諾基亞 (NOK) 2013 Q3 法說會逐字稿

Good day.

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

At this time, I would like to is welcome everyone to the Nokia Q3 earnings conference call.

(Operator Instructions)

I would now turn the conference over to Matt Shimao, Head of Investor Relations.

Please go ahead.

Ladies and gentlemen, welcome to Nokia's third quarter 2013 conference call.

I'm Matt Shimao, Head of Nokia Investor Relations.

Timo Ihanuotila, CFO and Interim President of Nokia, and Rajeev Suri, CEO of NSN, are in Espo 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 risks and uncertainties.

Actual results my 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 12 through 47 of our 2012 20-F, and in our quarterly results press release issued today.

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

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

With that, Timo, over to you.

Thank you Matt.

Because of the proposed transaction with Microsoft and NSN becoming fully owned by Nokia, we are changing the format of the call this quarter with the aim of providing richer content in areas where we have been receiving the most questions from investors.

While the Board is conducting its detailed strategy review through the closing of the Microsoft transactions, many investors have been focused on quickly learning more about three established businesses Nokia plans to focus on, subject to the closing of the transaction.

Thus, on the call today, I'm pleased to be joined by Rajeev Suri, CEO of NSN, who will update you on NSN.

NSN has progressed tremendously over the past years, and this business is clearly expected to make up the bulk of our net sales following the closing of the Microsoft transaction.

I will also spend additional time now during my opening remarks to provide you with an overview of our HERE business, and on our future advanced technologies business, before taking you through our Q3 results.

First of all, it's a very important point that all three businesses NSN, HERE, and advanced technologies are expected to benefit from the sale of our devices and services business.

All three businesses are currently generating cash, and offer significant opportunities ahead.

In addition to these important and positive financial dynamics, from a competitive perspective, we have leading industry positions in all three businesses.

Thus, subject to the transaction with Microsoft closing, Nokia's earnings profile and financial position are expected to strengthen significantly.

And from a position of strength in NSN, HERE, and advanced technologies, we will have a solid basis to drive future value creation through investing in growth.

We believe all of this will benefit Nokia and its shareholders, and we will continue to operate with the guiding principle of value creation.

Moving on to an overview of our HERE business as it exists today and the significant opportunities we see ahead.

HERE is rooted in the strong 27 years heritage of the former Navteq, the leading supplier of digital maps and map content.

We have a clear leadership position in the automotive segment, which has solid growth potential as the adoption of in-car navigation systems continues to increase.

Furthermore, over the past two years, we have created the world's most advanced cloud-based location services platform.

These now allows us to target attractive growth opportunities, as location services become much more pervasive.

It is important to point out that there are only a few companies that can deliver high-quality location services on a global basis.

Out of those few, we believe HERE is uniquely positioned as the world's leading independent location cloud company.

HERE is focused on providing a modular range of location services that can be tailored to meet the specific needs and strategies of our customers.

These allows us to share multiple customers within a industry, as we have been doing or years in the automobile sector.

Customers can trust us to be impartial, and they can license our entire platform for only the specific content for service that they need.

We partner with our customers helping them to build their own differentiated offerings, as they invest to bring the benefits of location services to their customers.

Compared to Google's less flexible and advertising driven approach, we believe HERE strategy is far better aligned with the needs of a broad range of existing and future customers who are developing their own future cloud-based services, particularly those companies who care a lot about their own brand and customer relationships.

Google's all or nothing approach towards licensing its suit of services can also cause conflicts.

We believe HERE's modular and flexible offering is a key differentiator.

Going forward, we believe HERE has strong long term prospects, most visible in the automotive segment.

But we are also targeting future transformational growth opportunities in multiple industries.

But first in automotive.

Based on the industry trends in the vehicle segment, we see clear opportunities to increase unit volumes and pair unit license fees over time, as in vehicle navigation adoption and wireless car connectivity both continue to increase.

To put some numbers around this, we saw a 23% year-on-year increase in sales of new vehicle licenses in the third quarter of 2013, and we believe the adoption of in-vehicle navigation can continue to increase for many more years.

We are also targeting transformational opportunities in the automotive segment.

For example, we generated a lot of positive buzz at the Frankfurt Motor Show in September, when we unveiled our new Connected Driving offering, which connects cars to the cloud by leveraging our software services and content, thereby enabling new driving paradigms.

At the show, we also announced partnerships with Mercedes-Benz for automated driving, and with two of the world's leading automotive system integrators, Continental Corporation and Magneti Marelli.

In addition to connecting cars to the cloud, HERE is also investing in transformational opportunities in the mobile and enterprise areas.

In the mobile area, we are investing in location services that leverage the multiple sensors in mobiles devices, together with location data, social data, and predictive analytics to create new consumer experiences.

Augmented reality, or what we call LiveSight, is one example of this.

In the enterprise area, we are helping businesses, including SAP and Oracle and many others, to be more competitive through location intelligence.

In summary, as the world's leading independent location cloud company, HERE is well-positioned as a neutral entity that can serve multiple players in multiple industries.

Thus, we see attractive opportunities ahead for HERE to extend from being a trusted content supplier to the automobile industry today, to becoming a strategic partner that delivers cloud-based content and platform solutions to multiple industries in the future.

And now moving on to advanced technologies.

Before I discuss some of the drivers going forward, I would like to spend a few moments on what this business will be comprised of.

It includes more than just the patent portfolio that has been so widely discussed in recent weeks.

So what will comprise advanced technologies?

Essentially there are two parts, first one relates to our chief technology office organization, i.e.

the advanced research activities and development of concept products.

These span a wide range of technologies, such as connectivity, sensing, and material technologies.

This team of highly skilled engineers and scientists has an extremely strong track record in fundamental innovations, such as video and audio coding and imaging, as well as patent creation, including standard essential radio patents.

The team is responsible for more than half of our new patent filings, excluding NSN, and we are confident that our City organization can continue to deliver valuable innovations to support future growth, as well as the renewal of our patent portfolio.

We expect that our continued investments will contribute to future innovations and products across multiple industries, and should position us well to get deservedly compensated in terms of our future license revenues.

This leads me to the second part of advanced technologies, which relates to the licensing activities for Nokia's patent portfolio.

This industry-leading asset is the result of our significant R&D investments over the past 20 years, and we see strong growth opportunities going forward.

At the moment, we report this highly profitable stream of revenues within devices and services other.

Currently our annualized revenue run rate is approximately EUR0.5 billion.

The revenues that we presently generate in this business primarily come from licensing our industry-leading portfolio of standard tensile radio patents, which comprise approximately 10% of our patent families.

Going forward, we see opportunities to expand our licensing coverage to presently unlicensed vendors, and the parts of our portfolio that are not broad licensed under our current agreements.

In addition, we see the usage of cellular technologies expanding beyond phones.

Since Nokia started its licensing program several years ago, we have primarily licensed our standard essential patents retaining the patents protecting the proprietary features of our products for our own exclusive use.

Subject to the closing of the transaction with Microsoft, we will have further flexibility in making many of these technologies available to the broader market, which will provide us with new technology creation and licensing opportunities that have not yet been captured in our current revenue run rate.

We believe that both current and new licensees will be interested in the world leading technologies and IPR provided by Nokia.

While I appreciate that many of you would like us to provide more granular forward-looking guidance on this business, it is important to highlight that the nature of patent license agreements is unpredictable and their contributions to our financials, especially cash flows, can be quite lumpy.

In addition, to regards to our current annual IPR income run rate of approximately EUR0.5 billion, please note that this run rate refers our current situation and does not include the impact of new or expiring agreements, including the mutual patent agreement with Microsoft in connection with the divestment of substantially all of the devices and services business.

In conclusion, our IPR licensing business is an area where we have a proven track record, and a successful business strategy that we will continue to implement going forward.

In addition, we see tremendous opportunity to create value by the active management by our patent portfolio and licensing activities, as well as through exploring new opportunities in the field of technology licensing.

And with that overview, I will now hand it over to Rajeev to discuss NSN.

Thanks Timo, and hello to everyone on the line.

It is a pleasure to join the call today.

Timo will take you through the NSN numbers later, but let me give some perspective on the business and our third quarter performance.

Overall, I am pleased with NSN's strong Q3 performance in many areas.

We delivered our eighth consecutive quarter of positive free cash flow, the second highest gross margin in our history, a strong non-IFRS operating margin, our second highest ever contribution margin in global services, and our highest ever reported net profit.

These improvements in profitability and cash reflect the deep structural improvements that we have made over the past two years, changes that go well beyond cost reductions.

Our top line performance was less pleasing, given the 26% year-on-year decline.

On a constant currency basis, our decline would have been 5 percentage points less or 21%.

In addition, it is important to note that a significant part of the decrease in our top line is the result of our strategic choices.

On a constant currency basis, and when you exclude the impact of divestments and exits, our year-on-year net sales decline was a more moderate, but still somewhat disappointing 15%.

As I think you all know, we have had an intense focus on profitability and cash since we announced our new strategy at the end of 2011.

Consistent with that focus, we also exited many businesses, countries, and contacts, and were relatively selective about new deals, particularly in managed services.

These choices have been necessary, and have had an impact on our top line.

To give you a bit more perspective, let me give some more detail about our reportable segments and geographies.

In mobile broadband, our net sales declined primarily due to lower sales in wideband CDMA, GSM, and CDMA.

On a constant currency basis, our LTE sales grew year-on-year, led by growth in North America.

NSN is well-positioned to benefit from the expected industry growth in LTE, as we believe NSN's LTE portfolio is second to none.

That view is supported by independent studies, showing the superior performance of NSN provided live commercial LTE networks.

As an example, we announced earlier today that we were awarded an 11% share in China Mobile's TV LTE rollout, as well as an additional low single-digit share through resellers.

Combined, this puts us as the leading foreign vendor for the first phase of China Mobile's TV LTE deployment.

In global services, our net sales declined primarily due to a reduction in network implementation activity, consistent with lower levels of large-scale mobile broadband deployments, and the exiting of certain contracts in line with NSN's strategic focus.

Despite the decline in our global services net sales, we are pleased to with the overall performance of this business, which has been greatly improved by an accelerated shift to global delivery, structural cost reductions, and better execution.

On a regional basis, Asia-Pacific sales in Q3 were primarily impacted by lower spending by operators in Japan compared to the year-ago period.

We continue to have a very strong business in Japan, and believe we remain the number one foreign supplier there.

Our Next sales in Europe were impacted on a year-on-year basis, primarily due to our strategic choices related to network modernization and divestments.

To address this, we have expanded R&D investment on features targeted to specific European operators, and we expect dedicated investments into single RAND to leverage our significant market footprint in the ongoing LTE expansion.

While we're absolutely not satisfied with our top line performance, the decline in needs to be put in the context of our overall of evolution.

2012 was a year of deep restructuring, with sharp reductions in personnel and other costs across the Company.

2013 has been about transforming how we operate, and driving permanent structural improvements, while also completing some further restructuring actions.

Bluntly put, over the past two years, our priority has been fixing operational issues, sharpening our portfolio, and building a strong financial position.

As we approach 2014, the restructuring program that we announced in 2011 is successfully coming to an and.

Going forward, we will turn our focus more to continuous improvement and strengthening our top line performance, particularly in LTE and services.

We are well prepared for this new phase because we are a fundamentally different Company than two years ago; more disciplined, more focused, more innovative, and with much higher quality.

We have better decision-making processes that give us a deeper understanding of both the risks and opportunities of potential deals.

We are more disciplined in our execution, allowing us to limit the risk of project-related liabilities and better capture the value from changes in project scope.

We have a proprietary pricing process that helps us capture value in a competitive market.

We have an engaged and motivated workforce that has shown an increase in support for our strategy and direction in almost every one of our monthly service over the past year-and-a-half.

We have a strong position in LTE, with clear opportunities for future growth and a deep presence in the world's most advanced mobile broadband countries of Japan and Korea.

We also continue to expand our presence in North America, which grew by 5% year-on-year.

We have a global services business that is now much more competitive.

And as one example of that, we believe that we now lead all of our major competitors in terms of percentage of services delivered through global centers.

We have the financial strength to make selective investments in key strategic deals with our customers that have the right long-term profitability profile.

Thus, although the mobile broadband and related services market may only see flat to modest growth in the coming years, we have transformed an ascent to be a strong competitor in this type of environment.

We also recognize that much of the business in our sector is based on standards.

And as a result, efficiency and quality are primary differentiating factors.

Differentiation also comes from helping customers solve unique challenges that standardized systems cannot address.

And thus, innovation is another key differentiator.

I believe that NSN is positioned very well in these areas.

First, through our successful restructuring efforts and strategic transformation, we have built an extremely competitive foundation over the past two years.

We are on track to meet our year end goal of delivering more than EUR1.5 billion in savings in annualized non-IFRS operating expenses and production overheads compared to the end of 2011.

Second, we are making good progress with our quality initiatives with 98% of NSN's mobile broadband product lines on the path to virtual zero defects at network launch.

Third, and I want to be very clear about this, our commitment to R&D remains very significant, and we have continued to improve our strong innovation capabilities.

While our total R&D expenses are down 6% year-on-year reflecting reductions in legacy technologies, we continue to increase our R&D spending on future-oriented products.

For example, our spending on LTE increased by almost 20% year-on-year in the third quarter, and we have ramped up significantly in small cells, packet core, network management software, and other areas.

And, we utilize our R&D resources very effectively.

We have a high cost low cost split that we believe is superior to our European competitors, as well as defined programs to deliver strong future productivity gains that in turn expand our total R&D capacity.

With this R&D muscle, we are delivering some exciting innovations that help our customers optimize their networks, improve the customer experience, and address capacity challenges.

For example, we are now trialing our unique liquid application solution with multiple major operators, including SK Telecom in Korea, and seeing massive improvements in end user experiences.

On the small cell front, we just launched new LTE microcell and picocell base stations that offer the same features and capacity as the larger macro base stations.

And, we are making very strong progress on reinventing telcos for the cloud, one of the key pillars of our technology vision.

In Q3, we conducted a pilot network implementation of cloud-based evolved packet core, another industry first from NSN.

While I believe that we are well-positioned for the future, we continue to expect a challenging market, and are seeing some signs of increased pricing pressure, as well as strong competition related to product features.

Given this, we will maintain very disciplined cost management, and there will be no change to our efforts to constantly improve our productivity and efficiency.

In summary, through our successful restructuring as strategic transformation, we have built an extremely competitive foundation, as well as the financial strength to invest for the long-term in key technologies and market opportunities.

As we head towards 2014, we will begin to put the restructuring program that we announced in 2011 largely behind us.

That will allow us to shift to a process of continuous improvement across the entire Company, and build on our progress in innovation and quality.

We will also focus on straightening our top line performance, with a particular focus on growth in LTE and global services.

And with that, Timo, back to you.

Thank you Rajeev.

And now, on to a discussion of Q3 results, and a review of our Q3 cash position and cash flow.

In Q3, devices and services net sales and non-IFRS operating margin performed in line with our guidance.

The 6% sequential net sales growth was driven by higher volumes, and net sales for both smart devices and mobile phones.

I am particularly pleased with the performance of mobile phones in Q3 following challenging start to the year.

Supported by the new innovation and product launches, as well as good cost and channel management, mobile phones was able to improve all of its P&L metrics sequentially.

For smart devices, we are pleased with Lumia volume momentum, driven in particular by the attractively-priced Lumia 520.

However, we continue to see competitive challenges at the higher end of the market, both in terms of pricing and required marketing support.

This is consistent with the dynamics we have discussed in recent quarters, and was of course an important consideration in our assessment of our devices and services strategy and our decision to undertake the transaction with Microsoft.

Moving on to OpEx.

In Q3, devices and services non-IFRS OpEx was EUR707 million, up 2% on a sequential basis, primarily due to higher R&D expenses.

And now, on to NSN.

We are extremely pleased to have completed our transaction with Siemens and become the full owner of NSN.

I believe this transaction clearly demonstrates prudent capital allocation, and a continuing focus on value creation for our shareholders.

In addition, I'm also encouraged that NSN's customers welcome the improved financial position of Nokia Group, which will be subject to the closing of the proposed transaction with Microsoft.

And now, on to NSN's quarterly review.

NSN had another solid quarter, delivering a strong gross margin in a seasonally weak quarter.

In the third quarter, NSN's reported net sales were EUR2.6 billion, down 7% on a sequential basis.

Approximately 3% of the sequential decline was due to divestments of businesses not consistent with NSN's strategic focus, as well as the exiting of certain customer contracts and countries.

The rest of the sequential decline is primarily due to typical seasonality, which affected both global services and mobile broadband, and net negative for any exchange movements.

The sequential decrease in global services net sales was primarily due to lower sales in professional services and customer care services, partially offset by higher sales in network implementation activity.

The slight sequential decrease in mobile broadband net sales was primarily due to lower seasonal sales.

On a regional basis, NSN a net sales decline was primarily due to Europe, related to lower seasonal spending, and Latin America related to lower investments from operators.

On a constant currency basis and when you exclude the impact of divestments and exits, NSN's net sales declined by approximately 3% sequentially.

NSN gross margin in Q3 was 36.6%, down 170 basis points sequentially, primarily due to lower gross margin in both global services and mobile broadband, as well as the absence of nonrecurring IPR income of approximately EUR20 million that was recognized in Q2.

This was partially offset by a better product mix, with a higher proportion of mobile broadband net sales.

The lower gross margin in global services was primarily driven by lower seasonal sales, as well as the absence of the revenue triggered by certain project acceptances, which was recognized last quarter.

The slight gross margin decline in mobile broadband was primarily due to investments in anticipation of a technology shift to TD-LTE-related projects in China, as well as lower seasonal sales.

NSN's non-IFRS OpEx declined by 4% sequentially, reflecting good cost control and focus, consistent with its strategy and technology road maps.

On both a year-on-year and sequential basis, NSN increased R&D investments in focus areas, particularly LTE.

NSN's Q3 non-IFRS operating margin was 8.4%, down 340 basis points sequentially, primarily due to a lower gross margin and higher operating expenses as a percentage of net sales.

And now, on to HERE.

Reported net sales of HERE were EUR211 million, down 9% sequentially.

This was primarily due to lower seasonal sales to vehicle customers, and a negative foreign exchange impact.

In Q3, HERE had sales of new vehicle licensees of 2.6 million units.

HERE's non-IFRS gross margin in Q3 was 82.5%, up 650 basis points sequentially.

This was primarily due to lower sales of update units to vehicle customers, which generally carry a lower margin and lower costs related to service delivery.

In Q3, HERE's non-IFRS operating margin was 9.5%, a 610-basis points increase compared to the last quarter, primarily due to higher gross margin.

Finally on HERE, please note that as the end of Q2, we amortized the vast majority of the intangible assets related to the acquisition of Navteq.

Thus, in Q3 and going forward, you should see much closer alignment between HERE's reported and non-IFRS results.

And now, a few additional words on the Microsoft transaction.

Commencing in Q4, and subject to shareholder approval of our EGM, we expect to report that substantially all of our devices and services business as discontinued operations.

In today's press release, we have disclosed additional financial metrics to help you understand how our earnings profile is expected to improve subject to the closing of the transaction.

Assuming that we had reported substantially all of devices and services business as discontinued operations in Q3, the estimated non-IFRS operating margin of our continuing operations in Q3 would have been 11.5% compared to the 3.8% as reported.

The estimated third-quarter net sales of our continuing operations would have been EUR2.9 billion compared to the EUR5.7 billion as reported.

Please note that this information is not comparable to the pro forma information provided on September 3rd, or to the proxy materials progressed on the September 19th as the pro forma additionally adjusts for factors including the net impact from the new patent and HERE license agreements with Microsoft.

One final point related to the proposed transaction with Microsoft.

As stated today, based on devices and services financial performance in Q3, as well as our expectations for devices and services financial performance throughout the end of the first quarter 2014, we currently expect that the purchase price adjustments related to network in capital and aggregate cash earnings would be approximately zero.

Therefore, we expect that the total purchase price will be EUR5.44 billion, as announced earlier.

And now, a few words on tax.

As a result of the two transactions announced in Q3, we performed an assessment of the potential recoverability of Finnish deferred tax assets currently subject to valuation allowance.

While no deferred tax assets were recognized for Finnish tax losses and other temporary differences, Nokia Group has at the end of the third quarter a total of approximately EUR2.7 billion of net deferred tax assets, which have not been recognized in our financial statements, and this asset will be retained by Nokia.

This is been calculated using a 24.5% tax rate, which implies that we have the ability to shield approximately EUR11 billion of future profits made in Finland.

In addition, please note that there is a draft government proposal to reduce the Finnish corporate tax rate to 20% from January 1, 2014.

Moving to my quarterly review of our cash position and cash flow.

On a sequential basis Nokia Group gross cash decreased by approximately EUR300 million in Q3, with a quarter ending balance of EUR9.1 billion.

Nokia Group net cash and other liquid assets decreased by approximately EUR1.7 billion sequentially, with a quarter ending balance of EUR2.4 billion.

Excluding the EUR1.7 billion purchase of Siemens' stake in NSN, net cash was approximately flat compared to the end of Q2.

For more detailed drivers of the change in net cash in Q3, please refer to page 7 of today's press release.

In conclusion, this has clearly been one of the most transformative quarters in the history of Nokia.

We became the full owner of NSN, and we agreed the sale of our [hanted] operations to Microsoft, transactions which we believe will radically reshape the future of Nokia for the better.

Subject to the completion of the transaction with Microsoft, we will have three strong businesses, each a leader in their respective fields, and a solid financial foundation from which we can build the next chapter for Nokia.

And with that, I'll hand over back to Matt.

Thank you, Timo.

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

Carmen, please go ahead.

Alexandre Peterc, Exane BNP Paribas.

I'd just like to understand whether looking at NSN specifically your priority going forward will be organic growth?

Would you believe that this business is best grown by footprint acquisition?

Thanks.

Yes, I believe that market forces are determining the strong players.

And when it comes to mobile infrastructure, there are three strong global vendors.

And if you look at the [loyals] report, 78% of the radio market, which is key to mobile broadband, is held by the top three players.

So I'm a believer in continuing to win with our portfolio, and letting market forces determine the right outcomes.

Thank you, Alex.

Carmen, we're ready for our next question.

Gareth Jenkins, UBS.

Yes, thank you.

Just a couple if I could.

Firstly, on NSN, I just wondered if you could talk about the strategy going forwards between revenue growth and margins?

So you're obviously seeing revenue sale and margins very stable.

I just wondered if you see that you see reversal of that going forward?

Just maybe revenues -- you could see some revenue go through, and then maybe margins come down.

And then just secondly, on the (inaudible) proxy team (technical difficulty), and a lot is written about this obviously.

From your perspective, it sounded very much like you should expect a gradual increase in revenues.

Can you confirm whether that's the case or whether you actually expect to see a major step up as some of the cross licensing deals start to roll off and start manufacturing handsets in Q1?

Thank you.

Thanks Garreth.

So we're not giving obviously specific guidance for next year on revenue.

But I will say that the and long-term view of the 5% to 10% non-IFRS operating margin remains unchanged.

If we execute well, we expect to try to be at the high end of that range, even if market conditions would be challenging.

And I think given all that we've seen in terms of building an efficient platform, we are well-positioned for those conditions given cost structure, execution discipline, and pretty our robust pricing processes that we can balance those two things.

Okay, thanks Garreth.

And the IPR side, so clearly we are not giving any further revenue guidance on IPR.

We have been saying that we are having this EUR500 million run rate and that that run rate does not take into account the Microsoft licensing agreement, which we would enter as part of the transaction.

Then like talking about is this sort of gradual improvement or some kind of step change, so these IPR revenues really are quite lumpy, and we can't evaluate it really that way or give guidance that way.

But we think that we have opportunities, good opportunities, both with new licensees as well as our existing licensees as we continue to develop this business.

Thank you, Garreth.

Carmen, next question please.

Tim Long, BMO Capital Markets.

Thank you.

If I could just go back at that NSN growth question again, and then one on the OpEx side.

So on the growth, maybe just give us a sense of the year-over-years have gone down EUR5 million, down EUR17 million, down EUR26 million the last three quarters.

Are there any other remaining contracts or bad service deals that need to be stripped out of the revenue numbers right now as we look forward?

And related to that, on the OpEx side, it looks like we've lowered headcount by about 20,000 in NSN over the last year.

Is there opportunity for that some level of headcount reduction to continue there?

Thank you.

So first the first question was about

Services growth.

Yes, so I think in terms of the divestment impact, so we will see the impact from the divestments country and most of the contract exits be complete by the end of this year.

However, there are some services contracts, notably in managed services, that we have made exits of this year that will still impact some of the top line next year.

And then you had the on headcount question, so we haven't yet finished our restructuring program that we initiated at the end of 2011.

So that's still a quarter to go, we will be finishing it by the end of this year.

Thank you, Tim.

We'd like to take just one question from each analyst and, Carmen, we're ready for the next one.

Stuart Jeffrey, Nomura.

I had a question on HERE.

If I compare HERE as it stands now with Navteq and the first few years after your [broadshift] profitability is much lower, there's been a significant ramp in R&D.

I'm assuming a lot of that increase in R&D is driven by your desire to invest in smart phone applications and driving Symbian and Windows phone.

And so now that I guess that imperative is somewhat reduced, could you talk a little bit about how you manage the R&D line, whether there's lots of low hanging fruit there as you get rid of D&S to perhaps boost that profitability in HERE back up to the 20% plus levels that we saw previously?

And to link to that is, is that what we should be assuming is the driver behind your goodwill valuation on the balance sheet of about EUR3.2 billion for HERE that margins do go back to where they were before?

Thanks.

OKay, thanks, Stewart.

So, quite the multi-faceted question here, but let me try address those points from HERE perspective.

So first of all on R&D, it is fair to say that we have invested more partly because we have been driving the handset business simultaneously.

If you look at the most recent quarters actually, the R&D efficiency has improved.

And we look at the service delivery this quarter, it was one of the key drivers that the HERE operating margin actually approved about 650 basis points.

And going forward, and this goes back to the supporting the goodwill valuation on how we see HERE business, and we see that there are multiple opportunities both for top line growth and because HERE's machinery is such that there is quite a bit of operating leverage.

If you get more top line, that will also or would impact the margin positively.

And I think the two key opportunities besides the so-called, I'll call it running automotive business, are the connected car business, where we think we can increase both the per care value or ASP per contract, and then we also think that the navigation, in-dash navigation and the related services, will become more pervasive in cars.

I.E. there will be more and more cars proportionately having that service.

So basically, a revenue increase possibility in two ways, both higher ASP and higher adoption rate.

And then the second is that now and especially now, if and when the Microsoft transaction closes, HERE can be viewed truly as an independent provider of location services to many companies.

Both in the areas of internet services and maybe other device vendors.

You know we have contracts with Amazon, Yahoo, Microsoft, and we think that there is more opportunities on that area, as well as then broader in the area of enterprise where we cooperate, for example, with Oracle and SAP.

And all of these growth opportunities an impact to increase operating leverage then impact the valuation.

Great.

Thank you Stewart.

Carmen, next question please.

Pierre Ferragu, Bernstein.

Thank you.

Timo, I have a question about how you're thinking about (inaudible) the future corporate structure of Nokia.

First, looking at patents.

So, as you mentioned, this is probably going to be a very lumpy source of revenue and then proceed going forward.

Which might be (inaudible) to get together with a business like Nokia Siemens, NSN sorry, who is going to have a much more like -- hopefully stable profit outlook in the next few years.

And then, when thinking about your position in this patent business to negotiate with the overall ecosystems the best licensing deals for you, maybe still being involved in the industry with an equipment business might be sub-optimal.

So, I don't expect you of course to tell me where you're thinking is at the moment on that point, but am I right thinking these two things would actually are a reality, and would favor a corporate structure where you would split your networking business and your IP licensing business?

So thanks, Pierre, for the question.

Because I actually think that it's important that we will continue to be investing in a significant way to R&D.

And that goes both for research, which is of course more in the patent side, as well as development, which is also contributes to the patent.

And in that sense, I think actually NSN is a very important possible contributor to the overall Nokia patent portfolio.

And the fact that if you look at this year and if you would take the businesses which will remain at Nokia, we are on target to invest approximately, so rough numbers, ballpark numbers, approximately EUR2.5 billion into R&D.

So we will continue to generate a lot of opportunity on this area, and I actually think that those businesses can as well be complementary.

Thank you, Pierre.

Carmen, next question please.

Didier Scemama, Merrill Lynch.

Two parts.

First, on the NSN parts, maybe a question on that.

So I was just wondering what you thought was the outlook for you US business, and also on your Japanese business?

I'm interested in picking your brains on that.

And then on the patent side, I was wondering whether specifically you felt that the Microsoft agreement was kind of a blueprint for the things that you would be signing going forward?

Thanks very much.

Okay, thanks, Didier.

So first on US, if the business is growing for us, 5% growth this quarter.

We've been successful with T-Mobile, as you know, in Canada, also with US Cellular, won three waves of their business.

And of course, we're still trying to fight the other deal that's out there in the making, such as Sprint.

And so we don't necessarily from our point of view so a peaking of the roll out business in US.

Japan, however, is a slightly different story.

Last year, we achieved a peak overall in the market for some time because the LTE roll out and laos the modernization of wideband CDMA capacity expansion were peaking.

So that's fallen off this year, and I think we're moving in a phase from coverage to capacity at this point in time.

And capacity is categorized by low revenue, but obviously higher software and carrier build.

So higher profits by definition.

Okay, thanks Didier.

And then on the patent question, and the Microsoft agreement being some kind of blueprint for other things.

So, I of course wish it would be as simple as you would just basically take that system and kind of like calculate some kind of a very unique thing, and then you would just multiply the world's units, but that's not how it really works.

So every single contract is something what we of course negotiate separately, and it depends on the breath of the coverage.

For example, the length and the other components related.

And we also have to noted, that in the Microsoft contract, we actually licensed back rights from them for our HERE business.

So they are really multi-faceted contracts and you can't take a one kind of recipe for all.

Thank you, Didier.

Carmen, next question please.

Mark Sue, RBC Capital Markets.

I'm just trying to get a sense of some the timing of the upcoming larger LTE projects how it relates to coverage and capacity for example for T-Mobile US?

And how you may be feeling about your improving position at Sprint?

And then maybe and perhaps in Europe, just timing also for Vodafone as they upgrade their network next year?

And then I think I also heard that there's a push for a single RAND platform.

Does that mean you're less inclined to consider other assets?

Yes, so low single RAND is a requirement more or less in Europe and parts of Asia-Pacific.

But I'd characterize it strongly in Europe.

And given our installed base, we think we are in a good position reinvesting on that area.

And then when it comes to your other question, which was centered more around -- LTE, we think LTE will accelerate in Europe.

Sort of starting from Q4 this year, so that will start to happen.

And we look at US projects such as T-Mobile, they are moving from capacity -- sorry from coverage to capacity, but there's still a bit more coverage to continue at the same time because they have completed a massive modernization.

And then in terms of Sprint, I shouldn't comment yet, because the decision is still in the works.

Thank you, Mark.

Carmen, next question please.

Yes, you're right point count that we said that we expect solid revenue sequential in the [foremans] and we simply refer to normal seasonality with that commentary.

So we expect a solid increase in revenues compared to Q3, driven by mainly seasonality as Rajeev was pointing out.

Thank you, Kai.

Carmen, next question please.

[Atchal] [Sitonia], Credit Suisse.

Obviously, you talked about your business mix in the US and Japan.

Can you also provide some color on Korea?

Because we saw there was a big slowdown in the first half, and then we had LTE advanced spectrum options.

Is that something that we should actually expect to pick up over the next 12 months or so?

And how should we think about margins on LTE advanced?

Thanks.

LTE advanced is typically a very strong software release.

It comes from a big software build.

In fact, we, in September we took all three of the operatives to LTE advanced there in Korea.

So we achieved a world first with that.

LTE advanced is good, it takes carrier aggregations so multiple spectrum is put in together.

Your question on new spectrum that's been awarded, rollouts on that have yet to begin.

So we will probably will see over the next period new rollouts beginning in new spectrum which is a bit of coverage, but also capacity.

Because it's about utilizing a different spectrum and combining it together with the other spectrum from the same base stations.

Thanks, Atchal.

Carmen, next question please.

Richard Kramer, Arete Research.

Hello guys, I'm amazed no one has asked about this yet.

But, Timo, can you lay out for us the timeline of when you expect to communicate the results of your strategy review, perhaps a permanent Group CEO appointment, and discuss the capital distribution?

Is that something we'll expect after the close of the Microsoft transaction or earlier?

And also alongside that, with respect to your previous strategy of making regular disposals from your IPR portfolio, given what you're doing in advanced technologies, are these now going to be ended?

Are you going to stop selling IPR?

Thanks.

Okay.

So I think the two questions are not really related, so thanks, Richard, for the questions.

So first of all the timeline, so there is no change as we said when we announced the planned Microsoft transaction on September 3rd, we said that between signing and closing the Board will conduct a thorough strategy evaluation for the Nokia Group.

And that of course includes the corporate strategy and evaluating any synergies of the business strategies between the three businesses, structure, and then also capital structure.

And only after that analysis is complete can we start to talk about cash or possible deemed excess cash distributions.

And as you correctly pointed out, we expect that to happen between signing and closing.

So at closing or between then maybe before, but at closing I think is a good estimate.

And then on IPR, we are not changing the way we look at IPR.

We have very strong IPR portfolio.

If we think that we can create value by creating new portfolios from that portfolio and we get a proper price for that on the market, we are willing to look at selling IPR continuously as well.

Thank you, Richard.

Carmen next question please.

Francois Meunier, Morgan Stanley.

Thanks for taking my question.

I think, Rajeev, you talked about pricing pressure on more competitive pressure in the networks business.

So it will because I've not heard of that recently.

Are you by any chance the one trying to be the price aggressor in this market?

The second question is really about the margins in mobile broadband.

I think understand the global services margins going up year-on-year, given what you explained.

And less network or allowance on these type of things.

But at the same time, the mobile broadband margins have decreased by something like 80% year-on-year, and decreased 50% sequentially while I think (inaudible) Erickson is doing actually is going in a positive direction.

So, if you can help me there?

Because the logic would have been that if you do less network rollout, then your margins would increase.

So I'm a bit puzzled by these 5%, 4.9% exactly EBIT margin in mobile broadband which is your hardware business.

Thank you.

So thanks, Francois.

So first on the pricing pressure, so yes, we are seeing some signs of pricing pressure overall.

Some difficult pricing from the weaker players, and we believe that's not sustainable.

And I'm not just clear yet if it's a short-term trend or a longer-term trend.

I do not think we intend to be price aggressive.

As I said before, for us efficiency, costs, pricing, management is key, so we think that for this environment we are rather well prepared.

And then your second question was on mobile broadband mansions.

Yes they are down due to higher operating expenses as a percentage of net sales, slightly lower gross margin due to lower sales in the legacy business of wideband CDMA, GSM and CDMA.

And also some costs incurred in anticipation of their technology shift to TDLP related to major projects in China, So, some of that is a one-off in nature.

Thank you, Francois.

I hope that helps.

Carmen, next question please.

Youssef Asaga, Barclays.

Hello, Youssef?

Carmen, I think we should back to Youssef.

We can take the next question.

Kai Korshelt, Deutsche Bank.

Can you hear me?

Sorry.

I just had a quick question on the Q4 guidance for NSN.

I think the seasonality used to be in the mid-20% range sequential growth from revenue perspective I know it's been lower in the last couple of years because he's been pairing down the business.

But I'm just wondering when you say solid, does that mean at least double-digit, at least teens, how should we think about that guidance for Q4?

Thank you.

The revenue we've not commented, we've just given the operating margin guidance 12% plus or minus 4%.

So to give you some more color on that, typically Q4 is a seasonally strong quarter.

We see that every year for us for.

Of course if revenue lift from the Q3 level, and if we could make it 8.4% operating profit in Q3, you would assume that we have high operating leverage if the revenue lifts.

Q4 is characterized by some of the operators exhausting their year end budgets, and so you typically get higher than average higher margin software sales, and of course we expect continued improvement under our restructuring and transformation program for Q4.

So just giving color on that profit guidance.

You're right, Kai, pointing out that we said that we expect solid revenue sequential in the foremans.

And we simply referred to normal seasonality with that commentary, so we expect a solid increase in revenues compared to Q3, driven by mainly seasonality as Rajeev was pointing out.

Sandeep Deshpande, JP Morgan.

Hello?

Can you hear me?

Yes, hi.

My question is firstly regarding the adjustments to the purchase price.

You said that there would be no adjustments, and this is based on what you have of your bill plans, or and with consultation with the buyer, or is this based on some other factors that you're taking into account?

And secondly, I have a question on IPR.

Symbian itself was one of the first major mobile OSs, and from what we've seen in the market Microsoft and Apple are taking royalties on mobile OS from android licensees.

And so, do you see any potential in IPR on the software side because of your ownership of Symbian?

Thank you.

Okay, so first on the adjustments to purchase price.

So these adjustments are driven by two things, the devices and services business or the part of the devices and services business i.e.

substantially all, which are planning to sell.

The networking capital performance compared to a plan, and also cash earnings performance compared to plan.

And as we said today, we are tracking with that plan which has a certain range in it in a way that we expect that there would be approximately zero adjustment and plus purchase price would be EUR5.44 billion.

And of course would that change then to one or the other direction, we will the see if it's necessary to update that somehow.

And then on the IPR on the mobile OS.

So we see the IPR more as something where basically there is a patent portfolio of both essential patents and implementation patents.

And it depends on if you either license one or other or both.

We've soon be on development.

We have developed many patents which can be, for example, in the area of a store in a mobile and these kind of things, which are then part of the overall patent portfolio.

So I wouldn't necessarily call it licensing to OS as such, but many of the components which can be integral to the OS which have patent phases at features can be something what we can and look for to license of course.

Sandeep, thank you.

Carmen, next question please.

Hi, thanks for taking my question.

Actually, it's really on again NSN.

So, you said when you announced it (inaudible) the D&S and actually reiterated today that you're planning on investing on the top line of NSN, and that you're going to be making some selective investments in key strategic deals.

So, I was just wondering if you can quantify a little bit this, and also give us a little bit of an idea of the timing of when you're going to be commencing your balance sheet into a contract?

Yes, I think what we're saying is that we have a stronger platform to be much more competitive from should we want to do so in terms of investment in key strategic deals.

And example of that being China Mobile that we announced today, and so we got higher than average foreign supply of share.

And those kinds of things we look at, but again, we don't have timeframe or a target or something fixed on that, it just happened during the year in terms of strategic deals.

More importantly, we think we have strong pricing management, strong controls, and a strong efficient cost base to sort of fight from.

And I think that's a key to understand.

We're not going to give up on our efficiency, productivity, and the right way to keep pricing under control.

Thank you, Youssef.

Carmen, we can take another question now.

Jim Suva, Citi.

Thank you very much, and congratulations especially on the profit margins of the networks business.

That's truly remarkable.

As you think about your commentary that you've given thus far on the conference call and with all the build outs and programs going, it appears as if the declines in revenue growth should be turning the corner.

Not just seasonally, but next year also for a year-over-year.

Without giving too much details, can you respond with is that exact correct, and could we continue to see margin enhancement in the networks business?

So first of all Jim, I'll let Rajeev continue.

But clearly, we are not giving any sort of guidance on 2014, in particular.

So, that is really not what we are doing.

We're just reiterating our long-term view of 5% to 10% non-IFRS operating margin, that's unchanged.

And like I said earlier, if we execute well to that, we can end up at the higher end of the range.

The only thing I'll say on revenue is the impact of divestments and much of these contract exits, and as I said before, will be complete at the end of this year.

However, there's still some services contracts that will impact the top line next year.

Great.

Thank you, Jim.

Carmen, we'll take our last question for today.

Tavis McCourt, Raymond James.

Timo, my question was, if I look at your pro forma results for the third quarter, they're little lighter than if you we add up the three business segments separately.

And I'm wondering, is the reason for that that the Microsoft agreement is actually a negative relative to what you're reporting on IP licensing today?

Thanks.

Now, thinking about such reconciliation from the top of my head, I think one thing which could impact this is the of course when you look at Q3 numbers we have in the other operating income and expense this divestment gain, which is through one of the venture funds which we own which we disclosed today.

So that could be actually impacting positively maybe some EUR30 million or so.

That's the only thing I can think of.

Thank you, Tavis.

We can follow-up off-line, of course on those details.

Yes, please do that.

And thank you, everyone, for joining the call today.

Ladies and gentlemen, this concludes our conference call.

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

Actual results may therefore differ materially from the results currently expected.

Factors that could cause such differences can be both external, such as general, economic, and industry conditions, as well as internal operating factors.

We have identified these in more detail on pages 12 through 47 of our 2012 20-F, and in our quarterly results press release issued today.

Thank you.

Thank you for participating in today's conference call, you may now disconnect.