Q4 2008 Earnings Call Transcript

Published: 22 Jan 2009

[Operator:]

Good morning. I would like to welcome everyone to the Nokia Fourth Quarter 2008 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instruction) Thank you. I would now like to turn the call over to Kristian Pullola, Vice President of Treasury and Investor Relations. Please go ahead.

[Kristian Pullola:]

Ladies and gentlemen, welcome to Nokia's fourth quarter 2008 conference call. I am Kristian Pullola, Head of Nokia Investor Relations; Olli-Pekka Kallasvuo, our President and CEO of Nokia and Rick Simonson, CFO of Nokia are with me today. During this briefing and call, we will 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 currently expected. Factors that could cause such differences can be external, such as general, economic and industry conditions, as well as internal operating factors. We have identified these in more detail on pages 10 to 25 in our 2007 20-F and in our press release issued today. Our aim is to finish this call in approximately one hour. To view the supporting slides while listening to the call, please go to the IR website. Also please note that today's press release and this presentation include non-IFRS results information in addition to the reported results information. A reconciliation of the two can also be found in the press release. With that, Olli-Pekka, please go ahead.

[Olli-Pekka Kallasvuo:]

Thanks Kristian. So good morning and good afternoon. It is well understood that in the fourth quarter the overall global macroeconomic environment deteriorated and negatively impacted our business. The drivers were the once we identified during our capital market stay in December, a global pullback in consumer spending, currency volatility and credit tightness. The reality we all face is that visibility in these global markets remains extremely limited. In the midst of all of this, one highlight is Nokia's cash flow performance in Q4. Excluding the lump-sum payments related to the Qualcomm agreement, our cash flow from operations was a positive EUR1.4 billion, a good performance during a tough quarter. The macro environment is challenging and we believe will remain clearly so in 2009. However, Nokia's longer term strategy remains valid and intact. Nokia has a tremendous opportunity to capture value as the internet services market grows and evolves. Nokia is transforming the way people connect, by adding a social location to the internet and making the experience as personal and instinctive as possible. We will transform the internet into your internet. So despite the current environment, it is very clear we must continue to invest in our future growth; invest at a slower, more appropriate pace, but invest to innovate and grow. At the same time, we are taking action to reduce our overall costs. Nokia must proceed in this direction, and it seems unavoidable that there will be a reduction in our employee base. In addition to the Nokia Siemens Networks restructuring, we have commenced numerous actions to date including, selling our Enterprise Firewall business, reducing our Enterprise focused (inaudible), discontinuing our devices activities in Vancouver, stepping back from the Japanese market, and reducing employees in our markets unit, Nokia Research Center and [update]. As a result of these actions, approximately 1000 employees are expected to depart from Nokia, approximately half via divestitures. The economic realities require us to do significantly more and we will take further action. In order to help the capital to invest prudently in areas that are truly strategic to our future, we must make tough decisions to reduce or eliminate investment in other areas. As a management team, reducing costs is a priority and we are firmly committed to reducing operating expenses. Rick will take you through the targets we are setting today. Already over the course of 2008, we have focused our services investment to five consumer-oriented services

[Rick Simonson:]

Thanks, Olli-Pekka. Upfront, I'd like to comment on the dividend and then move to our actions to reduce cost. The Nokia Board is recommending that shareholders approve a dividend of EUR 0.40 cents per share. This is down from last year as distributable earnings were down in 2008. The Board and management believe that this dividend payout strikes a proper balance. At EUR1.5 billion in total, the dividend will remain substantial and equates to approximately 30% of 2008 non-IFRS earnings. We have a realistic view of the macroeconomic downturn, and we do not expect a quick recovery. Relative to some other competitors, we believe Nokia is better prepared for this environment, because our capital structure is solid. Reducing the dividend in line with reduced earnings in 2008, when combined with our continuous and ongoing focus on financial discipline, this allows us to preserve our strong capital structure. As we said at Capital Markets Day, we have stopped share buybacks and you should not expect resumption in 2009. For maximum operational flexibility, the Nokia Board is asking from shareholders for a share buyback authorization in 2009. However, the Board has not allocated any funds for share repurchases at this time. During the downturn, we will continue to operate in a way that keeps the heat on our competitors, while managing for total profitability and cash flow. We will not overreach or stretch our balance sheet imprudently, in an attempt to gain unsustainable market share. Instead, we will continue to invest appropriately to create longer term competitive advantages in key strategic areas. Now let’s turn to reducing costs. As we said at CMD, a relatively small portion of our devices and services, cost of good sold are fixed, and our focus on efficiency is continuous. In this environment, taking cost action in a meaningful and definable way is about reducing operating expenses, in addition to gaining variable cost of goods sold reductions. Beginning in 2009, based on growth investments and hiring during 2008, our annual operating expense run rate in our devices and services business is approximately EUR6.7 billion. As stated at Capital Markets Day, we will continue to adjust our cost structure through 2009 and 2010. We are targeting Devices and Services operating expense run rate of less than EUR6 billion by the end of 2010, and we were targeting that a majority of the reduction will happen in 2009. Turning these targeted reductions into plans and actions unavoidably means reductions in the numbers of employees at Nokia. We do not have specific reduction announcements to make today; however, the targeted reductions will encompass the areas mentioned during Capital Markets Day. In R&D, we will continue to sharpen our focus on portfolio pruning and prioritization. We will invest in services at a slower pace and in an increasingly focused way. In sales and marketing, we will cut some product program spending, and we will leverage the theme-based marketing to a much greater extent. And in the general and administrative area, every shared unit has identified and is acting on expense reductions of at least 10% in the first half of 2009. Now let’s look at Devices and Services performance in Q4. On a reported basis, Devices and Services net sales were down 5% sequentially and 27% year-over-year. On a constant currency basis, net sales were down 8% sequentially and 25% year-over-year. The decline was attributable to weaker consumer sentiment, unprecedented currency volatility and credit tightness as we've mentioned previously. In quarter four, Services and Software net sales were EUR158 million, up 37% sequentially. At the present time our strategy is to sell our services, combined with device sales. This is the fastest way for us to get our services in the hands of consumers; it allows us to leverage the strong position we have in the device market. Product combos, however, are not the same thing as giving the services away for free. We are making consumer experience better and we are generating revenue based on the additional value we provide. Also related to services we announced in quarter four that we will sell our Enterprise Firewall business to Check Point Software Technologies. This transaction is expected to close in quarter one. We report Enterprise Firewall sales as Services and Software revenue, therefore upon completion of the transaction, our Services and Software revenue is expected to decrease. But remember that all of our Services and Software growth has been driven by the five core services. Throughout 2008, our Enterprise Firewall net sales were below EUR50 million per quarter. Nokia's device average selling price in the fourth quarter was EUR71, down from EUR72 in the third quarter. Devices and Services gross margin in quarter four was 33.8%, down 270 basis points from quarter three. Our gross margins were impacted by the lower volumes, the pricing pressures mentioned, and some cost pressures. Our Korean-based competitors are benefiting from the 26% depreciation of the Korean won versus the US dollar and the 25% depreciation versus the euro. Those are for 2008. In many emerging market countries, local currencies have substantially devalued. This has reduced the purchasing power of those consumers in those countries for goods and services priced in US dollars or euros. So that puts pressure on prices and margins. In addition, foreign currency fluctuations are impacting us on the cost side, making it more difficult to achieve our overall component cost reductions in euro terms, even as commodity input prices are coming down. We source approximately 25% of our cost of goods sold in Japanese yen. The yen has appreciated approximately 32% against the euro and 17% against the US dollar in the last six months of 2008. Hedging has mostly offset this in the past. Our current yen hedges begin to roll-off in mid 2009. We are taking action to reduce sourcing costs, including negotiation with our suppliers and shifting non-Japanese suppliers for certain components where possible. On a sequential basis in quarter four, devices and services non-IFRS OpEx was up 10% in absolute terms and 290 basis points as a percentage of sales. We had committed to a higher level of spending in Q4 and we emphasize during Capital Markets Day that our earnings would suffer. We expected a seasonal uptick in sales which did not come and it was not possible to reduce costs fast enough, given how quickly the macro environment deteriorated. Devices and services non-IFRS operating margin decreased 650 basis points sequentially to 12.1% in quarter four driven by lower gross margins and higher operating expenses. In addition, our bad debt provisions increased somewhat by EUR85 million in the quarter. For the first half of 2009, we are now targeting non-IFRS operating margins or devices and services business to be more than 10%. For the second half, we continue to target non-IFRS operating margins in the teens for our devices and services business. Regarding NAVTEQ, this business typically has strong fourth quarter seasonality, resulting in higher sales and operating margins. This held true in 2008. Reported net sales in quarter four were EUR206 million, an increase of 31% sequentially. Non-IFRS operating margins were 25.6%, up 720 basis points sequentially. A few more comments on Nokia Siemens Networks; NSN's reported net sales were up 24% sequentially and down 5% year-over-year. On a constant currency basis, net sales were up 23% sequentially and down 4% year-over-year. The sequential increase was due to typical seasonality in this business. The year-over-year decline was driven somewhat by NSN's ongoing focus on deal discipline, profit and cash first. It also reflects the impact of some portfolio streamlining and growing market challenges as operators tighten their spending. NSN's non-IFRS gross margin was 30.4%, down 1% sequentially due to increased provisioning in write-downs. NSN's non-IFRS operating margin was 5.2%, a slight sequential increase. Working capital management improved sequentially in quarter four and this remains an area of considerable focus. On a year-over-year basis, we have seen continued progress and structural changes that have helped drive the margins higher, despite to somewhat lower revenues. NSN has shown good discipline and execution in network implementation and services. Also higher margin software sales have grown as a proportion of NSN's overall business. NSN is focused on deal discipline, margin expansion, cash generation. That focus is showing good results. And as Olli-Pekka mentioned, reaching the merger synergy goal was an important achievement. Actions to further increase efficiency of course continued. Nokia's financial income and expenses in quarter four was an expense of EUR16 million, compared to an expense of EUR57 million in quarter three. The sequential improvement is a result of lower hedging costs and lower foreign exchange losses. On this slide, we show both the Q4 reported and non-IFRS P&L. We also lay out the items that are excluded from the report and to get to these non-IFRS numbers. Next, let's move and look at some of Nokia's balance sheet and cash flow items. As Olli-Pekka noted, our cash flow performance was the highlight for quarter four. Over the past five years, our philosophy on capital structure has been conservative and as a result, our liquidity position today is solid. We are good at turning operating profits into cash and we delivered so in quarter four. Our cash and other liquid assets totaled EUR6.8 billion at the end of the fourth quarter. The sequential decline was driven by the EUR1.7 billion lump sum cash payment related to the Qualcomm licensing agreement. Excluding this, our cash flow from operations was a positive EUR1.4 billion, reflecting solid working capital management. Again, I'll remind you of the Qualcomm payment. It was related to the license agreement we entered into Q3. The bulk of the Q4 cash payment is essentially a prepayment of cost of goods sold. And therefore, will be expensed in the subsequent quarters until the end of the contract period in the year 2022. As a result, our future cash payments to Qualcomm will be lower than what is expensed in the P&L. In quarter four, overall working capital management improved on a sequential basis. Accounts receivable and inventory were both down sequentially. Partially offsetting this, accounts payable was also down on a sequential basis. In total, the improvement was approximately EUR1 billion sequentially. Again, I think a good performance in quarter four. In connection with the NAVTEQ acquisition, we introduced a moderate amount of leverage to our capital structure through the issuance of US commercial paper. At the end of quarter four, the outstandings were $3.5 billion. Since mid-September, despite extremely challenging market conditions, we have been successfully refinancing our maturing commercial paper. Even though the credit market is tight, it continues to be open for Nokia. Here, this slide covers the currency situation and the constant currency's reconciliations. With that, I'd like to hand it back to Olli-Pekka.

[Olli-Pekka Kallasvuo:]

Thanks very much, Rick. So these are challenging times. We are seeing a truly global downturn, one that crosses all geographies and industry segments. Visibility remains very limited. In this environment, Nokia's solid capital structure is a key asset. We are secure in our financial position and Nokia's stability is reassuring to our partners, operators, distributors and suppliers. Also, we have systematically aligned Nokia with best-in-class partners, which in our view have better sustaining power than smaller, less stable players. We will continue to take appropriate actions in this uncertain environment in order to preserve our financial strength and our ability to invest prudently in strategic areas. It is clear that a tremendous opportunity to extend the value of the handset market through the integration of device hardware and internet services. This will drive the next wave of industry growth and innovation will not stand still

[Kristian Pullola:]

Thank you, Olli-Pekka. We will now continue with Q&A session. Please limit yourself to one question only. Operator, please go ahead.

[Operator:]

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

[Kulbinder Garcha:]

Thanks. I have a question just relates significantly to margins -- on gross margin, on the OpEx reduction, on the gross margin side. Rick, if I understood you correctly, the hedging losses are rolling off in the first half. So that's going to be a negative delta sounds like for gross margin from where we are now and also the competition, it sounds like we can afford to be a bit more aggressive. So what are the positives there just in improving product portfolio and could you give us some insight especially in the smartphone side, given where your share is, what needs to happen for that to really meaningfully to start to recover and on the EUR700 million or more of OpEx reduction. So year-over-year, in 2009 versus 2008, can you talk about the speed at which we are going to see half of that impact in a full year basis, just some ideas to what plans are being put in place and the speed at of which that EUR700 million translates into 2009 versus 2008 OpEx reduction in Devices and Services. Thanks very much.

[Rick Simonson:]

Kulbinder, yeah, this is Rick. I'll take that question in three parts. As we said that in terms of the gross margins, clearly as we said, and everybody is quite aware of the yen appreciation we've laid out to you before and wanted to elaborate here as I did, what percentage we source in yen. First and foremost, the actions that we already have taken are to drive reductions with those suppliers. And remember that not all of what they supply to us is actually sourced in yen, and we certainly aren't going to make a markup on those things that come, that they bring together that come from outside of the yen zone. That's very clear. We are also working and negotiating with them to assure that they help share in this. We are hedged. And then further we are moving where we are able to and working to continuously find alternative sources. Again our guys are more experienced than others. So those are the three points of action that we have to offset what clearly on an unhedged basis is negative for gross margins. I agree with you there. In terms of the product portfolio and it really is, in fact, that. For instance, the 5800 Olli-Pekka mentioned is fast becoming and likely to be, our top gross margin product. The E71 continues strongly, combined with the services that it delivers, and we have shown you some of the other devices and services combined like the preview of the N97, but I'm sure there will be other questions and Olli-Pekka will address those. In terms of the OpEx and the pacing of that, as I said, entering in Devices and Services at 6.7 billion run rate end of 2010 below six, so that's more than 700 million reduction in the OpEx and the majority of that, in other words, over 50% we expect to come in 2009. You can draw your glide path there. Did I cover it all?

[Kulbinder Garcha:]

Yeah. Thanks very much.

[Rick Simonson:]

Okay.

[Operator:]

Your next question comes from the line of Mike Walkley with Piper Jaffray. Mr. Walkley, your line is open.

[Mike Walkley:]

Okay. Thank you. With carriers lowering their SKUs and liquidity impacting distributors, we are expecting weaker sell-in and sell through. Can you update us on the view of global inventory levels, and how much they might have been lowered in Q4 and how much lower you think they'll become in terms of weeks in the first half of '09? And are there any regions where you're seeing higher inventory levels than others?

[Rick Simonson:]

Yeah, Mike, this is Rick. In Q4, as we said, the de-stocking and the reduction of the inventory in the total chain has impacted and it is underway. We believe that in Q1 we'll see more of that, but we also see that it looks as if it should be substantially over in Q1. And of course, this relates to what we talked about the seasonality of Q1 being stronger down than in the past. But it also says that there is significant inventory that has come out and de-stocked here in fourth quarter that will continue in Q1. And so we think the whole chain can be in a little better shape going into quarter two if it works that way. And again Olli-Pekka commented that in terms of the regional view that we have, this movement somewhat caused by the gray market, makes it look as if our market share in different regions has been more volatile than what we think it is, if you adjust for that. But in terms of the overall industry volumes, we had talked before about that coming down in the order of weeks or somewhere 20% or more and that's what we are still targeting. We talked about that at Capital Markets Day, I hold that same view, but it still has to work through in quarter one. Thanks.

[Mike Walkley:]

Thank you.

[Operator:]

The next question comes from the line of Rod Hall with JPMorgan.

[Rod Hall:]

Hi, thanks for taking my question. The first one is for Rick. Rick, I see that the inventory levels have come down quite a lot in Q4. Normally we would see some seasonal reduction in inventory, but the turns are up quite a bit. Do you think that's a sustainable situation or do you think we may revert to a little bit lower inventory turns as we move forward?

[Rick Simonson:]

Yeah, Rod Rick here and then I'll turn you over. It sounds like you had a question for Olli-Pekka as well. In terms of the inventory and the receivables which contributed to lower sequential networking capital, two drivers there. In Devices and Services that was primarily the seasonality and volume related. In NSN, we believe that was just improvement and wasn't primarily driven by seasonality. And so, as I said on the NSN side, we have to work to hold that improvement and then continue in the Devices and Services. Overall on the year, as you know, the inventory has been up slightly, the receivables have gone up. But, again, as we work through this de-stocking, we've seen that trends start to improve as reflected in the fourth quarter. So we are going to work to try to make that sustainable and not a one-time event.

[Rod Hall:]

Okay, thanks Rick. And then had Rick, while I thought, I had another question for you, which is, I think I heard you say earlier that part of the gross margin problem was some component pricing changes and I wasn't clear on whether those were all currency-related or whether there were some underlying increases in component prices. Could you just comment on that?

[Rick Simonson:]

I wasn't referring to any underlying component increases. That was just a small bit that I said wasn't 100% covered by currency.

[Rod Hall:]

Okay

[Olli-Pekka Kallasvuo:]

Rod, it's the opposite I would say.

[Rod Hall:]

Okay.

[Rick Simonson:]

We are getting our declines in constant components in a better way than when we had the little bit of slowdown last year, early in the year, and we flagged that in Q3 and that continued well in Q4.

[Rod Hall:]

Okay. And then I guess the last thing, it doesn't sense like there's a whole lot of, you know, visibility at all. Are you seeing any evidence of stabilization in any of the regional markets? I mean, it looks like the emerging markets are clearly accelerating in the decline. Is there any evidence in the developed markets that maybe the slowdown is decreasing?

[Olli-Pekka Kallasvuo:]

Yeah, of course the visibility is quite short and of course it's very difficult to read this. And there are items that we have repeated many times

[Rod Hall:]

Okay. Thanks, guys. And thanks Olli-Pekka for the extra answer.

[Olli-Pekka Kallasvuo:]

You are welcome.

[Kristian Pullola:]

Okay. Next question.

[Operator:]

Your next question comes from the line of Sherief Bakr with Citi.

[Sherief Bakr:]

Thanks very much. I just had a question following on your comments about smartphones. Do you think that your smartphone share has now troughed or hit bottom, we have seen it decline now for a number of quarters? And I guess relating to that, in which regions do you see the greatest opportunity to regain share? And should we be thinking about your smartphone share reaching at the very least your overall average device market share in 2009? Thanks.

[Olli-Pekka Kallasvuo:]

Yeah. I have a couple of comments there. I think we have had here some impact also from the more developing markets. You have to remember that, the developing markets are not low-end only; smartphones are sold there as well. And I think we have some impact from people downgrading in their repurchases. And hence, my previous comment, we will expand smartphones to cover more areas and that's complete in line with this one. Then, I'm extremely optimistic with the 5800 and I want to single that out because I think the product deserves that. It has gotten a flying start. We are ramping up that as fast as we can. We have in fact increased our sort of supply of components there quite a lot, because we see the demand. At the moment, we are in a situation with the 5800 when the demand is well above the supply and we are meeting those demands as quickly as we can. And yeah -- no, we can ramp up also quite quickly. One product deserves to be singled out here. And then, of course, the overall investment continues. I am quite sort of optimistic on our smartphone portfolio overall.

[Kristian Pullola:]

Thanks. Next question.

[Operator:]

Your next question comes from the line of Jeff Kvaal with Barclays Capital.

[Jeff Kvaal:]

Yes. Rick, first a clarification for you, you mentioned that down 20% figure, was that in reference to weeks of inventory or was that in reference to this first quarter?

[Rick Simonson:]

No. Jeff, what I was talking about was again a question at CMD was saying overall in terms of the inventory level in the industry would you expect that kind of decline and had said, “Yes”. And so, again, what we are looking how that will play out in quarter one.

[Jeff Kvaal:]

Okay. Thank you. And then Olli-Pekka, would you be able to give us an early update to how the Music Store is going, particularly Comes With Music in the UK? Thank you.

[Olli-Pekka Kallasvuo:]

Yeah, we have, like you are indicating, the Music Store. We have expanded in many markets now and it's getting traction. But even more importantly, the Comes With Music now, it has gotten a good start in the UK. But it's quite clear having said that we need to expand the product portfolio, I mean, the hardware portfolio that is available when it comes to Comes With Music. And that's what we are doing here. And, obviously, the 5800 Comes With Music will be extremely important here. And Singapore and Australia are next and we will continue to expand. So, the plan is now, in the near future to do 13 more markets and seven or more devices where Comes With Music will be available and in that way we can meet different sort of price points, different consumer segments. And I remain quite confident that the consumers really will understand the beauty of the offering and we are making music legal here as well and that's a value as such.

[Jeff Kvaal:]

Is it particularly tricky to bring up a new device with Comes With Music?

[Olli-Pekka Kallasvuo:]

No, it's not at all, because once you've got the platform, the work done, in Series 60 or Symbian, and we've got the music platform ready, we can multiply easily. So that is straightforward thereafter.

[Kristian Pullola:]

Okay. Thank you. Next question.

[Operator:]

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

[Mark Sue:]

Thank you. Olli-Pekka, do you see this year as an opportunity to consolidate market share, let's say back to 40%, so that your positioning is better for next year? And subsequently, how do you gain share in a shrinking market without pricing action or increasing operating expenses for new products? It just seems like something has to give this year more so than some of the metrics you've outlined.

[Olli-Pekka Kallasvuo:]

The answer is, yes. I think the opportunity must be there looking at the year as a whole, looking at our possibility to continue to invest, of course, prudently and in the right way nevertheless. And this basically comes down to that we have a better possibility to do that than the competition. It's quite clear to me. And in fact, we are seeing some of the competition now, in fact, withdrawing from certain markets. It's quite clear. And I think that's a further opportunity to do this, but in the right way. So, of course, even here in this situation, we will continue to balance the margin and the markets in the right way, but definitely the opportunity is there as some of the competitors are either withdrawing or exiting certain markets.

[Kristian Pullola:]

Next question, please.

[Operator:]

Your next question comes from the line of Andrew Griffin with Merrill Lynch.

[Andrew Griffin:]

Hi there. I just wanted to talk about your gross and net cash position. How much is the gross and net cash if you are able to give it within NSN? And also, do you have any significant amounts that are for instance locked up in particular countries and therefore not available for transfer to the rest of the Group?

[Rick Simonson:]

Yeah. We don't break that out as NSN. So I won't start here today. And then we've given the numbers then for the Group's total, of course. In terms of what you're referring to as trap cash, we don't have a significant issue around trap cash. We are not like a US-based pharmaceutical company, for example, who, as I understand that industry has most of their cash trapped outside of the US, and many other US companies that had to use the amnesty that the US tax authorities gave some time ago and are talking about again because many hi-tech and pharmaceutical companies in the US have the majority of their balance sheet cash offshore and trapped in differing degrees. We are quite the opposite of that. We have relatively very little trapped cash.

[Andrew Griffin:]

Are you able to give an approximate level indication of whether NSN has a reasonable level of net cash or similar to the competition?

[Rick Simonson:]

No. We won't be able to give you that granularity right now.

[Andrew Griffin:]

Okay. Thank you.

[Kristian Pullola:]

Next question, please.

[Operator:]

The next question comes from Gareth Jenkins with UBS.

[Gareth Jenkins:]

Yeah. Hi. I'll see if I could. I just wondered on the smartphone market issue again. I just wondered you sort of talking about dropping down through the price points and driving into the lower end, I just wondered whether you can give us a timetable for different ASP categories you expect for smartphone markets to address during the course of 2009. Second one is just on NSN. I just wondered, you're losing market share in Q4 with China growing and the Chinese growing so quickly, you could well lose market share in 2009. And I just wondered whether at a stage where it becomes subscale and that you have to focus on revenue again rather than free cash flow. And then the last one just on dividend payout, I think you said the payout ratio is 30% on adjusted. Is that the payout issue we should assume for modeling for next year as well as this? Thank you.

[Olli-Pekka Kallasvuo:]

Okay. I'll take the smartphone response again. In fact, here it seems to be and rightly so and quite topical. So, when I was referring to expansion, I was not referring to expansion concerning price points only. I was talking about different categories and different consumer segments, but also price points. And you have to remember here that the software is not decisive when it comes to your cost of goods sold. So in that way, we can do Series 60 even at the lower price points looking at the hardware only, putting in the right feature set, at the right price point and it is possible. And the right thing to do to expand Symbian also lower in the price point, giving the feature set of course from the cost point of view, you might want to look at that in the right way. But the software, of course, as such is not prohibitive. It's neutral. And in that way, I see this as tremendous opportunity to increase efficiency, to get more scale on Symbian and gain share through that one.

[Rick Simonson:]

And then this is Rick.

[Olli-Pekka Kallasvuo:]

But, I cannot give you here exact numbers for 2009. We have clearly made a decision and we are implementing accordingly in our R&D and product possession activity. And then, Rick.

[Rick Simonson:]

Yeah and to NSN and, again I welcome any insights here. But in terms of the market share, NSN's market share has only lost a little bit, and, again market shares change quite slowly here. I think they have done a fantastic job of balancing profitability and deal discipline with market share, and we are going to continue to do that. NSN is one of the leaders and will be one of the leaders here. They know how to play this game. It's too early to talk about what the market share is going to be in China, but rest assured that the team is very focused, and I think our product portfolio and services and solutions offering has improved, it's a sharp focus. We are getting excellent feedback from our operator customers and, we will see how that goes in China. And elaborating also on the point in terms of NSN's cash position, the better way to answer that question is they have the ability to invest where they need to invest, where it's going to add value. We've assured that, both Nokia and our partner Siemens, total unanimity there. And as evidenced by what they are pushing ahead, they have done a number of acquisitions. They aren't large acquisitions but they were sizable in terms of using cash, and I think that's a proof point of that statement. And then I think the third question was related to the dividend and then we'll move to one final question from another question there. The fact is the dividend that the Board has asked the shareholders to approve is EUR0.40 cents and that's approximately EUR1.5 billion and we've provided that calculation just as indicative. It's 30% of the non-IFRS '08 earnings. That is not a policy. We don't operate that way. We don't lock that in but, rather, as stated, we feel that this is a very good balance and a very healthy dividend.

[Gareth Jenkins:]

Thanks.

[Kristian Pullola:]

One final question please.

[Operator:]

Your last question will come from James Dawson with Morgan Stanley.

[James Dawson:]

Hi, guys, maybe I'll have a couple, if I can sneak them in. Can you talk about China? Obviously there were a lot of moving parts there, but the decline is kind of eye-watering. I wonder if you could just talk about what happened and what we should expect through this year. And then just secondly because everybody else is asking about Smartphones

[Olli-Pekka Kallasvuo:]

I will take China. Indeed the numbers you are referring to saw some volatility here, hence the question. And it's quite clear looking at overall the situation in Q4, and China is probably the best possible example of that. You saw quite a lot of dynamics that relate to the channel. And in fact in the many markets the sell-out market shares differ quite a lot from sell-in market shares. And when we are talking about market share, we are talking about our sell-in markets as opposed to the sell-out. China in Q4, our sell-out market share for was in fact they were more stable than the sell-in, and I would say it's definitely within the limits of normal volatility when it comes to your markets in a given market. This time, once again, we were not included in the China Mobile deal, that's a decision that we take on a case by case basis. This time we were not and that low or in fact or the lack thereof shows in the numbers as it has shown many times before and I've gotten the question every time. So in that way, I would not elevate China here about any other markets when it comes to the market dynamics. It’s a normal competitive situation in a very, very difficult overall market.

[James Dawson:]

Perhaps maybe can you talk about, if it was down 36% on the sell-in basis what would it have been on the sell-out?

[Olli-Pekka Kallasvuo:]

Relatively more stable, yes.

[James Dawson:]

Yeah but --

[Rick Simonson:]

And then, James, to the -- to the smartphone question, which, Olli-Pekka, I think his enthusiasm for that should answer that question; but let me just put a point on it. You know, I think its focused also on what we are looking at here is really expanding the definition of smartphones, this relative shift to more Series 60 versus Series 40, the combo of bringing services so you're selling solutions and like is just indicative but tip of the iceberg indicative the 5800 which is a mass market internet solution device, touch screen. So that's why I think, you should hear the enthusiasm in the voice. We need to work that through as we go through 2009, but we have these five services and increasingly combining those with larger portfolio devices. So I think, by the end of 2009, we'd like to prove that you can look at the definition of the smartphone market in a kind of new and enhanced way. We have to deliver on that and in a US market obviously the product launches for the marketing people rather than the CFO.

[Olli-Pekka Kallasvuo:]

Yeah. But what Rick is saying is absolutely correct. Of course, devices only from a hardware point of view, that's not enough anymore. It's definitely clear that our strategy including services solutions on top of the hardware platform will change the definition of the smartphone and this will happen in the US as well.

[James Dawson:]

Thank you.

[Kristian Pullola:]

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 external such as general, economic and industry conditions as well as internal operating factors. We have identified these in more detail on pages 10 to 25 in our 2007 20-F and in our press release today. Thank you and have a nice day.

[Operator:]

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