諾基亞 (NOK) 2010 Q3 法說會逐字稿

Good morning and afternoon.

My name is Brook and I'll be your conference operator today.

At this time I would like to welcome everyone to the Nokia Q3 results 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 will now turn the call over to Mr.

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

Sir, you may begin.

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

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

Stephen Elop, President and CEO of Nokia, and Timo Ihamuotila, CFO of Nokia, are here in Espoo with me today.

During this 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 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 through 32 in our 2009 20-F, as well as our press release issued today.

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

Please note that today's press release and the 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, Stephen, please go ahead.

Thank you, ladies and gentlemen, for joining us today for what is my first earnings release as the President and CEO of Nokia.

In the five weeks since joining Nokia I have begun the journey of listening, learning and adjusting.

Indeed, I have already had the opportunity to interact with literally thousands of employees, as well as customers and partners.

At the highest level, what I have initially found is a Company with many great strengths and a history of achievements that are second to none in the industry.

And yet our Company faces a remarkably disruptive time in the industry with recent results demonstrating that we must reassess our role in and our approach to this industry.

The strengths that I reference are quite diverse in nature.

Quite clearly, one of Nokia's greatest historic strengths has been the ability to produce great products, where product is defined not only as the hardware, but also the software, the platform and the services that comprise the entire user experience.

On the other hand, it was indeed a surprise to me that our most recent quarterly results were constrained, not by demand for our products, but by the supply of certain critical components.

Indeed, the demand for our products, including those most recently launched, is a very encouraging sign for our future.

Another key strength is the employee talent within Nokia.

We have thousands of skilled and dedicated people around the world.

And I have very deliberately assessed whether or not the critical raw ingredients exist within our walls, including in areas such as contemporary user experiences and design; cloud based services; software engineering practices and process; manufacturing, logistics and supply management; the ability to develop, maintain and defend differentiated intellectual property; and, of course, hardware design, engineering and mechanics.

The good news is that many of these capabilities are within Nokia, with a growing number of industry thought leaders serving as members of our team.

On the other hand, we must more deliberately align and focus this talent around a crisply articulated strategy where a tighter collection of important priorities are well understood and pursued by all.

Another critical strength of Nokia is its capacity to innovate.

I would characterize Nokia as a landscape of unpolished gems.

Whether it is the degree of intimacy we have established with millions of consumers around the world, our naturally aligned world view with operators, ground breaking technological capabilities in everything from optics to nano technology to haptics, our strength in emerging markets or our assets in location based services, there is an embarrassment of riches within Nokia.

On the other hand, the value of these gems to our consumers and shareholders will only be realized if we make a concerted effort to translate the most important of them into sustainable differentiated value while firmly setting aside those whose future is less relevant.

Much has been written about the questions we face about the relative role of various operating system platforms, including Series 40, Symbian, and Migo, in an environment where other operating platforms have been gaining share.

I see the broad penetration and user familiarity, of both Series 40 and Symbian, as an asset for the company that must be carefully managed and renewed over time.

And it is our aspiration to raise the industry bar on what constitutes a contemporary user experience as we look forward to our first Migo based device.

Perhaps the greatest strength in the area of platforms, however, is also another example of an unpolished gem.

And that relates to the use of QT, which is spelled Q-T, as a cross platform environment for the development of applications that can reach ultimately across much of our portfolio.

QT will offer application breadth and reach that is unrivaled in the industry.

Indeed, the higher order consideration for Nokia is not really about Series 40 or Symbian or Migo, or any specific underlying operating platform.

But really it is about how we can make the largest range of devices easily accessible to our developer ecosystem while using the same development platform to increase our internal efficiency.

In a related announcement today, we have clarified our intent to focus on QT for native application development and HTML 5 for browser based development as key tenets of our application strategy.

On the other hand, there is unquestionably a lot of work to do to clearly articulate this strategy to build the developer ecosystem and to deliver on this opportunity and practice.

I must also say that a key strength available to me is the unambiguous support from the Nokia board of directors to aggressively pursue any necessary measures.

This is clearly a time of disruptive change and the board has vested in me the mandate to lead Nokia through this change.

In addition to the strengths of Nokia, I also see a number of challenges.

For example, Nokia has been characterized as an organization where it is too hard to get things done, whether that is an internal project or an external strategic partnership.

More than anything else, the changing market dynamics demand that we must improve our ability to aggressively lead through changes in our environment.

Our lack of success in the North American market has also been characterized as a weakness.

While it is certainly that, it is also a symptom.

There is no systemic reason that Nokia cannot succeed in North America.

I believe there is a degree of focus and execution necessary, along with different patterns of doing business, that can drive success in that marketplace.

Historically, the patterns of how various products were independently developed by various teams has also been a challenge for the Company.

Even before my time, it was recognized that there was an opportunity for greater efficiency across the organization and work has been underway to pursue those opportunities to streamline.

That is one of the primary drivers behind the planned work force rebalancing that we are also announcing today, which we anticipate will result in a reduction of up to 1,800 people in devices and services, and corporate functions.

We must also improve our operations, and how and when we communicate about our plans.

Indeed, you will see us shift to a pattern of communicating about specific products and releases far closer to their actual availability.

As an example of this, there have been various comments made at various points in time about the anticipated availability of our first Migo device and versions of the Migo software.

My first impressions of our Migo work inspires both confidence and excitement.

However, it is also clear to me that our first Migo device will be a 2011 event.

As illustrated in my comments today, it is my intent to engage in open and transparent communications.

In the weeks and months ahead, I will continue listening, learning and adjusting the strategy and operational plans of Nokia.

While there will be many steps in this journey, we look forward to providing the full context of our path forward at our next capital markets event which we anticipate holding in the February 2011 time frame.

Now, let me take you through an operational summary of the quarter.

According to our preliminary estimates, the overall handset market in Q3 delivered volume growth of 8% sequentially and 14% year over year.

In unit terms, industry growth was largely driven by developing markets in Q3.

From a revenue perspective, our industry continued to benefit in Q3 from very healthy growth in both developed and developing markets.

At the end of Q3, we started shipping the Nokia N8, the first of our new Symbian devices.

This was the most visible milestone featuring a number of industry leading innovations, most notably around photography, video and other forms of entertainment.

We also took major strides forward by improving our developer story as well as our Ovi store, which now includes a more engaging look and feel, better performance and major improvements in the search engine.

I believe the key elements are in place to accelerate the building of an attractive ecosystem.

Our new Symbian devices offer an improved consumer experience.

Our improved developer tools and processes will lead to better apps and content.

We believe better content and better discoverability of that content in the Ovi store will lead to consumer and developer engagement, completing the virtuous cycle.

The changes communicated today will enable us to deliver improvements to our smartphone user experience while avoiding binary breaks, which is good news for our developers and our consumers.

Because of Nokia's scale, brand, distribution channel and strategic alignment with operators, we have always had the potential to create a strong, highly profitable consumer ecosystem.

On a less positive note, according to our preliminary estimates, we lost market share in Q3 as we were not able to keep up with the demand for our products, principally at the low end of our portfolio.

It has been more difficult than expected for us and other industry players to procure sufficient supply of certain components, such as displays and cameras, and we expect this to continue through Q4 and into 2011.

This is an operational headwind through which we must manage with better planning and execution.

So what did we learn in Q3?

All in all, our devices and services business delivered, but we need to achieve more.

Most importantly, we started shipping our new Symbian devices and we can now capture value from the very healthy industry growth at the higher end of the smartphone market.

Timo will cover the financials and the review of both NSN and NAVTEQ.

Timo, over to you.

Thank you, Stephen.

On a reported basis, devices and services net sales of EUR7.2 billion were up 6% sequentially and up 4% year-over-year.

The sequential increase in net sales resulted primarily from higher ASPs in most regions.

In Q3, services net sales were EUR159 million, up 1% sequentially.

The gap between billings and net sales continued to widen in Q3.

Billings were EUR325 million in Q3, up 10% sequentially.

In Q3, our active service users grew to 148 million, from 140 million at the end of Q2.

Our volumes were down 1% sequentially and up 2% year over year.

In Q3, our volumes were impacted by industry-wide shortages of certain components, particularly in the low end of the market where Nokia's position is strong.

We expected component tightness in Q3, but let me tell you, the shortages we experienced were worse than expected.

Due to the solid demand for our products combined with the component situation, our channel inventories declined during Q3.

We ended Q3 within our normal channel inventory range of four to six weeks.

One of the key highlights of the quarter was definitely our ASP.

Nokia's ASP in Q3 was EUR65 including services revenue, up EUR4 sequentially.

Our sequential ASP increase was primarily driven by converged mobile devices representing a greater proportion of our overall mobile device volumes and some positive currency impact.

Offset by some extent by general price erosion.

In Q3, our converged mobile devices ASP was EUR136 compared to an ASP of EUR143 in Q2.

The sequential decline in our converged mobile devices ASP was mainly driven by an increase in the proportion of lower priced converged mobile devices consistent with our strategy to reach wider groups of consumers with our smartphones, as well as price pressure in certain high end smartphones.

In Q3 our mobile phones ASP was EUR42 compared to an ASP of EUR39 in Q2.

The sequential increase in our mobile phones ASP was mainly driven by the previously mentioned shortages of certain components which impacted sales of our lower ASP devices.

Also, two of our new devices delivered strong performances in Q3 as premium offerings in developing markets.

The Nokia C3 QWERTY phone with messaging and the X2 entertainment phone with 5 megapixel camera and messaging.

Devices and services gross margins in Q3 were 29%, down 120 basis points sequentially.

The sequential gross margin decline was primarily due to overall material cost erosion being lower than our overall price erosion, driven by the previously mentioned shortages of certain components and a negative foreign currency exchange impact.

This was partially offset by converged mobile devices representing a greater proportion of our overall mobile device volumes and a benefit of 80 basis points from one quarter royalty income impact.

In addition, our gross margins benefited by approximately 40 basis points in Q3 from our hedging activities, compared to approximately 60 basis points in Q2.

At the present time, we expect a headwind of approximately 40 basis points in Q4 related to hedging activities assuming static foreign currency rates at the end of Q3 levels, but this could change due to intraquarter fluctuations in rates.

In Q3, devices and services, non-IFRS OpEx was EUR1.3 billion, down approximately EUR90 million on a sequential basis and down approximately 240 basis points as a percentage of net sales.

We reiterate our 2010 devices and services non-IFRS OpEx guidance of approximately EUR5.7 billion.

Note that we shifted some of our Symbian marketing programs from Q3 to Q4.

Devices and services non-IFRS operating margin was 10.5% in Q3, up 100 basis points sequentially.

This benefited from one quarter royalty income impact and hedging activities, as I mentioned when I took you through gross margins.

And now on to Nokia Siemens Networks and NAVTEQ.

We continue to hear strong positive feedback from NSN's customer base.

In the seasonally weak third quarter, NSN's net sales were EUR2.9 billion, a 3% sequential decrease and a 7% year-over-year increase.

NSN experienced seasonal declines in all regions, with the exception of Asia Pacific where the growth in sales was primarily due to the strong performance in Japan and the reopening of the market in India following the security driven restraints that impacted Q2.

Non-IFRS gross margin was 24.9%, down 590 basis points sequentially.

The decline was primarily due to three factors.

First, an overall unfavorable business mix.

Second, the continued impact of component shortages which impacted sales to certain higher margin regions.

And, third, one quarter items including inventory writedowns and writedowns of nonrecoverable VIDs.

Non-IFRS operating margin was negative 3.9%, down 560 basis points sequentially.

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

NSN's contribution to Nokia's operating cash flow was negative approximately EUR250 million in Q3.

At the end of Q3, NSN's contribution to Nokia's total cash was approximately EUR700 million and NSN's contribution to Nokia's net cash was approximately negative EUR1 billion.

NAVTEQ.

Net sales in Q3 were EUR252 million, flat sequentially in the seasonally weak third quarter and up 40 -- excuse me, and up 52% year-over-year.

In a sequential basis, NAVTEQ's net sales benefited from higher sales of (inaudible) licenses to Nokia offset by lower net sales to other customers in total.

Non-IFRS operating margins were 29.4% compared to 19.8% in Q2.

And as I highlighted last quarter as well, to help you understand NAVTEQ's contribution to the overall Nokia P&L, on page 22 of the press release, we provide two tables that show illumination of intersegment net sales and illumination of operating profits.

Then turning back to Nokia as a whole.

Nokia's financial income and expenses in Q3 was an expense of EUR79 million, compared to an expense of EUR68 million in Q2.

And then a note on taxes.

Nokia's Q3 taxes were again negatively impacted by NSN's taxes since no tax benefits are recognized for NSN's Finish tax losses.

We talked about this the previous two quarters.

In Q3, this was more than offset by lower devices and services taxes due to dividend withholding tax legislation changes in certain jurisdictions with a one quarter impact.

All in all, our Q3 non-IFRS EPS benefited from lower taxes than Nokia's estimated long term tax rate.

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

Going forward on taxes, I would continue to recommend that you model taxes separately for each of our reportable segments.

To do this, first you need to allocate financial income and expenses, allocate approximately two-thirds of the expense to NSN and the remaining one-third of the expense to devices and services.

Second, use a tax expense of approximately EUR50 million per quarter for NSN while using the long term tax rate of 26% for both devices and services and NAVTEQ.

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

In Q3, our cash flow from operations was EUR439 million compared to EUR944 million in Q2.

The sequential decrease in operating cash flow was impacted by cash outflows related to both our operative as well as balance sheet hedging activities.

It is normal for our operating cash flow to be impacted positively or negatively by the settlement of our hedges.

The Q3 impact was influenced by the high level of currency volatility we have experienced recently.

I would like to highlight here that our cash generated from operations continued to be solid, EUR1.2 billion in Q3 and in Q3 we also continued to benefit from driving lower net working capital.

We ended Q3 with total cash and other liquid assets of EUR10.2 billion and net cash of EUR4.4 billion.

And finally, a summary of our guidance for Q4.

We expect devices and services net sales to be between EUR8.2 billion and EUR8.7 billion, and we expect NSN net sales to be between EUR3.4 billion and EUR3.8 billion.

We expect devices and services non-IFRS operating margins to be between 10% and 12%, and we expect NSN non-IFRS operating margins to be between 2% and 5%.

And with that, I'll hand over to Kristian for Q&A.

Thank you, Timo.

For the Q&A session, a gentle reminder.

Please limit yourself to one question only.

Operator, with that, please go ahead.

(Operator Instructions)

Your first question comes from Stuart Jeffrey with Nomura.

Hi, thank you very much for the question.

I've got a question mainly with regard to Q4.

As you look at Q4, you've guided for a relatively modest increase in margins despite a strong seasonality and a number of big new product launches.

So I was just trying to understand, given your component constraints, why wouldn't you be pricing those products more aggressively and why wouldn't that be driving a higher margin?

Or do you think your component supply at the high end now is actually quite easy?

So perhaps something about that.

I know only one question, but perhaps you could clarify.

I thought the capital market event was December 9, has that now been pushed to February next year?

Okay.

So thanks for that.

Timo here.

Let me try to bridge between the Q4 guidance and where we are now after Q3.

So, first it's really important to highlight that our Q3 operating margin included approximately this 80 basis point impact from a royalty payment, ie, one quarter royalty payment.

Secondly, as I commented in my prepared remarks, our gross margin benefited by approximately 40 basis points in Q3 from our hedging activities.

And at the present time we also expect that headwind of approximately 40 basis points in Q4 related to hedging activities.

So there's approximately 160 basis points sequential gross margin headwind to take into consideration when you are modeling devices and services in Q4.

Then from OpEx standpoint, we called out that we had shifted some of our Symbian marketing expense from Q3 to Q4.

And finally, it's also important to remember the challenging supply situation, what we highlighted in the remarks.

So clearly we are targeting operating leverage, in Q4, gross margin progress is expected to remain more challenging than we've seen this quarter.

And you took up clearly this, why don't you price higher.

As we've said earlier, we are pricing the new Symbian products, the N8, C7, and so forth to sell.

We are expecting that the gross margin of those products would be slightly higher than the average and there is really no change to that view at this point.

Final comment, capital markets day, I believe it was originally scheduled in December.

We thought it was more appropriate, given that I'm just starting with the organization, to have that in February where we can give you a more complete context of our overall strategy going forward.

Thank you.

Could we have the next question, please?

Your next question comes from Rod Hall with JPMorgan.

Yes, thanks for taking my questions.

I just wondered if you could give us more specificity around the job cuts that you've announced.

Are those in R&D?

Are they in marketing?

Just if you could give us any more color on that, that would be great.

And then my bonus question, in case you'll answer it, is just if you could give us any color on the specific units that drove the ASP so much higher in Q3?

It looks like N8s were probably not the driver, but you did say that you shipped a few 7s in Q3.

If you could give us a little color on that, it would be great.

Okay.

As it relates to the work force rebalancing, there are a couple of drivers here.

First of all, there had been, even as I arrived at the organization, identified the opportunity for some streamlining as it relates in particular to some of our product development activities.

That streamlining of future hardware portfolios, streamlining of software development practices, and a number of other related matters.

So, a substantial portion of the job cuts are related to streamlining, particularly in and around the Symbian platform.

A second driver, that we also discussed, I believe, in a related announcement today, is in the area of services where our Ovi services capability is doing very well.

I'm very excited by the results we're getting there in terms of active users, number of downloads and a variety of other things.

And yet at the same time it is my belief that our approach to our overall solution is a combination of services, software on the devices, the devices themselves and so forth, and that, that should apply to the Ovi environment as well in that it should be a fully integrated environment and not just a collection of standalone environments.

And so part of the job cuts are related to a very deliberate streamlining in and around our services functions.

The final contributor to the job cuts relates to some reductions in supporting corporate functions related to the first two primary cuts that I identified earlier.

Okay.

And then, Timo here, on the Q3 ASP.

So, yes, it's correct, the N8 was there for Q3, but only for a really tiny amount, and C7 was not there for Q3.

And if we look at the ASP dynamics, the main contributor here really is the component shortages and the shortages hit us more on the low end this time where Nokia is strong.

And if you look at the ASP dynamics, mobile phones ASP is actually up and this is where this is visible, simultaneously, our smartphone ASP was down.

And one final thing, FX also affected ASP, so foreign exchange rates was one of the dynamics driving ASP higher, as well.

Thank you.

Next question, please.

Your next question comes from Andrew Griffin with Merrill Lynch.

Hi, there.

Stephen, welcome to your first call.

Coming from a software background, I just wondered if you could give a little bit more detail about what maybe are the low hanging fruit changes that can be done at Nokia to streamline the delivery of a total platform solution and also bringing this problem of getting things done at Nokia that you alluded to?

Thanks.

Thank you.

I think actually, in some ways, you answered it in the question.

And that is that it is most important to treat what we deliver to our consumers as a single integrated user experience.

And that the work of those working on hardware, software, the application platform, supporting our developers, the cloud based services, all of those different organizations need to be focused and aligned on one integrated experience.

To the extent that you have different groups perhaps going in slightly different directions or what have you, that leads to inefficiencies and things that slow down the groups.

So a great deal of energy needs to go into making sure that everyone is aligned.

It is also really, really important to understand that you need to have a convergence of the software platforms upon which you are doing your work.

So in a related announcement today, there was a discussion of our intent to focus on QT for native application development and HTML 5 for web-based application development as the singular approach to application development on our platforms.

And that applies to Migo and Symbian, and so forth.

The reason that that's so important is there is a significant efficiency opportunity by having a single platform adopted, not only for our developers, so it's great news for our developers, but also for internal efficiencies, as well.

So any particular application or capability can be developed once and used across multiple devices and platforms instead of it having to be developed multiple times in multiple places.

So there's significant opportunity to improve the alignment and the efficiency of the organization both now and as we go forward.

Could I ask a follow-on on the same subject?

The QT and the HTML 5 or web run time idea was a big feature of Nokia world this year, it was last year as well.

Why is it taking so long do you think, or can you answer yet, to make this move happen?

I'm very much focused on how to take it going forward, so it's hard to comment on the past.

But what I will say, and I think this is part of the shift, is as we've evaluated the response from our developers to the QT environment, which has been remarkably positive, and that includes a number of developers that I've known over the years and as they've all helped to guide us and say, look, this is something very powerful.

It really has required some common vision here at the Company.

And some decision making, quite frankly, that said this is what we're going to do.

And we need to unambiguously state that internally and unambiguously state that externally, so that there's no ambiguity as to what the development direction is.

Now the benefit to that, clearly to our developers, is that we have the potential with our developers to say, build this application please and now you can reach a much larger pool of ultimate consumers.

That's very attractive to our developers.

We can consolidate all of our efforts on one set of development tools to make it even easier for them to get those applications developed.

Now, it also has some other side benefits which were referenced in various announcements today.

That is, historically, the Company had said here's Symbian 3, and that's what some of our brand new devices are shipping with today, and then there's going to be this other big thing called Symbian 4 in the future.

Which, as it was previously announced, represented a binary break for our developers, in other words, a bit of a restart for them.

Which from a development perspective and a software platform perspective is not a recommended strategy.

So part of what we announced today as well is that the Symbian 3 platform that we have in place today will be iterated upon more rapidly than we were planning on in the past so that the developers can rely on that platform.

So it's good for developers, and as well so that you can see some of the user experience improvements that we were planning for the future brought into the existing platform more rapidly, and updated in real time to the extent the consumer wants to do that without having to cycle through the devices and so forth.

So we've made some pretty important decisions in this area.

Part of the reason this is happening so early in my tenure is because it is so important to get alignment between the external developers and the internal developers, and make sure everyone is absolutely clear about what the future direction is because that gives them the confidence to invest in our platform.

Yes, if I may comment quickly, with a note of software background burden here.

When you look at our messaging earlier on this, we clearly have united around QT, around the external developers and there might be a sort of feel that this is not that big.

This is actually very big, as Stephen said.

We are now really - we used some other tools for internal development, we are now really using QT also for internal development.

Operator, could we have, please, the next question?

Your next question comes from Mike Walkley with Canaccord Genuity.

Thank you.

Stephen, maybe just building on that last question in terms of your developers.

With Apple's ecosystem growing and the Android ecosystem growing, and Samsung and Sony Ericsson leading Symbian, can you maybe share with us some of the developer feedback on your platform strategy?

And also for Timo, if you could share with us some of the ASP assumptions for Q4, because I would assume with the N8 and C7 ramping in volume, we should see a nice increase sequentially in your converged devices ASPs?

Okay.

Great.

In terms of the feedback we've had from developers, quite frankly, for me coming into the organization, it was a positive surprise.

I had heard some very good things about the QT development environment actually from my former colleagues.

You'll recall that Microsoft and Nokia have a partnership around the development of the Office products for the Nokia platform.

And I had already heard some positive signals.

But as I engaged with the Nokia development community and really understood what was going on here, I was very, very pleasantly surprised.

I got a lot of that at Nokia World, and as I have solicited feedback over the last few weeks from developers all over the world saying what's your perspective, what are you really experiencing.

What they really said to me is that some of the new tools and capabilities, including something called QT Quick which is all about the development of rich user based experiences in a touch-based device.

As they've seen these new tools and their ability to be far more productive than they were in the past, there's a lot of excitement around it.

As I also said in my prepared remarks, we have work to do.

We have to better educate, we have to continue to attract developers, we have to make sure that they can effectively monetize.

But there are substantial markets around the world that we can help them reach, that no other provider can help them reach, and that is our intent.

Yes, and then on the Q4 ASP.

Yes, it's true, we will have new products out there on the market on the smartphone side.

Simultaneously, we would expect that our feature from mix would change.

We expect the component shortages to continue, but nevertheless, we would expect a bit of an exchange on the future phone side.

And I still want to highlight what we said earlier, that we are really pricing these new smartphones to sell and we expect them to be slightly above the average gross margin of the Company.

So we are using that pricing tactic, what we have communicated to you earlier, and there is a competitive pressure on the market as well, so I would not want to read this into some kind of automatic ASP optic situation.

Operator, could we have the next question, please?

Your next question comes from Kulbinder Garcha with Credit Suisse.

Thanks.

I have a question for Stephen.

On Symbian, the way the press release (inaudible) your comments, are we right to assume -- I know whilst it's early days -- you're fairly committed to the Symbian and Migo platform going forward, or could that even change at some point, and you're still in the evaluation stage?

And then a question for Timo.

The one thing I don't quite understand -- I understand there's constraints in the industry, but it seems that Nokia, given the market share loss at the low end, have mis-executed within that environment.

So there's something more fundamental going wrong because I would have thought that given the strength of Nokia's supply chain, you wouldn't have lost that much share relative to your competition.

That also constraints.

Any more detail around the constraints and what's going on at the low end of the market would be helpful?

Thanks.

Thank you.

With regard to the, if you like, the overall operating platform discussion.

I want to take it up a level and essentially characterize that what I am most focused on evaluating as I go forward -- and you're right, it's early days and too early to make all the specific comments and what have you, but my primary focus is on ensuring that Nokia has a plan for sustainable differentiated solutions.

It has to be sustainable for the long term, it has to be differentiated and it has to be a complete solution.

Just to give you a sense of what I mean by that is, from a solution perspective, as I said earlier, a solution is about hardware, it's about the operating platform, it's about the application ecosystem and the developers, it's about the user experience, it's about the services in the cloud around that, that complete the experience.

So we need a complete solution that is differentiated, that allows us to differentiate from our competitors.

So in every one of those areas, and that includes the operating system, the hardware, components of hardware, whatever the case may be, we will make decisions going forward that ensures that we can continue to build and extend our differentiation from our competitors.

Now, when you consider other alternatives in the marketplace today, when I look at those other choices, it is so far unclear to me how we could maintain differentiation with some of those other paths.

And I look at some of what's going on in the marketplace right now, and there may be certain excitement or newness or what have you, but at the same time, what is the plan for differentiation?

Because at the end of the day, neither Nokia nor any of those other companies can compete simply on features within the hardware from month to month.

You need a much broader perspective and I think a number of companies have demonstrated that in the industry.

Nokia is very much focused on that, as well.

Yes, and on the supply chain, so as we said in the remarks, these constraints were clearly -- going into Q3, we said the market is tight regarding components.

Now, it ended up that these constraints were really more in the lower end of the market and that simply affected Nokia more than maybe some other market participants.

But when you look at the talk out there, I mean clearly these component constraints are industry-wide.

It's fair to say that this is a bit of a misstep.

On the other hand, I can guarantee our supply chain works and we are working extremely hard with our suppliers so that we can definitely get our fair share of the needed components going forward.

Next question, please.

Your next question comes from Gareth Jenkins with UBS.

Yes, thanks.

Just a couple if I could, very quick ones.

Stephen, really just on the cost streamlining that you've identified so far, I just wondered whether there's any incremental cost streamlining that you see?

And maybe whether you could give us a sense of how big the software and services development teams are in terms of personnel?

And then secondly, probably more for Timo, just in terms of the yen exposure, whether that's come down and you've been able to drive that down.

There's obviously been a big move in the yen.

And whether that's encapsulated in your 40 basis point headwind in Q4 or whether we should expect a bigger headwind in Q1 and Q2?

Thank you.

First of all, thanks for the questions.

As it relates to team sizes, for competitive reasons, we don't break out specific team sizes and so forth.

What I will say, though, is that today's announcements, as it relates to the work force rebalancing, really highlight that there are opportunities that had already been identified and that may still exist as it relates to improving our overall R&D efficiency, in particular.

Now, there's different ways to achieve R&D efficiency gains.

Part of it is through the delivery of products that are more differentiated from our competitors.

In other words, getting more value for the R&D dollar spent.

Another way obviously is to get products out there faster, to be cycling more completely to get new innovation to the market in a shorter period of time.

Those are the types of things that I'll be assessing as it relates to our overall R&D efficiency.

But, I'll be frank.

In terms of all of the feedback I've had from employees within the organization, from what I've observed firsthand, those opportunities do exist and there's a tremendous amount of positive energy in the Company to say, this marketplace is moving very rapidly and we as a Company have to move even faster.

So we have to make the changes necessary, and that's both an efficiency statement, it's a process statement, it's a decision making statement.

Those are the types of things that we have to address very rapidly to ensure that we lead in this market environment.

Okay.

And then on the yen topic, so it's fair to say that actually this time yen moved a lot against dollar, the Euro yen did not move that much.

So this is not the major contributor here.

Regarding the yen exposure, which we have discussed earlier, we have worked hard to take that exposure down and we have moved it from some 25% of our purchases to around 15%.

We're working hard on that going forward, as well.

It's probably going to be a little bit more difficult to get that down.

But if we look at that 40 basis points positive, compared to 40 basis points negative for Q4, the yen is not the main driver here, but it is really the big reversal in the dollar Euro rate more than the yen.

And going forward, we have a very volatile FX -- or have had, who knows what it's going forward, we hope we have less from our perspective -- but we've had a very volatile environment in currencies and I would not propose that you try to model this forward beyond Q4.

Next question, please.

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

Thank you.

Steve, what's the differentiated carrot that Nokia can dangle in front of apps developers so that we can see a function jump in the number of apps, can we accelerate that?

And then Timo, how do we go from 10.5% device operating margins to as high as 12% in the fourth quarter?

And will the metrics that help you get there prove temporary implying that we go up in Q4, but then back down in Q1?

Okay.

Great.

In terms of the differentiated carrot that one could dangle in front of developers, the first thing I would point to is the reach that we provide.

In this quarter alone, there were tens of millions of Symbian devices that moved out into the market, and in many cases, in markets where other competing devices just simply are not present.

So there's definitely a reach component that exists.

The other thing that I think is worthy of highlighting are some of the broader dynamics underway as it relates to the various operating environments in different countries.

I'm talking here specifically about operators.

Generally, operators are interested in striking some sort of balance between different environments, different competing ecosystems and so forth.

Nokia is viewed as an organization that has and should continue to be able to establish a very cooperative win/win environment with the operators.

And, therefore, to the extent that we can benefit from that, continue to have market share in major markets around the world, that balance some of the other environments, for a developer to look at this and say, boy, if I want to get a substantial percentage of that developer's environment, I need to develop for the QT environment.

The final point I'd make in terms of dangling carrots, I think I said in my prepared remarks that I was very excited about the Migo environment, and I absolutely am.

I've seen the work, I've worked with the team, I've interacted with the individuals who are so passionate about the product that we are preparing, so that generates excitement for me.

It will generate excitement for the developers, as well, as that becomes more apparent in the marketplace.

So they will definitely appreciate that, want to be a part of that and clearly will have an opportunity to give them an environment in which they can develop applications and be proud.

And maybe a CFO note to that because, like this dangling carrots, very short, we have said that we, at the moment, follow as an internal KPI in how much money developers are making on the Nokia platform.

And also we have a fund which we can use for developers, as well, which is really the sort of -- we know that we are, allow me to say, a little bit in the beginning phases compared to some other people in the market, and we also are using money here.

Then on the drivers for Q4 operating margin.

So first of all, as I said, if you do Q3 to Q4 comparison, so we need to move down with these items, what I described, so that would take us down 160 basis points to about 9.

So there will be some seasonality in Q4, yes, and for us to be like with other drivers to be on the upper end or lower end.

So positive drivers, seasonally strong demand, driving potential operating leverage through better top line, and we clearly have product renewal on the high end.

On the other hand, there are clearly negative drivers, as well.

So, cost pressure and component availability due to this ongoing supply situation, competition and price pressure, this is especially in the smartphone markets where we're seeing lots of new products coming to the market, we have potential FX volatility.

And then regarding operating margin, we said we moved some marketing from Q3 to Q4, so we are expecting seasonally higher OpEx.

Thank you, good luck.

Next question, please.

Your next question comes from Tim Boddy with Goldman Sachs.

Yes, thanks for taking my question.

I wanted to ask a little bit more about the software strategy and the modest changes you're proposing.

Normally when Nokia has made adjustments to its software strategy, this has led to further delays.

You've already noted that the Migo products will not ship this year, will ship next year.

I know the Symbian 4 distinction is ending, but it would be very helpful to understand if by making, if you like, Symbian 3, avoiding the binary break in Symbian 3, that means a potentially protracted delay to the flow of new phones and the potential for another gap in the portfolio.

Thank you.

Very good question and the good news is that the effect of these decisions is quite the opposite.

I had the opportunity to review the user experience improvements that were planned in the context of Symbian 4, which collectively was a big effort and would take a bunch of time and all of that type of thing.

By standardizing our development environment and by focusing on the Symbian 3 platform, what we're able to do is actually to bring forward, in other words, closer to us in time, a number of those improvements.

And we can do it in an iterative way and we can update the devices that are moving into the field right now with Symbian 3.

So in fact, one of the key drivers of the decision making we did was to accelerate our time to market with some of the critical improvements.

And as a number of people have noted, a lot of those improvements need to be around the user experience and so that's what we're focused on.

As it relates to Migo, I can't comment on the history here and so forth, but in evaluating what it takes to deliver the complete experience, which is not only the device, but the user experience and the services, as I've said repeatedly, my assessment was that this would be a 2011 event.

Next question, please.

Your next question comes from Kai Korschelt with Deutsche Bank.

Yes, good afternoon.

I have a question on OpEx.

What sort of run rate should we think about going into next year on the R&D side given we're looking at the renaissance disposal and also the head count announcement this morning?

My second question is are you planning to reinvest most of these savings in sales and marketing or do you let it accrue to shareholders?

Thank you.

Yes, on the OpEx, what we have said, if you look at device and services, we had EUR1.3 billion this quarter, we are expecting a clear seasonal uptick going into Q4, as we said, and we are expecting this approximately EUR5.7 billion.

We have not given any guidance regarding OpEx regarding 2011 and we are not doing that here.

So that is exactly where we are regarding OpEx.

And on the different reinvestment areas, we have said broadly that looking at a longer term trend, we would expect that proportionately the R&D OpEx would come down, and proportionately the sales and marketing OpEx would go up.

Again, I'm talking proportionately now here.

And these are the dynamics.

And finally, what comes to distribution to shareholders, we continue to view dividend as our main distribution method to shareholders and we always are doing our utmost best to run the business in a way that we would be in a position to propose a sustained and healthy dividend to the board, but ultimately the dividend is always board's decision.

Thank you.

Could we have the next question, please?

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

Thank you.

I just wanted to dig into the European handset market.

It looks like two quarters in a row where you've had some pretty steep ASP declines there.

Could you talk to us a little bit about that?

One thing, obviously, with N8 and C7 coming now, do you think that helps over the next two quarters?

And then, secondly, how come the dynamic that you're seeing with C3 and X2 in some of the emerging markets, how come you're not seeing that at the more entry level part of the market in Europe?

So if you could just touch on those, that would be great.

Yes.

Maybe I'll take that.

So Europe and ASP, you're absolutely right.

It is down.

We have held our volume to talk broadly, but ASP is down.

Yes, we would expect that these new products would help ASP in Europe somewhat, but it is also a very competitive market there.

There are a lot of products which are competing for the operator subsidies.

So, yes, some positive impact should be coming to Europe from the new product.

And on the low end, these are interesting products for European markets as well, but I can't really give any further ASP dynamics regarding those products.

Thank you.

Could we have the next question, please?

Your next question comes from Patrick Standaert with Morgan Stanley.

Hi.

Thank you very much for taking my questions.

Two, if I may.

The first one is, Steve, you seem like much more inclined to address the US market.

Any kind of timing that you could share with us, although if it's not precise, giving us a range?

And then in terms of these new phones, the N8 and the C7, you've done a few comments in the past, but could you give us more color about what the initial uptick has been in terms of preorders or what the operators' commitments have been recently also?

And have there been any kind of issues with allocation recently with these new phones, too?

Thank you.

Sure.

So, as it relates to the US market, it's too early to give precise details of how and when we do certain things with certain operators, but what I will say, I'll just elaborate a bit on my comments about my perspective on the US market and how to engage.

Nokia has long had a very successful history of having a broad global strategy with some specific work done on a country by country basis to ensure local relevance and meeting particular requirements and so forth, and that's proven to be very successful.

The US marketplace demands a modified version of that, if you like, where there are a couple of players, two to three to four players, depending on how you count them, who have very substantial market shares and a very particular point of view as to how products should be introduced into the market, how they want to work with organizations like Nokia and so forth.

And so I'm going to be spending a great deal of time to make sure that we properly understand how best to engage in that different operating environment and to ensure that we show increased flexibility to those partners to ensure that we can be successful with them.

So that will be a key part of my focus certainly going forward.

As it relates to the N8 and C7, it's certainly too early to give precise patterns of uptick and so forth.

Two things that I will say.

First of all, as it relates to the demand for the product, while this isn't a quantitative statement, certainly the demand for it is outstripping immediate supply.

We're pleased with that.

So there's shortages in the marketplace and so forth.

That partially relates to the supply constraints, but we're very pleased with the performance we've seen, just in the very early signs, but it's way too early to draw any trend line to it.

I want to strike a balance note there.

The other thing that I'll say is that, as it relates to customer feedback on the product.

Again, it's very early days, but we've had our first polling as it relates to the customer satisfaction with the products.

There's various indexes that we track to try and get an idea.

And I'll just say that I've seen this only in the last 24 hours for the N8, but there's some very positive indicators there in terms of us being pleased with how customers are responding to their early experiences.

So very early, but early positive signs that certainly give us hope for the future.

You asked about the components, as well, so I will just give a broad statement here that the AMOLED display is definitely one of those globally tight components, which could play into this side as well.

Could we have one question more, please?

Your next question comes from Andrew Gardiner with Barclays.

Thanks very much.

I just had another question on the component constraints.

Not to belabor the point, but it was just interesting to hear you say that it seems to be coming more at the low end and also perhaps that you're seeing it disproportionately to some of your competitors.

Is this a Nokia specific component in some cases for the low end devices?

And, also, you just highlighted AMOLED screens, and I think clearly that's been mentioned by other companies at the high end of the market.

But again, what in particular is it that you're seeing tightness in at the low end of the space?

Thanks very much.

So, we simply said that going into Q3, we were expecting shortages.

Then after Q3, we now see that the shortages this quarter were more in the low end of the market.

Now, we have proportionately very high market share there, plus it affected us the most and also affected the optic on our ASP, ie, this simply happened where we are stronger.

The component shortage issue is a global issue in this industry, as we have discussed and as you point out in your AMOLED example.

Okay.

I think that was our final question.

Thank you for that.

I just want to close the call by just making a final remark and that is having only been here a short period of time, I still have a tremendous amount to learn.

There's a tremendous amount of work that we have to do as a company, there's no question about that.

And, yet, at the same time, I'll go back to my original comments about the potential for this Company, the unpolished gems that exist here and the opportunity through better focus, alignment around a clear strategy and just great execution, we are very hopeful for what our future holds.

I'm excited to be here and I look forward to meeting with many of you around the world as my travels take me there.

Thank you, Stephen.

Ladies and gentlemen, that concludes our conference call.

We will get back to you on the new date and location of our capital markets day very soon.

I would like to remind you that during this conference call today, we had 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 in our press release issued today.

Thank you.

Thank you.

This concludes the Nokia Q3 results conference call.

You may now disconnect.