Good morning. My name is Carmen and I will be your conference operator today. At this time, I would like to welcome everyone for the Nokia Q2 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 would now like to turn the call over to Matt Shimao, Head of Investor Relations. Please go ahead.

Ladies and gentlemen, welcome to Nokia’s second quarter 2013 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 this 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 47 of our 2012 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.

Thank you for joining us today. For Nokia and our industry, the second quarter of 2013 was dynamic. Thus, at the highest level, we are pleased to report that Nokia group achieved an underlying operating profit for the fourth consecutive quarter. Further, we are pleased that Nokia group ended Q2 2013 with a strong balance sheet and solid cash position with gross cash of €9.5 billion and net cash of €4.1 billion. In the second quarter, our Lumia volumes grew to 7.4 million, the highest for any quarter so far demonstrating momentum for the ecosystem. Our mobile phones business units started to show signs of recovery in the latter part of the second quarter following a difficult start to the year. Our HERE business exceeded expectations and benefitted from its leadership in the automotive industry. And, most notably, we benefitted from another strong performance at Nokia Siemens Networks, which continue to deliver well against its focused strategy. While the market conditions are well documented as challenging, we are focused on delivering differentiated products. In the last six months, we have introduced new hardware and software with the launch of the very affordable Asha 105, the highly social Asha 210, the competitively priced Lumia 520, a range of flagship Lumia smartphones including the 925 and 928. And, of course, the game-changing Lumia 1020. Given the market conditions, we remain focused on executing our strategy, improving the competitiveness of our products, effectively managing our costs and moving with urgency. Today, I will take time to provide more insight into each of our key business areas and share my perspective on how we believe we can continue to drive more value for shareholders. First, in devices and services, we achieved the Q2 non-IFRS operating margin of negative 1.2%, which was consistent with the…

Thank you, Timo. For the Q&A session please limit yourself to one question only. Carmen, please go ahead.

Your first question comes from the line of Stuart Jeffrey with Nomura.

Thanks. I had a question on Nokia Siemens. You continue to say that you are trying to strengthen the company as more independent entity, but you just stated that it's being used as a source of cash now for Devices and Services. So, from a cash perspective it already seems very independent and independent comment, I guess, suggest for the disposal still on the cards, and so I was hoping you could just expand on why you wouldn't say at this point that something you would aim to keep and what the issues are that you are juggling in making a decision either way?

Okay. Timo here. So, thanks for that question. So, first of all, we did not want to in any ways give an impression that we are somehow utilizing the NSN cash for other purposes. We are simply saying that we can optimize position if and when the acquisition closes. We very well recognize that NSN is business where it is having long-term customer contract and needs to support investment into innovation in both, mobile broadband as well as the related managed services in accordance with the strategy.

Thank you, Stuart. Operator, next question please?

Your next question comes from the line of Gareth Jenkins with UBS. Gareth, if you have your line muted, please un-mute your line. Your line is open.

Operator, just move on.

Your next question is from the line of Michael Walkley with Cannacord Genuity.

Great. Thanks. Stephen. Congratulations on the Lumia sales in the June quarter. Could you share with us just maybe some sell-through trends for the 520? Obviously, with the new high end phones ramping in Q3 should have some better ASPs, but would you think that Lumia volume will increase again sequentially? Could you just touch on maybe your pricing strategy on high end given the tough competition on the high end. And, already seems like Samsung, it seems like they've already clearly cut some prices of Galaxy S4 post that launch. Thank you.

Yes. Thanks for that question, and actually they are all somewhat intertwined in terms of the dynamics we are seeing in the marketplace. Certainly starting with the 520, this product has gotten off to a very nice start in many markets around the world. You will see us continue to broaden distribution of the product. There is more steps ahead in, for example, the United States and elsewhere, so we are very pleased with that, but we are in an interesting situation where, as we go into Q3, we have a number of new products at the high end of the range which are either just now entering or will soon enter full distribution. For example the 925 is just really getting into full distribution and of course we launched the Lumia 1020 last week, which will begin shipping later this very month. In terms of the pricing dynamics and this is why we actually have not provided the comment on Lumia volumes. There's a bunch of dynamics going on for where indeed we do have to think carefully about the pricing strategies, because as much as we have some good support for strong pricing, for example, at the Lumia 1020 where it's so differentiated, it's such a wonderful product. We don't sense pricing pressure or anything around that in these earlier periods, but at the same time and you correctly called this out, certain of our competitors, I just use as an example I saw in the newspaper in United Kingdom, just a couple of days ago where Galaxy phone or Galaxy tablet, free smartphone and who knows what else they had in inventory, bundled with all together and put it out there for £21 per month. So, we are sensitive to the fact that there are pricing pressures and we are going to have to manage that very, very carefully. So that, in some ways, explains why as our guidance for going forward, we gave a broader guidance of overall devices and services net sales growth expected going into Q3 from Q2 but we didn’t want to get too specific on volumes because so much of our revenue in Q3 will be based on new products. We will just have to balance that very carefully.

Thank you, Mike. Operator, next question please.

The next question comes from the line of Andrew Gardiner - Barclays.

Thank you very much. I had a question on NSN as well. You have highlighted in the release here, the increased restructuring, that you are aiming for the NSN going from the €1 billion across savings to €1.5 billion. I was just wondering if you could shed a little further light on the need for additional restructuring there, particularly given that NSN has been solidly reporting very nice gross margins, high-single digit, low-double digit margins, better than peers who are significantly larger than you. Are you planning on making cuts here ahead of a potential for decreased revenue opportunity in future periods? Just any additional color would be helpful. Thank you.

Yes, let me take that. I think the way to think about this is, this is something we all see and learn as we go through restructuring cycles. That is, you tend to take the big first steps to really restructure the company, get it focused on its core business, make the structural changes organizationally, to the sales organization, what have you. And as you get through that, what you begin to see are new opportunities for fine tuning, for tightening things down in certain areas. So I wouldn’t interpret this at all of any forward-looking indicator of what we anticipate. It's more there is an opportunity there to continue to manage the business tightly, make sure we are keeping OpEx at the right levels, while still ensuring, particularly important, that is heavy R&D investments available to us to continue to compete effectively. So I wouldn’t interpret anything other than there is opportunity there that gets uncovered as we have gone through the major rounds of restructuring we saw over the last year.

Thank you, Andrew. Operator, next question please.

The next question is from the line of Gareth Jenkins with UBS.

So, I guess, a two part question on NSN. Firstly, I just wondered if you could just give us a sense in light of the TD-LTE tender in China, whether NSN's longer term targets are focused around margin or market share? Then secondly, I just wondered if you maybe you (inaudible) in the quarter, what the impact from the recognition of these certain project acceptances was in terms of margin in the quarters was meaningful or not. Thank you.

Okay, thanks Gareth. So, first of all, on the TD LTE China and the longer-term target. So clearly we are not giving any revenue target. We have said that our longer-term target for operating margin is between 5% and 10% and we are not in any ways changing that. We are, of course, extremely happy with the execution in NSN regarding the margin but we want to be properly positioned for our top line as well. But we are not changing any of these targets at this point in time. Then, can you please repeat your second question? Oh, it was on the project, yes. So on the global services, we simply have a situation where some of the revenue recognition depends on some acceptances and we had a couple of these during Q2 and we are not expecting to have a similar amount of it. We called it out. So clearly, because of that, it is meaningful but I don’t think that I can shed much more light on that on.

Thank you, Gareth. Carmen, we will take our next question please.

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

Hi, thank you for taking my question. I have actually two. The first one would be on mobile phones. So you have said, (inaudible) given the continued expansion in this quarter and some (inaudible) end of the quarter, but I am wondering if something has changed internally or if we are going to see again like last year and the year before some temporary (inaudible) in your shipments because (inaudible) is getting better but in the end it will end in six months from now again with volume that we will, frankly, quite a good view compared to where we are today. Then my second question is on the smart phones, So you mentioned that a lot of your savings in Q3 will comes new phones. So I am balancing between two ways I can interpret that. On one hand, I can think that maybe this means you will have better visibility into Q3 quarter you are going to depend a lot of on the launch of new products. On the other hand, I am also thinking maybe it means that your gross margin profile is going to improve, because there more new products in the mix you should have a better gross margin, so which of the two is the most important do you think I should keep in mind?

Okay. Thanks, Peterc. First of all on the mobile phone side. The situation in Q1 and Q2 clearly a difficult start to the year and we did take very significant action during those quarters. And, certainly in Q2, to bring inventory levels down. So, some of what you see in the decline there is us taking deliberate steps to improve the health of the channel. So, as you look with the benefit of hindsight backwards and say what could that curve have looked like, or how should we have managed that, it might have been a bit less choppy if we had had better forward visibility at that time. Now, as we look forward for mobile phones, we are entering into Q3 on the back of the launch of Asha 501, which represents a next-generation of innovation for that marketplace and we are absolutely continuing to invest in innovation in those price bands and so you can anticipate as we go through Q3, Q4, Q1 into the next year that we have more work ahead, more launches ahead, more innovation and significant advances in what we are planning to do in that marketplace. So, clearly, we are not managing it as a just continue to see decline or go through Q4 and drop in Q1, again. We don't like that pattern. We are very much making the investments to work against that pattern as that took place in the last year. With respect to Smart Devices. Actually, I will respond to the first point of our visibility. I think, Timo will comment on gross margins. As it relates to visibility, that is part of what we were trying to signal; is that given that the expectation for Q3 has a larger percentage than normal of new product launches it's with less confidence that we can predict the volumes and so forth and so you saw us, if you just look historically we didn't predict volumes in Q1, but we felt better about predicting volumes in Q2 because we had a more of a track record with the newer first generation Windows Phone 8 products. The 925, the 1020 products like that we don't have any practical experience with it at this point or not at least to say what Q3 will look like, so that's deliberately part of what we were trying to signal. I mean, Timo will comment on.

Yes. So, Peterc, I think, I will take the opportunity to talk a little bit about our Q3 operating margin guidance. And also, of course, including the gross margin and how we see that. Clearly, as we said, we are expecting a higher top line going into Q3, and that's really driven by the ramp up of recently announced products. Then from gross margin perspective overall, I mentioned the expected sequential [tailwind] from the hedging activities. But at the same time, please remember that Smart Devices gross margin benefited from about €20 million or approximately €20 million from the inventory related reversals in Q2. In addition, we highlight the competitive industry dynamics impacting both, Smart Devices and Mobile Phones. So, yes, the new product introductions should be a positive on the gross margin, but simultaneously the competitive industry dynamics impacting both, smart devices and mobile phones will be a negative.

Thank you, Peterc. Operator, next question please?

Your next question comes from the line of Mark McKechnie with Evercore.

Thanks. Appreciate it. Timo, I'd like, can you give us an update on what we are at with the Microsoft payments the back and forth about a 1 billion a year. Are you a net payer to Microsoft now? How do you expect that to play out going forward?

Yes. Thanks, Mark. We are happy to talk about that a bit. So, we have said that overall during the lifetime of the contract, we expect to be a net receiver slightly, but that in the beginning of the contract period, we actually benefited for the ramp up of the Lumia and transition we needed to go through and are still going through. This year basically, we have still said that we are a slight positive or a slight receiver, but we are talking about small amount at this point in time, so they (Inaudible) each other out at the moment.

Thank you, Mark. Operator, next question please?

Your next question comes from the line of Richard Kramer with Arete Research.

Stephen, you have now had about eight straight quarters of about 0.5 million units or so in North America. Can you just sort of lay out for shareholders and investors, balancing the signaling value of the U.S. market, whether you can justify the cost of continuing to pursue market share there? And what might happen if that doesn't improve? Then Timo, can you walk us through the cash picture for second half? I think you mentioned that NSN would remain independent with its cash. Nokia has to pay for NSN. You have restructuring and working capital. Then, I suppose a longer term, the commitment to minimum royalties for Microsoft. Can you walk us through maybe what your year end target for cash might be and how we should think about the cash balances for Nokia through the rest of the year?

Thanks, Richard. With respect to North America, particularly the U.S. market, we believe quite strongly that the signaling value of that market is high. We measure this quite carefully by studying the influencers on purchases around the world and the extent to which for example a powerful launch of the Lumia 1020 in the United States is reflected around the world and how that gets picked up and everything from press coverage to blogger coverage to the encouragement of developers to build apps for Windows Phone and so on and so forth and it is just an amazing amount of influence coming out the U.S. market. Now it is a hard market. At the same time, if you look sequentially, we saw improvements in North America which we are pleased to see. In large part, on the back of the 928 going into Verizon and the 520 in T-Mobile and also a number of retail markets. And, of course, we have some very exciting products. Just coming in our product in particular the Lumia 1020 which, for the first time since November, puts some freshness into AT&T as well. So we think that that's really important. Also the standard of care that with the U.S. operators put towards quality of products is something that helps us. Going through an AT&T lab approval cycle early on is something that helps us a great deal on a worldwide basis. So we still believe strongly that signaling value, it is a big investment. We have to do better. We have to break through. So we know there is a lot of hard work ahead but we remain committed to the Americas.

Okay, and Timo here on the cash picture. So let me first clarify one thing. So clearly when NSN is becoming part of Nokia, its cash cannot be totally dependent. That's not what we are saying. We are saying simply that we understand that NSN is operating in an industry where strong balance sheet and financial positions are very important, both from customer perspective as well as from ability to invest in to new innovation in its core strategic area. But I want to highlight and be very specific, I did not say that we would keep it absolutely independent. We are simply, of course, optimizing for the group and shareholders in this regard. Then what comes to, kind of like cash flow, the second part of the year, so we are really not giving any guidance on cash. So maybe I will try to just give some color on this regard in Q3 based on the information what we have in our release. So, first, if you would just take or use our guidance midpoint for NSN and devices and services, so then if you take the NSN Q3 non-IFRS operating margin guidance midpoint, the 7%, you would approximately come to a similar result as NSN expected restructuring cash flows. Then if you look at for devices and services in Q3, the non-IFRS operating profit mid point combined with the device and services expected restructuring outflows would be a negative but if we achieve sequential net sales growth, as we have guided, this would normally result in a cash generation from working capital in devices and services. Then secondly, you will have to factor in financial expenses, tax, CapEx and depreciation and then finally on CapEx, in Q2, our CapEx was bit higher on a sequential basis related to ramp up of our Hanoi factory. So this could come down a bit in Q3.

Thank you, Richard. Operator, next question please.

Your next question come from the line of Alexander Peterc with Exane BNP Paribas.

I am sorry, just a question on NSN. I know you have reiterated your guidance for margins within NSN between 5% and 10% but I am wondering if your anticipated level cost base and better yield from restructuring should actually lead us to expect something at the higher end of the range that you are indicating? Or is it all as before? Thanks.

So we are, in no way, updating that guidance. We feel that that's proper guidance for NSN on its industrial. NSN is clearly still going through the restructuring phase. And in that sense, visibility into NSN as well continues to be limited as we have said, so we have nothing further to add on the guidance at this point.

Thank you Alexander. Carmen, we'll take our next question please?

Next question comes from the line of Francois Meunier with Morgan Stanley.

Yes. I have got a question about Asha actually. I think in the press release you're talking about improvement at the end of Q2. Maybe you could give us what the run rate now is for the Asha range? Also, what do you think about Asha volume for this year. I think the [Samsung] this morning was talking about low end smartphone volume, which should be up 70% compared to last year, so is it something that you think you could achieve as well with the Asha range?

So, with respect to the 501 and it's just too early to tell. I mean, we are just getting it into channel. It's just beginning to sell in various places, so we don't have a good read because it takes time for the sell through and sell out data flow around. So, we don't have a good read on that. I don't think we can provide any more forward guidance on volumes for Asha or Mobile Phones, but we like the fact that we are going into a period where we have new product offerings just landing in the channel, in customer's hands.

Yes. And, maybe to complement HERE. Timo here. Clearly, the Asha 501 is also bringing a total new user experience to the market, so we really do not have experience, but of course we think that is a clear improvement and it is a clear improvement having used the product to the previous one, so we think that we have definitely some tools to work with HERE.

Okay. So, maybe Timo on HERE, I have got a question on NSN cash if I may. Just a confirmation of you can access the cash without having to refinance any of the debt which is guarantee within NSN is that correct?

So, again the transaction itself doesn't trigger anything within the existing debt, but of course and should be limitations on what can be done given that the NSN has its own bonds outstanding and we of course totally respect that, and that is exactly part of what I said that we are really looking this as something what we will optimize of course for NSN and NSN's business and then also for the Nokia shareholders.

Thanks, Francois. Operator, we'll take our next question please?

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

Thank you. Stephen, I look over the past few years (Inaudible) locking and tackling trying to get the out and we are still trying to see a sustainable ramp. And since the big Nokia deal just how much cash flow will end up eventually. And, right now your partner Microsoft seems to be preoccupied. Should we expect any this step function of improvement just kind of the really external development in smart phones or do you really think about now in your scope of time?

Your voice was a little broken up there, but let me try. I think I got the essence of the question. At the heart of it, it is a hard challenge to build this third ecosystem. But you see a pattern forming in terms of the volumes that we are producing and certainly in terms of the acolytes that are coming for a differentiated products at a time where some of our principal competitors seem to be and rinsing and reusing previous products and not exciting customers as much as I think we are with some of our most recent offerings. You mentioned our partner Microsoft. I mean, part of what they are preoccupied with is in fact increase in the emphasis on a devices and services strategy and they clearly recognize the importance of having a strong partner in Nokia in order to fulfill that strategy, so we look at the work that they're doing for example, the clear direction of bringing Windows and Windows Phone together under consistent leadership which of course will translate into a better developer experience which means more applications for Lumia devices. We see a number of those things as very positive indicators. I think the other thing that's been important and that we are pleased with, you'll see this for example in the days and weeks ahead with the Lumia 1020 launch is the amount of alignment between ourselves, Microsoft and the operator in this case AT&T on a very, very consistent aligned optimized set of marketing messages is much, much better than it was a year ago. If you go back a year, you can see a bunches stuff out there about hey it's about Windows Phone and hey it's about the fastest 4G LTE network and hey it's about Lumia., but we've work through that to the point where it's going to be hey, this is what this product is capable of and here is why you should buy it and I think that's going to help us as we go forward.

Thank you, Mark. Operator, we will take our next question, please.

Question comes from the line of Didier Scemama with Merrill Lynch.

Two quick ones, in fact. First of all, can you explain exactly what the Nokia Group is all about, going forward? Is it the NS? Is it NSN? Or is it both? It's a very simple question but I think we need to understand that a bit better. Then second, Timo, can you clarify what the restrictions are with regards to extracting a bit of cash out of NSN vis-à-vis the obligations of NSN on holder? Thank you.

Thanks for your question. First of all, on strategy, we wanted to be very clear that the acquisition of the Siemens' 50% share of NSN is not any sort of shift in strategy for us. It's been an important part of the Nokia Group for quite a while since it was formed obviously and even before then and now at this point, having complete ownership of it doesn't change our strategy balance or intent. That's why we gone to great lengths to talk about continuing to strengthen it as an independent entity. Keeping options broadly open in terms of how that plays out. Within devices and services, clearly principal smartphone strategy continues to be focused on Windows Phone and in the lower end bands, you see us continuing to innovate to support the opportunities that exist in those price points, particularly those price points that are below the reach of Windows Phones so far, as we push the price point of Windows Phone devices further down. Final comment on strategy is that we have been about over the last particularly eight months is the importance of HERE. Not only in supporting the differentiation of our mobile products but also as a broader horizontal play attracting the interest of companies like SAP, Oracle, Firefox, Amazon and others as the obvious balance to Google in this space. So really no change in strategy. No change in emphasis. But, clearly on the NSN side, there was a wonderful opportunity to establish a structure that could provide more value to our shareholders.

Okay, and then Timo here on restriction regarding NSN cash. So we have some normal covenants which are related to a high-yield bond. I would say that they are not like super tight when you could compare to some other issues out there. But if you look at NSN's cash position which is €1.4 billion of net cash and €2.5 billion of gross cash, yes, there should be some maneuvering room there but again our primary target of course is to take it into account in a way that NSN has a strong financial position and balance sheet to execute its strategy and then of course optimize it for our shareholders.

Thank you, Didier for your question and thank you all for your questions. We have run out of time for questions today. So I will turn the call back to Stephen for a closing.

Thanks, Matt. At the highest level, we are pleased Lumia volumes grew to 7.4 million and our mobile phones business started to show signs of recovery. And as we expected in Q3, the devices and services net sales will increase. We also are pleased that our HERE business exceeded expectations and benefited from its leadership in the automotive industry. And most notably in Q2 we benefited from another strong performance at Nokia Siemens Networks which continued to deliver well against its focused strategy. As we head into the second half of the year, we all must remain focused on executing our strategy, improving the competitiveness of our products, managing our costs and moving with urgency. With this focus, we can continue to drive more value for shareholders and our customers around the globe. Thanks for joining us everyone.

Ladies and gentlemen, this concludes our conference call. I would like to remind you that during the conference of today, we have made a number of forward-looking statements that involved 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 through 47 of our 2012 20-F and in our quarterly results press release issued today. Thank you.

Thanks for participating in today's conference call. You may now disconnect.