Nokia's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Nokia (NOK)

Q1 2012 Earnings Call

April 19, 2012 8:00 am ET

Executives

Matt Shimao -

Stephen A. Elop - Chairman of Nokia Leadership Team, Chief Executive Officer, President and Director

Timo Ihamuotila - Chief Financial Officer, Executive Vice President, Member of Nokia Leadership Team and Chairman of Disclosure Committee

Analysts

Stuart Jeffrey - Nomura Securities Co. Ltd., Research Division

T. Michael Walkley - Canaccord Genuity, Research Division

Sandeep Deshpande - JP Morgan Chase & Co, Research Division

Mark Sue - RBC Capital Markets, LLC, Research Division

Gareth Jenkins - UBS Investment Bank, Research Division

Jeffrey T. Kvaal - Barclays Capital, Research Division

Francois Meunier - Morgan Stanley, Research Division

Simon F. Schafer - Goldman Sachs Group Inc., Research Division

Zahid S. Hussein - Citigroup Inc, Research Division

Kulbinder Garcha - Crédit Suisse AG, Research Division

Tim Long - BMO Capital Markets U.S.

Kai Korschelt - Deutsche Bank AG, Research Division

Presentation

Operator

Good morning. My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the Nokia First Quarter 2012 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Mr. Matt Shimao, Head of Investor Relations. Sir, you may begin.

Matt Shimao

Ladies and gentlemen, welcome to Nokia’s First Quarter 2012 Conference Call. I am Matt Shimao, Head of Nokia Investor Relations. Stephen Elop, President and CEO of Nokia; and Timo Ihamuotila, 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 these in more detail on Pages 13 through 47 of our 2011 20-F and in our quarterly results press release issued today.

Please note that our quarterly results press release, the complete interim report with tables and the presentation on our website include non-IFRS results information in addition to the reported results information. Our complete interim report with tables available on our website includes a detailed explanation of the content of the non-IFRS information and a reconciliation between the non-IFRS and the reported information.

With that, Stephen, over to you.

Stephen A. Elop

Thank you, ladies and gentlemen, for joining us today for the Q1 2012 earnings call. We were clearly disappointed with our performance in Q1 2012. It reflects both the transition that Nokia is currently undergoing as well as the increase in competitive pressures within our industry. I would like to take some time to put these results into context.

In February 2011, we identified shifts in our industry and internal challenges at Nokia that were contributing to the deteriorating conditions and prospects for our company. Most notably, we described how the mobile industry shifted from a battle of devices to a war of ecosystems. In response, we implemented a series of strategic changes and embarked on a major transformation. This included 5 distinct aspects of our new strategy.

First, we entered into a comprehensive partnership with Microsoft to improve the competitiveness of our smartphones and to differentiate against Android and Apple. With this unique partnership, we gained advantages and have for instance received continued support from Microsoft in the form of go-to-market and R&D cooperation that this year alone will total USD $1 billion.

We are pleased with the rate at which we have turned the Microsoft partnership from strategy to implementation. We have launched 4 Lumia devices ahead of schedule to encouraging awards and popular acclaim. Doubling the number of Lumia devices sold quarter-on-quarter is a respectable pace. However, the sales results have been mixed. We exceeded expectations in markets like the United States, but establishing momentum in certain markets, including the United Kingdom, has been more challenging.

Our initial foray into the United States was with the Lumia 710 at T-Mobile U.S.A. Together with T-Mobile, the retail execution of this product was well done, and we exceeded our sales expectations. Now, we are working very closely with AT&T to replicate that success on a larger scale with the Lumia 900. To date, we are exceeding our and AT&T's expectations. At retail, teams are responding quickly to the stock-outs. Additionally, after launching the Lumia 900, the device became the best selling and best-rated product on Amazon.com in the United States.

As part of our efforts with Microsoft, we are focused on attracting developers to the ecosystem. This is also an area where we have exceeded our expectations. Most notably, we will soon have more than 2/3 of the top 100 applications from competing ecosystems on the Windows Phone marketplace, and that continues to grow. Additionally, through developer evangelism, training, products seeding and a variety of tactics, the rate of Windows Phone application development is accelerating. Today, we have more than 80,000 apps across 54 markets and in 23 languages. We expect this number will accelerate as Microsoft introduces Windows 8 for PCs and tablets and the next versions of Windows Phone.

The second aspect of our strategy is to increase our investment in connecting the next billion people to the Internet through our Mobile Phones business unit. The lower-priced tiers of our industry are undergoing a structural change. That is, feature phones are increasingly being pushed down by smartphones. And yet the market opportunity for low-priced devices remains a very lucrative business opportunity. Therefore, it is the mission of the Mobile Phones unit to capture this opportunity.

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