Nokia Oyj (NOK) Q4 2018 Earnings Report, Transcript and Summary

Hello, and welcome to the Nokia Fourth Quarter and Full Year 2018 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to do in the conference over to Mr. Matt Shimao, Head of Investor Relations. Sir, you may begin.

Ladies and gentlemen, welcome to Nokia's Fourth Quarter and Full Year 2018 Conference Call. I'm Matt Shimao, Head of Nokia Investor Relations. Rajeev Suri, President and CEO of Nokia; and Kristian Pullola, CFO of Nokia, are here in Espo 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 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've identified such risk in more detail on Pages 71 through 89 of our 2017 annual report on Form 20-F, our financial report for Q4 and full year 2018 issued today, as well as our other filings with the U.S. Securities and Exchange Commission. Please note that the result release, the complete interim report with tables and the presentational website include non-IFRS results information in addition to the reported results information. A complete financial 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, Rajeev, over to you.

Thanks, Matt, and thanks to all of you for joining today. Nokia closed the year with a strong fourth quarter. As you will remember, our view at the start of 2018 was that Nokia's performance would strengthen in the second half of the year, that is exactly what happened. You could see momentum accelerating in Q3 and then even more in Q4. Now to be clear, it was not a perfect quarter, and I would discuss that more shortly, but we saw several positive developments. First, sales growth. Q4 constant currency sales were up nicely on a year-on-year basis. We grew 3% at the Nokia level by about 6% for Networks and by 11% in recurring licensing revenue in Nokia Technologies. Pleasingly, Q4 was the second consecutive quarter in which all of our Networks business groups delivered year-on-year constant currency growth. Full year constant currency growth sales also increased, 1% at the Nokia level, about 2% for Networks and 11% in recurring licensing revenue for Nokia Technologies. With the strong performance in Networks, we believe that we gained share in our primary addressable market in 2018 on a constant-currency basis. While the final analysis is still to come, we expect the assessment to show a 1% to 2% year-on-year decline for the market in 2018 versus roughly our 2% constant currency growth in Networks. It is too early to be precise about exactly where those gains came from, but I would point to small sales and Optical as 2 areas where we gained meaningful share. The second positive development in the quarter was profitability. Operating margin was up across the board at the Nokia level for Networks and for Nokia Technologies. Our full year profitability was dragged down by the slow first half. That said, even if it was not what we aspired too, I believe our performance was not bad in the context of the year that was quite challenging for the industry overall. In fact, with the very strong Q4 push across all of Nokia, we were able to end the year with Networks operating margin within our full year guidance range. Finally, we saw some areas of strength, in both the quarter and the full year that reflect the good progress we're making in the execution of our strategy. And I just want to highlight a few of the area that I'm particularly pleased with. Top of the list is Nokia Software. After 3 years of building a solid foundation for a strong software business, we are starting see to the right results. On a constant-currency basis, this strategic area grew by 12% in Q4 and 4% for the full year and withheld the profitability. We have verticalized business, renewed much of our sales organization and processes and rewritten our software products onto a modern cloud-native and common software foundation. And we were rated in the quarter by analysis Mason as the Leading Telco Software Business. There is more work to be done, but Bhaskar Gorti and his team are moving us fast in the right direction. Next is the progress in our strategic effort to grow Nokia Enterprise. As you aware, from January first of all, of our enterprise-specific activities were consolidated into Nokia Enterprise, our new business group. In 2018, we delivered constant currency sales growth of 9% in the enterprise space, excluding the third-party business that we are exiting and posted solid profitability. With these results, I'm pleased, but not fully satisfied. There is more to do, and I continue to believe that there is still a lot of runway for Nokia Enterprise to grow. The momentum itself is certainly there. In Q4 alone, we added 61 new customers, and we now have a solid base of approximately 1,000 enterprise customers providing a strong footprint on which we can build further. And there is no slowing down. I have talked to many enterprise customers in recent months. Those conversations strengthen my conviction that as an organization of all kinds seek to digitalize their operations, there is strong demand for Nokia's products and services. We have a clear opportunity in the form of private wireless networks, both 4G and 5G, an increasing demand for public safety systems, as well as routing, optical and digital automation solutions to support the industrial Internet and more. Last on my list of highlights is North America. Ricky Crocker and the team knock the ball out of the park in Q4, growing year-on-year constant currency sales by 17% and by 5% for the full year. One of the key drivers of this growth was operators repairing their networks for the fast arrival of 5G. Our success in this market puts Nokia in a strong position to benefit across the full end-to-end 5G cycle. We continue to see excellent progress with the big players in North America, and we added our fifth 5G customers in North America in Q4. We also see further growth possibilities over the longer-term in the region, particularly in both the software and enterprise segments. In short, there was lots of good in how we delivered in Q4 and for the full year, but as I said at the start, some areas that were not so good. As you would have seen in our earnings release, we just missed our guidance for having slightly positive recurring free cash flow for the year despite an increase in net cash of €1.2 billion in the fourth quarter. We are redoubling our efforts in this area in 2019, and I know we can and we will do better. Also, as you will remember I said in our last call that we saw risks as we headed to the end of the year largely related to project timings and product deliveries. Some of those risks did in fact materialize in the fourth quarter, although we were able to offset them by capturing upsides in other areas, particularly in North America. Looking ahead, I expect those risks to carry over into at least the first half of 2019. To be clear, I have absolutely no doubt that a fast and meaningful shift to 5G is underway. But there are several factors that point to 2019 being very second half loaded similar to what we saw in 2018. The first is the staggered nature of 5G rollouts. A small number of countries will start growth that accelerated over the course of this year. As is typical in large technology transitions, however, more will go at a slightly slower pace with a broader ramp up starting at the tail end of 2019 and in 2020. The second reason for a back half-loaded year is that the 5G ecosystem, standards, chipsets and devices is still in its early days. We expect to stabilize in the coming months, but it means that development and testing are operating under considerable time pressure. The final reason is that while Nokia has a massive amount of 5G-ready hardware already deployed, and we ended 2018 with a backlog considerably larger than the previous year, conversion of orders in backlog to sales could be somewhat slower than normal. Some of the hardware that is being deployed is waiting for the availability and acceptance of the key 5G software releases. Those releases will come available as the year progresses. When you put this altogether, I think it is safe to say that 2019 will be one focused on full year results, not those of individual quarters.Despite these risks, I do believe that 2019 will be better than 2018 for both Nokia and the market. In fact, we expect conditions in our primary market to improve to being around flat for 2019 from being slightly down last year. We also expect Nokia to, again, outgrow the market on a constant currency basis, given our strong early traction in 5G and progress in software and enterprise. We see a number of potential upside catalysts for the market, the largest being in North America, Japan and China. In North America, as I noted, we have been performing very well. And as key 5G products come to market, our competitive position will strengthen, particularly in the second half. Japan also has the potential for upside, given overall competitive dynamics the countries hosting of the fast approaching Olympics in 2020. Given that we are working with all 3 leading operators on 5G as well as with new entrant, any market acceleration in Japan would almost certainly benefit Nokia. When it comes to China, we will continue to be prudent given the well-known profitability challenges. We certainly remain committed to the market, but the investment needs are not small, and we need to see a clear path to long-term profitability in deals that we take. There are also risks in the year and there's been a lot of talk recently about worsening economic conditions and the impact of the ongoing U.S.-China trade dispute. These issues are concern. But we would expect in any economic downturn that many governments would still look to boost spending on 5G infrastructure by taking actions such as accelerating the of the spectrum. They would do so given the competition among countries to be 5G leaders and more importantly, as a way to provide both a near-term stimulus and a long-term productivity boost. In summary, we see a 2019 better than 2018. We expect to outgrow the market, again, on a constant currency basis as I said and are targeting improved profitability. We have set a goal for 2019 of earnings per share of €0.25 to €0.29 and a group level operating margin of 9% to 12%. We also see a possible to end the year with slightly positive recurring free cash flow. Over the longer-term, we continue to believe that 5G will drive a virtuous investment cycle that plays the Nokia's full portfolio strengths. Now let me explain what I mean by virtuous investment cycle. It begins with radio access networks being upgraded to 5G in key early markets like the U.S., Japan and Korea. Those upgrades then drive the need for higher capacity transport connectivity to data centers. And that means more backhaul networks using IP routing and optical infrastructure. Then, operators' needs fixed wireless access to expand the last mile connectivity options, and this is a revenue opportunity that we are very well placed to tap. Not only do we already have a huge amount of 5G-ready hardware in the field, but we're accelerating deliveries of massive and the recently announced fixed wireless access products, which help operators with their ultra-broadband deployments. In fact, Nokia has the most complete fixed wireless portfolio, which includes our wireless solutions that greatly extend the reach of fiber networks. Then, by the time 5G begins in countries, like parts of Europe and India, the early adopter countries and to a second stage of 5G categorized by large-scale deployment of millimeter wave cells with smaller coverage areas, which in turn accelerates vitalization and drives edge cloud build ups. Next in the cycle comes network slicing and the build-out of the software systems and platforms that orchestrate and manage networks with automation. Enterprise is an key industry verticals like manufacturing, transportation and energy build private networks to suit their individual needs for performance, reliability and security. As they connect these networks to the global networks, this creates more traffic and demand overall. I could go on, but I think you get the point about the step cycle and how new technology needs to triggered. And only Nokia can really take full advantage of the cycle, given our end-to-end portfolio, global presence and growing offering for enterprise customers. With that, let me share some more detail perspective on Nokia's Q4, starting with our business groups and then some of our market regions. I talked earlier about Nokia Software and so I will skip them here and go right to Mobile Networks. Our trajectory is good in Mobile Networks. We saw a constant currency sales growth of about 7% in Q4, helping that business close the full year with a slight growth compared to 2017 when constant currency sales fell about 4%. I think those results reflect the strength of our customer relationships in complete product offering. We have more than 70 5G trials underway and have 1 commercial deals with operators and all of the early mover markets and many beyond. Global Services saw good Q4 year-on-year gains in both its gross margin and operating margin and close the year within a nice order book and backlog. That said, we still have work to improve GS profitability and are focused on improving serviceability and total cost of ownership, as well as improving or exiting underperforming projects and sharpening contract and commercial management. In our IP routing and Optical Networks business, I was very pleased to see IP routing return to growth, with constant currency sales up significantly in Q4. We are feeling very positive about our momentum in routing given the positive reception to our FB waves products as well as successful mitigation of the component shortages that we experienced last year. Optical on the other hand saw a sales decline in the quarter, but for the full year, there were up a very solid 12% in constant currency compared to 2017. In Fixed Networks, the 2% constant currency sales growth in the quarter was a positive sign. In addition, the group continues to deliver solid profitability even as it invest in future growth opportunities, including in cable, fixed wireless access and home WiFi. Finally, let me also say a few words in Nokia Technologies, which saw both recurring licensing revenue up sharply and solid profitability. We also signed an important new licensing deal in the quarter with OPPO in China and move forward with the Consortium to expand in the automotive sector. Turning to our regional performance. As I've already addressed North America and China, let me start with Europe. After facing a challenging market the past years, we closed 2018 with a fully top line that was flat in constant currency compared to 2017 and with improved profitability. One highlight in the region was that we remained #1 in EMEA in IP edge routing in Q2 and Q3 2018 according to a recent IHS report. Next, our Latin America region not only nicely increased its year-on-year constant currency sales in the quarter, but was up by 18% for the full year, an excellent performance and we are clearly taking share. Our Asia Pacific market grew its constant currency sales by 5% in the quarter, with our India operations the key driver. India closed 2018 in stellar fashion, growing year-on-year constant currency sales in Q4 for a ninth straight quarter, with strength across all our business groups. Much of the rest of Asia Pacific is being somewhat challenging, although we expect improvement in the region in 2019 as 5G rams in Korea and Japan. Finally, Middle East and Africa performed well and grew its 2018 sales by 2% in constant currency versus 2017, gaining market share and reflecting the traction that our end-to-end portfolio is getting in key markets like Saudi Arabia and North Africa. So all in all, 2018 was a challenging year, albeit one that we manage through reasonably well. 2019 should be better and 2020 even better than that. Pressure to deliver remains high and there are risks ahead, but Nokia remains well positioned with a strong portfolio. With that, let me turn the call over to Kristian.

Thank you, Rajeev. Today, I will talk about the number of topics, including the financial performance on Nokia Technologies and group and another, as well as taxes, financial income and expenses and our cash performance. I will then provide some details on our new reporting structure and how new reporting standards are expected to impact our financial results as we move to 2019. And finally, I'll discuss the guidance we provided today. Nokia Technologies closed 2018 by delivering another strong quarter in Q4. Net sales in the quarter totaled €423 million, a decline of 24% compared to the year-ago quarter. The decline was due to lower onetime licensing in net sales. Excluding the onetime impacts, our recurring licensing revenues increased 11% year-on-year, reflecting solid progress signing new licensees. Operating margin for technologies was 82% in the fourth quarter, a significant improvement compared to 70% in the year-ago quarter. This improvement was driven by our exit from digital media and digital health, as well as lower litigation and business support function costs. Touching briefly on our results for Group Common and Other in Q4. Overall, net sales decreased by 16% year-on-year on a reported basis and 12% on a constant currency basis. The decrease was primarily driven by Alcatel Submarine Networks, where net sales in the year-ago quarter benefited from specific projects that were completed at the beginning of 2018. Group Common and others operating loss worsened year-on-year in Q4, primarily related to a net negative fluctuation in other income and expense and to a lesser extent by lower gross profit in ASM. Moving to Nokia level results. Our non-IFRS tax rate in Q4 was 28%, resulting in a full year non-IFRS tax rate of 31%. Looking at non-IFRS financial income and expenses in Q4, our year-on-year results mainly reflects higher interest expenses due to the presentation of certain costs following the adoption of IFRS 15. At the Nokia level, our non-IFRS diluted EPS was €0.13 in Q4, flat compared to the year-ago quarter. If we exclude onetime licensing net sales, our non-IFRS diluted EPS would have increased by approximately €0.02 year-on-year. On a recurring basis, our EPS performance was primarily driven by our gross profit performance as well as lower operating expenses in Nokia Technologies. These were partly offset by foreign exchange hedging, higher taxes and higher financial expenses. For the full year, our non-IFRS EPS was €0.23, coming in at the lower end of our 2018 guidance range. Next moving to our cash performance. On a sequential basis, Nokia's net cash increased by approximately €1.2 billion to a quarter end balance of approximately €3.1 billion. Net cash from operating activities was approximately €1.4 billion. Within this, Nokia's adjusted profit before changes in net working capital was €980 million in the fourth quarter. Excluding restructuring, we generated an increase in net cash related to net working capital of approximately €540 million. Restructuring amounted to approximately €140 million. Looking at net working capital, the majority of the change was due to liabilities, with increase -- which increased approximately €460 million, primarily due to the seasonal increase in accounts payable as well as our efforts to drive the better accounts payable. Receivables decreased by approximately €50 million as an increase in sale of receivables partly offset the seasonal increase in receivables. Inventories decreased by approximately €30 million as the seasonal decrease in inventories was partly offset by continued ramp ups in anticipation of 5G deliveries and acceptances in 2019. Cash taxes amounted to an inflow of €10 million in the quarter, benefiting from a tax refund of approximately €110 million. Foreign exchange rate had approximately €120 million negative impact on net cash, primarily related to certain hedging activities, partly offset by related positive impacts in liabilities within net working capital. In addition to these items, net cash used in investing activities primarily related to approximately €170 million of CapEx, which was partly offset by approximately €18 million of cash in flows related to the sale of certain assets. While our Q4 cash performance of a solid overall, we fell just short on our full year guidance for slightly positive free cash flow. And as Rajeev emphasized, we are not satisfied with our free cash flow performance. And we are focused on delivering better working capital execution going forward. As we announced in conjunction with our Q3 results, we are changing our reporting structure in 2019 to better reflect our strategy, our organizational structure and the way we evaluate performance and allocate resources. This will also impact how we provide guidance, which I will come back to in a minute. Effective January 1, we now have 3 reportable segments, Networks, Nokia Software and Nokia Technologies. For each of these segments, we will provide full P&L down to operating profit. We will also continue to report segment level data for Group Common and Other. Additionally, Nokia will provide adjusted financial disclosure for its Networks and Nokia Software reportable segments, with amounts related Nokia Technologies and Nokia Labs allocated 85% to Networks and 15% to Nokia Software. This is also in accordance with industry practice and improves comparability with peer companies. In addition, we will disclose net sales for mobile access, fixed access, IP routing and optical, which together comprise new networks reportable segments. There are 2 notable changes to the structure that I want to highlight. First, activities related to our cloud core offering will be reclassified from the former Mobile Networks business group and former Global Services reportable segment to the new Nokia Software reportable segment. Second, activities related to the former Nokia Mobile Networks business group and former Global Services reportable segment, that are not reclassified to the new Nokia Software reportable segment, will be reported together under the new Mobile Access business. Furthermore, we will also start providing net sales for our three customer types, communication service provider, enterprises and licensees. Finally, we will disclose net sales by region at the Nokia level. Prior to publishing our Q1 results, we intend to provide recasted financials for all 4 quarters of 2018 according to this new structure. Regarding new accounting standards, there are two things I want to bring to your attention for 2019. First, under IFRS 15, we will begin reporting order backlog on a quarterly basis. You will find this a first time in our 2018 annual report when it's in -- when it's published in March. Secondly, under IFRS 16, they will be a balance sheet adjustment, mainly related Nokia's real estate-related operating leases. While we are still assessing the full impact of IFRS 16, we expect an impact of approximately €1 billion increasing our fixed assets and increasing our liabilities. Finally, turning to guidance. During Q4 2018, we announced organizational changes to accelerate our strategy execution as I just discussed. Related to this, we are now providing guidance at Nokia level only. In addition to being aligned with how we manage our business, this will also improve our comparability with our peer companies. While we are deliberately focusing our guidance on Nokia level-only metrics, we will be supplementing that by providing actual results and forward-looking commentary for Networks, Nokia Software and Nokia Technologies. Looking specifically at full year 2019, at Nokia level, we expect our operating income to be between 9% and 12%, and we expect our non-IFRS diluted EPS to be between €0.25 and €0.29. We anticipate full year 2019 to follow a similar pattern as 2018, a soft first half with a particularly weak Q1, followed by a robust second half, supported by a meaningful 5G acceleration. For your models, we have also provided clear assumptions for nonoperating items, which we would like you to follow for consistency. We expect our non-IFRS tax rate to be approximately 28% for 2019 and approximately 25% over the longer term. And for financial income and expenses to be an expense of approximately €300 million in 2019 and also for the longer term. Regarding our cost savings program, in Q4, we achieved our €1.2 billion target, which was largely focused on eliminating duplication. We are now shifting to the next phase of our cost savings. Our €700 million plan, which is about optimizing Nokia's operations across the board. You can find more details related to these plans on Pages 8 to 9 in our Q4 press release. Of the €700 million of savings, approximately €200 million will come from cost of sales and €500 million from operating expenses. While we expect to start to see these savings materialize in 2019, we expect the majority to come in 2020. The reference period is full year 2018 results, in which Nokia level non-IFRS operating expenses totaled €6.9 billion. Our ongoing Network Equipment swap program is also nearing completion, with the remaining €150 million of charges and outflows expected in 2019. Regarding cash, we expect our recurring cash flow to be slightly positive in 2019. Free cash flow continues to be a very important metrics for Nokia, and as I said earlier, an area where we are focused on improving execution. For full year 2019, we expect approximately €450 million of cash outflows related to taxes and approximately €700 million of capital expenditure. Turning briefly to 2020. We have today reiterated the Nokia level guidance metrics that we provided previously. And we remain confident we will achieve this targets. Lastly, on our annual dividend. The dividend to shareholders continues to be Nokia's principal method of distributing earnings to shareholders. And Nokia continues to target to deliver a growing earnings-based dividend. Over the long-term, Nokia targets to the dividend by distributing approximately 40% to 70% of non-IFRS diluted EPS taking into account Nokia's cash position as well as cash flow generation. Beginning with the distribution for 2018, Nokia plans to pay quarterly dividends going forward. In addition, Nokia intends to implement the dividend fee for ADR holders consistent with market practice. Nokia's board plans to propose a dividend of €0.20 per share for 2018, which is a 5% increase compared to the dividend for 2017. With that, I hand it over to Matt for Q&A.

Thank you, Kristian. [Operator Instructions]. Kerry. Please go ahead, sir.

[Operator Instructions]. The first question will come from Andrew Gardiner of Barclays.

I had one for both of you on the margin guidance for 2019. If I look at the midpoints, call it, 10.5%, that's a slight expansion from the adjusted margin you reported last year of 9.7%. You've already outlined how sort of the top line should be flat to up given flattish end market and a little bit of share again. You've got the benefit of the -- sort of the final stage of the cost-saving plan from last year as well as a little bit of savings from the second phase that you just outlined, Kristian. And so OpEx savings with a flattish to growing top line, it implies that using gross margins are flat to maybe even down depending on where we do come in the range in 2019. Rajeev, you've also highlighted sort of some of the positive trends, both product and regional that are in your favor in 2019. So can you help us sort of bridge that gap? Is pricing getting worse? What's leading you to be more cautious in terms of the gross margin progression?

Yes, thanks, Andrew. Maybe I'll start here. So I think, everything you laid out in your question makes sense. So maybe I'll focus on the puts and takes on gross margin as we see it. Yes, there are some positives, but then on the other hand, we are going through a technology cycle here where its normal that the early deals will be competitive and thus, they will be some kind of margin pressure coming from that. Also, when the new technology cycle starts to ramp up the early deliveries, there will be a higher content of hardware and services, which also then has a slightly negative mix. On the other hand, you then have kind of current technologies, where investment levels are going down, where you will have an offsetting impact coming from that. Overall, we are not seeing a change in the pricing dynamics or the competitive nature. So there are some puts and calls here on gross margin as we work through the early phases of the 5G cycle.

Thank you, Andrew. We'll take the next question, please.

Next question will be from David Mulholland of UBS.

So just following off the last question, but looking more 2020. And you've obviously all of your group level and targets. But we have the same visibility on the kind of underlying elements of technology is and networks. So I wonder if you can just comment on whether there has been in a shift in your expectations either size of technologies and profit there versus Networks margins as you roll forward to 2020? And what -- reiterating those group targets would be really helpful?

Yes, I think maybe I'll start and Rajeev can chip in. So clearly going from '19 to '20, we see the 5G delivery is not only being kind of lead markets, but lead market being in volume and then the next markets coming on board. So that's why we see improved market conditions and from that improved growth prospects for the company, which will help on creating scale and operating leverage. On top of that, we see our efforts in software as well as in enterprise further yielding growth opportunities and thus, additional margin. In addition to that, as I said, the full impact from the €700 million cost saving programs that we are currently executing will be seen in that 2020 time frame and that will then further improve our profitability and help us deliver towards the margin guidance that we have for 2020.

Thanks, David. There's not much more to add. Kristian covered it quite comprehensively. I guess, the only thing I'll remind is as I said in my prepared remarks, this virtuous investment cycle will take hold that I mentioned from Optical to macro radio, for coverage of fixed wireless access to network software to IP routing upgrades back to Optical for front haul and then macro capacity and then small and millimeter for densification. So all this will take hold. And as countries into 5G rollouts in 2020, we would get more benefit from this virtuous investment cycle. And then to say that's Phase II will kick in, which is the private wireless thing 5G as well as 4G for industrial IoT option.

And then the licensing opportunities around technology, there is still people to go to get into the paying family. And we have additional Chinese, we have the auto, we have the industrial IoT devices and so on. And that will help us drive also growth together with the brand licensing activities for Nokia Technologies.

Thank you, David. Kerry, we'll take our next question, please.

The next question will be from Sandeep Deshpande of JP Morgan.

Rajeev, my question to you is, I mean, you've changed your commentary for this -- the market progression into 2019. At the same time, you are indicating that you should see improved market conditions in 2019 versus 2018 and that's potentially Nokia will grow in 2019. I mean, can you answer this? I mean, what has changed in terms of -- has there been any change in terms of your view on Nokia market share into 2019? And secondly, with regard to Nokia product and does that remain fully competitive? And that essentially as you said in an opening remarks that there are some puts and takes in terms of how the rollout is occurring. If the rollout was to be faster from your customers, then essentially things might be better during the year overall?

Yes, thanks, Sandeep. A couple of things of -- but overall the big picture is the same, right? So '19 will be better than '18, '20 will be better than '19. We see growth in '20 of 5G. Every major customary is thinking and talking about 5G. 5G is under way. It's going to happen. Private wireless is also going to happen in the enterprise side. I guess, couple of things I would say. One, the market is flat or flattish in '19 because it is country rollout in 5G. Lead countries start due for the full year. North America would be the full year. The other countries starting midway during the year. Second, the 5G ecosystem is still evolving. It is stable, but it is evolving. And it will evolve more and more during the year. And allow me to just spend little bit more time on explaining this because what happens with the 5G ecosystem is, first, hardware need to be available. We've got plenty of hardware largely in place today in many markets, which will be upgrade to 5G. Second, standard into locked in. Some elements of the standards are still moving, not for the first part of mobile broadband or enhanced mobile broadband, but more for the network slicing, part will come a bit later. Third, chipsets devices need to be available. The chipset baseline has being moving until quite recently. And fourth, of course, the software ready to be devices in testing and all that's under development right now. Hence, '19 being staggered and then first half -- second half commentary that we talked about. Having said that, we've also talked about some upsides, maybe North America could get better, maybe Japan will get a better than currently anticipated and then maybe China could start a more accelerated rollout than kind of 5G.

Thank you, Sandeep. Kerry, next question, please.

The next question will come from Achal Sultania from Crédit Suisse.

Rajeev, you mentioned about 70 5G trials in your remarks. Can you just maybe talk -- help us understand how you're doing in terms of customer acceptances? How easy has been the path of upgradability from 4G to 5G? How competitive your product is versus Ericsson and Hawaii, in general? Any feedback from customers and what you're seeing would be helpful?

Thanks, Achal. First, our 4G product is out there, the product. We're getting fantastic feedback on the 4G product. I mean, with the migration in North America, but also elsewhere, the throughput, the capacity, the uplink, the downlink is meaningfully better than our competition. So kudos to our team for putting on a product that customers is just commenting favorably every other day. Second, that product is upgradeable to 5G, right? And you remember the ReefShark and so on ReefShark waveband chipsets have already been shipping. The other part of the family of the ReefShark will start shipping later in '19 and '20. And then I think it cannot be underestimated this virtuous investment cycle and upgrade multiple domains and how well positioned we are end-to-end as the only player that plays on a global basis. And we've seen evidence of that. We've seen us benefit from routing compared to our peers from 5G, obviously also from the enterprise side, but notably from the 5G. We've seen Optical. We've gained meaningful share in '18 because of the fact that optical growth first because you start putting radio, and so on. So both on the whole, as well is in the as good as anybody else.

Thank you, Achal. Kerry, next question, please.

The next question will come from Sébastien Sztabowicz from Kepler. Sébastien Sztabowicz: Your addressable market broadly stable this year. Could you provide a little bit more granularity by end markets? Where do you see some growth opportunity in the market in your different segment? And where do see some downward pressure?

The overall market flattish, primarily just market, which regions upright.

Right, right. We see, of course, 5G rolling out fully in in North America. So that would well be a growth opportunity. We see that Japan could offer upside as I commented, especially because we work with all the operators. Korea could offer that. Latin America did very well in 2018. So we'll have bit of a tough compare, but the momentum is there Middle East and Africa, partially Middle East, some of the 5G activity will start. So that will be beneficial. Lots of Asia Pacific will -- are weak, Southeast Asia and sort of countries are not a very strong. India has been quite -- done quite well, but the compare will become in '19. And then you have Nordics that will accelerate 5G, so that could provide a boost. China, bit hard to say in terms of exact timing for 5G. I will say that in China, we would be prudent given the profitability challenges when we look at 5G because it could be a reasonable investment, and we will have our focus squarely on the long-term as we make those decisions in China. Nokia Software has growth momentum, but I want to remind you Nokia Software will now have the Applications business, which is all about BSS OSS, policy, charging, analytics, customer experience management. And now we're moving to core there. And core will go through a transition of moving from bare metal to cloud and that will be a drag on a Nokia Software to some extent, but the Applications business I see ongoing momentum. Enterprise, I'm very convinced that momentum is strong and rock solid. Sébastien Sztabowicz: Europe?

Europe has -- of course, we had a good trend in Europe last year, with increased probability as well as flattish -- it depends a bit on the 5G timing, which we can't say with 100% conviction yet beyond Nordics. There a couple of other countries looking at 5G too. But in terms of routing and the pre-5G things, Optical and so on, we have good momentum there.

Thank you, Sébastien. Kerry, next question, please.

The next question will come from Alexander Peterc of Societe Generale.

I would just like to come back a little bit on how growth will phased throughout 2019. You are highlighting a particularly weak Q1, but you don't provide much color. So maybe you could give us more granularity there? I mean, you'll end up at plus 6% like-for-like constant in Networks, which is pretty good. So are we going to go into the clients into the early part of the year, and then more meaningful growth in the second half? And just generally, are we going see the same split of H2 versus H1 as in 2018? And then just secondly, if you could just touch upon the slowdown smartphone market you have licensed this has issued meaningful warnings and our revenue on the reporting of revenue. So is this going to any consequence for your licensing? Or have enough of your new licenses being up?

And I think maybe on the first part of your question. So as we said in our release today and in the prepared remarks, we do anticipate a similar pattern during '19 as we saw during '18. So weaker first half, particularly Q1 and then a stronger -- stronger second half. As Rajeev said, it's partly driven by the fact that 5G rollouts will be staggered. It's will -- it's partly driven by the fact that 5G ecosystem is evolving. And as said in the prepared remarks, that will then mean that getting the software out and getting software asked substances will happen mode during the latter half of the year. I think when it comes to your second question, I think, it's fair to say that a big portion of that licensee is that we -- we have done our utmost fixed term in nature then just as a reminder, many of those licenses are also paid up from a cash point of view to a big extent at the time when the deal is done. So in a similar way as we haven't seen a lot of movement up with a stronger smartphone market, we don't expect that a slower smartphone market would have a meaningful impact on the revenues of Nokia Technologies.

Thank you, Alex. We'll take our next question, please, Kerry?

The next question will be from Paul Silverstein of Cowen.

I was hoping you could give some quantification of the beneficial impact as enterprise grows on your margin structure in quantification will be appreciated?

Thanks, Paul. I think the point is about enterprise margins, right? I don't break out gross margins, except to say that basically margins are for us.

Thank you, Paul. We will move onto the next question, Kerry.

The next question will come from Stefan Slowinski of Exane BNP.

Just wanted to question on your dividend policy. Just saw that, that's been changed wondering what is going to be delivered quarterly? And will be paying first quarterly dividend after the AGM? And does this mean that the fourth installment will actually come in the beginning of 2020?

Yes, so it maybe I'll take that. So first of all, our dividend policy has not been changed. We continued to target a growing dividend. We continued to target a growing dividend by aiming to pay 40% to 70% of non-IFRS EPS taking into account the cash position and our cash flow. What we have changed through on the one hand deliver more continuous return to shareholders as well as to improve the company capital and liquidity management position as a well as it went to align more with our peers particularly our U.S. peers is the payment pattern of that dividend policy. You are right we will now be on a quarterly basis the first installment will be paid after the AGM. And the last installment of the year will be paid thus in the first quarter. So you will be receiving a dividend from Nokia each quarter throughout the year and the last one related to the 2018 dividend will be paid in the first quarter of 2020.

Thank you, Stephan. Karey, next question, please.

The next question will come from a Amit Harchandani of Citigroup.

Amit Harchandani from Citi. I'm trying to better understand the pricing dynamics at this stage. I note that on one hand in your release you have talked about price erosion exiting cost erosion in some of your key geographies, including North America. At the same time, we have heard some customers talk about the fact that any potential action against the Chinese could trigger a price inflation within the industry. So I guess, I'm just trying to understand how do you think about offsetting this balance of price erosion and cost erosion. In terms of how you plan to address it particularly when I look at the margins that you talk about in 2019 and more importantly, the margin jump that seems to be baked into 2020 ambition. So any comments around pricing would be much appreciated?

Thanks, Amit. I think I'll start here. So first of all, we are very data-driven in terms of measuring or pricing, but backwards and as well as what contracts and assigning about what we're approving on a forward basis for predictions. And so the overall pricing environment has not changed so it stable at neutral. I think what we commented last year was that we had some -- price erosion North America do with a solution of 5G with the wanted to accommodate with us in CapEx. Our target has always for cost related to exceed price erosion, of course. So no change overall is what I would say. You would see some situations where because of the new technology inflection point that there might be some aggression from market to market but overall, it's not change. On the China topic, not something that the right time for us to comment on. The situation is still very much in flux and outcome is for the government decided not Nokia. Of course, customers ask for support we will give it at this time, we are closely watching above it.

And maybe to your question on how the pricing link to the 2020 targets, I would say that achieving the 2020 targets is not pricing driven. It's more driven by us benefiting from the 5G cycle as I discussed earlier. As executing on our strategy regarding software and enterprise as well as us getting the benefit from the cost reduction that we are driving. And that will improve margins from '19 to '20 in addition to then the growth that we expect in Nokia Technologies.

Okay, thank you, Amit. Kerry, next question, please.

The next question comes from Simon Leopold of Raymond James.

Maybe following up on the China question. I certainly can appreciate that any shared ships outside of China from Hawaii would take some time. But I'd like to hear your perspective on what you're hearing from your customers and your engagement. And if customers would opt to move away from Huawei particularly those customers outside of China and United States. How long would do such a process it take to play out?

Thank you, Simon. I'm just going to repeat that. We're watching gross development observation is very much in flux and when the time comes we will be there to help our customers.

Thank you, Simon. Kerry, next question, please.

The next question will come from Tim Long of BMO Capital Markets.

Just wanted to ask about kind of the enterprise as well as the cloud players particularly, I guess, as it relates to the newer routers of products that we can you just give us an update on how you are developing with some of the larger cloud players and maybe how you think you can get execute and grew more in some of the larger enterprises as well.

Routing overall, we are deviating in terms of performance from some of our peers in a positive way. The product has very strong momentum, we will now have a year of full availability in terms of the product the supply chain issues that plagued ask during 2018 Art much behind. In terms of large enterprise, we are doing well with our IP routing product particularly with private entity type deals. But also rather large technology enterprises. With Webscale we have been a successful with Apple and show me with the others are still working progress. We have been super successful in optics with the Webscale players. At the foothold, but I have before to move work to do also let's keep in mind that there is sort of moving architecture somewhat closer to switching. And then, of course, you didn't ask the question, but I would say from a 5G point of view, we see potential tailwind they'd as well. Very pleased with the product innovation, the road map and the GAAP that we have in terms of being advanced compared to some of our competitors.

Thank you, Tim. And Kerry, we are ready to take our final question for today.

Your final question will come from Pierre Ferragu of.

I'd like to get back to China I completely understand the on the political situation. I would be more interested in on understanding what happened underground right now. When I see Global year-on-year down 8%. I'd understand what type of shift in is your competitor like new footprint. How can I understand the difference?

We struggled to give you a little, but I question was about progress in China on the ground, correct. Yes

Yes.

China has been slow this year somewhat, we have been successful with Webscale, et cetera, but in terms of the operators given that the massive rollout in the 4G, it's been a been slower to 5G comes on a stream. 5G will be coming on stream I think the spectrum is being awarded, the decision will start to happen at some point in Q2. And then Q3 on what's in the rollout for all the 3 operators. And then we'll have to see prudently how much of shared we want to take a given the profitable challenges that we look at.

Great. Thank you for questions today. I'd now like to turn the call back to Rajeev.

Thank you, Matt, thank you, Kristian, and thank you, all for your questions. I would add to close with two brief thoughts. First, while our 2018 had shared challenges, I think the for the full year underscores the Nokia capacity for pulling through and meeting our commitments to our shareholders and customers. Second, we are focused on the right areas. Capping the full opportunities of 5G and investing in a way to ensure competitiveness. Expanding and software and the enterprise, driving out cost and maximizing productivity and efficiency, leveraging the power of our portfolio and optimizing our organization to strengthen customer focus. All of these actions and many more are helping us to re-energize our operational foundation and put us in a strong position to support our customers and the fact that many market opportunities that lie in front of us. With that thank you, ever so much for time and attention and an umbrella Matt.

Ladies and gentlemen, this concludes our conference call. I would add to remind you that during the conference call today we have made a number of forward-looking statements that involve risks and uncertainties. After results of a million euros for 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 71 through 89 of our 2017 annual report on Form 20-F, our financial report for Q4 and full year 2018 issued today, as well as our other filings with the U.S. Securities and Exchange Commission. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.