Q4 2016 Earnings Call Transcript

Published: 2 Feb 2017

[Operator:]

Hello and welcome to the Nokia Q4 and Full-year 2016 Earnings Results Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Matt Shimao. Sir, you may begin.

[Matt Shimao:]

Ladies and gentlemen, welcome to Nokia's fourth quarter and full-year 2016 conference call. I am Matt Shimao, Head of Nokia Investor Relations. Rajeev Suri, President and CEO of Nokia, and Kristian Pullola, CFO of Nokia, 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 such risks in more detail on pages 69 through 87 of our 2015 Annual Report on Form 20-F, our report for Q4 and full-year 2016 issued today, as well as our other filings with the U.S. Securities and Exchange Commission. Please note that our results 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 reports 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.

[Rajeev Suri:]

Thank you, Matt and thanks to all of you for joining our Q4 results call. Before I go into the details of the quarter, let me take a step back and share some reflections on the full year. We always said that 2016 would be a year of transition, and it was certainly that. Nokia started the year primarily as a Mobile Networks and patent licensing company, both good businesses, but they were largely the limit of our scope. Today, we are a fundamentally different company with a complete portfolio that allows us to expand our leadership position with communication service providers and to tap adjacent growth areas. To start with, we built on our existing two businesses over the course of the year. In Mobile Networks, we now have much greater scale after the addition of Alcatel-Lucent, including a number one position in 4G LTE that positions us very well for the move to 5G, a strong presence in core networks and services and a deeper presence in all markets with particular strength in North America. Our patent licensing business has also progressed, adding more licensees as well as concluding our arbitration and reaching an expanded licensing deal with Samsung. We also reached a band licensing agreement with HMD Global, which has already launched a Nokia-branded smartphone in China. Then we added SCOPE (3

[Kristian Pullola:]

Thank you, Rajeev. I will begin by recapping the closing of the Alcatel-Lucent transaction, and then continue with financial performance of Nokia Technologies and Group Common and Other. Before commenting on our cash performance in the quarter, finally, I will update you on taxes and hedging and close by highlighting key guidance items for 2017. Starting with the closing of the Alcatel-Lucent transaction; as you recall, we were able to complete the squeeze out of the remaining Alcatel-Lucent securities on the November 2, reaching a 100% ownership of Alcatel-Lucent and completing the transaction in just 19 months after we announced our plans to purchase the company is a fantastic achievement. Importantly, this enables us to begin moving forward with full force to eliminate duplicate public company costs and optimize our operating model and legal entity structure. Then to Nokia Technologies, whilst net sales declined both year-on-year and sequentially, the declines were primarily related to non-recurring items. As you recall, the Samsung arbitration award benefited the top line in Q4 2015 and the expanded IPR agreement with Samsung benefited the top line in Q3 2016. Both the arbitration award and the expanded agreement included catch-up elements, which boosted net sales of Technology significantly in Q4 2015 and in Q4 2016. Looking at Technologies' gross and operating margin on a year-on-year basis, both were also affected by the absence of the Samsung arbitration award. Furthermore, Digital Health and Digital Media represented a higher proportion of Technologies' overall net sales in Q4, and this mix shift combined with the higher OpEx levels in these areas was negative for the margin development in Technologies. As we continue to ramp up Digital Health and Digital Media, we remain highly focused on investing at the right levels and at the right pace in these emerging businesses. Also, in Q4, as Rajeev explained, we took necessary steps to protect Nokia's IPR by beginning litigation action against Apple for patent infringement. We would have preferred to reach a fair outcome in the most expedient way possible without litigation. However, we are prepared for a long process, if that is necessary, a process during which our additional litigation cost could be approximately $100 million per year. To help with the consistency of the consensus, we think that it would make sense for the sell side to remove net sales related to Apple from their numbers until we achieve a clear outcome. That said, let me be clear that we have every expectation that in time we will reach a favorable result given the strength of our IPR portfolio. We have today reiterated our guidance for our patent and brand licensing revenue run rate to be €800 million in 2017, assuming no new license agreements are signed. This number does not include any licensing revenue from Apple. Turning to the performance of Group Common and Other in Q4; the overall revenue that we report under Group Common and Other increased by approximately 34% year-on-year. The growth was primarily driven by Alcatel Submarine Networks, which continued its strong performance. Again, for 2017, ASN enters the year well-positioned with a strong order book. In addition to ASN, Radio Frequency Systems also recorded strong year-on-year growth in Q4. We are naturally pleased with the strong financial performance of both ASN and RFS and we are continuing the strategic reviews of both businesses. Then our cash performance in the fourth quarter, on a sequential basis, Nokia's total cash and other liquid assets decreased by approximately €65 million with a year-end balance of approximately €9.3 billion. Net cash and other liquid assets decreased by approximately €240 million sequentially with a year-end balance of approximately €5.3 billion. The sequential decrease in Nokia's net cash and other liquid assets in Q4 was mostly attributable to net cash outflows from financing activities, which were approximately €730 million. This was primarily due to the purchase of Alcatel-Lucent securities and starting of Nokia share repurchases. Nokia's adjusted net profit before changes in net working capital was approximately €1 billion in Q4. This was partly offset by net cash outflows of approximately €310 million related to working capital, approximately €180 million related to income taxes and approximately €20 million related to net interest. Nokia had approximately €130 million of restructuring and associated cash outflows in Q4. Excluding this, net working capital resulted in a decrease in net cash of approximately €180 million, primarily due to seasonal increase of receivables partly offset by a decrease in inventories and an increase in short-term liabilities. We are focused on working capital and cash flow and we will work in the coming months to ensure our receivable level normalizes from the seasonality in Q4. Additionally, Nokia had net cash outflows of approximately €120 million from investing activities in Q4, primarily related to capital expenditure. Furthermore, foreign exchange rates had an approximately €160 million positive impact on Nokia's net cash in the quarter. And lastly, during Q4, the remaining unsettled Alcatel-Lucent convertible bonds were acquired through the squeeze out process. These bonds have been reclassified from interest-bearing liabilities to other liabilities in Q3 2016, and therefore, the settlement resulted in an approximately €40 million negative impact on net cash in Q4 2016. As said, we started repurchasing shares under our capital structure optimization program on November 16. In Q4, we executed the share buybacks at an accelerated pace, using approximately €220 million of cash out of the planned total of €1 billion. Our intention is to complete the planned share repurchases by the end of 2017. Regarding the dividend for 2016, the other remaining element of our capital structure optimization program, the board will propose a dividend of $0.17 per share, which would impact our cash balance by approximately €1 billion when paid out to shareholders in Q2. Next, a few words on taxes and hedging. Starting with our non-IFRS tax rate in Q4, which at 23% was significantly lower than the approximately 40% we had guided for. The lower tax rate was primarily due to a more favorable regional mix as well as overall higher profitability than we had expected. The tax rate is expected to increase in Q1 to between 35% and 40% as per the guidance we provided today. Also, we now expect the tax rate for the full-year 2017 to be around the midpoint of the 30% to 35% guidance range. Please remember to take note of this when you update your models. As mentioned earlier, following the completion of the squeeze out and reaching 100% ownership of Alcatel-Lucent, we have been able to start concrete actions to integrate the former Alcatel-Lucent and Nokia operating models into one combined operating model. In Q4, this resulted in the recognition of €439 million of deferred taxes in the U.S. as well as approximately €90 million of non-recurring cash taxes. Looking into 2017, primarily due to the changes we expect to make to our operating model, we expect approximately €150 million of non-recurring additional cash taxes this year. Consequently, we have today raised our guidance for Nokia's cash taxes in 2017 from €400 million to approximately €600 million. As we detailed in our press release, we also expect the changes in 2017 to trigger a reduction in deferred tax assets of approximately €250 million and result in non-recurring reported tax expenses of approximately €250 million, again reported tax, not non-IFRS. By implementing our combined operating model, we are creating a foundation for our long-term tax structure. We will be positioned to deliver substantial long-term cash back savings through extended across – extending Nokia's tax attributes better and have a better alignment with our taxable profit mix and the cash attributes. To be clear, the future cash tax savings are expected to be larger than the related non-recurring cash taxes in 2016 and 2017. Then briefly on hedging, following the acquisition of Alcatel-Lucent, we have been reviewing our foreign exchange hedging activities. From the beginning of this year, we have harmonized practices related to Nokia's FX hedging. Thus, from an accounting standpoint starting Q1, all results from hedging, operative forecasted net FX exposures will be recorded in other income and expenses, regardless whether hedge accounting is applied or not. As you might recall, until now these FX hedging results have been recorded primarily as an adjustment to net sales if cash flow hedge accounting was applied. That said, there is no material change in our approach to hedging. To mitigate the impact of changes to FX rates, we continue to hedge operative forecasted net FX exposures typically with a 12-month hedging horizon and we apply hedge accounting for the majority of these hedges. Also, importantly, we are relatively well naturally hedged with similar proportions of net sales and costs in our major currencies. Thus, the forecasted operative net FX exposures which we hedge are rather limited to begin with. We will also continue to report net sales development on a constant-currency basis. Turning finally to our €1.2 billion cost savings target and key guidance items for 2017. Today, we reiterated our guidance for €1.2 billion of annual cost savings in the full-year 2018. We are well on track with our plan; in fact, we were able to achieve slightly more cost savings in 2016 than we had earlier planned. The cost savings achieved in 2016 were primarily due to lower personnel expenses reflected in both OpEx and cost of sales, as well as procurement savings that benefited cost of sales. In 2016, personnel expenses benefited from lower incentive accruals related to our financial performance in full-year 2016. We expect the impact of lower incentive accruals to reverse in 2017, assuming Nokia's full-year 2017 financial performance in line with our expectation. Consequently, we expect cost savings in 2017 to be approximately €250 million. As CFO of Nokia, it is one of my key priorities to ensure strong, continued execution on our cost savings program. We have today reiterated also our guidance for the overall planned network equipment swaps to total €900 million, although only €150 million of this amount was recorded in 2016. You can find a table summarizing our progress on the €1.2 billion cost savings target and the network equipment swaps in the cost savings program section of our press release issued this morning. Finally, a quick comment on how changes in FX rates affect our guidance. Rajeev already discussed the demand trends we currently see in the networks market. As you know, FX rates have moved significantly since our CMD in November. For clarity the guidance for 2017 that we provided at CMD assumed constant exchange rates. Also, as mentioned earlier, we are naturally well hedged. With that as context, we today reiterated guidance for our Networks business for the full-year 2017, top-line decline in line with our primary market, and 8% to 10% operating margin. If the market and our execution are both strong in 2017, we have the ability to land at the higher end of this range. Looking forward, as we move past the transition phase of the Alcatel-Lucent acquisition, we have clear opportunities to drive higher returns through focused and correctly-timed investments in attractive growth areas. While the market is challenging, we continue to make good progress on multiple fronts and thus we remain confident in our strategic directions and potential to create significant long-term value. With that, over to Matt for Q&A.

[Matt Shimao:]

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

[Operator:]

We will now begin the question-and-answers session. Our first question comes from Pierre Ferragu of Bernstein. Please go ahead.

[Pierre C. Ferragu:]

Hi. Thank you for taking my question. Rajeev, you mentioned in your prepared remarks what spending could be in terms of technology between now and 5G, which still feels fairly far away and you mentioned 110 clients of 4.5G already and 4.9G coming on the horizon. I was wondering what should be the timeline for that kind of spending, is 4.5G already something that is very big in your current run rate or is that something that you're going to ramp, and should we expect that to be a boost to revenue in 2018 or 2019 or later? How do you see these two intermediary technologies playing out over the next couple of years?

[Rajeev Suri:]

Thanks, Pierre. So, we have these 110 customers of 4.5G and our idea is to increase the adoption of those to go to 4.5G Pro. 4.5G Pro gives a meaningful reduction in latency, close to 10 milliseconds and also an increase towards 1 gigabyte speed, so it actually gives something why (39

[Matt Shimao:]

Thank you, Pierre. Carrie, we'll take our next question please.

[Operator:]

The next question comes from Alex Duval of Goldman Sachs. Please go ahead.

[Alexander Duval:]

Yes. Hi, everyone. I wondered if you could help us on network seasonality and how we should think about that into the first quarter of the year. It looks like normally on an aggregate basis for the businesses you've combined it's normally down about 20% in the first quarter, which would seems to imply a decline probably in the mid to high single-digits of that fourth quarter base. So just wanted to understand a little bit more about what helps you get to that 2% decline for the full year, clearly you've laid out some positive drivers, but a little bit more color would be appreciated? Many thanks.

[Rajeev Suri:]

Thanks, Alex. So, we think typical seasonality in our industry will be the norm, large downtick in revenue from Q4 to Q1, Q2 typically up from Q1, Q3 can be up or down compared to Q2 and then, of course, that depends on timing of large projects in Q4, typically the strongest quarter of the year. What helps us to recognize that our rate of decline has improved on a normalized basis and I can say that on a normalized basis, we think we've moved away from double-digit year-on-year declines, because we were single-digit down in Q4. The order intake has been strong on some fronts like applications and analytics as I said, not yet ready to declare victory, but that's a good sign as well. And then there are a few swing factors that are balanced with some macroeconomic difficulties in Latin America and in Africa and Eastern Europe, but there are some swing factors as well, U.S. could have some momentum compared to last year and then Japan and Korea are clearly bottoming out. There could be further acceleration in LTE in India with the entry of the new player, particularly in mobile. And then, of course, you have possibly the wholesale network deal in Mexico that could come to fruition and public safety in the U.S. So there are a number of things. And of course the U.S. broadband auctions in 600 MHz and already what's happening in 700 MHz might be helpful. But it's going to be a bit of a balance. So, clearly, the market will stabilize, we believe, in 2017 relative to 2016.

[Matt Shimao:]

Thank you, Alex. Carrie, next question please.

[Operator:]

The next question comes from Kulbinder Garcha of Credit Suisse. Please go ahead. Kulbinder S. Garcha - Credit Suisse Securities (USA) LLC Thank you. My question is a two-part. It's all about costs really. The one for Rajeev is that, I guess, the simple question is why aren't you raising your cost savings target? And the reason behind my question is that the Networks margin last year was probably just under 9% and it's still down if you take out the one-time items in 2015, the industry has clearly turned out to be much worse than everyone thought probably two years ago in revenue trends. And you're making faster progress in your savings. But yet we're not seeing a revision upwards on targets. You had one last year, but we haven't seen one for a while now. And this is very different from what happened when the Nokia Siemens integration was happening. So is there some raised level of need or cost pressure for investment that prevents you from raising the net savings number. And my question for Kristian is, the €100 million litigation for Apple, is that incremental cost or is it partly that you spend on and something else you don't spend on the OpEx on the net technology side? Many thanks.

[Rajeev Suri:]

Thanks, Kulbinder. So, we have the preparedness to do something. We have cost levers in play, should the market worsen, and we will act on those without hesitation, as I also said in my prepared remarks. But we are also investing at this point. Because we think the diversification opportunity with the broader portfolio that we've got with Alcatel-Lucent is clearly there. So, cable, we're already working on a number of trials, we're heading in the right direction, we could see deal activity this year, and probably revenues in 2018. Web-scale, our next-generation product will come out very suitable for web-scale from an IP routing point of view. As I said, there is more spend happening in web-scale compared to telco, so it's a time to invest in that product and make sure we're ready for that market. We're getting traction in optics and IP routing could be right behind that. Large enterprises, in the extra large enterprises we had growth last year. I want to maintain that momentum and actually increase it, so there is a bit of spend happening in the sales channel. Public sector, public safety will be a very sizable category in itself, and then software sales force, because we have the product portfolio and we made some bolt-on acquisitions in the past, like Nakina and so on, but that potentially can also be a positive driver for us and especially given the mix that comes from software. So, investing in these few areas and 5G's hygiene and we want to make sure that we hit the fixed wireless access used case and also be ready for the broader 3GPP acceleration in South Korea and Japan. So, these are the investments, but it's always about capital allocation, so we can pull the levers should we see some of these not getting enough traction or if the market is worsening in the primary market, and those levers absolutely we have to our hand and we'll continue our transformation cost savings and services and so on.

[Kristian Pullola:]

Maybe just to highlight still on that one, so as we said during the prepared remarks and also in our press release, more than half of that over achievement on our cost savings for 2016 related to lower incentive accruals given the performance that we had during 2016, that is something that we expect to reverse and thus to be a headwind when we go into 2016 – sorry to 2017, so please take that also into account. Then when it comes to your question on other litigation costs of Apple incremental, the answer is, yes. However, as I said during my prepared remarks, when it comes to investments in technologies into Digital Health and Digital Media, we will take a very focused approach on making those investments both when it comes to amounts and timings, so also there we have levers to pull if there is a need to do so.

[Matt Shimao:]

Thank you, Kulbinder. Carrie, next question please.

[Operator:]

The next question comes from Francois Meunier of Morgan Stanley. Please go ahead.

[Francois A. Meunier:]

Yes, a question about the OpEx, very good performance in Q4 indeed. If I compare Q4 2016 versus Q4 2015, your OpEx was down €150 million in Networks, and €115 million, €120 million for the company, that's very good. Now, the question is, is Q4 2015 a good base of comp, because if I remember some of the management of Alcatel paid themselves some pretty nice bonuses before leaving, so it's basically like this €120 million decline in OpEx like the good number or the good run rate for the beginning of next year before the additional cost cutting?

[Kristian Pullola:]

So as I said, I think in 2016 we had some lower incentive accruals, that's something which will be a headwind going into 2017. The 2015 numbers had some higher incentive accruals in them, taken throughout the year that will be the yardstick against which we measure the success of our cost savings actions and cost savings program that we have, and it is against that number that we expect to deliver the €1.2 billion.

[Matt Shimao:]

Okay. Thank you, Francois. Carrie, we'll take our next question please.

[Operator:]

The next question comes from Gareth Jenkins of UBS. Please go ahead.

[Gareth Jenkins:]

Thanks. I've just got one follow-up on an earlier question and then one question, if that's okay. The follow-up on the earlier question, Rajeev, is just you talked about your confidence of hitting your revenue target based on bookings you're seeing, et cetera. I wondered if you could specify that more around the IP routing business other than just traffic growth in networks please. And then, the second question is just on sustainability of gross margins, I wondered what the puts and takes are around your gross margin performance. Thank you.

[Rajeev Suri:]

Thanks, Gareth. So, on IP routing, we don't believe – there's been a slowdown on the telco side because traffic have moved to the cloud providers. For us, cloud, Google, Apple, all these sorts of enterprise centric – sorry, web-centric companies, is an untapped opportunity. Right? What gives me confidence is that we're getting traction in Optical. We have already revenues established there. So our next generation product will allow us to get into routing as well. And then, there is the whole utilities, transportation, extra-large enterprises, their private LTE network, when it's formed, most of the business actually is IP routing; a lesser part of the business is mobile. So, those two opportunities give me a sense that, for us, it's an untapped opportunity so there is growth potential. On the telco side, yes, there is a bit of a slowdown, but for us the headwind of this third-party routing products' reduction that's been happening in 2016 will go away. And then, of course, co-routing because we have still much more momentum to have in co-routing compared to our edge routing business, given again, the next-generation product that will come sort of later in the year. So those are things that give me confidence in our own position in IP routing and sort of generally in the market, if you look at the market as a broader thing. On gross margin, of course, Q4 benefited from seasonal events, but if you look at overall 2016, where we've had 38.5% gross margin in Networks business and we've been at both sorts of levels now for quite some time. And to me this is a very important metric we're focused on, this KPI matters above all. We want to keep that gross margin strong, and so why is it that we have this? One, we continue to always have product and services cost reductions to offset price erosion in the market. Second, we have benefits in terms of deal quality; we're very strategic and solid around deal quality, given our approval process. We are seeing our continued pricing discipline and now we have applied that whole model operations also to the former Alcatel-Lucent business, and finally we have also seen many cases over the last year where we're getting price premium. There is attractiveness in our solution set because we have this end-to-end product portfolio. We're increasingly been training our people to sell on value relative to price. In some areas of our portfolio, price erosion is just lower compared to mobile, solution selling, cross-selling, whenever you have a multi-business group deal price is of less consideration because it's really the end-to-end solution that matters wrapped around with SI. So those are the things that suggest to me that that's an area that we will continue to focus on very strongly.

[Matt Shimao:]

Thank you, Gareth. Carrie, let's take our next question and please limit yourself to one question only.

[Operator:]

The next question comes from Stuart Jeffrey of Natixis. Please go ahead.

[Stuart Jeffrey:]

Thanks very much. Got a question on gross margins. Just trying to understand the leverage you have in the business. Revenues were down quite a bit during 2016, but gross margins held up. You've had a volume driven benefit in Q4, so as you start talking about seeing an uplift in 2018, should we also expect that volume to have a positive impact on gross margins? And are there any sort of counters around product mix as we go into 2018 that might impact the gross margin positively or negatively given that a bounce back in spend tends to be more capacity than coverage focused?

[Kristian Pullola:]

So again I think, Rajeev covered pretty well how we look at the gross margin and still if you look at the guidance that we put out today, we still expect to see slight decline in revenue and as a result of that, I don't see any kind of additional leverage from a gross margin point of view going into 2017 so...

[Rajeev Suri:]

Right. And Stuart, your question on 2018, should there be a rebound in the market and we did say the primary market over the long-term is growing at 1% and our adjacent opportunities of that market is growing at about 12% at Capital Markets Day. So it should that there'll be a rebound in the market and should we be able to get into these other adjacent areas we're talking about, naturally there would be a longer term benefit in operating leverage if the revenue would grow and we'd keep the focus on gross margin and the strategic deal making and deal quality continues to be a driver. But that's more 2018 onwards.

[Kristian Pullola:]

Correct. And then we continue to operate in a market with tough competition so that's also something to keep in mind for.

[Stuart Jeffrey:]

Yeah.

[Matt Shimao:]

Thank you, Stuart. Carrie, next question please.

[Operator:]

The next question comes from Andrew Gardiner of Barclays. Please go ahead.

[Andrew M. Gardiner:]

Good afternoon. Thank you. I had another one on the OpEx side, so R&D specifically. Rajeev, you mentioned in some of your opening comments the level of workflow that the mobile engineers in particular are seeing as you head towards 5G. I'm just wondering sort of, what is the change here? Clearly, 5G has been coming, but is this – perhaps the standard-setting process is accelerating. Are you seeing specific requests from customers for certain elements that means, again, the workload is that much higher, or perhaps it's related to the integration still as well? Just a bit more detail around that. And I suppose, from a specific cost point of view, does that limit the potential for incremental savings in R&D, specifically in 2017 and therefore that's something that – should it come through is perhaps more 2018. Thank you.

[Rajeev Suri:]

Thanks, Andrew. It's essentially got to do with the fact that we are migrating the portfolio, so you have to ensure you're doing things on the new portfolio while still sometimes doing things on the old portfolio, simply because the market needs it, for instance, IoT is something you might need on the legacy portfolio, but you'll also have to ensure that you have it on the new portfolio. So it's things like these, doing things in parallel, but it's only for a transitionary period, so by the end of the year that should go away. We've got strong – it's not so much a money thing, it's not an OpEx thing, because migration of portfolio from a project execution standpoint is just a more customer driver. But it's just an effort thing, it's leadership, it's structure, it's ensuring that you keep our efficiency and the R&D pretty (56

[Matt Shimao:]

Thank you, Andrew. Carrie, next question please.

[Operator:]

Our next question comes from Sébastien Sztabowicz of Kepler. Please go ahead.

[Sébastien Sztabowicz:]

Yeah. Hello. At the Capital Markets Day, you forecasted slight positive free cash flow in 2017 and clearly positive one in 2018. Do you see any change (56

[Kristian Pullola:]

So, we still target to get to that slight positive free cash flow in 2017. Given the headwinds we have here on tax and litigation it will be more challenging, but that's a target we have, and no change in any of the longer-term targets that we gave at CMD.

[Matt Shimao:]

Thank you, Sébastien. Operator, we have time for our final question for today.

[Operator:]

Our final question will come from Sandeep Deshpande of JPMorgan. Please go ahead.

[Sandeep Sudhir Deshpande:]

Yes, hi. My question is on – Rajeev, on the non-core network business, I mean, buying Alcatel-Lucent got you your footprint – significant footprint in the U.S., are there any further operators that you need to expand footprint into, I mean there was some news flow in Japan, which indicated that you are going to break into DOCOMO, so is that a possibility, which could potentially expand your market? And secondly on IPRs, given that now the Apple potential is in the long grass to some extent, is there anything in the near term that you are working on in terms of IPR that could be seen in the revenue, potentially, LG and then any others? Thanks.

[Rajeev Suri:]

Thanks, Sandeep. So, in terms of new possible entries and increase of coverage, cable players, so cable players with Gainspeed, but we can also not just sell them cable access products, we can sell them other products, IP routing, optics, and so on. So having the access through cable access will be quite helpful in penetrating more in the U. S., especially because we have a number of small customers there that we do quite well with. DOCOMO, we already do business with for a few years, but if there's a rebound in the Japanese market, I think it's bottomed out that would be helpful. There are other customers, there's a customer in Latin America, we don't have an entry with, there is a customer in Australia and so on. So there are a few customers we don't have a position with and that's also in our target, especially because one of our competitors is weak.

[Kristian Pullola:]

I think on IPR, so we said at CMD that the current €800 million run rate is approximately 30% of the market, so if we now then put Apple aside, there are opportunities there, clearly finalizing the LG is one. Getting traction in China is another one and then we talked about opportunities also outside of mobile and the team is also going after those. So, yes, there are opportunities for new IPR revenue in addition to the Apple dispute.

[Matt Shimao:]

Thank you, Sandeep, and thank you all for your great questions today. I'm really sorry we weren't able to get to everyone in the queue. With that, let me turn the call back to Rajeev for some closing comments.

[Rajeev Suri:]

Thanks, Matt, and Kristian, and thanks again to all of you for joining in for the excellent questions. I'd like to close with a few words. As I've said, 2016 was a year of transition for Nokia. We successfully integrated Alcatel-Lucent faster-than-expected, drawing on lessons learned from past combinations. We launched a new strategy, made all of the key product transition decisions and aligned those with customers, fostered a common culture and more. All of which underlines a point that when you know which direction you should be heading, you can move faster and more effectively and we have done that. I'll be the first to tell you that I am pleased that we have all of the main integration work behind us because now we can get on with it. We know that market conditions in 2017 will remain a little challenging and competitive, although, we expect the environment to be more stable compared to 2016 in our primary markets. The operational foundation we now have in place, our financial strength and our disciplined results-focused culture all put us in a much stronger position to capitalize on our bigger portfolio and customer set, and to tap the greater number of paths available to us to grow and expand. For all of these reasons I feel good about where Nokia ended 2016 and I believe we will raise the bar higher in 2017. With that, thank you very much for your time and attention. Matt, back to you.

[Matt Shimao:]

Ladies and gentlemen, this concludes our conference call. I would like to remind you that during the conference call today we have made a number of forward-looking statements that involve risk and uncertainties. Actual results may therefore differ materially from the results currently expected. Factors that could cause such differences can be both external, such as general economic and industry conditions, as well as internal operating factors. We have identified these in more detail on pages 69 through 87 of our 2015 Annual Report on Form 20-F and our report for Q4 and full-year 2016 issued today, as well as our other filings with the U.S. Securities and Exchange Commission. Thank you.

[Operator:]

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