諾基亞 (NOK) 2010 Q4 法說會逐字稿

Good morning, my name is Dennis, and I will be your conference operator today.

At this time I would like to welcome everyone to the Nokia fourth-quarter and full-year 2010 earnings conference call.

All lines have been placed on mute to prevent any background noise.

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

(Operator Instructions)

I will now turn the call over to Mr.

Matt Shimao, Head of Investor Relations.

Sir, you may begin.

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

I am Matt Shimao, 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 risk and uncertainties.

Actually results may therefore differ materially from the results we currently expect.

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 of our 2009 20-F, and in our quarterly results press release issued today.

Please note that our quarterly results press release, the complete interim report with tables, and the presentation on our website include non-IFRS results information, in addition to the reported results information.

Our complete interim report with tables, available on our website, includes a detailed explanation of the content of the non-IFRS information, and the reconciliation between the non-IFRS and the reported information.

Two more quick things.

In a separate press release today, our Board of Directors published notice of our 2011 annual general meeting of shareholders to be held on May 3.

The notice of the meeting, full proposals and related instructions will be available on our website during the coming week.

Also, we will be holding a strategy and financial briefing at the Intercontinental Hotel in London on February 11.

Information is available on our website.

At that meeting, we will focus on our medium- to long-term strategy and objectives.

On this call, we will focus on our Q4 2010 results, and expectations for our Q1 of this year.

With that, Stephen, over to you.

Thank you, ladies and gentlemen, for joining us on this earnings call today.

I want to elaborate on what Matt just said, and set expectations for today's call and the investor event on the horizon.

On today's call, we will focus on the results and operational matters for Q4, and the guidance for Q1.

I will also provide some insight into the approach by which we are evaluating Nokia's longer-term options.

Then, during our strategy and financial briefing on February 11, we will provide a comprehensive update on the key decisions and changes related to Nokia's strategy going forward.

Since our last earnings call, we have continued a very deep assessment of Nokia's strengths and weaknesses; all in the context of our rapidly changing market environment.

True to this assessment, I have reinforced my belief in the value of Nokia's gems.

And there are clearly some gems upon which we will build Nokia strategy.

Deliberately, in no particular order, these gems are -- first, we will build upon the passion and enthusiasm of people inside and around Nokia.

This includes our dedicated Nokia team, but it also refers to our customers, the literally hundreds of millions of people who have an affinity for the Nokia experience.

Nokia is a brand that defines mobility in many regions of the world, and is still strong today.

We have shipped 5 million of our new Symbian devices in the fourth quarter, which sends a strong signal about our customer base.

Second, we will expand upon our channel's very broad and deep reach.

This includes our strong operator relations, world-class customer care, and an industry-leading distribution network, which is especially strong in emerging markets.

Third, we will embrace our strong hardware innovation and productization capabilities, allowing us to differentiate from the low-end to the high-end, and across a wide range of hardware components, like cameras and advanced sensors.

For example, customers worldwide are celebrating our recently released N8.

Fourth, we will advance our great software and services assets, which benefit hundreds of millions of our consumers across all market segments.

This includes location-based services, localized services like life tools in emerging markets, and the Ovi store, which ramped quickly in Q4 to 4 million downloads per day.

Fifth, we will harness our demand supply network, which helps us perform broad product customization.

As a result, we can meet the needs of a wide range of cultures, languages, and operator requirements.

And with more than 10,000 patent families, we will build upon our IPR portfolio, which is one of the most extensive portfolios in the world.

And yet, Nokia faces some very significant challenges.

The game has changed from a battle of devices to a war of ecosystems.

And competitive ecosystems are gaining momentum and share.

The emergence of ecosystems represents the broad convergence of the mobility, computing and services industries.

Today the winning eco systems at the high-end to mid-range deliver great hardware, compelling user interfaces, and the coherent aggregation of search, advertising, e-commerce, social networking, location-based services, entertainment, and unified communications, just to name a few.

At the same time, we see a different type of ecosystem building around mid-range to low-end devices in developing markets involving very low-cost components and manufacturing processes.

In this range, brand, scale, price, design, distribution and speed are critical.

It is on this basis of ecosystems that Nokia must now compete.

In addition to changes in the competitive landscape, there are challenges that are specific to Nokia.

For example, our experiences are not competitive in all markets.

As a result, we've witnessed a pattern of disappointments in those markets.

Therefore, we must always deliver great products, and we are actively raising the operations and execution bar within Nokia.

We also continue to learn that we need an attitudinal shift within Nokia.

We need to operate as the challenger in this market.

This means we must improve the quality of our execution, accelerate the speed at which we execute, and enhance the effectiveness of our partnerships.

In short, our industry changed.

It's time for Nokia to change faster.

Therefore, on February 11, we will present Nokia's strategic direction.

Today, I will provide you insight into the framework upon which we're making our decisions.

One, we must consistently deliver a great product.

Our success must begin and end with winning products.

Of course, today's product is more than just a great device, which leads me to number two.

Nokia must compete on an ecosystem-to-ecosystem basis.

In addition to great device experiences, we must build, catalyze, and/or join a competitive ecosystem.

And the ecosystem approach we select must be comprehensive, and cover a wide range of utilities and services that customers expect today and anticipate in the future.

Three, we must take maximum advantage of Nokia's assets.

These are our gems, some of which I described earlier.

An effective strategy will build upon Nokia's strengths.

Four, Nokia must be able to maintain sustainable differentiation.

Five, we must believe that our strategy simultaneously increases our success in markets where we are strong, while reopening doors in markets where we are weak.

Six, we must believe that we can successfully execute the strategy.

Seven, the strategy must be elegant in its simplicity.

As I have already said, Nokia must change faster than the industry is changing.

Our go-forward strategy must be remarkably clear so that we can effectively refocus and align our employees, partners and other stakeholders.

And finally, we must believe that our strategy will maximize shareholder value.

Suffice it to say that my first few months at Nokia have been remarkably illuminating and remarkably busy.

We look forward to sharing the next step in our journey with all of you on February 11.

Now, let me shift my focus to the operational summary of the most recent quarter.

According to our preliminary estimates, the overall handset market in Q4 delivered volume growth of 11% sequentially and 12% year-over-year.

The industry in Q4 benefited from strong volume and revenue growth in both developed and developing markets.

This is a dynamic and diverse industry, with no shortage of growth opportunities .

Across all geographies and price points, consumers value the innovation that our industry is creating.

With our new Symbian family of products, Nokia is addressing an opportunity to improve our position at the higher end of the market.

The Nokia N8, the first of our new Symbian devices, started shipping at the end of Q3 and delivered a solid performance in Q4.

Our consumers gave the N8 enthusiastic ratings, mentioning its industry-leading capability to capture and share high-quality photos and videos.

We then delivered a cadence of new Symbian launches in Q4, introducing the Nokia C7 and the C601.

And in total, we shipped more than 5 million new Symbian devices in Q4.

This helped us to deliver a better mix of sales, higher ASPs, and higher levels of absolute gross profits in our devices and services business compared to Q3.

Our data also shows that these devices are driving more people to use our Ovi services, and at a greater frequency.

In fact, a study by iResearch looked at application store traffic in China.

The study ranked our Ovi store as the leader.

As I mentioned earlier, the Ovi store ramped to 4 million downloads per day.

Going forward in 2011, our focus will be on both driving consumer engagement, and increasing revenue opportunities for our developers and partners.

We have a healthy base of developers across the globe, developing globally- and locally-relevant apps.

We support operator billing with more than 100 operators, and we now have more than 30,000 apps in the Ovi store.

We're now seeing meaningful growth in developer activity, supported by the improved user experience on our new devices, as well as continuous improvements of our Ovi services platform.

This is encouraging to see, but we are not yet at the level of our high-end competition when it comes to the strength of our differentiation and the scale of our ecosystem.

To streamline and accelerate our progress, we announced in early Q4 that we would unify our internal development efforts around the Qt development platform.

We fully transitioned the Qt development for our Ovi services, and I am pleased to see that things are starting to move faster.

Another area where I see lots of potential is in location-based services.

We have received positive feedback from consumers for our latest offering, and we have truly global scale, spanning over 180 countries and regions with 100 of them navigable.

Our NAVTEQ asset is a unique and critical building block.

In the low- to mid-range, the attractively-priced Nokia C3 QWERTY device continued to see strong demand in Q4, and was one of the top contributors to our overall revenues and gross profits.

We estimate that we have the leadership position in global QWERTY volumes, driven primarily by the C3, which also contributed to solid uptake of our messaging service.

On the other hand, Asia-based suppliers have made it possible for new handset vendors with limited R&D capabilities to enter this part of the market.

In addition, in Q4 we were challenged by component constraints, and the lack of competitive dual-SIM products in our portfolio.

In summary, in a tough competitive environment our devices and services business overall contributed positively to Nokia's Q4 results, and we have some remarkable gems upon which we can build our future.

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

Timo, over to

Thank you, Stephen.

On a reported basis, devices and services net sales of EUR8.5 billion were up 18% sequentially and up 4% year-over-year.

The sequential increase in net sales resulted from higher ASPs and device volumes in most regions, offset by a number of supply and logistics challenges driven by the tight component supply during the quarter.

In Q4, services net sales were EUR201 million, up 26% sequentially and 21% year-over-year.

Billings were at EUR352 million in Q4, up 8% sequentially and 57% year-over-year.

In Q4, our active services users grew to 187 million from 148 million at the end of Q3.

Our overall device volumes were up 12% sequentially and down 3% year-over-year, as the competitive environment remains tough.

On a sequential basis, our volumes in Q4 benefited from seasonal demand, partially offset by supply and logistics challenges.

For example, we experienced shortages of displays and cameras, which limited our ability to fulfill market demand for some of our products.

We expect component tightness to continue at least through the end of Q1.

We ended Q4 with our normal channel inventory of four to six weeks.

Devices and services ASP in Q4 was EUR69, including services revenue, up EUR4 or 6% sequentially and up EUR5 or 7% year-over-year.

Our sequential ASP increase was primarily driven by increased sales of higher priced converged mobile devices and foreign exchange hedging, offset to some extent by the depreciation of certain currencies against the Euro.ASPs were up 6% sequentially on a constant currency basis.

In Q4, our converged mobile devices ASP was EUR156, up EUR20 or 14% sequentially, but down EUR30 or 17% year-over-year.

On a sequential basis, the sales of our new Symbian family of products, which carry a higher ASP, really improved our mix within the converged device category, and on an overall devices and services level.

In Q4, our mobile phones' ASP was EUR43, up EUR1 or 1% sequentially and up EUR3 or 6% year-over-year.

The Nokia C3 QWERTY device, which Stephen highlighted earlier, had a positive effect both sequentially and year-over-year.

Returning to our overall devices and services business, in general the pricing environment was relatively benign in Q4, and we managed our pricing activity well in this environment.

However, this was offset on the component cost side, as we saw very little cost erosion sequentially in Q4.

In Q1, we currently expect somewhat higher device price reductions and component cost erosion on a sequential basis.

Plus we expect to move directionally towards more normal levels of price and cost erosion in Q1, but I want to be clear that we do not expect a return to normalcy in the Q1 timeframe.

Devices and services gross margins in Q4 were at 29.2%, up 20 basis points sequentially.

The slight gross margin increase was primarily due to higher priced mobile devices representing a greater proportion of our overall mobile devices volumes, and the depreciation of certain currencies against the Euro.

This was offset by lower royalty income.

If you recall, Q3 gross margins benefited by 80 basis points from additional royalty income recognized in that quarter.

In addition, our gross margins were negatively impacted by approximately 50 basis points in Q4 from our hedging activities, compared to a benefit of approximately 40 basis points in Q3.

At the present time, we do not expect significant impact in Q1 related to hedging activities, assuming static foreign currency rates at the end of Q4 levels, but this could change due to intra-quarter fluctuations in rates.

In Q4, devices and services non-IFRS OpEx was EUR1.5 billion, up EUR170 million on a sequential basis, but down approximately 90 basis points as a percentage of net sales.

Devices and services non-IFRS operating margins were 11.3% in Q4, up 80 basis points sequentially, largely driven by operating leverage.

And now on to Nokia Siemens Networks and NAVTEQ.In Q4, NSN delivered solid results.

Reported net sales were EUR4 billion, a 35% increase sequentially and a 9% increase year-over-year.

In Q4, NSN recorded a second successive quarter of year-over-year sales growth, which lifted NSN to slight sales growth for the full year.

NSN's sequential growth was driven by industry seasonality.

On a year-over-year basis, NSN delivered strong growth in most regions, as well as continued growth in the 3G and managed services businesses.

Sales growth of LTE products was also strong, although this technology remains at the beginning of its commercial phase.

Non-IFRS gross margins were at 26.4%, up 150 basis points sequentially.

The increase was primarily due to more favorable business mix, leverage from the strong seasonal net sales growth, and nonrecurring items in Q3 that did not repeat themselves in Q4.

In Q4, non-IFRS operating margins were at 3.7%, up from negative 3.9% in Q3; lifting NSN to non-IFRS operating margins of 0.8% for the full year.

The sequential non-IFRS operating margin improvement was largely due to OpEx leverage from higher net sales, and to a lesser extent from the better gross margin development that I just mentioned.

NSN's operating expenses were up 5% sequentially, and down 1% year-over-year.

Throughout 2010, NSN has prioritized mobile broadband and managed services as areas of strategic focus, and these two segments contributed strongly to the Company's performance.

NSN enjoyed strong growth in WCDMA sales, and continues to have the industry's largest customer base in 3G.

LTE is now moving towards its deployment phase, and NSN continues to enjoy leadership there with 27 commercial contracts.

Also, services overall continues to be an area of strength for NSN managed services in particular.

NSN is continuing to take action to lay the groundwork for future growth by strengthening its global footprint in priority markets.

In Q4, NSN showed strong year-over-year growth in India and China, and had a particularly successful quarter in Japan, where sales more than doubled year-over-year.

NSN's key strategic priorities in 2010 were driving for growth, cost leadership, and reintegrating the organization.

NSN's Q4 performance gives us confidence that NSN has the right strategy and is heading in the right direction.

NSN's contribution to Nokia's cash flow from operations was EUR756 million in Q4.

At the end of Q4, NSN's contribution to Nokia's gross cash was EUR1.2 billion, and NSN's contribution to Nokia's net cash was negative EUR77 million.

And then on NAVTEQ -- reported net sales in Q4 were EUR309 million, up 23% sequentially in the seasonally strong fourth quarter, and up 37% year-over-year.

On a sequential basis, NAVTEQ's net sales benefited primarily from higher sales of map licenses to the PND mobile device and vehicle customers.

Non-IFRS gross margins were 87.7%, up 320 basis points sequentially due to a seasonally higher margin mix of sales.

Non-IFRS operating margins were 32.4%, up 300 basis points sequentially driven by the higher gross margins.

And as I highlighted last quarter as well, to help you understand NAVTEQ's contributions to the overall Nokia P&L, on page 34 of the complete interim report with tables, 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 Q4 was an expense of EUR65 million compared to an expense of EUR79 million in Q3.

And then a note on taxes -- Nokia's Q4 taxes were again negatively impacted by NSN's taxes, since no tax benefits are recognized for NSN's Finnish tax losses.

We talked about this the previous three quarters.

In Q4 2010, this was more than offset, as Nokia's taxes benefited from favorable profit mix and certain current-quarter benefits, both in devices and services, and in Nokia Siemens Networks.

If Nokia's estimated long-term tax rate of 26% had been applied, Q4 non-IFRS EPS would have been approximately EUR0.025 lower.

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 Q4, our operating cash flow was EUR2.4 billion compared to EUR439 million in Q3.

The sequential increase in operating cash flow was primarily driven by networking capital improvements in both devices and services, and Nokia Siemens Networks.

Approximately EUR600 million of these net working capital improvements were driven by the timing of customer payments and value-added tax refunds, which were received in Q4 2010 instead of subsequent periods.

In addition, on a sequential basis, we did not experience the cash outflows related to foreign exchange hedging activities that we had in Q3 2010, and our operating cash flow also benefited from improved net profit.

We ended Q4 with total cash and other liquid assets of EUR12.3 billion and net cash of EUR7 billion.

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

This is the same as last year.

The Board is also seeking to renew the share repurchase authorization in order to maintain flexibility, but does not have plans currently for repurchases during 2011.

And finally a summary of our Q1 guidance.

We expect devices and services net sales to be between EUR6.8 billion and EUR7.3 billion, and we expect NSN net sales to be between EUR2.8 billion and EUR3.1 billion.We expect devices and services non-IFRS operating margins to be between 7% and 10%, and we expect Nokia Siemens Networks non-IFRS operating margins to be between negative 3% and break-even.

Our guidance does not include any amounts related to NSN's acquisition of certain network infrastructure assets from Motorola.

We received most, but not all, regulatory approvals by the end of Q4.

For your models, the euro US dollar exchange rate we are using at the start of Q1 is 1.319.

And with that I will hand it over to Matt for Q&A.

Thank you, Timo.For the Q&A session, please limit yourself to one question only.

Operator, please go ahead.

(Operator Instructions) Gareth Jenkins with UBS.

On the OpEx within device and services, I think you reported EUR5.6 billion, which is slightly ahead of your EUR5.7 billion target.

Just wondered where you feel that needs to be the end of this year and what measures that you feel that you need to take to get there?

Thank you.

Timo, here.

As you know, we are not giving any longer term guidance or estimates today, so really the only thing I can say about the OpEx is that the current Q1 OpEx is in-build into our Q1 guidance.

Can I maybe ask a quick follow-up then?

Not on a long-term question.

Your net cash EUR7 billion, even with a healthy EUR1.5 billion dividend out, should we assume for the shareholder returns or acquisitions during the course of this year?

I said, the board's proposal today, GM, is really to hold last year dividend level at EUR0.40.

And as you know, dividend is our primary tool to return money to shareholders.

At the moment, we have no current plans for share buybacks or any other means but the dividend.

Thank you, Gareth.

Operator, next question please

Mike Walkley with Canaccord Genuity.

Jus wanted to get a little color on the component constraints, how it is impacting -- is it more on the high-end with the cameras and displays, so is it hurting your mix on the high-end?

And also just within the high-end, Stephen, just wanted to get your feel for how the new high-end Symbian phones competed.

Western Europe ASPs were up nicely.

Can you talk about maybe the competition of high-end Symbian relative to Android and maybe the iPhone and how you see that competition for your products?

Timo, here, maybe I will start on the component issue.

We sold, of course, last year 450 million units.

These are huge volumes and billions of components go into that.

And if we look at then the whole market, there is lot of innovation happening on the market and in that sense, clearly components, what we have pointed out earlier like I want to display some of the high-end, have been some issues, but it is fair to say that also in the lower end of the portfolio the situation has remained tight, as we pointed out.

With respect to the competitiveness of Symbian, particularly Symbian 3 as it's launched into the market.

I think the way I would characterize it is it's very much a function of the market in which we are operating.

Obviously, we are in many markets.In certain markets where there is a greater preponderance of competing platform devices, we have some competitiveness problems.

We have talked openly about those and indeed I referenced those in my opening remarks.

So there are those situations.

At the same time, in many markets around the world where there is a very large population of existing Symbian users, we are seeing a very high propensity of people becoming repeat purchasers and taking that step up, so the conversion rate from existing customers is higher than we expected.

We are quite pleased with those figures.

So, it depends very much on a market to market basis, but I don't want to understate the fact that we believe we have a fundamental competitiveness problems overall.

Okay, thank you.

Operator, next question please

Jeff Kvaal with Barclays.

I was wondering if you could delve into the drivers behind your guidance a little bit for the first quarter.

It seems as though the sequential progression in revenues is a bit steeper than traditional seasonality.

Similarly the range on operating margin seems to be -- includes quite a bit worse than where you were in December.

Yes, sure, you can see the guidance.

We are guiding at the midpoint about a 6% growth year-over-year.

We are seeing, I would say, normal seasonality.

Then if we look at the drivers, so clearly drivers for the guidance when you compare it sequentially are seasonality.

We also have a tough competitive environment, which can impact pricing.

We have some with less renewal on the product portfolio and then going from Q4 to Q1 there is also change in regional mix.

So those are some of the effects.

Then when we look at operating margin level, both on gross margin and operating margin, we have some more or less, less leverage simply from lower top-line.

Thank you, Jeff.

Operator, next question please.

Stuart Jeffrey with Nomura.

I had a question on the new Symbian products.

And I guess it might be interpreted that the guidance for Q1 implies that you perhaps running out of steam a little bit during Q1 with those products.

Is that the case and if it is the case are you confident that that portfolio can sustain relevance through Q2 without a significant user interface upgrade?

So I would certainly not characterize it as you describe, I would not use those words at all.

We have to put some of this in perspective.

In Q4 we shipped something like 28.5 million smartphone devices.

A very substantial number relative to any other player in the field.

We have products out there that are winning accolades for competitive differentiation, including the N8 with its camera features and so forth.

There is a lot of great examples of that.

Also, we are seeing, as I mentioned, the application growth happening, people enjoying particular games, apps, widgets, all sorts of things that they are applying to the Symbian environment.So, I think there is a lot of continued excitement around that.

We've also talked publicly about the fact that we will use the Symbian 3 platform as an environment where we can continue to iterate on and improve the user experience as we go forward.

So, we remain very optimistic about the continued contribution that Symbian will make.

We expect it to be a very positive contribution in Q1 and we are making the platform more attractive to our development community to sustain that.

So we're feeling good about that.

Maybe if I can add to Stephen's answer, just one point is that as you know the E7 product, which we originally expecting to ship late Q4, is now estimated to start shipping during Q1 and clearly this will not contribute to Q1.

We, however, expect at the moment that product to contribute to Q2 and that is a, clearly, a positive gross margin driving product.

Thank you.

Operator, next question please

Andrew Griffin with Bank of America.

I wonder if you could talk about when Symbian 3 will be moving down to the much cheaper end of your smartphones and why you are still shipping Symbian 1-based lower end smartphones at the moment?

Thank you.

So I think broadly, the conversation about operating system and positioning of relative operating systems in different places is something that we will reserve for the February 11 meeting, where we will get into quite a bit of strategy about how to think about that.

The general comment I would like to make, though, is that in today's world it is the case that given the different price-performance characteristics of different chipsets, we get into situations where the best experiences are not necessarily delivered by systems that are capable of delivering the highest end experiences.

So we have to be very mindful at what level of the price curve we deliver what type of device with what operating system.

And so that's something we consider very deeply and clearly have been thinking a great deal about as we head into February 11.

Maybe again, if I can just add one data point here.

Please, go ahead.

Thanks, Stephen.

Basically last year we sold over 100 million Symbian devices.

It's a big number and looking at Q1 as well, the 5230 product, which is based on the older version of Symbian as you correctly pointed out, sold a really big volume.

So these are contributing clearly, these products, and at the price point where they are on the marketplace, we can still drive top-line from those products.

Operator, next question please.

Mark Sue with RBC Capital Markets.

Steve, the approach to a new strategy, should we consider a drastic change in how Nokia sees the world?

Will it be small adjustments or should we expect major surgery?

And, Timo, how disruptive will the new strategy be to the financial model?

Should we expect a major reboot to operating margins in conjunction with this new strategy that you will outlay?

Let me start with that.

First of all, I'm not going to use any particular characterization at this point between now and February 11.

But what I will say is the entire leadership team here is moving very quickly, we are making tremendous progress on our point of view about the strategy, and we are at the point where we are gaining clarity of what precisely we have to do.

So, we are looking forward on February 11 to having a very clear concise message about the changes that are necessary and how we move forward.

I would just underscore one of the statements I made in the script and that is our industry has changed and we have to change faster.

Okay and with regards to any longer term finances, we are not talking about today.

So, the only guidance we are giving today regarding finance is the Q1 guidance regarding net sales and operating margin for device and services and Nokia Siemens Networks.

Okay, thank you

Thanks, Mark.

Operator, next questions please.

Pierre Ferragu with Bernstein.

The 5 million units of Symbian 3 phones you have shipped last quarter is very impressive.

And it also means that beyond the launch of the N8 and the also Symbian product, you have suffered a lot on several markets, so I would be interested to have some color on that.

What are the geographies where you think you're losing, you're suffering the most from competition.

And which competition is it especially if it is not in the higher end of (inaudible)?

When I think about the geographies, the area -- I mentioned this indirectly during the comments, but I will be more precise in answering your question.

And that is clearly there is a pattern of disappointments in the United States.

A pattern there were efforts have been made, competitiveness challenges exist, and we very much need to address those.

And that's why I characterize very clearly in the framework for the decision-making ahead, that whatever the strategy is that we outline on February 11, we very clearly will be ensuring that it gives us the opportunity to reopen doors in markets such as the US and some others where we have not recently been present.

Thank you.

Operator, next question please

Ittai Kidron with Oppenheimer.

Timo, first of all with regards to the gross margins in NSN, they are very slow to recover.

How should we think about the ability to return to a 30% level?

And Stephen, the second point that you mentioned in your framework to think about for February 11 talked about ecosystem and you mentioned words like build or join in that respect.

Would Nokia strategy, would you say, have to be exclusive to one of the two or it could be in combination?

Yes.

Maybe I will start with the NSN gross margin question.

So, basically, if you look at the gross margin drivers for NSN, clearly the business mix has a big impact here.

It's fair to say that the market on mobile broadband is competitive.

There is also a bigger part of managed services in the business mix and then one big gross margin driver is also the software sales side in the mix and these are really the drivers.

And I said NSN has a clear strategy for growth and cost leadership.

And this is the strategy what we are executing in this gross margin environment.

With respect to the question of ecosystems and so forth, I think it's important to note in my opening comments I referenced the fact that there are today different ecosystems and different patterns at play.

If you like the high-end ecosystems where there is a particular rate of momentum and share gain taking place.

At the same time, the dynamics at the very low-end of the market, which itself is a ecosystem of sorts, is very different with very different demands and expectations.

So, I will just offer that observation that today broadly in the world without any specific comment on us or our competitors, there are multiple ecosystem patterns that need to be considered.

I'd also point out that very critical in whatever combination of ecosystem or ecosystems or whatever our strategy outlines, the need to maintain sustainable differentiation between ecosystems and within the ecosystem relative to our competitors in that ecosystem is a top priority.

So, in everything we consider, that is something that will be very much on our minds.

Very good, good luck.

Thank you.

Operator, next question please

Zahid Hussein with Citi

In terms of the 5 million Symbian units, could you give us any color or breakdown in terms of what sold those.

Obviously, we think the N8 has done very well, but any color you can give on the C6, one, and C7 would be very useful.

Sure, we are not really splitting that number by product here, but we can say that N8 was really a big part of the mix and we can also say that the demand for N8 outstripped our ability to supply.

So, there was very good demand for that product.

But overall C7 sold a big amount, C6 came pretty late in the quarter so less in the mix.

Thank you.

Operator, next question please.

Kulbinder Garcha with Credit Suisse

Just one clarification on the guidance and one question for Stephen.

On the guidance, Timo, one of the problems that Nokia have had in times when they had their smartphone high-end business hasn't been competitive, just the issue of pricing.

You had it with the N97.

I am wondering with the N8 or with the Symbian 3 product family, which isn't competitive in certain markets which you acknowledged.

Does the pricing dynamic have to become more severe in the first half of the year until you get perhaps a more meaningful upgrade to your user interface, your software platform, and it's not impacting your profitability in Q1.

And then for Stephen.

I understand that you do, you (inaudible) February 11.

One of the questions I just have philosophical level is that what we have seen historically is when companies, handset companies, do change their ecosystem and want to change their strategy on the software side, there is often a very significant period of disruption.

It can last for 12 to 18 months.

So in the end you want to be flexible, how can Nokia maintain execution as you implement it, because that would be a real significant issue looking at the example of Sony Ericsson, are more trouble when they have changed strategy, their market share took a very significant dip for the first 12 to 18 months.

I am wondering how you deal with that?

Thanks.

Okay.

So, first, two very different kinds of questions.

First on the margin side.

For the new Symbian products, we've said that we have priced these products to sell earlier and that we have priced them gross margin-wise so that they would be somewhat above Company average.

That continues to be our thinking.

I also mentioned when we spoke about seasonality that the competitive environment continues to be tough and that can also have an impact on pricing pressure.

I don't think I can really add much more to the dynamics hear.

And with respect to comparisons to other ecosystem shifts and things like that.

I think the real thing that one must focus on is the quality of products in the market, the momentum that one already has.

As we've described the Symbian momentum that we have today, a consideration of shift of ecosystem, certainly you have to consider that that potential of market share changes.

But fundamentally, if you have a good collection of products on the shelves under the consumers that have momentum while you are doing something else, you can manage that transition, is our fundamental belief.

Some of the comparisons that you may be considering, I think, fundamentally they were in a situation perhaps where the quality of the experience and devices that they had in market were so fundamentally challenged that they were perhaps destined for some difficult times regardless of the ecosystem change they considered.

We are in a position of relative strength.

Obviously we have challenges, but still in terms of the overall strength of the brand, our presence in retail, our operator relationships and a variety of other things, we've got some tremendous assets that we think we can leverage effectively as we move through a transition, if that were the decision that we took.

I'll pass it back to Timo.

So, one more comment, which I think is still an important data point to highlight in this context as well, is that we have one of the highest retention rates in the industry and the Nokia consumers are very likely to buy a new Nokia product when they walk into retail.

So, that of course is an asset in itself.

And just one other question, Timo, that I have which is linked to the low-end comments you made.

There has been this consistent issue where Nokia and others, frankly, have underestimated the size of the (inaudible) industry.

Your market share and volume tends globally to be maybe 27%, 26%.

Now given the media, tech and spectrum volumes out there, how confident are you in your right-sizing the market and actually knowing your own market share currently?

Well, clearly our estimate of the market is the best estimate what we have.

We have a very comprehensive organization working on the market size and you know that is really all I can say to that question.

Thank you.

Operator, next question please.

Rod Hall with JPMorgan.

So, the question for Timo.

Timo, I wonder if you could comment on channel inventory levels and it would be especially helpful if you could help us understand what the Symbian 3 or the Symbian channel inventory levels look like.

And then my clarification is for Stephen.

Stephen, you talked about the ecosystem competition in your framework and you said there were three things to think about.

Build, catalyze or join.

I don't really understand the difference between catalyze and join, so I wonder if you could give us an example, maybe, of what catalyze would look like.

Thanks.

Okay.

As we said on overall level, we are at the normal channel inventory levels or ended the quarter at normal channel inventory levels of 4 weeks to 6 weeks.

There is nothing out of ordinary on that regarding the new Symbian product portfolio either.

With respect to the ecosystem comment, without getting into specifics of different options and things like that in detail, what I will say is that the word catalyze is to imply that there is a wide variety of participants in our world and that includes competitors, it includes operators, other technology firms and so forth, who in many respects have a common interest relative to the potential strength of other ecosystems and how they may develop over time.

So the catalyst of an ecosystem could be considered as making sure that the right conditions are formed and the right companies work in such a way that alternatives emerge in the marketplace that may not exist today.

Thank you, Rod.

Operator, next question please.

Tim Boddy with Goldman Sachs

I just wanted to ask a clarification on your comments about OpEx in the first quarter and then a bit more about new products.

You mentioned that your guidance imbeds your OpEx expectations.

I was just wondering, do think R&D investment in particular could be rising year on year, as you start to explore some of the new ecosystem options you are discussing?

And then more broadly in terms of your new product ramp, it sounds like we shouldn't expect any renewal of new high-end products other than the 7 before the second half.

I just wanted to check if I'd understood that.

And when you're thinking about your new products, what's most important at this point, is it to get the quality right or is it to get to market and keep momentum with the consumer?

Thank you.

On the OpEx question, again, I think we said that our OpEx is in-build into our Q1 guidance and when you look at the overall OpEx situation we have said that we are looking to have proportionately somewhat higher sales and marketing OpEx compared to R&D.

This would be what we would be expecting to have in Q1 as well.

We will continue to market the new portfolio going into the marketplace.

And with respect to the second part of the question in terms of renewal, I think the comment that Timo made earlier was a reflection of the fact that the Symbian 3 introduction, the first wave of devices and everything around that are very much the beginning of a cycle.

And quite often you anticipate at the very beginning of that cycle there's that first surge and that first ship.But that's not at all to be interpreted that there isn't ongoing renewal, other products, improvements to existing products and everything else that one can anticipate over time.

Maybe wanting to add here is clearly the fact that we now have a software which is upgradeable, which is the whole thinking on the Symbian feedback form plays into this question as well.

Thank you.

Operator, next question please

Kai Korschelt with Deutsche Bank

Just a clarification on OpEx.

It looks like the OpEx run rate, particularly R&D, should be about 3000 in terms of headcount, lower due to the Renesas steel and the other reductions you announced three months ago.

So, I'm just wondering if the savings from all of these initiatives is fully reflected on a full run rate basis in Q1 or whether there is phasing, which really only release those savings in the second quarter?

And then my other question, just, Timo, if you could maybe just repeat the effects of hedging impact on gross margins in Q4?

Thank you.

First, if we look R&D.

As I said the OpEx level is really built into the guidance.

And we took this quarter EUR85 million charge related to restructuring and you correctly point out that we also booked an one (inaudible) extraordinary gain of EUR147 million from the Renesas transaction.

And as I said regarding the OpEx dynamics, we continue to feel that the right thing to do for us is to proportionately invest somewhat more to sales and marketing.

Then if we talk about FX hedging, we said that we had a positive impact of 40 basis points during Q3 and we now had a negative impact of 50 basis points during Q4.

So from that, you can say that there was --and also taking into account that 80 basis points royalty impact what we had in Q3 that if we characterize something like underlying gross margin that went up somewhat more than the gross margin on the non-IFRS basis.

Looking at Q1 then, we're not expecting at the current exchange rate to have a material impact to gross margin from foreign exchange hedging.

Okay, thank you.

Thank you.

Operator, next question please

Tim Long with Bank of Montreal

Two-parter if I could here.

First, noticed that just onto the mobile phones part of the business, it has been, I think, three quarters in a row where we have seen a favorable ASP dynamic on a sequential basis.

So, could you just talk a little bit about that?

Is it all product related, meaning the C3, is it that component issues have limited some real low-end stuff, or is Nokia walking from some of the gray market competition?

And then related to that, it used to be that getting components was a core competency, but it seems like it's been a few quarters now.

Is that something that you think Nokia no longer has the edge on the competitors against?

Thank you.

Yes, Timo here, maybe I will take a shot at this one.

Clearly first of all, we are not walking from any part of the market.

So that is absolutely clear part of our strategy.

Then if you look at the ASP, it is correct to say that it is affected both by more innovation and higher value products on the mobile phone space simultaneously, especially as we mentioned after Q3 we also have had component shortage issues in the lower end of the portfolio.

We feel that the demand supply network continues to be a great asset for Nokia and as I said earlier, as well on the mobile phone space, these component shortage situations from logistics perspective are, and I'm using this now as a broad term, they are shorter term issues, whereas in the smart phone space where you really have a lot of innovation going to the product but of new kinds of components, clearly we have to continue to trim our machinery to take even better advantage on those situations where really new components, totally new kind of components come into play.

Thank you.

Operator, we'd now like to take our final question.

Edward Snyder with Charter Equity Research.

Regarding the issues that you are facing, especially in North America, I know the (inaudible) was canceled late in the game and it sounded like some of that was do to pricing on the iPhone, some of it was due to the lack of subsidy from AT&T, is this systemic of the problems you seem to be having with, especially advanced developed markets for smartphones and how much of this has to do with your choice of operating systems versus say the hardware and the development time for the US market?

I am trying to get a feel for the solutions you're looking at to reenter probably the most lucrative market in the US and then to the extent that those wind up being a platform solution, did they affect the rest of your product lineup for a high-end phones?

Thanks.

Great, thanks for the question.

First of all, it wasn't an N8 variant or what have you that was targeted for that market.

We were trying something a little bit different in that market, but still taking advantage of the Symbian 3 platform.

I think the way to think about this is to go back to the basis upon which competition is taking place today, where it is the combination of hardware, but certainly the software and the user interface, the services around it, the applications, everything that goes into that experience and it is on that basis that the competition is happening.

More so in some of the advanced developed markets than in other markets around the world.

And our essential assessment of that situation was one of, for a variety of reasons some of which you mentioned but also our own analysis and in particular, my own desire to raise the bar in terms of our execution and expectations in markets, we made a decision to not proceed as people had thought we would proceed.

I think you will see that pattern of decision-making from us in terms of being very crisp about what constitutes great experiences and ensuring that that is what we are delivering to our customers.

The reason for that, of course, is Nokia is one of the strongest brands in many parts of the world.

That is a brand that we will continue to invest in, that stands for a high-quality experience and it is an important part of my role to ensure that that representation of the brand or that image of the brand is continued for a long period of time.

So very much so thinking about that and ensuring that that's a standard we set for ourselves going forward.

So, Stephen, to that extent, when you are looking at making the changes necessary to be competitive in the ecosystems and with your operating system, what are the most important criteria in your mind for doing this?

Is it time to market, is it the costs, the sum cost that Nokia already has in your existing operating systems, which factors are you willing to sacrifice to make this change and which are sacrosanct that you don't see as being able to change quickly?

Well, actually, I realize there's a part of an earlier question that we didn't completely answer.

There is a question very similar to yours.

Are you going to worry about quality or are you going to worry about time to market?

I've got to refer everyone back to the framework that I laid out.

It's very deliberate, but the very first point in the framework is about great products, where a product is the combination of everything that constitutes an experience.

We must absolutely deliver great products on a consistent basis.

If we rush to market with something that is below what our brand should stand for, then we will do long-term harm to who we are.

And therefore, the entire focus will always be on delivering our consumers the best possible experiences on a very predictable and repeatable basis.

This concludes our conference call.

I would like to remind you that during this conference call today, we have made a number of forward-looking statements that involve risk 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 through 32 in our 2009 20-F and in our press release issued today.

Thank you.

Ladies and gentlemen, this does conclude the Nokia fourth-quarter and full-year 2010 earnings conference call.

You may now disconnect.