諾基亞 (NOK) 2010 Q1 法說會逐字稿

Good morning.

My name is Dennis and I will be your conference operator for today.

I would like to welcome everyone to the Nokia first quarter 2010 earnings conference call.

After the speakers' remarks there will be a question-and-answer session.

(Operator Instructions)

I will now turn the call over to Mr.

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

Sir, you may begin your conference.

Ladies and gentlemen welcome to Nokia's first quarter 2010 conference call.

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

Olli-Pekka Kallasvuo, CEO of Nokia and Timo Ihamuotila, CFO of Nokia are here in Espoo 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 materially differ from the results currently expected.

Factors that could cause such differences can be both external, such that general economic conditions and industry conditions, as well as internal operating factors.

We have identified these in more detail on pages 11 to 32 in our 2009 20-F and in our press release issued today.

Our aim is to finish this issue call in approximately one hour.

To view the supporting slides while listening to the call please go to the IR website.

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

Okay, thank you Kristian.

Good morning and good afternoon.

I know there will be a lot of interest today to discuss the guidance we are giving today and Timo will talk about that in a moment.

But before that, I will go through the operational update so please bear with me for some time.

In Q1 Nokia delivered revenue and earnings growth on a year over year basis.

Although the competitive environment remains tough the economic headwinds we faced last year have eased, and the macro outlook is more supportive.

Despite challenges at the high end of our device portfolio, Nokia delivered results in line with our guidance.

In our devices and services business, Nokia continued to show solid smartphone momentum in lower price points.

In the seasonally slow Q1, we grew our converged mobile device units -- reads smartphones -- on a sequential basis and increased our estimated converts mobile device market share.

We have made did progress in this strategic area and we are capitalizing on our unique capability to bring the benefits of smartphones to the mass market globally.

Our high end portfolio is linked to the key 2010 operational milestones we communicated during our capital markets day last December.

We are highly focused on execution to ensure our new offerings are a success.

We are working hard to deliver a family of Symbian 3 devices that are targeted to offer a clearly improved user experience, a high standard of quality, and a competitive value to consumers.

You can expect the first Symbian 3 device to launch in Q2 and ship in Q3, first to the open channel as normal, then to the operators.

While this is somewhat later than our original internal plan, it is really most important to get the quality and the user experience right, and to compare to the recent past, we have raised the bar significantly on both of these critical dimensions.

We believe our Symbian 3 product will be a powerful force in the market in Q4 this year, and we have shifted the planned introduction of Symbian 4-based products to next year.

When it comes to MeeGo, we expect to achieve our product milestones by the end of this year.

I continue to be encouraged by the progress we are making.

This year we are focused on delivering next-generation products to the market, taking great strides forward with our user experience, improving our direct and continuous relationships with consumers, and fostering the growth of our developed ecosystem.

Already we have delivered on our promise to increase the proportion of touch and QWERTY devices in our portfolio with the launch of the Nokia C3, C6, and E5 last week, and there is more to come.

Already we have also made clear progress with our solutions strategy [into credit] services on devices to provide compelling value.

So let me get to that with an overview of Q1.

In Q1, the overall competitive environment for mobile handsets was generally as we expected -- tough but manageable.

Our shipments were up 16% year-over-year and down 15% sequentially.

On a sequential basis, we gained share in greater China, where we generated record volumes and net sales in Q1.

However, we lost share in Europe, EMEA, Asia Pacific, and North America.

According to our estimates, our device volume markets sales was 33% in Q1, down 2% compared to Q4.

Approximately half of this was due to sell inverse or sell-out dynamics according to our estimates.

In addition to channel dynamics, we were impacted by competition from some relatively new handset vendors based in Asia.

We have taken action, and we believe we have a good set of assets to defend our position aggressively and gain ground going forward.

In addition to our superior brand and distribution relationships, we intend to leverage a combination of devices and services to provide a differentiated value to both consumers and operators.

These include the Nokia 2690, our new low-priced memory card device.

Our range of attractively priced touch and QWERTY devices.

Our aspirational value offerings such as the 5030 express radio, the 2700, and the 5130.

And our services such as Nokia live tools, music, and messaging.

In Q1 our converged mobiles device -- reads smartphones -- volumes increased 57% year over year and 3% sequentially.

This did drive our estimated converts mobile device volume market share to 41% in Q1, compared to 38% a year ago and 40% in Q4.

This brings me to device and services highlights.

In Q1 we continued to build on the team that started to gain strong momentum in Q3 of last year, growing rapidly in smartphones by offering a solid range of touch and QWERTY devices across a variety of price points.

Our top eight smartphones in Q1, based on both net sales and gross profit were all touch and/or QWERTY devices -- the Nokia 5230, 5800, 5530 and X6 touch screen devices, the E71, E72, and E63 QWERTY devices and the N97 mini, with has both a touch screen and a QWERTY keyboard.

In the mobile phones category, our top products in Q1 based on both net sales and gross product were the 5130 and the 2700.

We continue to show healthy diversity in our top ten revenue and gross profit generating mobile phones which had ASPs ranging from under EUR 15 to over EUR 150 in Q1.

In total, we shipped 18 million touch and/or QWERTY devices in Q1 compared to 17 million in the previous quarter.

This represents 6% sequential growth which is a good performance in the seasonally weak first quarter.

The year-over-year growth was approximately 300%, strong by any measure.

Last week as I already mentioned we announced three new devices that should help us continue our touch and QWERTY momentum.

In particularly the Nokia C3, our most affordable QWERTY device, has received a very positive response.

With the C3, we are offering high quality and phenomenal consumer value.

Many emerging market consumers will use the C3 to get access to information, entertainment and social networks.

Our aim is to make it affordable and easy for them, unlike the high cost and unnecessary complexity of the PCs.

Users can set up Ovi Mail and chat accounts straight from their C3.

The experience is pleasant and the look and feel of the device is exceptional for its affordable price.

We plan to start shipping the C3 in Q2, and we expect to be fully ramped up in Q3.

The unsubsidized retail price for the C3 will start at EUR 90.

In services, we continue to make good progress in Q1.

The key highlight was the amazing response from consumers, operators and distribution partners to the inclusion of our walk and drive navigation offering with our smartphones.

Since our announcement in January, there have been 10 million downloads of the offering.

We are pleased with the usage patterns we are seeing.

Consumer engagement is very high.

In addition, feedback on the user experience has been very good, with a double-digit positive promoter score since we launched.

Most importantly the early signs saw that the strategy to capture value through device sales is working.

Since the launch date we have seen a step-up in demand in many markets for devices that come -- or can come -- with navigation.

We believe integrated walk and drive navigation on mobile handsets will become even more central and critical to the user experience.

And on top of that, developers can build on our location platform to create new applications that leverage location context in other innovative ways.

The potential here is huge.

In music, we continue to roll out our offering to new geographies including Russia.

We also continued to improve the user experience, launching a new versatile service.

And we launched Comes With Music in China earlier this month.

We did it DRM-free with a broad range of devices and with an innovative business model tailored for the local market.

We are building on our leadership position and leveraging our strong brand and distribution, particularly in large high growth markets.

India is next for Comes With Music that will bring to us a total of 30 countries including all the BRIC countries covering 70% of Nokia's distribution footprint.

In messaging, we have now signed agreements with 72 operators for Nokia messaging, our post e-mail service.

52 of these operators are already up and running with the systems.

Our consumer metrics are also solid.

Nokia messaging now has over three million accounts, and Ovi Mail, our free e-mail account service targeted towards emerging markets now has more than eight million accounts.

If you combine Nokia messaging with Nokia C3 QWERTY device that I highlighted earlier we have great potential to partner with operators to really accelerator the adaptation of consumer messaging service.

In media, the Nokia Ovi Store continued on a steep growth trend, and we have achieved 1.7 million downloads in one day.

Every month we are building more and more momentum to illustrate or reach, our support for local regionalization and our strategy to partner with operators.

Approximately 90% of mobile consumers can now get Ovi Store in their local language and 66 operators in 19 countries support integrated billing for Ovi Store downloads.

And now on to Nokia Siemens Networks.

Although the first quarter is typically the weakest quarter in the infrastructure business, NSN delivered a small operating profit on a non-IFRS basis.

NSN continues to generate momentum in key areas winning a high proportion of the industry's most high-profile deals.

The two LTE wins with TeliaSonera in Sweden and Norway as well as one non-public win lifted NSN's LTE references to ten, which is the highest in the industry.

With 25 active trials with consumers -- sorry, with customers here -- NSN continues to have a strong potential in this key area.

In 3G, NSN also made good progress.

The contract signed with Iliad for the Greenfield rollout of Free, the Ford France Network, is testament to the quality of NSN's all IP offering.

In India, NSN secured USD 1 billion in contracts from Bharti and Aircel.

We also believe NSN is well positioned for the rollout of 3G in India.

In the managed services, NSN signed 14 new contracts in the quarter including a five country deal with NII Nextel in Latin America.

This is a landmark multi-vendor deal for NSN.

We are seeing indications that NSN is stabilizing its business and it is now building the foundations for future growth.

Thus we are encouraged that NSN is headed in the right direction, and we remain confident that NSN has the right strategy in place to make further good progress.

Now I will hand over the call over to Timo.

Thank you.

Thank you, Olli-Pekka.

I will start by take you through the Q1 financial highlights for devices and services.

On a reported basis, devices and services net sales of EUR 6.7 billion were down 19% sequentially and up 8% year-over-year.

The sequential decline in net sales was mainly driven by seasonality as well as the competitive environment.

On constant currency basis, devices and services net sales were down 19% sequentially and up 7% year-over-year.

So as you can see, the currency impact on the top line was insignificant because of our hedging.

We ended Q1 with normal channel investor inventories of four to six weeks.

Industry price competition continued to be very robust in Q1 as expected.

Nokia's device ASP in Q1 was EUR 62 including services, down EUR 2 sequentially.

On a sequential basis, our device ASP decline was driven by price pressure, particularly in certain high end smartphones, offset to some extent by a positive mix shift from mobile phones to converged mobile devices.

As mentioned earlier, we are now including services in our ASP numbers.

In Q1 our converged mobile device ASP was EUR 155 compared to an ASP of EUR 186 in Q4.

The sharp decline in converged mobile device ASP was mainly driven by mix, consistent with our strategy to bring smartphones to lower price points.

In addition, I said earlier we saw price pressure in certain high end products.

Mobile phones ASP was EUR 39 in Q1 compared to an ASP of EUR 40 in Q4.

In Q1 services net sales were EUR 148 million, down 12% sequentially.

The decline was driven by our inclusion of our navigation offering with our smartphones.

This business model has extended the average duration of our maps licenses leading to revenue recognition over a longer period of time.

Billings were EUR 228 million in Q1, up 1% sequentially.

As I explained last quarter, you will see the gap between billings and net sales widening in 2010.

This is perfectly normal as we are bundling more and more services like navigation with our devices.

Devices and services gross margins in Q1 were 32.4%, down 190 basis points sequentially.

In Q1 we did not have the lumpy and non-recurring royalty related inflow that benefited Q4 gross margins by approximately 80 basis points.

The remaining sequential net decline was largely driven by faster price erosion than product material cost erosion, especially in the high end of our mobile device portfolio.

Lower volumes in Q1 compared to Q4 also had an impact.

Now, let me try to clearly explain how FX and hedging impacted gross margins.

In Q1, the net impact of FX and hedging was slightly positive sequentially.

On the negative side, in Q1 we saw net negative FX impacts due largely to the Japanese yen appreciation.

On the positive side in Q1 -- through Q1 -- we saw approximately 150 basis points of net gains related to our hedging activities.

Excluding the net hedging gains in Q1 our devices and services gross margin would have been approximately 31% and our operating margin approximately 10.5%, which is the midpoint of our Q2 guidance.

In Q2 we expected our net hedging gains to be -- we expect our net hedging gains to be approximately zero.

In Q1 devices and services non-IFRS OpEx was EUR 1.36 billion, down EUR 180 million on a sequential basis.

As a percentage of net sales, non-IFRS OpEx increased sequentially by 160 basis points, largely due to seasonal low net sales in Q1.

Devices and services non-IFRS operating margin was 12.1% in Q1, down 330 basis points sequentially.

This was in line with our guidance.

Next, an update on active services users.

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

In Q1 our active service users grew from 62 million to 77 million.

This was primarily driven by Nokia maps and Nokia messaging.

Our target for the first half of 2010 is to reach 150 million active service users.

That is a tough target but we continue to work hard to achieve it.

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

Moving on to Nokia Siemens Networks [in Nabdik], NSN's net sales were EUR 2.7 billion in Q1, a decline of 25% sequentially compared to seasonally strong fourth quarter.

And decreased 9% year-over-year.

This performance was achieved in the face of challenges in India and Russia, where new local security review practices are causing market delays.

NSN non-IFRS gross margin was 31.4%, up 80 basis points sequentially.

This improvement was driven by continued progress on product cost reductions and also an unusually favorable proportion of higher margin transactions in Q1, offset to some extent by seasonally lower net sales.

We expect the sales mix to be less favorable in Q2.

NSN continued to show excellent discipline in cost control with non-IFRS OpEx of EUR 845 million.

This is down EUR 65 million, or 7.1% compared to Q1 2009.

NSN's non-IFRS operating profit was 0.6% of net sales, down 490 basis points sequentially, but up 470 basis points year-over-year on lower net sales.

This further highlights the strong gross margin performance in Q1 as well as the significant progress made by NSN to improve its operating leverage.

NSN continues to execute the restructuring plan announced in November 2009 and progress is on track.

Overall, NSN's Q1 results indicate that NSN's execution on its three strategic priorities -- driving for growth, cost leadership, and reinvigoration of the organization -- is beginning to have an impact on its financial performance.

NSN's contribution to Nokia's cash flow from operations was negative EUR 230 million in Q1.

At the end of Q1, NSN's contribution to Nokia's gross cash was EUR 650 million and NSN's contribution to Nokia's net cash was negative EUR 280 million euros.

Then on NAVTEQ, non-IFRS net sales in Q1 were EUR 189 million, down 16% sequentially, however, up 41% year-over-year.

For NAVTEQ this represents good performance in the seasonally weak Q1, driven by improvements in the automotive market and in the NAVTEQ wireless business, particularly with Nokia.

Non-IFRS operating margins were 21.7% compared to 24% in Q4.

Turning back to Nokia as a whole, Nokia's financial income and expenses in Q1 was an expense of EUR 73 million compared to an expense of EUR 79 million in Q4.

In Q1, our cash flow from operations was EUR 1 billion compared to EUR 1.5 billion in Q4.

The sequential decline was attributable to lower profitability, lower net inflows for financial income and expense, and higher tax outflows.

This was partly offset by favorable networking capital changes compared to Q4.

We ended Q1 with total cash and other liquid assets of EUR 9.7 billion and net cash of EUR 5 billion.

And then a note on taxes.

Nokia's Q1 taxes were again negatively impacted by NSN's taxes since no tax benefits are recognized for NSN's Finnish tax losses.

We talked about this last quarter.

If Nokia's long-term estimated tax rate of 26% had been applied, non-IFRS EPS would have been EUR 0.01 higher.

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

We plan to continue to highlight for you in the press release and earnings call whenever there are tax-related differences.

Let's then move to the guidance, which we are providing to you in the release and on the attached slide.

So guidance for Q2 and 2010.

In Q2, we expect devices and services net sales to be between EUR 6.7 billion and EUR 7.2 billion.

And we expect NSN net sales to be between EUR 3.1 billion and EUR 3.4 billion.

We expect non-IFRS operating margins for devices and services to be in the range of 9% to 12% in Q2, and we expect NSN non-IFRS operating margins to be between 0% and 3% in Q2.

As an update to earlier annual guidance we now expect the devices and services non-IFRS praying margins to be 11% to 13% for the full year 2010.

To help you even better understand the dynamics in our business we see the main financial drivers, both positive and negative ones, on an ongoing basis as follows.

For devices and services and NSN net sales such drivers include seasonality, market conditions, the competitive environment in general, as well as our overall product portfolio competitiveness.

For devices and services non-IFRS operating margins such drivers include seasonality and gross margins, which are driven by our overall product portfolio competitiveness as well as the device price erosion and development of product costs.

For NSN non-IFRS operating margins drivers include seasonality, net sales mix and cost control.

In addition, both devices and services and NSN, the current volcanic ash situation in Europe could have a negative impact on our results depending on how long the situation lasts.

With that I will hand back to Olli-Pekka.

Thank you Timo.

The Symbian 3 product cycle is very important for Nokia, and we will not ship the first device before it is ready.

With our Symbian 3 devices we intend to improve our position at the high end of the market.

I'm confident that we will succeed.

The timing of when we begin volume shipments of Symbian 3 devices will have an impact on our 2010 numbers and is reflected in our updated annual guidance.

But nevertheless I am confident that we will deliver substantial progress in 2010.

We plan to start shipping our first Symbian 3 device close to our original milestone date and this would allow us to end the year with positive momentum.

And to continue the momentum in 2011, we remain on track to hit our planned end of the year MeeGo product milestone.

Our opportunities and our ambitions remain fully intact, and even today I can say our determination has only increased.

Thank you.

Thank you Olli-Pekka.

We will now continue with Q-and-A session.

Please limit yourself to one question.

Operator, please go ahead.

(Operator Instructions) And your first question comes from the line of James Dawson with Morgan Stanley.

Hi there, guys, thanks for taking my question.

I had a question about Symbian 3 and 4.

It's got a couple of parts to it.

I wonder if you could maybe just explain to us the reasons for the delays that we should know about.

And then as a secondary point -- what real improvements -- what big improvements -- do you think these new iterations of Symbian will give to you when you're up against modern operating systems like Android and the Apple OS?

Do you think that Symbian 3 and 4 can narrow the gap or not?

Thanks.

Okay.

Olli-Pekka here, I will take that one.

There are two kinds of delays when it comes to market dynamics.

One way to look at that is something delayed from the overall competitive dynamics point of view, and the other one is something delayed from the internal milestone point of view.

And I think we are here talking about the latter.

To cut it really short -- and maybe I should not cut it short but nevertheless -- we will not ship the products before the quality is something that will meet the end user needs and demands so the consumer experience from the quality point of view needs to be there.

So it's a painful thing to delay something a bit.

I definitely -- I'm aware of that.

It's painful.

But at the same time, meeting the quality requirements is the right thing to do as well.

It's in everybody's interest.

So this is basically -- we just want to ship a product that will make it in the marketplace.

Of course, when we are talking the about Symbian 3 we are talking about the line up of products, not one product only.

When it comes to the latter part of your question, I think it will be more intuitive, more fun, and faster and definitely can, in my opinion, meet the market test.

Now I am talking about Symbian 3 here.

And I'm saying I'm confident on that one, of course this is an area where we have been working together with many industry participants.

So it's not -- this has not happened in isolation inside Nokia.

We have been working with basically all the major operators in this world who, of course, have access to what is there to come from our competitors as well.

And in fact the feedback here has been extremely good.

So I'm really -- that needs to be noted here on the positive side.

Then Symbian 4 is something that is planned to have an incremental improvement on Symbian 3.

But from a development dynamics point of view I think it's quite important to understand that the heavy lifting here is happening with Symbian 3.

So that's really been the one we have been working long and hard with in order to really bridge the gap or close the gap we have had in the high end to the competition.

So it is not something that would have happened in the course of this spring.

We have been working hard and heavy lifting in order to make that happen.

Now we are very close in fact, to that happening.

Then Symbian 4, in fact will be a much smaller increment, from the development point of view on that one, and not heavy lifting in the same way.

But we believe we can enhance the consumer experience even more with that one.

Interesting.

When you say more intuitive and fun is there anything specific you can talk about that will help us judge what Symbian 3 can mean for your business?

Because it's reasonably critical, as you say.

It's -- more intuitive mean it's easier to you and you really feel it's more straightforward and more intuitive.

And I think it can be fun as well when you look at the different functionality.

But we have not introduced the product here -- so that will happen.

Stay tuned.

But I'm not -- I'm talking about Symbian 3 in general here.

Maybe a comment that you have seen the demos and the usability is really improving significantly regarding the basic touch useability and then we further have flash report for the product which is very good for video, and these are really the key usability improvements.

I'm really referring here to the operator feedback and entries for -- because that I believe here, these people know what is going to hit the marketplace.

I promise to be two seconds.

As Olli-Pekka says, we follow this as one [capability] of this operator range, and that metric is very positive for these devices.

Thank you.

Next question, please.

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

Great, thank you.

Just following up on that question with the large sequential drop in converged device ASPs, can you walk us through some of the variables for that drop?

You talked about sharp price declines in some high end products and some mix.

Can you maybe break it out between the two for us?

Then as you launch Symbian 3 products, and you continue to expand your smartphone portfolio, would Symbian 3 raise your converged device ASPs in the back half of the year or is it more going to the mid-tier and ASPs should continue to fall from current levels?

Thank you.

This is Olli-Pekka here.

Again, if I try to make the point, simplify a bit.

And Timo can make it more complex -- better answer.

In my opinion, it's simply the 5230 entering the portfolio -- a product that we really didn't have there in Q4 -- selling in big volumes to markets where smartphones have not been as of yet.

So taking market sales from feature phones basically.

And that one product here -- big volumes, the right price point has had the impact.

Of course, the price competition has been there, we acknowledge that.

But it's really, if I simplify this one product.

Now then when it comes to Symbian 3, obviously I spoke about already -- about the fact that it's something where we intend to close the gap in the high end of the marketplace.

And, of course, starting to also then take it lower in the price point as well with different type of products, but, of course, this for some time -- for the relatively long time, will remain a higher end lineup.

And by definition that will have an increasing impact on the ASP, without as such taking stand to ASP development in general, because it also depends on how successful we are in the lower end of the smartphones.

Next question, please.

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

Couple very quick ones if I could.

Just in terms of the guidance shift for the rest of the year can you maybe distill that into the components part of -- A, what you've seen already in terms of competition in Asia -- and, B, how much of it is Symbian 3 delay?

So it sounds like Symbian 3 really won't have an impact -- a material impact -- until Q4.

Secondly, related to that on Symbian 3, do you feel the fact that it's a foundation and you are effectively doing consensus decision making along with the operators is actually slowing the process down and that maybe it would be better to internalize some of this development?

Thanks.

Okay.

This is Timo here.

Maybe I will start with gross margin part -- sorry, on the operating margin guidance part for the full year.

So clearly we now came out with our result at 12.1% and we are guiding between 9% and 12% for Q2 so that itself is have an impact on the overall full-year number.

And then when you were asking how does the Symbian 3 product actually affect that, so it is not only that they would have an impact on Q4, the impact will be there already in Q3, but then there are other dynamics like the pricing pressure and also the FX impact which will rolloff after the Q1.

I will take the latter part, about the operator dynamics here.

In this business, you typically work in two ways.

You make the so-called plain vanilla version of a device that you sell in the open market which will not require operator customization and stuff like that.

And, of course, that's independent of the operator cooperation.

That we are going to do here with Symbian 3 as well.

But with the open channel you can only reach part of the market.

So in order to really go for high market shares you need to of course, have the operator support and ranging as well.

And that will always, for anybody, require certain adaptation work for the needs of that operator.

And here, we are, of course, working with them.

But as such, it's not slowing down the plain vanilla, which is independent of.

That I was simply referring to the operator feedback we have had when we have been discussing the ranging topics with them.

Next question please.

Your next question is from the line of Mark Sue with RBC Capital Markets.

Thank you.

From a defensive position is there some assurance that it's just a one-time increase in expenses as you catch up to competitors?

If competitors move forward as well, does it become a perpetual game of catch-up with Symbian 3 and does that mean more spending to close the gap later on with Symbian 4?

Should we see it as a catch up or can we see it as a leap frog platform?

And philosophically, Olli-Pekka, if you can give us your thoughts of whether Nokia can be big and fast or just big.

Philosophically, one needs to be fast and big here if one wants to go for the market share and for the market leadership as well.

And that needs to remain the thinking.

And that, of course, needs to show in how we work, and I think we've got a lot of solutions there -- partly implemented, partly to be implemented -- to be implemented.

But philosophically, yes, I think that's a necessity.

Question is then how well you succeed.

I have no doubt in my mind on that one.

Then when it comes to the first part here of your question -- like I said, when we are talking about Symbian, Symbian 3 has been like I said the heavy lifting.

That has been the focus for some time here.

And in fact we really have cleared space for Symbian 3 from the investment point of view.

And hence, in fact, you have seen a relative -- you have not seen product introductions during the last, I would say, six months -- in the way we could have done without having this -- well, you can call it a catch-up investment, the heavy lifting part.

Once we have gotten there, Symbian 3 is a smaller increment.

At the same time I need to point out we are not working in the high end with Symbian only.

But really going even for higher end with MeeGo.

That's, of course, a substantial investment that we have been making and will continue to make and not increasing the overall spend here.

Like I said, we expect also to be on track to deliver during the quarter this year as well in the highest end with MeeGo.

I take the opportunity here although it was not asked, to mention that the response we have gotten from different types of market participants -- again, including the operators here -- for MeeGo has been tremendous.

The openness here and the credibility of Intel and Nokia combined driving that as well as the fact that MeeGo extends over a wide variety of device types -- connective TVs, in-car, and so forth -- is really attractive to operators who have this type of strategies.

And in that way, when we are discussing Symbian, yes, extremely important and we are extremely committed, but at the time same time we need to mention at the highest end, MeeGo will be extremely relevant as well.

Maybe if I will quickly comment from the OpEx side.

So we are continuing to expect EUR 5.7 billion of OpEx for this year, and we are not expecting that Symbian going forward would somehow have a significant need to increase OpEx past that either.

I would also like to highlight that as we discussed about our operating margin guidance, so there are some items clearly which are taking it down what we discussed.

We feel that now is the right time to continue to invest at this level to really make sure that we have a quality release out when the Symbian 3 products come out.

But longer term we have not changed our view on the fact that when we look at the split between [correctization OpEx] and sales and marketing OpEx, we need to move further towards sales and marketing and continue to improve efficiency in the R&D OpEx.

And we can do that with Symbian.

Next question, please.

Your next question is from the line of Kai Korschelt with Deutsche Bank.

Two questions.

First on the operating leverage, and I believe Rick last year said that roughly 90% of CM cost are variable.

If there's no improvement in the mix shift in the second half from Symbian 3 how should we think about the gross margin dynamics in the second half.

My second question is on NSN.

You were quite positive on the -- on [engine] CapEx, so do you actually expect an absolute rise in CapEx on the back of the 3G rollout?

Thank you.

This is Timo here.

Maybe I will start with the first question, which is basically about the gross margin dynamics for second half and the operating leverage there.

We are coming with a very competitive lineup, but, of course, we have to plan -- and it's the right thing for the Company to plan -- to really gain share on the higher end of the smartphone -- of the smartphone market.

And really when you look at our guidance, this is exactly how you have to look at it there.

I will take the NSN.

We did not change at this point of time our estimate for the full year -- flat market in euro terms.

Although there are some differences between different markets here.

And, of course, quite a lot of needs for the operators to invest as really the capacity needs in the networks continues to increase.

But our estimate continues to be flat euro terms this year.

Next question, please.

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

Thank you.

Wanted to get back to the delay of Symbian 3 again.

Can you give us more color -- was this hardware or software related?

What I'm trying to get into is when this delay also delays the proliferation of Symbian 3 across multiple hardware -- across multiple devices -- or is just limited to the hardware of that specific device you were going to come up with.

So if it's software, I would assume that it delays all of your other products that are using it.

Am I thinking about this correct?

In fact, not.

If it's software, once the software is ready, we, of course, can take it to -- from the -- to new devices as well.

And, in fact, if I'm saying here that the first Symbian 3 device is delayed, in fact, the second Symbian device is delayed less than the first one.

Because once we get there, we can then do that one, but I'm talking about different form factors -- different type of devices.

I would say that one of the strengths of the Symbian platform is exactly the fact that when we get the release we have a possibility to have a portfolio of products pretty fast, and we expect to have not only one product during second half, but products on the market.

Very good.

Good luck.

Next question, please.

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

Hi there.

Another Symbian 3 question.

How many -- roughly speaking how many products do you have to have out by the end of the year, what price points are you targeting.

And are there any more Series 60 phones to come or is everything going to be Symbian 3 from now on.

Maybe as a clarifying comment first, Symbian and Series 60 are united now in our language so we shouldn't look at them different.

The fact that we are putting, of course, rightly so -- so much emphasis on the Symbian 3 products now does not take away the fact that there is possibility to use the previous release as well, particularly maybe in lower price points.

In that sense we are not saying there would be nothing else coming than Symbian 3 product.

The flexibility of Symbian really allows us to bring products for different price points and different purposes in the market.

I think that was more than a qualifier.

I think it was the answer as well.

In terms of the number of products you're expecting to have Symbian 3 roughly speaking?

I don't know.

I said products.

I don't know if you want to shed more light into this.

No, we don't want to make that type of announcement here.

I guess the last point was on the price points of Symbian 3 specifically.

You said its targeted at high end.

Would there be any more feature phone type price points of Symbian 3 products by the end of the year?

It will remain relatively high end and, yes, it will remain relatively -- not the highest.

The highest end -- the highest, highest, highest -- we are doing with MeeGo, but Symbian will be really in the high end as well.

And like I said, taking down the ASP there will not happen instantaneously.

You need to have a reason why every product.

Other versions of Symbian will continue as well like Timo said.

Next question please.

Your next question comes from the line of Phil Cusick with Macquarie.

As I think about Symbian 3 being delayed can you talk about why are you delaying Symbian 4?

Are you taking talent off of the 4 process and putting it on 3 so the 4 development process is delayed?

What's your plan around the hardware that was going to be on Symbian 4?

Do you think you still launch the same handsets on the same timing but some will be enabled with Symbian 3 instead of 4 late this year or next year.

Or do you delay there?

And then just a quick follow-up.

There's some chatter that ARM could be acquired by Apple.

I wonder if you have any thoughts on that and how that might impact you.

Thanks a lot.

We in fact believe, looking at the market conditions here, that Symbian 3 -- sorry, I've been coughing four or five weeks now and losing my voice a bit -- sorry about that.

We really believe Symbian 3 will be competitive -- not only this year, but going forward next year as well.

This is really an optimization point of view -- when do take what type of version to the marketplace, and how.

Looking at what we can do with Symbian 3 during the last part of the year, bearing in mind the MeeGo investment as well, we really don't feel we're in a position where we really would need Symbian 4 this year.

So in that way, it's like how do you make the market calls in the best possible way.

I don't want to take stand to the hardware side because it relates to choices between different windows, and I don't think I'm in a position to do that.

In fact, Qualcomm in yesterday's call didn't go anywhere when they got the same type of question from their investors.

And this ARM-Apple, I'm really not in a position to have a opinion on that.

Next question please.

Your next question is from the line of [Cole Bender-Gartcha] with Credit Suisse.

Thanks.

I have a question.

My question is a bit more strategic, Olli-Pekka, it seems your market share from a volume point of view in devices is now 33%.

It could be lower given how difficult it is to estimate the size of this market.

I'm wondering what you have to do to get your volume share back up.

Is it a metric that is no longer relevant in this industry?

Or in this lower end part of the market where there has been some under-estimation of it, do you have to price more aggressively and is that built into your guidance to have a lower end more aggressive pricing scenario to sustain or expand your lower end volumes and share?

For Timo my clarification is -- your EBIT margin if you didn't have the currency impact, the positive [for OpEx] would have been 10.5% if I understood correctly.

And what worries me slightly is into Q2, I don't think there's much OpEx further to go down to sales, the mix is getting worse, you've got no new products.

I'm at a loss how you can get to the midpoint of your margin guidance for Q2.

Thanks very much.

You start Timo.

sure.

I don't really have that much to add to this.

This is simply the guidance what we are giving and of course this is where we expect to get taking into account the pricing dynamics on the market and the mix shift as well and we are also introducing new product in Q2 like the C3, lowest QWERTY device.

So there is some newness coming into the portfolio as well.

I wouldn't exactly say there is nothing coming.

Of course we are trying to improve the portfolio all the time.

Besides that we are bringing the new navigation -- the included navigation -- into the sales pack context during Q2 as well and that will drive demand for our smartphones.

So if those product sell well, Timo -- just trying to understand it -- how well they sell determines whether you're at the upper end or the lower end of the range.

Is that the right way of thinking of things?

These were just examples of some dynamics which work to the opposite direction of what you said yourself.

I think Timo was making a great point when he talked about the navigation.

So now that we are really putting the turn by turn navigation into many devices -- so, in fact, we are upgrading the total portfolio of navigation compatible devices and bearing in mind the way the market has responded to the turn by turn -- not only in the former downloads, but during Q2 in the form of pre loads -- that's like uplifting or elevating your full portfolio to a higher level from the consumer interest point of view.

So we also need to look at not only the devices in terms of the hardware or the form factor, but like one competitor has well illustrated -- depending on what do you include in terms of content, services, software -- even after the launch.

And then to your strategic question, the first part of your question, I don't have any doubt in my mind that we need to and we can continue to be strong in the low end as well as low mid tier.

Yes indeed what you said about the market size, difficult to estimate -- we definitely have come up with our best effort on the market size based on the new data and analysis we can do.

There's a lot of business here.

But of course, from a competitive dynamics point of view is it's really different from the smartphone business, hence we have put in a dedicated team to really attack that market.

In fact the market dynamics here are quite interesting and different as well.

If we take India as an example, we are now launching the 2690, which is the low priced memory card device.

That's something that the Indian market requires and will give us ammunition to really fighting aggressively and also to do [alsim].

Which is an Indian [development].

We will come out with a device relatively soon.

Indonesia, another type of market where, in fact, very much messaging driven.

Very interesting market.

Messaging driven -- complete like no other developing market.

The product that we are now launching -- C2 will be extremely important in Indonesia so far in the messaging front -- where our E63 has been too expensive from the price point of view.

Very important.

There's quite a lot of dynamics here as well.

I really believe you can continue to be strong in high end and low end and in between as well.

But it will require different type of strategies, dedicated teams and completely different type of aggressiveness when it comes to your cost base.

And just to highlight that Olli-Pekka did not launch a new product at even lower price point with C2 -- so we actually launched C3.

C3, sorry.

One more thing I forgot to ask, we were now at EUR 6.7 billion net sales.

We are guiding EUR 6.7 billion to EUR 7.2 billion, so we are also expecting some leverage from simply the higher sales into the -- let's call it fixed cost part of the outlook -- the production cost will be simply as expected to spread to more products.

So there's slight impact possibly on that as well.

Thank you very much.

Let's operator take one final question.

Thank you.

The next question is from the line of Pierre Ferragu with Bernstein.

Pierre, your line is open.

Okay, Pierre's line is no longer --.

Thank you, operator.

So ladies and gentlemen that then concludes our 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 11 to 32 in our 2009 20-F and our press release issued today.

Thank you.

Ladies and gentlemen, this concludes the Nokia first quarter 2010 earnings conference call.

You may now disconnect.