moves that we have.

And maybe some of these other actions by certain competitors might not be sustainable.

You know on that count, I think history is on my side.

Is there any color you could give on the regions or particular competitors?

Is it like for example competitors in financial distress or recent financial distress?

Well, I think I will leave it at what I've just said.

Mike Walkley, Piper Jaffray.

I was wondering if you could help us in terms of the Q3 industry outlook, how do you see that developing?

Is any of the price pressure in your opinion due to any excess inventory that may be out there in the channel from competitors?

Yes, Mike, like I say in terms of the market we still expect it to be up sequentially in Q3.

So I do not see any undue issue on inventory.

Andrew Griffin, Merrill Lynch.

I just wondered if you could give me an indication of which was the bigger impact on your unit numbers, the retreat from the price aggressive competition or the mid-range product?

Yes, as I said, there was a number of factors.

I can't handicap what those were in terms of percentages.

But again the pricing impact, as we said, it includes actions that are in the emerging markets.

And so their unit numbers can change in pretty large amounts.

That, of course, has an impact on your units and your market share.

As I said, all else equal, that actually helps a little bit your ASPs, but of course it lowers your total gross profits.

But it is actually not so bad for your gross margin percentage when you're talking about the low end.

In the mid-range, that one product that, as we were ramping up, we had some quality issues to get over because we're not going to ship product with quality problems.

We've got that largely resolved and we will go forward now.

You know that one, yes, it has an impact also on the units that are material and measurable.

But probably more it has that impact on your total sales a little bit more.

And on the gross margins of course that is a bit of a minus for you on the total gross profits there as well, on the mid-range.

So those are kind of the factors that have played in here.

Are you able -- has the product launched now?

Yes.

Tim Long, Banc of America Securities.

I just wanted to go a little further into the product delay, or the delay in ramp or quality issues.

Obviously, we had some delayed product issues in Q2 as well.

Do you think there is something systemic going on here with getting products out and ramping?

Is there any -- is there a change in supply base or a change in the model in any way that is causing [selling] of your products to be late or late to ramp?

And related to that, why do we have confidence that now the rest of the Q3 and the Q4 phones are going to be on time?

How do we gain comfort with that?

Thank you.

Yes, Tim, first, absolutely not anything systemic.

Absolutely not -- not related, no process change, none of that.

As we've said before we're doing a lot of ramps.

We're better at that than anybody in the business.

Every time we ramp up products in any categories, it usually sets a new world record for that category as to how fast, how many are being ramped.

And in Q2, we fully delivered the goods even though we had a little bit of issue there, right?

In this case, this one was a product that we were not able to get it out and launched as strong as we wanted here and it had a little bit more material impact.

But we're looking very good in terms of the ramps; we're shipping now the 6210; we're shipping the 6220; we're shipping the 6600; the E66; the E71; the N96 now, that was just introduced as shipping; and very soon, we're shipping the N79 and N85.

And they are not related issues, Tim, in terms of your question.

I can absolutely give you full assurance on that.

So I feel good about that.

And I think, again, if you look at Nokia's history, we've got a good track record of getting the launches out, getting them timely and doing it with quality.

Occasionally, you have one that hits a little bit.

When it is combined with these other factors, that is why we're talking here today.

If it was just that, we would not have anything to report.

And just to understand, if you could, there is obviously a lot of changes in technology in the phones and you're also going through some changes in your supplier base.

Is it anything, something new that came up or that caused this delay, or --?

No, rather more mundane, I'm afraid, which is a good thing too.

So it is not systemic.

There is not -- you should not have concern in that regard.

Rod Hall, JPMorgan.

Rick, I just wanted to go back to the gross margin comments you made.

Is it right -- you sounded kind of negative about gross margin in Q3.

Is it right to be thinking then that gross margin goes down off of Q2 in devices and services?

So I think in Q2 you were at about a 36.1% level.

And then I also am wondering where you think gross margin goes back to in Q4.

Is it between 37% and 38% or do you get a bounce-back as a result of these new devices?

Let me be very clear.

I feel good about a positive direction in Q4 on gross margin and operating margin.

Let me say that very clearly.

And then let's go into detail, okay?

Okay.

In terms of the gross margin for Q3, like ASPs, there is some pluses and minuses based on what we have incrementally said here today, right?

What we said in the press release is we have not participated broadly in these aggressive price cuts and that means we have not sacrificed gross margin percentage unduly.

We're not going to play that game in a way that we think is not healthy and sustainable.

The low-end units that we lost by not chasing these aggressive deals, all else equal, is positive for gross margins.

But you lose some total gross profits, right?

Then, with regard to the upper midrange product that has had this slower ramp that we just discussed, that is negative for both gross margins and gross profits.

So then you have got to look at -- but we have not unduly sacrificed gross margins by playing this aggressive price game.

That is very important to understand.

Obvious, the delay in one product that is a good mid-range product is not a positive for neither gross margins or gross profits.

But that is just one small item.

So the gross margin percentage is not being unduly sacrificed.

But, overall, we have to deal with having some less gross profit from these two elements.

So what do you look at in OpEx, right?

So as you would expect, we're taking the appropriate actions on OpEx.

Again, I think that is a hallmark of our organization.

But in the short term of course there is a certain range that you're able to do there, right?

So it less units, which is why we're talking here today, to give you a view that we expect some less units than what we had previously have been looking at, equals lower revenues, equals lower operating profit; how do you work on your OpEx here?

In quarter two, our OpEx was low end for quarter three, we guided for an increase in aggregate in OpEx.

That still remains intact because it is worthwhile and it is productive.

But we are making some adjustments as you expect, and we're scaling back certain sales, marketing, G&A costs where appropriate.

R&D, you don't have much flexibility in the short term there, and I don't think that is the issue.

We don't need to adjust that, per se, for this.

But overall, those adjustments we're making are not likely enough to be able to offset fully the impact that we expect here.

So let me summarize this.

So in the midterm, the devices and service operating margin target that we set during our capital markets day last December, remember, 20% plus minus, right?

The 20% plus, minus that we set out in December capital markets day, you know, it depends on a few factors.

One of them being the overall strength of the product portfolio.

And we said here that we had a ramp issue.

And then we were not going to compete on some of those aggressive deals.

So where does that leave us relative to that 20% plus, minus?

Clearly we're on the minus side of that in the quarter three.

As we're only getting partial benefit from the new products, and we've had a few of these headwinds that we just identified on the press release and here in the call.

I expect this to improve in Q4.

Okay.

Just to summarize that because there are a lot of moving parts in there.

Then I would be right to be thinking that your devices and services gross margin, not the operating margin, because it sounds like that will clearly be below 20, but the gross margin will be maybe a touch lower than we saw in Q2 but not a lot lower.

And then you think there will be a healthy bounce-back in Q4?

I do not have anything to elaborate there, Rod.

I will leave it at that.

I think --

Okay, thanks, Rick.

Mark Sue, RBC Capital Markets.

Is not the demand weakness and your desire not to lower prices highly interconnected?

What does that mean for a return to normalcy later on in the year?

If the demand stays weak, why won't the competition stay irrational for the balance of the year?

Of course, there is some linkage there and that's how -- why you take certain moves that I think are either more rational or less rational.

We have the flexibility, we have the strength, we have the market presence, we have the sustainability, we have competitive advantages that are lasting, that allow us to play this rationally.

Some other people may not, perhaps.

Let me put it that way.

And as we have seen time and time again, you can't make losses to the road to prosperity and sustainability.

And so certainly, there is some link and the dynamic is a little bit different in a current market environment like now versus say a year or two ago.

But we have seen it in both stronger, flattish and weaker markets over the number of years that certain price actions by people that don't have sustainable core advantages are maybe not able to be as long-lasting as some of those people would like to think.

All right.

Just as a follow-up, when you say 10% plus unit growth for mobile devices, I mean much of that growth has already occurred in the first half.

Does that mean we should really flatten the trajectory for the balance of the fourth quarter?

Well, again, it is hard to add anything more than what we said that for the overall industry we see 10% or plus.

We see sequential growth here for the industry, Q2 to Q3, so that does not leave much math left to do.

So I guess I would leave it at that.

And then to reemphasize again back to your point on the pricing question, this is not all competitors; it is not all markets.

It is selective, and that is how we play it.

Richard Kramer, Arete Research.

Two very simple questions.

One, you had spoken in the past about the disproportionate impact of profitability on loss of smartphone share and you mentioned loss of smartphone share in second quarter.

Can you talk us through, since you mentioned that N Series and E Series were doing well, do you expect you'll hold your smartphone share in third quarter?

Or is that an area where you think you'll be affected?

And then maybe just to understand the magnitude, you said your own units would be down or slightly flat or slightly down sequentially; you expect the market to grow.

It seems like what we're talking about the difference here and your shortfall of being something on the order of a mid single-digit number of millions of units.

Is that about right for what you fell short of in terms of your plan and what you expect it to do?

Yes, Richard, thanks, and two part.

Let me take the smartphone question.

And, again, the reason we're talking here today is not about smartphones.

It is for the factors that we said.

And while we are predictably seeing more competition in certain segments, where we're going through transitions.

We talked a lot about that.

We're increasing and introducing in quarter three but accelerating in quarter four and going into next year, our smartphone portfolio.

And it is clearly -- the transition of what we're doing there in the introduction is clearly on track as expected on the high end when you look at our E Series and our N Series.

So as I said before, there is nothing to report on there.

This mid-range phone that we're talking about where we had some delay in the ramp-up is a smartphone, just because it has the Series 60 operating system, so that hurts us.

But it's not -- it is not the problem that you hypothesized on there, no.

So, again, just to reiterate, if you look at the combination of our E Series and N Series, which are all smartphones, E Series developing very well.

As I said with the E71, E66 and the N Series, we're starting to flesh that out.

But we have got more work to do there with the models that have been announced that have not started shipping and some additional ones in the fourth quarter to come.

And then on the number of units, on the owned units, I really don't -- I will just leave your statement.

I don't have anything to elaborate on there.

Thank you, operator.

We will end the call at this time.

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 20F and in our press release issued today.

Thank you.

Ladies and gentlemen, this does conclude today's conference call.

Thank you for participating.

The call will be available for replay beginning at 11:00 AM Eastern time today and lasting until September 19, 2008 until 11:59 PM Eastern standard time.

The conference ID number for the replay is 63476957.

The number to dial for the replay is 1-800-642-1687 or 1-706-645-9291.

For the UK, conference ID number is 63484035; dial in number 0800-953-1533.

Thank you for participating in today's conference call.

You may now disconnect.