Nokia Corporation (NOK)

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Nokia Corporation (NOK)

Q2 2011 Earnings Conference Call

July 21, 2011 08:00 ET

Executives

Matt Shimao – Head of Investor Relations

Stephen Elop – President and Chief Executive Officer

Timo Ihamuotila – Chief Financial Officer

Analysts

Tim Long – Bank of Montreal

Andrew Gardiner – Barclays Capital

Stuart Jeffrey – Nomura

Andrew Griffin – Bank of America

Gareth Jenkins – UBS

Ittai Kidron – Oppenheimer

Tim Boddy – Goldman Sachs

Pierre Ferragu – Bernstein

Alexandre Peterc – Exane BNP

Kulbinder Garcha – Credit Suisse

Michael Walkley – Canaccord Genuity

Presentation

Operator

Good morning. My name is (Latanya) and I will be your conference operator today. At this time, I would like to welcome everyone to the Nokia Second Quarter 2011 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

I will now turn the call over to Mr. Matt Shimao, Host of Investor Relations. Sir, you may begin your conference.

Matt Shimao – Head of Investor Relations

Ladies and gentlemen, welcome to Nokia’s second quarter 2011 conference call. I am Matt Shimao, Head of Nokia Investor Relations; Stephen Elop, President and CEO of Nokia; and Timo Ihamuotila, CFO of Nokia are here in Espoo with me today.

During this call, we 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 we currently expect.

Factors that could cause such differences can be both external such as general, economic and industry conditions, as well as internal operating factors. We have identified these in more detail on pages 12 through 39 of our 2010 20-F and in our quarterly results press release issued today.

Please note that our quarterly results press release, the complete interim report with tables and the presentation on our website include non-IFRS results information in addition to the reported results information. Our complete interim report with tables available on our website includes a detailed explanation of the content of the non-IFRS information and a reconciliation between the non-IFRS and the reported information.

With that, Stephen, over to you.

Stephen Elop – President and Chief Executive Officer

Thank you, Matt. Welcome, ladies and gentleman and thank you for joining us on today’s earnings call. There were a number of challenges that manifested in a greater than expected way in Q2 2011, including the competitive dynamics and market trends across multiple price categories, particularly in China and Europe; second was the shift in the product mix toward devices with lower average selling prices and lower gross margins; and third, there were pricing tactics by certain competitors.

As a result of these challenges, we took immediate actions. Specifically, we quickly focused on better management of inventory levels around the world. Most notably, we took action in China and Europe to address an inventory buildup that occurred in the first quarter of 2011. This action is having a positive impact on the health of our channel, the profitability of our product line, and the motivation and success of our many partners. We also took a more responsive approach to product pricing around the world.

In a number of cases, our prices were at uncompetitive levels. In part because of the age and cost of the inventory, but also in part because of an anticipated supply shortage, which was not as severe as we expected. We increased our emphasis on the sellout of products to consumers in all aspects of our sales management and in our interactions with channel partners. We now have less emphasis on traditional target setting and sell-in to the channel. This is to ensure that the ultimate sale of a product to the consumer trumps all.

Additionally, we shifted our sales focus and marketing resources more towards the day-to-day battle that takes place in retail locations around the world. We recognize that particularly during this time of transition, we must ensure that the advantages and the ongoing innovation of our product portfolio are well understood by retail professionals and are properly positioned to consumers.

And finally, we made changes to certain key sales management personnel, most notably, our Head of Sales, Colin Giles, is now serving as the acting leader of China, which is a market that he led successfully for a number of years.

Much of Q2 focused on managing unexpected sales and inventory patterns. However, by taking immediate actions to address the situation, we created healthier dynamics in sales channels, which led to greater business stability in the latter weeks of the quarter. That being said, earlier this year, we outlined a new strategy because of our fundamental concerns about the competitiveness of our product portfolio as the world shifts from a battle of devices to a war of ecosystems. Thus during this time of transition, the competitive pressures will continue.

Turning now to our new strategy, as you will recall, our new strategy includes shifting our Smart Devices to the Windows Phone platform, connecting the next billion to the Internet, and investing in future disruptions. The magnitude of this transition is significant and Q2 was very much about leading the organization through some of the most difficult aspects of this change. Clearly, announcing our new strategy introduced ambiguity, not only for our shareholders and partners, but also for our employees. We have very aggressively tackled key elements of this ambiguity during Q2 and we achieved several important milestones during the last 90 days, including completing the definitive agreement with Microsoft, providing clarity about the depth of employee reductions, and outlining the specifics of our R&D site strategy making clear our intent to have concentrated locations for R&D in the future.

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