Nokia Corporation (NOK)

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Nokia Corporation (NOK)

Q3 2009 Earnings Call Transcript

October 15, 2009 8:00 am ET

Executives

Kristian Pullola – VP, Head of Treasury and IR

Olli-Pekka Kallasvuo – Chairman, President and CEO

Richard Simonson – EVP and CFO

Analysts

Tim Boddy – Goldman Sachs

Michael Walkley – Piper Jaffray

Mark Sue – RBC

Stuart Jeffrey – Nomura

Kulbinder Garcha - Credit Suisse

Ittai Kidron – Oppenheimer

Gareth Jenkins – UBS

Sherief Bakr – Citigroup

Presentation

Kristian Pullola

Ladies and gentlemen, welcome to Nokia’s Third Quarter 2009 Conference Call. I’m Kristian Pullola, Head of Nokia Investor Relations. Olli-Pekka Kallasvuo, President and CEO of Nokia, and Rick Simonson, CFO of Nokia are with me in Espoo today.

During this briefing and 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 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 11 to 28 in our 2008 20-F and in the press release issued today. Our aim is to finish this call in approximately one hour. To review the supporting slides while listening to the call, please go to the IR website.

Please note that today’s press release and this presentation include non-IFRS results information in addition to the reported results information. Our quarterly results release includes a detailed explanation of the content of the non-IFRS information, as well as a reconciliation between the two.

I would like to remind you that we will host our annual Capital Markets Day in Espoo, Finland, on Wednesday, December 2. This event will start with keynote presentations in the afternoon and in the evening, you will be invited to Nokia's main offices where you will be able to attend interactive breakout sessions on key topics as well as engage in open conversations with senior members of our executive team. We will also feature an Experience Lounge where you'll be able to interact hands-on with our latest devices and solutions. You can find more information by going to cmd.nokia.com. We hope to see you here in Espoo.

With that, Ollie-Pekka, please go ahead.

Olli-Pekka Kallasvuo

Good morning and good afternoon. Q3 was a solid quarter for Nokia's devices and services business and I expect Q4 to be the best quarter of the year in terms of net sales, volumes and margins. In Q3, the demand environment for mobile handsets improved faster than anticipated in many markets. In this environment, I was pleased that our net sales performance given the component constraints we encountered. We did a very good job controlling our operating expenses, which helped us to deliver solid earnings. We are experiencing relative stability in the overall economic environment and it is encouraging to see some signs of recovery in our market. Let us be clear - uncertainty in end consumer demand remains.

On the last earnings call, we provided new details on our services strategy but one of the big unanswered questions was who will be directly responsible besides me, of course. In Q3, we officially formed our new services unit headed by Alberto Torres and we have recruited new executives that will have leadership roles in that unit. The solutions unit is working together with our devices services and go to market teams. You can say that the solutions unit is a catalyst for better and faster collaboration. This is an important structural change that will improve our ability to execute as well as our ability to innovate as well.

Our ambition is nothing less than to create the biggest delivery platform for services on the mobile. We can shape the industry and capture significant opportunities for growth by creating solutions that meet new consumer demands. Through our solutions operational mode, we deliver services, we deliver devices and relevant services that are designed to provide effortless and inspiring user experiences. In addition, we should not forget that the product focused operational mode continuous to be appropriate for a significant portion of our business.

We currently operate at a world leading level in this part of our business, leveraging our low cost, unmatched scale, brand and distribution, but we can and we will improve. Innovation is very important here as well. We are not complacent as the competition just keeps coming. In our product operational mode, we continue to drive for cost efficiencies and product-based differentiation of devices and relevant services.

Now, let me take you through our performance in Q3. According to our estimates, the mobile device market was 288 million units in the quarter, up 7% sequentially and down 7% year on year. The sequential increase was due to seasonality and improved consumer demand. The year on year decline was attributable to the weaker macro economic environment. According to our estimates, our device markets there was 38%, flat compared to Q2.

Our Smartphone volumes declined to 16.4 million compared to 16.9 million in Q2. This was due to component constraints. Also it is worth noting that the sequential decline in our Smartphone volumes was primarily due to our older models while the new higher priced N97 did very well. So actually the absolute level of gross margins from our Smartphones increased from Q2 to Q3. The nature of the industry price competition into Q3 was similar to what we saw in Q2 and very robust as we highlighted it would be.

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