諾基亞 (NOK) 2008 Q3 法說會逐字稿

Good Morning, my name is Regina and I will be your conference operator to today.

At this time, I would like to welcome everyone to the Nokia third 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 now turn the call over to Mr.

Bill Seymour, Head of Investor Relations.

Mr.

Seymour, you may begin your conference.

Thank you.

Ladies and gentlemen, welcome to Nokia's third 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 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 these 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 also may note, for your background information, we have provided additional slides in the appendix of this presentation.

As you saw in today's earnings release, we have added non-IFRS results information to the quarter announcement format in the table on the front page and in the tables at the end of the earnings release and on our website.

The release includes both reported and non-IFRS results as well as a detailed explanation of the contents of the non-IFRS results and a reconciliation between the two.

The release is available at Nokia.com.

I would like to remind you that we will host our annual Capital Markets Day in New York on Thursday, December 4.

This will be a full-day event featuring key note presentations in the morning.

In the afternoon, breakout sessions will focus on key topics.

And during the evening we'll have dinner with senior members of our executive team.

We will also have an Expo area so you can interact hands-on with our latest Devices and Services.

You can find more information by going to Nokia.com/cmd2008.

We sent out a registration email yesterday.

If you have not received this from us, please contact Investor Relations.

We hope to see you there.

With that, Olli-Pekka, please go ahead.

Thanks, Bill, and good morning and good afternoon.

In the third quarter there were challenges that were specific to Nokia.

And there has been a great deal of turmoil in the financial markets and it is unclear how this will impact different markets.

However, given the challenges, market performance was solid in both Devices and Services and in NSN.

Cash flow was EUR1.3b.

Our Services and Software business continued to progress.

We started to ship great new products in Q3 that will be key to our improved Device portfolio in Q4 and beyond.

And during the third quarter we completed the acquitted the acquisition of NAVTEQ.

Now let's discuss how we see the market and consumer behavior.

The world is made up of many markets with quite different growth prospects.

Many of these markets continue to grow like China, India, Asia Pacific, Middle East and Africa and Latin-America.

Nokia is the clear leader in all these regions.

Many consumers in this market have month-to-month disposable incomes that have always been subject to volatility and requires them to continually prioritize their spending decisions.

Last year, and earlier this year, many consumers in emerging market economies, they are facing material rising food and energy costs that were clearly reducing their disposable income.

But we have seen the commodities cost bubble burst and this is now having a favorable impact on many consumers.

In fact, the global commodities industries have declined year to date by about the same amount as the world's major equities markets.

Oil below $80 a barrel and rice prices back to levels that don't make headlines are welcome developments that help consumers the world over, and help mitigate consumer economic uncertainty.

However, we would be naive if we ignored what's happening in the macroeconomic environment in many markets and we are fully prepared and are acting accordingly.

In this time of economic uncertainty, I like our relative position.

Nokia is strong.

We have scale.

We have one of the best brands in the world.

We are generating good cash flow.

We have a flexible capital structure and we can make continuing product investments in technology and services, all of which will further differentiate us from the competition.

Historically, Nokia has benefited and become stronger in times of uncertainty.

We have outperformed the competition and we have been less volatile.

I would expect this to be the case again.

Now let's take a look at the overall Device market and our market share in the third quarter.

According to our estimates the Mobile Device market was 310m units in Q3, up 3% sequentially; a bit lower than what we have seen in recent years.

We forecast that the market will be approximately 1.26b units in 2008; over 10% growth.

But, as we have said in our update last month, the weaker consumer confidence in multiple markets has had an impact on the market.

We expect a seasonal uptick in the fourth quarter in the Device market but, as our guidance implies, slightly muted.

According to our estimates, our Device market share was 38% in Q3, down, as we indicated it would be, in our update last month.

Clearly, some competitors have been more price aggressive recently in an effort to either clear stock or try to gain badly needed scale.

We have not broadly participated in what we will believe to be unsustainable price moves by certain competitors.

However, we don't intend to give the competition a free ride and economic gravity will apply to them.

Our Smart Phone volumes were up sequentially in the third quarter, but we estimate we lost share.

Our [sales] would have been closer to flat if it wasn't for the ramp-up problem in the previously-mentioned mid-range Smart Phone.

However, with products like the Nokia 5800, E71, E66, N79, N85 and N96, our Smart Phone portfolio is improved and is gaining momentum this quarter.

Let's take a quick look at a number of products and services highlights for the third and the fourth quarter.

The Nokia E71 had a great first quarter of sales in Q3, shipping almost 1m units.

The response to the E71 has been overwhelmingly positive.

This is the first true mass market QWERTY Device we have had and it is the most fully featured QWERTY Device on the market.

We have seen really positive momentum in email activations with this product, both for consumers and for the enterprise.

The E71 will continue to be a very competitive and popular product in Q4 and beyond.

The Nokia N96 started shipping in September and did well in its first month.

So far, the N96 has been a good addition to our N95 flagship products.

The combined volumes of the N95 and N96 products were up sequentially from Q2 to Q3.

Two weeks ago we announced our first mass market touch-screen Device, the Nokia 5800.

It has some great features; high resolution screen, [touch] feedback, an innovative contacts bar and media bar, a browser incorporating flash, handwriting recognition and Comes With Music, for half the price of the i-Phone.

There is a growing market for touch-face devices globally at the right price for the current times.

This product has been very positively received by our trade customers.

As you can see on the slide we have a good offering of new products in our Q4 line-up.

We feel good about our improved portfolio and our ability to deliver in a seasonally up fourth quarter.

Services and Software had EUR115m of net sales and total billings of EUR140m.

Billings grew 15% sequentially.

Navigation has been, and continues to be, our lead service.

Our success in bundling navigation services with our Device sales continues.

In Q3 we sold almost 7m GPS-enabled Devices; up over 50% from Q2 and the bundled navigation now on over 70% of those.

If we want to bolt down both our opportunity and advantage in Services, it is the ability for us to sell Services to our large base of users bundled with our industry-leading volumes.

Two weeks ago, along with the 5800 touch-screen Device launch, we announced with Comes With Music digital entertainment service.

Customers who buy a Comes With Music Device will be able to enjoy a diverse catalogue of music from international and local artists and access to millions of tracks.

Comes With Music will be available across a range of Nokia Devices, including the new Nokia 5800.

The UK will be the first market to offer Comes With Music with sales through Carphone Warehouse.

I'm also happy to announce today that starting in November the UK operator, 3, will be offering the Nokia N95 8GB with Comes With Music on an 18-month contract.

We are making real progress in enabling email on our Devices, to the delight of the consumers.

Here are some facts on email.

Over half of our Devices sold now come with email.

We are beta testing our new consumer push email solution which we plan to roll out commercially soon.

We are continuing to improve the service, with frequent releases adding additional languages and all key ISPs.

And in an effort to further advance our reports in consumer email, a few weeks ago we announced the acquisition of OZ Communications.

OZ will provide us a platform for delivering instant email and messaging for the mass market.

In order to cover the entire spectrum of consumer email, you need two distinct services.

One is the full function rich consumer email for the high end, and the second is for less frequent usage when the cost is the determining competitive factor.

For enterprise email we have had recent success in enabling mail for exchange on our Devices.

A lot of companies are warming up to mail for exchange.

In this environment of potentially lower IT budgets, mail for exchange is a robust lower-cost solution.

Software and Services has focused its business.

There are obviously lots of opportunities out there, but we need to focus our investments on the ones with the greatest payback.

This focus has led to some impressive OpEx savings, while continuing to grow the top line.

As a part of this refocusing we recently announced our plans to consolidate our media and content aggregation services to one single service, cease developing and marketing our Behind the Firewall business mobility solutions and sell the Enterprise Security business.

On to Nokia Siemens Networks.

During the third quarter, Nokia Siemens Networks continued to show good progress.

NSN's focus has, and continues to be, on deal discipline, margin expansion and cash generation.

The impact of the synergy program is increasingly visible in the P&L, both in margin quality and in lower operating expenses.

These developments will serve NSN well as it moves forward in a competitive and increasingly uncertain market.

Now I'll pass over the Rick for more on the finances.

Thanks, Olli-Pekka.

Looking at overall Nokia, I'd like to highlight our gross margin performance.

In quarter three, Nokia's non-IFRS gross margin was 35.7%; up 100 basis points sequentially.

This captures to the extent to which Nokia's a variable cost business.

Our gross margins improved even as we shipped fewer Devices than we expected during the third quarter.

We were able to deliver solid margins because of our market position, cost advantage in a world-class supply chain.

Our gross margins also reflect our strong IPR position.

The impact of the licensing agreements we announced with Qualcomm and certain other companies was slightly positive to our quarter three gross margins, and will continue to provide us with a comparative advantage over the next years, and many to come.

We achieved our objectives with the Qualcomm deal.

Nokia has an active revenue-generating patent license program that provides us increasing revenue.

Huawei is the thirty-fifth company to join Nokia's Cellular Standards Licensing Program.

Our IPR strength is a key competitive differentiator, and we believe there are many opportunities for us to collect royalties from traditional and new industry players.

We have stepped up our efforts and you'll see more of this in the future.

Turning to Devices and Services, on a reported and constant-currency basis Devices and Services net sales were down 5% sequentially and, year on year, were down 7% on a reported basis and 1% on a constant-currency basis.

Our Services and Software revenue in Q3 was EUR115m.

Services billings were EUR140m, up 15% sequentially.

We highlighted during the earnings call last quarter that our Services and Software revenue would be impacted by a greater amount of revenue deferrals, since an increasing amount of our Services are delivered over time.

For example, a 12-month navigation license is billed upfront but revenue is recognized ratably over the year.

Also related to Services and Software, at the end of Q3 we announced that we are in advanced discussions to sell our Enterprise Security business.

We report Enterprise Security revenues in Services and Software revenue.

Therefore, if this transaction is completed, our Services and Software revenue is expected to decrease.

But, remember, in 2008 Enterprise Security net sales had been below EUR50m each quarter and, importantly, all of our recent Services and Software growth has been coming from outside of this Security business.

Nokia Device average selling price in the third quarter was EUR72, down from EUR74 in the second quarter.

The lower ASP was primarily due to a higher proportion of lower priced products.

The weaker year-on-year dollar caused over 50% of the year-on-year average selling price decline.

Devices and Services gross margin in Q3 was 36.5%, up 40 basis points from Q2.

This was good performance, particularly considering the challenges we faced in Q3.

We plan to deliver improved product portfolio execution in Q4.

On a sequential basis in quarter three, Devices and Services operating expenses was up 2%, both in absolute terms and as a percentage of sales.

Devices and Services non-IFRS operating margin decreased 150 basis points sequentially to 18.6% in quarter three, as we were unable to fully offset the lower net sales.

On to NAVTEQ.

As mentioned, the transaction closed in quarter three and we are reporting NAVTEQ as a reportable segment.

Revenues in Q3 were EUR156m.

Non-IFRS operating profit was EUR29m, or 18.5% margin.

Important to point out this business usually has strong fourth quarter seasonality, typically resulting in higher sales and higher operating margins.

Now a few comments on Nokia Siemens Networks with regard to the financials.

From a seasonally strong quarter two, NSN's net sales were down 14% sequentially and 5% year on year, and were down 14% and flat on a constant-currency basis.

In Q3, NSN's non-IFRS gross margin was 31.2%, down slightly compared to Q2.

This was a good performance given the sharp net sales decline and tough industry environment.

Over the past three quarters NSN has achieved and sustained solid gross margin performance driven by structural improvements, including better deal discipline, improved mix, a higher proportion of Software sales and cost of goods sales-related synergies.

NSN's non-IFRS operating margin was 5.1% in quarter three, down from 6.7% in quarter two.

This was due primarily to negative leverages associated with lower revenues in the seasonally lower Q3.

As Olli-Pekka noted, the [infrastructure] market is in a tough environment and is somewhat uncertain.

In the face of the challenging market, NSN will continue to focus on profitability and cash, achieving its synergy targets, rigorous cost control, higher margin opportunities and Services solutions in Software and leveraging its large install base.

Overall we are encouraged by the improved profitability shown in Nokia Siemens Networks in a seasonally weak quarter.

We believe this confirms NSN has the right strategy and, in fact, is executing well.

Turning back to Nokia Group, financial income and expense in Q3 was an expense of EUR57m.

This, compared to income of EUR3m in Q2.

The lower financial income and expense is primarily due to a combination of our lower cash position and higher debt position as a result from the NAVTEQ acquisition.

We've also had lower interest income resulting from Nokia's, months ago, moving to more liquid and even shorter length securities, reflecting our early move to extreme safety of principal from our normal position of safety and conservatism.

Going forward you should expect financial income and expenses to be approximately minus EUR20 to minus EUR30 per quarter -- EUR30m that is -- EUR20m to minus EUR30m.

Next, let's look at some of Nokia's balance sheet and cash flow items, first of all on our capital structure.

Let me reassure you we're structured in a way that we can sustain and execute our operations unencumbered by the current state of the financial market distress.

For a long time our philosophy on capital structure has been appropriately conservative and, as a result, our liquidity position is solid.

Many others cannot say the same.

We have a very comfortable level of instant liquidity.

Since 2007 we have focused our investments towards shorter duration, higher quality instruments such as short-dated government securities and high quality liquidity funds.

In connection with the NAVTEQ acquisition we introduced a moderate amount of leverage to our capital structure through the issuance of commercial paper.

At the end of quarter three outstandings were $3.5b.

Since mid September, despite extremely challenging market conditions, we have been successfully refinancing our maturing commercial paper.

Even though the credit market is every tight, it continues to be open for Nokia.

Our cash and other liquid assets totaled EUR7.2b at the end of the third quarter.

And of note on the working capital for quarter three, the inventories were up sequentially in the third quarter for both Devices and Services and NSN, as both businesses geared up for the seasonally up fourth quarter.

I think we can do more to improve our working capital management in both Devices and Services businesses, and in NSN, and this is a high priority as we close the year.

Let me make a reminder regarding the Qualcomm settlement.

The Qualcomm licensing agreement we entered into in quarter three includes an upfront cash payment in quarter four.

The EUR1.7b lump sum payment to Qualcomm will be reported in our cash flow statement in Q4 as an operating cash outflow.

The bulk of the payment -- the reason I say the bulk is, remember that some of the payment goes to the historical amount that was due from the time of April 7 until we reached the agreement, when Qualcomm was not accepting any of our payments towards them.

So the bulk of the payment is essentially a pre-payment of cost of goods sold and, therefore, will be expensed in subsequent quarters until the end of the contract period in 2022.

As a result, in the future our cash payments to Qualcomm will be lower than what is expensed in the P&L.

The new agreement with Qualcomm has a positive impact to our gross margins.

We already saw a benefit to gross margin after we started providing at a significantly lower royalty rate, after the old license agreement with Qualcomm expired in the second quarter of 2007.

Going forward, we will see a slight additional benefit to gross margins as the settlement was somewhat more favorable than what we were providing for.

Let me give you a quick update on the share buyback.

During the third quarter we used EUR250m to repurchase 14m shares.

Since 2004, Nokia has reduced its share count by more than 22%; that's more than 1b shares.

In early August, however, we put our share buyback program on pause.

While we continue to view buybacks as an efficient means of distributing excess cash, given the current environment we think it's prudent to conserve and build up cash.

And we don't currently plan to buyback stock in the fourth quarter.

In terms of dividends we run our business with the intent to generate strong profits and to pay a dividend.

That's business as usual on that front.

Thanks very much, Rick.

And, in closing, please be assured that we have our eyes wide open to what's happening out there.

We are closely monitoring our markets, our customers and suppliers.

Nokia's business is a highly variable cost business with 80% to 90% of our COGS, cost of goods sold, variable.

We are currently doing our financial planning for next year and we will be appropriately prudent when planning OpEx.

We are operating from a position of strength.

We have almost the same unit volume as the next four biggest competitors combined.

We are secure in our financial position and our strategic direction remains sound.

We believe that we will naturally remain the preferred partner in the industry as all industry players de-risk their business.

For the operators and other trade partners we are the best partner because of our flexible distribution, product quality and strong brand.

And for our suppliers we are the best partner because we're the biggest, have the most reliable supply chain and are the most financially stable.

We will take the appropriate actions in this uncertain environment to ensure that we can leverage these trends and competitive advantage even more.

I strongly believe that, despite this uncertain environment, there are a lot of exciting things happening in our industry.

Mobile devices are evolving rapidly and consumers are becoming more and more eager to use their mobile devices in new ways.

We will continue to put the consumer at the center of the device experience and we see tremendous opportunities to create value in this evolving industry.

Thank you very much.

Thank you.

Olli-Pekka will now take the Q&A.

Thank you.

(Operator Instructions).

Your first question comes from the line of Tim Long with Bank of America Securities.

Thank you very much.

Just a two-parter, if I could, on the overall industry and outlook.

I get [there's still north] for 10%, but if we kind of back into your quarterly units that you've given for the first three, that implies somewhere in the 10% to 15% sequential for Q4.

I just want to make sure that math is right and there wasn't a lot of restatement in those numbers.

And then, Olli-Pekka, if you could just talk a little bit about some of the macro uncertainty and maybe tie it to the results, where we saw big drop-off in Latin-America and a little bit in Asia.

It looks to me, by looking at the numbers, that some of that could have been inventory correction.

So could you maybe just tie together some of the potential areas of weakness and what's end market, and what could potentially be inventory correction?

Thank you.

Yes.

So, Tim, this is Rick.

I'll take the first.

You did your math right.

I think it's around 14%.

Yes, and I will continue from there.

So, yes, I think you have noticed this and it's well spotted, so inventories has come to play here as well.

So overall if you look at the situation -- I have made this comment many times here already.

So this is definitely not a situation where one economic formula will be happily coupled to all markets.

And the markets really are behaving differently in this respect, so it's not like one size would fit all here either.

And when it comes to your comment about inventories, so in fact our inventory level was very healthy at the end of the quarter.

And, in fact, it was better in terms of days of sales than in -- at the end of Q2, better.

And in that way some of that improvement definitely has been seen in the marketplace.

And your references to these two markets that you made, yes, inventories come to play there.

And in that way that needs to be brought into the totality here.

Thank you very much.

Next question.

Your next question comes from the line of Tim Boddy with Goldman Sachs.

Yes, thanks for taking the question.

I'd like to ask a bit about liquidity, but not from your own business, but from your customers.

We continue to hear anecdotes about distributors, particularly in emerging markets like Russia, facing real challenges in, obviously, doing their business because they rely on credit.

Equally, there's some stories of operators feeling pressure in refinancing gross debt obligations.

Could you just give us some color on that, talk about the risk that creates?

And would you extend using your own balance sheet -- would you consider using your own balance sheet on a short-term basis to support either network operator customers or handset distributors in the near term?

Thank you.

Okay, Olli-Pekka.

Yes, Olli-Pekka.

I think we have -- need to take this opportunity to formally let Rick answer this question.

I think he is quite emotional about this.

Thanks, Olli-Pekka.

I think, Tim, what Olli-Pekka's referring to about whether we'd use our own balance sheet.

Olli-Pekka actually hired me to Nokia - was it seven years ago?

--

Seven years, yes.

-- to unwind EUR6.6b of vendor financing that had been done in the infrastructure market and we successfully unwound that to zero.

And we essentially lost no money on that, and we've never gone back to that model.

So I do have some aversion to that.

The important thing is that -- let's understand, first from the operators, let me -- then let me take distributors.

The operators are in the situation where they've been in pretty rude health here over the last number of years.

They've had EBITDA margins that I find envious, and they have cash positions that are pretty good.

And they de-levered from a number of years ago when we had the licensing payments.

So, all in all, most of the operators are in pretty good shape.

Distributors, retailers, people in the chain, of course, they are more reliant on short-term credit because this is the nature of those businesses.

And we have a very sophisticated and ongoing evaluation of the liquidity and the financial structure of both our suppliers and, then, our customers and distributors.

And so we work to make sure that we understand where they are.

We do trade and extend short-term credit appropriately, based on that.

So in that regard we don't think we're going to see any surprises.

But there's no doubt that one of the troubling impacts in the overall financial crisis is this freeze in liquidity in certain markets.

But I think the actions that the governments have taken on a more coordinated basis here, that you're all well aware of, are starting to show signs of improvements, of bringing a little bit more liquidity into the money markets, the commercial paper markets and then needs to start to having the regional banks do -- provide credit where it's due.

And we think it's important.

It goes back to Olli-Pekka's point in the conference call.

We're going to be the preferred trading partner for those, and we've already chosen both suppliers and trade customers and distributors that we think are the ones that are the best-run and have more financial flexibility than others.

So there's already been a bit of self-selection there, and we'll work at that one, but I'm not a bank.

So just to clarify, your 14% sequential growth is the real-end demand you see, and there's no haircut in that for credit-driven, short-term disruption?

It recognizes the situation we're in and that sequential growth is somewhat more muted than wit's been in the past and that's, as Olli-Pekka referred to, and as we did five weeks ago also on our call.

So it fully bakes that in.

That's our best view.

Okay, thanks very much.

Thanks, Tim.

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

Thank you.

I was wondering if you could update us on the competitive pricing environment and Nokia's plans to potentially react.

Is it more on a market-by-market, competitor-by-competitor basis, or is there a certain global market share that Nokia would want to maintain?

Also, given your scale advantages, how long do you think some of your smaller competitors could sustain a potential price war?

Okay, Olli-Pekka?

It's a very dynamic situation, as always.

And in that way I think it's very important to bear in mind that when we spoke about the aggressive competition by some competitors in the third quarter, we were referring to a phenomenon that sometimes happens in the marketplace.

And this time we decided tactically not to broadly participate in that price competition.

And this all relates to what we have said several times, that [that] will be our strategy here.

We will try and take markets in a sustainable manner, and we know our responsibility also as the market leader.

Because when the market leader moves, the rest of the market will move.

And we need to also look at that responsibility and look at the overall situation in the industry.

Having said that, we will continue to manage the -- our business tactically also, and look each quarter, each situation in a different and new way and -- in order to maximize the bottom line, meaning getting the right competition of the margin -- combination of the margin and the market share.

And this will be the case in the fourth quarter.

It will be the case in the first quarter of next year as well and beyond.

So in that way I almost have the temptation to say that this is a very typical market situation.

Where some competitors have been pretty aggressive at times, we are managing that.

And like I said in my opening, I believe, as has been the case every time before, at the end of the day the scale is what counts.

The market forces and the brand is what counts.

It's your distribution capabilities that count, and the economic gravity will definitely prevail here when it comes to overly aggressive competition.

Thanks, Mike.

Next question please.

Your next question comes from the line of James Dawson with Morgan Stanley.

Hi there, yes, I just had a question on your Smart Phone volume.

I guess it was -- we expected it to come down.

Just in terms of the N-series, we have some new Devices there.

Do you think that what we have in the pipeline for Q4 is enough to see you gain back some market share as quickly as Q4?

And also, just in terms of the pipeline of products in the N-series, do we expect significant refresh through the first half of next year?

Olli-Pekka.

Yes, I think it's very important to remember that when we are talking about Smart Phones, we are talking about [natively] programmable operating systems and, in our case, that means Series 60.

So it's not N-series only, it's not E-series only, but it's really series -- Symbian Series 60 overall.

And in that way it's more than N-series and E-series that you need to look at here.

And N-series and E-series, it's a marketing positioning question as opposed to a technology difference here, and that's very important to understand.

And I made a reference in my opening also to the renewed portfolio of Smart Phones in the fourth quarter.

And I -- if I look at the N96, I look at the E71, I look at the N79, N85, and I also look at the 5800, the touch-screen phone, that is a Smart Phone.

So I'm quite confident that our position there is stronger than it has been during the last couple of quarters.

And of course, here, we will continue to renew the portfolio here also, going forward, in the first half of the year.

And in that way we need to maintain this new product revenue -- share of new product revenue in the total revenue.

And it's quite clear that we had a -- too low a number here in -- when it comes to new product revenue in Q2 and, in fact, in the early part of Q3.

And, here, I think the situation is different right now.

Just on that, the new product revenue, was it 20% in Q2, I think you said?

Do you have a number for Q3 and how it developed through the quarter?

Can you give us anything there?

James, as we said, it was low or below what we'd like in Q2.

With the delay in the Smart Phone ramp in Q3, it actually fell a bit further.

And now we're seeing, and expect, quite a bit of improvement to the levels that we'd like and need, based on the products that Olli-Pekka has lined out.

So that's how it's developed Q2, Q3, and how we see it going Q4.

Excellent, thanks very much.

Cheers.

Thanks, James.

Next question.

Your next question comes from the line of Jeff Kvaal with Barclays Capital.

Yes, thanks very much.

I was wondering, Rick, perhaps, if you could talk about the trajectory of margins that we might expect in the next couple of quarters, or maybe some of the variables that we should think about when weighing our own estimates.

Thank you.

Yes, Jeff, thanks.

The -- I hate to be a broken record, but the positive/negative drivers remain pretty consistent.

And the positive ones, are improving product portfolio in the mid and high end, and then have some stability in the low.

And we've pointed out here that, yes, we were not where we wanted to be in Q2 and Q3 on the high end, the Smart Phone market, but we have a stronger portfolio that we've seen you -- we've shown you.

You can touch it, you can buy it, and consumers are.

So in the fourth quarter we think that that's one thing on the positive side.

Also, there still is -- in some of the other what you consider value markets, Smart Phone, multi-media, WCDMA, those are growing a little faster than the other markets.

And, of course, we have the benefits in gross margins of the advantage of scale and some of the cost factors.

And while we and others were impacted at the beginning of the year through not having a strong cost erosion, because [some] pressure on the inputs there, I don't think we're going to see more negative surprise there.

Because there actually has started to be a little bit of fall off in some of those pressures that have come from energy prices, from metals prices, cost prices, those kind of things.

On the negative side, it's general competitive factors in -- overall.

As Olli-Pekka says, nothing new there.

That has happened every quarter since this business existed, and sometimes it can be about the lines you expect.

Other times people can take actions that are a little more aggressive than you think.

And of course we have to see, in fact, how competitive our overall product is.

We feel, and we've given you some indications of where we believe we're getting indications from consumers and from the trade, that indeed our relative competitiveness has improved since Q2 and Q3 but, of course, we have to wait to see how Q4 turns out.

So that's how I'd handicap it.

Thank you -- Go ahead, Jeff.

Sorry, Bill.

Rick, do you think it's possible, should things erode in the overall market, that you folks could revisit the margin lows that you saw in, I guess, 2005?

Or are you managing OpEx more cautiously than that?

Yes, Jeff, that's a good question.

We've had our medium-term targets that we set out some time ago in terms of operating margin, and we've performed well against those.

We've been slightly above, we've been in line, or we've been a little bit low -- below, like we were here in the third quarter.

And of course we'll come back to that -- those kind of target settings and pluses and minuses as we do every year at Capital Markets Day, that Bill mentioned at the beginning of the call.

But I think Q3 was a good example how we optimized profitability while we didn't try to unduly optimize market share, so we do have that flexibility.

Q4, we think we're a little bit better product portfolio.

And of course we do have the levers in terms of OpEx and variable costs overall.

And so, things like components costs, direct labor, customs, freight, warranty, royalties, all of those are the variable costs that Olli-Pekka mentioned that comprise 80% to 90% of our COGS.

So we're not a semi-conductor chip-set business here, or a Fab business.

We are variable cost, and so we have that ability.

And, of course, we've shown that we've taken away a lot of volatility over the years through good matching of OpEx to what's available on the top line and the gross margin line.

So we're just going to try to continue to practice in that way.

Thank you.

Okay, thanks, Jeff.

Next question, please.

Your next question comes from Andrew Griffin with Merrill Lynch.

Hi there.

I just wondered what your sense is of operator subsidy strategies right now as we go through these uncertain times.

Yes, Olli-Pekka here.

Yes, the -- this -- I think it's a good question.

And one needs to really look back in history also, and looking at how has the operator subsidy thinking developed.

And, in fact, overall it has been a stable situation in the markets where the subsidy is a relevant concept, because the operators every day are competing against each other.

They need the possibility to promote their sales.

And now when several new interesting concepts are happening, Comes With Music is a great example of that, so operators feel the need to promote something new, as opposed to a device only.

So of course time will tell, but in the past this has been a pretty stable situation and I'm looking at that in that light.

Of course, you have to remember that the big bulk -- the bulk of our revenue will -- is derived from markets where the operator subsidy is not a relevant concept.

Thanks.

Next question, please.

The next question comes from Mark Sue with RBC.

Olli-Pekka, from your observations, any thoughts on why we wouldn't have volume growth next year?

It sounds like you're relieved with the decrease in commodity prices.

Can it be another 10% year?

And do you have any evidence that the replacement cycles are lengthening?

Yes, there are no -- I think it's -- in this situation, what we are doing, we are estimating the fourth quarter of this year.

And, like we mentioned, we are seeing fair growth in a situation where the financial crisis has been there for some time.

But having said that, of course, the amount of uncertainty is much more than typically.

And in that way we really will assess the situation and communicate our understanding of the market sizes like we normally do, as opposed to taking an exceptional approach at this time.

And in that way, I will not go into that.

At the end of the day, as always in the mobile industry -- mobile telephone industry, the decisions to buy or not to buy are made by hundreds of millions, or more than 1b consumers over the world -- in all parts of the world, not in some markets only.

And the market size, of course, will be a combination of those decisions made by the consumers.

But in the fourth quarter this is what we are seeing.

Got it.

Rick, maybe just a quick one.

Did you say you will resume your buyback in Q1?

No, Mark.

What I said was we've stopped it and we don't expect to resume it in Q4.

Okay.

But can we assume that you'll do it in Q1?

Let's look at Q4, and then I'll fill you in as we get closer to Q1.

Mark Sue.

Okay.

Thank you, gentlemen.

Thanks, Mark.

Next question.

Your next question comes from Sherief Bakr with Citi.

Thank you very much.

My question relates to your market share outlook for Q4.

Given that you've lost over 200 basis points of share in Q3, and you talk about the positive momentum of the portfolio in Q4, particularly in Smart Phones, given the issues that you had in Q3, why should -- looking at your outlook of share to be only flat to slightly up, it doesn't necessarily all add up.

I'm just trying to understand why you are only looking for relatively small, if any, share gains in Q4.

Is it because the price aggression that you saw in Q3 is -- you think will be sustained into Q4, or is it because competition in the high end you feel is going to be more intense than maybe otherwise?

Thanks.

Olli-Pekka?

I kind of have to refer to what I have -- It's an excellent question, thank you.

I kind of have to refer to what I said earlier, so we will also -- in the fourth quarter we will try and maximize the bottom line, and manage the market share situation here tactically.

And in that way there is tough competition out there.

I believe the gravity -- economic gravity will prevail, at the end of the day, and we need to see where we can get to.

But of course from the [mind] share point of view, it's quite clear that we continue to believe in the market share and we continue to believe in the benefit -- [gained] benefits a higher market share would give.

That thinking definitely has not changed.

But (inaudible) very much will continue to be in the center of our thinking, but at the same time we just need to manage this quarter in the best possible way when it comes to the bottom line.

And, hence, that is the estimate that we are giving at this point of time.

Just as a quick follow up, the price aggressiveness that you talked about in Q3, are you seeing any signs of that changing as you head into Q4?

It's an excellent question, again, and I'm sure many people are thinking about that.

It's -- I just again need to refer to the fact that it's not one dynamism only here.

There are different markets, different situations, different competitors active, not on a daily basis but on a weekly and monthly basis here.

And the fine art of managing the mobile handset business comes into play here, so how do you can maneuver in any given market at any given point of time?

I think there's quite a lot of volatility here when it comes -- that is surprising and, in that way, let's see how things [do] develop.

Okay.

Thank you very much.

Thanks.

Next question, please.

Your next question comes from Gareth Jenkins with UBS.

Just firstly, on China, it looks like the Device market slowed around the Olympics in Q3, but your market share held up very well.

Should we expect the reverse of that into Q4, so, your market share coming down and a reacceleration of growth?

And then also in China, on the weak infrastructure sales, is that just a pause before a big Q4, given some of the build-outs that we're seeing there?

And then, finally, probably just one for Rick.

The working capital move, negatively, was that NSN related?

And, if so, was NSN actually free cash flow positive, including working capital?

Thank you.

Okay, Olli-Pekka.

Overall, I would like to mention China as an example I was referring to in the opening, when I said that the same economic rules are not necessarily applicable.

The Chinese economy is continuing to grow nicely.

The -- there's a lot of activity in that market and in that way it's not this one- size-fits-all thinking at all that you could apply to China.

And, like I said, I think the inflation in China is easing, the lower oil price definitely has an impact in China and, okay then, we just need to see what are the other dynamics.

I would feel that, when it comes to the fourth quarter overall, the fourth quarter, I would see the situation in China quite stable.

And, in fact, China was also one of the markets where we, in the third quarter, did maintain our market share.

Gareth, on terms of net working capital, again we had a slight use of net working capital but -- And, again, what we had is, as I said, inventories up, as you would expect going into the fourth quarter, both at NSN and on the Devices.

But if I have my math right, that's actually less than last year, the sequential uptick.

And we do have a number of ramps in the Devices and Services side, and of course there is a pretty big seasonal change, generally, in the infrastructure market from Q3 to Q4, so that part's understandable.

On accounts receivable, actually, they decreased sequentially, both at an absolute level and a percentage of sales, and NSN did a good job of improving there, for instance.

So it was, in my mind, overall, a better improvement sequentially, when you allow for the fact that you have to build inventory coming into the fourth quarter.

And we build it at a lower pace than we did last year at the same time.

NSN in the quarter actually delivered operating cash flow to the parents rather than used it, but the concept of free cash flow for a company that is not a standalone company, you don't -- I'm not going to -- I don't think I'll use that term, but they delivered some cash to us rather than using net cash.

Okay, thank you.

Operator, this will be the last question.

Thanks.

Your last question comes from Richard Kramer with Arete Research.

Hi.

Thanks very much.

Olli-Pekka, just to understand a little bit more the Software and Services strategy and, in a challenging environment in '09, where you would see sources of growth, when we look at that business and we take away Security, it's still under EUR100m run rate, and -- which is quite small compared to a EUR50b overall business.

Can you just enumerate for us two or three sources or areas where you think could provide meaningful growth for top line for Nokia in 2009 within Software and Services?

And where can we expect to look there for that sort of growth?

And maybe also just as a comment about the unsustainable nature of competition, looking out to '09, do you expect we will see fewer large competitors to Nokia than you see today?

Thanks.

Okay, Olli-Pekka.

Of course, Richard, you are right in pointing out that so far the numbers, in comparison to the total size of Nokia, are relatively small.

And you are also right in pointing out that the Security business, like Rick was speaking about, has been part of that.

But you also need to refer to what Rick said.

All the new growth in that part of the business, in the Services part, has come from outside the Security business.

So, in fact, the growth rate there is -- has been quite small, but really good growth rate.

And we are seeing it's getting a lot of traction, especially in navigation.

That's where key is.

So when it comes to 2009, the navigation location definitely will -- I believe will be the key contributor here.

Again, we can and we will leverage our handset position here when it comes to driving up the new services.

The word bundles, mentioned a couple of times here, that will be relevant when ramping up that business.

And by time then the businesses -- the Devices business and the Services business will start to diverge, as bundles get less when it comes to their importance and separate streams of revenue will gain share of the total.

So in that way we are starting here something that I believe will be very substantial to Nokia.

But you are right, it is early days.

And we, of course, as the management team, need to prove that we can make that happen in practice.

And when it comes to your second question about fewer competitors in the future, I will not start to speculate on that one.

It's -- I'm not in a position to do that today.

And maybe just a very quick follow up for Rick, can you just give us -- given your 8% change in currency estimate for fourth quarter, can you talk us through what you think the currency impact on EBIT or operating profit might be in Q4?

No, Richard.

With the volatility in the currency markets, I'd be a fool to predict that.

Okay.

But, remember, what we've done is we've managed over time to mitigate swings in operating profit due to currency moves.

But we're certainly living in volatile times there.

Okay, thanks.

Thanks, Richard.

Ladies and gentlemen, this concludes our conference call.

We'd 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 our press release, issued today.

Thank you, and have a nice day.

Thank you for participating in today's Nokia third quarter 2008 earnings call.

(Operator Instructions).

This concludes today's conference.

Thank you again for participating.

You may now disconnect.