At this time, I would like to welcome everyone to the Nokia third quarter 2006 earnings call. (Operator Instructions) I will now turn the call over to Mr. Bill Seymour, Head of Investor Relations. Sir, you may begin.

Ladies and gentlemen, welcome to Nokia's third quarter 2006 conference call. I'm Bill Seymour, Head of Investor Relations. Olli-Pekka Kallasvuo, President and CEO of Nokia; and Rick Simonson, CFO of Nokia, are with me today. During this briefing and call, we will be making forward-looking statements regarding the future business and financial performance of Nokia in 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 are both external such as economic, general economic and industry conditions as well as internal operating factors. We have identified these in more detail on pages 12 through 22 in our 2005 form 20F and in our press release issued today. Our aim is to finish the call in approximately one hour. To view the supporting slides while listening to the call, please log on to nokia.com/investor. For your convenience, a replay of the call will be available beginning two hours after the call ends until 12:00 a.m. U.S. Eastern time next Tuesday. The call will also be archived on our website. I would like to remind you of our 2006 Capital Market Days. This year will be in Amsterdam on November 28th and 29th. It will be held in conjunction with Nokia World, a broader event focused on the mobile industry. If you attend Capital Market days, you will have the opportunity to attend all Nokia World events. Nokia World will have a variety of activities focused on mobile industry themes including Nokia presentations, presentations from external speakers, product and technology sessions and an extensive demo area. Capital Market days will start with the executive presentations which go from midday to late afternoon on the 28th, followed by a dinner with Management that evening. The next day on the 29th, the breakout sessions will go from 8:00 a.m. until 1:00 p.m. You will then be able to attend the Nokia World sessions on the afternoon of the 28th and all day on the 30th. Last week, we sent out an agenda for both events. And we've also added the agenda as an addendum to the slides for this call. We look forward to seeing you there. With this, I'll pass it over to Olli-Pekka.

Thank you, Bill. Ladies and gentlemen, the third quarter was an impressive quarter in many respects. Nokia net sales up 20% year-on-year. Excluding special items operating profit was up 16% year-on-year and diluted EPS was up 21%. We had volumes of 88.5 million units up 13% sequentially and up 33% year-on-year. This resulted in healthy share gains, our estimated share in the third quarter was 36%, up 2 points sequentially and up 3 points year-on-year. The device industry remains healthy we estimate the third quarter volumes of 243 million units up 6% sequentially and up 22% year-on-year. Nokia Networks had an impressive year, year-on-year sales growth of 16%. which we estimate was faster than the overall market. However, as you know, the quarter was not all positives and we have more work to do. ASPs were down significantly sequentially. This, of course, reflected our big entry level volumes due to both continued industry growth in the entry level and not as strong sales gains in emerging markets. I think also it was a reflection of a lower proportion of sales in higher end products related in part to slower take up of WCDMA products industry wide. The decrease in gross margins was also significant which we'll address shortly. Finally, the product portfolio was strong in many areas, needs continuous improvement. We are making those improvements. Let me mention just a few products that we have launched recently that we are excited about. First, the Nokia N75 Multimedia device, a slim 3G highly featured clamp cell device which we expect to ship this quarter in the U.S. Then the Nokia N95 Multimedia computer with a pioneering two-way slide dedicated music keys, integrated GPS mapping, a five megapixel camera and DPA. The Nokia N95 is expected to start shipping in the first…

Thanks for that, Olli-Pekka. In the third quarter, Nokia net sales were up a strong 20% year-over-year excluding special items, Nokia operating profit was up 16% year-on-year and diluted EPS was up 21%. In the third quarter, gross margins were down sequentially 210 basis points. The decrease was driven by a sequential decline in both devices and networks gross margin. The sequential gross margin decline in the device business was primarily driven by a higher portion of our sales from our entry level products as our highly efficient logistics system allowed us to capture market share in incremental volumes in the booming entry level. Gross margins in our entry level business are somewhat lower than our overall device margins but still very healthy. A lower OpEx structure in the entry level compensates at least in part for the somewhat lower gross margins. Gross margins were also impacted by a lower percentage of sales of higher end products related in part to slower take-up of WCDMA products across the industry as Olli-Pekka referenced early. The sequential gross margin decline in networks was driven by our continued and successful efforts to gain market share, a greater proportion of sales from the emerging markets and product mix. As we said, you should expect and will see volatility from quarter-to-quarter in our device gross margins as the third quarter demonstrated. However, we continue to believe that we have some proof points for our view, the device gross margins can stabilize. Here are some of the continuing drivers of gross margin in our view. The most significant potential positive drivers for device gross margins comes to continuously improving the product portfolio in the mid and higher end, coupled with strong performance in our entry level business, and the benefits from the growth of value add…

Thank you, Rick. Before going to the Q&A, I want to very briefly to make comments on our process on the emerging markets and our entry level business. The emerging markets are the fastest growing part of the total market, growing more than twice the rate of the developed markets. Nokia is number one in the emerging markets and in fact, our share in these markets have been improving, and grew very significantly both sequentially and year-on-year in the third quarter. Our volumes in the entry level were up over 60% year-on-year and up over 20% sequentially. To put this in the proper perspective, our third quarter entry level volumes may equal to three-quarter Motorola's total volumes and our 1110 family of products alone out-sold LG’s total volumes in the third quarter. We watch our competition very closely in the emerging markets and let me assure you we are far from complacent. But our world-class manufacturing and distribution machine is working well and is unmatched. The flexibility of our system enables us to consistently capture incremental volume versus the competition and this is what happened in the third quarter and often huge upside to what we have planned. We will gladly take these incremental volumes as they come and we'll not walk away from this good business. Because the bottom line is in these markets, we make good margins and incremental cash flow. We are enhancing our leading share, scale, and ramp in this market to take advantage of the future upgrades as they come. Thank you very much.

Thanks, Olli-Pekka. We'll continue with the Q&A session. As a friendly reminder, please limit yourself to one question only. Operator, please go ahead.

(Operator Instructions) Our first question comes from the line of Phil Cusick with Bear, Stearns.

I wanted to ask for a little more clarity, Rick, on something you said. You mentioned the partial expiration of your agreements with Qualcomm. I wonder if you could expand on that? Also, there's going to be a speaker on IPR at the analyst day next month. Is there a little more detail you can give us in terms of what might be broken out there? Thanks.

Phil, thanks for that. There will be a session on IPR at the Capital Markets day and I'm sure it will be a popular one. You asked a specific question about partial expiration and obviously I think there are a lot of questions around this topic. Certainly as I've had discussions with you, others and all of our investors around the world here lately. Rather than answering each one of these separately, given we've brought up the topic here that I'd tackle a couple of the more common topics, and for the purposes of this call, really just address those because I think I have a pretty good feel from the discussions with all of you of what the key topics are, and try to limit and those will be the only ones that we would have on this call if that's okay, Phil. We'll go from there. So I think in terms of potential injunction is one of the topics that come up regularly related to Nokia's products to the ongoing and potential future litigation with Qualcomm. What I'd have to say there is as we've been talking injunctions are extremely rare and they should never apply to essential patents anywhere in the world. There are several reasons why we believe that Qualcomm would not be entitled to any injunction covering our products now or in the future. Firstly, Qualcomm has made a written contractual commitment in international standards-setting organizations to license valid, essential patents on FRAN terms, fair, reasonable, and nondiscriminatory. Due to this contractual commitment, we do not believe injunctions are available to Qualcomm in the standard setting context. Secondly, Nokia has been negotiating in good faith with Qualcomm while the two companies are in active negotiations. We do not believe any U.S. court will issue and…

Okay this is Olli-Pekka. Can I just add to that and reiterate that we see IPR as an extremely important asset for Nokia and we simply want to be fairly compensated for our leading IPR. While we understand that there's a concern in the near term about potential business risk, we believe that the risk is remote, and we will continue to act in the best interests of our shareholders and customers. We see a lot of value we can pass on to the shareholders in the near term. In terms of our ability to monitor the asset; but also how our IPR investment gives us a full course benefit over the competition in the future.

Okay, our next question, please.

Your next question comes from Sandeep Malhotra of Merrill Lynch.

Thank you. I have a question about the increased shipment in units this quarter. My understanding is that if you look at the shipments in last quarter which is 78.4 million handsets, roughly 40% could be classified as entry level as in below EUR50 SP. That would put the number at 31 million. Olli-Pekka, as you were suggesting that number is up 20% quarter-on-quarter, that would put the number at 37.6 million for this quarter. How much of the additional 6.5 million units are attributed to CDMA, lower SP, lower margin phones? Including the possibility of having shipped to India and what would ASPs have been if you had actually stripped that out?

Sandeep, I think a little bit of the confusion there is, is Olli-Pekka was referring to our entry unit business and its sales devices that are both below EUR50 and above EUR50. Your statement about the previous quarter spot on as we've said. And again this quarter, the under 50 was more than 40% in our volume. But that's the confusion in the math there.

Could you please clarify the CDMA with the GSM component of the enhanced volumes in the entry level, and what the impact may have been on ASP and gross margin for mobile phones?

I think, what's going on there is no different than it has recently. CDMA has not been accretive to us in gross margins or operating margins in the mobile phone unit, as we said. That's part and parcel the reason why we've taken the charge this quarter that we did to begin the restructuring and the shutdown of our own R&D and production of that unit. The sales there were okay and we're continuing to sell, as we said, in the third quarter, in the fourth quarter, and entering 2007. But we expect to be shut down on the time that we had said earlier with our own product and then use selectively ODM. So no difference there. CDMA had been a drag on our margins, and we're taking action there.

Basically, the situation continued in the third quarter approximately in the same way as it has been before.

Right.

Thank you. One just additional question on the capital structure, Rick. The buyback, my understanding has been it is significantly behind schedule. What's your current thinking on buyback with dividends?

Well, again, we've been consistent that we use a combination of those two. We have a very high dividend in our industry both on a payment rate and an absolute amount and share buybacks as I mentioned, that we were going to continue with that in this yearly round that goes April to April. And though had mentioned that rather than, at the same very accelerated rate that we had the previous cycle that we'd be a little bit muted than that. So, for my mind, we're on track. No change there.

Your next question comes from the line of Tim Long with Banc of America.

Thank you. Just a question and clarification on ASP. I hear the comments about mix in the September quarter. I'm just curious given that Europe, Western Europe looked pretty strong sequentially and even the U.S. was okay, are we to understand that the mix within those markets was unfavorable as well and then if you could just give us your sense of your comments in the report talk about lower ASPs for the industry. Is that a comment for Q4 as well? If you could just give us an outlook whether or not the new products coming will help stabilize or increase that ASP as we look into the fourth quarter. Thank you.

Okay. Olli-Pekka here. So, if you look at the overall dynamics of the market in the third quarter, so definitely we have many times said that the emerging markets were strong and had an impact on the ASPs. I made some other comments on that a moment ago. At the same time, what we have seen happening in the European markets, and especially in the European markets, there's been softness in wideband CDMA. Basically not pushing wideband CDMA in the way we were expecting in the third quarter. So, it has been slow in that way. Of course, the dynamics going forward then will decide on what will happen in that front. This has meant, in fact, that also in the European markets, the mix between low risk and mid tier and high end, that has been shifted a bit lower. So, on one hand, we have been seeing very good progress in our Multimedia division including the European markets, but then there's been some shift in the so-called lower end wideband CDMA to upper end CSM. This has had an impact on the ASPs so it's a combination of the emerging markets being very strong and then what I would call wideband CDMA softness in the European market.

That effect Olli-Pekka refers to Tim is particularly then you see that coming in mobile phones. That's the distinction between the others performance and Multimedia as wideband CDMA moves into that portfolio and price range.

One could say that during the third quarter, this mobile phone market was quite polarized. So it was strong in the low end. It was strong in the multimedia devices and then there was softness in the mid tier and wideband CDMA.

Then outlook for stabilization there?

I think, Tim, you asked the question, the comment on ASP and again, Olli was giving the industry view that we continue to see good volume growth in the fourth quarter, in the very lowest end. And of course, that by and of itself drives the ASP dynamic.

Okay thanks. Next question, please.

Our next question comes from Stuart Jeffrey of Lehman Brothers.

You guys mentioned pricing a fair amount, that a number of your competitors have been aggressive on pricing and that may have contributed to gross margin. Just given that in Q3, most of your three top competitors all had margins not dissimilar to your own, I am hoping to get a bit more clarity around who is asserting the pricing pressure? Is it some of the smaller vendors and if so, why don't your significant scale mean that those guys can't really compete aggressively on price for any sustained period of time? If it's the bigger guys then surely their strong margins suggest that the pricing environment could remain tough for some time.

So the pricing environment has been more soft in the third quarter. I would not emphasize that too much in the way that it's more like a mix market dynamics question than the market environment. Of course you have to remember we took market share and in that way, we're responding to the competition, to the pricing pressure that was. But that, in my opinion, was more like business as usual. In that way, I would not say that the pricing environment will suffer than in the previous quarter. It's more market dynamics type of situation.

Stuart, this is Rick. As well my comments in the remarks, of course, referred to potential factors up and down and were not in and of themselves predictions of the weight of those, but making clear that we had multiple factors working both for and against that.

Okay thank you.

Next question.

Our next question comes from the line of Mike Walkley of Piper Jaffray.

Great thanks. I was wondering if you could just discuss your performance in the mid tier of the market? I think you said WCDMA was a little weak, but if you look at your product portfolio it seems like the mid tier, the say 100 to 250 range is where you seem to be less competitive. Can you maybe talk about new products that you might be coming into the market into next year with a new design team recently implemented?

I think that's a very good question. I indeed think that when I said we can improve when it comes to our product portfolio, that we are really talking about mid tier here. I think there's room for improvement and we definitely have identified that and are working on that. Many of the new product launches we will make, will relate to that part of the market. Having said that, I believe we continue to be competitive in that part. It's simply that that is the area we've an upside in terms of improving our competitiveness even further.

Our next question comes from the line of Gareth Jenkins of Deutsche Bank.

Hi, quick question on networks, if I could. I know obviously a bit sensitive but the Nokia Siemens JV, have you initiated conversations with the work councils yet, for your 10% to 15% head count? And secondly in terms of outlook for networks, can you just give us a bit more flavor in terms of the geographic dynamics within networks going forward from here? Do you think Europe's going to be soft or where are you seeing the geographic strength and weaknesses? Thank you.

It's basically once we have gotten the regulatory approvals that we can start acting on behalf of the new company. And as I said, the new company will start its operations only in January of next year. So very briefly, the answer to your question, to the first part of your question is no. There's none that have taken place when it comes to the new companies as such. Then your question about the market dynamics going forward. In the third quarter, we definitely experienced quite a bit of similar type of dynamics in the networks as in the devices part, the emerging markets really bears strong. There's a lot of activity there. And one could say, for instance, India is firming up when it comes to the networks and the devices, and the prospects there. Going forward, it's very much also the same dynamics when I talked about the wideband CDMA overhaul and how that will happen. I believe, I continue to believe, a very big believer in wideband CDMA, in HSDPA, and in the opportunities and possibilities those still offer to the consumers on one hand and to this business on the other hand.

Just to follow up on the pricing environment. One of your competitors this morning said that they're seeing some of the intense pricing abating but no benefit from the consolidation yet. Would you confirm that?

Well, when it comes to consolidation, so both Lucent Alcatel and Nokia Siemens are not there yet in that way. So it's a consolidation. It's happening but has not been completed. Pricing, the competitive environment day is tough. We took the action to try to force this with Siemens because of scale and because of our becoming more competitive. I feel that action was right, the right action. I'm in fact very confident that what we did there is the right thing to do and we'll benefit our shareholders going forward.

Thank you.

Next question, please.

Our next question comes from the line of Ittai Kidron of CIBC World Markets.

Thank you. Rick, maybe you can talk about the fourth quarter assuming that the low end is still going to be strong in the fourth quarter, and I don't know how much a bounce back you can have in gross margin. You had a very nice performance on the operating expense side, but fourth quarter is typically a quarter where you spend a lot on marketing. The holiday season, how do you think you can balance a still lower gross margin and what seems to need to be much higher operating expenses in that quarter?

Ittai, I think in the fourth quarter, obviously given the seasonality there that as typical on an absolute terms our OpEx is going to be up and I'd expect a slight increase even as a percentage of sales to somewhere maybe between the second and the third quarter if you look at it that way. And so, but you saw we had, I think good action in the third quarter relative to what was happening on the top line in the gross margin. And we'll continue to look to run that balance in the fourth quarter. But directionally, we see it as stated there.

Next question, please.

Our next question comes from the line of Has Malik of Citigroup.

Thanks. I understand the long-term benefit for having a very large base of low end volumes to amortize your development costs to your kind of fixed costs. But I wanted to ask if you could comment on the link between gross margin and low priced phones because it seems that the more low end phones you're selling, the lower your gross margins are going. I know that you made some comments that that should stabilize, and maybe even recover, but can you point to specific product refreshers that are coming up or the completion of some fixed cost investments that should help drive that? Thank you.

As we said, we're doing a continuing upgrade of and refreshment of the low end. We had introduced earlier, the improvement with the so-called Scott chip engine set and that was in the 1110 family. But that also we've introduced the 2610 and the 2310 which again continued to give us refresh ahead of moving next year to the low cost single chip GSM devices. So, in that sense, we're on a continuous effort there and we've seen a good gross margin in the emerging business unit. We've seen improvement of that since the beginning of the year. It obviously has a much lower OpEx burden in that business unit so it runs in a very different dynamic than say, for instance, Multimedia at the other extreme. So as we said before, in the entry business unit, the gross margin and the operating margin levels are within spitting distance of overall mobile phones. So, we feel pretty good about that and we'll continue to really push ahead with that effective R&D, our own R&D in terms of the integration and the new chip set and we expect to reap the continuing benefit of that as we move into '07.

What I would like to add to that, and I think it is important. Like Rick said about lower gross margins, lower OpEx as well, but if you look at this pricing environment, in general, in the mid tier, in the low end, so we are not experiencing tougher pricing environment in the low end, in the entry markets. So, in that way, that will speak for the solidity of our position there. But the pricing dynamics are pretty much the same in all parts of the market as such.

You didn't specifically ask the question but I have to take the opportunity that we really do also leverage our brand and by playing very successfully profitably in this market as well as we get to leverage fixed costs and R&D cost into that market. I think brand, when you talk about mid and long-term, should continue to be on the radar screen.

Our next question comes from Paul Sagawa of Bernstein.

Hi a couple of things. First of all for the year, working capital has been running high for most of the year. If you could just sort of roughly prioritize how much of that is coming from the increase of new network builds for emerging market carriers on the network side, which obviously we don't get to recognize the revenue until you're done with the build. How much of that is related to sort of the increasing needs for working capital in the device business? If you could also talk a little bit about the enterprise business, I think the loss in the quarter has been in the EUR60 million range for a few quarters in a row now, and I think we've been looking for 2007 as being a profitable business. Does this quarter results change the timetable for making this a profitable business? Why would the ramp of the E-series, wouldn't we have seen more of an improvement in the losses of that business unit? What kind of timetable might you have on that business, continuing to make losses before you make some sort of change? Thanks.

Yeah, Paul, thanks. On the balance sheet, our networking capital, as I mentioned inventory in the third quarter up sequentially and it's right to characterize that the ramp there was normal for the device businesses as we prepare them, we're in kind of a booming market so no news there. In the networks business, both inventory and accounts receivable are up and it's driven primarily for the reason you mentioned, which is the new emerging market contracts, where it takes some time before you deploy, get the system up and running. You get the conditional acceptances moved to final acceptances, then you can invoice, and then you get paid after the time and the terms and conditions are met there and that is -- can be unfortunately a long sequence. So, it's primarily on the inventory and accounts receivable side driven by that dynamic in the networks. Though we do see that on the inventory side of the networks, we've had something that I expect not to be systemic but also a little bit of build in inventory, in certain regions, due to these new contracts. We should be able to get a little more efficiency out of that inventory number. On the receivables, on the device businesses, again, there, business is normal but, somewhat greater percentage of our sales and the fastest growth in certain markets are in areas where there tends to be a little bit slower payment of behavior regardless of what the terms are. The credits are good but there is a little bit of that element so again, nothing unusual in that sense. In terms of ES, as you mentioned, yes, we're disappointed that we haven't done better and moved faster toward stopping the losses there. As we talked before, we're going to ramp more strongly with volumes in the quarter four, get the benefit of that. That will somewhat offset the losses. But we also have to be clear that the new E-series devices that we're excited about and planning on getting this ramping effect, volume effect, some of them are being very well-received in the market and we think will continue to be very effective. But some of them haven't been as well received and they aren't going to be as successful as we had thought, and that has definitely impacted the pace of this. So the devices like the E50, I think are doing well and they're going to be great. The E61, the E62, that form factor again very strong and of course, what are we doing about it? We're going to have more devices that will come in 2007 that look pretty good because we're going to stay the course and we're going to get there.

Next question, please.

Our next question comes from the line of Alexandre Peterc of Exane.

Yes, hello. I'd like to come back to the North American market a little bit. You implied in your second quarter comments that there was significant loss in market share with one operator there, and that you were hoping to get back there more aggressively. But given the Q3 performance, it doesn't seem to be the case. What's your plan of action to really increase your profile in the U.S.?

That's an absolutely correct observation that we made the comment in the second quarter about the prepaid operator. We had an issue with them and at the time, in July, we said we have resolve that and that is the case. So we are back in business with these people and, and ramping up our volumes there. So, in that way, it does not continue to be a matter to look at in that way. Like I said, in the July call, all in all, we are continuing to increase our attention and investment in the U.S. I want to again mention the fact that we are converting our formal CDMA activity or parts of that in San Diego to make U.S. specific products and it's the first time we have really done that IE dedicate a R&D facility to make products that are specific to one market only. We are working on that and the results of this activity starts to be visible in '07, of course we also have been investing in those products. I think the N75 here is a very good example of activities we are doing. That's a product that will be launched in the U.S. and only then taken to other markets; as opposed to the other way around that has typically been the case. So, in that way, you just need to have the dedication and commitment to do things like that in order to make it.

Okay. Operator, last question. Thank you.

Our final question comes from Ehud Geldblum of JP Morgan.

If I could go back to some of the things you were talking about with respect to ASPs and the WCDMA market in general, it sounded like one of the pressures on ASP came from that. Is your impression of what the WCDMA market in Q3 and now in the full year less than it was before. If you can give some framework around what your volumes were in WCDMA in Q3, what you thought you'd get in Q4? Can that help make ASPs come back up again? You previously spoke about 100 million unit markets for the full year, is that sort of what you're still looking at right now?

I was talking about softness and I meant softness. I didn't mean that the market would have disappeared. It is there. It simply was somewhat smaller than comparison to the TSM part of the market than we thought and that really showed in the way I said. Going forward, of course, without giving any predictions so really the question is absolutely correct. The dynamics of wideband CDMA overall in the fourth quarter will play an important role in the ASP and other dynamics.

So, you believe that your ASPs can stabilize as that comes back up in the fourth quarter.

Well Ehud, as we said, we don't make predictions on ASPs. We talk about drivers. That's one of the positive but there are drivers on the other side, as well. So I don't think anything more to add on the ASP. It doesn't change much in terms of softness to have a pretty big impact given that these are great pricing and gross margin devices as Olli-Pekka said. I think you have to just bear that in mind.

And maybe I can just add to that final comment, that in fact in the third quarter, the top four margin contributors for us were wideband CDMA products so in that way, the market is there, and will continue to be there.

Okay. Ladies and gentlemen, this concludes our conference call. I would like to remind you that during the conference call today, we have made a number of forward-looking statements that involve risks and uncertainties. Actual results may therefore differ materially from 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've identified these in more detail on pages 12-22 in our 2005 form 20F and our press release issued today. Thank you and have a nice day.