Good day. My name is Carmen and I will be your conference operator today. At this time, I would like to welcome everyone to the Nokia Q3 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 turn the conference over to Matt Shimao, Head of Investor Relations. Please go ahead.

Ladies and gentlemen, welcome to Nokia's third quarter 2013 conference call. I am Matt Shimao, Head of Nokia Investor Relations. Timo Ihamuotila, CFO and Interim President of Nokia and Rajeev Suri, CEO of NSN 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, Timo, over to you.

Thank you, Matt. Because of the proposed transaction with Microsoft and NSN becoming fully owned by Nokia, we are changing the format of the call this quarter with the aim of providing richer content in areas where we have been receiving the most questions from investors. While the board is conducting its detailed strategy review through the closing of the Microsoft transactions, many investors have been focused on subject to the closing of the transaction. Plus on the call today, I am pleased to be joined by Rajeev Suri, CEO of NSN, who will update you on NSN. NSN have progressed tremendously over the past years and this business is clearly expected to make up the bulk of our net sales, following the closing of the Microsoft transaction. I will also spend additional time now, during my opening remarks, to provide you with an overview of our HERE business and on our future Advanced Technologies business, before taking you through our Q3 results. First of all, it's a very important point that all three businesses, NSN, HERE and Advanced Technologies are expected to benefit from the sale of our Devices & Services business. All three businesses are currently generating cash and offer significant opportunities ahead. In addition to these important and positive financial dynamics, from a competitive perspective, we have leading industry positions in all three businesses. Thus, subject to the transaction with Microsoft closing, Nokia's earnings profile and financial position are expected to strengthen significantly. And from a position of strength in NSN, HERE and Advanced Technologies, we will have a solid basis to drive future value creation through investing in growth. We believe all of this will benefit Nokia and its shareholders and we will continue to operate with the guiding principle of value creation. Moving on to…

Thanks, Timo and hello to everyone on the line. It is a pleasure to join the call today. Timo will take you through the NSN numbers later but let me give some perspective on the business and our third quarter performance. Overall I am pleased with NSN's stronger Q3 performance in many areas. We delivered our eighth consecutive quarter of positive free cash flow, the second highest gross margin in our history, a strong non-IFRS operating margin, our second highest ever contribution margin in global services and our highest ever reported net profit. These improvements in profitability and cash reflect the deep structural improvements that we have made over the past two years, changes that go well beyond cost reductions. Our topline performance was less pleasing given the 26% year-on-year decline. On a constant currency basis, our decline would have been 5 percentage points less or 21%. In addition, it is important to note that a significant part of the decrease in our topline is the result of our strategic choices. On a constant currency basis and when you exclude the impact of divestments and exits, our year-on-year net sales decline was a more moderate but still somewhat disappointing 15%. As I think you all know, we have had an intense focus on profitability and cash since we announced our new strategy at the end of 2011. Consistent with that focus, we also exited many businesses, countries and contracts and were relatively selective about new deals, particularly in managed services. These choices have been necessary and have had an impact on our topline. To give you a bit more perspective let me give some more detail about our reportable segments and geographies. In mobile broadband, our net sales declined primarily due to lower sales in wideband CDMA, GSM and CDMA.…

Thank you, Rajeev. Now on to a discussion of Q3 results and a review of our Q3 cash position and cash flow. In Q3, Devices and Services net sales and non-IFRS operating margin performed in line with our guidance. The 6% sequential net sales growth was driven by high volumes and net sales for both, smart devices and mobile phones. I am particularly pleased with the performance of mobile phones in Q3, following a challenging start to the year. Supported by the new innovation and product launches as well as good cost and channel management, mobile phones was able to improve all of its P&L metrics sequentially. For smart devices, we are pleased with Lumia volume momentum, driven in particular by the attractively priced Lumia 520. However, we continue to see competitive challenges at the higher end of the market, both in terms of pricing and required marketing support. This is consistent with the dynamics we have discussed in recent quarters and was, of course, an important consideration in our assessment of our Device and Services strategy and our decision to undertake the transaction with Microsoft. Moving on to OpEx. In Q3, Devices and Services non-IFRS OpEx was €707 million, up 2% on a sequential basis, primarily due to higher R&D expenses. Now on to NSN. We are extremely pleased to have completed our transaction with Siemens and become the full owner of NSN. I believe this transaction clearly demonstrates prudent capital allocation and a continuing focus on value creation for our shareholders. In addition, I am also encouraged that NSN's customers welcome the improved financial position of Nokia Group, which is subject to the closing of the proposed transaction with Microsoft. Now on to NSN's quarterly review. NSN had another solid quarter, delivering a strong gross margin in a…

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

Your first question comes from the line of Alexander Peterc with Exane BNP Paribas.

I would just like to understand whether, looking at NSN specifically, your priority going forward will be organic growth or do you believe that this business is best grown by corporate acquisition? Thanks.

Yes. I believe that market forces are sort of determining the strong players, and when it comes to mobile infrastructure, there are three strong global vendors. And if you look at the latest report, 78% of the radio market, which is key to mobile broadband, is held by the top three players. So I am a believer in continuing to win with our portfolio and letting market to determine the right outcomes.

Thank you Alex. Carmen we are ready for our next question.

Your next question comes from line of Gareth Jenkins with UBS.

Yes. Thank you. Just a couple, if I could. Firstly on NSN. I just wondered if you could talk about your strategy going forward between revenue growth and margin. So you are, obviously, seeing revenues down and margins very stable. I just wondered if you see that - we see reversals going forward, if maybe some revenue go through and maybe margins come down. Then just secondly. On profitability, you are not worrying, obviously but from your perspective it sounds very much like we should expect a gradual increase in revenues. Can you confirm whether that's the case? Or whether you actually expect to see a major step up as you come across licensing deals start to roll off and you stop manufacturing handsets in Q1? Thank you.

Thanks, Gareth. So we are not giving, obviously, specific guidance for next year on revenue. But I will say that the long-term view of the 5% to 10% non-IFRS operating margin remains unchanged. If we execute well, we expect to try to be at the high end of that range even if market conditions would be challenging. And I think, given all that we have seen in terms of building an efficient platform, we are well positioned for those conditions given cost structure, execution discipline and our pretty robust pricing processes that we can balance those two things.

Okay. Thanks, Gareth. And on the IPR side, so clearly, no, we are not giving any further revenue guidance on IPR. I mean we have been saying that we are having this €500 million run rate and that run rate does not take into account the Microsoft licensing agreement which we would enter as part of the transaction. Then talking about, is this gradual improvement or some kind of step change. So these IPR revenues really are quite lumpy and we can devaluate it really that way or give guidance that way. But we think that we have good opportunities, both with new licensees as well as our existing licensees as we continue to develop this business.

Thank you, Gareth. Carmen, next question, please.

Your next question comes from the line of Tim Long with BMO Capital Markets.

Thank you. If I can just go back at that NSN growth question again, and then one on the OpEx side. So on the growth, maybe just give us a sense, the year-over-years have gone down 5%, down 17%, down 26% for last three quarters. Are there any of the remaining contracts or bad service deals that need to be stripped out of the revenue numbers right now as we look forward? Related to that, on the OpEx side, looks like we have lowered headcount by about 20,000 in NSN over the last year. Is there opportunity for that, some level of headcount reduction to continue there? Thank you.

So the first question was about?

Services growth.

Services. Yes. I think in terms of divestment impact, so we will see the impact from divestments country and most of the contract exits will be complete by the end of this year. However there are some services contracts notably in Managed Services that we have made exits off this year that will still impact somewhat the topline next year. Then you have the -

On headcount.

On headcount question. So we haven't yet finished our restructuring program that we initiated at the end of 2011. So that's still a quarter to go. We will be finishing it by the end of this year.

Thank you, Tim. We like to take just one question from each analyst, and Carmen we are ready for the next one.

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

Thanks very much. I had a question on HERE. If I compare HERE, as it stands now, with NAVTEQ and the first three years after you bought it, profitability is much lower. There has been a significant ramp in R&D and I am assuming a lot of that increase in R&D is driven by your desire to invest in smartphone applications and driving Symbian and Windows phone. So now that, I guess that imperative has somewhat reduced, could you talk a little bit about how you manage the R&D line? Whether there is lots of low hanging fruit there as you would get rid of D&S to perhaps boost that profitability in HERE back up the 20% plus levels that we saw previously and just of link to that, is that what we should be assuming as the driver behind your goodwill valuation on the balance sheet of about €3.2 billion for HERE, the margins do go back to where they were before? Thanks.

Okay. Thanks, Stuart. Quite a multi-faceted question here, but let me try to address those points from HERE perspective, so first of all on R&D, it is fair to say that we have invested more partly because we have been driving the handset simultaneously. If you look at the most recent quarters actually, our R&D efficiency has improved. If we look at the service delivery this quarter, it was one of the key drivers that HERE operating margin actually improved about 650 basis points. Going forward, and this goes back to the supporting the goodwill valuation on how we see HERE business, so we see that there are a lot of opportunities both, for top line growth and because HERE's machinery is such that there is quite a bit of operating leverage if you get more top line, that will also impact or would impact the margin positively. I think the two key opportunities besides the so-called, I call it, running automotive business are the connected car business, where we think that we can increase both, the car, value or ASP third-contract and then we also think that the navigation, [in-depth] navigation and the related services will become more, per se, pervasive in cars i.e. there will be more and more cars proportionately having that service, so basically a revenue increase possibility in two ways both, higher ASP and higher adoption rate. Then the second is that now and especially now, if and when the market transaction closes, HERE is going to be viewed truly as an independent provider of location services to many companies both, in the areas of Internet services and maybe other device vendors. I mean, you know that we have contract with Amazon, Yahoo!, Microsoft and we feel that there's lot of things that there is more opportunity on that area as well as then broader in the area of enterprise where we cooperate for example with Oracle and SAP, and all of these growth opportunities and impact to increased operating leverage then impact the evaluation.

Thank you, Stuart. Carmen, next question please?

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

Thank you. Timo, I have a question about how you are thinking about like the future corporate structure of Nokia. First, looking at patents, so as you mentioned, this is probably going to be a very lumpy source of revenues and profits going forward, which might be difficult to get together with a business like Nokia Siemens, NSN who is going to have like a much more like hopefully stable profit outlook in the next few years. Then when thinking about your position in this patent business to negotiate with the overall ecosystems, the best licensing deal for you. Maybe still being involved in the industry with an equipment business might be suboptimal. I don't expect you to tell me where you are thinking is at that moment on that point, but am I right in thinking about these two things are reality and would favor a corporate structure where you would split your networking business and your IP licensing business?

Thanks, Pierre for the question because I actually think that it's important that we will continue to be investing in a significant way to R&D, and that goes both for research which is of course more in the patent side as well as development, which also contributes to the patents. In that sense, I think actually NSN is a very important possible contributor to the overall Nokia patent portfolio. The fact that if you look at this year, and if you would take the businesses which will remain at Nokia, we are on target to invest approximately, so rough numbers, ballpark numbers approximately €2.5 billion into R&D, so we will continue to generate a lot of opportunity on this area and I actually think that those businesses can as well be complementary.

Thank you, Pierre. Carmen, next question please?

Your next question comes from the line of Didier Scemama with Merrill Lynch.

Two parts. First on the NSN part, maybe a question on that, I was just wondering what you thought was the outlook for your U.S. business and also on your Japanese business. I am interested in picking your brains on that. Then on the patent side. I was wondering whether philosophically you felt that the Microsoft agreement was kind of the blueprint for the things that you would be signing going forward? Thanks very much.

Okay, thanks Didier. So first on U.S. It's a business that's growing for us, 5% growth this quarter. We have been successful with T-Mobile, as you know in Canada. Also with U.S., Cellular One, who are (inaudible) of their business. And of course we are still trying to fight the other deals that's out there in the making, such as Sprint. So we don't necessarily, from our point of view, see a peaking of the rollout business in U.S. Japan, however, is a slightly different story. Last year we achieved a peak overall in the market for some time because of the LTE rollout and also the modernization of Wideband CDMA and capacity expansion were peaking. So that's fallen off this year. I think we are moving in a phase on coverage to capacity at this point in time. and capacity is characterized by lower revenue but obviously higher software and carrier bill. So higher profits, by definition.

Okay. Thanks, Didier. Then on the patent question and the Microsoft agreement being some kind of blueprint for other things. So I, of course, wish it would be as simple as you would just basically take that system and calculate some kind of very unique thing and then you would just multiply the world's units, but that's not how it really works. So every single contract is something what we, of course, negotiate separately and it depends on the breadth of the coverage, for example, the length and other component related and we also have to note that in the Microsoft contract, we actually licensed back rights from them for our HERE business. So they are really multi-faceted contracts and you can't take a one kind of recipe for all.

Thank you, Didier. Carmen, next question please.

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

Thank you. Good morning, gentlemen. I am just trying to get a sense of some of the timing of the upcoming larger LTE projects. How it relates to coverage and capacity, for example for T-Mobile US and how you may be feeling about your improving position at Sprint. And maybe, perhaps in Europe, just timing also for Vodafone as they upgrade their network next year. And then I think I also heard that there is a push for a single RAN up, does that mean you are less inclined to consider other options.

Yes. So single RAN is a requirement, more or less, in Europe and parts of Asia Pacific but I would characterize strongly in Europe and given our install base we think we are in good position we are investing on that area. Then when it comes to your other question which was centered more around -

The upcoming LTE project.

Yes, LTE. We think LTE will accelerate in Europe, starting from Q4 this year. So that will start to happen and we look at U.S., project such as T-Mobile, they are moving from coverage to capacity but there is still a bit more coverage to continue at the same time because they have completed a massive modernization. Then in terms of Sprint, I shouldn't comment yet because the decision is still in the works.

Thank you, Mark. Carmen, next question, please.

Your next question comes from the line of (inaudible) with Credit Suisse.

Thanks. Obviously, you talked about your business mix in the U.S. and Japan. Can you also provide some color on Korea? Because we saw there was a big slowdown in the first half and then we had LTE advanced spectrum options. Is that something that we should actually expect to pick up over the next 12 months or so? And how should we think about margins on LTE Advanced. Thanks?

LTE Advanced is typically a very strong software release that comes from a big software build. In fact we, in September, took all three of the operators to LTE Advanced there in Korea. So we achieved a world first with that. LTE Advanced is good. It takes carrier aggregation, so multiple spectrum is put in together. Your question on new spectrum that's been awarded. Rollouts on that have yet to begin. So we probably will see over the next period new rollouts beginning in new spectrum which is a bit of coverage but also capacity because it's about utilizing a different spectrum and combining it together with other spectrum from the same base stations.

Thanks, Charles. Carmen next question please.

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

Hi, guys, I am amazed no one has asked about this yet. But Timo, can you lay out for us the timeline of when do you expect to communicate the results of your strategy review, perhaps the permanent group CEO appointment and discuss the capital distribution. Is that something, we will expect after the close of the Microsoft transaction or earlier? Also alongside that, with respect to your previous strategy of making regular disposals from your IPR portfolio, given what you are doing in Advanced Technologies, are these now going to be ended? Are you going to stop selling IPR? Thanks.

Okay. I think the two questions are not really related, so thanks Richard for the questions. First of all on the timeline, so there is no change as we said when we announced the planned Microsoft transaction on the September 3rd. We said that between signing and closing, the board will conduct a thorough strategy valuation for the Nokia Group, and that of course includes the corporate strategy and evaluating any synergies of the business strategies between the three businesses, structure, and then also capital structure and only after that analysis complete can we start to talk about cash or possible, the index cash distributions. As you correctly pointed out, we expect that to happen between signing and closing, so at closing or between then, maybe a bit before, but at closing I think is a good estimate. Then in IPR, we are not changing the way we look at IPR. We have very strong IPR portfolio. If we think that we can create value by creating new portfolios from that portfolio, and we get a proper price for that on the market, we are willing to look at selling IPR continuously as well.

Thank you, Richard. Carmen next question please?

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

Yes. Thanks for taking my question. I think, Rajeev, you talked about pricing pressure and more competitive pressure in the networks business, so it's a bit weird because I have not heard of that recently. Are you by any chance as one trying to be the price [aggressor] in this market? The second question is really about the margins in mobile broadband, I think I understand the Global Services margins going up year-on-year given what you explained and less network rollout type of things, but at the same time the mobile broadband margins decreased by something like 80% year-on-year and decreased 60%, sequentially, while I think competitor Ericsson is going in the opposite direction, so if you could help me there, because the logic would have been that if you do less network rollout then your margins would increase, so I am a bit puzzled by this 5%, 4.9% exactly EBIT margin in mobile broadband which is your hardware business? Thank you.

Yes. Thanks, Francois. First on the pricing pressure. Yes, we are seeing some signs of pricing pressure overall, some difficult pricing from the weaker players and we believe that's not sustainable. I am not just clear yet if it's a short-term trend or a longer term trend. I do not think we intend to be price aggressive as I said before. For us, efficiency, cost, pricing management is key, so we think that for this environment we are rather well prepared. Then your second question was on mobile broadband margins. Yes. They are down due to higher operating expenses as a percentage of net sales, slightly lower gross margin due to lower sales in the legacy business, so if you know, wideband CDMA, GSM and CDMA and also some costs incurred in anticipation of the technology shift to TD-LTE related to major projects in China, so some of that is one-off in nature.

Thank you, Francois, hope that helps. Carmen, next question please?

Your next question comes from the line of Youssef with Barclays.

Hello, Yusuf? Carmen, I think we should come back to Yusuf we can take the next question.

Okay. One moment. Your next question is from the line of Kai Korschelt with Deutsche Bank. Kai, your line is open.

I just had a quick question on Q4 guidance for NSN. I think the seasonality used to be in the mid-20% range sequential growth from revenue perspective. I know it's been lower in the last couple of years because it has been paying down on the business but I am just wondering when you say solid, does that mean sort of, at least, double digit, at least teens. So how should we think about that guidance for Q4? Thank you.

The revenue we have not commented. We have just given the operating margin guidance of 12%, plus or minus 4%. So to give you some more color on that, typically Q4 is a seasonally strong quarter. We see that every year for us. Of course if revenue lifts from the Q3 level and if we could make it 0.4% operating profit in Q3, you would assume that we have high operating leverage if the revenue lifts. Q4 is characterized by some of the operators exhausting their year-end budgets and so you typically get higher than average high margin software sales and of course we expect continued improvement under our restructuring and transformation programs for Q4. So just giving color on that profit guidance.

Great. Go ahead, Timo.

Yes. You are right, Kai, in pointing out that we said that we expect solid revenue sequential performance and we simply referred to normal seasonality with that commentary. So we expect a solid increase in revenues compared to Q3 driven by mainly seasonality, as Rajeev was pointing out.

Thank you, Kai. Carmen, next question, please.

Your next question comes from the line of Sandeep Deshpande with JPMorgan. Sandeep, your line is open.

Hello? Can you hear me?

We can hear you.

Yes. Hi. Timo, my question is firstly regarding the adjustments to the purchase price. You said that there would be no adjustments and this is based on what you have, your build plans at this point or and with consultation with the buyer or is this based on some other factors that you are taking into account. Secondly, I have a question on IPR. Symbian itself was one of the first major mobile OS' and from what we have seen in the market, Microsoft and Apple are taking royalties on mobile OS from Android licensees and so do you see any potential in IPR on the software side because of your ownership of Symbian? Thank you.

Okay. So first on the adjustment to purchase price. So these adjustments are driven by two things. The Devices & Services business or the part of Devices & Services business are substantially all which we are planning to sell. The networking capital performance compare to a plan and also cash earnings performance compare to plan. And as we said today, we are tracking with that plan which has a certain range in a way that we expect that there would be approximately zero adjustment and the purchase price would be €5.44 billion. And of course, with that change then to one or the other direction, we will then see if it's necessary to update that somehow. Then on the IPR, on the mobile OS. We see the IPR more as something where basically there is a patent portfolio of both essential patents and implementation patents and it depends on if you either license one or other or both. We shouldn't be on development. We have developed many patents which can be, for example in the area of a store in a mobile and these kind of things which are then part of the overall patent portfolio. So I wouldn't necessarily call it licensing the OS as such, but many of the components which can be integral to the OS which we have patented as features can be something what we can and look for what to license of course.

Sandeep, thank you. Carmen, next question, please.

Your next question comes from the line of Youssef Essaegh with Barclays.

Hi. Thanks for taking my question. Actually it's regarding NSN. So you said when you announced in August that D&S and you actually reiterated today that you are planning on investing on the topline of NSN and that you are going to be making some selective investments in key strategic deals. So I was just wondering if you can quantify a little bit of this and also give us a little bit of an idea of the timing of when you are going to be connecting your balance sheet into contract.

Yes. I think what we are seeing is that we have a stronger platform to be much more competitive form, should we want to do so, in terms of investment in key strategic deals. An example of that being China Mobile, that we announced today and so we got a higher than average of foreign supplier shares. Those kinds of things we will look at. Again, we don't have a timeframe or a target, or something fixed on that. It just happens during the year in terms of strategic deals. More importantly, we think we have strong pricing management, strong controls and a strong efficient cost base to sort of fight from and I think that's key to understand. We are not going to give up our efficiency, productivity and the right way to keep pricing under control.

Thank you, Youssef. Carmen, we can take another next question now.

Your next question is from the line of Jim Suva with Citi.

Thank you. Thank you very much and congratulations, especially on the profit margins of the Networks business. That's truly remarkable. As you think about your commentary that you have given thus far on the conference call with all the build outs and programs going it appears as if the decline in revenue growth should be turning the corner not just seasonally, but next year also for year-over-year. Without giving too much details, can you respond with is that correct and could we continue to see margin enhancement in the Networks business?

First of all, Jim, I will let Rajeev continue, but clearly we are not giving any sort of guidance on 2014 in particular, so that is really not what we are doing.

We are just reiterating our long-term view of 5% to 10% non-IFRS operating margin that's unchanged. Like I said earlier, if we execute well to that we can end up at the higher-end of the range. The only thing I will say on revenue is the impact of divestments and much of these contracts that fit in, as I said before will be complete at the end of this year. However, there are still some services contracts that will impact the top line next year.

Thank you, Jim. Carmen, we will take our last question for today.

Your final question comes from the line of Tavis McCort with Raymond James.

Thanks for squeezing me in. Timo, my question was if I look at your pro forma results for the third quarter, they are little lighter than if you add up the three business segments separately. I am wondering is the reason for that that the Microsoft agreement is actually a negative relative to what you are reporting on IP licensing today. Thanks.

Now, thinking about such reconciliation from top of my head, I think one thing which could impact this is, of course when you look at Q3 numbers we have in the other operating income and expense this divestment gain, which is through one of the venture funds which we own which, we disclosed today, so that could be actually impacting positively maybe some €30 million or so, that's the only thing I can think of.

Thank you, Tavis. We can follow up offline of course.

Yes. Please do that on those details.

Thank you everyone for joining the call today. 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 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.

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