諾基亞 (NOK) 2012 Q4 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the Nokia fourth-quarter 2012 and full-year 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 you 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 fourth-quarter and full-year 2012 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 today.

During this call, we'll 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 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 financial 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.

We are very encouraged that Nokia's execution against our business strategy has started to translate into financial results.

Most notably, I'm very pleased that today I can report to you that the Nokia group reached underlying profitability for both Q4 2012 and the full year of 2012.

While we remain focused on moving through our transition, we're encouraged that we are increasing our product competitiveness, changing our clock speed, and better managing our costs.

All of these efforts are aimed at improving Nokia's long-term financial performance.

While the first half of 2012 was very challenging for Nokia, we are committed to conserving cash and lowering our operating expenditures.

We are doing this while still investing in technologies to differentiate Nokia.

The Nokia group ended 2012 with gross cash of EUR9.9 billion and net cash of EUR4.4 billion.

On a sequential basis, this represents a gross cash increase of EUR1.1 billion, and a net cash increase of EUR800 million.

And while this represents decline on a year-over-year basis, we achieved this result while also incurring restructuring-related cash outflows of approximately EUR1.5 billion, and paying a dividend of approximately EUR750 million in 2012.

Thus, from the a liquidity perspective, we further strengthened our profile and ended the year with a solid cash position.

We see this as a tremendous accomplishment in the context of Nokia group's overall challenges.

At the same time, we are moving through the Devices & Services transition with agility and efficiency.

This progress translated into improved Q4 results, in which our Devices & Services Q4 non-IFRS operating margin returned to a positive level.

During the fourth quarter of 2012, we shipped 6.6 million Smart Devices units, of which 4.4 million were Lumia devices.

We are pleased with the initial consumer response to our new Lumia devices during our early ramp-up period, which also experienced some supply constraints.

The innovation in the Lumia 920, 820 and 620 started to capture consumers' attention.

People are responding positively to our imaging capabilities, navigation features, and our distinct Nokia design.

The feedback from operators continues to be very encouraging, as their confidence in Lumia increases.

Now, more than ever, operators are pushing for a third ecosystem to emerge, and they are committing to more marketing, more training, and more in-store displays to help Windows Phone and Lumia grow.

At the same time, we continued to improve how Nokia sells and markets our products.

This is a key focus area for the team, as we expand Lumia to more price points and markets.

Our Smart Devices team moved through a radical transition, and they are focused on delivering more competitive devices to people around the globe.

In our Mobile Phones business, we were able to close a competitive gap at the higher end of our portfolio.

We saw this represented by a solid Q4, in which Mobile Phones volumes increased quarter-on-quarter to 80 million units.

9.3 million of these units were Asha Full Touch smartphones, up from 6.5 million units in Q3.

During the year, we launched more than a dozen Asha devices, including a range of dual SIM products and affordable Full Touch products.

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

In key markets like India, Russia, and Saudi Arabia, Asha was the number-one selling smartphone during certain months.

At the same time, the markets where we sell Asha products remained highly competitive.

We expect a seasonally weak Q1, and we expect competitive pressures to remain intense.

Our Location & Commerce business had a solid financial performance in Q4 with improved full-year non-IFRS profitability.

We were excited to introduce the HERE brand in Q4.

HERE aims to take our recognized location innovation and make them available to the entire industry, while continuing to show some of the most advanced innovation on our Lumia product line.

With this approach, we believe we can gain more scale and more competitiveness across our mapping and location experiences.

And, NSN had a tremendous and successful 2012.

They delivered record underlying profits and cash.

NSN has exceeded expectations, and we are delighted with their commitment and focus.

Third-party market share data indicates that NSN has captured a solid number two position in the overall wireless, broadband, and LTE areas.

This validates NSN's strong progress.

Importantly, Q4 2012 marks NSN's third quarter in a row of underlying profitability, and while we expect seasonality to impact the first quarter of 2013, we are pleased with NSN's strong execution of its strategy, focused on mobile broadband and services.

We are focused on making sure NSN remains a stable partner for its customers and continues to make progress towards becoming a more independent entity.

2012 has been a dynamic and challenging year for our employees.

However, we are proud that our Nokia and NSN teams responded to the situation, and are managing through the difficulties we face.

Over the last several weeks, we have received feedback from Nokia employees through our internal surveys and employee health reports.

Despite the challenging environment, our organizational health and the spirit of our people has improved quarter-over-quarter during our transition.

We view this as an important accomplishment, because the overall success of the Company depends on many things, but most importantly, on the health of its organization.

In addition to reaching underlying operating profitability for full-year 2012, we have also improved our team's ability to align, execute and renew.

We believe this signals that we are making progress to create a stronger Nokia that can deliver improved results for our customers, our employees, and ultimately, our shareholders.

With that, I'll pass it over to Timo.

Thank you, Stephen.

First, I would like to spend a bit of time taking you through the factors which impacted our cash in Q4, before providing more of an operational overview of the quarter.

I will then spend a bit of time commenting on Location & Commerce before discussing our Q1 outlook more broadly.

So, let me start with cash.

This remains an area of focus as we execute our strategy.

On cash, I have been emphasizing that my key three areas of focus are, first, returning Devices & Services to positive operating cash flow as soon as possible.

Second, NSN continues to be self-funding in all aspects of its operations.

And third, continuing to pragmatically monetize non-core assets.

We made good progress on all of these three areas during Q4, and as we enter 2013, we remain especially focused on returning Devices & Services to sustainable positive operating cash flow as soon as possible.

On a sequential basis, Nokia group gross cash increased by approximately EUR1.1 billion in Q4.

Nokia group net cash and other liquid assets increased by approximately EUR800 million sequentially.

The major items impacting our net cash balance during the quarter were Nokia group level net profit adjusted for non-cash items of positive EUR784 million.

A negative impact from the Nokia group level working capital-related outflows of approximately EUR50 million, which included approximately EUR480 million of restructuring related cash outflows.

A negative impact from Nokia group level net financial expense of approximately EUR80 million.

Nokia group level cash tax expense of approximately EUR90 million.

Nokia group level CapEx and business acquisitions of approximately EUR160 million.

Sales of fixed assets of approximately EUR180 million.

Proceeds from business divestments of approximately EUR110 million.

And approximately EUR85 million increase related to the equity of the convertible bond.

Excluding the restructuring related cash outflows, we generated a total of approximately EUR430 million of cash from working capital in Q4.

This was almost entirely due to NSN, driven by a reduction in inventories and a decrease in receivables.

Excluding restructuring, Devices & Services had a small cash outflow from working capital as an increase in receivables, was largely offset by an increase in payables.

NSN generated cash for the fifth quarter in a row in Q4, contributing approximately EUR740 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 Q4, NSN's contribution to the Nokia group gross cash was approximately EUR2.4 billion, and NSN's contribution to the Nokia group net cash was approximately EUR1.3 billion.

Over the course of the full year 2012, NSN's contribution to Nokia group net cash increased by EUR1.3 billion, even after restructuring cash outflows of approximately EUR650 million, reflecting strong execution of its strategy and focus on cash performance.

NSN has further strengthened its foundation in terms of its ability to be self funding in all aspects of its operations.

Moreover, a healthy balance sheet position is an important part of NSN's progress towards becoming a more independent entity.

Looking at non-core assets for Nokia overall, during the quarter, we announced the sale and leaseback of our head office building here in Espoo, with a selling price of EUR170 million.

This follows the completion of the Vertu divestment for approximately EUR100 million.

NSN announced the planned sale of its business support system and optical network businesses in early December as a further step in its transformation, following the completion of the sale of five non-core businesses during the course of 2012.

We continue to have a clean balance sheet with a strong liquidity profile, which was enhanced by the successful convertible bond issuance in the early part of the quarter.

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

Now, on to a review of our operational performance in Q4.

In Q4, Devices & Services net sales of EUR3.9 billion were up 8% sequentially and down 36% year-over-year.

Our Smart Devices net sales increased 26% sequentially, due to higher Lumia net sales, which more than offset a decline in Symbian volumes.

Looking at our Lumia volumes, we saw a sequential increase in shipments to 4.4 million units, with growth in all regions, particularly in Europe and North America.

During the fourth quarter, we shipped approximately 2.2 million Symbian devices.

As I commented on the call two weeks ago, we currently expect Symbian to account for a significantly smaller portion of our overall Smart Devices volumes in Q1, as we continued to manage down our shipments.

In Mobile Phones, net sales increased 4% sequentially, primarily due to higher volumes.

The higher volume was largely driven by higher sales of our Asha Full Touch smartphones during the quarter, as Stephen mentioned.

Then turning back to Devices & Services overall, Devices & Services non-IFRS gross margin in Q4 was 23.9%, up 540 basis points sequentially.

The increase was primarily due to Smart Devices, the positive impact from nonrecurring IPR income of approximately $50 million, and the lesser extent, Mobile Phones.

In Q4, Devices & Services overall non-IFRS gross margin was positively impacted by approximately 65 basis points related to foreign currency hedging, compared to the guidance I provided last quarter of approximately 40 basis points positive impact.

At the present time, we expect a 30 basis point negative impact to Q1 gross margin related to hedging activities, assuming static foreign currency rates at the end of Q4 levels.

So there is approximately 100 basis point sequential gross margin headwind going into the first quarter from foreign exchange.

In Q4, on a sequential basis, Smart Devices gross margin increased from negative 3.5% to 18%.

This was primarily due to the absence of approximately EUR120 million of inventory-related allowances which were taken in Q3, as well as a positive mix shift towards higher gross margin Lumia devices.

Mobile Phones gross margin increased 50 basis points to 22.2%, primarily due to greater cost erosion than price erosion.

Then moving on to OpEx.

In Q4, Devices & Services non-IFRS OpEx was EUR869 million, down 5% on sequential basis and 31% year-over-year.

As we mentioned a couple of weeks ago, Devices & Services' OpEx was lower than we planned at the start of the quarter, primarily due to a greater focus on our marketing spend, as well as the restructuring actions we have been taking to improve the efficiency of the organization.

Q4 Devices & Services OpEx also benefited from the divestment of Vertu.

We are continuing to make very good progress on our cost reduction program and we expect this momentum to continue into Q1.

On page 8 on the press release, we have again provided a table outlining the total restructuring charges and related cash outflows already taken, as well as our forward-looking expectations.

In total, we now expect cumulative Devices & Services restructuring charges of approximately EUR1.6 billion before the end of 2013.

This is approximately EUR200 million less than we estimated earlier.

By the end of 2012, we had already recognized the vast majority of the restructuring charges related to this program, approximately EUR1.4 billion out of the estimated EUR1.6 billion.

At the end of Q4, Devices & Services and corporate common had approximately 33,000 employees, a reduction of approximately 16,500 compared to the year-ago quarter, and approximately 5,000 compared to Q3.

Devices & Services non-IFRS operating margin was 1.3% in Q4, up sequentially from a negative 7.4% in Q3.

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

Now on to Location & Commerce.

Reported net sales of Location & Commerce were EUR278 million, up 5% sequentially.

This was primarily due to higher external net sales, driven by a higher consumer uptake of vehicle navigation systems, as well as seasonally higher sales of personal navigation devices to customers.

This more than offset lower internal sales of Smart Devices unit.

In Q4, Location & Commerce non-IFRS gross margin was 82%, up 160 basis points sequentially.

This was primarily due to a higher gross margin within the vehicle segment, as well as seasonally higher sales to personal navigation device customers, which carry a higher gross margin.

Location & Commerce non-IFRS operating margin was 14.4% in Q4, up 40 basis points sequentially.

One important point to note going forward.

Following the launch of the HERE brand in November last year, we are renaming the Location & Commerce business to HERE business for reporting purposes.

From Q1 onward, you will see this in our disclosures.

Finally, on Location & Commerce, I wanted to provide some color on our Q1 guidance and the drivers.

There are a couple of important dynamics to note as it relates the to Q1.

First, we expect lower recognized revenue from internal sales, which carry higher gross margin.

As a reminder, we have been deferring part of the revenues attributable to Location & Commerce associated with our navigation service since the start of 2010, when we launched our navigation service, bundled with our Symbian devices.

We have then been recognizing those deferred revenues in Location & Commerce over eight quarters.

Note that our Symbian shipments peaked in Q4 2010.

As our Symbian volumes have declined sharply since then, we have been deferring less navigation-related revenue.

Consequently, the quarterly amounts we recognized from the pool of deferred revenue is expected to decline significantly in Q1 2013, compared to Q4 2012.

Also, as we evolve the pricing structures of the map licenses to reflect changing industry dynamics, the increase in Lumia volumes is not yet compensating for the decline in Symbian volumes, and this is expected to have a negative impact in Q1.

Second, within external sales, we expect a higher proportion of lower gross margin sales in Q1 2013, compared to Q4 2012.

Then, on to Nokia Siemens Networks.

NSN had another record quarter, executing well against its focused strategy and restructuring program.

Continuing from the strong performance last year, NSN achieved an all time high non-IFRS operating margin in the fourth quarter of 14.4%, as well as a strong cash flow generation for the fifth consecutive quarter.

In Q4, NSN's reported net sales were EUR4 billion, a 14% sequential increase.

Services represented approximately 50% of NSN's Q4 net sales, the same level as in Q3.

On a year-on-year basis, sales increased 5% in Q4, despite the exit of certain non-core businesses.

NSN's non-IFRS gross margin in Q4 was 36%, up 380 basis points sequentially, reflecting a strong performance in higher-margin product categories including software sales, strong execution in NSN priority markets, higher overall net sales, as well as the positive impact from nonrecurring IPR income of approximately EUR30 million.

NSN demonstrated a continuation of its progress relative to their restructuring program, resulting in significant structural savings, both in cost of sales and OpEx during the quarter.

In the press release today, we announced that NSN is increasing its cost savings targets and is now targeting more than EUR1 billion reduction in its non-IFRS annualized operating expenses and production overhead by the end of 2013, compared to the end of 2011.

This compares to its previous target of EUR1 billion.

In total, we now expect NSN cumulative restructuring charges of approximately EUR1.3 billion before the end of 2013.

This is approximately EUR100 million higher than we estimated earlier.

By the end of 2012, NSN had already recognized virtually all of the restructuring charges related to this program.

At the end of Q4, NSN had approximately 58,400 employees, a reduction of approximately 15,300 compared to the year-ago quarter, and approximately 2,200 compared to Q3.

NSN's non-IFRS OpEx increased by 6% sequentially, but it was down 11% year on year despite top line growth, reflecting good cost control and focus, consistent with its strategy.

NSN's Q4 non-IFRS operating margin was 14.4%, up 520 basis points sequentially, primarily reflecting the stronger gross margin, and to a lesser degree, OpEx leverage.

Then turning back to Nokia as a whole.

In Q4, financial income and expenses net was negative EUR66 million.

The lower expense on a sequential basis was primarily due to the recognition of income related to one of our investments.

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

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

Now, turning on to our guidance.

In the press release, you will find the full details of our guidance, but I just wanted to spend a little bit of time discussing a couple of points and remind you that we are continuing to operate with limited near term visibility in Devices & Services and Nokia Siemens Networks.

For Devices & Services, we expect the Q1 non-IFRS operating margin to be negative 2%, plus or minus 4 percentage points.

As we stated in our press release, this outlook is based on Nokia's expectations regarding a number of factors, but I just wanted to note a couple of reminders.

As I commented earlier, we currently expect Symbian to account for a much less significant proportion of our overall Smart Devices volumes in Q1 as we continue to manage down our shipments, so please take this into account in your models.

Also, as a reminder, following the divestment of Vertu, Devices & Services other revenue is almost entirely comprised of our IPR income, which we have said has an annual run rate of approximately EUR0.5 billion.

During Q4, Devices & Services other revenue of EUR160 million benefited from nonrecurring IPR income of approximately EUR50 million, which will be a significant margin and revenue headwind for Devices & Services other going into the first quarter.

For NSN we expect the Q1 non-IFRS operating margin to be positive 3%, plus or minus 4 percentage points, compared to the 14.4% in Q4.

This outlook's based on expectations regarding a number of factors also listed in the press release.

As a reminder, please note that NSN's Q4 results benefited from the impact of nonrecurring IPR income of approximately EUR30 million, which will be a slight headwind for NSN going into the first quarter.

In summary, while we can be pleased with the progress we have made, particularly in the second half of 2012, I am very focused on maintaining our strong financial position and improving our cash flow generation, particularly in Devices & Services, as well as continuing NSN's strong execution.

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.

(Operator Instructions)

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

I just wondered if I could ask a question around the Microsoft agreement.

I think in the statement, you say that, quite naturally, that from here you'll have a negative payment over the life of the agreement.

I just wondered if you could help us understand that.

Is it based on volumes or is there a contingent liability you have to pay regardless of volumes going forward?

And I have a follow-up, thank you.

Timo here.

Happy to clarify that.

First of all, we are talking about a multi-year agreement, as we have said earlier, and I think it's very important to note that when we look at 2013, even if we now are expecting that over the residual lifetime we would be a net payer when we compare the minimum royalty to the platform payment for 2013, these net amounts are not in any base material for us.

Did you have a follow-up, Gareth?

The follow-up is somewhat unrelated.

Your employees in Devices & Services now, 33,000, I notice there's no additional cash restructuring for 2014.

Do you actually feel that by the end of this year you'll be at the right size for Nokia going forward, so the business in terms of innovation requirements and investment, et cetera, or do you see further restructuring programs going forward?

Thank you.

Yes, Gareth, so as I have said earlier, so there really is a bit of a dynamic equation.

At the moment we see that this EUR3 billion by the end of 2013 is the right target for the Company.

Of course if the situation would significantly change, either to positive or negative, we need to be able to react to that.

At the moment we think that's the right target, and in that sense, we are significantly down on the execution of the restructuring programs, what we have announced so far.

Just to add to that, Gareth, we did announce our last major restructuring in June of last year, and various elements of that have been kicking in, most recently, there was an announcement related to the IT organization, which was a final component of the June restructuring.

There's still some activity in work or in play, but in terms of the critical mass of resources that we require for research and development to drive innovation, of course that's been a major focus of ours to properly protect and in some cases even to enhance.

So we're very comfortable with where we stand from that perspective, and of course you see it in the products.

You see it in the Lumia 920.

You see it in the Asha product line.

You see it from Location & Commerce.

Thank you, Gareth.

Operator, next question, please.

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

The Asha Touch is doing phenomenally well, but I was wondering if, in a standalone ecosystem, maybe you could explain why you expect that to be sustained, given that android price points are dropping below the $100 range, and have a greater scale benefit from apps and component supply.

Also, linked to that, the ecosystem issue and Windows Phone, there's been talk about Google not supporting Windows Phone with their own standard apps, with ActiveSync not being supported, and given that I presume Android is a key area where you're looking to capture customers, could you talk about how you get around that particular issue?

Thank you.

With respect to Asha, it's important to look at what the key differentiators are for the Asha product line, particularly the Full Touch product line.

A principal focus there is the provision of devices that have a lower overall total cost of ownership.

So it is the case, through the use of for example, proxy browser technology, through how we've implemented things like the Facebook client and so forth, that the overall cost of ownership of one of those devices on a data network is substantially lower and consumers are recognizing that.

That's a key part of how we sell.

It is the case that there is a healthy eco system of applications around the Series 40 and Asha products.

It's a very major source of downloads of applications and content for us.

It's something that, very much, we're interested in continuing to drive and we think that part of the attraction here, is that for someone contemplating developing for example for the Windows Phone ecosystem, part of our conversation with one of those developers is if they also work against the Asha environment, we could offer them an opportunity to make their applications visible and marketed to a very much larger customer base than virtually any ecosystem, so there's some strength there.

Switching to the second question, which was on the question of interaction with GMail and so forth from Windows Phone, it is the case that Google has announced something.

A couple things to point out.

First of all, it's really a function of how frequently and in what way e-mail transfers to a Windows Phone device, so it's about a particular aspect of how that's done.

There are also other alternative technical means to achieve the same type of thing, and while we've made no announcements, clearly we're looking very closely at how to make sure our consumers' needs are quickly met.

Thanks, Stuart.

Operator, next question, please?

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

Thanks for taking my question.

I was interested in understanding a bit more your volume trajectory we're seeing in China, that's one region where you've seen particularly noticeable declines on a year-on-year basis as well as on a sequential basis, clearly a high profile market, one that's growing on an underlying basis.

So I'm just wondering if you could give us a bit more detail as to how the efforts are going in China to turn that around for Nokia.

Thanks.

Thanks for the question.

Indeed, it's the case that we're shifting into a mode now where we're essentially starting with a fresh, new portfolio of products.

The Lumia 920, which is on China Unicom's network, and the Lumia 920-T on the China Mobile network, combined with other Lumia products that you are seeing or will soon see land in China, really give us that fresh approach to the Chinese market with products that, first of all, are very competitive to capture a much larger share of value.

If you look at some of what's happened as numbers have gone down and so forth, Nokia has been in the position where it's been at lower and lower price points, lower value capture and so forth, obviously causing stress from a gross margin perspective and so forth.

What we're proud of is that we're going back into that market with some very competitive high-value products, as well as a full ecosystem of products, so that we begin to be more aggressive in lower price points as well.

You've seen us do things like this already with the Lumia 620.

You'll see a number of other efforts in the months and years ahead that really go after that.

So we're excited about how things are going in China and just a comment on current activities.

The consumer response from China is very positive.

It is a market that generally has been the case, it's certainly the case in China as well that demand is outstripping supply at this point.

Thank you, Andrew.

Operator, next question, please.

Your next question comes from the line of Tim Long with BMO Capital Markets.

Thank you.

I was wondering if I could get some clarity on the comments about the channel inventory being towards the upper end of the range.

Just curious where this is, and which products, and does that mean -- what does that mean into Q1 seasonality, particularly as it relates to the Lumia products?

Thank you.

Thanks for the question.

Timo here.

Yes, we said we are at the upper end of our normal four to six week range, so we are not seeing anything highly unusual here, and you asked, how does this relate to Lumia.

So as we have said on the Lumia 920 in particular, we have been supply constrained, so clearly we can say that the inventory has not been in that particular area.

And as you look at our volumes, 6.6 million in Smart Devices, versus 80 million in Mobile Phones, so clearly we said that inventory on volume terms is slightly higher.

So just using the math here, it needs to be more on the MP side.

Netting that out, does that mean that the supply constraints mean that Lumia could buck normal seasonality into Q1 despite the inventory situation?

If I take a shot at this one, so I would say that clearly depends on both demand trajectory and the supply trajectory at the moment.

So we are now building more capacity as we speak to match the demand, and we would expect that at some point in not too distant future, we would be in a situation where we are no longer constrained, but clearly it's both drivers which impacted.

We are still clearly on the ramp-up on the new Lumia products.

Thank you.

Thanks, Tim.

Operator, next question, please.

Your next question comes from the line of Simon Schafer with Goldman Sachs.

Thanks so much.

I want to follow on just on gross margins and Smart Devices.

A good uptick there sequentially.

Just with the Symbian phase-out in the beginning of the year, I was just wondering how sustainable the improvement might be in this segment, and any sort of color on what the mix composition is now in your Lumia portfolio.

That would be very helpful.

Trying to understand as to whether you think this is a sustainable updrift now from both a pricing and a gross margin perspective in that portfolio, whether we should expect less of an improvement going forward.

Thanks.

As you know, Simon, we are not giving gross margin guidance going forward.

We have 18% -- had 18% gross margin now in Q4, and clearly a big impact for sequential improvement was also that we did not have the allowances when you compare to Q3.

But we also have said that the Lumia range has carried a higher gross margin than Symbian now, and in that sense, Symbian going down should have a slight positive impact.

But then again, we have to observe that overall, we are going to a seasonally-lower quarter, which then will from, just a capacity utilization efficiency perspective in those situations, be a slight headwind to gross margin as well.

So we need to take those factors into account as well.

And just to take it up one level to give you perspective over a longer period of time, clearly our principal investments from an R&D perspective, as we have transitioned into someone who uses the Windows Phone platform, is focused on differentiation, focused on capabilities that are new or unique on the Windows Phone platform and the Asha platform as well, and it's clearly our intent to really focus on and do the very best we can as it relates to gross margin, because it's in one way a measure of that distribution.

We look very closely at that as a measure of our R&D productivity, which is now far more focused on differentiation than historically it was, where there's a large component of it, focused on just the underlying plumbing of operating systems.

Thank you.

Operator, next question, please.

Your next question comes from the line of Francois Meunier with Morgan Stanley.

Thanks for taking my question.

First question is on inventories, actually.

They look really low, so that's good for the cash levels in Q4.

But is it something which would remain at that such a low level in Q1 and Q4?

That's the first question.

The second question is really, regarding your strategy again, in the very low end smartphone market.

How difficult would it be for you to move to Android, or is it something that clearly you're ruling out at the moment?

Okay, thanks, Francois.

I'll start with the inventory question.

So you are, I'm sure, referring to the inventory line in balance sheet, and in that sense I'm not sure if we're now talking about the full group or NSN, but clearly on group level, NSN went down I think Devices & Services has also been efficient in managing its inventory in the balance sheet, and we, of course do our utmost best to continue to manage our inventory as well as possible.

So it's an end of the year clean-up, basically?

I would say it's more a focus of our concentration on operations and driving net working capital, and everything else, as tightly as we can and that will be an ongoing focus for sure.

Okay.

With respect to your second question on the low end smartphone market, we are clearly innovating with Microsoft around Windows Phone, and are focused on taking that to lower and lower price points.

You will see that over time, to compete with Android.

But at the same time, we've said consistently, and you're just beginning to see it in the Asha Full Touch products, that we will continue to innovate around our Asha smartphone line, in order to compete with the very lowest levels of Android with assets that we have, and that are very competitive in operating at good scale for us today in the organization.

We are not in a situation where we are considering something that's different than Windows Phone, combined with what we're doing with Asha.

Thank you, Francois.

Operator, next question, please.

Our next question comes from the line of Alexander Peterc with BNP Paribas.

I would just like to come back on the Asha situation.

Can you reassure us on the fact that you can evolve the Series 40 software quickly enough to keep pace with innovation of Android, and/or alternatively, you'll be able to bring down the Windows Phone device price point to a level where it will be competitively priced, IE sub-$100 Androids.

Thanks.

It is the combination of those two things on which we're focused and that is our strategy going forward.

Yes.

And maybe if I can add, so clearly on Asha, price also needs to be a competitive element, yes.

So we are bringing the Internet access to the lowest price points with Asha, with other attributes, than Android like the best battery performance and things like that which are very important in that low end of the market.

But we need to be able to continue to manufacture, make, price, innovate on the Asha low end, so that we are riding on that very, very low end of that Android competition, if we say so.

Thank you.

Yes.

Just a quick follow-up on a housekeeping question on CapEx, which was particularly low for this year.

What's the new run rate for CapEx for you?

Thanks.

We are not planning any significant change going into 2013 on CapEx at the moment.

Thank you.

Operator, next question, please.

Our next question comes from the line of Didier Scemama with Merrill Lynch.

It's a bit of a follow-up of previous questions.

I'm just thinking, if I do the math right on your underlying cash burn, excluding NSN, excluding Microsoft payments and the number of line-ups, I think Nokia basically burned about EUR643 million in a quarter.

If I look at your guidance on Q1, seasonality, Asha, perhaps a bit of elevated inventories, would it be fair to say that your cash burn, excluding NSN and Microsoft payments, would increase in fact in Q1?

And I've got a very quick follow-up.

Thank you.

Okay.

So if we talk about the cash situation overall going into Q1, so I think if you, first of all look at the Microsoft payments, so I think, we need to look at that as part of the ongoing business.

So clearly, we are having a long-term contract where we have a structure where we pay royalties and receive the platform payments.

So that's how we look at that part of the equation regarding the platform payments.

Then, if you look at the overall cash situation, so we are not giving any cash guidance, as such going into Q1, but I think we are saying that we are expecting restructuring-related cash outflows in Device & Services, about EUR200 million in NSN, about EUR150 million.

And then in addition to that, we will clearly have some finance tax expense and so forth and when you look at our guidance on operating margins, it is fair to assume from those numbers that the net cash position would go down somewhat.

Just a quick one.

Thanks so much.

Just also a follow-up from Alexander's question.

Can you basically tell us whether you can make a Series 40 Full Touch Asha device with a dual core processor, and with 4-inch that you can compete with the media tech's based devices even now coming with quad core.

Maybe not at $100, but certainly in the dual core devices coming at $100, and especially because you've seen what happened in China in the last 18 months, and just concerned that the Asha success in countries like India, Pakistan, Russia, which have been traditionally very strong markets for Nokia, are now going to see an invasion of web book devices.

Thanks.

Thanks for your question.

I can't provide specific product details or announcements and so forth, but clearly it's our intent to be very competitive in the right countries at the right price points.

So we definitely continue to invest and innovate around what we're doing with the Asha product lines.

There's a lot of excitement with that product line ahead this year.

There's no question.

We're also, if you watch some of the things that we're doing, in terms of ensuring that we continue to be competitive, we're moving forward, for example with our Vietnam factory, and part of competing in this space is to make sure that on all fronts, we are also commanding the lowest possible prices, and taking advantage of the scale opportunity that exists around the world.

We're taking every step necessary to continue to focus on competitiveness with that product line.

Thanks, Didier.

Operator, next question, please.

Our next question comes from the line of Sandeep Deshpande with JPMorgan.

Thanks.

Can I ask a question on your Windows platform itself?

Historically, Nokia had the lowest-cost platforms, with all your own designs, et cetera, and you took a standardized platform when you initially started off on Windows.

Have you now customized it for your cost structure, in that you are getting the best possible gross margin on the Windows platform?

And secondly, would you make a comment on what kind of volume you need to do in Windows to be able to break even in that line?

So let me comment on the competitiveness and what we do with the Windows Phone platform.

In the underlying platform itself, we are not wanting to do great deals of customization to the heart of the platform, because of course that could lead us into the situation that Android's facing, where the amount of fragmentation that you're seeing is increasing, as people many take it in different directions, of course offset by Google's efforts to turn the open ecosystem into something that's quite a bit more closed, as you've seen quite recently.

What we are doing is taking advantage of our experience at scale by doing things like in the manufacturing facilities, making sure we understand how to most efficiently create the devices, flash the devices, move them through the production facilities the most effectively.

We're also making sure that we're adding to the Windows Phone platform with unique capabilities and unique differentiators.

For example, elements of our HERE platform, things like City Lens for Augmented Reality that you see only on the Lumia devices, or Nokia Music and a variety of other things.

So we're taking advantage of our experience there.

It's also important to note that in terms of being efficient in getting these products done at the best possible gross margins, we're working as a first-party partner with Microsoft, such that at every step of the development cycle, it is on Nokia hardware, Nokia platform, and so forth, Nokia manufacturing cycles and everything that we're building the new products with, so that as we come to market, we can move most efficiently from everything from operator testing to ramping up production, and things like that.

There's a lot of things there that fundamentally we're doing.

Now, in addition to all of that, I have to emphasize again differentiation.

Of course, you see us adding things alongside or in the context of the platform for imaging, as you see with PureView, for Location & Commerce, for Wireless Charging and so forth, where we gain some initial advantage that can be quite competitive over time.

Yes, and then on the Smart Devices, breakeven point, so clearly we can't give any direct guidance on that, as the OpEx, if I remember correctly Q4 was about EUR480 million.

I think the ASP at the moment on the Lumia devices was about 190, and of course, with as much innovation as possible, we are trying to drive higher gross margin and higher ASP, which would then take that volume number lower, but I can't give you any exact number in that regard.

Thank you, Sandeep.

Operator, next question, please.

Our next question comes from Pierre Ferragu with Bernstein.

On Lumia, if you compare Lumia today to Lumia 12 months ago, it seems that you are far more satisfied with how the product has been received in the channels.

Could you give us some more color on what is working better this time, where do you get more consumer traction, what are the features that seem to be generating this better traction?

And also, it would be useful to have like geographic specific, if we compare this quarter to let's say this time now to the same time as a year, last year, do you -- is Lumia today in more channels, more countries, a similar geographic footprint?

Do you see strength today in some regions that you didn't have last year?

Anything on that would be helpful.

Great.

Thanks, Pierre, for some very good questions.

First of all, in terms of comparing what we're doing today with what we're doing with the Windows Phone 7 products, I'd point out a couple things.

First of all, generically on the Windows Phone 8 platform versus Windows Phone 7, the complementary nature of that platform with big Windows offers a larger opportunity for developers, as one example, to build applications that will be seen by many more people on many more types of devices.

And so that's more attractive, and that helps us to build out the whole experience in a positive way.

Also, there is quite a variety of capabilities in Windows Phone 8, that were not yet in Windows Phone 7, that we're very pleased that are there, not just the things that the consumer initially sees, like the better start screen experience and things like that, but for example, the degree of encryption capabilities and business-oriented features, at this particular moment in the mobile time frame, presents a very interesting opportunity to pursue the B2B opportunity, which is I think you're going to hear us talk quite a bit more about in the months and years ahead, because of the opportunity that's there, given Microsoft's strength in the enterprise.

So you'll see capabilities in Windows Phone 8 really starting to light up from that perspective.

But it's also the case that when we introduced our first Windows Phone 7 devices, we were relatively late to the Windows Phone 7 party.

The software was largely already done.

The opportunity for us to add capabilities that gave us unique points of differentiation, not in the context necessarily of the Windows Phone ecosystem, but even relative to Android or relative to Apple, we did not have that much of that opportunity, and so you saw us do some really beautiful work with design and the touch environment and everything.

But it's with Windows Phone 8 that you see the very beginning of what we can do with photography, the very beginning of what we can do with location-based services and a whole variety of other capabilities that are just beginning to appear in a product like the Lumia 920.

We clearly have had the time to really begin to show how the focused R&D effort on differentiation can land in the products, and that's a huge focus for us and you're really going to see that drum beat during the course of 2013 as we go further and further.

Now, it is the case as well, that something else is shifting, and that is in the context of the operator perspective, and how they view the potential success and the impact on them strategically of a third ecosystem, and so it is the case that operators today are more engaged, more invested, and more participating in the conversations about how do we take the Windows Phone ecosystem to create more balance for them, from an overall strategic perspective, and of course always for the consumer, who makes the ultimate decision about these things.

And then if I remember correctly, the third aspect of your question was about geographic distribution, number of channels and so forth.

I don't have the exact numbers in my mind, but it was a very deliberate strategy of ours to begin this process with Windows Phone 8 on a far more concentrated basis than was the case before.

So in most countries, actually I'll start at the highest level, we are in fewer countries today than we were, I believe at this point, roughly in the Windows Phone 7 roll-out.

If you remember Windows Phone 7, we went to a lot of European countries right out of the gate, and we are still in the process of rolling out to various European countries.

Within most countries, the United States is an exception here, and China's an exception here, but in most other countries, we were pretty broad with the range of operators and retailers with whom we were working.

So if you take the United Kingdom as an example, the early launch of the Lumia 920 in the United Kingdom was limited to everything everywhere as a sole operator partner, and it was in just a couple of the largest retailers, and it's only in the last week or two, I believe, that began to broaden to additional operators in the UK, and you'll see that pattern form elsewhere.

Now, geographically, it is the case that we're very excited to have added an operator in the United States, so that there's broader distribution ramping up with the inclusion of Verizon in the United States.

And of course, we're very interested to see how we can work effectively with China Mobile as a second operator partner in China, where today we're working with China Unicom on the WCDMA network, and now China Mobile on TDS-CDMA.

There may be some other countries that are exceptions to the rule, but those are the two most obvious exceptions.

and then in the rest of the countries it's clearly a narrower distribution strategy to start out.

And of course, we're having to meter that, and make decisions as we go, as a function of the supply constraints.

So we're having to do adjustments and you see some timing adjustments and so forth as a function of supply.

Next question, please.

If I can -- just one quick follow-up on your Asha roll-out and development.

From your memory, doesn't seem these phones are selling much in China because you're still facing quite significantly declining sales there.

I assume it's in mostly other emerging markets.

Can you explain why and what's happening in China, and how confident you are that what's happening today in China could not progressively expand and reach other big markets for you like India.

Yes.

So there's one fundamental difference in China.

And that is that the current targets that are set for the three operators are principally set around driving 3G data subscriptions, and people signing up for 3G for the first time.

The majority of the current products for Mobile Phones are 2G products, and so that's something clearly that we look at and consider in terms of consumer requirement and country requirements in the quarters ahead.

Thanks, Pierre.

Operator, next question, please.

Our next question comes from Mike Walkley with Canaccord Genuity.

Building on your last answer, how do you view 2013 just for the overall Windows ecosystem, given your conversations about some better operator support?

For Nokia to returned to sustained profitability, is there any milestones that you're tracking for Windows in terms of maybe smartphone market share or other areas, just so you can track the progress of Windows, and how that might flow through to units you need to hit to get back to profitability?

Thank you.

Thanks for the question.

When we have a conversation with an operator and talk about what do we need to accomplish together strategically, the general nature of those conversations tends to be a two-step conversation.

The first is, with a particular operator in a particular country, or more broadly across the countries in which they operate, step one, how do we get this solidly into the double-digit market share for their range of operating companies?

And then the next step is how do we get that up to a nice balance in terms of value in particular, relative to two other big players?

So that tends to be the nature of the conversations.

So yes, we obviously look very carefully on a country and operator-specific basis on both volume and value share and we look very much at double-digit share numbers as things that are important milestones for us.

And maybe just Mike, you asked what are the KPIs we track here.

I can't give you any milestones as such.

Clearly we track the Lumia volumes, of course, that is something that we need to see increase, and we track in particular the high-end volumes because we think that it continues to be the case in this business, and this market that the high end halo impact is very important.

Thank you, Mike.

Operator, next question, please.

Our next question comes from Kulbinder Garcha with Credit Suisse.

First of all for you on cash flow, very simply, I'm just looking at Q4.

You generate EUR800 million, EUR740 million is from NSN, which Nokia has access to.

I don't think Nokia has access to, ex-NSN.

You had EUR290 million of disposals, so coming back, your underlying cash burn was roughly EUR230 million, not to mention, going forward there's going to be a swing, because you're a net payer to Microsoft as opposed to being a net recipient.

I'm just thinking, with that level of cash burn, isn't liquidity a risk, given that you've only got EUR3 billion of cash ex-NSN in Nokia today.

Why isn't that a risk?

Maybe I'm doing the math wrong.

If you could go through that.

The other question I have is just on Symbian gross margins, in Q2 you said that gross margins were roughly the same ex-any charges so 16%.

Symbian ASPs have gone up during the back half, so I would have thought that gross margins would have probably tracked and gone up as well.

Today you're saying, just to be clear, that gross margins are lower than the Smart Devices average.

Is that correct?

Why would that -- why wouldn't it have tracked ASP increases.

If you could clarify them, that would be helpful.

Maybe take the first -- the Symbian answer first.

As we are working on the tail end of the product, and clearly sort of lower volumes and all that, and really working on the tail end, so yes, you're right, that has changed, and when we look at the overall margin, the Symbian margin was somewhat lower than the Lumia margin on a running basis, so that is correct.

Then when we look at the cash flows, of course we also have $300 million of restructuring charges in the cash flow estimate for Q4, and in that sense, we are not, as we say, going forward in Devices & Services, we are not expecting very significant restructuring charges going forward, so that's one element that needs to be taken into account.

And second, as I said, regarding the multiple, so again, we are not expecting that these net amounts are material for 2013 on cash basis.

So I think those are the dynamics impacting the cash situation.

Great.

Thank you, Kulbinder.

Operator, next question, please.

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

Commit the spending to ensure the success of a third operating system, are there indications that the commitments from the operators and the service providers may increase year-on-year but there's a feel as if Microsoft and Nokia have to increasingly commit to a bigger part of that spending?

I ask this, the carriers, do you want a third OS, mostly to reduce subsidies?

I'm just wondering if the balance has to be made up by Nokia?

It is the case that the pattern we're seeing from some of the leading operators is to make more of a commitment, more of an investment, in order to break through with the third ecosystem to a greater extent.

In doing that, the conversations that take place tend to be tripartite conversations where it's the operator, it's Microsoft, it's Nokia sitting around the table saying okay, this is how we're going to do it.

Of course, that requires investment for us in various forms.

It could be investment in marketing.

It could be investment in unique products.

It could be a variety of things we do.

Microsoft has their ways of investing, which could also include things like marketing and so forth.

Of course the operator has things to offer, ranging from marketing dollar subsidy, hero promotion, special [specs] for sales force and so forth.

It tends to be a basket of things that we all bring to the table, to create a combined effort with those operators.

Thank you, Mark.

So we've reached the end of the Q&A session, so I'll turn the call back over to Stephen for a closing statement.

Great.

Thanks, Matt.

In conclusion, we are very encouraged that our team's execution against the business strategy has started to translate into some better financial results.

That said, we remain focused on moving through our transition by continuing to improve our product competitiveness, accelerate the way we operate, and manage our costs effectively.

All of these efforts are aimed at improving our financial performance, and delivering more value to you, our shareholders.

So thank you very much for your support, and we look forward to sharing more news in the future.

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 risk and uncertainties.

Actual results may differ materially from the results currently expected.

Factors that could cause such differences could 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 financial results press release issued today.

Thank you.

Ladies and gentlemen, you may now disconnect your lines.