諾基亞 (NOK) 2012 Q3 法說會逐字稿

Good morning.

My name is Dennis.

I will be your conference operator today.

At this time, I would like to welcome everyone to the Nokia Q3 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 would now like to turn the conference over to Matt Shimao, Head of Investor Relations.

Sir, you may begin.

Ladies and gentlemen, welcome to Nokia's third quarter 2012 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'll be making forward-looking statements regarding the future business and financial performance of Nokia and it's industry.

These statements are predictions that involve risk and uncertainties.

Actual results may 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 13 through 47 of our 2011 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.

With that, Stephen, over to you.

Thank you, Matt.

Thank you for joining us for the Q3 2012 earnings call.

As we expected, Q3 was a difficult quarter in our Devices & Services business.

However, we are pleased that Nokia Group achieved operating profitability on an underlying basis, with a Q3 non-IFRS operating margin of 1.1%.

We are encouraged that we continue to make progress against the business strategy we have outlined for Nokia.

Q3 represented a tough transitional quarter for our Smart Devices business, as we introduce consumers to the innovation ahead with the new line of Lumia products.

In our Mobile Phones business, the positive consumer response to our new Asha full-touch smartphones translated into strong sales.

In the Location & Commerce business, we made progress establishing our platform offering, which is in line with our plan to expand our location offering to more customers.

Nokia Siemens Networks had a remarkable quarter, in which we achieved record profitability on a non-IFRS basis and the Nokia Siemens Networks cash balance increased for the fourth quarter in a row.

While we continue to focus on transitioning Nokia, cash management remains a priority for our team.

We were pleased to complete the sale of Vertu since the end of Q3 and we will continue to dispose of non-core assets.

Additionally, we are moving our organization through our restructuring faster than we expected.

That said, Nokia Group net sales were down sequentially.

Thus, we are determined to carefully manage our financial resources, improve our competitiveness, return our Devices & Services business to positive operating cash flow as quickly as possible and ultimately, provide more value to our shareholders.

To achieve this, we are taking deliberate action across our five areas of revenue, Smart Devices, Mobile Phones, Intellectual Property Rights, Location & Commerce and NSN.

I will take a moment to provide insight into each area.

First, I will comment on Smart Devices, where we are continuing to invest during our transition to Windows Phone.

Just six months after signing the deal with Microsoft, we launched the Lumia 800 and 710, then we added the Lumia 610 and 900.

Jointly with Microsoft, we grew the number of Windows Phone applications from 7,000 to more than 100,000.

We're pleased that we are able to shift our engineering and manufacturing operations to a new smartphone platform as quickly as we did.

As I referenced just last month, we announced two new devices built on the Windows Phone 8 operating system, the Lumia 820 and the Lumia 920.

Both devices are introducing experiences that are distinctly Nokia and on this basis, we believe the Lumia 920 is the most innovative smartphone to date.

Operators, retailers and most importantly, consumers are expressing strong interest in the new experiences Lumia will deliver.

They are responding positively to a number of our innovations, such as -- PureView, which we believe allows people to capture great images and videos, particularly in lowlight conditions or when image stability is important; City Lens, which accurately helps people navigate their lives, using augmented reality; our Location & Commerce business is helping us to differentiate Lumia; wireless charging, which brings a new range of innovative gear like charging plates and speakers to Lumia; bold design and new colors; and the many new experiences in the Windows Phone 8 operating system.

We are now focused on improving our sales and marketing capabilities, as we bring the next generation of Lumia devices to people.

We are training more retail associates than with Windows Phone 7. We will have more live Lumia devices in retail environments, in our targeted markets than before.

We are improving our retail experience to showcase both how Lumia stands out from the crowd and the new innovation in the Windows Phone 8 operating system.

Together with Microsoft and our operator partners, we are investing more in campaigns to increase the awareness of the Windows Phone operating system.

We are driving marketing campaigns and demos tailored for both general retail stores and operator specific stores.

In absolute terms, Nokia, Microsoft and our operator partners have increased the amount of marketing spend for Lumia.

We expect Q4 to continue the transition, as we begin to ramp up sales on the Lumia 820 and the Lumia 920.

We expect both products to start selling in November.

As we bring our new products into the market, we are planning a deliberate rollout, where we focus our sales and marketing resources on select markets and key operator partnerships.

With a solid base, we plan to continue increasing the number of countries where we sell the new Lumia products in the first quarter of 2013.

It is important to note, that in addition to expanding the distribution of the products that have been launched to date, it is our expectation that we will broaden our array of products across price points and markets, during the course of 2013.

It is our plan to bring additional innovation like location-based services, PureView imaging technologies and design to a wider range of price points.

We also plan to broaden our offering to meeting the specific needs of our operator partners.

Second, I wanted to provide some perspective on Mobile Phones.

It is our strategy to connect the next 1 billion people to the Internet with our Mobile Phone products.

To accomplish this, we recognized in February 2011 that we needed to increase our innovation in our Mobile Phones business.

As a result, we have launched more than a dozen Asha devices, including a range of Dual SIM products and low-end full-touch products.

The positive response from retailers, operators and consumers has translated into strong sales.

At the same time, the industry has recognized the advances in our innovation, as noted most significantly by GfK, which has reclassified full-touch Asha products as smartphones.

In Q3, we shipped 6.5 million Asha full-touch smartphones.

In key markets like India, the Asha 305 was the number one selling smartphone during certain months.

Further, the ecosystem that supports our Mobile Phones business is healthy.

On a daily basis, we are routinely seeing more than 17 million daily downloads from the Nokia Store, of which more than 50% are from Series 40 products.

Overall, Nokia Store daily downloads grew by 14% in Q3, including 22% growth from Series 40 daily downloads.

More than 500 of the Nokia developers have achieved more than 1 million downloads and companies like Indiagames, Pico Brothers, Offspring Technologies and Inode Entertainment just past 100 million downloads.

This results in a complete offering available for price conscious consumers.

As a result of these actions in Q3, Mobile Phones delivered a solid quarter with Q3 volumes increasing quarter on quarter to 77 million units.

We enjoyed sequential sales growth and improved contribution margin.

We have a new Mobile Phones management team in place that is making good progress and they are driving for even more innovation across our Mobile Phones portfolio.

Shifting now to our third area of revenue generation, Intellectual Property Rights.

We report this as part of Devices & Services Other.

Nokia has one of the strongest patent portfolios in the industry.

Naturally, we make sure it's well protected and our Intellectual Property is appropriately licensed.

In the first half of 2012, we filed more patents than any other six-month period since 2007.

We continue with an aggressive pace.

We will continue to manage the health of this portfolio, while also ensuring that we are effectively monetizing its value through licensing negotiations, focused divestments and other forms of legal action.

Fourth, in our Location & Commerce business, we are seeing increased interest in location and mapping technologies from business customers, industry partners, developers and consumers.

We are continuing to build on our leadership in the automotive, personal navigation and enterprise industries, where we license our mapping data to business.

Powering four out of five of the cars that are equipped with in-dash navigation, we are the leading Company that provides end-to-end mapping and navigation solutions for the automotive environment.

This spans across map content to the location platform and to mapping applications.

With our 25 years of experience in mapping, we are able to differentiate our smartphone offering with location applications such as Nokia Drive, Nokia Maps, Nokia City Lens, Pulse and Transport.

As witnessed by the consumer response to our competitor's maps, people do want to ensure their smartphone delivers accurate mapping information, so they can reliably navigate their lives.

Starting in the third quarter 2012, we are disclosing additional financial data for Location & Commerce, which represent internal sales within the Nokia Group, such as work with Lumia and external net sales.

On the external side, in September, BMW, Mercedes, Pioneer, the Volkswagen Group, Hyundai and Garmin each announced that they had selected content or additional content from Nokia's Location business.

At the same time, we are creating a location-based services platform which we are extending horizontally to other customers.

This platform increases the utility and value that we can provide to our partners and the developer community.

Companies like Groupon, Microsoft, Yahoo and Amazon are recognizing this value and are placing increased bets on both our platform and our data.

Lastly, Nokia Siemens Networks had a record quarter.

We have focused on restructuring and refocusing NSN through deliberate measures.

In Q3, we are pleased to report that NSN delivered record profitability on a non-IFRS basis.

NSN's net sales increased quarter on quarter and year-on-year to EUR3.5 billion.

NSN achieved underlying profitability for the second quarter in a row and even with restructuring, the NSN cash balance increased for the fourth quarter in a row.

NSN's focused strategy and solid execution is clearly translating into results.

NSN is implementing deep structural changes that go well beyond cost actions.

In particular, NSN has focused efforts on product quality, innovation and priority countries like Japan, Korea and the US.

Furthermore, NSN's leading technology position resulted in strong LTE growth in Q3.

These are all encouraging signs that NSN is on track to strengthen its position as an industry leader and ultimately become a more independent entity.

In summary, we recognize that we must continue to focus on our cash situation, our sales and marketing execution and our ability to deliver innovative products to people around the globe.

As we discussed last quarter, there are specific measures on which we are focused, as we move through this transition.

These measures include first, cash, to ensure that we have the resources to manage through the transition.

Two, Lumia device volumes, as a proxy for the progress we are making with new devices.

Three, Devices gross margin as a demonstration of competitiveness.

Forth, continued progress against our restructuring as measured by decreasing OpEx.

Clearly, we must make continued progress in several other areas of our business, like Mobile Phones and NSN, but the measures I just listed are of particular importance.

I would like to thank the thousands of Nokia employees who are working with us through the difficulties of a complex transition.

Today, our employees have clear direction, they are focused on our most critical priorities, they're proud of the innovation in our new Asha, Lumia and location-based products and we are all determined to deliver more value to our shareholders.

I will now turn it over to Timo to provide more details on the numbers.

Thank you, Stephen.

First, I would like to spend a bit of time taking you through the factors which impacted our cash in Q3, before providing more of an overview of the operational performance of our businesses in the third quarter.

We continue to have a strong focus on cash, as we execute our strategy.

On cash, my three key areas of focus are -- first, returning Devices & Services to positive operating cash flow as soon as possible; second, that NSN continues to be self funding in all aspects of its operations; and third, continuing to pragmatically monetize non-core assets.

In Q3, net cash and other liquid assets decreased by approximately EUR630 million sequentially, including a negative EUR130 million foreign exchange impact from translation of cash.

The other major items impacting our cash balance during the quarter were -- Nokia Group level net profit adjusted for non-cash items of positive EUR168 million; a negative impact from Nokia Group level net financial expense of approximately EUR300 million, primarily due to foreign exchange realized losses; a negative impact from the Nokia Group level working capital related outflows of EUR200 million, which included approximately EUR390 million of restructuring related cash outflows; Nokia Group level CapEx and acquisitions of EUR110 million; and Nokia Group level cash tax expense of approximately EUR90 million.

Excluding the restructuring related cash outflows, we generated a total of approximately EUR190 million cash from working capital in Q3.

Cash inflows from working capital excluding restructuring in NSN and Location & Commerce were partially offset by cash outflows from working capital excluding restructuring in Devices & Services.

Now, turning to NSN.

NSN generated for the fourth quarter in a row in Q3, a positive cash flow.

NSN contributed approximately EUR320 million to net cash from operating activities and generated cash from working capital, even after restructuring cash outflows of approximately EUR180 million.

At the end of Q3, NSN's contribution to Nokia Group gross cash was approximately EUR2 billion.

NSN's contribution to the Nokia Group net cash was approximately EUR620 million.

As I've commented in recent quarters, NSN's restructuring program combined with the Company's focus on improving it's financial performance is designed to enable the Company to end 2012 with higher net cash than at the end of 2011.

Even NSN's solid execution thus far relative to its strategy, we have increased confidence in its ability to be self funding in all aspects of its operations going forward.

Looking at non-core assets, earlier this month, we completed the Vertu divestment.

NSN completed the sale of its IPTV assets in two separate transactions earlier in the month, as well.

Both Nokia and NSN are continuing to explore further opportunities to monetize non-core assets.

At the Group level, we ended third quarter with gross cash of EUR8.8 billion and net cash of EUR3.6 billion.

We have a clean balance sheet, with a strong liquidity profile.

In addition, our gross cash is conservatively invested and is broadly readily accessible.

Now, on to a review of our operational performance in Q3.

In Q3, Devices & Services net sales of EUR3.6 billion were down 11% sequentially and 34% year-over-year.

Our Smart Devices net sales decreased 37% sequentially due to lower Lumia and [Symbian] net sales, this was partially offset by higher overall Smart Devices ASP's.

Looking at our Lumia volumes in more detail, we saw a sequential decrease in shipments to 2.9 million units, with declines in all regions, except for Middle East and Africa.

From the product level view, we saw sequential growth in the lower-priced Lumia offering, more than offset by declines elsewhere in the Lumia portfolio.

In Mobile Phones, net sales increased 3% sequentially due to higher volumes and stable ASP's.

The higher volume was largely driven by strong store sales start of our new Asha full-touch smartphones during the quarter, as well as sequential growth in our sub EUR30 family of devices, which more than offset a sequential decline in our qwerty volumes.

Our top five selling Mobile Phones had an ASP range of EUR12 to EUR76 reflecting good balance and breadth of product renewal.

During the third quarter, we shipped approximately 6.5 million Asha full-touch smartphones led by the Asha 305.

Devices & Services non-IFRS gross margin in Q3 was 18.5%, up 40 basis points sequentially.

The increase was primarily due to higher IPR income recognized in Devices & Services Other, which more than offset gross margin declines in both Smart Devices and Mobile Phones.

In Q3, Devices & Services overall non-IFRS gross margin was positively impacted by approximately 110 basis points related to foreign currency exchange, compared to the guidance I provided last quarter of approximately 150 basis points positive impact.

At the present time, we expect a 40 basis points positive impact to Q4 gross margin related to hedging activities, assuming static foreign currency rates at the end of Q3 levels.

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

In Q3, on a sequential basis, Smart Devices gross margin decreased from 1.7% to negative 3.5%.

During the quarter, we recognized approximately EUR120 million of allowances in Smart Devices, related to excess component inventory due to purchase commitments and inventory reevaluation.

These allowances relate to our current Lumia products, as we have further identified certain components on our books and components we have committed to purchase that we now believe we will not be able to use.

In addition, we have reduced the carrying value of some of our inventory.

Going forward, increases or decreases to Smart Devices inventory related allowances may be required in the future, depending on several factors, including future consumer demand, particularly related to our current Lumia products.

Looking at our underlying Smart Devices gross margin on a sequential basis excluding the allowances we made in Q3 and Q2, it declined by approximately 720 basis points to 8.8%, would soon be on gross margin at a higher level compared to Lumia.

Mobile Phones gross margin decreased sequentially from 24.1% to 21.7%, primarily due to a higher mix of lower gross margin devices.

Moving on to OpEx, in Q3, Devices & Services non-IFRS OpEx was EUR915 million, down 16% on a sequential basis and 19% year-over-year, reflecting OpEx control combined with structural actions we've taken.

We continue to make very good progress on our cost-reduction program.

At the end of Q3, Devices & Services and corporate common had approximately 38,000 employees, a reduction of approximately 15,500, compared to the year ago quarter and approximately 5,300 compared to Q2.

Devices & Services non-IFRS operating margin was negative 7.4% in Q3, up sequentially from a negative 9.1% in Q2.

The improvement was primarily due to lower OpEx and to a lesser extent, slightly higher gross margin.

Now, on to Location & Commerce.

In our quarterly results press release, we have started to disclose internal and external net sales for Location & Commerce, as we believe the primary factors influenced in the long-term performance of these two categories are distinct.

Internal net sales represent Location & Commerce sales in conjunction with Nokia Devices.

External net sales represent sales of content licenses, platform licenses and applications to customers other than Nokia.

Currently, Location & Commerce external net sales are predominantly related to map content licenses.

Over time, we expect external customers to increasingly use the Nokia Location platform, which enables new and innovative Location services and applications.

The important point here, is that as a key element of our strategy, we are establishing a horizontal Location services platform, built on top of our industry leading Location content.

Our additional disclosure of internal and external net sales will allow you to follow our progress, as we plan to scale up our licensing activities for the Nokia Location platform.

Then, back to results.

Reported net sales for Location & Commerce in Q3 were EUR265 million, down 6% sequentially, primarily due to lower internal sales to our Smart Devices unit.

External net sales declined slightly sequentially, due to lower map update sales in vehicle customers, almost entirely offset by the non-recurrence of the negative sales adjustment I called out last quarter.

In Q3, Location & Commerce non-IFRS gross margin was 80.4%, up 300 basis points sequentially.

This was primarily due to the non-recurrence of the negative sales adjustment which impacted Q2, as well as lower map update sales which carry lower gross margin.

Location & Commerce non-IFRS operating margin was 14% in Q3, down 50 basis points sequentially.

Then, on to Nokia Siemens Networks.

NSN had a stellar quarter, executing well against its focused strategy and restructuring program.

Continuing from the solid performance last quarter, NSN achieved a record non-IFRS operating margin in the third quarter of 9.2%, as well as solid cash flow generation for the fourth consecutive quarter.

In Q3, NSN reports the net sales were EUR3.5 billion, a 5% sequential increase.

Services represented approximately 50% of NSN's Q3 net sales compared to slightly over 50% in Q2.

On a year-on-year basis, sales increased 3% in Q3, despite the exit of certain non-core businesses.

NSN's non-IFRS gross margin in Q3 was 32.2%, up 560 basis points sequentially, reflecting unusually positive product and regional sales mix towards higher gross margin revenues, particularly in infrastructure equipment, driven mainly by its priority markets including Japan and Korea.

NSN demonstrated strong execution in its priority markets, as well as very good progress relative to their restructuring program, resulting in significant structural savings in both cost of sales and OpEx during the quarter.

At the end of Q3, NSN had approximately 60,600 employees, a reduction of approximately 14,300, compared to the year ago quarter and approximately 2,700 compared to Q2.

NSN's non-IFRS OpEx declined by 5% sequentially and 15% year-on-year despite top line growth reflecting good cost control and focus consistent with its strategy.

NSN's Q3 non-IFRS operating margin was 9.2%, up 840 basis points sequentially, primarily reflecting the stronger gross margin, lower OpEx and to a lesser degree higher net sales.

In summary, we continue to see encouraging signs that NSN is on track to strengthen its position and be structurally better equipped to cope with its challenging industry backdrop in the future.

Ultimately, becoming a more independent entity.

Now, turning back to Nokia as a whole.

First, a quick bridge from Nokia Group non-IFRS operating profit of 1.1% positive to our non-IFRS EPS of negative EUR0.07.

The biggest item aside from taxes and financial items was the EUR96 million for the 50% of NSN profit that is attributable to Siemens, which is made in the line item called Profit Attributable To Non-Controlling Interests.

In Q3, financial income and expenses net was negative EUR97 million, the higher expense on sequential basis was primarily due to NSN foreign exchange losses.

Nokia taxes were unfavorably impacted by Devices & Services taxes, as no tax benefits are recognized for certain Devices & Services deferred tax items.

If Nokia's earlier estimate [the long-rate] tax rate of 26% had been applied, non-IFRS Nokia EPS would have been approximately EUR0.042 and higher in Q3.

As a reminder, going forward on a non-IFRS basis, we expect the record quarterly tax expense of approximately EUR50 million related to our Devices & Services business and approximately EUR50 million related to Nokia Siemens Networks business.

We expect to continue to record taxes related to our Location & Commerce business at 26% rate.

Now, 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 Devices & Services and NSN.

In summary, as the CFO, I'm very focused on maintaining our strong financial position and improving our cash flow generation, particularly in Devices & Services.

I am also focused on NSN strong execution continuing, particularly regarding its cash generation.

Finally, I am overseeing ongoing activities to pragmatically monetize non-core assets over time, consistent with our strategic focus and priorities.

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)

Mike Walkley, Canaccord Genuity.

Congratulations on the strong improvements in NSN.

I was just wondering if you could help us understand the sustainability of the NSN margins.

Do you believe this is now maybe a 5% to 10% operating margin business longer term?

Or maybe you could discuss some of the favorable mix that for the second half of 2012?

Thank you.

Thanks, Mike, for the question.

First of all, in Q3, clearly we were very pleased with the extent to which NSN performed itself, and also how that contributed to the establishment of overall profitability for the Nokia Group on an operative basis.

Clearly, with our guidance for NSN for Q4, we have given some indication of how we think things net out in that time period of also allowing for seasonality in Q4 and so forth.

We are not updating our guidance as it relates to the long-term operating margin for NSN, which, as we have said in the past, was in the 5% to 10% range.

So, there is no update to that.

But our overall Q4 guidance indicates that we do expect another strong quarter for NSN in Q4.

So, maybe, if I may -- Timo here.

So, we had really unusually good mix both in product as well as geography.

Regarding product, we had more sales proportionately in Mobile broadband compared to Services, which contributed in-line with the NSN new strategy, as well as a better geographic mix concentrating more on the NSN-focused markets, particularly in APAC and in Japan and Korea.

So, those both contributed.

But I want to highlight that we have also made really good progress on improving the operations, so also the cost of goods sold and OpEx improvements are impacting here.

That said -- in that way, as I said, we think NSN is better positioned to be [with a] possible industry backdrop if that would then happen during 2013.

Jeff Kvaal, Barclays.

Stephen, you had mentioned, I think, in some prior comments today that you felt that the upcoming year would be a good year to make a dent in the ecosystem battle.

Could you clarify a little bit about how you feel that Windows Phone is positioned relative to the other two ecosystems.

Then, within Windows Phone, how are you feeling about your competition with Samsung and possibly HTC?

Thank you.

Great.

Good questions, Jeff.

Thank you.

First of all, to give a strategic perspective on the ecosystem battle, and particularly as I think broadly about 2013.

There's a dynamic that we are seeing and hearing about, and I think is somewhat spilling out into the public discourse as well, particularly in the US, and that is increasing concern amongst operators about the concentration of, if you like, power, that is landing with two particular ecosystems that are obviously quite strong out there today.

And as many trends have swung from West to East in the most recent time period, I think you're going to see, and I certainly hope you will see, a similar trend where operators starting in the West begin to say -- we need a third ecosystem to really begin to happen; we really need to double down on it; we need to cause it to happen.

Certain operators in the West have made those decisions in the past to combat previous changes in technology or introductions of hit products, and they have been successful in shifting things.

So, we are seeing a lot more energy being applied to -- as you think about 2013, how do we truly begin to shift that third ecosystem into a position of increasing strength.

Now, what I match that up against, is that strategic imperative that we are hearing from operators against what they have seen from us.

What they have seen from us is not just the Lumia 920 and 820, which you know as the first two devices that we are introducing in this next generation, but what they are seeing is now the full breadth of Nokia Smart Devices efforts from the last period of time being applied over the course of 2013.

In other words, what they are seeing over the course of 2013 is the further advances in areas of innovation, like PureView, like location-based services and so forth.

They're seeing a broadening of price points, and specific work we are doing with particular operators to give them advantage in their markets, and a variety of other things.

So, what they're combining is this perspective that we've got to get this third ecosystem really going, with the full strength of the Nokia effort now being visible.

We translate that into an opportunity that we look at as quite positive for 2013, as a whole.

It begins in Q4.

Now, clearly, we are introducing the products -- just the first two of those products in November.

We are doing that in very select markets with select operators.

An interesting side effect of that -- and this is indeed what we set out to do is, I can tell you that the absolute amount of marketing that's being spent against Lumia, and Windows Phone where it's being launched, when you combine the investments by ourselves, by our operator partners, through whom we leverage investment by doing specific work with them, and with Microsoft's help, those amounts are more than what we saw in the original Lumia launches.

So, that gives us some encouragement, as we get through this launch period, certainly in Q4, Q1, and beyond.

So, I think that's good.

Now, to your second question, as it relates to our position in the ecosystem.

It is very clear, and has been right from the beginning, that we established a unique relationship with Microsoft.

That unique relationship means, for example, that we are their development partner with the current release of Windows Phone, that our engineers are working on a day-to-day basis with Microsoft, that our planning efforts around what will be in Windows Phone are jointly done.

And you see that in the products that are being introduced within the Windows Phone environment.

Regardless of what someone chooses to name their product, it is the fact that the Lumia products are the only devices out there that have unique forms of innovation like PureView, like the PureMotion HD display, like Wireless Charging, like the location-based services and a variety of others.

The point being that, that close relationship with Microsoft translates into advantages in the ecosystem.

Now, I know there has been some commentary about the fact that certain OEMs have chosen to name their devices Windows Phone.

That's what they have called them.

Of course, any OEM has the opportunity to call their devices Windows Phone, if that's the name they choose.

In our case, we chose to continue to use the Nokia brand and the Lumia product name to highlight the fact that, unlike the others who are delivering sort of the standard Windows Phone 8 experience on the standard platform, we actually stand for something more.

We have more innovation and more unique differentiation.

As it relates to competition within the ecosystem, I feel quite good.

However, just to make -- put a really important point on it, our focus is not on that, at all.

It's about competing with Android and competing with Apple.

That's the principal competition.

Francois Meunier, Morgan Stanley.

I would like to come back first with the margins in NSN, which look to some extent to be true in Q3.

The guidance for Q4 is very strong as well.

How sustainable do you think those margins are going to be into next year.

Because obviously, the backdrop for this sector is pretty difficult.

We have seen the results of that here at the beginning of this week, which are not very good.

So, how sustainable do you think those margins are, especially if you are less aggressive on footprint?

The other question is actually on the Location business.

I think that's very kind of you to split the external side from the internal side.

Could you maybe comment on the difference of profitability between external side and internal side for Location, please?

Thank you.

Okay.

Timo here.

Thanks for the question.

As I said, NSN during Q3 had an unusually good product mix.

But I also want to highlight that unusually good product mix is in line with NSN strategy.

And that we are guiding for 8% positive non-IFRS operating margin for Q4.

So, it's important to note that NSN has also made sustained improvements in its operations, in areas of quality, innovation and efficiency.

For example, NSN now has 67 LTE contracts, and had very strong growth in LTE business.

So, I think those are the drivers you need to take into account when you look into 2013.

Then, on Location and Commerce, we really do not split the profitability that way, on external and internal.

So, unfortunately, I cannot give more color on that question.

We are really trying to highlight the different dynamics of these businesses from top-line perspective here.

Gareth Jenkins, UBS.

I just wondered if you could give a sense -- you've given a sense on the operator push in terms of Windows Phone 8. I wonder if you could just give a sense of the consumer pull that you see out there.

I know it's early days for Windows Phone 8, but the consumer pull on Windows Phone so far has been somewhat wanting.

I just wondered how you see that going forwards?

Is there enough in the new feature set, do you feel, to put your prices out at higher levels with higher gross margins.

Then I have a follow-up, if that's okay.

With respect to the consumer pull, it's hard to judge because, of course, the devices are not in consumer's hands.

And also, something that obviously is going to deliver a part of both our strategy and Microsoft's strategy, is to expose Windows Phone 8 and our product offerings in a series of steps.

For example, Windows Phone 8 was shown for the first time in June.

More capabilities were shown at our press conference on September 5. Of course, there is still more to be shared in terms of the capabilities and what's going to be delivered, that clearly we are using and will use much closer to specific device launches to continue to drive consumer interest.

One of the things that I will say is that our decision to talk quite a bit about the 920 and 820 early in September, obviously some months before device availability, was a very deliberate decision to make sure that we were in the conversation as it relates to the range of devices that are going to be available from our competitors during this season.

I'm sure many of you have seen the reviews, the comparisons, the comparisons of photography capabilities and so forth.

Clearly, we have been very, very pleased with the reviews that we are seeing there.

So, the signs are very positive.

But of course, we have to execute in-store, in order to do that.

As it relates to prices, clearly our intention with the next generation of products and so forth is to use those to improve gross margin overall for the Smart Devices business.

You said you had a follow-up.

Yes.

Thank you.

The follow-up is -- if Microsoft were to launch their own device, would you see that as a stimulant to the ecosystem, or a competitor?

Thank you.

I think it's certainly a stimulant to the ecosystem.

As I said earlier, we are encouraging of HTC and Samsung and Microsoft or whomever to have devices in the market, and to be making whatever investments that help spur the ecosystem on.

As it relates to the competitive aspects of it, of course, anyone else in the ecosystem is some form of competitor.

That being said, we are very proud of the unique differentiation that we are bringing to the Windows Phone platform.

When you look closely at what we are doing with those devices, it is innovation that we have invested in for a number of years.

It's not something that's easily replicated or reinvented or anything like that.

This is the results of taking those unpolished gems from our R&D labs, and landing them in the Lumia product.

Of course, that's well protected by Intellectual Property, and something that we would use to differentiate, regardless of who our competition might be.

Jim Suva, Citi.

Congratulations to you and your team at Nokia.

Regarding the Windows 8 phone launch, can you just maybe help us understand about the strategy or plan for the rollout?

Meaning -- should we expect a giant global rollout, or more selective regions?

Will you be pushing Windows 8 completely down your entire stack to compete against for the low-end emerging-market ASP?

Thank you, and congratulations.

Thank you for your comments.

So, in terms of the launch itself, we are starting very deliberately in select markets with select operators.

So, I think we talked about this a quarter or two ago when we said one of the things we had learned from our first efforts with Lumia is going too broad too early tends to dilute the efforts.

So, we are being very deliberate.

Of course, as I said a few minutes ago, that translates into the ability to leverage more money from our operator and Microsoft discussions, by having a smaller number of concentrated efforts.

So, we like that a lot.

Now, as it relates to price points for the devices, yes, it is our intent to push price points of devices lower and lower with Windows Phone.

That relates to my comment earlier about the Lumia 920 and 820 being only the first two devices of the next generation of devices.

And clearly, part of what we will be doing is pushing price points lower.

But I also want to relate this to the other really important part of our Devices & Services business, which is the Mobile Phones business.

The Asha full-touch products that we have introduced, of which we sold 6.5 million in Q3 alone, are really doing well.

They are doing well as smartphones.

Consumers in emerging markets are using those devices to connect to Facebook, to browse the Internet, to take advantage of what they perceive a smartphone needs to do.

But one of the unique capabilities of those Asha products is they have been deliberately engineered for cost-conscious consumers.

In other words, when you are browsing the web, the compression capabilities that we've built into our proxy browser can reduce the data traffic by as much as 90%.

The result is -- less money being spent on data plans.

In the Western markets with a Lumia product, with an Android product, with an Apple product, people aren't quite as sensitive to that as they are in many of these markets.

We are approaching that market differently.

GfK designated those products as smartphones in recognition of how they are being used, but they're a very different proposition that can compete effectively at those lower price points.

Stuart Jeffrey, Nomura.

A follow-up on that last Asha question, actually.

In the second half of last year, you did really well with Dual SIM in some of your first Asha products.

And then the momentum went out a little bit as you went through 2012, certainly in the first half.

I'm just a bit concerned that a similar dynamic might be coming now.

We have Asha doing very well with the all-touch platforms, but we have got a significant ramp in very cheap Android phones coming out with third-party proxy browsers available on those as well.

So, I was hoping you could perhaps just give a bit more detail as to why you think -- as the price difference, perhaps, between Android and Asha full-touch starts to contract, how you keep that product going, and we don't get a repeat of some of the issues that hit us in the first half of this year.

Thanks.

Yes, thank you.

The commentary in the first half of this year is quite germane.

Because when you look at that closely, the key driver of that was the fact that we were working on full-touch as part of the price-point bands were moving to full-touch and full-touch Android devices and so forth.

We weren't there with the products at that moment of transition.

We were a quarter or two later than that.

I think that explains some of what happened there.

We recognize that.

The work that we are doing in the Mobile Phones Group from an R&D perspective is very much focused on the innovation that we think is necessary in this space to continue to stay ahead and differentiate.

So, it is the case that you will see over the course of the next year and beyond, a number of new products and new innovation introduced to specifically tackle this market and to compete on different terms with Android in those lower price points.

So, while full touch itself is innovation and it's good work at those price points, there is still some remarkable work ahead that will land in new products coming in the Asha product range.

A lot of this has to do with how you operate in those lower price points, and what capabilities you provide.

You highlighted the proxy browser, for example.

Sure, there are third-party proxy browsers if the user can get their hands on them.

But our technology actually goes a step beyond that.

It's not just the browsing capability that is subject to the proxy effect and the reduction in traffic, but it's the social interaction as well.

So, when you're using the Facebook app, for example, you're getting data compression and other things.

There's a wide array of examples like that where built into the operating system from the beginning of Series 40, was this whole concept that the battery has got to last five days.

The data costs have to be remarkably low.

That something inherent in how the products have been designed, as opposed to trying to take older versions of Android and cram them on cheaper hardware platforms.

Mark Sue, RBC Capital Markets.

The big investor concern is that Nokia might run out of cash before Windows Phone builds a successful following.

With the exclusivity and strong ties you point to with Microsoft, do you think they might double down and help you increase their platform payments to Nokia?

If I look at the net of platform payments in your royalty commitments, I think it's only incremental.

It's particularly coming at a time when you need a lot of sales and marketing to ensure success of your new Lumias.

So, I wouldn't want to speculate on the future of the agreement with Microsoft or anything like that.

I mean, our relationship with Microsoft is going very well.

We're actually -- (multiple speakers)

Does it get stronger, Stephen?

Does it get stronger or does it stay the same?

I think what you should expect to see -- I don't know how to characterize stronger, but it certainly gets better with each step that we take.

What I mean by that is we now have a lot more experience working with them.

Now, we have been their development partner through the full software cycle associated with Windows Phone 8. We are continuing that.

The planning process is now well underway for each of the subsequent versions; we are working in lock-step with them on that.

As well as on the location-based services side, where I think one of the things that's interesting to note in the industry is the perceived importance of geospatial and location-based services has clearly gone up.

That's not just because of what happens on various other platforms with map quality and so forth.

It's the recognition that these location-based services matter a great deal in resolving search, and delivering great user experiences and so forth.

Remembering that Microsoft has a critical dependency on us for location-based services, highlights the importance of this relationship working well in both directions.

So, it's a relationship that is very high volume, very intense, very connected.

At the end of the day, we are proud of the work that's being done.

They love our devices.

We love the work that they are doing with the operating system.

We are working with them every day to make it better.

Didier Scemama, Merrill Lynch.

I just would like to ask you about basically the outlook for the feature phone business on a medium-term basis.

Clearly, you are putting a lot of investments in the Asha product line.

I was just wondering, given that, [basically] all your competitors are going out of the market -- outside of the Web books market, how do you see the outlook in terms of volume and value on a five-year basis for this industry?

I have a quick follow up, thank you.

Okay.

Thank you for the question.

Timo, here.

Clearly, if we look at five years out, that is a long time, but that's what you said, we expect that that market will continue to be a significant market.

I think we have said 2015 out over EUR20 billion market.

If you have a very strong market share, as we are having currently from that market, that is a large business.

On top of that, we need to take the possibility that we'll build further innovation on top of the Asha platform on the full-touch, and then push all the time, the boundary higher, as much as we can, with the technology and innovation we bring to the market.

I think that's as much as we can say about longer term.

But when you look at the marketing drivers, they continue to be innovation, but also the efficiency.

Having 77 million of volumes will continue to give us also benefits on the efficiency side of the equation.

Great, and then on the cash flow -- (multiple speakers) Just on the cash flow side, I was just wondering, if I add the cash contribution from NSN, and also take off the EUR200 million subsidy for the platform coming from Microsoft, it looks like Nokia has burned about EUR1 billion-plus of cash during the quarter.

Is that the right number?

No, I don't think that's the right way to look at it.

Basically, if you look at the net cash from operations, and NSN contribution to that, which is EUR320 million, so we end up kind of like outside NSN being about minus EUR750 million.

Out of that big pot is FX, finance, and tax.

So, you could say EUR200 million to EUR250 million.

We have about EUR200 million of restructuring, and then the negative operating results is about EUR260 million.

I think that's more the right way to look at it.

If you further split it to net working capital, we see maybe EUR50 million to EUR100 million change in net working capital in Devices & Services.

Richard Kramer, Arete.

It's Richard Kramer from Arete.

Stephen, I'd like to challenge this notion that operators can shift consumers towards a third ecosystem, given they are really facing cash constraints in many markets, and as you move West to East, most of the markets are prepaid and less influenced by operators.

So, my question is -- how do you draw the line between what's, from what you just said, seems to be an S40 offering that you are going to put up against low-end Android in some markets?

The new efforts you've described about bringing low-cost Win Phone 7.5 products out, and the initial Win Phone 8 pricing, which doesn't seem to be significantly under rival platforms.

Will S40 be your third ecosystem or Win Phone or both?

How would you manage that in terms of the different price points you need to hit in the market?

Thank you.

Thanks for the question.

Of course, at the end of the day, to your opening comment, consumers get to decide.

But, of course, having operator support, the training, the incentives with sales people, the live devices in their hands and so forth, can help to influence that.

Our studies have made that pretty clear.

Of course, time will tell.

But the consumers do ultimately get to decide.

As it relates to the different platforms, our clear focus for a broad ecosystem offering is with Windows Phone.

That's what we're doing.

The offering with Series 40, I tend not to think about it as the same breadth of ecosystem or capability that you would see with either a fully functional Android device or a fully functional Windows Phone device.

As you get down to those lower and lower price points, the actual capabilities tend to diminish, or actually said from a consumer prospective, the things that they are trying to do, the focused areas of their interaction tend to narrow somewhat.

In large part, because of data constraints.

For example, Facebook, simple Internet browsing, messaging of some form, if you're on a Blackberry device it might be BBM, it might be WhatsApp and so forth.

What we actually expect to see is, yes, Windows Phone prices will be pushed down, and you will see product offerings that take us lower and lower in price point.

But we also think, across the low band of prices, we have an opportunity for very cost-conscious consumers to give them a beautifully designed device at significantly lower prices that gives them some of the basic smartphone capabilities, as well as the ability to download certain forms of apps and so forth.

But at those price points, it's still quite a while, at the lowest price points before things like true multitasking and other things that typify either Android or Windows Phone come into play.

So, there's a lot of different dynamics there to consider.

Final comment on your question, you are right that the tendency from West to East is that operators have less influence.

However, in the vast majority of countries, the trend is towards more and more operator influence.

We are seeing more of that in virtually every country.

That is certainly the case -- I'd use China as an example, where over the last 18 months the operators have significantly changed the dynamics, particularly at lower price points, as they have driven programs to increase the number of subscribers at the expense of profitability.

One quick follow-up on the US market.

You had 300,000 phones in North America last quarter.

I mean, at what point do you say -- there's just simply not enough volume there for Nokia to sustain the investment you need to make with the operators?

We think the United States is a very, very important market for signaling purposes.

It's where much of the innovation is being experimented with -- where it's being driven from, and so forth.

We also think the operators in the United States are the furthest along in their experiences with the other operating system partners and, therefore, are the most likely to be making investments in the third ecosystem.

So, we think it's a really, really important market.

We do over-index in our investments on that market.

Clearly, we are in a transition quarter where having spent most of the quarter explaining to the US population about the great innovations that are coming in Q4, one could reasonably expect that that would impact sales in Q3.

Tim Long, Bank of Montreal.

I just wanted to get to a comment on the outlook.

You talked about lower seasonality in Q4, I think referring to Smart Devices.

Could you just let us know what is causing that?

Do see that as an industry issue, competitive issue?

Also, how do you see seasonality in the Mobile Phone market into the fourth quarter?

Do you see the same type of issues?

Or do you think it's more seasonable because of where the product set is?

Thank you.

Okay.

Timo here.

Thank you for the question.

When you look at our guidance for Q4, we commented that we expect a lower-than-normal benefit from [industry seasonality] in Smart Device volumes in Q4, compared to the 6.3 million units of Smart Device volume we had in Q3.

In Q4, we are in ramp up, regarding the new Windows Phone products.

So, it's important to point that we expect to continue to ship also significant volumes in Windows Phone 7.5, as well as Symbian.

So, we need to take that into account when we look at it.

But, clearly, we would expect if you just take that 6.3 million as some kind of -- sort of a fixed point, then Symbian to go down, which would mean that Lumia would go up in totality.

Then, on Mobile Phone seasonality, yes, we would expect to see some seasonality regarding the Mobile Phones business given the [holidization].

Okay.

If I can just close on the call.

I think just starting overall, we see it as an important milestone for the Nokia Group overall to achieve profitability on an operative basis.

We think that's an important milestone.

Clearly, we have more important milestones ahead.

So, even though while Q3 was a difficult quarter in Devices & Services, we are encouraged that we are making progress through this transition.

Moving forward, we are very focused on managing our financial resources, improving our competitiveness, returning Devices & Services to positive operating cash flow, and ultimately providing more value to all of you, our shareholders.

Thank you for your participation today.

We look forward to your comments in the days ahead.

Ladies and gentlemen, this concludes our conference.

I would like to remind you that during the 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 13 through 47 of our 2011 20-F and in our quarterly results press release issued today.

Thank you.

Ladies and gentlemen, thank you for joining today's call.

You may now disconnect.