At this time, I would like to welcome everyone to the Nokia first quarter 2011 earnings results conference call. (Operator Instructions) I will now turn the call over to Mr. Matt Shimao, Head of Investor Relations.

Ladies and gentlemen, welcome to Nokia's first 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 11 through 32 of our 2010 20-F and in our quarterly results press release issued today. Please note that our results disclosed today 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.

Thank you, Matt. Q1 of 2011 has been a remarkable quarter for Nokia. It was during this quarter that we articulated the serious nature of Nokia's challenges in a manner that served as a quality arms for our employees. We also constructed and announced Nokia's new strategy for the years ahead. And now, we have shifted our purpose from defining our new strategy to taking the first important steps to realization. During this time the fiercely competitive environment continue to increase and affect our business. Yet with our new strategy, we have more clarity around future direction and a stronger recognition for the work we must accomplish in order to improve our financial results. In Q1, we took immediate steps to mobilize the company around three new business objectives, which are, regaining our leadership in smart devices with Microsoft as a partner; growing our leadership in mobile phones, as we bring the internet to the next billion; and also investing in future disruptions. To accomplish these objectives, we are focusing on key differentiators, including signature user experiences, iconic hardware, differentiated software, and supporting an eco-system of services that consumers' demand. We are also taking advantage of our global reach, powerful supply networks and the strength of our brand. With all of this transformation, we also recognized that we must change the way we work in order to achieve our new objectives. Today, I am going to structure my remarks around the current situation and the steps we are taking relative to the different pillars of our new strategy. First, we are focused on improving the product competitiveness of our smart devices. This begins with being laser-focused on our Symbian results, as we commence our transition to the Windows Phone platform. While competitive challenges remain and the trends that precipitated our…

Thank you, Stephen. According to our preliminary estimates, in terms of unit volumes, the overall handset market in Q1 declined 7% sequentially, but grew 16% year-over-year. On a sequential basis, the industry showed relatively better performance in emerging markets compared to developed markets, consistent with typical Q1 seasonality. On a year-over-year basis, the industry saw solid growth continue in both developed markets and emerging markets. Mobile devices are a modern necessity and the fundamental growth characteristics of our industry remain healthy. On a reported basis, Devices & Services net sales of €7.1 billion were down 17% sequentially and up 6% year-over-year. The sequential decrease in net sales reflected lower ASPs as well as lower device volumes in most regions. In Q1, converged mobile devices delivered relatively good performance led by our new products including the Nokia N8, Nokia C7, Nokia C5 and Nokia E7, as well as the attractive price Nokia 5230 touch screen and Nokia E63 QWERTY devices. Mobile phones in Q1 was led by continued strong performance of the Nokia C3 Qwerty device. The top five devices in mobile phones blanketed a broad ASP range from €17 to €99. In Q1, services net sales were €211 million, up 5% sequentially and 43% year-over-year. Billings were €338 million in Q1, down 4% sequentially and up 48% year-over-year. In Q1 our active services users grew of 280 million from 187 million at the end of Q4. Beginning Q2, we will no longer disclose services net sales, billings and active users. Rather we will begin disclosing additional P&L information by business unit down to the operating contribution line. This means that within Devices & Services, we will provide disclosure for net sales down through the operating profit contribution line for our two newly created business units as of April 1, 2011,…

Thank you, Timo and Stephen. For the Q&A question, please limit yourself to one question only. Operator, please go ahead.

(Operator Instructions) And your first question will come from the line of Gareth Jenkins from UBS.

On the Microsoft deal, I just wondered if you'd give us the timing and frequency of the billions of dollars of payments that you're expecting, and do you have to allocate that to the Microsoft ecosystem, or can you allocate it to anything that you so choose. And then just secondly, on the Finnish elections, I just wondered if they'll have any bearing on your headcount reductions and have union agreements been reached?

First of all, with respect to the specific timing and frequency of the payments, we are not disclosing this. Although, it will become apparent as the devices begin to ship, as the financial results for those quarters are posted, it will become quite apparent because they'll be visible within our income statement. With respect to the Finnish elections, the company is operated for the benefit of its shareholders, its employees and all of our other stakeholders, so we do not see a correlation between the Finnish elections or any of our specific plans to operate the company. As it relates to the relationships with union representatives and specifically employee representatives, those conversations begin in earnest next week. And so, those conversations begin and then we work through those. So there isn’t an agreement or something that has happened that triggers them. You actually begin those and go through a process over a relatively short period of time to work through those conversations.

Your next question is from the line of Tim Boddy with Goldman Sachs.

Just a clarification on the restructuring goal of a €1 billion. Does that include potential savings which result from actually marketing subsidy or cash from Microsoft, or would those payments from Microsoft be over and above the €1 billion? And then my question is really just around your time to market. How long is it today? Why is it taking so long to bring out Microsoft products relative to the pace at which some of your peers move to android? And once you're up and running on Microsoft, what do you think your time to market will be in future?

Okay, I’ll try and take a couple of those. With respect to the €1 billion savings, that is pure savings within our current OpEx structure. It is in no way related to any payments coming from Microsoft; that’s pure and true OpEx savings. I realize also, I didn’t relate it to the Microsoft payments. Didn’t answer part of the question that was first answered in terms of our liberty to apply or take advantage of the financial benefits arising from the deal. And that is at our discretion in terms of how that's done; it's not specific or specified. But clearly, we are interested in building the ecosystem driving our business and things like that. With respect to the Microsoft productization and the schedules that we have, we are very happy with the fact that our time to market and our ability to produce devices, taking advantage of the Windows Phone platform will be substantially faster than anything we’ve been able to do with other platforms. And so we look at it as something that's significantly increasing our time to market as it relates to any device platforms. We’ve already seeing the impact of that. I reference the ability to show off some of the Windows phone work at our recent sales and marketing meeting. We’re making great progress. So the pace of activity there is quite good and we’re happy with that.

Just to be clear here, we have not disclosed any specific accounting treatments regarding the Microsoft agreement. So what we are saying is that the overall agreement will become generally visible in our income statements when we move forward with the co-operation with the Microsoft.

Your next question comes from the line of Tim Long with Bank of Montreal.

Stephen, if I could just follow up on one of your comments. You said there was no consumer change in behavior or attitude about Symbian. Could you just talk to us a little bit about what you're hearing from distributors and service providers? In other words, is there a little bit more hesitance on some of the go-to-market partners than what you might see from the consumers directly, and any impact there, would be great.

I think the conversations with operators and distributors and various partners, they tend to focus on a couple of things; first of all, the competitiveness of the products. And obviously, they have visibility into future products, new software versions and things that are not yet visible in the market, and as we continue to invest in the competitiveness of Symbian, they see the results of that and athey are encouraged by that. And of course they are encouraged by the consumer response that they are seeing to some of the latest work that we have done. So we’re seeing an appropriate level of engagement and so forth. Now, at the same time I am going to balance my remarks. It is the case that we made a significant strategic set of decisions because of trends that we see in terms of market share and so forth. And so, those trends are still evidence in the numbers being reported. There are those challenges, and yet there isn't something discontinuous in terms of the consumer perception of our products that we have observed. As well, what we’re doing very carefully is to make sure that we are applying what we refer to as tactical pricing actions in various markets. Perhaps it's because of the competitiveness in the environments in which we are operating. But it's also important to note that roughly, I don’t have the precise number off the top of my head, but roughly 60% of our business is accomplished through open distribution where operators and others tend to have far less influence over pricing, and it's actually the ultimate consumer interest and demand that drives the success of our products, essentially more a pure market condition, which helps us a great deal in terms of moving through all of this. I think, as we said, the consumer perception is something that generally reflects where we are with the competitiveness of our products, which is strong in some markets and obviously weaker in other markets as well.

Your next question comes from the line of Andrew Griffin with BofA Merrill Lynch.

Just wondered about the dividends next year; I know it's a bit early to be forecasting it, but with consensus expecting earnings to be down and you going through this product transition, I wondered if you could give, particularly investors who are focused on your dividend an idea of how you'll think about whether or not to maintain it. You already have more net cash than you need, but what are the puts and takes in terms of the dividend decision for this year?

Well, I mean it’s early in the year first of all. And what we can say here is that the dividend remains our primary mechanism to distribute earnings to our shareholders. And despite the fact that the Board has proposed a dividend of 4% for three years in a row, I cannot say that you can assume 4% as a minimum going forward. Of course this is based on variety of factors, and we consider totality of the situation, not just one or two factors when we then from our side propose something to the Board, which is again, then proposed to the AGM.

Do you have a particular level of net cash that you see a minimum though? I'm just wondering whether you'd be willing to reduce your net cash level during this period of transition in order to maintain the dividend.

I don't think I have anything to add to the answer what I have just said. We feel that the cash levels, net cash what we have at the moment are sufficient for our current business position, clearly as we are expecting to pay that about €1.5 billion dividend now. In some weeks' time, net cash level will go down.

Your next question is from the line of Mike Walkley with Canaccord Genuity.

With the supply situation in Japan, I was hoping you could update us on some conversations with your customers. Do you believe carriers may have built some excess handset inventory and attempt to navigate supply issues, which might have had a positive impact on March sales and maybe a slightly more negative impact on June? And also, just given your strong distribution and the logistics team, can you elaborate on the interdependency talked about in Japan, and why you think that supply could be even more constrained maybe exiting Q2 into Q3 timeframe?

I'll take the first part of that. As it relates to the supply chain and so forth, the thing that we observe more than anything, I think everyone intrinsically understood but needed to see firsthand is the degree of interdependencies. It is the case that you may have a broad perspective of your supply chain, and obviously we have a very deep understanding of it. But as was reported early on in the disaster sequence where, for example certain chemicals that are used in virtually all processes related to wafers all of the sudden were in questionable supply because of factory closings and what have you. So those are the types of interdependencies that you don't initially think of or would anticipate in a situation like this. Now at the same time, there is a tremendous amount of creativity as it relates to finding alternative sources, in terms of everyone chipping in to get factories up and running or whatever is necessary, right across the industry because it affects everybody. With respect to the Q1 to Q2 to Q3 dynamics, Timo noted in his comments that inventory was just a bit higher than normal coming out of Q1, and our intent to correct that going into Q2, and as we came to understand that and saw that pattern forming, there was certainly an aspect of that of people not understanding where the supply shortages would hit, and therefore, taking some precautions in terms of perhaps building a little bit of extra inventory. And so you see that reflected in the Q1 numbers, but it's something as we said, we expect to see corrected in Q2. In your question, I think you characterized the transition into Q3 as perhaps more difficult or something like that related to supply. We're anticipating that the supply situation in Japan becomes more visible, more concrete, less of an issue as we move into Q3. Still some impact, but Q2 was the most difficult that we anticipate from a supply impact, just to put that in perspective.

Your next question comes from the line of Kulbinder Garcha with Credit Suisse.

I just want a couple of clarifications. Stephen, on the point of just the billions of payment on both IPR from Microsoft as well as the €1 billion of savings, this still only results in a business there's a long term 10% operating margin. That does strike me as very conservative, unless you are expecting the top-line to be much lower or gross margins to be much lower. I am trying to balance all these comments, so with a long-term 10% margin. And then for Timo, just one clarification, you've got the €150 million of royalty payment this quarter in your guidance. Is there anything you are assuming in full year margin guidance for further royalty payment in Q3 and Q4 so that the underlying margin would actually be potentially lower?

With respect to the guidance as it relates to the operating margin, I think the way I would respond to that is by commenting specifically on what our guidance is. We say 10% or more; seems the number of people, because of the transition and various ambiguity and so forth are focused on the 10%. Obviously, we're (incented) here to drive the more part of that. And so, without characterizing it as conservative or not conservative, we wanted to give a clear indication, at a minimum where we expect it to perform. But certainly the encouragement that we are all receiving from our shareholders, our Board and everybody else is to do better than that. I'd also point out that with respect to the payments and so forth, it's a long-term contract with Microsoft. Those payments are spread over some number of years associated with that. And so, without getting into the specifics, again the dynamics of the Microsoft contract will become clear. And I'll let Timo take the second question.

The second question was regarding gross margin dynamics, and this one of royalty. We are expecting to receive, during Q2, and we will back then, if I understood correctly continue to the following quarters. So if we can like, first of all, say that this one of royalties we have felt, we have called them earlier in putting forth, and to call it now, given that it is an important part of our Q2 expectations, we are not saying or expecting that this kind of royalty dynamic would continue to the following quarters as this is a one-off item. And then when we look at the gross margin dynamics in general going into Q2, you can see from our operating margin guidance that we are expecting, if you take out this one-off payment, a clear reduction in gross margin going into Q2. And this is coming from the competitive dynamics and pricing factors as was discussed earlier, i.e. the dual sim, new products coming to market and then also from the Japan visibility factor. So those are really the dynamics there.

And just one thing, sorry, Timo on (bad luck). In terms of the full year margin guidance, in Q4 there is quite a big recovery implied. Are you assuming that you will have a Windows phone this year, because there has been mixed messages from the company as to whether you will have one this year or not?

I'll just reiterate what we have said here. Devices that take advantage of the Windows phone platform will be shipping in volumes in 2012. And the pressure is clearly on to be delivering devices in 2011 as well.

If I may add to that, because let's still note that our guidance range is fairly wide for full year. That is there on purpose. I mean, what we are trying to say now is that we have moved to executing the new strategy. We have one quarter behind us at the moment. We have bit more visibility, but we are not saying that the visibility is great going into full year.

Your next question comes from the line of Mark Sue with RBC Capital Markets.

Are there proactive thoughts on differentiating with the Microsoft devices, since there will be a lot of devices by the time Nokia comes with phones this year, or is that differentiating more of a next year ambition? And then maybe a longer term industry question. With the reliance of an outside operating system, can the operating margins for mobile device hardware makers recover that to historical levels, or should we see it rather as a permanent shift with operating margins moving from one side to another? And I ask, as investors are concerned, mobile device margins can look somewhat like PCs over time.

With respect to the differentiation in and around our efforts on the Windows phone platform, clearly a critical part of our relationship with Microsoft is the ability to differentiate both as it relates to other ecosystems and when and if necessary within the context of the Windows phone ecosystem as well; that's a critical component of the unique nature of our relationship, and one that we will be very focused on. The number varies, where already for example if you look at across our Symbian products or services and so forth, there are a number of unique differentiators visible today in some of the products we ship, whether it's in areas like photography and video, whether it's in areas like the services around mapping and navigation in other location-based services. All of these types of things contribute to our differentiation, And of course, we'll be building on those capabilities, extending them and adding some new areas of differentiation, both at the beginning and on an ongoing basis with respect to the Microsoft differentiation. Now as it relates to the industry at large, of course margins are ultimately dictated by differentiation. So for example, there are some dynamics that are becoming perhaps apparent over time as it relates to the Android ecosystem, where there is a huge number of people, each contributing different devices and trying to differentiate. The ability of any particular participant to gain greater margins will be a function of how well they differentiate. The same applies to Nokia, and the same applies to the Windows Phone ecosystem as well in terms of its overall differentiation relative to the other environments. And so, part of our fundamental decision-making, as it relates to the partnership with Microsoft was the belief that there was an opportunity to establish a third ecosystem, as we characterize it to make it a three-horse race, to increase the possibility for differentiation and therefore drive better margins, certainly for us and for participants in our ecosystem than would otherwise be the case. That said, the alternative way, our sense was that if we had made the Android decision, that that would have accelerated commoditization in the marketplace.

If I may add to that just one point, that still compared to the PC industry, we at Nokia feel that this is a very personal device, and that differentiation of course comes from the overall user experience. That can still in the future as well come from very, very good hardware phone factors for example.

Your next question is from the line of Ittai Kidron with Oppenheimer.

What I wanted to get into, Timo, if you can, the linearity of the €1 billion savings. It sounds like as you mentioned most of the people would still be on payroll through the end of the year. So you won't realize much savings there, and I don’t know how much in facilities as a result of that can you really terminate. But is it safe to assume that the savings will be fairly limited this year and will start showing in much significant numbers through '12 and '13?

Yes, from the (inaudible) what we have given today, we clearly have a situation where we are in a transition period. There is also a lot of work to do during the transition period. So we think this is the right way to manage this for the company. We have also given a very clear target, i.e. it is a comparison from the actual OpEx 2010 to actual OpEx what we expect to see in 2013. So those are really the dynamics. But from that it is clear that the majority of the reduction we are currently expecting to happen during 2012.

Your next question is from the line of Jeff Kvaal with Barclays.

I was wondering how you are prioritizing market share and margins over the transitional period? And it seems though, particularly in converged device your market share is down a bit each of the last several quarters. And wondering, how you would like to see that versus maintaining ASP?

First of all, there isn’t a single answer to the question because of the different dynamics and different channels around the world. For example, in an open distribution setting, where again, the consumers directly are driving demand, are influencing pricing through overall market conditions and so forth, the need for fine-tuning on pricing and things like that is a bit less pronounced. Whereas, in certain environments, where for example an operator maybe auctioning, they are creating a very competitive environment on a pricing perspective, clearly there, the use of tactical pricing items or tactical pricing actions may be necessary. So the way we deliberately think about this is not one versus the other or even hand waving around the balance; it's treating each channel and each partner and each situation very deliberately. It is important, for example, that we maintain share and shops space for example in the operator mindset. It's important that we respect the consumer demand and the competitiveness of our products in open distribution. We have to reflect that as well. So it's something we dealing with at a very detailed level, recognizing that share must be maintained, but at the same time, we may have to take actions on a pricing perspective that affects gross margin.

We'd see in a transition period that you would have some flexibility. We know that your high end portfolio is going to refresh dramatically, and therefore you have a chance to reset pricing. So why not just take a real aggressive stance towards market share over the course of the next nine months?

Part of the reason for that is if that was our general message, hey, share at all costs or what have you, that type of message tends to ripple through an organization and then decisions are made that perhaps don’t have to be made as it relates to pricing. We have to balance and respect that if you like to want to maintain some degree of direct control on a detailed basis on pricing decisions that are made to avoid unnecessary price changes and so forth as we go. But again, to support your point, in a particular operator auction situation or so forth, where it's competitive and so forth with all of the other vendors, we will compete. And obviously part of that is the pricing action.

If I may add, if we look at this market by market, we clearly have the first pyramid there which we try to optimize is the absolute gross margin, not the percentage on gross margin. And that is the pyramid, but clearly you can't let market share go; that's clear as well. And again, there was a question earlier regarding gross margin for Q2. And if we take this one-off item out, we are clearly looking at lower gross margin, which is partly driven by these dynamics. But ultimately, optimization pyramid, the first level, we try to keep as the absolute gross profit.

Your next question is from the line of Pierre Ferragu with Bernstein.

I'd like come back to the billions of dollars payment by Microsoft you mentioned. I just wanted to clarify the nature of this payment. Is that cash that we take from the cash pile and put on your cash pile, or is it more something like revenue sharing, for instance on advertising revenue that would be driven by Bling, or would that be something like a distribution fee, for instance Microsoft would pay you on the distribution of Bling?

The short answer to that is cash. I'm not sure if it's a wire transfer or a large check, but it's cash. As we said earlier, the accounting treatment is something that's still being worked through precisely how it shows up in the income statement. Obviously, it will appear in various ways, also balance sheet impact and so forth, but it’s as simple as that.

Your next question is from the line of Stuart Jeffrey with Nomura.

I had a question, IPR, you seem to be talking about generating more and more money, be more aggressive in IPR. And I remember a few years ago Nokia tried being more aggressive in IPR and it did have a huge impact really. So I was wondering what's different now and whether perhaps you might also try and use IPR with Microsoft to be more strategic to try and increase the cost space of Android vendors, for example.

You answered part of the question in the second part. Indeed, I think it's very evident in the industry today that intellectual property is playing a critical role. It plays a critical role in the defense of a company, or in this case an ecosystem. And clearly, it’s in our interest jointly with Microsoft to ensure that the participants in the Windows Phone ecosystem are well protected from the aggression of others and at the same time our usual euphemism, clearly there's an opportunity to be more strategic in the use of intellectual property. Some of those patterns are already set, and of course our overall interest is to ensure that people are properly licensed for the use of our intellectual property and that people properly pay for what they are using.

We'll move forward to the next question. It is from the line of Zahid Hussein with Citigroup.

Just wanted a follow up on the IPR question just asked. You quantified billions from Microsoft. So, should we think of that in a similar kind of run rate or will it be a lot lower? And secondly, in terms of Windows phone, when do you think you'd be able to scale down the ASP so that's competitive? At the moment the Android World has targeted some €150 this year. Where do you think you can be at the end of 2012 and 2013?

On the IPR, we are really not giving any particular definition of the op amount at the moment and we can’t go deeper into that. I mean, you know well that in this IPR contract in general, and like holding the fact that the contracts are just simply usually not disclosed is what we need to do here.

With respect to the price points and so forth with Windows Phone, it's very important to recognize that our aspirations, and indeed some of our unique contribution to the Windows Phone ecosystem and our efforts reflect the fact that we do intend to serve a wide range of price points with the Windows Phone platform. We bring some particular expertise here, given our experience with Symbian, given our experience with alternative chipsets and so forth that are contemplated in the strategic work that we’ll do together. And so I won't comment specifically on what we’re doing by the end of 2012. Clearly, it is our intent to make Windows Phone a platform with a series of devices from Nokia that spans with substantially more price points than it is at today, and we’ll be pushing on that effort very aggressively in the years ahead.

Today’s final question will come from the line of Alexandre Peterc from Exane BNP.

Just a quick question if I may on the portfolio in H2 on your planned releases in the second half. Are we talking more feature phone kind of products, maybe Symbian phones in the mid to lower end, and what will be their impact on ASPs and gross margins in the second half?

First of all, I'll comment on the portfolio then I'll let Timo comment on overall impact. H2 is a busy season, both for Symbian and for the lower end mobile phones devices. On the Symbian front, I think the way to think about those devices is that they are lower down the pricing portfolio than the initial iconic devices like the N8 and E7 which are already out there. And so those devices are further down the pricing point. As it relates to the mobile phones area, again, anticipating, as I said in my remarks, a range of devices, particularly taking advantage of the dual sim technology, and thus you should see, within those price bands served by those devices a range of different price points anticipated.

If we talk about the dynamics here, so we do not give gross margin guidance as you know. But regarding ASP coming, the mobile phones products are really pretty much coming throughout the range. And what we can say that now more and more of the new smart devices are on the new Symbian platform, and that also means that the gross margin dynamics of the new Symbian products will start to be close to the average company gross margin dynamics because there is a broader portfolio of these products out there.

I would like to turn this call back to Stephen for some closing comments.

Just to summarize, some of our overall messages, particularly for the investor community, clearly we are going through a transition. We recognize the challenges that we are facing and we are taking very aggressive action to remedy that. What we wanted to communicate today in large part was the beginning of the reduction of ambiguity; lots of questions about the ability to get the Microsoft deal signed in what timeframe. We did that very well, very aggressively, and preserved the integrity of what was originally agreed. So that was well done. You clearly saw some good results in Q1. There are some challenges in Q2 that we've characterized, but also seeing things like new versions of Symbian devices, Symbian software and a variety of other things gives us a lot of hope for the quarters ahead, which gave us the confidence to further reduce ambiguity about the guidance for this year. There is also clearly a lot of questions about whether we were serious or not about the operating expense targets. The target that we communicated I think illustrates very clearly our intent to take that on very aggressively. And so, we still have ambiguity ahead, when precisely the first Windows device ship and all of those types of questions. That will become clear quite soon. So we appreciate the support that you have shown us on an ongoing basis, and our pledge to you is to continue to not only reduce ambiguity but begin to post the results that we are hopeful for. So thank you all.

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 risk 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 39 in our 2010 20-F and our press release issued today. Thank you.

Ladies and gentlemen, thank you for joining the Nokia first quarter 2011 earnings results conference call. You may now disconnect.