諾基亞 (NOK) 2009 Q4 法說會逐字稿

At this time I would like to welcome everyone to the Nokia fourth quarter and full year 2009 earnings conference 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 like to turn today's call over to Mr.

Kristian Pullola, Vice President, Head of Treasury and Investor Relations.

Sir, you may begin.

Thank you.

Ladies and gentlemen, welcome to Nokia's fourth quarter 2009 conference call.

I'm Kristian Pullola, Head of Nokia Investor Relations.

Olli-Pekka Kallasvuo, CEO, and Timo Ihamuotila, CFO of Nokia, are here with me in Espoo 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 materially differ 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 11 to 28 in our 2008 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 website.

Please note that today's press release and this presentation includes non-IFRS results information in addition to the reported results information.

Our quarterly results release includes a detailed explanation of the content of the non-IFRS information, as well as a reconciliation between the two.

With that, Olli-Pekka, please go ahead.

Thank you, Kristian.

Good morning, and good afternoon.

I said on the last earnings call that Q4 would be the best quarter of the year in terms of Devices & Services net sales, volumes and margins.

It was that and more.

Q4 saw Nokia's ability to ramp up new, more compelling offerings even in a tough competitive environment.

NSN also delivered a strong quarter.

I am very encouraged with the focus and execution that I see throughout the organization, both at Nokia and NSN.

Before I provide some color on Q4, there's one strategic item I would like to talk about, our free navigation announcement last week.

I want to emphasize what we offer is unique and game-changing.

There are clear benefits for consumers, operators and developers.

This message is resonating with them and the feedback has been very positive.

We are now providing free walk and drive navigation as an integral part of our SmartPhone offering.

There are three things I think really are ground-breaking.

One, how the solution advances the user experience.

Two, how the solution is beneficial for the operators.

And three, how the solution advances Nokia's business strategy.

First, with our new Ovi Maps client, we have dramatically improved the user experience.

It's much more intuitive and quick, and we have upgraded the location search engine.

Over time, we think Ovi Maps will enhance the daily lives of our consumers more and more, as usage patterns increase and navigation evolves from being a standalone application to a platform that multiple services all block into.

Using maps on mobile handsets will become as common place as taking pictures and even more central and critical to the user experience.

Second, for operators, how this solution is differentiated.

In addition to driving the uptake of data plans, our Ovi Maps application is built on a unique, hybrid technology that is optimized for use on a mobile network.

The bottom line is that our approach uses a fraction of bandwidth compared to most online map providers.

It is a fundamentally different approach that is much more operator friendly and consumer friendly as well.

And third, from a strategic perspective, it is important at this phase to increase user engagement for our location-based services.

High engagement and high use will be the foundation for contextual advertising over the long term and of course this will also attract developers.

We are leveraging our unique assets to create new competitive advantages.

More importantly, in the near term, this will enhance competitiveness of our SmartPhone portfolio.

It is a way for us to drive higher redemption rates, support ASPs and capture value share.

We think the solution can really take off in 2010.

Now, on to a review of the quarter.

In Q4, the demand environment for mobile handsets ended up being better than we anticipated and we took advantage of this upside.

For the first time in 2009, industry volumes were up on a year on year basis.

We continued to see signs of recovery in the market.

However, the sustainability of consumer demand remains uncertain.

Even though the competitive environment was tough in Q4, Nokia delivered solid results.

With unit shipments up 17% sequentially, compared to an estimated 14% for the market.

This was driven by our improved product portfolio and strong collaboration between our supply chain and sales teams.

These teams are world class and they delivered an outstanding performance in Q4.

From a component availability point of view, we worked through some constraints early in the quarter.

As I think it was discussed in the previous conference call.

However, we exited Q4 with no exceptional constraints relative to our near term demand forecasts.

According to our estimates, our device market sales was 39% in Q4, up 1% compared to Q3.

Our converts mobile devices volumes increased 26% sequentially.

This drove our estimated converts market share back up to 40% in Q4, compared to 35% in Q3.

Moving to Device & Services highlights.

Here I'll discuss converts mobile devices and mobile phones separately.

First, on converts mobile devices.

This market can be difficult to estimate and our quarterly market estimates have been volatile.

Nevertheless, it is clear that we gained share in Q4.

We continued to build on the team that we established in Q3, growing rapidly in a converts mobile devices by offering a solid range of touch screen devices across a variety of price points.

In Q4, our top five SmartPhones based on both net sales and gross profit included four touch screens, the Nokia 5800, N97, N97 mini and 5530.

Our touch screen portfolio generated very impressive growth as we expanded our portfolio to seven global touch screens in Q4, compared to only three in Q3.

We shipped nearly 10 million touch screens in Q4, up more than 60% compared to approximately 6 million in Q3.

On a sequential basis, our touch screen net sales grew by approximately one-third and gross profits grew approximately 30%.

We are driving higher volumes by expanding the market for touch screen SmartPhones and we are driving healthy gross margins by leveraging Nokia's scale and distribution as well as the cost effectiveness of the Symbian platform.

In Q4, we shipped 6.1 million E-series devices, up 38% sequentially, compared to 4.4 million in Q3.

These strong results were led by the continued success of our key QWERTY products, the Nokia E71, the E63, and our new E72, which is off to a good start.

Some of you have recently expressed concern over our E series competitiveness, thinking that the momentum is decidedly against us, especially in Europe.

That was simply not the case in Q4.

Our E series net sales grew 41% on a sequential basis in Europe, a very strong performance.

Moving on to mobile phones, the main success story continues to be the Nokia 5130, our most affordable XpressMusic phone.

Interestingly, the ASPs for our top five mobile phones range from under EUR15 to over EUR150.

This really illustrates the importance of having a solid and balanced range of products that meet the requirements of different people in different markets across the globe.

In services, we saw considerable progress in Q4.

I have already highlighted maps.

In music, I was pleased to see comps with music accelerate sharply in Q4.

We sold three times Comes With Music phones in Q4 than in Q3.

The Nokia Music Store is now available in 22 countries and Comes With Music is now live in 15 countries.

We are continuing to expand into more countries and with every new launch, we learn new ways to improve our execution.

Two advantages are beginning to stand out.

We have a superior catalog of local content, and we ramp up more quickly than our competitors in geographies where the digital music market is still nascent.

In messaging, we now have signed agreements with 69 operators for Nokia Messaging, our post e-mail service.

Also in Q4, Ovi Mail, our free e-mail service, reached the 5 million accounts milestone.

The traction we gained in the Q4 was awesome.

We doubled the number of operators that are partnering with us to offer Nokia Messaging and we more than doubled the number of Ovi Mail accounts.

In media and games, the Ovi store continued on a steep growth trend, and we have now exceeded 1 million downloads a day.

We ended Q4 with 18 stores that are localized for content language, and 60 operators that support integrated billing for Ovi store downloads.

Both metrics are up more than 100%, since we launched eight months ago.

In Q4, we also launched Nokia Live Tools in Indonesia, and we introduced four affordable mobile devices that support Life Tools.

Being in Indonesia and India with Life Tools means we can address consumers in two out of the four most populous countries in the world, with services that are personally relevant to them.

And now on to Nokia Siemens Networks.

NSN concluded a very difficult year with an encouraging performance in Q4.

NSN's sequence saw improvement in net sales, resulted in a non-IFRS operating profit in Q4 and a small non-IFRS profit for the full year.

NSN continues to have momentum in several key areas.

In Q4, NSN added 10 new 3G customers, taking their overall total to an industry-leading 170.

NSN continued to sell strong progress in LTE.

Since the last earnings call, NSN has won LTE contracts with Telenor Denmark and TeliaSonera.

Adding these to the NSN's list of global reference accounts gives NSN the highest number of LTE references in the industry.

Also, NSN has now shipped LTE-capable hardware to almost all of its 3G customers.

In Q4, the performance of NSN's product businesses was a good reflection of improved product quality and road maps, particularly in the radio business.

NSN's professional services business continued to show growth both sequentially and year on year in Q4.

And, cost control continued to be very solid.

NSN's strategy of driving for growth has already led to an improved deal momentum in Q4.

We are encouraged by this progress, and we are confident that NSN has the right strategy and the right assets to be a long-term industry leader.

Now I will hand over to Timo for more on the finances.

Thank you, Olli-Pekka and good morning, good afternoon from my behalf as well.

I'll begin by providing some color on the dividend and our tax rate.

The Nokia Board is recommending that shareholders approve a dividend of EUR0.40 per share.

This is the same as last year.

The Board and management believe that this dividend payout strikes a proper balance, considering our liquidity position, our 2009 operating cash flow, and our expectations for 2010.

At approximately EUR1.5 billion payout in total, the dividend remains substantial and equates to approximately 60% of 2009 non-IFRS earnings.

Now on taxes.

In Q4, Nokia's non-IFRS taxes were negatively impacted by Nokia Siemens Networks taxes, since no tax benefits are recognized for certain NSN deferred tax items.

If Nokia's long-term estimated tax rate of 26% had been applied, non-IFRS EPS would have been EUR0.01 higher.

In the short term, the negative impact of NSN's taxes on Nokia's tax rate is expected to continue.

We plan to highlight for you in the press release and earnings call whenever there are tax related differences, so you can quickly adjust our published non-IFRS EPS results to make them apples-to-apples with your EPS estimates, assuming that you are using a 26% tax rate in your models.

Now, let me take you through the Q4 results for Devices & Services.

On a reported basis, Devices & Services net sales of EUR8.2 billion were up 18% sequentially and up 0.5% year on year, a return to growth.

On a constant currency basis, Devices & Services net sales were up 16% sequentially and up 2% year on year.

The sequential increase was attributable to higher volumes, particularly in converged mobile devices, as our expanded range of touch and QWERTY devices delivered strong growth.

In Q4, we estimate that our overall market share was 39%, and our converged mobile device market share was 40%.

We have prepared our market size estimate consistently using data gathered through our vast and robust network.

However, we continue to improve our data gathering further, particularly in lower value markets, such as certain rural areas covered by the tier five and tier six distributors.

Channel inventories increased slightly in Q4, reflecting the demand environment.

We ended Q4 with a healthy, normal range of four to We ended Q4 with a healthy, normal range of four to six weeks.

We believe these levels are sustainable, given the demand environment.

Industry price competition continued to be very robust in Q4, as expected.

Nokia's device ASP in Q4 was EUR63, up EUR1 sequentially on a reported and constant currency basis.

On a sequential basis, our device ASP benefited from favorable foreign exchange hedging and positive mix shift towards converged mobile devices.

In Q4, services net sales were EUR169 million, up 15% sequentially, billings were EUR226 million, up 31% sequentially.

The gap between billings and net sales is widening due to two primary factors.

First, we are increasingly selling services in combination with devices, and second, we are increasing the duration of some of our services offerings.

Billing and cash flow collection occurs up front but revenue for the services portion is recognized ratably over the life of the services.

Our free navigation solution which Olli-Pekka discussed is a good example and a key reason why the gap between billings and net sales could widen further in 2010.

On the next earnings call, and press release, we will transition from our current practice of disclosing an overall device ASP, to disclosing an overall ASP that also includes services.

We believe this makes sense at this stage, because the value of the services that we sell in combination with our devices is becoming more sizable.

Last quarter, we began providing additional financial metrics to help you track the progress we are making in our solutions mode of operation and our products mode of operations.

The converged mobile devices category corresponds to our solutions mode.

Here, the value is seamlessly integrated solutions and experiences.

The mobile phones category corresponds to our products mode.

Here, the value is created primarily through the product itself, although services including Ovi Mail and Nokia Life Tools can be embedded in a fashion to deliver enhanced user experiences.

In Q4, converged mobile devices delivered net sales of EUR3.9 billion, and an ASP of EUR186.

Compared to EUR3.1 billion, and an ASP of EUR190 in Q3.

Mobile phones delivered net sales of EUR4.3 billion, and an ASP of EUR40 in Q4, compared to EUR3.8 billion and an ASP of EUR41 in Q3.

Devices & Services gross margins in Q4 were 34.3%, up 340 basis points sequentially.

In Q4, our net currency hedges had an immaterial impact on gross margins.

Please recall that Q3 was negatively impacted by approximately 200 basis points.

The remaining improvement of approximately 140 basis points was largely driven by a mix towards converged mobile devices in Q4.

Q4 gross margin benefited by approximately 80 basis points, due to a large royalty related in-flow.

Since large in-flows like this happen only infrequently, I thought I would call it out for you.

In Q4, Devices & Services non-IFRS OpEx was EUR1.54 billion, up EUR181 million on a sequential basis.

As a percentage of net sales, OpEx declined sequentially by 90 basis points, largely due to the seasonally high net sales in Q4.

Devices & Services non-IFRS operating margins were 15.4% in Q4, a sequential increase of 400 basis points.

Finally, regarding Devices & Services, an update on active users.

We began using active users as an operational metric in mid-2009.

It is a way to ensure we stay on track as we develop and market new solutions that help us acquire, retain and deepen our relationships with consumers.

In Q4, our active users grew from 61 million to 89 million.

And we exceeded our second half 2009 target of 80 million.

We now have better measurement tools to account for user activity and contactability and so we are recalibrating our active user definition a little tighter.

Using the new definition, our active users at the end of Q4 was 62 million, and our new target for the first half of 2010 is to reach 115 million active users.

We continue to target 300 million active users by the end of 2011.

Moving on to NAVTEQ.

Net sales in Q4 were EUR226 million, an increase of 37% sequentially.

NAVTEQ's net sales were up sequentially due to seasonality, as well as improved conditions in the automotive industry.

Non-IFRS operating margins were 24.2%, compared to 25.9% in Q3.

And, for Nokia Siemens Networks, net sales were EUR3.6 billion in Q4, up 31% sequentially due to seasonality, but down 16% year on year, due to challenging competitive factors and market conditions.

Services accounted for EUR1.7 billion of the total NSN net sales in Q4, up from EUR1.3 billion in Q3.

Non-IFRS gross margins were 30.6%, up 180 basis points sequentially, due to higher net sales, favorable mix, continued improvement in services gross margins, and product cost reductions.

Turning to operating expenses.

Nokia Siemens Networks continued to show excellent cost discipline in Q4.

Non-IFRS operating margin was 5.5% in Q4, up from negative 1.9% in Q3, driven by seasonality.

Strong cost control has also significantly lowered NSN's breakeven point.

Driving profitable net sales growth remains the number one priority for NSN's management team in 2010.

NSN generated strong cash collection in Q4, and was cash positive from operations for the quarter and the full year.

NSN's contribution to Nokia's cash flow from operations was EUR92 million in Q4.

At the end of Q4, NSN's contribution to Nokia's gross cash was EUR800 million, and NSN's contribution to Nokia's net cash was EUR480 million

Turning back to Nokia as a whole, Nokia's financial income and expenses in Q4 was an expense of EUR79 million, compared to an expense of EUR48 million in Q3.

The sequential increase was primarily due to higher interest expenses.

Next, let's look at some of Nokia's financial position and cash flow items.

In Q4, our cash flow from operations was EUR1.5 billion, the solid performance in Q4 was attributable to three main areas where we improved, offset by unfavorable net working capital changes compared to Q3.

On the positive side, we delivered improved profitability in all reportable segments.

We had lower cash outflows related to taxes, and we had net in-flows from financial income and expenses, including positive in-flows from foreign exchange hedging.

And on the negative side, we saw a sequential increase in net working capital.

The primary drivers were lower accounts payable and provisions related out-flows, which were partially offset by lower receivables and lower inventories.

We ended Q4 with total cash and other liquid assets of EUR8.9 billion, and net cash of EUR3.7 billion Starting this quarter, we are providing quarterly net sales and non-IFRS operating margin guidance for Devices & Services and Nokia Siemens Networks.

In Q1, we expect Devices & Services net sales to be between EUR6.5 billion and EUR7 billion.

And we expect Nokia Siemens Networks net sales to be between EUR2.6 billion and EUR2.9 billion.

In both cases, we expect seasonality to be the principal driver.

We expect the seasonal revenue declines to result in less operating margin leverage compared to Q4.

Therefore, we expect Devices & Services non-IFRS operating margins in Q1 to be at the lower end of the full year target, which continues to be 12 to 14% full.

The negative leverage effect will be even greater at Nokia Siemens Networks, and we expect NSN's non-IFRS operating margins in Q1 to be below its full year target, which continues to be breakeven to 2%.

And with that, I will hand back to Olli-Pekka.

Thank you, Timo.

Q4 was the second quarter in a row where we saw a better demand environment in the mobile handset industry and Nokia executed well.

Our expanded portfolio of touch screen and QWERTY products which span across a range of price points continued to do well in Q4.

Nokia has the best supply chain and distribution capabilities in the industry and in Q4, we showed what we are capable of when we have a good portfolio.

I want to see Nokia running again with a great portfolio.

Leveraging our advantages to their fullest extent.

This is within our reach and I am encouraged by two things.

First, the pace of change at Nokia is accelerating.

And second, we are all focused on executing to achieve the clear operational milestones that we said at our annual capital markets day in December.

Thank you very much.

Thank you, Olli-Pekka.

We will now continue with the Q&A session.

Please limit yourself to one question only.

Operator, please go ahead.

(Operator Instructions) Your first question comes from the line of Tim Boddy with Goldman Sachs.

Yes, thank you.

It's obviously very encouraging to see the improvements in the SmartPhone business.

My question is really about the sustainability of those improvements.

Particularly, looking at some of the N series products which are still contributing I think very meaningfully.

Can you just help us by giving us a bit more granularity on which products in particular were successful this quarter and also as we go through this first half, coming up to your new product releases, how you think some of those products will trend.

Thanks very much.

Yes, it's Olli-Pekka here.

Thanks for the question.

Like I pointed out in -- right at the very end of my remarks, I really feel we have a good portfolio at this moment of time.

But I made the point that we want to and we need to and we will have a great portfolio going forward.

And, hence, product announcements in line with that will continue to happen and definitely we have been referring to the Symbian next generation as to the MIMO, that will be out in the second half of the year, exactly in line with what we spoke about at the capital markets day.

Make no mistake, we will and we need to improve here.

But having said that, it's quite clear that we were able to ramp up very nicely in Q4 and in that way expand our portfolio to cover more price points, more technologies.

We grew 34% in touch, 38% in E series sequentially and definitely that came to play here.

When we look at the products, we started selling some key products in Q4.

We started the N97 mini, the E72, the 5230, XpressMusic and also X6 with comes with music.

Now we will come up with that one without comes with music, with 16 -- with the memory of 16.

So I think the portfolio here is quite balanced and that's in the performance, but it's very clear that we are currently lagging the high end mind share product and we definitely are working on that one and will come out with that one.

When it comes to the sustainability, and that was the point you made in the beginning, I think this very much is a sustainable situation.

More than sustainable, because I really see a possibility, a need to move from good to great.

And I think that's definitely the thinking.

Looking at the progress we are making, I don't have at the moment any reason to change anything that we communicated at the CMD in early December.

Next question, please.

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

Thank you.

Congratulations on strong results and execution.

Just a follow-up.

With some new products launched in Q4, momentum for some of your new converged devices, how should we thing about ASP trends in Q1.

Should we consider a better mix or seasonal growth in more the emerging markets adversely impact ASP?

And could you comment on your overall seasonal trends you view for the market in the March quarter?

Thanks.

Okay.

Thanks for that.

First of all, we're clearly very happy that our ASP was up that EUR1 sequentially from Q3 to Q4.

Now, we confirmed our guidance for 2010, that we expect our volume share to be approximately at the same level and to increase our value share slightly.

So we are expecting that our ASP erosion would be slightly lower than the market.

So that's really what I can say there.

And regarding the inventory situation, we ended the year with a normal level of inventory but clearly there will be some seasonality going into Q1, but there is no big inventory to clear in the system at the moment.

Next question, please.

Your next question comes from the line of Andrew Gardiner with Barclays Capital.

Thank you very much.

I had another question regarding the ASP.

In particular, in the fourth quarter you've highlighted in the press release and said again on the call here that in addition to the positive mix shift that you saw, there was also a benefit from FX hedging.

I was just wondering whether you could quantify the impact of the two drivers there and whether that FX hedging is going to remain an issue or sort of positive driver for the first quarter as well.

Thank you.

Yes, there was a slight effect on the foreign exchange, but we don't expect that that would be a material impact during Q1 at the moment.

Next question, please.

Your next question comes from the line of Ittai Kidron with Oppenheimer.

Thank you.

What I want to drill into is China specifically, you had what it seems like continued really weak performance over there.

Could you give us a little bit more color on the competitive environment there, what are you seeing and how do you plan to address that issue?

Thank you very much, Olli-Pekka here again.

If I look at China, so I think the competitive dynamics in China have continued pretty much in the same way.

There is the low end competition there, yes, but that's nothing new.

So the competitive dynamics in China are more or less the same.

We continue to be a strong competitor.

We do have the distribution of the products.

With China, I would like to point out, there's quite a lot of volatility because I have gotten this question now almost twice a year in these conference calls during the last three years.

Basically because there's quite a lot of quarterly volatility when it comes to market share.

And yes, we were down sequentially in China, but in fact if you look at the comparison to Q4 of last year, we were up.

Because the China dynamics come to play here.

The way the Chinese channel gets filled and then again the sell-through have an impact on the market share, because like you know, we measure sell-in out of the total sell-out.

And, hence, you get this volatility.

In China, it's better to look at the bit longer term trend which in our case has been very good, so we were in fact below our current market share in Q4 in 2008.

Of course the China market is slowly starting to move in the way that also the TDS-CDMA market will become relevant with China mobile.

That's starting to happen.

In fact, we did get our first product out in the marketplace at the very end of the year.

And we are really excited about the fact that we can now and will deliver also that technology and there's of course more to come because the Chinese consumers really want to buy Nokia and there's a lot of traction here in the marketplace when it comes to TDS-CDMA so I would not.

When it comes to the market development in China.

The basic competitive dynamics continue to be the same.

I will add one very quick thing here, like 30 second thing.

So the Chinese new year is clearly later.

It's later this year.

It's kind of like mid-February and that affects those channel dynamics even more than Olli-Pekka was discussing.

Good luck.

Thank you.

Next question, please.

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

Thank you very much.

My question relates to the sustainability of your gross margin, clearly an impressive sequential move.

Maybe one-offs this quarter due to royalties.

Just trying to think how we should be thinking about the sustainability of your gross margin moving into 2010 from the level that you've achieved in Q4 and I guess somewhat related to that, when you look at your market share expectations for 2010, do you think that your SmartPhone share will be higher than your overall industry share?

Thank you.

Okay.

Thanks for that.

I mean, we pointed the lumpy 80 basis points of the gross margin what we have this 34.3%, and there we are expecting some seasonality at the gross margin level as going into Q1.

And if we then look at the market share, market share dynamics regarding SmartPhones, so there our aim is really to grow the SmartPhone market.

I mean, we are really expanding that market and those dynamics should work positively for us, regarding volume on the SmartPhones.

Next question, please.

Your next question comes from the line of Mark Sue with RBC.

With the goal of an improved portfolio, do you feel it may get harder to maintain your operating margin targets of 12 to 14% as you develop high end mind share products.

Any interest in making a tablet based on Symbian or MIMO?

I'll take this.

I'll take it anyhow.

Of course we are carrying out an overall investment here in the investment level in R&D that we feel is of course adequate and in order to come up with different type of price points, products to different price points.

Of course, the high end investment is happening as we speak, both when it comes to Symbian and also when it comes to Linux or MIMO.

There is nothing new.

There is no need to ramp up anything new.

The investment is happening so in that way I believe it's definitely adequate.

When it comes to the tablets and products like that, so we did explore and are really exploring as we speak, as the Nokia Booklet has gotten tremendous sort of response in the marketplace, of course it's more like exploring as opposed to a product that will become the market leader.

But I think that experience that we have gotten there, the attraction we are getting, the understanding that we can deliver a different type of product, make us really look at the overall tablet markets and different type of convert devices between the mobile phone and the PC.

As these two industries start to merge, anyhow, so you will see more in this space going forward without making any product announcements here.

Thank you.

Next question, please.

Your next question comes from the line of Andrew Griffin with Banc of America.

Hi, there.

Question just on the broader market inventory situation.

I was interested that you're talking about a fairly stable and manageable inventory situation in your channel.

But we've seen one of your competitors and also Qualcomm last night talk a little about feature phone inventory reduction at some operators.

Wonder if you could talk a bit more broadly about what you're seeing in the market in the different regions?

Yes, yes, I think difficult to comment on other people's inventory, of course, but as I said, we had a very low inventory starting this year and we see that the situation has now normalized and as I said, we are on the normal four to six weeks and we are not really seeing in any regions any pocket of big inventory of Nokia products.

So in that sense the situation is healthy.

Next question, please.

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

Yes, hey, thanks for taking my question.

I just wanted to ask about Nokia Siemens Networks quickly.

Clearly, you've done well in the quarter.

But you're increasing the amount of restructuring, reducing headcount, you're also looking to substantially increase the COGS reduction, COGS cost savings.

I wonder if you could talk a little about the quality of the market.

You're talking about flat market development in 2010 after a pretty poor 2009.

Just give us some ideas, whether you see a turning point on the horizon or whether you thing these poor conditions in that infrastructure market are just going to continue throughout the year.

Olli-Pekka here, I'll take this one.

The market estimate we have given is flat market in Euro terms, 2010 over 2009.

And that's what we reiterated again.

When it comes to NSN specifically, like I said in my remarks, I think there is great momentum in the Company now in that they've gotten some nice victories when it comes to LTE and 3G as well.

The mood in the organization is great.

I have spent a lot of time with these people lately and they've really got nice momentum here.

That's always so important, what the people feel, how quickly can they run, how committed they are.

And I think these people are basically -- they are able to read that the technology competitiveness of NSN has improved tremendously during 2009.

And I definitely get the same feedback when I'm talking to NSN's customers, which are often the same customers as the Nokia customers.

So in that way, that momentum is good.

The restructuring we announced as well as the reorganization we announced in November, the point here is really to come to a level of OpEx once this restructuring has been concluded, that is something that it really can deliver decent contribution to Nokia and Siemens and when it comes to the bottom line.

That is the thinking here.

The thinking definitely is that we should not stop here.

We should not be happy on the levels we are or can be right now, bearing in mind also what we said about Q1.

We need to be able to do better.

And, hence, the breakeven point needs to be lowered even more and we have been really good in being sort of able to move the big bulk of the R&D to low cost countries as well here.

So the breakeven point has been lowered and that work needs to continue and the ambition level here needs to be pretty high.

I think we've got the ingredients here, a lot of the ingredients, but we need to be able to continue to be more efficient and continue to invest in R&D in the right way, and that I see happening.

This will not -- all that I'm talking about will not happen overnight but I think the momentum is good.

Maybe if I comment very briefly on the numbers side.

As Olli-Pekka was saying, the operating leverage has increased significantly during the year.

I mean, we had $4.3 billion net sales a quarter a year ago, now a little over $3.6 billion.

And operating margin level actually improved slightly both by having been over 5% and this is really the trend we want to continue here.

Okay.

And w if you look at the broader market, Ericsson is clearly indicating that organic revenue decline doubled in Q4.

Olli-Pekka or, could you guys comment on how you see -- saw the infrastructure market developing in Q4 from your perspective?

Was it a worsening environment?

Was it fairly stable on Q3?

Could you just talk a little bit about that?

If you look at the NSN performance and look at negative growth rates here in this case, in comparison to 2008, so definitely NSN has improved on their performance during the year here.

The negative progress was much less in Q4 than it was in Q3.

And in fact, and this might be too early to say, because all the data is not there, but I believe we took market share in NSN in Q4.

That's my gut at the moment.

There's one more NSN related item I would like to correct.

I said that NSN contributed to Nokia's net cash was $480 million.

This is actually negative $480 million.

So NSN has net debt and it's a part of that net debt which comes to Nokia that is negative $480 million.

Next question, please.

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

Just wondered if you could give us a sense of the percentage of your portfolio in Q4 that was newly launched and what you expect that to be in Q1.

And then just secondly on this definitional shift of active users, looks like you've effectively churned off 20 million active users.

By that can we mean that there are basically users that aren't using the device after, say, three months and now can you give us a sense of the regularity of usage, please?

Yes, on the new product revenue as part of the portfolio, we are not expecting a significant difference from Q4 to Q1.

About the same level or maybe a bit down.

So that's what I would say there.

Do you want to talk about the active users or should I?

You can take that.

On the active user count, so clearly this is a new measure for us and we are improving this KPI for the Company.

And of course, when we went in there was quite a bigger pool of consumers who were sort of active but not that active and we have now really tightened the definition of the active user, so as our understanding of this consumer behavior is getting better, that we measure really consumers who are active on our services.

I might want to add to that, and of course this overall active users, it's one measure.

It's a high level measure that we have used for communication also internally in order to drive change at Nokia.

Of course, there are much more different types of metrics that we are able to increasingly follow.

A good example of this is the -- when we launched the turn by turn navigation last week.

We have been able to follow that completely, how it happens in different parts of the world, what are the users doing, to a detail and so forth and so forth.

So this high level active users metrics, it's maybe good for some kind of communications purposes, especially internally and also externally.

But of course the underlying metrics and the ability to manage the services business in a close-loop fashion, that's much more complex and we have made great progress in that.

Thanks.

Could we please have one question more?

Your final question comes from the line of Kulbinder Garcha with Credit Suisse.

My question is on SmartPhone pricing.

Products come out in Q2, difficulty pricing them and what you expected.

I'm thinking what are you thinking about the pricing environment of SmartPhones as we go through the first half of this year.

With this portfolio do you have more confidence since the middle of last year and also take into account what impact do you think will churn out the same ASP and gross margin on these higher end SmartPhones?

Thanks very much.

Yes, I mean, the SmartPhone development clearly depends also on the range.

I mean, I must say that we are very happy with our ASP development we had on the SmartPhone sequentially now from EUR190 down to EUR186, and significantly improved improvement in net sales.

Going forward, this will really depend on the dynamics of the overall market and our aim is really to grow the market here and in that sense bring SmartPhones to new price points.

So it's fair to expect some erosion on the ASP to continue going into first quarter.

I'll take the Apple question.

It's really the -- if you'll look at the situation, in Europe here, it's very difficult to compare this very directly because we have got two companies who have very different strategies.

We of course understand the need and I spoke about that to have the high end mind share products, as well, but our strategy at the moment when we are the SmartPhone, it's different price points, different markets, different operators in a massive way.

And so that's nothing new here.

This has been the situation in Q4 as well.

Apple continues to be a great competitor, no doubt about that, but we've got our assets as well.

Thank you, Olli-Pekka.

Thank you, Timo.

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 conditions, as well as industry conditions, as well as internal operating factors many we have identified these in more detail in pages 11-28 in our 2008 20-F and in our press release issued today.

Thank you very much.

This concludes today's conference call.

You may now disconnect.