諾基亞 (NOK) 2011 Q2 法說會逐字稿

Good morning.

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

At this time I would like to welcome everyone to the Nokia second-quarter 2011 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, host of Investor Relations.

Sir, you may begin your conference.

Ladies and gentlemen, welcome to Nokia's second-quarter 2011 conference call.

I'm 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 here 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.

Actual results may, therefore, differ materially from the results we currently effect -- 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 12 through 39 of our 2010 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 a reconciliation between the non-IFRS and the reported information.

With that, Stephen, over to you.

Thank you, Matt.

Welcome, ladies and gentlemen, and thank you for joining us on today's earnings call.

There were a number of challenges that manifested in a greater than expected way in Q2 2011, including the competitive dynamics and market trends across multiple price categories, particularly in China and Europe.

Second was the shift in the product mix towards devices with lower average selling prices and lower gross margins and, third, there were pricing tactics by certain competitors.

As a result of these challenges we took immediate actions.

Specifically, we quickly focused on better management of inventory levels around the world.

Most notably, we took action in China and Europe to address an inventory buildup that occurred in the first quarter of 2011.

This action is having a positive impact on the health of our channel, the profitability of our product line and the motivation and success of our many partners.

We also took a more responsive approach to product pricing around the world.

In a number of cases our prices were at uncompetitive levels, in part because of the age and cost of the inventory, but also in part because of an anticipated supply shortage, which was not as severe as we expected.

We increased our emphasis on a sell-out of products to consumers in all aspects of our sales management and in our interactions with channel partners.

We now have less emphasis on traditional target setting and sell-in to the channel.

This is to ensure that the ultimate sale of a product to the consumer trumps all.

Additionally, we shifted our sales focus and marketing resources more towards the day-to-day battle that takes place in retail locations around the world.

We recognize that, particularly during this time of transition, we must ensure that the advantages and the ongoing innovation of our product portfolio are well understood by retail professionals and are properly positioned to consumers.

And, finally, we made changes to certain sales management personnel.

Most notably, our Head of Sales, Colin Giles, is now serving as the Acting Leader of China, which is a market that he led successfully for a number of years.

Much of Q2 focused on managing unexpected sales and inventory patterns.

However, by taking immediate actions to address the situation we created healthier dynamics in sales channels, which led to greater business stability in the latter weeks of the quarter.

That being said, earlier this year we outlined a new strategy because of our fundamental concerns about the competitiveness of our product portfolio, as the world shifts from a battle of devices to a war of ecosystems.

Thus, during this time of transition the competitive pressures will continue.

Turning now to our new strategy, as you will recall, our new strategy includes shifting our Smart Devices to the Windows phone platform, connecting the next billion to the Internet and investing in future disruptions.

The magnitude of this transition is significant and Q2 was very much about leading the organization through some of the most difficult aspects of this change.

Clearly, announcing our new strategy introduced ambiguity, not only for our shareholders and partners, but also for our employees.

We very aggressively tackled key elements of this ambiguity during Q2 and we achieved several important milestones during the last 90 days, including; completing the definitive agreement with Microsoft; providing clarity about the depth of employee reductions; and outlining the specifics of our R&D site strategy, making clear our intent to have concentrated locations for R&D in the future.

We also signed the Accenture agreement, which is designed to provide improved employment opportunities for approximately 2,800 employees, as well as assuring a source of ongoing Symbian and Windows Phone talent.

This is designed to reduce execution risk.

And, finally, we concluded the personnel negotiations in Finland for Symbian, MeeGo and some other teams, which has reduced uncertainty for much of our workforce and allows us to fully engage the R&D aspects of our new strategy.

It is very important to note that we are using this transition as an opportunity to address deliberately the accumulated structural deficiencies that have contributed to the challenges faced by Nokia.

For example, we have concentrated our Smart Devices' engineering efforts into precisely four locations.

Each site has a complete and largely self-contained Windows Phone productization (sic) team.

Similarly, we have concentrated our Mobile Phones' engineering efforts into precisely three locations.

Another simple example; we have eliminated four management layers within our newly-concentrated engineering organizations, ensuring that our great engineers are supported by rapid decision making.

We are undertaking these changes to ensure the long-term health and flexibility of the organization.

The most profound structural change, however, is infusing increased levels of clarity and accountability into the organization.

We are accomplishing this by reinforcing attitudes and behaviors, but also by making the necessary structural changes.

As we communicated in February, as of April 1, 2011 we have implemented a new Company structure which includes two distinct business units within Devices & Services.

This includes Smart Devices and Mobile Phones.

As part of this, we have provided additional disclosures for these two business units, upon which Timo will elaborate.

Operationally, this change has increased the level of accountability inside the organization and is improving the speed and quality of execution of our product strategies through unambiguous lines of decision making.

The result of these changes is already apparent.

The product development cycles for our first Windows products are much shorter than was historically the case.

We announced we will simplify the structure of our Services organization into a single location and commerce business by combining NAVTEQ with Nokia's social location services operation from Devices & Services.

Together the team will focus on differentiated location-based software, services and business models.

We appointed Michael Halbherr as the single point of accountability for this effort and we will now embark on a deliberate effort to increase the strategic value derived from NAVTEQ.

With each step of this journey we are identifying even more opportunities for improvement and we are accelerating our pace of execution.

Last quarter we announced our target to reduce Device & Services non-IFRS operating expenses by EUR1b for the full-year 2013.

We are accelerating our plans for expense reductions and we now plan to exceed our previous target of non-IFRS operating expense reductions in Devices & Services of EUR1b for the full-year 2013.

As our new organization and a sense of accountability kick in, these new savings are becoming apparent in many areas related to how the organization functions.

For example, we are taking advantages of synergies across our organization, we are maximizing how marketing dollars are deployed and we are benefiting from the effectiveness of our sales investments.

In addition, there are clearly opportunities to improve elements of our supply chain and manufacturing operations that will contribute to our belief that we can achieve long-term margin goals.

The operational changes are helping prepare our product groups for long-term success.

On that note, I'll now take a moment to discuss product related highlights.

On the Mobile Phones front, Q2 marked the beginning of a significant transition in our product line, with the introduction of our first dual-SIM devices in a number of emerging markets.

This included the Nokia X1-01 and the Nokia C2-00.

We will also start shipping a third dual-SIM product later this year, the Nokia C2-03.

The early results of our dual-SIM launches in India and our South East Asia and Pacific regions are very encouraging.

Today more than 168,000 retail stores in India are selling Nokia dual-SIM devices.

This is one of the highest retail outreaches for any Nokia device in the country.

And in Q2 we shipped more than 2.6 million dual-SIM devices.

Additionally, as part of our effort to bring the Internet to the next billion, we also announced that we are bringing maps and location information to Series 40.

And we are expanding the Nokia browser experience within our Mobile Phones' business with proxy browser technology.

Finally, we provided some clues to the incremental investments in our Mobile Phones' R&D efforts, as we announced our intention to make the Cute development framework core to bringing applications to the next billion.

We will disclose further details in due time, but we see a ripe opportunity for making Cute part of our Mobile Phone strategy, in addition to the role it is already playing for Symbian.

In our Smart Devices business, this month we started shipping Symbian products, including the C7, C6-01, E7 and N8, with a fresh version of software called Symbian Anna.

And over the next 12 months we plan to bring up to 10 new Symbian-based devices to market.

In Singapore, just a few weeks ago, we showed the MeeGo-based N9 product for the first time and we are very pleased with the early and positive response to the cutting-edge elements of the N9's product design.

This was precisely the intent behind moving forward with this product.

The real focus of the N9 is to uncover new innovation that will live on in a variety of ways in future Nokia products.

This includes the industrial design, the user interface and the focus on Cute.

And some of this will be evident when we launch our first phones based on the Windows Phone platform, which I am very happy to report that I have increased confidence that we will ship our first device based on the Windows Phone platform this year.

And we plan to ship products in volume in 2012.

This is a testament to, not only the structural changes that I described earlier in the call, but also to the quality of the early interactions between our team, Microsoft and Qualcomm.

Our Nokia teams working in San Diego, Beijing, Salo and Tampere are making tremendous progress on our products.

Today the teams have Nokia prototype hardware designs running versions of Windows Phone software.

Those who already have viewed our early work, including operators, are very optimistic about the devices Nokia plans to bring to market and about Nokia's long-term opportunities.

The launch sequencing and planning is now underway with the operator community.

The introduction of a brand new product line with a new operating system and a new supporting ecosystem requires a very deliberate and sequences approach.

It cannot be a single big bang.

Step by step, beginning this year, we plan to have a sequence of concentrated product launches in specific countries, systematically increasing the number of countries and launch partners.

As language variants become available, as service infrastructure is established and as we align with operators, we will broaden the Nokia with Windows Phone footprint from quarter to quarter.

Each day our future is coming more sharply into focus as the product work matures, as launch plans are defined and as we plan the broadening of our Smart Devices' efforts in 2012 and beyond.

We have some very exciting times ahead.

As we have said repeatedly, we must also focus on the broader ecosystem of services, developers and applications that support our devices.

Throughout this transition we are seeing a sharp pickup in the use of our online services.

For example, we have surpassed 6.5 million downloads a day from our Ovi Store, representing 300% year-on-year growth.

And with our clear signal of support for Windows Phone there has been a sharp increase in developer interest in the Windows Phone environment.

Today, even before the introduction of our first Windows Phone-based devices there are more than 25,000 applications available for Windows Phone, which is a sharp increase form the 6,000 that were available on the day we announced our new strategy.

We look forward to sharing more information about our investments and opportunities in location and commerce, which will serve as an important part of our differentiation strategy in the future.

Given the nature of our Q2 results, it is also worth commenting on our progress related to the licensing of intellectual property.

In Q2 we validated that Nokia understands how to take advantage of our strong intellectual property portfolio.

We benefited from significant intellectual property-related income that, in part, can be thought of as a catch up from earlier periods.

This was favorable for Nokia in the short term and yet it is also a clear signal of the longer-term value of our intellectual property.

It is very apparent that intellectual property is an important currency in our industry today and Nokia is well positioned to both defend against intellectual property claims and to ensure that other industry participants are properly licensed.

Finally, I would like to comment on NSN.

As NSN announced earlier this month, for now we terminated the exploration of alternative structures with various private equity organizations.

We did this primarily because we felt the value attributable to NSN exceeds what others were assessing.

We based our point of view on the potential we see for NSN in the future.

We look forward to sharing more about our plans to ensure that NSN is configured for long-term success.

In summary, while our Q2 results were clearly disappointing, we are executing well on the initiatives that are most important to our longer-term competitiveness.

Even within the quarter, I believe our actions to mitigate the impact of these challenges have started to have a positive impact on the underlying health of our business.

Most importantly, we are making better than expected progress toward our strategic goals.

This progress is already evident and, thus, we are targeting to end this year with more net cash and liquid assets than at the end of Q2 2011.

None of us likes surprises, least of all me, and yet we firmly believe that our deliberate and unwavering commitment to making the changes necessary at Nokia is the right way to deal with the disruptive forces in our industry, and to drive value creation for our shareholders.

I'll now turn it over to Timo to provide details on the Q2 2011 financial results.

Thank you.

Thank you, Stephen.

Before I discuss our financial performance during Q2 and our outlook for Q3, I would like to spend a minute on the additional disclosure provided in our press release today.

As we communicated in February, from April 1, 2011 Nokia has a new Company structure which features two distinct business units within Devices & Services, Smart Devices and Mobile Phones, consistent with our strategy and focus on improving our speed, results and accountability.

As part of this, we have provided additional disclosure for these two business units, specifically net sales, gross margin and contribution margin.

Details of the changes, as well as prior periods' results, have been regrouped for comparability purposes on an un-audited basis according to the new reportable segments.

These are included in today's press release.

I will come back to these changes later in my comments, particularly relating to intellectual property and cost savings-related charges.

According to our preliminary estimates, in terms of volumes the overall handset market in Q2 was approximately flat sequentially, but grew around 10% year over year.

On both a sequential and year-over-year basis the industry continued to see a relatively better volume performance in emerging markets compared to developed markets, despite the impact of food and fuel inflation in a number of these markets.

On a reported basis Devices & Services' net sales of EUR5.5b were down 23% sequentially and down 20% year over year.

As I discussed during our update call on May 31, multiple factors negatively impacted Nokia's Devices & Services business to a greater extent than previously expected during the second quarter of 2011.

These factors included the competitive dynamics, market trends and channel dynamics across multiple price categories, particularly in China and Europe; a product mix shift towards devices with lower average selling prices and lower gross margins; and pricing tactics by Nokia and certain competitors.

Sub-EUR30 devices represented 46% of our overall volumes during the second quarter, compared to 35% in Q1.

During the second quarter Devices & Services net sales benefited from the recognition of approximately EUR430m of IPR royalty income related to Q2 2011 and settling prior periods.

Those amounts were recognized as royalty income in Devices & Services other net sales.

In Q2 both our Mobile Phones and Smart Devices had a challenging quarter, compounded by the slightly higher than normal channel inventory level we exited Q1 with, and the lower demand for some of our devices.

This had a significant impact on our selling capabilities during Q2, as distributors and operators adjusted their inventories of Nokia Devices in line with the lower demand levels, most notably in China, where our sales declined 52% sequentially, as well as in Europe.

This impacted both our business units on a sequential basis.

As Stephen mentioned, we took some very decisive action to correct our overall channel situation during the latter part of Q2.

I am pleased with the corrective measures we have taken and we ended the quarter with channel inventories near the mid point of our normal four- to six-weeks' range.

Mobile Phones continued to be led by the Nokia C3-QWERTY Device, as well as solid performance of our sub-EUR50 portfolio.

During the last month of the quarter we started to ship our first dual-SIM product and, as Stephen mentioned, the early indications are encouraging.

However, the financial impact during the second quarter was not significant and our lack of dual-SIM offering was again a headwind on our performance, as dual SIM continued to be a growing part of the overall market opportunity.

Smart Devices continued to be impacted by the highly competitive market dynamics and the strong momentum of competing Smartphones relative to our devices, particularly in Europe and China, as well as by pricing tactics by Nokia and certain competitors.

Smart Devices' sales in Q2 were led by the Nokia N8, 5230, C5, C7 and E5.

Devices & Services' non-IFRS gross margin in Q2 was 31.1%, up 200 basis points sequentially.

The increase was primarily driven by the higher IPR royalty income, partially offset by gross margin declines in both Smart Devices and Mobile Phones, and the negative impact from foreign currency hedging, which had approximately 60 basis-point impact quarter over quarter.

The positive one-time gross margin impact related to the IPR royalty income was approximately 590 basis points in the quarter.

At the business unit level the sequential gross margin decline was more pronounced in Smart Devices, given the competitive and channel dynamics I have described, as well as our lack of product renewal, which is more weighted towards the second half of the year.

The sequential decline in Mobile Phones' gross margin was primarily due to greater price erosion than cost erosion across the portfolio, lower volumes and somewhat unfavorable mix towards slower ASP and gross margin devices.

This more than offset the continued solid performance of our lower and QWERTY Devices, such as the Nokia C3.

At the present time we expect 40 basis points' negative impact in Q3 related to hedging activities, assuming static foreign currency rates at the end of Q2 levels.

But this could change due to intra-quarter fluctuation in rates.

In Q2 Devices & Services non-IFRS OpEx was EUR1.3b, down approximately EUR60m on a sequential basis, but up approximately 480 basis points as a percentage of net sales.

On a year-over-year basis R&D, sales and marketing and administrative and general were all down in absolute terms.

We will continue to manage our OpEx tightly, with a focus on continuing to increase our R&D efficiency as well as the effectiveness of our marketing initiatives to support our Symbian and Mobile Phones sell out.

Devices & Services' non-IFRS operating margin was 6.7% in Q2, down 310 basis points sequentially.

This was primarily driven by the negative operating leverage from the sequential decline in sales, which more than offset the positive impact of the higher IPR royalty income.

The positive one-time operating margin impact related to IPR royalty income was approximately 800 basis points in the second-quarter 2011.

And now a few comments and an update on our OpEx plans.

Last quarter we announced our target to reduce Devices & Services' non-IFRS operating expenses by EUR1b for the full year of 2013, compared to the full year of 2010 Devices & Services' non-IFRS operating expenses of EUR5.65b.

As Stephen said, we are accelerating our efforts and increasing our plan to more than EUR1b for the full-year 2013.

As we undergo this significant restructuring it is important to mention the excellent engineering we continue to have in all parts of the Company.

We expect the majority of these restructuring -- these additional restructuring activities to happen outside R&D and we do not expect them to have an impact on our product road map and productization (sic) time-wise.

During the second quarter Devices & Services recognized a profit and loss risk restructuring charge of approximately EUR570m related to our savings target and the initiatives that we have already begun to implement, such as moving approximately 2,800 employees to Accenture as part of our collaboration.

And now on Nokia Siemens Networks and NAVTEQ.

In Q2 NSN delivered another quarter of top-line growth.

Reported net sales were EUR3.6b, a 15% sequential increase, reflecting seasonality as well as two months of contribution from the Motorola assets following the completion of the acquisition at the end of April.

The acquired asset added approximately EUR220m to the top line in Q2.

NSN recorded 20% year-over-year growth, including Motorola, and 13% on an organic basis.

In segment terms the growth was driven by continued strong performance in Mobile Broadband and, particularly, in 3G.

NSN is also making very good progress in LTE and now has 38 commercial contracts.

NSN's non-IFRS gross margin was 26.6%, down 30 basis points sequentially due to the negative impact of certain network modernization projects, as well as continued competitive pricing pressure.

The acquired Motorola business had a limited accretive impact on NSN's gross margin during Q2, partly driven by a negative impact from integration-related items.

In Q2 NSN's non-IFRS operating margin was 1.1%, up 100 basis points sequentially, primarily due to operating leverage from the increase in net sales.

The Motorola business delivered a small operating loss in Q2, primarily due to the weaker than expected performance of the WiMAX and GSM divisions, which were impacted by the delay of the closing of the acquisition, which, of course, was a factor in the purchase price NSN paid, which was reduced by approximately $225m.

Excluding the Motorola acquisition, NSN's non-IFRS operating margin was approximately 50 basis points higher.

Last week NSN announced that they had completed the process of reviewing private equity interest in NSN, concluding that both parties, Nokia and Siemens, are in the best position to further enhance the value of the Company.

In the challenging competitive environment we believe that focusing NSN investment into the core strategic areas of Mobile Broadband and Services, as well as further reducing costs, are the key drivers for NSN's future financial performance.

NSN's contribution to Nokia's cash flow from operations was negative EUR163m in Q2.

At the end of Q2 NSN's contribution to Nokia's gross cash was EUR905m and NSN's contribution to Nokia's net cash was negative EUR1b.

And then, on NAVTEQ, reported net sales in Q2 were EUR245m, up 6% sequentially and down 3% year over year.

On a sequential basis NAVTEQ's increase in reported net sales was mainly driven by seasonally-higher sales in all consumer categories, partially offset by lower sales of Map Licenses to Mobile Device customers.

NAVTEQ's non-IFRS gross margin was 82.9%, down 120 basis points sequentially due to the annual re-set of a royalty contract with a data supplier.

NAVTEQ's non-IFRS operating margin was 21.5%, down 180 basis points sequentially.

And then, turning back to Nokia as a whole, on taxes, if Nokia's estimated long-term tax rate of 26% has been applied, non-IFRS Nokia EPS would have been approximately EUR0.003 higher in Q2 2011.

Nokia ended the second quarter with a net cash balance of EUR3.9b, somewhat lower than the level at the end of Q2 2010.

During Q2 Nokia's net cash balance declined by approximately EUR2.5b.

This was mainly driven by a payment of approximately EUR1.5b for the dividend and NSN's acquisition of the Motorola network asset, approximately EUR720m.

The remaining decline of approximately EUR300m was primarily due to capital expenditures and negative cash flow from operations.

With regards to the negative cash flow from operations there are three important drivers here that I would like to highlight.

NSN had an approximately EUR250m headwind related to the timing of certain NSN customer payments, which were collected early on in Q3.

Devices & Services' net working capital changes were primarily driven by a decrease in payables, primarily driven by the lower business activity.

Although this was partly offset by a corresponding decrease in receivables, this was negatively impacted by a sales mix within Devices & Services towards regions with longer payment terms.

We estimate this regional mix shift had a negative impact of approximately EUR200m in the quarter and, thirdly, a cash inflow related to IPR income.

Finally, turning to our guidance, in the press release you will find the full details of our guidance, but I just wanted to highlight that we continue to operate with limited near-term visibility in our Devices & Services business as we are managing through a tough transition.

However, from a cash perspective we target that we will be able to end the year with a higher net cash position compared to the EUR3.9b level that we ended with in Q2.

And, with that, I'll hand 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.

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

Thank you, just a question on the IPR; pretty sizeable in the corner -- in the quarter.

It looked like most of the profit's there.

Could you just talk to us a little bit about how much of that was catch up and how much would you say is going to be recurring?

And maybe just a little view.

Should we expect in the future that we will get a much more meaningful contribution from IPR as you exert your patent portfolio across the industry?

Thank you.

Okay, Timo here.

Thanks for the question.

Yes, you're right, we had this EUR430m IPR and this is actually a one-time item related to both past, as well as partly to Q2, but it should not be viewed as anything that signals something about the future quarters.

Now, we are expecting a slight increase on our running IPR income as well, but this -- again, this EUR430m is not in any way a signal of the magnitude.

Thanks, Tim.

Operator, next question please.

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

Good morning.

Thank you very much for taking my question.

I was just interested in a bit more detail around the 3Q guidance.

I appreciate, as you said, that the visibility isn't as good today as it once was and, clearly, you've left out the revenue guidance that you've previously provided.

But in terms of how you're getting to the 3Q margin guidance of around breakeven I'm just wondering which are the key moving parts for you?

Are you expecting to get to that kind of a margin by showing slight sales growth in the quarter, or is it more likely to come from further operating expense cuts that you can realize sooner rather than later?

So just a bit of clarity around the key drivers from your point of view would be very helpful.

Thanks for the question.

Let me comment generally without providing additional guidance, if you may.

The way we're looking at this, first of all, the comments I made early in the prepared remarks are relevant here in terms of seeing improved stability and, therefore, some improvements in visibility as we exit Q2, as we saw in the latter weeks of Q2 and these early weeks of Q3, balanced with the fact that we are going through a transition, that there are changes ahead in the marketplace because of our unique circumstances and so forth.

And so as we considered guidance we were concerned about how close we could come or how well we could guide on the top line.

As it relates to OpEx and what we provided, you notice we broadened our range a little bit to give some indication of that visibility, but we're also taking steps, as we indicated in my remarks, to be accelerating the pace of OpEx reductions and so forth and, therefore, we had increased confidence about being able to guide for the bottom line, and also to provide a comment about cash during the half as well.

So maybe if I just give a brief comment as well on some of the additional drivers, as was said.

So, again, part of the guidance is also this slight increase -- just adding to what Stephen said, this slight increase on the IPR side what we spoke about.

And then, regarding OpEx, of course we are trying to pull our targets forward as much as possible, but we also need to market our products and we need to drive the channel on the sell out, so that is also happening.

So regarding OpEx we really need to take both of these dynamics into account when we look at Q3 OpEx.

Thanks, Andrew.

Operator, next question please.

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

Hi, there, thank you.

I was hoping you could perhaps cast a bit more light on the Mobile & Devices business.

Historically, because the volumes are so big, it's quite hard for new products to have a material impact for some quarters.

And I was wondering if you could perhaps just take us through some of the competitive issues that suddenly changed, it seems, during Q2 after three quarters of stability.

And it takes time to ramp up a product.

So maybe you can just help us understand the dynamics in that business, which was obviously very high margin for some time, and whether you think you can get close to the historic margins going forward.

Thanks.

Thanks for the question.

I think a couple of things I would highlight here.

First of all, as it relates to the Mobile Phone business, it too was part of the work that we had to do from an inventory perspective, particularly in China, less so in India, so we definitely had to consider that as we went through Q2.

As we highlighted in the Q1 call, Q2 was an important turning point as it relates to Mobile Phones' product strategy, specifically the introduction of the dual-SIM product line.

This is a very significant change in India, now spreading to other parts of South East Asia.

You'll see it in other markets in the quarters ahead.

And in terms of the ramp up potential there, we think we're on a very good ramp from the early signs that we have.

It's still early but, nonetheless, there's quite a bit of enthusiasm about what the future holds.

And if you do some channel checks and so forth in India, for example, I think you'll get some of those signs.

The other thing that is worth noting here is that we didn't just enter the dual-SIM market as another dual-SIM provider.

There's some very specific differentiation.

For example, on the C2-03 the capability for the device to actually think about, or remember, or manage five different SIM cards while easily swapping them without turning the power off, without losing the time that's on the device and so forth, all of that type of innovation, as we bring a next generation of dual SIM to the market, I think portends well for the future of gross margins and so forth.

It's hard to comment overall on where that ends up but, nonetheless, we've got some important steps that are now in place and taking hold, so we're encouraged by that.

Maybe if I add a quick comment, what we have spoken about earlier as well is that regarding Mobile Phones we have said that we will increase our investment into that business, really to drive innovation there and to drive that [work] for the next-billion strategy.

So that also needs to be taken into account when thinking about those parameters.

Thanks, Stuart.

Operator, next question please.

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

Hi, there, thanks for the question.

Your China business fell by 50% quarter on quarter.

That seems to be much bigger than just a competitive situation.

And you've mentioned the inventory correction, but could you give us a little bit more flavor of exactly what went on here?

It looks as though the business just lost control of what was going on downstream.

So let me try and characterize the dynamics in China, because as you look at that first number, just as you said, what exactly happened.

First of all, from a competitive perspective it is the case that the challenges that began very much in the west with various products and so forth is spreading from west to east, so there's increased competitive pressures in China.

And that is evident from a number of different indicators, certainly including ours as well.

That being said, if you have a situation where inventory levels are rising while those competitive pressures are increasing and demand is, perhaps, moving down, then you may exit a quarter with a perception of your inventory circumstances as we described at the end of Q1.

But as you get into Q2 and truly understand the level of demand and, therefore, where you really are from an inventory perspective, you've got to take very decisive actions and that's precisely what we did in China in Q2.

And so when thinking about the pattern of numbers in China, the as reported Q1-to-Q2 shift is really what's reported and so forth but, nonetheless, you have to take into account what was going on with inventory levels at the time in the face of some softening of demand.

So there is softening of demand, but the inventory movements were substantial.

Okay.

Thank you, Andrew.

Operator, next question please.

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

Thanks.

Just on product strategy, I guess, two short product strategy questions.

Firstly, I just wonder whether there's any change in terms of go to market in regions such as Japan.

Are there any markets where maybe you'll take some volume off the table to benefit ASP?

And then, secondly, just in terms of the new Sea Ray product or Windows Mango product, the device launch, I just wonder when you launch it in markets with the N9 also running alongside will you actually launch the two products in the same market, or will you actually go to market in -- with different phones in different markets?

Thanks.

Thanks for your questions.

First of all, with the Windows Phone product there are market opportunities that open up to us that we have not been availing of ourselves so far, for example, certain technologies where we're absent right now.

CDMA is one example.

There's obviously increased potential to go after CDMA markets.

We believe there's increased potential to go after TD-SCDMA markets as well.

So from a technology perspective opportunities are opening because of the shift in strategy and opening sooner than could have been the case with other strategies.

Also the case from a geographic perspective; there are opportunities geographically to look at other markets.

We have not made any announcements in that space at this time, but those opportunities clearly exist for us.

As it relates to which products, which markets, we don't have specific announcements today as to which products should be placed into which markets, or where they will begin and so forth.

But it is the case that the N9 is intended to be a regionally-targeted product.

And in terms of making decisions about where it should go, certainly, we'll consider the strength of Symbian in those markets, we'll consider the timing of potential Windows Phone products in those markets and a variety of other factors.

So the question you ask is an insightful one in terms of trying to assess how do we balance this in terms of where we focus launch dollars, market by market and/or operator by operator.

Thanks.

Thank you, Gareth.

Thanks Gareth.

Operator, next question please.

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

A question with regards to the cost savings.

Timo, you talked about the EUR1b that you're going to exceed that target; a couple of questions with respect to that.

First, can you give us a little bit sense of the magnitude?

How much above EUR1b do you think you can achieve?

And, second, is there any difference, since you seem to be running ahead on plan on that?

Is there also a change in the linearity by which the benefits from these cost savings will be reflected in your P&L, meaning could we see some of that more early in '12 versus more later in '12 and '13?

Yes, thanks for the questions.

We said both exceed as well as accelerate so, clearly, we are working on both of these.

And maybe I'll deal with the accelerate topic first because, typically, in this kind of business you have certain levers but you don't have a huge amount of levers very short term.

So we can, of course, and are looking at things like sub-contracting.

We are looking at our IT system; do we absolutely need all that on the short and medium term?

While, of course, we are investing and building for the future.

And then things like travel and so forth are under very tight scrutiny at the moment.

So that's the accelerate part.

Then on the magnitude, clearly, we are expecting this to be somewhat material as we are spelling out a new target, but I can't give you any more tight figures at this point.

And if I could just also comment on the sources of OpEx potential.

Part of what we're seeing is, as we've gone through the first phases of restructuring, as we've done our first consultations, as we have a larger group of the Company involved in the planning of the future of what we need to do and so forth, we're in a position to identify, for example, how do we deploy our marketing dollars most effectively; how do we make sure that every sales dollar is effectively spent.

Of course, we have some areas where, when we look at location and commerce coming together, how do you structure that optimally for its new mission and so forth.

All of which can contribute to how we're planning our OpEx in the future.

So a number of these things, as you take the first step and open up the next door, you can continue through that.

And as I mentioned in my scripts as well, as it relates to our manufacturing and supply operations, the opportunities to consolidate supplies, drive improvements on manufacturing and so forth, those opportunities are steadily flowing in and that's why we have confidence in our ability to raise the OpEx savings target.

If I may, just one thing which I forgot to mention is that, of course, we made very clear plans when we announced the restructuring at the Q1.

And we have those plans in place and, of course, we are also looking to accelerate executing of these plans which we already had and, that, we can do.

Thanks, Ittai.

Operator, next question please.

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

I'd like to ask more about whether the guidance for cash flow represents some kind of change of strategy?

What's really more important to you now?

Is it protecting the channel, protecting your position, or is it preserving your liquidity and cash position?

Because I guess thinking about the dynamics in cash flow you've got to restructure NSN, restructuring significant -- as we've just been discussing in the Handset business.

Just help me understand your thinking about liquidity relative to market position.

Thank you.

Yes, I'll take the question first of all from a general perspective, and that is, it's clearly a balance of all of those things.

Depending on the nature of various markets, protecting shelf space may be more or less important relative to our influence over those particular channels.

We think very differently about pricing and so forth in operator-managed or operator high-influenced markets relative to open markets, where we have more direct connection with the pricing strategies.

So there's a number of those things that we try and keep in balance.

Now, as it relates to liquidity and cash, what we specifically wanted to signal was our sense of confidence around the cash position, noting that Q2 had a number of factors in it, like the dividend, like the Motorola acquisition costs and so forth.

But we wanted to signal clearly that, even although Q2 had a number of these factors, we wanted to give you a clear signal that we would be in Q -- or exiting Q4 in a cash position that was in excess of where we are today.

So, clearly, if I may comment, so drivers for this net cash position statement.

Clearly, what was the main driver, as Stephen was saying, is the performance [in] operative cash flow.

We also are expecting to get some negative cash-based restructuring charges in.

But we are also expecting to get a positive impact from some of the partnership and royalty contracts what we have.

So those are the drivers behind that.

Thank you, Tim.

Operator, next question please.

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

Thank you.

You mention macroeconomic environment as a potential swing factor for your guidance for the first quarter.

What have you seen so far in terms of the economic environment?

Does that impact negatively your sales in Europe, in Middle East and what sort of scenario do you see going forward?

Where do you see potential risk?

Thank you.

We mentioned the macro because, clearly, we all know that there is a lot going on in Europe in particular, and we also have some inflationary pressures in the so-called emerging markets in general.

But there is nothing more to that.

We just simply want to recognize that we see that risk, of course, regarding sales performance in general.

We run many scenarios and take these impacts into account, as well as simulate channel performance and other things.

So that's why.

But you haven't seen any weakness so far, like that you would associate to the evolution of the macroeconomic environment?

As we said, we did not see impact from the inflation so far; that's what I said on my remarks.

And also if we look at the situation, Europe being able to isolate that impact at the moment, I don't think we have the visibility to judge at the moment.

But of course we don't know what is going to happen, especially in Southern Europe, and that is an important market for us.

Thanks, Pierre.

Operator, next question please.

Your next question comes from the line of Alexandre Peterc with Exane BNP.

Yes, thanks for taking my question.

I'd just like to focus on the financing of NSN for a moment.

Would you explain how NSN financed the Motorola acquisition and whether there was a draw-down on the revolving credit.

There was already EUR100m drawn by end 2010.

And, if so, what's the way forward for the NSN financing, given that this revolver of NSN expires in May 2012?

Cheers.

Yes, we said that the Motorola acquisition was paid in cash and it's being financed by short-term debt in the NSN books, and that's how it is.

When it comes to the NSN financial plans, and what Stephen and myself both said, we are working now together with Siemens for a best possible solution for that business.

Ultimately, we have to drive for the success of the business and the top-line growth will give us opportunities to concentrate our investments into the key core areas of Mobile Broadband and certain key Services and then, of course, we are planning to take OpEx out as well, but we don't have anything further to say at the moment about the financing.

Thanks very much.

Operator, next question please.

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

Hi, thanks for the question.

I just want to clarify, on the inventory reduction that you mentioned in Europe and China, I think, can you give us some idea of the magnitude of it?

I'm just trying to think how much sell-in versus sell-through really changed from Q1 to Q2.

And then the other question, which is actually the more important one, a question for Stephen really.

What are the challenges you have based upon the Windows software and architecture to actually bring the Windows Phones to a reasonably lower price point?

And the reason why I ask is that right now the Windows specifications seem to be very high end.

And if you want to get volume products out there, even during 2012, I'm just thinking it may be a second-half event not early in the year.

Or is that possible?

Any kind of color there would be helpful.

Great, thanks for the questions.

First of all, on the inventory reduction and so forth in China, we're not providing the specific numbers, but they were substantial.

And of course part of it is always inventory you can see.

Sometimes it's inventory that you can't see and how you measure a market as complex as China but, nonetheless, the stability that we saw in the latter part of the quarter was very much related to improvements in the inventory circumstances throughout the country.

So we're definitely encouraged by that.

With respect to Windows Phone and moving down in price points, the challenges with that are very much putting the teams together, having the plans, making the right technology decisions and so forth, and that work is well underway.

We're not providing any specific guidance as to what devices at what price points and what time

But I have said in, I think, some of the very important -- sorry, the very initial announcements as it relates to Windows Phone that it was a specific criterion for us to ensure that we have visibility, that the engineers all signed off on to taking Windows Phones substantially down in price.

So we're now in the process of executing on that plan.

And the Europe and China inventory?

Yes, on the inventory question, we said that going into Q2 we were slightly above our normal four to six weeks and we now announced that we are close to the mid point.

So if you calculate one week from there and take our average volumes, that's close enough, Q1, Q2 average, something like that, and ASP.

So that will give an indication of that -- of the magnitude.

Yes, there's some rough calculations that can be done there.

Yes.

Great.

Thank you, Kulbinder.

Operator, next question please.

And our final question comes from the line of Mike Walkley with Canaccord Genuity.

Great, thank you.

Stephen, just building on the last question on the price points for Windows longer term, in the intermediate term can you just discuss the industry competitiveness?

We're starting to see Android touch-screen Smartphones hitting the sub-EUR200 price points.

How do you compete in that EUR100 to EUR200 price range?

It sounds like you're doing well in sub-EUR50 phones for Mobile Phones, but can you talk about Android prices falling and how you can be competitive until you get Windows down the price curve?

Sure, and thanks for the question.

The short answer to your question is with Windows Phone.

We are very specifically targeting a broad range of prices and bringing Windows Phone down in price point.

But if may add to the answer, you use the word differentiation and so forth.

That's a really important element of why we made the Windows Phone selection; is because of our belief in our ability to fundamentally differentiate with our partner, Microsoft, relative to the Android ecosystem.

One of the things that I think underscores that and really sets the tone for the next couple of years around this whole ecosystem is what has been shown just a couple of times by Microsoft as it relates to Windows 8.

And I'm talking about big Windows, as in tablets, slates, PCs and so forth.

And you'll notice that now for the first time in public you can get a sense that hundreds of millions of people will quite rapidly be exposed to what is known internally as the metro-user interface, that essentially just lays out the live tiles, the ability to swipe, that whole user paradigm as something that's coming to big Windows as well.

The reason that that's significant is in terms of the familiarity with the user experience and the opportunity for developers to build applications over time that reach the broadest possible footprint, you can see the scenarios lining up where that supportive effect from Windows gives us even better opportunities for differentiation over the future.

So we didn't mention it in the call script, but that was a pretty significant moment in people understanding how Windows Phone and big Windows relate over time.

Okay, Timo here.

Before we close I need to make a correction on NSN cash contribution.

So at the end of Q2 NSN cash contribution to Nokia's gross cash was EUR662m and NSN's contribution to Nokia's net cash was negative EUR1.2b.

And this is actually the same item what I called out already earlier, i.e., NSN had an approximately EUR250m headwind related to the timing of certain NSN customer payments which were collected already early in Q3.

However, they were not taken into account in these numbers.

Apologies for that.

Stephen, I'll now hand it back to you for closing.

Great, thank you Matt and thank you Timo.

So, everyone on the call, thank you again for joining us on today's call.

To summarize, Q2 was a difficult quarter, but as we head into Q3 our team is executing very well against our strategy and we're starting to see a very positive impact on the health of Nokia, which gives us great hope for the future.

So thank you all for joining us today.

Ladies and gentlemen, this concludes our conference call.

I would like to remind you that during the conference call today we have made a number of forward-looking statements that involve risks or uncertainties.

Actual results may 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 12 to 39 in our 2010 20-F and in our press release issued today.

Thank you.