Nokia Oyj (NOK) Q3 2007 Earnings Report, Transcript and Summary

At this time, I would like to welcome everyone to the Nokia Third Quarter 2007 Earnings Call. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. I would now turn the call over to Mr. Bill Seymour, Head of Investor Relations. Sir, you may begin.

Thank you. Ladies and gentlemen, welcome to Nokia's third quarter 2007 conference call. I am Bill Seymour, Head of Nokia Investor Relations. Olli-Pekka Kallasvuo, President and CEO of Nokia, and Rick Simonson, CFO of Nokia, are with me today. During this call... this briefing and call, we will be making forward-looking statements regarding the future business and financial performance of Nokia and the mobile communications industry. These statements are predictions 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 to 24 in our 2006 20-F and in our press release issued today. Our aim is to finish this call in approximately 1 hour. To view the supporting slides while listening to the call, please log on to nokia.com/investor. A replay of this call will be available until Thursday the 1st and the call will be archived on our website. I'd like to quickly remind you of this year's capital market days which we are again combining with Nokia World. Nokia World would be held on December 4th and 5th in Amsterdam. Nokia Capital market days events will take place on the 4th including executive presentations, break out sessions and dinner with management. CMDA attendees are invited to all CMDA Nokia World events on both days. We sent out a reminder last week for CMD and if you don't have that you can contact the IR team or visit our website; we've also put some information at the end of the slide set for you to review. Olli-Pekka, please go ahead.

Thanks Bill and good morning and good afternoon. The third quarter was an exciting one for Nokia. Our device business continued its excellent performance with volume and market share, both up nicely. The gross margin of the combined device business continued at a strong level and operating margin was up for the fourth quarter in a row. This strong growth and profitability helped drive diluted EPS up 74% year-on-year, excluding special items. And Nokia-Siemens networks operating results improved during the quarter. The integration and cost synergies are on track, but as you know, the overall communications infrastructure market remained challenging and NSN has more work to do to ensure a competitiveness of its core structure and product portfolio. In August, we announced our new internet services branch Ovi and two weeks ago, we announced our acquisition of NAVTEQ, a leader in mapping, navigation and location-based services. Let's take a closer look at the overall device market and our device business. We estimate third quarter mobile device market was 286 million units, growing 17% year-on-year and 9% sequentially. The slide shows our third quarter market estimates. On to the product highlights for the third quarter. The entry level Nokia 1110 and 1600 families were again the top volume products for us. We saw big volumes of the Nokia 1116, which was featured in China Mobile's mobiles low end program in Q3. The Nokia 1200 and 1208, our new entry level phones based on our single chip platform started to ship during the quarter. We also started to ship the Nokia 2630 Barracuda in the third quarter. In the mid range, the Nokia 6300 continued its good momentum, shipping over 6 million units and was again our number 1 revenue and profit device for the quarter. The Nokia 5200 music phone family also continued to be a very solid contributor for us. During the quarter, we started shipping the Nokia 6555, Wideband-CDMA, Clamshell device for the U.S. This phone is designed exclusively for AT&T and it has a good initial demand and we've started to ship both the Nokia 6500 Classic and 6500 Slide at the end of the quarter. Nokia N-Series multimedia computers had volumes of well over 9 million units. The Nokia N73, N70 and N95 again, the big products for multimedia during the quarter. The N73 and N95 were in the top three for Nokia in terms of revenue and profit for Q3; and the N95 volumes were up over 10% sequentially. On to Enterprise Solutions. The Nokia E65 was their best selling product continuing to see good demand in Q3. During the quarter, we saw very healthy underlying demand... demand for our new communicator, the Nokia E90. However, component issues prevented us from shipping as many units as we could have. Fortunately, the issues have now been resolved and we are now shipping the E90 in volumes. Now for the important products for the fourth quarter. In the entry level, the highest volume devices are expected to be the Nokia 1600 and 1110 families. However, we expect the Nokia 1200 and 1208 will ramp to big volumes and we are also expecting healthy volumes of the Nokia 2630 Barracuda. In the mid range, we expect that the Nokia 6300, the Nokia 5200 family and the Nokia 3110 will sell in the highest volumes. We should also see good volumes by the Nokia 6500 Classic, and I am happy to announce that last week we started shipments of the new Nokia 5310 XpressMusic, our very sleek music device. I personally feel this product has a lot of potential. In multimedia, the significant products are expected to again be the Nokia N73, N70 and N95 multimedia computers. Last week, we announced the availability of the Nokia N95 8 gigabyte and the Nokia N81. The new N95 is the continuation of the N95 line with a lot of display and more onboard memory. The Nokia N81 is designed for mobile entertainment with special capabilities for gaming and music. We expect that the new Nokia N95 and N81 will be prominently featured in holiday sales programs. For enterprise solutions, we estimate the key volume products will still be the Nokia E65. And as I said, the E90 Communicator is now shipping in volume. We also expect that the new Nokia E51 enterprise smart phone will ship this quarter. As we've said, we are ramping a record number of new products in the fourth quarter. This is going pretty well, but still lot of difficult work left to be done. On to Nokia Siemens Networks. NSN made good progress in Q3, but clearly more improvement is needed. Rick will talk more about NSN's financials and synergy progress, but let me just touch a few highlights. NSN had good performance compared to the second quarter with both sales and operating margins improving. The Company also had some significant firsts from being selected to provide the first commercial Internet HSPA system for TerreStar to deploying in the first hybrid backhaul solution in a live network. The market dynamics that we talked about on the Q2 call remained true today, including accelerating changes in operating business models, rapid growth in data volumes, the rising importance of markets such as China and India and the emergence of our low cost competitors. In light of this tough market, there's no doubt that NSN has much work... much more work to do. And last quarter, we talked about management taking decisive action to expand and accelerate its synergy efforts. Those efforts are underway. NSN expanded its cross-selling, resulting in almost 30 new deals in Q3. We with new contracts like those with Henan MCC in China and a multi-vendor IP network maintenance agreement with Deutsche Telecom. NSN service business won some exciting new deals in Q3, such as network implementation consulting systems integration and care services for Chunghwa Telecom in Taiwan. Now I will pass over to Rick for more on the finances.

Thanks Olli-Pekka. Let me cover Nokia overall in our device businesses, financials first and then we will move to Nokia Siemens Networks. In the third quarter, Nokia net sales were up almost 3% sequentially. Nokia's gross margin was 34.3% and was up over 300 basis points from Q2. The combined device businesses' gross margin was stable in the third quarter. This was impressive since we did not ship any new significant turfs... any new products in significant volumes during the quarter. Gross margins in the Mobile Phones Business Group were up even as the proportion of very low priced devices grew significantly in Q3. More on this in a minute. Gross margins held up nicely in our combined devices business. However, we need to continue to execute well in order to maintain the current levels. We need to make sure our product portfolio remains competitive and we need to continue to introduce iconic products. We must remain vigilant in taking out costs where we can. Nokia's operating margin was 14.6% in Q3, excluding special items. The 14.6% Nokia operating margin included the negative impact of €144 million associated with the NSN purchase price accounting items. The operating margin of the combined device business continued its strong trend and was up for the fourth quarter in a row as mentioned earlier. Mobile phones operating margin was up a 150 basis points sequentially, driven by its improved gross margin and some OpEx leverage. Multimedia's operating margin was up almost a 150 basis points sequentially, driven by lower OpEx as a percentage of sales. Enterprise Solutions' operating margin continued to be strong in quarter three, but was negatively impacted by the hiccup in the ramp of the E90. As I said earlier, gross and operating margins in Mobile Phones Business Group were up again nicely this quarter. This was the case even as the proportion of volume from the entry level grew again in quarter three. In fact, the volumes we sold under €30 were up very significantly in the quarter. The sub-30 euro market is growing fast and we estimate it will be as much as 20% of the total device market in 2007. Our main competitors seem to be steering clear of this market, but Nokia is very strong here and we make good money in this segment. We've been doing high 20s gross margin in our broad entry segment for several quarters, and of course OpEx in entry level is relatively speaking low. This gives us very healthy operating margins in the entry level. We talk a lot about our position in entry level, but as you know our strength in mid range portfolio and our leading position in smartphone market have been critical elements in the recent margin improvement. In fact, in quarter three we had about 50% share of the smartphone market and over 40% of our absolute gross profits came from this segment. OpEx was down sequentially in our combined devices business, driven largely by lower sales and marketing expenses. Several of our key products during the quarter were capacity constrained, so there wouldn't have been much benefit to spend more on sales and marketing in Q3. Research and development spending was at our planned levels for the third quarter. Looking for the fourth quarter, we believe OpEx will be up in our device businesses on an absolute basis and up slightly as a percentage of sales. We expect sales and marketing to be up significantly in quarter four, given the ramp up of all the new products and the typical market dynamics in Q4. As we said in our press release, our overall volumes for the third quarter were somewhat constrained by component shortages. In the fourth quarter, both seasonal market growth and expected high demand for Nokia products are expected to result in some constraints. However, we have moved very quickly to secure the components we need and if they can be found, I think our people are best in the world to digging up incremental supply. Nokia's third quarter device average selling price was €82, down sequentially from €90 in quarter two. The lower sequential ASP in Q3 was primarily the result of a significantly higher mix of entry level device sales, especially in the under €30 category that I just spoke about. Overall pricing pressures in the market have been normal as expected; our own pricing moves have reflected that situation. The reported Nokia tax rate in quarter three was 19%. There were two main drivers of the lower rate in the third quarter. During Q3, the statutory tax rate in Germany was reduced by approximately 10 percentage points. In addition to some benefits in Nokia's effective tax rate in the quarter, this event required Nokia to revalue Nokia Siemens Networks' deferred tax liabilities in Germany. This revaluation resulted in a reduction of... to Nokia Siemens networks' tax liabilities of approximately €70 million. Of course since Nokia Siemens Networks is 50% owned by Siemens, Siemens gets 50% of the positive impact, so only half of the €70 million fell in Nokia's bottom line. Nokia and Nokia Siemens Networks operate in over 150 countries globally and changes in tax rates in different jurisdictions are not unusual. The second reason for the lower tax rate was a shift in our quarter three sales mix to countries with a lower tax rate. While we have been running at a lower tax rate than our estimated 26% so far in 2007, we are still estimating a tax rate for Nokia of approximately 26% in the future. This is justified given NSN's exposure to higher tax jurisdictions and the likelihood of Nokia's device sales mix shifting somewhat to higher tax jurisdictions. Now let's look closer at Nokia Siemens Networks' financials. Last quarter, we said we expected the operating results of NSN to improve in the second half. We did a good job of stabilizing the business and I think the results are encouraging. Net sales were up 7% sequentially with a stronger sequential growth in the mobile and services businesses. Nokia Siemens Networks' operating margin was actually a positive 3%, excluding special items and items associated with purchase price accounting. For your reference, we put a slide in the appendix of this presentation that lays out where all the special items and the PPA, it's the NSN profit and loss statement. Let me give you an update on the synergy in the integration project... excuse me, progress for Nokia Siemens Networks. Overall, NSN remains on target to deliver against its €2 billion synergy goal. Personnel restructuring is well underway and reductions are on plan. Restructuring activities are ongoing in approximately 70 countries. Since its inception, Nokia Siemens Networks' direct personnel related to the cost synergies have been reduced by approximately 2300 with some acceleration in quarter three. NSN has been executing a shift to low cost growth markets led by the company's global services hub in India and its R&D activities in China. To-date NSN has reduced its real estate footprint by approximately 200 buildings, approximately half of the year end 2008 goal. In terms of direct sourcing, Nokia Siemens Networks has completed negotiations with its 25 top suppliers that account for 45% of the direct sourcing volume and is now focusing on accelerating progress with the remaining suppliers. Culture development remains an important area for Nokia Siemens Networks management. Progress has been made here as well. Third quarter saw the launch of Nokia Siemens Networks Company values, leadership and employee development programs have been put in place, banded compliance training continues and there is an ongoing focus on employee enablement to ensure all employees have clarity about their roles and their expectations. Overall, we think that third quarter shows the Nokia Siemens Networks is heading in the right direction, they know what needs to be done and the organization is well aligned to act accordingly in the coming months and quarters. Last quarter, we said we were accelerating our previous €1.5 billion synergy target in 2010 and of 2008. This is well underway. In addition, we said that we have targeted a further €500 million in annual cost synergies bringing the total cost synergy target to €2 billion. We have now identified those additional savings. As we said today in our press release, we now estimate that there will be slightly above €2 billion in total charges associated with the €2 billion in annual cost energies. The total restructuring charges recorded to-date are €991 million. We estimate that we will take the majority of the remaining structuring charges in the fourth quarter of this year. We estimate that most of the additional cost energies and charges will come from items such as refinement in certain components of Nokia Siemens Networks' product portfolio. Let me now summarize the total special items for Nokia in the third quarter. During the quarter, there was a net negative €26 million of special items. All the special items are outlined on the slide and in the press release. Excluding these special items, the third quarter operating margin was 14.6% versus a reported 14.4%; diluted EPS €0.40, both including and excluding special items. The Nokia Siemens Networks, a €144 million of the items associated with purchase price accounting are included in the NSN's operating margins and the Nokia earnings per share. You can do the math, but if you exclude these items along with the net negative impact of €26 million in special items EPS would have been slightly higher than the €0.40. Let's now look at some of Nokia's balance sheet and cash flow items. Inventory was up in the third quarter sequentially, which is typical of preparation for the fourth quarter seasonality. Accounts receivable is also up in quarter three, driven by Nokia Siemens Networks. Revised accounts receivables were down in the quarter. Total operating cash flow in the third quarter was €2 billion. Cash flow from our devices business was very strong, again was offset by Nokia Siemens Networks' negative cash flow, which was approximately €4 million in the quarter... €400 million euros in the quarter. Our cash and other liquid assets totaled €9.2 billion at the end of the quarter. Let's take a look at currencies. The reported third quarter year-on-year net sales growth was 28%, in a constant currency it was 32%. The U.S. dollar had a negative impact on our net sales both year-on-year and sequentially. The U.S. dollar has continued to weaken and now stands at around 1.42 to the euro. We are expecting that the recent fall in the dollar may have some negative impact on our net sales in quarter four. For our outlook for Nokia, Nokia Siemens Networks and the industry, please refer to the earnings release and the slide. Now back to Olli-Pekka.

Thanks very much Rick. I would like to talk a little more about progress in our internet services, relative to which included the recent introduction of Ovi, our new internet services brand name. The mobility industry is converging and our vision is to make it easy for people to unlock the full potential of the internet. As we've said before, we can't put this internet services strategy together by ourselves. This is why we made a string of acquisitions over the last year to build our portfolio. Loudeye in music; gate5 in navigation; Twango in file sharing; Enpocket in mobile advertising and of course the pending acquisition of NAVTEQ, a leader in mapping navigation and location-based services. We are seeking to expand from a pure play... hardware play company to a hardware company with software and services. We believe there are two primary benefits of this. First; services will be a source of incremental revenue on margin. Second; and this is extremely important, we believe the link created between all mobile devices and mobile services will result in stickiness with the consumer. Nokia brings great assets to the table; a company that thrives on change, the number five brand in the world, the best logistics and distribution machine in the world. We believe the best global consumer understanding and that the more than 900 million people out there using Nokia devices, the biggest customer base of any consumer durables company in history. We were very excited to announce last week a broad internet service corporation with Telefonica. We believe that we can bring value to operators with services and we will continue to work closely with our operator customers and with other partners across the globe. We have really made great progress from top to bottom in our device product portfolio over the last year. This has translated into improved market share and margins and great bottom line growth. Demand for our product in Q3 and going into Q4 has been strong, but of course the competition isn't standing still and has actually improved in the second half of this year. And we assume the level of competition will be greater next year. I am not soft-spoken about our traditional competitors like Motorola. When we look ahead, we will be and are competing more and more against players like RIM and Apple. I am paranoid about all the competition and this paranoia is shared in our organization. It keeps us focused on execution and innovation. Thank you very much.

Thanks Olli-Pekka. We'll now continue with the Q&A session. Please limit yourself to one question only. Operator, please go ahead assembling the queue. Question And Answer

[Operator Instructions]. We will pause for just a moment to compile the Q&A roster. [Operator Instructions]. Your first question comes from Mike Walkley with Piper Jaffray. Michael Walkley - Piper Jaffray & Co.: Great.Thank you very much. Just wonder if I could follow up on your new internet services offering. Are there some investor concern that key operators will not support some of your key high end devices such as N81 and N95 due to Ovi and your new services offering? Could you comment on this and your conversations with carriers about Ovi?

Excellent, I very much thank you for the question. I really wanted to get to that point. So definitely I'll discuss this in two parts. I'll start with the internet services and then move over to the first part of your question. So, we announced the agreement with... the cooperation with Telefonica and I would say that's a good example of things that you will see. We have ongoing discussions with many other operators across the world and you will hear much more going forward, very, very good talks. And you know from our point of view, we can bring a lot to the table when it comes to the services, we can bring to the table the global service platforms. These are, this will require lot of investment, a lot of maintaining, maintaining the capabilities and the operators are increasingly seeing value in that. And we also see value in what the operators can bring to the table and a lot of value and as the cooperation with Telefonica is now like I said the best possible example of that so far. And it's very clear that the operators, the mobile operators and other operators for that matter are the most natural partner and ally for us here when it comes to this area. I am personally very confident that we can make good progress here and partner in a very meaningful way. Now then your first question related to the support of certain... there has been some media discussion on this one and I guess hence the question. So we are getting good support from different operators in Europe and elsewhere when it comes to... when it comes to the key products that I think you are referring to. With a good support for the N95 8 gigabyte and you will see like I said that product being featured quite extensively in the holiday categories and the same is and will be applicable to N81. Again you will see more visibility there and these products are starting and in that way, in that way of course have not been visible in the marketplace so far. But you will see a lot of good support from the operators also with these ones including the U.K; it's very much including to U.K. And so even there I don't see any reason to be concerned. First, I will even look at this totality as it makes opportunity like we have indicated. Michael Walkley - Piper Jaffray & Co.: Great thank you.

Next question.

Your next question comes from Tim Long of Banc of America Securities.

Thank you. Just a question on the outlook effect, could... I think in past Q3s you've talked more about normal seasonality, you are up 15%, when looking at the industry unit volumes in Q4, press release that didn't really have that as Rick you mentioned something about normal seasonality. Is that related to a component issue? So are we expecting a little less than normal seasonal growth for the industry this quarter. And related to that, normally we do see share gains. So would you say that's just being conservative on them, on the flat market share in this quarter? Thank you very much.

Yes Tim, I think you have to put all of this in the backdrop of pretty big seasonality going Q2 to Q3 here in terms of up about 9%. And so in that context, I think what we are saying in our forecast here kind of normal seasonality around the numbers that you were talking about, feels pretty reasonable. Now as mentioned in terms of the component issue, we are seeing both a strong growth was evident in third quarter for the overall industry, you think about this kind of nominal seasonality plus/minus a little bit in fourth quarter. That means the volumes overall are still pretty big in the industry. And then combined with good demand for the breadth of the Nokia portfolio, that's why we are talking about there is a little bit of tightness in some of our components and that has had a little bit of effect as we go into Q4. But as mentioned, feel pretty good about how our sourcing people are able to go out there and find everything available.

Okay.

Thanks Tim, next question.

Your next question comes from Tim Boddy of Goldman Sachs.

Tim or next question. Next question please. Hello, are you there now?

Can you hear me?

Yes, sure.

Brilliant, great okay. So the question was about the low end and about your gross margin prospects. Given that we at least historically have seen some improvement there as new platforms come to market and what's interesting in here is the margin still seems to be improving even before the signature is ready to ramp. Can you just help us understand what's driving that and how you see that playing out through the fourth quarter and into next year? Thank you.

Okay, thanks Tim, it's Olli-Pekka. So as we indicated, we have been seeing very, very sort of good market demand in the sub €30 segment and like Rick said, the competition seems to be steering away from that market. And I think what has happened here is basically we have been able with our volumes and with our marketing money really to make it very, very difficult for the competitors to match what we can offer here. I would like to highlight the fact that, in the markets where we are selling these products, we are also selling other products and we are putting heavy advertising behind the Nokia brand, not necessarily in the entry segment but we are putting a lot of Nokia marketing money behind our product, other products there and there should be big overflow of that marketing money there to support our process and also in the sub €30 segment. And this part of the economies of scale very rarely get dispersed. But I think it's very important to understand it also in marketing this... the economies of scale and matter becomes relevant. Then of course the single chip point that you are breaking up relates to the overall effort and ability to take the cost base down when it comes to all levels... all market segments not only the entry and there we are seeing steady progress happening, but we are talking about... we are talking about evolution here as opposed to revolution. There is not one technology or solution-based single chip or something else that can completely change the name of the game. It simply evolution getting down with the cost base, this is one item there and this... the difficulty of making that happen plays in our favor. There are no tricks that are possible in this part, and that's why it's an evolutionary process to take the cost base down in order to be more price competitive.

Thanks Tim. Next question please.

Your next question comes from Stuart Jeffrey with Lehman Brothers.

Hi thanks. I have a question on ASPs; just want to perhaps get a bit more detail about what's going on there. Obviously there is a big mix shift towards low end. But could you perhaps also talk around how your ASP is trending within specific markets, are we seeing on a like-for-like basis some solid ASP trends or are we also seeing ASP trend down specifically across the board. And also looking to Q4 next year, you are also launching lot of new phones and even in the low end segment... entry level segment some aspirational low end, just like the Barracuda on a like-for-like basis, should we be expecting that to perhaps boost ASPs going into Q4? Thanks.

Yes Stuart, this is Rick. As we said overall, you know we've been talking about this throughout the year that the ASPs for the industry are going to come down and that's mainly a function of... if anybody in the industry can deliver valuable products to that there... those growing segments, we've been able to do that I think pretty demonstratively and that's going to continue. So that's the primary driver. And now to your question in terms of markets or regions and variance, well, every body knows that we are having a lot of growth obviously in new subscribers and places like India and China continues, Indonesia we're having... seeing Africa come on in the big way that we started talking about late last year and those of course account for the majority of the increase in the sub €50 and sub €30 more importantly device markets. But we're also seeing that there is significant development in volume coming from prepaid markets in parts of more established Europe for instance and that's had some impact on the overall ASP and the industry. And again, we can take advantage of it profitably there just as we can and what people would consider the emerging markets, but that's a function across the whole industry and a dynamic but I think people haven't quite paid enough attention to. For us, in terms of our product mix as well as we look at a little bit, we've had a little bit of a pickup in the U.S. market relative in this quarter and of course that is tended to be little lower ASP market for us. Also in the third quarter, you saw... and Olli-Pekka mentioned about China as CMCC and we continue to do good business with them in the... what people call the ultra low end. Remember, it's just a few quarters ago where people thought we had missed that completely and that was going to be a problem, but we are in there strongly working with them. So those do have pressure on driving the ASP down.

Thanks Stuart, next question please.

Your next question comes from Rod Hall of JP Morgan.

Yes, hello. I just had another question on this low end. This seems like every time we... every quarter we come to, we are talking about lower and lower numbers on the ASP. Is the average ASP and now we are talking about €30 category and below. The question I have got is, do you see... when you look at the roadmap over the next couple of years, do you see any floor to that production prices of phone, I mean are you slowing down in your ability to decrease the prices that you can produce out or do things still look like you've got lots of runway ahead?

Olli-Pekka here. So, yes, we have runway, some runway ahead and, but that like I said its very clear that you need a lot in order to be able to take the product cost down here. You need more volumes, you need research and development there, it's not something that happens automatically. So you need to invest in R&D in order to get your low cost base down here and its an evolution. And the point is... the point here is not to be as cheap as possible. The point here is to be cheaper than the competition in order to make money and that I think we really can continue to be here in a major way and then you add to that again the, well discussed topics of marketing, marketing money that I just spoke about, the distribution, retail, logistics, it's the winning formula here and in that way, there's a lot of potential and possibility here to continue to make good business in the segment.

Thanks, next question.

Okay, thank you.

Your next question comes from Richard Kramer with Arete.

Thanks very much. Olli-Pekka, I would like to understand a little bit more of this... the scope of this paranoia you laid out and especially with this week's announcements about the 360 software platform refresh. When you are talking about going after competitors like Apple and RIM as well as your traditional competitors, perhaps Google or others, can you give us a little better sense of how you are planning to do that? Is it that you are going to ratchet up the pace of change of the portfolio refresh? Is it using the... the profits that you have for co-marketing deals and market reach that these guys can't match. I mean we watched now Enterprise for three years or so with a $1 billion or more of R&D spent without really making a dent in the RIM. What specifically will you do to start to keep these guys at bay and perhaps increase your own market share and then just one other simple question? The last time we saw Nokia move to a new organization, there was some disruption in the business, what are you doing to ensure that as you move to the new organization at the end of this year and into next year, we are not going to see a similar disruption like we saw three, four years ago. Thanks.

Yes okay. First, start with the last part here. Yes, it's a good question. We're working extremely hard here in order to make the transition here as smooth as possible, extremely hard and we've been working for long time I think I know what we're doing. There is of course always a new change in organization in a major way, there is some hassle. But at the same time, if I look at what the Nokia people are feeling here and how excited they are about this... the way about what we are doing here now, there's a lot of energy and it's... it is so intuitive, it's so meaningful to them and what I am basically saying is what when changing this organization here, we are aligning our structure to our strategy and that's fundamentally very, very important. And we will be able to get efficiency savings here, we will be able to get new excitement in place and we will be a better, and we will be able in a better way to tap or to direct our efforts to the different segments of the market. So of course this is a... the organization change here is of course a net positive, that's very clear. We just need to be able to manage that, then we have been paying a lot of attention to that. Now then RIM and Apple, so I think it's extremely important here that we have not now, but quite a while ago we have identified that we need to look at these competitors. Somewhat different business models than our traditional competitors do have, but I am really paying a lot of attention here on what Apple and RIM as an example... as examples are doing. And this of course will in practice mean that we will invest more money in the areas where we feel we need to be able to not only match that competition but beat that competition. It's a bit different with Apple than RIM, but basically it requires much more flexibility and attention to that one. I would claim you took the RIM example here up and you spoke about the enterprise and so forth. I would claim that maybe we have been now able to develop Series 60 as a platform will enable us going forward to exploit our full portfolio of products, in the Enterprise and in the product device [ph] segment and when it comes to e-mail as an example why should that be limited to Enterprise phones only. That's a must and it can be with Series 60. It is something that we will include in our total offering. And this volume and this possibility here will open up a lot more possibility. This was not the case two years ago where we needed to concentrate in Enterprise devices in order to able to ramp up... ramp up email and alike. Now it will be possible in a bigger scale. And in fact you will see quite a lot in that space going forward and that's a lot of attention here.

Okay. Thank you.

Thanks. Next question please.

Your next question comes from Mark McKechnie with Amtech Research. Mr. McKechnie, your line is open. I think that question has been withdrawn and the next question comes from Edward Snyder with Charter.

Thank you very much. It's clear that you have done little better in North America here, but you're still continuing to struggle. A couple of things, I know you've had problems with some of the carriers in terms of products that you wanted to port out there. Are you going to try some sort of alternative marketing strategy, maybe something more on a retail channel as you are doing in Europe and do you believe that your internet strategy and some of the multimedia phones will open up some of the carriers in North America where your previous models specially the N Series have not been able to get any traction there?

Okay. Thanks for the question. Yes, you are right when you say that we made some progress in terms of markets in the third quarter in the U.S., but we are not home and dry, that's very clear. A lot needs to be done and lot needs to be improved, but I think we will see sort of good continuation of the trend here. But I have said it earlier, it will... it will be 2008 that will be the critical year and you really need to look at different operators strategies separately, you need to look at the Verizon Wireless strategy, AT&T, T-Mobile, Sprint as well. But coming to the latter part of your question, so yes, we have been... have started to sell our multimedia computers in the U.S. through alternative channels. It's very small, it's very small in the total context and in that way sales-wise, profit-wise is not meaningful at this point of time, but I think we are building here something. We are building here the demand within the U.S. consumers to multimedia computers like we make them and this is something that I think will become more relevant... relevant going forward. We have even the U.S. based people here might have noticed, we have had advertising campaigns in the New York area and in California also when it comes to N95 and we have seen quite some traction here, interest-wise, but definitely until this becomes sort of more meaningful on the bottom line basis, it will take a while.

Next question please.

Your next question is from Richard Windsor with Nomura.

Hi, good afternoon. A quick one, I wonder if you could give us an update on the intellectual property situation. I think last quarter you gave us an idea of how much you had booked in terms of payments to QUALCOMM and I wondered if you could give us an idea of what regions are you making assumptions for in terms of making... making those IPR assumptions. Thank you.

Yes Richard, this is Rick. Compared to Q2 we've, we made a payment of $20 million to QUALCOMM, we believe that it forms kind of a fair reason for compensation for the potential use of their central patents in Nokia UMTS handsets also during the third quarter. So now nothing has really changed from Q2 to Q3 frankly, and we will continue in this pattern, we will make adjustments if necessary if the facts change but so far it doesn't appear that they are changing. Or remember, in terms of how we see our overall provisioning in cost for total UMTS or WCDMA royalties, we've communicated that small change in that one-time impact was in the second quarter. But again as I said there, it was a very much a tertiary or lower driver in terms of some incremental improvement in gross margin from Q1 to Q2 and here going from quarter two to quarter three there hasn't been any change in the answer that really isn't any story there.

And is that a global payment you are making or you assuming that you are only paying in certain regions?

I am not able to go in the more detail on that, I am afraid Richard so I have to leave it there.

Okay, thank you.

Thanks Richard and operator, this will be the last question. Thank you.

Your last question is going to be from Alexandre Peterc with Exane.

Yes hi and congratulations for great results firstly. I would like to look a little bit into how the geographic growth spanned out in this quarter. And I am finding it interesting to see that sequentially Asia isn't that strong, Europe on the other hand seems to be quite strong there. Maybe you could give us a little bit of explanation of on that and how you see that progressing in Q4. And then, there is one thing I didn't quite understand on components. You're not very specific in the press release and when, where, in which segment that has played a role. You took the loss of all the E90 for Q3, but I am wondering which other areas were affected in terms of product range and whether that had an effect on your market share in Western Europe in Q3? Thanks.

Yes, so let me... this is Rick. Let me take the component and then Olli-Pekka will give you some more color on terms of the regional growth dynamics. In terms of components, as we said we are kind of somewhat constrained but it really across a number of things. The one that got the most play or visibility in the third quarter was related to a microphone and speaker element in the Enterprise Device E90, again because that was a new device, a unique device, there was a lot of demand for that and we had to actually stop shipping that during parts of the quarter. But across the whole portfolio, it was kind of the normal things in a booming market. We had some juggle; we have to do around screens, LCDs, around this microphone which has not going to affect on other products. Plastics as simple as do you have the right coverage in the right place, a little bit of juggling around some of the battery or supplies but overall as I said I think it was pretty well handled, it didn't constrain us unduly but it did have some impact and we are seeing a little bit of that still going in the fourth quarter. So its really just a summation of a number of things, none of them that are in and off themselves that significant. Olli-Pekka?

Yes, the market has... what we experienced in the third quarter, we had a very good sort of role... we made very good progress in China when it comes to markets then also in the U.S. and some in Asia-Pacific and then Latin America and Europe, where more like flat, but I really feel our markets in fact in Europe was better in the sellout than in the sell in and in that way that really has been reflected in our channel... channel situation and in the positive manner. The... and overall the totality here is that when it comes to volumes, we went from 38 to 39, so we took market share. But then I look at another dimensional market share here, profit market share, I think we took lots more.

Okay. Thank you.

Thank you very much. Ladies and gentlemen this concludes our conference call; I would like to remind you that during this conference call today, we have 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 to 24 in our 2006 20-F and in our press release issued today. Thank you and have a nice day.

This concludes today's conference. Thank you for participating. You may now disconnect.