Good day. My name is Carmen and I will be your conference operator today. At this time, I would like to welcome everyone for the Nokia First Quarter 2014 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session (Operator Instructions). Thank you. I will now like to turn the call over to Matt Shimao, Head of Investor Relations. Mr. Shimao, you may begin.

Welcome to Nokia’s first quarter 2014 conference call. I’m Matt Shimao, Head of Nokia Investor Relations. Rajeev Suri, President and CEO effective May 1st and Timo Ihamuotila, our CVP and CFO are here in Espoo with me today. During this call, we’ll 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 the risk factors section of our most recent 20-F and in our Interim Report issued today. Please note that our 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 results report with tables available on our website includes a detailed explanation of the content of non-IFRS information and a reconciliation between the non-IFRS and the reported information. With that, Rajeev over to you.

Thanks, Matt. And thanks to all of you for joining. As you might imagine we have a lot to cover today and I want to ensure I have time to take some questions. Thus I will try to be concise and to focus my remarks on two key topics; a recap of today’s announcement and a brief review of Nokia’s first quarter performance. First, however a quick personal note. I am honored to have been named President and Chief Executive Officer of Nokia and I’m excited by what lies in our future. I have been with the Company for almost 20 years and the opportunities in front of us are as great as I have ever seen. When I look at how we believe technology will change in the coming years, I firmly believe that Nokia is in excellent position to benefit from those changes. We can establish leadership in new areas while still maintaining the strong foundation that we have today. And to be very clear that foundation is strong. We start this new journey with an unparalleled IP licensing and creation engine that has new potential in a company without devices; a location and mapping business that is already an industry leader and that has strong growth opportunities, a networks business that is performing well and on a path to better topline performance and a deep innovation capability across all parts of the company. We start with excellent growth prospects in emerging technologies in a strong customer base in more mature area, with a leadership team that combines discipline execution with the ability to respond quickly to market opportunities and I believe we have the most innovative, most experienced and most capable employees in any company anywhere. We also start with a much stronger financial position. The Q1…

Thank you Rajeev. Before I brief and take you through some of highlights for the quarter, I’d like to spend a few minutes discussing the main purchase price adjustments related to the sale of the devices business to Microsoft as well as today’s announcement for the planned capital structure program. So turning to the purchase price -- price adjustments related to the Microsoft transaction. Last September when we announced the transaction with Microsoft, we stated that the €5.44 billion total consideration was subject to potential purchase price adjustments to protect both Nokia and Microsoft. At closing, the transaction price was increased by approximately €170 million as a result of the estimated adjustments made for net working capital and cash earnings. However it is important to note that these adjustments are based on estimates which will be finalized when the final cash earnings and net working capital numbers are available during the second quarter of 2014. Over the course of 2014, our focus will be on making the right near-term investments to capture -- Based on this and other adjustments the gain on sale at closing is expected to be approximately €3 billion of which approximately €1 billion is expected to realize expected income in Finland. As a result of the gain we expect to record tax expenses of approximately EUR180 million and utilize approximately EUR200 million of Nokia’s unrecognized deferred tax assets in Finland. In accordance with the agreement with Microsoft, the proceeds from the transaction have been partially offset by the repayment of €1.5 billion related to the Microsoft convertible bond. Related to this redemption, the accounting treatment of the equity component of the convertible bonds negatively effects Nokia’s net cash by approximately €150 million. Additionally we expect to make a payment to Microsoft of approximately €250 million in…

Great. Thank you, Timo. Just very quickly just wanted to say for the transcript that the HERE gross margins year-over-year increased by 200 basis points. With that -- so now for the Q&A session Carmen, the analysts, let’s limit yourself to one question only please. And Carmen please go ahead.

(Operator Instructions) Your first question comes from the line of Alexander Peterc with Exane BNP Paribas.

I’d just like to ask little bit about the geographic pattern of the recovery at NSN that you see mentioned, Europe being a little bit better into the second half. Do you see generally a more constructive approach of European operators towards that investment? And does the contract with Sprint also play a role in your recovery in the second half? Thanks a lot.

Thanks Alexander. So we see our win rate and deal momentum in Europe certainly point to one of the drivers of this potential growth in the second half, China being the other and Sprint you rightly pointed out is the third result.

Great. Thank you, Alexander. Carmen we’ll take our next question please.

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

Great, thank you. Rajeev congratulations from me for your appointment to the CEO position. I just want to follow up on the networks business, for the second quarter with supply constraints, should we expect below normal seasonal patterns and can you discuss with a greater coverage mix would operating margins fall below your target of 5% to 10% in Q2 and then recover in the back half of the year given stronger growth expected later in the year? Thank you.

Thank you, Mike, and thanks also the personal congratulations, appreciate it. No, I think we’ve not given any guidance specifically to Q2. So I wouldn’t necessarily conclude on the fact that it would fall below 5%. That’s all I could say for Q2.

Yes, maybe for the Q2 -- so we simply said that we are expecting to have bit less proportion software sales compared to Q1 and we expect that all other things to be equal to be a negative driver but we are definitely not seeing any particular level of profitability with that.

Great, thank you Mike. Carmen, next question please.

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

Thanks and like to add my congratulations to Timo and Rajeev. My question really is how you came to this conclusion that this was the right level of distribution, and the reason why I'm asking the question is that by my math, probably in a year’s time you’re going to have about €5 billion of net cash in your balance sheet which is ballpark about 25% of your market cap. So, why is that the right number? I understand that in the some comments you made this morning about being crisis more and looking all the commitments done but Nokia don’t seem to be in a crisis mode and you’re now highly profitable. As Rajeev said you’ve got some very strong assets you’ve got some very -- your dividend policy actually suggest you have confidence in the future. So why not distribute more or would you be revisiting this on an annual basis. How should we think about that?

Thanks Kulbinder. So first of all as I have said earlier as well, so the Board has conducted a very, very thorough analysis on the capital structure, returns to equity holders, but also on reduction of credit. And we really have gone through this basically four ways. So we have tested for Microsoft, we have tested for an industry … (Technical Difficulty):

And your next question is from the line of Sandeep Deshpande with JPMorgan.

I have a quick question on the networks business itself. You’ve talked about the abstract growth that you’re going to have in networks and clearly second half you’re talking about growth in networks. Can you talk about the non-organic growth in networks in a sense that are you looking at investing in particular areas of networks in terms of M&A, because what you have at this point is mainly a radio business? Hello? (Technical Difficulty):

Please go ahead.

Hi, it’s Matt Shimao. We’re just going to resume answering Kulbinder’s question.

Again thanks Kulbinder for the question. And as I said the Board has conducted a thorough analysis on the capital structure optimization program. And as part of that analysis, we have looked at possible industry shocks, also possible macro-shocks like you then compare these to maybe what happened in the industry on the early 2000 or what happened on the mark of 2008, 2009 timeframe. And we have built in some room for M&A and then as we have said earlier we have also taken into account the credit rating and our aspiration to longer term return to an investment grade rating. And with all these parameters, we think that for this point in time, the capital structure optimization program strikes the right balance. And that’s why we’re going ahead with it or proposing it to the shareholders.

Thank you Kulbinder. Carmen, next question please.

Your next question is from the line of Sandeep Deshpande.

Just a quick question on the networks business itself. The majority of the business you have in networks today is a radio business. You’ve talked about growth overall. In terms of the non-organic growth can you make comments on where you think that Nokia has its own capabilities or it may like to tap external capabilities in growing outside radio?

Of course we have the radio business. We also have the core business including the next generation core and of course we have the services business just to sort of clarify that point. We haven’t yet pin pointed where necessarily we would look at M&A and at what point we’ve tapped inorganic opportunities. We do get probably small things that would be disruptive and could add fine revenue synergies to the scale of our channel. So that’s what our thinking is but I wouldn’t pin point yet, because our [indiscernible].

Thank you Sandeep. Operator, next question please.

Next question comes from the line of Pierre Ferragu with Bernstein.

I have actually a follow up on the previous questions to loan growth in equipment. I sort of remember Rajeev hearing you talking about an addressable market in mobile that is more or less grows, that doesn’t grow much. So I was wondering beyond this year if you think you are able to with your position in the market to actually gain market share in a flat market and that’s where you would see your top line growth coming from. And I’m not talking about this year, I am talking about like on 3 year to 5 year horizon, or whether it’s more that actually expanding your addressable market. Or lastly if you think you are like better exposed to higher growth drivers than your peers? And then maybe one additional question on your core business. We see divergence strategy between you and your main competitor today where they seem to be spending much more on research and development, trying to expand the product portfolio, capture growth in new areas. Could you please maybe give us your perspective on how you’ve made choices in terms where you invest, where you don’t invest in terms of R&D? Because today you have, like a much lower R&D than your main competitor?

Thanks. Just in term for the R&D, I’ll answer that one quickly. I think we had 16% all the networks business as a percentage of net sales that we believe is competitive. We have a higher ratio of low cost heights in the world that have been transitioned to, from three years ago and I’m quite productive now that gives us more capacity. We have had a higher focus on automation and expanding through agile R&D development to get more productivity and capacity. So I think when you look at the manner of the [indiscernible] that is really the metric to be focused on. For growth, yes, we’ve said flat to modest growth [indiscernible] the market for networks and into the CapEx, but we think that, we have the required scale. And then I think Q1 proved that again. Even in a seasonally low quarter, we have, in fact, some dilutive deals that we deliberately choose to go for. We could have absorb that and yet produce a good gross margin, as well as good operating margin. So we have that operating leverage. And we have the scale. And as I pointed to in the past, Radio is the biggest driver of mobile broadband. That is the most sticky piece. And that brings in core and the rest of trade [ph] and services with it. And if you look at the market, the top three players hold their commanding share of their markets. So I believe, we are enthusiastic that we can continue to get share even in a low growth market. And if I point just a couple of things, the rate of decline is slowing. We’ve seen in the current quarter, MBB is back to work, the mobile broadband business, even though at just 100%. We have a strong win rate, which will not just impact the second half, but longer term as well. And we have an improving pipeline of opportunities.

Thank you very much Pierre. Carmen, we’ll take our next question please.

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

On IPR, I know Rajeev said you have limited scope. Just talk about numbers and things like that. But I was wondering, if perhaps you could just shed a little bit of light on implementation patterns. I think we want to assume that most of the revenues right now come from standard to central patterns? On the implementation side, I’m assuming it’s the large consumer electronics companies that you would chase after. I guess my initial reaction would be, I had struggled to see an Apple or Samsung, materially license some of those implementation patterns. So perhaps you could just give us a bit more sense of the addressable market? And perhaps the timeline around when you might be in a position to sign material contracts and how that might affect you on the financials, even if you can’t quantify it? Thanks.

Thanks, Stuart. We will, as I said rapidly cease the opportunities for increasing licensing deals particularly, now that the devices and services businesses is not with us. So there is no need for these cross licensing deals. We will do so both on standard essential patents and implementation patents and this HTC deal is one example of that. And of course, the third area is we’re to utilize our strong brand to extend that to a reach of certain devices that might be profitable as well. So, but much of it is going to be longer term, our cash flow to be realized. So the guidance that we have given that we continue to expect technologies, annualized net sales run rate to increase approximately €600 million during 2014 remains. Yeah, Timo.

Yeah. Maybe Stuart, if I make a quick comment here. So basically, majority they compare in CapEx is what we have from the innovation which we -- we’re building for our own devices business and which we now know more will need to utilize more differentiation. And of course we will try to make strides into consumer electronics as well, but I think it would be incorrect to assume that this implementation patents would not be valuable possibly for companies like Samsung and Apple as well, the one, of course, other ones. And we think that the HTC deal which we announced during this quarter really validates the value of our implementation patterns and we will of course have a then - a licensing program available for essentials, but also for implementation patterns.

Thank you, Stuart. Carmen next question please.

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

You kind of called out some software sales in Q1, and I just wondered whether you could talk about the sustainability of gross margin through the networks in light of that, maybe give us a sense of how much software was as a percent of your revenues in Q1 and what you expect for the rest of the world? Thank you.

Gareth, if we may, we weren’t able to make out much of that? Can you please repeat your question?

Yeah. Can you hear me now, Matt?

It’s better, yes.

Okay. So my question is on the software and on sustainability of gross margins. I think in Q1 you called out that software was very strong? And I just wondered whether you could give us a sense of how much software was in the mix? And how much do you expect it to be in the mix going forwards?

Yeah. Thanks, Gareth. Yes it had, Q1 had benefit of unusually high Japan software sales with excellent margins but even without that, it was better than the run rate and we have seen also the impact of some diluted deals from China and we might see an impact of handful of other strategic and again selective diluted deals to come that may have some cumulative impact in future quarters. But as I’ve said before, we will go for those in a very targeted way. They must have good long term profitability profile. We seek to manage those very carefully to limit impact on profitability and if we take a few handful, the rest of the machinery around our pricing controls will work efficiently because that’s what we continue to be focused on and so with those factors in mind, we’ve given the guidance that we think that yet we feel that profitability towards the higher end of the range of our long term target of 5% to 10% is achievable.

Thank you, Gareth. Carmen, next question please.

Your next question comes from the line of Chris Hogg with Merrill Lynch.

Thanks for taking my question and congratulations again to Rajeev. So just sticking with gross margins and in a sense that these were obviously very strong, despite a strong year-over-year growth in China, you obviously benefited from the strong software sales in Japan and better gross margins and services. And so whilst you’ve guided to a lower proportion of software sales impacting margins in the second quarter, to what extent do you see profit efficiencies and services as a structural tailwind for your gross margin profile?

Thanks Chris. So as I said that we have seen some impact from diluted deals from China and we might see an impact of a handful of other strategic deals that we have take a little impact in the future quarters but of course we will seek to manage price erosion in the rest of the world. And to your point on services, we see continuous improvement there as well that might support us, such as in expanding the scope of what we do remotely, all the percent of share of goods it will be in our [indiscernible] operation.

Thank you, Chris. Carmen, next question please.

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

Actually I’d like to follow up on the Pierre’s very good question about the long term strategy vision for NSN. It feels really like the market is really moving more towards software, software defined networks, IMS application more IP. Through that you have a partnership with Juniper but you don’t really own it. And also I think in your introduction Rajeev you were talking about the Internet of Things driving growth for data, that’s probably not driving growth if you do it right. So I mean I think -- do you have enough R&D budget, do you have enough scale to invest in all those new things and also as Internet of Things really take for take of operators, maybe it’s going to be more but 5G which is going to cost a lot as well to develop for you. So do you have the same -- I mean you don’t have the same budget basically as Ericsson or as Huawei. So what can you do really to compete? I understand you want to be in the top three but is there room for another three players in these markets really?

Thanks Francois. So, yes there is room for three players and we emphasize the percentage of our low cost R&D as a percentage of total R&D and I think in terms of the man hours, that’s a significant number. It’s over 50% of our R&D and it’s even over that that we have a low cost site. So we’ve always been focused on capacity rather than share R&D dollars because we knew we have to compete differently. I think that’s what worked out well for us. So, and then on your specific comment on spending in virtualization, in fact as you look at our R&D budget, we are increasing our spending in LTE small cells, virtualized goal, IMS customer experience management new areas of OSS liquid applications and all of that whilst reducing some of the legacy budget and that’s very descent offset to do all the time. So we’re not budget constrained. We’re not even capacity constrained as such to play in that market and I will just give you one example, IMS. In fact we have the world’s biggest IMS installation in the U.S. with a long term capacity on it that nobody comes even close to. So we’ve invested there and it works very well. So then there are other areas of the portfolio that we need to partner for and we will do so as I said also in my remarks back in Barcelona. We will do so to make sure that we play the ecosystem game in places like Telco cloud and virtualized growth.

Thank you, Francois. Carmen, next question please.

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

Thank you. Maybe just on advanced technology, the €600 million, I guess the thought is that there is some nonpayment or underpayment. So how should we think of the ramp of legal expenses on a going forward basis to enforce collection? And then likewise there a lot of patents are which are being used which you want to monetize, for example the NSN patents. Should we think of a ramp in R&D to drive this business going segment forward and then conceptually how we should think about cash flow overall for the business? Thank you.

Okay, so on technologies. So first on the legal expenses. It’s true that the OpEx was down year-over-year on technology that was driven both by actually legal as well as timing of certain R&D projects. Clearly as Rajeev, says we are willing and able to invest more to drive higher value from the technologies licensing business and we are planning to expand that the team accordingly. Then what comes to the cash flow -- I mean in this business it is quite typical that there are payment for when you make the deal from the past and in that sense cash flow can be lumpy from that perspective. So I don’t think I have much more color to give on that. And then on the actual patent portfolio, so yes it is correct that we actually have three portfolios. We have the let’s call it Nokia portfolio coming from devices and services. We have NSN portfolio but HERE has also patent portfolio and we will of course do our best optimal utilize these there and one example for example is that there can be a situation where networks would require a cross license but one would definitely not require cross license for against the Nokia portfolio, just to give you an example.

Thank you, Mark. Carmen, we’ll take our next question please.

Your next question comes from the line of Itai Kidron with Oppenheimer.

Thanks. I have a couple of questions. First Rajeev you talked about some -- that you’re getting share in the marketplace. Maybe you can talk a little bit from a competitive standpoint, who are you seeing more vulnerable right now or little bit on the weaker side in the marketplace against which you’re having success? And then a question to Timo on the interest expenses. You’re now clearly have paid down debt and you have the Microsoft cash coming in. How should we -- and your hedging activity, I would assume will have to significantly decline now that you don’t have a handset business. What would be the best way to model going forward interest expense income?

Yes. So first to the network expansion, so we’re bouncing back in Europe based on our deal momentum and the win rate that we have. And then China of course, in terms of the auto started better than we’d expected in terms of the LTE share and of course Sprint, as we already commented is a meaningful driver for us in the second half. So there’s a total sum of the share opportunities that we’re building back on.

Okay. And then Itai on the interest expenses, so first of all you’re right, we paid down debt about -- or not about, exactly €1.75 billion during Q1 and then in addition we said that we are expecting to reduce to gross debt by about 2 billion during the coming two years on this capital structure optimization program. That would be approximately 100 million down on interest cost. And then if we look at this from hedging. So yes we have less hedging happening but we will still have hedging both against our balance sheet items as well as mainly against NSN business and there will be some volatility on the finance and the income on hedging but I would expect that to go down a bit. Another way to look at it is that if we reduce with this €2 billion, we now have about €3.5 billion as a rate about €3.5 billion left so then we would have about €1.5 billion after that and you can then model interest cost maybe somewhere around that kind of amount after we complete the debt reduction on the capital structure optimization program.

Great. Thanks Itai. Carmen, we’ll take our next question.

Your next question comes from the line of Ehud Gelblum with Citi Investment.

So, just quickly on the advanced technology and IPR side, aside from adding in Microsoft, which happens and now as we go forward, are there any other large ins or outs that happen this year if you can comment on was HTC unusually large for some sort of catch up or something in the first quarter or is that already at run rate. So basically I’m looking for aside from Microsoft, any large ins or outs that we should be looking for the rest of this year as well as next year aside from Samsung again, which is a separate issue that we seem to at least have our arms around. On the network side Rajeev, you were talking about share gain opportunities. Do those in your mind require you to have a larger presence at the two largest wireless carriers in North America down the road or are you looking at share gain opportunities that you can do without necessarily having to crack into those two? And then finally again on the network side, I have one more that I thought was interesting but I [indiscernible]…

[Indiscernible] I think we’re going to go with your too.

Yes, okay thank. On the technology side IBR we can’t give any exact guidance on certain deals happening or not happening but what I can say is that now when we have exited the device and services business, we will plan to go more after variable rate deals and we will try to do this more by being able to agree, call it Nokia trend rate, maybe with certain kind of volume adjustments. So it will be a cleaner business model in that sense and that is what we are aiming to do with the new licensees, which will come through either renegotiation or through negotiation with the companies with whom we would look at have a license.

Yes, thanks Ehud and for the networks question, indeed if we can return to growth in the second half of year, then that would come with share gains and it will be achievable even without a stronger presence at the two carrier deals we specifically mentioned.

Thank you. We’ve used our time for this quarter for the Q&A session. So 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 in the Risk Factors section of our most recent 20-F and in our Interim Report issued today. Thank you.

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