諾基亞 (NOK) 2010 Q2 法說會逐字稿

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

I am 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 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 20F 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 result information in addition to the reported result 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.

Considering our mid quarter update and the competitive challenges we faced in the quarter, our Q2 ended on a relatively solid note.

As I noted in today's Press Release, there are several reasons for us to be optimistic about the future.

I'll start my comments by taking you through my thought process.

Why I am confident that Nokia will make a come back at the higher end of the Smartphone market.

Then I will review our highlights for Q2.

First of all, we have been taking action to improve our execution.

In Q2, we reorganized our devices and services business.

Now, each of our product making units are vertically integrated.

Each unit has its own dedicated resources, including R&D, product portfolio management and software assets.

They are small direct control.

This would improve both at the speed and quality of execution, enabling us to deliver more innovative mobile solutions to the market, and helping us to extend our leadership in mobile phones.

Looking at our current devices portfolio, it is clear that the current situation is very tough at the high end.

And I don't expect it to get easier in Q2, sorry, Q3.

But towards the end of Q3, we expect to start shipping the Nokia N8, our first device that runs on the new Symbian 3 Operating System.

There has been quite a lot of speculation on the N8 and Symbian 3, and I want to set the record straight on four key points.

First, there will be a family of Symbian 3 devices.

In fact, over the coming years we aim to ship over 50 million Symbian based devices, 50 conservatively.

We expect consumer demand for Symbian 3 devices to continue for quite some time.

Second, we have made a lot of changes in how we approach development in the last 24 months.

With Symbian 3, we are leveraging a software centric platform approach, which provides distinct benefits for internal and external developments.

This is really important.

For our internal development teams, after the first Symbian 3 device starts shipping, we can strive to deliver a more steady cadence of mid to high end device launches.

This is because the Symbian 3 software will be uniform across the range of devices.

This will also make application development more scalable for external developers.

It will be much easier to make an application work across our Symbian 3 family of devices.

Third, just to be clear on the distinct roles that Symbian and MeeGo play in our mid to high end portfolio.

Symbian is about leveraging scale and expanding the Smartphone category to cover a broad mass market footprint.

In contrast, MeeGo is about leveraging speed and innovation to create industry leading flagship services.

Symbian and MeeGo have different speed spots.

We intend to capitalize on the unique strengths of each platform.

And fourth, the feedback from operators on the N8 and Symbian 3 has been very good.

The Nokia N8 will have a user experience superior to that of any Smartphone Nokia has produced.

Therefore, I am optimistic that the N8 will be an important step towards overcoming the challenges we face at the high end of our portfolio.

It's also worthwhile to highlight that it takes more than a good product to succeed.

Many other elements can be crucial factors, including customer loyalty, distribution channel, and the strategic alignment with operators.

We excel in all of these areas, because of the expertise and efforts of each individual in our market's organization.

Improving our Smartphone competitiveness will enable us to once again leverage these assets to the fullest.

I'm also optimistic about our future for four additional reasons.

The overall handset industry remains healthy.

We have continued to deliver solid performance in our mobile phones category, supported by continuous product renewal.

We have made good progress broadening the reach of our location services, and we have continued to generate healthy cash flow.

I will cover these topics in my review of Q2.

In Q2, the overall handset market delivered while improved 5% sequentially and 14% year-over-year.

This very healthy level of growth was lead by strength in developing markets where we are strong.

In Europe, where growth has not been as robust, we are approaching a turning point at the high end of our portfolio.

In the second half of the year, we expect to move from a weakening competitive position to a strengthening competitive position.

In mobile phones, on a sequential basis in Q2, we delivered high volumes and net sales.

The Nokia C3, our most attractively priced (inaudible) phone started shipping towards the end of Q2, and got off to a strong start.

The C3 in combination with our Nokia messaging service provides e-mail, instant messaging and social networking at a very affordable price.

Capacity constraints limited our C3 volumes a bit in Q2, but we have prepared our supply chain to deliver increasing volumes in Q3 and Q4.

In India, we benefited from solid sales of the Nokia 2690, our lowest priced device with removable memory card.

And this helped us to end Q2 with higher market share in India than at the start of the quarter.

In Q3, we expect to start shipping the Nokia C1 dual SIM phone.

This is expected to further improve our portfolio in developing markets, especially in India, where dual SIM is particularly popular.

In addition, we are focused on expanding our portfolio of DDS CDMA devices, which will help us to improve our competitive position in the China market over the next 12 months.

We are, of course, working on even more.

I feel very good about our mobile phones road map.

From a strategic perspective, we extended the reach of our over map service this quarter in two ways.

First, with free navigation for our GPS enabled Smartphones, and second, by partnering with Yahoo to power their web-based location services.

One of our goals is to make Ovi a fundamental enabler of location services.

We are making good progress towards this by increasing the scope of consumer engagement and frequency of users of Ovi maps.

The early results clearly show that our decision to include navigation with our GPS enabled Smartphones has improved the attractiveness of our offering.

This is not just a great deal for consumers, but also very good for Nokia as well.

Consumers clearly value location services, and we have positioned ourselves to play a central role here.

And now on to Nokia Siemens networks.

NSN has entered an agreement to acquire the majority of Motorola's networks business.

The deal is expected to tremendously strengthen NSN's position, particularly in North America and Japan, with key customers including Verizon and KDDI.

And we believe that it gives Motorola's current customers a clear path for transitioning to Next Generation technologies.

This deal is being self-funded by NSN, and is expected to be accretive.

The cash flow stream of the current business itself is attractive, and on top of that, there's a lot of potential upside.

In Q2, NSN's net sales were impacted by two industry-wide issues.

First of all, delayed business activity related to local security review practices in India continued in Q2.

We estimate that NSN lost upwards EUR200 million in net sales in Q2 as a result of these delays.

Secondly, NSN has been impacted by industry component shortages.

Despite these industry-wide circumstances, NSN continues to generate momentum in key areas.

NSN has the highest number of LTE and 3-3 references in the industry.

And in Q2, the wide band CDMA business delivered significant year-over-year growth.

Professional services also continues to be an area of strength, driven by strong growth in managed services.

Nevertheless, NSN has continued to improve its business performance.

And Q2 represents NSN's third consecutive profitable quarter on a non-IFRS basis.

NSN's strategy is the right one, and we continue to hear strong positive feedback from NSN's customer base.

And finally, at the overall Nokia level, I want to highlight that our solid operating cash flow performance continued in Q2, which of course, has implications for shareholder distributions.

The dividend is our primary method of distributing cash to shareholders.

We view the dividend as a top priority, and we continue to manage our business accordingly.

Now, I will hand it over to Timo.

Thank you, Olli-Pekka.

On a reported basis, devices and services net sales of EUR6.8 billion were up 2% sequentially and up 3% year-over-year.

The sequential increase in net sales was mainly driven by seasonality and FX, partially offset by the competitive environment particularly at the high end of the market.

On a constant currency basis, devices and services net sales were down 1% sequentially and down 2% year-over-year.

In Q2, services net sales were EUR158 million, up 7% sequentially.

Billings were EUR295 million in Q2, up 29% sequentially.

As I have been mentioning the two previous quarters, you will see the gap between billings and net sales widen during 2010.

In Q2, our active service users grew from EUR77 million to EUR114 million, just shy of our EUR115 million target, driven by rapid growth across our core Ovi services, especially the Ovi store and location services.

Our volumes were up 3% sequentially and 8% year-over-year.

There are some indications that lead us to believe that our regional performance in Q2 was impacted by cross boarder trading related to currency volatility.

It seems to us that some devices in the distribution channel may have been moved by traders from Europe to dollar denominated regions, particularly the Middle East and Africa, in order to arbitrage the sharp depreciation of the euro.

Our volume discloser indicates the region to which we shipped the product.

We ended Q2 with normal channel inventories between four to six weeks, a level we are comfortable with given expected market demand.

Industry price competition was robust in Q2.

Nokia's ASP in Q2 was EUR61 including service revenue, down EUR1 sequentially.

Our sequential ASP decline was primarily driven by price pressure, particularly in the high end Smartphones, offset to some extent by the appreciation of certain currencies against the euro and converged mobile devices representing a greater proportion of our overall mobile devices volumes.

In Q2, our converged mobile device ASP was EUR143 compared to an ASP of EUR155 in Q1.

This is consistent with the commentary we provided in our mid quarter update.

The sequential decline in our converged mobile devices ASP was mainly due to a mixed shift towards lower priced Smartphones, as well as price pressure particularly in certain high end Smartphones.

Mobile phones ASP was EUR39 in Q2, unchanged on sequential basis, a solid accomplishment.

Devices and services gross margins in Q2 were 30.2%, down 220 basis points sequentially.

Approximately half of the sequential net decline was due to faster price erosion than product material cost erosion, especially in our Smartphone portfolio.

In Q2, the impact of the selective price moves that we have done to improve the competitiveness of some of our devices was felt.

Also, tightness in the supply chain limited our cost erosion in Q2, and we expect the situation to persist throughout the third quarter.

The remaining Q2 gross margin decline was primarily due to the depreciation of the euro, which lead to higher cost of goods sold as well as lower gross margin benefits from our hedging activities.

In Q2, our gross margins benefits by approximately 60 basis points from our hedging activities compared to approximately 150 basis points in Q1.

We expect a similar level of benefit in Q3 as in Q2, assuming static foreign currency rates at the end of Q2 levels.

In Q2, devices and services non-IFRS OpEx was EUR1.4 billion, up approximately EUR60 million on a sequential basis, approximately 60 basis points as a percentage of net sales.

We reiterated our 2010 devices and services non-IFRS OpEx guidance of approximately EUR5.7 billion, even though FX has been a headwind.

The sale of our modem business to Renaissance will help us to achieve this target, even as we continue to ramp up investments in areas such as MeeGo.

Note that we are continuing to invest in radio IPR creation to insure our long term IPR position remains strong.

Devices and services non-IFRS operating margin was 9.5% in Q2, down 260 basis points sequentially.

Then moving on to Nokia Siemens networks and NAVTEQ.

NSN's net sales were EUR3 billion in Q2, a 12% sequential increase and a 5% increase year-over-year decline.

As Olli-Pekka highlighted, NSN delivered solid performance in the seasonally strong Q2, even in the face of industry-wide challenges.

The issues that impacted sales in Q2, particularly components shortages, are expected to present challenges in Q3 as well.

Non-IFRS gross margin was 30.8%, down 60 basis points sequentially, and up 280 basis points year-over-year.

On a sequential basis, the decline was primarily due to product mix, the year-over-year improvement was primarily due to continued progress on product cost reductions and a favorable regional mix.

Non-IFRS operating margin was 1.7%, up 110 basis points sequentially, and up 160 basis points year-over-year.

NSN continues to target reducing its non-IFRS annualized operating expenses and project overheads by EUR500 million by the end of 2011 compared to the end of 2009.

NSN's contribution to Nokia's cash flow from operations was negative EUR270 million in Q2.

At the end of Q2, NSN's contribution to Nokia's gross cash was EUR746 million, and NSN's contribution to Nokia's net cash was negative EUR689 million.

And then on NAVTEQ.

Non-IFRS net sales in Q2 were EUR553 million, up 34% sequentially and up 71% year-over-year.

In Q2, NAVTEQ benefited from improved conditions in the automotive industry and growth in mobile device sales.

Non-IFRS operating margins were 19.8% compared to 21.7% in Q1.

This quarter, I think it's worth spending an additional minute here to help you with the modeling of the required elimination entries that we book on an overall Nokia group level.

There are two additional tables in our Press Release released this quarter.

Net sales by reportable segment and operating profit by reportable segment.

There are two distinct elements captured in the elimination entries.

First, in the net sales by reportable segment table, we show the elimination of intersegment activity between NAVTEQ and devices and services.

And second, in the operating profit by reportable segment table, we show the eliminations of profits recorded in NAVTEQ related to the Ovi map service sold in combination with our GPS enabled Smartphones.

In short, although we receive cash up front, the accounting treatment requires us to defer a portion of NAVTEQ's profits at the overall Nokia group level, and this is booked as an elimination entry.

This is over and above the significant and growing deferrals we are booking in devices and services.

The elimination entries will continue on an ongoing basis.

So I would recommend that you factor this into your models.

Then turning back to Nokia as a whole.

Nokia's financial income and expenses in Q2 was an expense of EUR68 million compared to an expense of EUR73 million in Q1.

In Q2, our cash flow from operations was EUR944 million compared to EUR955 million in Q1.

The flattest sequential performance even with lower earnings was primarily attributable to favorable networking capital changes partially offset by net outflows related to financial income and expense.

Devices and services continues to target a negative cash flow conversion cycle into Q2, this goal was achieved.

We ended Q2 with total cash and other liquid assets of EUR9.5 billion and net cash of EUR4.1 billion.

Note that this is after paying the EUR1.5 billion dividend for 2009 in Q2 2010.

Then in 2010 taxes, Nokia's Q2 taxes were again negatively impacted by NSN's taxes, since no tax benefits are recognized for NSN's finished tax losses.

We talked about this in the previous two quarters.

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

So if you want to model taxes more accurately, I would recommend that you model all the way down to after-tax profits for each of our reportable segments.

To do this, you need two additional estimates.

First, for financial income and expenses, I look at approximately two-thirds of the total to NSN, and approximately one-third of the total devices and services.

Second, use a tax expense of approximately EUR50 million each quarter for NSN, while using the long term tax rate of 26% for the remainder of our businesses.

After NSN achieves a sufficient level of profitability, then you can go back to using the overall long term tax rate of 26%.

I encourage all of you to update your models in this way.

Now, let's look at our Q3 and 2010 guidance, which we are providing to you in the release and on the attached slide.

In Q3, we expect devices and services net sales to be between EUR6.7 billion and EUR7.2 billion.

And we expect NSN net sales to be between EUR2.7 billion and EUR3.1 billion.

In Q3, we expect devices and services non-IFRS operating margins to be between 7% and 10%.

And we expect NSN non-IFRS operating margins to be between negative 2% and positive 2%.

And for the full year of 2010, we target devices and services non-IFRS operating margins to be between 10% and 11%.

And we expect NSN non-IFRS operating margins to be between breakeven and 2%.

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

Thank you, Timo.

Briefly, we are approaching the end of this painful product transition at the high end of our portfolio.

Delivering the N8 with a high quality user experience will mark the beginning of our renewal.

And as we go forward, I believe we will achieve our potential and regain higher leadership in our industry.

Thank you.

Thank you, Olli-Pekka.

We will now continue with the Q&A session.

I would like to remind you to limit your question to one question only.

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

Thank you for taking my question.

My first question is for Olli-Pekka.

Olli-Pekka, one of the key markets or Smartphones of the US mainly because of the developer base and the value of that developer base.

I wonder if you could say whether you agree with that or not.

And then with the better product pipeline lined up for the back end of the year and the beginning of next year, if you could just talk to us a little bit about when we're going to see you getting more aggressive in the US to go after that opportunity.

Okay, I'll go.

So yes, I very much agree with your comment or statement in the beginning.

So there's no doubt about in my mind about that.

And definitely the Nokia team as a whole is of the opinion strongly and has felt the pain also in that respect.

Now, secondly, and this is of course the big question here, so why have we not been successful in the US Smartphone market.

And we have been thinking about that a lot.

We have been sort of assessing our situation.

We have to remember that the US market is not similar to any other market.

The operator testing that you need to have in the US is definitely the far more than you do anywhere else.

Also time wise.

And you need a really sort of a situation where you are quick to the market in order to be able to have that benefit.

And frankly, we have been trying many times but it has turned out to be and they say a painful experience but the learning is here.

Symbian earlier generations have not been from the time to market point of view fast enough in making that hurdle and getting through the operators testing early enough.

It has meant that we have missed some time windows.

And now if you look at the Symbian 3 overall and the massive rewriting of the code base there, we have been doing here during the last 24 months, this massive operation.

It's the biggest software project of Nokia in its history.

I believe we can also from the US market point of view come to a situation where we can launch product based on Symbian early enough.

And definitely there's not a comment that has been made in isolation because of the fact that of course we have a constant dialogue with the US carriers and very much also when it comes to Symbian and Symbian 3.

Having said all of this, I also believe we will need MeeGo in the US.

And so in that way, the assault so to speak needs to be carried out by Symbian 3 and generations of Symbian as well as MeeGo.

Where definitely the MeeGo team has very much been instructed and this is very clear in their minds, have been instructed of one might even use the word ordered to give priority to the US market.

And that's very much in the plans, in the road maps, in the thinking.

Meaning that if you are thinking if you are competitive enough in the US, you then can be competitive elsewhere as well.

The situation is not always the same like the unfortunately we have been able to experience when it comes to the opposite.

So it's both MeeGo and Symbian and I really think the painful learning here has taken place.

And I want to emphasize, I've been speaking many times about this heavy lifting we have been doing with Symbian 3.

Its really been heavy lifting because it's not simply coming out with a new version.

It's rewriting the code base and that's been a long effort.

So in that way, I think I'll stop here and Kristian?

Yes.

Could we have the next question please?

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

Hi.

Just talking about the N8 release later in the quarter, can you confirm that it will be a worldwide launch?

I'm just thinking compared with your first touch screen phone the 5800 which was in limited countries.

And then secondly, will it be aggressively supported by appropriate applications and services which is I think a bit of a differentiator for you?

Okay, this is Timo.

I'll take a shot at this.

So as we said we expect Symbian 3 to start shipping towards the end of Q3.

And we of course are aiming to start to ship at many markets.

And but I want to highlight that the real meaningful, if you look at kind of like geographic launch is then are likely more going to be during Q4.

So this is how I would sort of take the geographical question.

So again we will have some impact Q3 but the major or bigger impact will be Q4

And then what comes to the support, to the services, so clearly we are aiming to launch the product with us broad service offering both regarding Nokia services as well as external or other services as possible.

I don't know if you want to add anything?

No, that's how launches go.

They go from one market to another and also from one channel to another.

And but of course a lot of work here has been ongoing in order to be able to launch with as many operators at the outset as possible and very good work has been ongoing there with them as we speak.

And also you have to remember there are different channel based.

There's the operator channel, the open channel and the dynamics go in different ways in these channels.

So it's something that requires quite a lot of experience and understanding on how market, different markets and channels work but Timo's answer was the essence here.

Thank you.

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

Thank you.

Is the recovery in operating margins a secondary focus since Nokia needs to quickly get new devices for the market which might be the primary focus or is 7% to 10% operating margins in the third quarter the bottom since most of the heavy lifting has already been completed for Symbian 3.

And then separately if you could just comment on how you came up with the 50 million Symbian 3 devices?

Is that from operator commitments?

Okay, maybe I'll start this one on the 7% to 10%.

So as we said, the N8 will start to ship towards the latter part of the quarter so you should not read into this guidance that's like a binary factor.

Inside here, we have some elements which are continuing the competitive challenges on the high end of the market as well.

As then as we mentioned we have some component constraint and industry wide issue ongoing and that is also putting pressure on the margin.

On the other side, we are launching some new product as well or getting some new products to volume but the way to say it during Q3, like the C3 which Olli-Pekka was talking about maybe dimension here also with the X2 and X3 and then on the current Symbian version, we have the C5 and C6 product for example.

And we are of course then using this tool box to try to mitigate this profitability situation.

And then I don't know, on the 50 million, maybe I'll just take that.

That 50 million is really not an operator committment.

I mean, if we look at that number, we said 50 million and we are talking about the Symbian 3 as a platform, so 50 million or more unified during the let's call it lifetime.

Thank you.

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

Thanks.

First one is just regarding your cash flow, which was strong in the quarter.

Just wondered, you mentioned that you intend to protect the dividend.

And I just wondered what sort of level you intend to protect the dividend and what you're thinking with regard to buyback at the current levels of the share price.

And then just related to cash flow just wondered if you could help us on NSN and what the cash impact will be from light squared.

Thank you.

Yes, I took up the dividend, so I'll answer as well.

So I think the point that I made was I think there were two dimensions.

One dimension was the fact that dividend is important and we feel that we need to manage our business in a way that we can respond to that importance.

And the second point was really to highlight the cash flow element here, because I think we have been pretty good in generating the cash flow here from these earnings.

And the thinking here and that goes unnoticed some time.

And of course there's a link between the two and that was also the point.

But to come up with a level, I would not go in there.

It's not the right time to do that.

And then there was I think an NSN related question.

Or what was called light squared.

The name slipped my mind, but we have to just note that this transaction of course and the NSN transaction and it really was said in a letter of intent type of situation, I would say.

So we have no further comment on that topic.

Thank you.

Could we have the next question please?

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

Hi, thank you.

Just had a question with regards to your market share assumptions.

In the first two quarters of the year, you lost market share in every quarter.

Your guidance for the third assumes that you're moving at the same pace as the market.

And so for you to reach the 10% year-over-year growth as you expected the market to maintain your share, the fourth quarter of the year needs to be sequentially up close to 20%.

I mean if you could give us some more color exactly on how you intend to achieve that and especially with the environment still being somewhat uncertain macro wise.

Okay, so I mean the guidance is what we have out there and so you went through the math.

I don't think I have any further quantification.

Traditionally, we have had sequentially strong fourth quarter and that is the target, what we have set to aim and naturally we are using the tools for our product as well as new products what we are planning to launch on the market and that's how that works.

Thank you.

Could we have the next question please?

Your next question comes from the line of Stuart Jeffrey with Numora.

Hi there, thank you very much.

You mentioned through the MeeGo and Symbian differentiation before and I was hoping you could expand on that.

You've made clear that Symbian is the mid range and MeeGo at the high end but I'm just confused as to the overlap between those two when you had mobile phones and multimedia, you were in the high end feature phone segment.

So I was trying to understand firstly what are you doing to make sure that kind of gap doesn't open up again.

And then trying to understand from a consumer perspective, will I notice much of a difference between the Symbian and the MeeGo phone?

Can you use Q to blend it wise nicely or is it a fundamentally different experience?

Thanks.

Yes, I think I have to thank you for the question, because I think indeed, there has been some confusion and I'm really happy to clarify the thinking here.

So to start with we believe that Symbian and MeeGo are the best software, combination of software platform for our smartest devices.

And our focus of the MeeGo is on the highest end mobile computing user experience beyond, I would say beyond current Smartphones.

Symbian is and will continue to be our core operating system as we lead the demo phase of the Smartphones.

So without announcing any new products, we are and we will continue to have Symbian based devices across our end target areas of devices.

Both at the high end and lower price points, with areas also here which is basically our highest end being a strong possibility.

The Nokia N8 will be our only N-series device on Symbian 3 but I will reiterate my comment on our conservative aim to ship over 50 million Symbian 3 devices over the coming years.

And here, of course there's something that we need to manage.

I mean, it's of course your point is absolutely correct because you don't want to have overlap but you don't want to have gray areas in between either.

And in that way the segmentation and the way we come up with the road maps all looking at MeeGo and Symbian is of course extremely important.

And here in fact we have put sort of a experienced Nokia leader to run the mobile solutions.

And of course, it's his job to really make sure that we exploit this opportunity in the right way.

And that clarity and crispness needs to be there from the road mapping point of view.

But we also have to remember that the Smartphones I think now this mobile computing extend really from EUR100 to EUR500 or EUR600 when it comes to sort of trade pricing.

And it's quite clear that they are (indiscernible) for courses here as well and trying to sort of tackle too much with one platform has proven out to be challenging.

And but of course we need to manage these dynamics in a very dynamic way and make the right course in practice.

And that's all about the road mapping here.

But I indeed believe and we of course got road maps that we have that we can make the best out of the combination in practice.

Maybe I'll take a quick one on the Q question here.

Oh, yes.

That was part of it as well, so we really with Q, we aim to simplicity, ease-of-use, and productivity for developers both internal and external through common application programming interfaces, API's leveraging our acute assets and really utilizing the same set of API, so with these developers, we'll be able to easily pull applications between Symbian and MeeGo without the need for extensive recoding.

So really improving developer productivity and global reach, but of course, as Olli-Pekka was saying Symbian and MeeGo need to be somewhat different.

So we are planning to have somewhat more advanced capabilities in MeeGo and we will provide a richer set of APIs for MeeGo computers.

So you can do it in a way that you have a MeeGo set and then the Symbian will be a subset of that.

And actually, the feedback from developers regarding Q as a tool is very good.

Yes, so that's very important from the developer point of view and the commonality needs to be there.

But then if the question is the user interface with Symbian and MeeGo be the same and the answer is no.

Could we have the next question please?

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

Yes, thanks.

I wanted to ask a bit more about the margin guidance and the way it relates to your product launches.

So I'm having a hard time understanding how you could do a 7% margin in the third quarter given that your sales are likely flat or up sequentially.

You're not seeing a significant foreign currency hit on the gross margin and you already had a pretty weak quarter in the high end.

If anything you could argue the high end could be a bit better sequentially with N8 at the end of the quarter.

So if you could help me understand that I'd be grateful.

And then related to that if it is 7%, you need a really fantastic fourth quarter and I just wanted to get your confidence that there will be a family of new products behind the N8 in time for that fourth quarter.

You said soon in your Press Release but soon wasn't very specific.

Thank you.

Okay, why don't I start here.

This is Timo.

So, really regarding the Q3, I mean we gave the gross margin drivers and as said the potential negative drivers for Q3 are pricing pressure, especially in the high end segments where our portfolio clearly is the most challenged.

We have somewhat aging Smartphone portfolio.

And then we also mentioned the component shortages which are industry wide.

And we for example, saw this on news today so this is really happening throughout the industry.

And then we have positive drivers which are particularly in mobile phones where we have the C3 product.

And as you mentioned, maybe some operating leverage or should have slight operating leverage from the increased supply.

But these are really the drivers.

And then looking at Q4, I don't think I could really say more what I said earlier.

I mean, you went through the map and it would give quite a wide range in Q4.

The Symbian 3 family question.

How soon is soon?

Yes, how soon is soon.

Is it soon enough?

That is the question.

Of course we are talking about one Symbian platform here, Symbian 3.

And then the question really is sort of what type of form factors and use cases you build that sort of platform, you build on top of that platform.

And of course here we are working on several projects at the same time as opposed to having a situation where we do one and then start another one.

And it's a question about form factors and the appearance and the use case.

And in that way, it's not trivial of course, not trivial at all but the whole thinking is to multiply then as fast as possible to different use cases.

So I'm really sort of, let's put it that way.

Getting the software platform ready, yes, we need to meet that challenge and we have commented many times today.

But I think it's a less demanding task then to multiply that platform, to different use cases and form factors.

So there's quite a lot of confidence that we can do that.

But maybe on the how soon is soon and referring to the family of product if I may, Olli-Pekka, just to clarify that the family using that word and giving nothing more to it, would be there during Q4.

Thank you.

Next question please?

Your next question comes from the line of Tim Long with Bank of Montreal.

Thank you.

Just a two parter on ASPs for your devices if I could.

First, the flattish performance for mobile phones in the quarter, could you talk a little bit about that?

I assume there's a little bit of currency benefit but was there anything in the product pipeline that leads you to think that will be sustainable.

And then on the converge device side, down pretty big again but less so than last quarter.

What's the outlook there?

Could the N8 and the other products maybe not in Q3 but in Q4 expecting we could start to see that get back into positive territory?

Thank you.

So let's talk a little bit about the ASPs.

So first on the mobile phones sequentially flat at 39.

So there is the FX component there because of the depreciation of Euro, but it's not the only thing.

We have a strong portfolio in mobile phones as helped by for example, the C3 product as well as then our lowest 10 memory device, the Nokia 2690 which has been important in India.

So when we look at ASPs for converged mobile devices segment, so I would use the word stabilize here with the new portfolio coming in during the latter part of Q3 and Q4.

I would like to give an example here about the dynamics.

So in reality in India in Q1 we were under tremendous attack from basically the Chinese competitors and we lost some ground in Q1.

We were able to have a better portfolio with 2690 and by improving our operations, one more time, once again, this has happened many times, Motorola, Samsung, now from the Chinese, we were able to claim back and it's made markets again in India in Q3.

And if we look at made Markets again in India in Q3.

And if we look at the product portfolio during the latter part of the year.

So we definitely continue to improve in mobile phones as well.

And you have not seen everything as of yet, so new product launches will come.

So that is good to track the illustration of what's happening.

Yes.

And just to make sure that my stabilized comment is taken in the right way, apologies for not saying this right away, I meant during the second half, not during Q3.

So stabilized during the second half and clearly the new N8 and the family of Symbian 3 products is an important component here.

Thank you.

Your next question comes from the line of Pierre Feriagu with Bernstein.

Hi, thank you for taking my question.

Just going back on to a very wide run that you have on your guidance for Q3 and for the full year.

I'm assuming that you're sustaining in there but are you considering like a disappointing performance of Symbian 3 and MeeGo.

And do you have any B-plan in mind and are you already considering identity (inaudible) going forward, with these two new systems with the performance?

Well, maybe I don't know if you want to take some of the latter part but clearly we do not as we have said have a major volume of Symbian 3 during Q3 because we are saying that we are expecting to start to ship during the latter part of the quarter.

And so in that sense that being a meaningful swing factor inside the Q3 range.

Is not the case in MeeGo.

It is clearly coming later.

I think I went through the main drivers for the gross margin.

We had some negative drivers as said the pricing pressure on the higher end segments and clearly relating to the portfolio competitiveness on Smartphones as well as this component shortage issue.

And then trying to mitigate some of the positives on the new products both on the mobile phones as well as a couple of new Smartphones, but on the other bigger alternative it's not really a Q3 thing.

And I would like to comment on that Symbian 3 question.

And I pointed out this earlier so of course we have been working with the operators who are the best possible experts on what will resonate in the marketplace and what not.

And the operator response to Symbian 3 has been tremendous.

So now it's a real question about getting the quality right.

And this is what we have said and this is why we basically postponed the Symbian 3 from Q2 to Q3 to get this right.

Because that's really the thing that we need to get right.

Because the traction is there and the products will resonate.

And now we are day by day closer to that time and then that milestone will be met.

And so we as a team, I'm not speaking on behalf of myself, we as a team are strong levers in this case, strong as a team.

Operator could we have one additional question please?

Yes, sir, your final question comes from the line of Andrew Gardner with Barclays.

Thank you very much for taking the question.

I was wondering if you could touch on R & D just for a moment.

You've reiterated the guidance for operating expenses for the device and services division for this year because clearly no change there but you'd also highlighted the sale of the modem business to Renaissance will allow for some savings, you seem to indicate that those savings wouldn't be retained but would rather be reinvested.

And also another comment you made on R & D as it relates to the Symbian 3 development, you called it the largest software upgrade or development that Nokia has ever done.

And I'm wondering perhaps without giving us point to point guidance obviously but directionally does that mean that R & D can decline in 2011 relative to where it is at the moment and has been for the last year or so?

Thank you.

First let's take the approximately EUR5.7 billion guidance for 2010.

So actually all of the three things you mentioned are inside our plan to get to EUR5.7 billion for the year and I don't think I'll comment separately.

Also the Renaissance transaction as we said will help us to achieve that goal and as I said we have had some FX headwinds regarding the OpEx.

If you look at our OpEx we have about half of our OpEx, approximately half of it in Euro and half outside Euro.

And if we play with round numbers, EUR5.7 million and half is three even if it's not for easy math.

So you could say 1% can be 1% in FX can be EUR25 million to EUR30 million on that number and clearly it has an impact.

And that's why we are saying approximately EUR5.7 billion for the year, and going four wide we are not really here giving any guidance for 2011.

Good.

Thank you for the final question.

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 there for differ materially from the results currently expected.

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

We have identified these in more details on Pages 11-32 in our 2009 20F and our Press Release issued today.

Thank you.

Ladies and Gentlemen, this concludes todays Nokia second quarter results conference call.

You may now disconnect.