諾基亞 (NOK) 2014 Q3 法說會逐字稿

Good day.

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

At this time, I would like to welcome everyone to the Nokia Q3 2014 earnings conference call.

(Operator Instructions)

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

Mr. Shimao, you may begin.

Ladies and gentlemen, welcome to Nokia's third-quarter 2014 conference call.

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

Rajeev Suri, President and CEO, and Timo Ihamuotila, EVP and Group CFO, are here in Espoo with me today.

Before we begin our discussion, I'd like to remind and ask investors who plan to attend our Capital Markets Day on November 14, to please register as soon as possible so that we can optimize the venue logistics.

Any questions can be addressed to CMD2014@Nokia.com.

During this call, we will be making forward-looking statements regarding the future business and financial performance of Nokia and its industry.

These statements are predictions that involve risk and uncertainties.

Actual results may therefore differ materially from the results we currently 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 in the Risk Factors section of our 20-F for 2013 and in our interim report issued today.

Please note that our results 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, Rajeev, over to you.

Thank you, Matt, and thanks to all of you for joining.

It is a pleasure to speak to you today after a quarter where Nokia delivered both growth and strong profitability.

As you know, in our guidance earlier this year, we pointed to Networks growth in the second half.

In fact, all three of our businesses grew on year-on-year basis in the third quarter, and Networks delivered a particularly strong overall performance, with 13% year-on-year net sales growth and near record profitability.

HERE followed closely behind, with 12% growth and Technologies with 9%.

This robust performance is the result of the right strategic choices, strong execution across our three businesses, particularly in Nokia Networks, and some interesting tailwinds in the quarter that I will discuss in a bit more depth later.

Last quarter, I gave you an update on the progress of my 100-day plan and while I won't go through each of the five priorities that I set, I would like to give a brief comment in two areas.

The first is the effort to move rapidly from high-level strategy and vision to bold and detailed execution plans.

I believe that we have made good progress in that area, and I'm looking forward to sharing more with you and getting your feedback at our Capital Markets Day in London on November 14.

We have looked hard at where we are today, where we see opportunities in the future, and how we define our long-term strategy and vision.

The second is on the topic of culture and values.

One quarter ago, on the same day as our earnings announcement, we started sharing our refreshed values with Company leaders, followed by an all-employee cascade.

The response from employees has been remarkable, with about 95% awareness of our new values and close to 90% favorability.

Given that the launch was done in the midst of summer holidays, we are extremely pleased with this outcome.

And in fact, my team tells me that the short time it took to reach such levels is among the best they have ever seen.

So good momentum in this area that provides a sound foundation, as we now move further to align our culture around some common themes.

Let's now turn to the quarter.

At the Group level, we delivered net sales of EUR3.3 billion, a 44.5% non-IFRS gross margin, and a non-IFRS operating profit of EUR457 million, or 13.7% of sales.

In terms of our businesses, let me start with HERE, where we just announced the appointment of Sean Fernback as president.

Sean is a well-recognized technology expert, with 25 years of experience in the location, automotive, consumer, and telecommunication businesses.

He joined HERE earlier this year from TomTom, where he oversaw the overall product design, hardware and software engineering, and manufacturing of all of their consumer products and accessories.

I'm extremely pleased to have Sean take on this challenge and join the Nokia Group leadership team.

In addition to Sean's appointment, the primary topic I would like to discuss about HERE is an adjustment to our strategy.

We will increase our focus on our excellent automotive and small but fast-growing enterprise businesses.

We will also continue to extend our reach to consumers through work with mobile device vendors, such as Samsung, and Internet players, such as Yahoo.

This is a business for us that leverages our location cloud capabilities and it will help us remain fully tapped into the innovation of the consumer ecosystem.

While we increase focus in these areas, we will deprioritize efforts to build direct-to-consumer businesses.

We simply see better opportunities in other parts of the HERE business and we want to target our resources to those areas.

As I mentioned on our last call, we will also work to strengthen operational effectiveness at HERE in order to ensure the we are getting maximum output for our significant R&D investment and to improve longer-term profitability.

Despite these actions, I want to be very clear that the vast majority of HERE will not change and much of it will even be strengthened through greater focus.

We know we have customers who depend on us today and we remain absolutely committed to meeting their needs in the future.

With this adjustment to our strategy, we were required to conduct impairment testing, which, as you will have seen, has resulted in a significant impairment of goodwill and change in the asset-carrying value of HERE.

Timo will share additional details about this topic in his remarks.

Turning back to the quarter, HERE had net sales of EUR236 million, up 12% year on year and the first year-on-year growth since the second quarter of 2012.

Strong automotive and enterprise sales, and the positive impact of our expanded license agreement with Microsoft, more than offset the loss of revenue from the former Devices & Services business.

From a profitability perspective, HERE had another breakeven quarter, reflecting the investments we are making in the business.

An example of this is the commitment we are making to our location platform, which enables faster time-to-market for our customers and helps them provide a broad range of services such as real-time traffic and parking to end-users.

HERE's customers are starting to move from being content-only customers to platform customers.

Highlights in the quarter for HERE include the completion of the acquisition of Medio, a pioneer in the area of real-time analytics; the demonstration of new technology to support the development of the connected car and enable smart cities; and an agreement with Samsung to bring HERE Maps and Location platform services to Tizen-powered smart devices, combined with the development of a companion application for Android-based Samsung Galaxy products.

HERE's leadership was recognized by Frost & Sullivan, who noted that HERE stands apart for its knowledge and industry experience, impressive data collection ability, high level of personalization, revolutionary products, and wide-ranging partnerships with nearly every OEM and system vendor.

As we bring more focused to HERE's tragedy, and as we start to benefit from some of our significant R&D investments, we see opportunities to improve HERE's financial performance, as I already noted.

Next on to Nokia Networks, which had a strong quarter.

Net sales were up 13% year on year at EUR2.9 billion, and up 15% versus the second quarter.

At constant currency, Nokia Networks net sales would have increased 15% year on year and 12% sequentially.

It was particularly pleasing that this growth did not come at the cost of profitability.

Non-IFRS gross margins reached 39.1% and non-IFRS operating margin was 13.5%, both clearly very strong.

We now have delivered six consecutive quarters with non-IFRS gross margin over 36% and our non-IFRS operating margin was the second best in the history of the business.

We agreed to some exciting new deals in the quarter, including a renewed and expanded managed services contract in Nigeria with Etisalat, radio access and services for Telefonica Spain, and a five-country win for IMS and Voice over LTE with a major European operator, just to name a few.

We also worked with a number of customers to ensure readiness for the iPhone 6 launch, including support for Voice over LTE.

Our relentless focus on quality delivered good results, with a quality assessment by China Mobile of its commercial TD-LTE network, showing a clear advantage for Nokia Networks in terms of both network performance and implementation speed.

From a technology perspective, we continued to show leadership in 4G radio technology with a number of product launches, including the world's first 3.5 GHz carrier aggregation capable radio and a solution to smoothly migrate WiMAX networks to TD-LTE Advanced.

Telco cloud and virtualization remain a clear priority for us and we became the first vendor to supply a commercial Telco cloud solution compliant with FC architecture for end-to-end Voice over LTE services.

In previous calls, I told you that we will be placing a higher priority on partnering, and our new partnering business unit went live in the quarter.

We see considerable potential in this area and have already announced partnerships with Flash Networks and Red Hat.

While we feel good about our performance in the third quarter, it is also important to recognize that we had some unique developments: business mix, regional mix, and some catch-up sales from earlier quarters.

Let me briefly talk about each of these issues, while also providing some more detail about the quarter.

First, our business mix was weighted heavily to Mobile Broadband versus Global Services, 57% to 43%.

We have not seen a proportion like that for many years, and do not expect it to continue at that level, as the services team will now accelerate activity to deploy equipment delivered to our customers in the third quarter.

Mobile Broadband delivered excellent growth and profitability in the quarter.

While Global Services delivered its sixth consecutive quarter of double-digit non-IFRS operating profit, their year-on-year sales declined by 5%.

Overall, good performance from both segments, but particularly MBB, with a combination of strong higher-margin LTE network deployments and core network sales.

Our R&D spend remained roughly flat year on year, but we continue to generate significant productivity gains and are actually increasing headcount as we reduce subcontractor spend.

As a result, we were able to continue to add R&D capacity to areas like LTE, Small Cells, and Liquid Core.

Additionally, within the Mobile Broadband mix, we saw strong hardware sales, where our cost reductions continue to deliver significant benefits.

We remain focused on getting Global Services back to growth.

The rate of year-on-year sales decline has slowed, and given that services sales typically lag product sales in our industry by two to three quarters, we see positive signs for the future.

Second, the region mix was quite favorable from a profitability perspective.

In particular, North America was up 53% year on year and 50% sequentially.

Quite pleasingly, we saw a recovery in Europe, which grew 9% year on year and 15% sequentially, and showed robust deal momentum.

Greater China also had a strong quarter, with excellent sales growth, as well as the absence of costs incurred in anticipation of a technology shift to TD-LTE related to major projects, something we have referenced in earlier calls.

Middle East and Africa was also up year on year, despite ongoing challenges related to the political and security environment in several countries.

We saw a slight dip in Asia-Pacific, with lower network deployments in Japan, mostly offset by higher network deployments in Korea and India.

In Latin America, which I called our most challenging region on our last call, we saw net sales decrease by 4% year on year, primarily due to lower network deployments in Brazil and Mexico.

While this is a slower rate of decline than we have seen in earlier quarters, and we believe that the new Management we have put in place is gaining traction, we are still not pleased with our performance in this region, and the work we need to do to turn it around is not yet done.

Third, as you are aware, we faced some component shortages in the first half of the year.

We saw those come to an end for most products in the third quarter, and, as a result, we were able to largely meet the demand that we had not been able to capture earlier in the year.

These catch-up sales gave us a positive sales bump in the third quarter.

Thus, while we are optimistic about the future, we are cautiously so, given increasing concerns about risks the macro economic environment.

We believe we are better positioned than others to face potential headwinds, given our lean cost structure and operating discipline.

Overall, I'm quite pleased with the performance of Networks, and indeed, proud of the team for delivering such a strong quarter.

Moving to Nokia Technologies.

It was a quarter that, from a numbers perspective, was largely business as usual.

Sales at EUR152 million were up on both a sequential and annual basis.

Profitability was also good, with a 17% year-on-year increase in non-IFRS operating profit.

The Technologies team contributed multi-year research and development of speech codec reference software to the Enhanced Voice Service, EVS codec, that was selected by 3GPP in the quarter.

Additionally, we made continued progress on building the strong business infrastructure necessary to support our longer-term ambitions.

Over time, we clearly expect more from this business, as we seek to expand patent, technology, and brand licensing, as well as other opportunities.

But, as I said on the last call, we will approach new opportunities within Technologies in a methodical way, possibly testing some ideas in the market and using a strict gating investment model.

Ramzi Haidamus is now fully on board to lead the team and he will be joining us at the upcoming Capital Markets Day to give some more perspective on Technologies and future focus areas.

Before handing over to Timo, I want to close by saying that, while Q3 was good, we will not be lulled into complacency.

There is still plenty of work to do to keep Networks performing well and to tap the full potential of Technologies and HERE.

With that, Timo, over to you.

Thank you, Rajeev.

I would like to start by spending the next few minutes taking you through our cash performance during Q3, as there were a number of significant non-operational drivers that impacted our cash flow and quarter-ending cash balance.

On a sequential basis, Nokia's gross cash decreased by approximately EUR1.4 billion, with a quarter-ending balance of approximately EUR7.6 billion.

Net cash and other liquid assets decreased by approximately EUR1.5 billion sequentially, with a quarter-ending balance of EUR5 billion.

Compared to Q2, the primary drivers of the decrease in our net cash balance related to the payment of the ordinary and special dividends, which totalled approximately EUR1.4 billion, or EUR0.37 per share, as well as share repurchases, which totaled EUR220 million in Q3.

From an investing perspective, we had cash outflows in Q3 of approximately EUR160 million related to the acquisitions of SAC Wireless and Medio, as well as cash outflows of approximately EUR60 million related to capital expenditures.

Looking at the operating cash performance of Nokia's continuing operations in Q3, cash inflows of approximately EUR400 million were primarily driven by strong performance at Nokia Networks.

Finally, on cash and the Microsoft transaction, last quarter I commented that we expected to receive the balance of the net proceeds from sale of the Devices business during the second half of this year.

While we did not receive any material payments related to this in Q3, we have some subsequently received the majority of the expected proceeds in early Q4, with the remainder expected to be received in early 2015.

Then a few words on OpEx.

In Q3, continuing operations non-IFRS OpEx increased by 5% year on year and 7% sequential.

The year-on-year increase was primarily due to higher operating expenses at HERE and to lesser extent at Nokia Networks.

As we have commented in recent quarters, we are continuing to invest in targeted growth areas for HERE, for example, in connected car and enterprise segments.

We believe these investments are well aligned with industry trends and needs of HERE's customers.

For example, HERE recently received the highly coveted Supplier Innovation Award from BMW Group for its work in the area of connected driving.

Also, of the 62 new car models presented at the recent Paris Motor Show, HERE was present in more than 50.

At the same time, as Rajeev mentioned, we are focusing on improving HERE's overall OpEx efficiency to drive growth and strengthen its financial performance.

Sequentially, the increase in continuing operations non-IFRS OpEx was primarily due to higher R&D expenses in Nokia Networks, where we continue to invest in focus areas.

As said earlier, while we are increasing our R&D headcount, we are simultaneously benefiting from efficiency measures that have been implemented over the past couple of years.

In addition, we have more recently started newer initiatives, including broader deployment of Lean and Kaizen methodologies across networks and are increasing automation.

These are all efforts aimed at efficiently expanding our overall R&D capacity.

When combined with our strong focus on quality and innovation, we believe we have created a strong operating model to support our strategy.

Turning to OpEx trends in Nokia technologies, where we are investing to support the strategy and opportunities for this business.

Consistent with, this Technologies non-IFRS R&D increased 9% sequentially.

Completing the OpEx picture, group common functions non-IFRS OpEx was EUR32 million in Q3.

As I mentioned last, quarter the SG&A in group common functions is generally stable but the other income and expense can fluctuate.

Then a few words on HERE and the impairment charge.

As a result of an adjustment to its strategy and the related new long-range plan, we conducted an impairment assessment of the goodwill related to our HERE business in Q3.

Subsequently, we recorded a charge of approximately EUR1.2 billion to Nokia's operating profit for the impairment of goodwill, based on our assessment that the recoverable amount of HERE is now EUR2 billion.

The impairment charge is the result of an evaluation of the projected financial performance of our HERE business.

This takes into consideration the clearly slower ramp-up of net sales related to direct-to-consumer monetization than earlier expected, and our plans to curtail our investment in certain higher risk and longer-term growth opportunities.

It also reflects as the current assessment of risk related to the growth opportunities that we plan to continue pursuing, as well as related terminal value growth assumptions.

After consideration of all the relevant factors, we reduced the net sales projections for HERE, particularly in the latter years of the forecast period, which in turn, reduced projected profitability and cash flows.

Additionally, changes in foreign exchange rates increased at the carrying amount of goodwill in euro terms, which in turn increased the amount of the impairment.

Somewhat related to the impairment charge, as well as HERE's cumulative loss position over the past three years, we also recognized a EUR325 million valuation allowance related to HERE's Dutch deferred tax assets during Q3.

Staying with tax, in Q3, Nokia recognized EUR2.1 billion of deferred tax assets from the reassessment of recoverability of deferred tax assets related to Finland, and to a lesser extent, to Germany, of which EUR2 billion was recorded as a non-cash tax benefit in Q3 2014 reported tax expenses.

If you recall, as a result of the transactions with Siemens and Microsoft last year, we performed an assessment of the potential of recoverability of Finnish deferred tax assets.

At the end of Q3 2013, we disclosed that Nokia Group had total of approximately EUR2.7 billion of net deferred tax assets, which had not been recognized in our financial statements.

We have since been utilizing some of these assets in recent quarters against our taxable profits in Finland, including part of the gain on the sale of the Devices business to Microsoft.

At the end of last quarter, we disclosed that Nokia had approximately EUR2 billion of unrecognized Finnish deferred tax assets.

Based on recent profitability and latest forecasts, Nokia has been able to reestablish a pattern of sufficient tax profitability in Finland and Germany to utilize the cumulative losses, foreign exchange, foreign tax credits, and other temporary differences, which consequently allowed us to recognize or write back the EUR2.1 billion, of which EUR2 billion came through P&L.

A significant portion of Nokia's Finnish and German deferred tax assets are indefinite in nature and available against future Finnish and German tax liabilities.

On a non-IFRS basis, after having recognized these deferred tax assets, we now expect to record tax expenses at our long-term effective tax rate of approximately [10% and] 25%.

However, Nokia's annual cash tax obligations are expected to continue to be approximately EUR250 million until Nokia's deferred tax assets have been fully utilized.

Cash taxes may vary depending on profit levels in different jurisdictions and license income is potentially subject to withholding tax in certain jurisdictions.

Applying the estimated 25% long-term effective tax rate to Nokia's continuing operations, Q3 non-IFRS pre-tax profit of EUR432 million, would have resulted in a tax expense of approximately EUR30 million higher than the one we recorded in Q3 and this would have reduced our non-IFRS EPS by approximately EUR0.01.

So please remember to use the approximately 25% tax rate in your EPS modeling going forward, but note our ability to utilize the deferred tax assets to partially mitigate future potential cash tax obligations.

Now a few words on capital deployment.

During Q3, we commenced repurchasing shares as part of our two-year EUR1.25 billion share buyback program.

In total, we repurchased approximately 36 million shares in the quarter, equaling EUR220 million.

We plan to recommence the buyback program during the current quarter.

Finally, I'd like to spend a few moments on our guidance for the rest of the year.

While I'm pleased with the strong year-on-year revenue growth and excellent profitability in Nokia Networks this quarter, it is worth noting that the benchmark for growth in Q3 was quite low.

In addition, as Rajeev highlighted, Networks Q3 top line also benefited, to some degree, from our ability to address the component shortages that negatively impacted our top-line progression earlier in the year, something we also don't expect to benefit from to the same extent in Q4.

In closing, we have made good progress in Q3 and we are highly focused on capitalizing on the value creation opportunities we see ahead of us across all three of our businesses.

We look forward to discussing this in more detail at our upcoming Capital Markets Day in London next month.

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.

Stephanie, please go ahead.

Thank you.

(Operator Instructions)

Alexander Peterc, Exane BNP Paribas.

Yes, hi.

Thanks for taking my question and congratulations for great results.

I'd just like to ask a question on carrier CapEx trends right now.

Do you see more favorable spending at the moment in access, specifically in mobile broadband, at the expense of core networking?

That's something that some of your competitors have been highlighting, so I'm wondering how things look from your perspective.

And do you also see as SDN and NFV influencing carrier spending patterns at present?

And if so, how?

Thank you.

Thank you, Alexander.

We're not seeing a big deviation at the moment from what the historical split has been between core and radio within mobile broadband.

In own performance, we've benefit in Mobile Broadband with 33% year-on-year growth, and that was driven primarily by radio, but also by core, which increased on year-on-year basis.

Your second question on SDN and NFV, we're not yet seeing it come through.

Yes, we are seeing RFQs and we're in a number of trials and proof-of-concept, basically.

That's the phase we are in, I would say, with regard to NFV/SDN.

In terms of how that will impact carrier spending, it's probably more towards the end of next year and 2016.

Thank you, Alex.

Stephanie, next question please.

Gareth Jenkins, UBS.

Thanks for taking the question.

Just a quick follow-up on one of the unique factors you called in the quarter on the component supply shortages.

Could you just maybe help us quantify that, and maybe whether you expect normal seasonality into Q4 excluding that effect?

And maybe one follow-up, if I could?

Thanks.

Thanks, Gareth.

Yes, we saw a few unique development, as already commented by Timo: the Mobile Broadband and Global Services mix, the regional mix enhanced by North America, and then there was the catch-up sales.

It's fair to say that we saw the catch-up sales that would come through in a quarter, but when you catch up and you can catch up more than expected, and that to some degree happened in Q3.

In terms of the effect on Q4, we are not giving specific quarterly guidance, except to say the annual guidance is slightly above 11% operating margin for the full year.

Thank you, Gareth.

For your follow-up, if you could requeue in, then we'd be happy to take it.

Stephanie, can we take the next question please?

Stuart Jeffrey, Nomura.

Hi.

Thank you very much.

I had a question on where you go next in Networks.

You've stemmed the [profitability with the] losses and turned around just nice profitability.

You've turned around revenues.

Where do you go next?

I'm presuming you're going to say profitable growth, but I'm wondering where that growth comes from.

So if you could perhaps expand on how much of that growth maybe is coming from market share gain ambitions, how that might -- how you balance that with profitability and maybe what areas you might see outside of radio and core that might give you the ability to outgrow what seems like a slow radio market outlook?

Thanks, Stuart.

So square two, from here, of course, I am going to say it's a balance profile between profitability and growth and that's how we like to run the Company and that's what we need to do.

On the cost side, we see as, Timo commented, a number of more sophisticated areas, shall I put it that way, to go through, i.e., Lean, Kaizen, Six Sigma.

We think quality is a big driver of productivity and it's the bottom-line driver, so we will continue to focus on that.

That gives us the head-room to be able to drive for more share within the mobile broadband market.

Then in terms of new areas, SDN, NFV, moving into other spaces, such as adjacencies, such as antennas, LTE in the normal mode, but also LTE for public safety, which we've commented on previously, will become a driver and small cells, which has not really begun.

Small cells, we are just in time in terms of having the product of time, because I always thought that the market will come later than most people anticipate, so we will be on the hype phase, but we haven't yet seen enough momentum on small cells in real deployments.

So those are some of the areas that we will continue to focus on.

Thank you, Stuart.

Stephanie, next question please.

Sandeep Deshpande, JPMorgan.

Yes, hi.

Thanks for letting me on.

My first question is regarding -- in the Networks business -- or rather, overall in the Business, maybe, Timo, can you comment on how you look at your cash and how you plan to spend this cash going forward?

And secondly, in the Networks business, maybe you can comment on is there -- or rather, overall, is M&A a major portion of your future strategy?

Thanks.

Yes, thanks, Sandeep.

First, on cash [o], clearly, we actually had quite a big move in the net cash balance.

It went from EUR6.5 billion to EUR5 billion at the end of the quarter.

A big part of that were the shareholder returns, both dividend as well as the buybacks, [what we started].

On top of that, we had about EUR220 million in investments, of which about EUR160 million was in acquisitions, and the operating cash flow, that was positive about EUR400 million, which we think is a good result in Networks given it was a growth quarter.

Now looking at further investment, we of course, continue to allocate the capital efficiently into our businesses and that is what we are here to do, to drive best possible risk return for the shareholders.

Thank you, Sandeep.

Stephanie, next question please.

Andrew Gardiner, Barclays.

Thanks for taking the question.

Another one on the Networks revenue side of things, if I may.

You've highlighted the unique aspects that led the outperformance in 3Q and you are clearly pointing to a below seasonal trend in 4Q, whatever seasonal may be these days.

But I was just wondering if you can describe a bit more about how the regional mix may evolve in the fourth quarter from where you sit today.

Your quarter-to-quarter trends do seem to be a bit more influenced by some of these major projects that are going on, be at the Sprint 2.5 GHz rollout that you're part of the States, the Chinese 4G rollout.

I know you don't want to speak specifically to customers, but just in terms of the potential impact of some of these big project in the fourth quarter -- any new big projects that are coming and anything you can highlight around that would be helpful?

Thank you.

Thanks.

Andrew, I will just give some quick color on regions.

We've seen momentum in East Europe and to some degree and West Europe through the acquisition of these projects that we've won recently.

Southeastern Europe remains challenging, and of course, we know the Ukraine and Russia situation remains something that we are watchful of.

[Release] in Africa, we have momentum there, as well, particularly in northern Africa, and we had some good wins recently.

Latin America, I have commented before, is a challenged region for us at the minute, but we of course, have slowed the rate of decline, if you like, on revenue and there's new leadership in place to drive that turnaround further.

North America went well for us because we have both the projects in rollout mode.

It was somewhat more broad-based, but of course, one of the customers was a bigger driver, given that we didn't have a meaningful position with that customer a year ago.

Greater China continues it's very significant rollout.

All three customers are in LT rollouts.

Given that we are number one foreign vendor in China with regard to LTE, we are benefiting at the moment, but it's hard to say how that will evolve for next year.

And then finally, Asia-Pacific, we saw momentum in Korea and India.

There will be new [auctions] in spectrum in India in February next year and we seeing some of the regulatory headwind go away with the new government in place.

That's, broadly, the color I'd give you, but not being specific on Q4.

Maybe I'll complement a bit on we look at our Q4 guidance.

Really looking at the Network's Q3 results, we clearly had a very strong quarter and we had very strong 15% sequential revenue growth, which is above normal seasonality.

This was supported by strong performance in North America and China.

Then, we look at that additionally, there were a couple of unusual elements, as discussed earlier.

We benefited from some of these catch-up sales and we also had to elevate the proportion of MBB in the mix, which benefited Q3 on a gross margin level, in particular.

This is something what we don't expect to continue quite at the same way going into Q4.

Then finally I would like to remind that OpEx is seasonally usually higher in Q4, so it would be difficult to have a higher OpEx going into Q4.

Thank you, Andrew.

Stephanie, next question please.

Mike Walkley, Canaccord Genuity.

Great.

Thank you.

Just switching gears to the Technologies division, with Nokia building infrastructure and adding to the team and contacting new potential OEM licenses.

Can you help us with the thought process of how it long it might take for new licensees to go through the negotiation process and also can you update us on any timing updates for the Samsung arbitration?

Is it still expected some time in mid-2015?

Thank you.

Okay, thanks, Mike.

Timo here.

I'll talk a little bit about this because we have discussed earlier that basically when you look at new licensees -- of course, we had opportunity also with existing licensees but those come when they come, as those contracts start to close to expiry or towards expiry -- but with new licensees, any discussions in this kind of set-up, of course, take first bit of time to negotiate.

That time can be anything between three to six months or something like that.

And if one would then not come to an agreement and you would need to [qualitate] the legal enforcement route, that easily can take a year or so to common into fruition.

So these are quite long processes.

We absolutely have things ongoing with new licensees, with potential new licensees, but that is the timeline unless we could get some of these discussions being resolved either through direct negotiation or then maybe through an arbitration procedure, as is done in the Samsung case.

When it comes to the timing of the Samsung arbitration, we have no change an expectation; it is expected at some time during 2015.

Thank you, Mike.

Stephanie, next question please.

Johannes Schaller, Deutsche Bank.

Hi there.

Thanks for taking my question and congratulations on a really good quarter.

Just if you could maybe give us a bit more color on how you see the situation in Japan evolving currently.

It looks like we're in a slightly longer CapEx decline environment.

Just if you could share your views when you think maybe CapEx in Japan overall [abide] by the telcos can stabilize and what could drive really such a stabilization?

Any new technology investments on the horizon?

And then also update us maybe a bit on your market share developments here, given some of your competitors have been maybe more vocal on Japan than recently?

Thank you.

Thank you, Johannes.

Of course, we saw Japan peak, in a sense, in 2012, with all the big LTE coverage-based rollout.

Then, at the moment, I sense that there will start to be a stabilization, but that will be driven by investments in real capacity.

By real [thorough] capacity, I mean LTE Advanced, so carrier aggregation, two carrier-carrier aggregation the macro, three carrier-carrier aggregation.

Then will come small cells, again.

Then small cells were driven also by carrier aggregation.

It could be two carrier and three carrier in the future, spectrums such as 3.5 GHz will also come in the medium-term.

So those are some of the drivers.

It's capacity driven, but really moving to LTE Advance and what some people call Wideband LTE 225 MB, 300 MB per second peak speeds.

Our own position is we are number one foreign vendor in Japan.

We maintain that position.

We are strong with all of the three customers that we work with, SoftBank, DoCoMo, and KDDI.

Thank you, Johannes.

Stephanie, we'll take our next question please.

Tim Long, BMO Capital Markets.

Thank you.

Just wanted to ask about the impact of the EU-China agreement that was talked about last week and we saw something about this several months ago, as well.

Just curious what you think that means for Nokia and profitability in the EU region and also what you think it means for potential for revenue upside and maybe even better margin profile in the China market?

Thank you.

We've always believed in fair trade, so we've supported that EU-China fair trade should continue.

We are a great friend of China.

We have a strong business there.

We've not factored in any impact from this, whether negative or positive.

So life continues the same way.

The competitive intensity in Europe remains unchanged.

The landscape, in terms of competitive intensity, overall in the industry, remains unchanged.

So our benefits are strong cost structure, the way we manage the Business and the operating discipline, and continue to focus on Lean, Kaizen, all these initiatives that give us the head room to operate and strategic flexibility to get some share in a challenging market.

Thank you, Tim.

Stephanie, we will take our next question please.

Kulbinder Garcha, Credit Suisse.

Thanks for the question.

It's for Rajeev.

Rajeev, I take [home] (inaudible) the exceptionality of the performance in the Networks business and on the margin side, but equally there are some things that would have been hurting the margin in terms of new networks in contracts that you [won] that were ramping up, as well as the fact that pricing pressures is always an issue.

As we go forward, normally as these newer contracts mature, it turns to higher-margin business.

So I'm just thinking, in that context, I am not really asking about Q4, because I'm sure things can change in the near-term, I'm more thinking in that context.

Isn't the 5% to 10% long-term margin target for NSN just meaningfully conservative now, given the performance that you have, given the business that you're winning, and given the way that you guys have executed?

Thank you, Kulbinder.

We have not updated our long-term operating marketing target for Networks and we continue to believe 5% to 10% is an appropriate long-term non-IFRS operating margin target.

Thank you, Kulbinder.

Stephanie, we will take our next question.

Pierre Ferragu, Bernstein.

Hi.

Thank you for taking my question.

On here, so when you said there were no direct consumer focus, and at the same time, you tend to be reassuring about not letting down existing customers, if you could give us a bit more color around that, exactly how it's going to play out.

Does that mean you're going to stop investing in your consumer [ars] but you're going to continue to bring them to the market?

And then most importantly, I'd love to get some color on how you came to that decision, what were the pros and cons you considered in the debate.

Of course, I'm very curious to know if the recent departure of Michael is related to that decision in one way or another.

And then lastly, the significant impairments that goes with it, does that mean that your ambitions for HERE are actually much lower today than they were a few months ago?

Thank you.

Thanks, Pierre.

Let me start and then Timo will take over with the questions.

The strategy is to increase the focus on automotive and enterprise businesses, but also to continue to extend reach to consumers through mobile device vendors and also Internet players like Samsung, like Yahoo, like others.

What we are doing is then to curtail the direct-to-consumer monetizable apps and any other direct-to-consumer monetizable opportunities we had, because of the fact that there is not enough evidence that there is a monetizable opportunity over the longer-term.

So we've reduced this high-risk growth area, while focusing the Business on what we are best at.

I'll remind you that automotive, we -- historically, that's become a greater proportion of our sales.

It was 35% of revenue in 2010 and it became 53% last year in 2013.

There are plenty of opportunities there, as evidenced by our navigation licenses in Q3, with 3.2 million units relative to 2.6 million recently, or last year.

When I was at the Paris Motor Show recently, met a number of customers there, we are in a good, strong position to support them even further and to start becoming a stronger orchestrator, if you like, in the challenge towards moving to smart guidance and intelligent driving.

In fact, we had 62 models launched there overall.

More than 50 came from us, as I just commented.

So more focus on what we're best at, automotive, followed by a small but rapidly increasing enterprise opportunity in business.

But also being in the consumer, because consumer also has a linkage with automotive.

We have to play both games to do so.

So that's the commentary on the strategy of such, as such, and now Sean Fernback is appointed.

He's from within.

He also has good, strong experience from outside and he is the right person to balance the business longer-term between growth and profitability.

Timo?

And what relates to the impairment, clearly this adjustment strategy was the trigger to do the impairment analysis.

As has been discussed, there are certain changes in the Business, which Rajeev discussed and I also discussed earlier, so I'm not going to repeat that.

But I still want to highlight that it is worth noting that HERE has had this valuation in our books since 2011, and since that time, both top line and profitability have decreased.

That's an observable fact, but, and from accounting perspective, this is all something that needs to be taken into account when one assesses the riskiness of high cash flow projections.

Thank you, Pierre.

Stephanie, we will take our next question.

Mark Sue, RBC Capital Markets.

Thank you, gentlemen.

Just in terms of how we should model HERE, how we should think about the volume growth and subsequently ASP trends, because I would imagine the ASPs are going to be much higher as you change your focus to enterprise and autos, and then also how we should think about the sales cycles?

And maybe your thoughts of how you feel that this can be a de facto alternative to Google Maps in the auto business and other segments that you're targeting?

Thanks, Mark.

Maybe I'll start with the HERE modeling and ASPs.

First of all, it's worth noting that when you look at the HERE top line, we have an increase in auto, as was discussed earlier; simultaneously, we have had some decrease in some other areas, like mobile and [B&D], which are working to the other direction.

Then if you look at auto, as we have discussed earlier, we think that we have an opportunity to increase both attach rates, as well as ASPs, but these come in quite slowly, because of course, when you look at the cycle times in automotive, and when you decide something now and you cooperate with the customers, those models might roll out some years from now.

So we feel that this is a good opportunity to drive long-term growth and profitability, but really that is how the dynamics work on the market.

Thank you, Mark.

Stephanie, next question please.

Francois Meunier, Morgan Stanley.

Yes, thank you.

The ramp-up in the US, which is quite exceptional sequentially, up 50%, just wanted to have a bit more detail about what's going on there, if it's a ramp with one VoLTE customer or is it a ramp with maybe two customers?

Thank you.

Thanks, Francois.

As I said, it was a bit broad-based, but the bigger driver was the customer we won last year, Sprint, and of course, we didn't have that in a meaningful position a year ago, so the rollout began to happen in earnest in Q3.

Thank you, Francois.

Stephanie, we will take our next question, please.

Ittai Kidron, Oppenheimer.

Thanks.

A couple of questions for me.

First of all, you had a change in technology.

Maybe, can you give us some color around that?

And second, Timo, you've talked about increasing CapEx to a big part of that associated with an increase in capacity in Networks.

Can you talk about how immediate is that spend going to be, number one?

And number two, why was this not part of the plan?

Does that mean that the demand in Networks is far exceeding your expectations and is that apply also to outlook?

Your outlook now for Networks is much, much better than it's been up until now, from a top-line standpoint, that is?

If I'll start from that CapEx question.

I must admit, I did not quite get the first question, so maybe you can repeat it after this, but on the CapEx, I don't think there is anything extraordinary going on here.

We were expecting approximately EUR200 million CapEx for the year.

Now that number is EUR250 million.

It's fair to say that we have had some more activity maybe than we expected in Networks.

In that sense, I would not draw any conclusions from that CapEx level for future CapEx levels going forward.

Yes.

Just want to be sure that the first question was about the new header technologies?

Yes.

Ramzi Haidamus joined us recently.

He's a couple of months into the job now and he comes from Dolby.

He is an expert at the whole licensing business where he spent a long time, but also at management of new incubation opportunities, both of which constitute the core of Nokia Technologies.

Thanks for your questions, Ittai.

Stephanie, we will take the next one, please.

Ehud Gelblum, Citigroup.

Hey, guys.

Good afternoon.

A couple of clarifications, mainly.

First of all, Rajeev, earlier in the year, you'd been talking about several service contracts that you had divested from.

I wondered how that impacted the year-over-year this quarter on the services side?

Second of all, on the Paris show, I want to make sure that the number is right.

You said of 62 new models, 50 actually used HERE technology.

I just want to know how that compares to standard navigation systems out in the field today.

So is that -- does that look like your share is increasing or staying the same?

Third the plant in India that you still own from the Microsoft -- in Chennai, from the Microsoft deal, can you give us an update on what's happening there.

Is that OpEx right now in your OpEx and does that, at some point, start falling off as you shut it down and what the timing is on that?

And then I didn't hear a number answer.

We were looking for numerical quantification answer on the catch-up spend from the components [shortages] that seem to be completed.

You didn't give us any sense, Timo, as to how much that impacted this quarter.

We can just have a better normalizing (inaudible) than just knowing it's there, but if you can give us percentages, or [EUR20 million, ER50 million, EUR100 million], anything that we can work with, and did it have an impact a margin?

So those are mainly clarifications.

I appreciated.

Thanks, Ehud.

Let me answer one of the questions you talked about Managed Services.

No, we don't have a big comparable, so there's no big divestiture to Managed Services that impacts the quarter.

It is more clean from that comparison perspective.

And then if I go through all this.

There were question on the HERE regarding the 62 and 50, i.e., in the Paris Auto Show, of the 62 new models, 50 had our navigation.

I don't know, maybe there were no models which didn't have it.

So I really don't know if that's that, but I would say, at least, our market share is holding very well in that market.

We have a very, very strong position on the content, in that we of course want to build now, to provide our value-added platform services to our automotive customers.

Was one question about brand and OpEx?

Or did I miss that?

Could you -- that middle part, then you had on component shortages.

So maybe I'll go to the component shortages here.

We called this out because it was a meaningful driver, but unfortunately, I can't give you more color.

I said we don't expect this to impact same extent going into Q4 as it impacted Q3, so the bigger part of that catch up really was happening Q3.

And Nokia brand, we of course, continue to view that as a very important asset.

We are actually quite pleased that we were able to negotiate the contract with Microsoft in a way that we are able to fully keep Nokia brand in Nokia ownerships.

We have still some limitations on use of the brand, but we feel that, that's an important asset for Nokia.

And yes, we have spent a little bit of additional OpEx in Networks on the rebranding from NSN to Nokia Networks, but we are not having any, call it, a previous drag in our numbers from earlier brand investment, if that was the question.

And on the component related catch-up, we unfortunately don't have a quantification for that, but thank you.

I think we got most of your questions so we will take the next question please, Stephanie.

Chris Hogg, Merrill Lynch.

Yes.

It's is actually Kai Korschelt.

Thanks for taking my question.

I had two.

The first one was in China.

I just wanted to follow-on your earlier comments you made.

It's a broader question rather than Nokia Network-specific.

Do you think you know the ramp-up there is going ahead as planned or is there [substance] to some of the other supply chain comments, who were suggesting that some of the carriers there may not be able to achieve their full-year rollout targets?

That's the first one.

The second one, just quickly on HERE, the write down, that doesn't make you more inclined now to be potentially opportunistic about the divesting the business, given that you've especially cleared the decks now?

Thank you.

Thanks, Kai.

First question on our ramp-ups, ramp-ups are broadly going to plan.

There are some delays in Western Europe and so on, but in terms of the component shortages itself, like we said before, [up end], we have mitigated this issue by bringing on board a second supplier, meaningfully given volumes of those modules that were in shortage to that second one.

Also we are developing other alternatives, moving to even more supplies over time.

So if that was the question, then that's the answer.

And regarding the HERE impairment, that testing really was a result of this adjustment in strategy as discussed earlier, and clearly it has no relation to any of our business portfolio type of thinkings.

Very.

Thank you, Kai.

Stephanie, we will take our last question for today.

Richard Kramer, Arete.

Thanks very much guys.

With HERE, the missing piece seems to be talking about the economics of deals like Samsung, Yahoo, or Amazon as an indirect route to consumers.

Are these deals scaling with the volume of devices or usage?

Are the one-off software license sales?

And can you shed some light on how you might package assets like HERE with IPR in the AT business for the connected car market?

And one last question that hasn't been touched upon, you've spoken in the past about how the value of the Nokia brand as a key component of AT.

Can you shed some light on how you might monetize that asset?

Again, will it be a one-off software license fee?

Will it be something that scales with volume?

Just give us a sense of the economics of these sorts of deals?

Thanks.

Okay, wow.

There was quite a bit.

So thanks, Richard.

First of all, if we look at these deals which we have with different Internet players, there are different kinds of deals.

We would like to have deals which are volume-dependent in some cases, but in some cases, it's actually, of course, depending on how you see the business situation and the partners it could be good to have a deal, which is more like a fixed type of fee.

We have both kinds of deals at the moment there.

Then packaging the IPR with AT at auto, I don't think we really look at it in this way.

HERE is a separate business, which is serving its automotive customers.

Of course, when you have a customer, by definition when that customer uses your product, they also will need to be able to trust that they get the IP to use the product, so that would be my view on that question.

Finally on brand, we have not really spoken about anything else that we have looked at, different business models, what other people have been using on brand.

We will, of course, carefully assess what would be the best way for us to maximize the value of the Nokia brand, also taking into account that we are in a lock-up period still in the Microsoft transaction regarding our possibility to use the brand.

We have to recognize that Nokia brand is the most valuable from you recognition perspective in the area of mobile phones and mobile devices and there we cannot go yet at the moment.

Thank you, Richard.

With that, I'd like to turn the call back over to Rajeev for some closing remarks.

Thanks, Matt and Timo, and thanks again to all of you for joining.

I would like to close by reiterating three points.

First, Nokia's performance in Q3 was very good, with Networks really firing on all cylinders.

Second, we saw some strength in the quarter that was unique to the quarter, so please keep things in perspective.

Third, I look forward to seeing you all at the Capital Markets Day on November 14, so see you later.

See you there.

Ladies and gentlemen, this concludes our conference call.

I would like to remind you that during the conference call today, we will 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 can be both external, such as general economic and industry conditions, as well as internal operating factors.

We have identified these in more detail in the Risk Factors section of our 20-F for 2013 and in our interim report issued today.

Thank you.

This concludes today's conference call.

You may now disconnect.