Matt Shimao - Head, IR Rajeev Suri - President and CEO Timo Ihamuotila - EVP and Group CFO

Gareth Jenkins - UBS Kulbinder Garcha - Credit Suisse Andrew Gardiner - Barclays Alexander Peterc - Exane BNP Paribas Pierre Ferragu - Bernstein Mark Sue - RBC Capital Markets Sandeep Deshpande - JP Morgan Francois Meunier - Morgan Stanley Richard Kramer - Arete Research Joanne Zuo - Deutsche Bank Vincent Maulay - Oddo Tim Long - BMO Capital Ehud Gelblum - Citigroup

Good day. My name is Stephanie and I will be your conference operator today. At this time, I would like to welcome everyone to the Nokia First Quarter 2015 Earnings Conference 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 Instructions]. I would now like to turn the call over to Matt Shimao, Head of Investor Relations. Mr. Shimao, you may begin.

Ladies and gentlemen, welcome to Nokia's first quarter 2015 conference call. I’m Matt Shimao, Head of Nokia Investor Relations. Rajeev Suri, President and CEO Nokia; and Timo Ihamuotila, EVP and Group 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 74 through 89 of our 2014 annual report on Form 20-F, our interim report for Q1 2015 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 report with tables available on our website includes a detailed explanation of the content of the non-IFRS information and reconciliation between the non-IFRS and the reported information. With that Rajeev, over to you.

Thank you Matt and thanks to all of you for joining. Nokia delivered strong year-n-year sales growth in the first quarter with weak net Nokia Networks profitability compensated by very good performances from Nokia Technologies and HERE. I will come back to the results of the quarter but would first like to take a moment to comment on two recent announcements, the proposed acquisition of Alcatel-Lucent and the strategic review of HERE. As I want to focus my time on these topics, I’ve asked Timo to cover most of the quarterly details related to HERE and Nokia Technologies. Let me start with Alcatel-Lucent. Given that Timo and I have talked with many of you when we announced the transaction and in that sense, I won't repeat the deal details or strategic rationale here. Rather, let me shares some thoughts about what we have learned since the agreement. First, I’ve met with many customers over the last two weeks and every single one has expressed their support. They see it as a way to ensure three strong global competitors and not as a reduction in competition. They see it as a way to protect their investments of the past while enabling the needed innovation in future technologies and services. They see the portfolio mix of the two companies as compelling and well-suited to meeting their future requirement. Second, we've had initial conversations with key government officials in many countries. And while it is still early, the tone has been quite positive. So some reason for optimism. Additionally, as you may have seen, a number competitor in both Europe and China has expressed for the transaction. Third, we've heard concerns about execution risk. Given the issues associated with similar transactions in the past that is a very fair concern. But I do believe that this time can be different. The transaction is not structured as a joint venture; it is an acquisition by Nokia with clarity in terms of leadership and governance. This will allow us to move fast to avoid politics and to show that history does not have to repeat itself. Both companies, Nokia and Alcatel-Lucent have been through significant recent transformation and restructurings and both have learned from those experiences. On the Nokia side, we have focused on creating a disciplined operating model that will serve us well as we proceed with integration planning and eventual integration execution. We have already appointed an integration leader and are moving fast to get detailed planning underway. As we do so, we will ensure the integration planning work is separated from our day-to-day business operations in order to minimize the risk of any disruption. In addition, technology has changed. As the telecom world has transitioned away from customized hardware and motor software and as open interfaces faces have become more prevalent, the pain of destructive and expensive swaps can be mitigated. Fourth, we've also heard questions from some of you on the call today about why now. And in my view, the answer that lies in the technology transitions that are underway and the progress that has been made at both Nokia and Alcatel-Lucent that I just noted. We are now in a cycle between 4G and 5G and the timing of this deal will allow us to accelerate spending on 5G immediately upon closing. In addition, the combined portfolio will put the company in an excellent position as the transition to cloud accelerates. Finally, we've heard some concerns about the commitments we have proposed to make to the French government in order to ensure their support for the deal. We believe those commitments are manageable within the business case of the transaction. And they include sufficient flexibility to align with our business needs. Also R&D capabilities that we will gain in France will make strong contributions to enhance the future of the combined company. Now let me turn HERE and the strategic review that we have announced. We embarked on that process in the context of two developments. The first is that location services are becoming of even greater strategic importance to automotive companies and others; second, it is clear that Nokia's portfolio will become increasingly networks focused once the Alcatel-Lucent transaction closes. In light of these two things, we wanted to take a step back and at least ask the question of whether owning HERE still made France. Following our review, we could choose to sell HERE in full or in part or we could decide to keep it unchanged from today. No one should assume that there is a predetermined outcome. We are looking for the best solution for Nokia and its shareholders for HERE and its employees and customers. We're in no rush, under no pressure of sale and regardless of the option we choose I have no doubt that the future of HERE is bright. With that, on to the quarter. At the group level, we delivered good results with sales of EUR 3.2 billion, up 20% year-on-year and non-IFRS diluted EPS up 25%. Non-IFRS operating profit of EUR 265 million or 8.3% of sales was down 13% year-on-year. HERE and Nokia Technologies, both performed very well in the quarter while good growth at Nokia Networks was offset by unsatisfactory profitability. Despite the slow start at Networks however, I am confident that we remain on track to meet our target for the full year. And let me now turn to Networks in more detail. As I noted, Networks delivered good year-on-year growth in the quarter of 15%. When you exclude the currency impact, net sales were up by 5%, still a healthy number; and the early signs are that we grew faster than the market in the quarter. Our Mobile Broadband and Global Services business units both grew with a particularly strong showing by the Services team which delivered year-on-year growth of 21%. Our business mix during the quarter was 52% Mobile Broadband versus 48% for Global Services. For the same quarter one year ago Mobile Broadband was at 54% although on a sequential basis the mix between segments has not changed. Within the segments however, there were some mix shifts in Q1. With more network implementation and less systems integration and services and more LTE and less core networking revenues in mobile broadband, these shifts were part of the reason for the quarter's weak profitability. On a regional basis, we saw year-on-year growth in four of our six regions with particular strength in North America, Greater China and the Middle East and Africa. India in particular was a standout performer, both on the Mobile Broadband and Global Services sides. Overall however growth was not the issue for Networks in Q1. The issue as you have seen was profitability. We saw a non-IFRS gross margin or operating margin the quarter of 33.7% and 3.2% respectively. We've done an intensive analysis to ensure that we understand what happened during the quarter and more importantly what we need to do to improve going forward. In today's press release, we called out a number of drivers for the profit decline. And I would like to take the next few minutes to give you some additional color. First, software sales were down by approximately 5 percentage points from the same quarter one year ago. This was driven largely by lower core networking revenue and lower software sales in Japan and North America. We do not see any evidence that this decline represents a structural change in our market but we continue to watch the situation closely and are taking actions to get software sales back on track. Second, strategic entry deals, particularly in China had a more significant effect in Q1 of this year than the same quarter last year. While we continue to require that such deals have the right long-term profitability profile, the short-term impact can be sizeable. That said, we expect the situation to ease as we head towards the second half of the year. Third, as I think you will have seen from the results of other companies in our sector, market conditions are challenging. While we believe that with our lean cost structure and disciplined operating model we are well positioned in this environment, there is evidence of a near-term shift in market behavior. Fourth, operating expenses, as I'm sure you understand a large portion of the OpEx increase reflected negative ForEx impacts; some of the increase also reflected increased investment in the growth technology areas including 4G, 5G and cloud core. Given the market environment that I just mentioned, we will continue to manage OpEx extremely prudently. Finally Global Services where we saw a 350 basis-point decline in operating margin. This was a result of a mix shift in the quarter which was heavier than normal in network implementation and lighter in systems integration. Systems integration has a challenging quarter although it is a relatively small part of our overall services business. In particular, systems integration was impacted by significantly lower very high margin business from one customer compared to the previous year. At the same time, our systems integration pipeline has continued to increase since the start of the year. And to give just one example, we won a very large new customer in Q1 that should benefit the business in quarters to come. Overall, I believe that our Global Services organization remains strong and its performance compares quite favorably to others in our sector. So, despite the slow start, we remain confident in our ability to deliver on our commitments for the full year. Let me just share a few other points that support that confidence. First, on the revenue side, our funnel of opportunities remains strong and our win rate remains high. Second, we’re launching several margin improvement actions including an expanded software up-sale program and sharper focus on earlier than planned recovery of entry and other low margin projects. Third, we continue to be very aggressive in driving cost and efficiency improvements to our business transformation board. We have active projects with clear targets and tracking mechanism spanning a wide range of areas, discretionary and overhead spending; improving cost of sales in both products and services; and further R&D transformation just to name a few. Finally, when we look at the strategic entry deals we have taken on, we see margins starting to improve as we head to the second half of the year, driven by contractual terms and ongoing cost and execution improvements. To sum up, we clearly cannot be satisfied with the network numbers we announced today but feel there are good reasons to have confidence for the full year. The Networks team has shown that they can deliver consistently strong results, and I know they are motivated to deliver better performance in the quarters to come. Then to HERE, HERE delivered excellent results with significant improvement in both year-over-year sales and profitability. The automotive segment continues to go from strength-to-strength. And shortly after the end of the quarter, I was particularly pleased to see that Jaguar Land Rover has decided to be the first car maker to implement HERE Auto, the industry's leading connected navigation fleet inside its cars. We look forward to seeing how that will be received by drivers this summer. This was a groundbreaking win for HERE; and the team is working very hard to follow that up with more. Other notable activities in the quarter included HERE launching its map app for iPhone users making it available for free download from App Store. To date, the reception has been excellent with the app downloaded a combined 6 million times for both iOS and Android and getting glowing reviews in the process. Finally, on to Nokia Technologies which also had a very strong quarter, with sales and operating margin up sharply, both year-on-year and sequentially. I am more confident than ever that licensing activities are tracking well and that there is a robust pipeline of potential new licensees. This is a business with a unique operating model, excellent assets and a world class team. And work is progressing well. Costs were higher in Technologies on a year-over-year basis due to investments in business infrastructure and new innovation but roughly flat on a sequential basis. While we will continue to invest where we believe there are compelling opportunities, we’re also taking steps to focus the work of the Technologies team on projects that present the most interesting opportunities. In short, more disciplined management of the licensing pipeline and sharper strategic focus to future investments. Let me now hand the call over to Timo for some more details and then we can turn to your questions. So Timo, the floor is yours.

Thank you, Rajeev. I would like to spend the next few minutes taking you through the performance of Nokia Technologies and HERE in the quarter before turning to foreign exchange movements, my customary discussion on cash performance and finally, a few words on our outlook. Starting with Nokia Technologies, net sales of EUR 266 million in the first quarter increased by 103% year-on-year. We continue to make very good progress in our broader licensing activities and remain confident in the long-term monetization opportunity for Nokia Technologies. However, it is important to reiterate that this can be an inherently run business, particularly when viewed through a quarterly lens and this was the case in Q1. Approximately two-thirds of the year-over-year growth in Nokia Technologies net sales in Q1 related to non-recurring adjustments to accrued net sales from existing agreements as well as revenue shares related to previously divested IPR, and IPR divested during the quarter. Approximately one-third of the growth related to higher intellectual property licensing, income from existing licenses including Microsoft becoming a more significant licensee. While we did see underlying growth in Nokia Technologies’ quarterly net sales run rate in the first quarter, you should not simply extrapolate the whole Q1 net sales level going forward. Nokia Technologies net sales in Q1 included revenue from all of Technologies licensing negotiations, litigations and arbitrations to the extent that we believe is currently required but this is not the forecast of the likely future outcome of ongoing licensing projects. Turning on to HERE, which delivered a strong top-line growth and continued improvement in profitability. As I have commented on previous call, we believe HERE has strong long-term growth prospects and is capitalizing on the trends we see, particularly in the automotive segment. It is really key to driving operating leverage and cash flow generation. In Q1, HERE delivered year-over-year net sales growth of 25% or 17% on a constant currency basis. New vehicle licenses of 3.6 units in the quarter compared to 2.8 million units in the first quarter of 2014 or 29% year-on-year growth. HERE's non-IFRS operating margin of 7.3%, up 250 basis points year-on-year was primarily driven by operating leverage from the higher net sales which more than offset higher non-IFRS operating expenses. Taking into account HERE's performance in Q1, its leading market position as well as positive industry trends, we have narrowed HERE’s 2015 non-IFRS operating margin outlook from between 7% and 12% to between 9% and 12%. Then turning on to foreign exchange, we have included a new table in our Q1 press release on page 28 which provides a quarterly analysis of our revenue and cost exposure by major currency. At the high level and as I commented last quarter, we are well balanced in terms of our net sales and cost exposures against the euro. In Q1, approximately 30% of our net sales and total costs were euro denominated. Therefore everything else being equal, a weakening euro relative to all our other currency exposures has a positive impact on our overall net sales but negative on our operating costs with the overall impact on our non-IFRS operating profit being relatively small. In terms of the U.S. dollar, approximately 35% of our net sales in Q1 were U.S dollar denominated compared to about 30% in our costs. Turning back to our Q1 2015 year-on-year net sales growth of 20%, approximately 9 percentage points of this growth resulted from foreign exchange movements primarily due to stronger dollar. Sequentially, the foreign exchange movements benefited Nokia's reported net sales by approximately 5%, driven by general euro weakness relative to our non-euro denominated sales. Then turning on to our cash performance during Q1. On sequential basis, Nokia's gross cash declined by approximately EUR 200 million with a quarter ending balance of approximately EUR 7.5 billion. Net cash and other liquid assets declined by approximately EUR 350 million with a quarter ending balance of approximately EUR 4.7 billion. Looking at the primary drivers of the movements in our net cash balance in Q1. Nokia's adjusted net profit before changes in net working capital was EUR 368 million in the first quarter, primarily driven by Nokia Technologies and Nokia Networks. Nokia's net cash from operations was EUR 199 million outflow, primarily driven by cash outflows related to other financial income and expense, and I will come back to this in a few moments. In Q1, Nokia's continuing operations had net working capital cash outflows of approximately EUR 100 million which included approximately EUR 50 million of restructuring related cash outflows at Nokia Networks. Excluding this, cash outflows from net working capital was approximately EUR 50 million as the negative cash impact from decreases in short-term liabilities was partially offset by the positive impact from a decrease in receivables. Continuing operations had cash inflows of approximately EUR 30 million related to net financial income and expenses but approximately EUR 400 million of outflows recorded in other financial income and expense and approximately EUR 100 million related to taxes. Looking at approximately EUR 400 million of outflows related to other financial income and expense in bit more detail. Approximately half or around EUR 200 million of the outflows related to foreign exchange hedging on forecasted cash flows and hedging of Nokia's non-euro cash and cash equivalents. The other half of the outflows mainly relate to the timing mismatch between foreign exchange cash flow impact on other non-euro denominated balance sheet items such as trade payables and receivables as well as internal and external financial items other than cash and cash equivalents and the corresponding hedges for the net exposures. Assuming static FX rates compare to the end of Q1, we currently expect that approximately EUR 200 million of the Q1 cash outflows will be largely offset by benefits to Nokia's cash performance related to these items in the next two quarters, partially in other financial income and expense line and partially on other lines of operated cash flow. Discontinued operations had cash inflows related to net working capital and taxes, totaling approximately EUR 10 million in Q1. From a financing cash flow perspective, outflows were primarily due to share buybacks which totaled approximately EUR 160 million in Q1. During the first quarter we repurchased approximately 25 million shares. As I highlighted on our call on April 15th, following the announcement of the proposed acquisition of Alcatel-Lucent, we have suspended our capital structure optimization program including suspending the share repurchase program execution on the closing of the transaction. From an investing cash flow perspective, cash outflows of approximately EUR 70 million related to continuing operations capital expenditures and approximately EUR 50 million related to the acquisitions which we completed in the quarter. Finally, foreign exchange rate had an approximately EUR 150 million positive translation impact on our net cash. And now a few words on our venture fund investments. I think we have a unique long-term corporate venturing business model and we have built a strong track record of growth stage investing through the Nokia Growth Partners and BlueRun Ventures entities. After the end of Q1, Nokia Growth Partners sold its holdings in Ganji.com, a major online local services marketplace platform in China to 58.com. Under the terms of the transaction, both Nokia Growth Partners and BlueRun Ventures will receive a combination of 58.com shares and cash, valuing Nokia's indirect holdings at approximately EUR 200 million. We expect to report benefits from the transaction when cash distributions are made. The final amount and timing of the benefits will of course depend on the value and date at which the venture funds liquidate the shares and is expected to have a positive impact on our EPS accordingly. At the end of the first quarter, the fair value of our venture fund investments was approximately EUR 1 billion as compared to approximately EUR 800 million at the end of 2014. This amount is included in available for sale investments under non-current assets in Nokia's balance sheet. Overall, I believe that both Nokia Growth Partners and BlueRun Ventures will continue to serve as sources of value creation for Nokia shareholders. Finally, I would like to spend a few moments on our guidance. First for Nokia Networks, we have updated our full year non-IFRS operating margin and now expect it to be around the midpoint of our long-term 8% to 11% margin range. This update reflects the weaker Q1 performance as well as our expectations for the rest of the year. More specifically, we expect some of the negative factors that impacted Q1 profitability to ease, particularly in the second half of 2015. For the longer term on a standalone basis, Nokia Network's non-IFRS operating margin guidance continues to be 8% to 11% and for the new combined entity with Alcatel-Lucent, we have said that we expect to achieve approximately EUR 900 million of cost synergies in 2019. For HERE, we are encouraged with the improvement in profitability and its ability to capitalize on strong industry trends, particularly in the automotive sector. This has resulted in the upward revision to the full year outlook. For Nokia Technologies, the quarter was impacted by some non-recurring items. However, we did see underlying growth in the quarter net sales run rate and we have a robust pipeline going forward. Thus overall, we think we are well positioned to achieve our targets for 2015. And with that, I will hand it over to Matt for Q&A.

Thank you Timo. For the Q&A session please limit yourselves to one question only. Stephanie, please go ahead.

Your first question comes from the line of Gareth Jenkins with UBS. Your line is open.

Just one question on China, if I may. I think there's been a clear impact in the quarter on margins from the ramp, China Telecom and China Unicom on the FDD-LTE spectrum. And I just wondered whether, where the maximum point of pain in terms of recognizing OpEx but not necessarily recognizing revenue given that those licenses were only issued in the middle of the quarter?

So, in China, thanks Gareth, there are three key operators of course and they all have different schedule with different intensity of deployment. So what we've said is that the impact of strategic entries in notably Southern China require an upfront component of cost and that's why we have seen its impact in the quarter. Overall, if I step back from the equation and say otherwise look at the second half of the year, not just China but overall as a business, I see the impact of strategic entries to ease in the second half of the year.

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

For Rajeev I guess. I understand the explanations you are giving on the lower margins in Networks. So my basic question Rajeev is the last two year, you've given quite clear message on how you run the business in terms of predictability in terms of that you forecast forward all the contracts you allocate into the P&L. Therefore we wouldn’t typically understand reverse. [Ph] So my question is just on the visibility you have into your business each quarter, what -- and as have managed to do is not how the volatility of your peers where today we're seeing that. So just on that visibility you have into it, I guess my -- I appreciate your perspective on perhaps what went wrong and why this wouldn’t be repeated in terms of your ability to anticipate this volatility quarter-to-quarter?

Thanks Kulbinder. So, I’ve always been saying that there are four broad drivers in the business, one is the competitive dynamics; second is business mix; and third is regional mix; and fourth is something that we fully impact which is operational excellence. So, we have seen the competitive dynamics intensify. And I've always been consistent in trying to call it out when I see a change in trend. So I want to do so again today. The business mix, yes, we've seen lower software, lower core and lower margin activity on systems integration and a higher component of network implementation which is structurally a lower margin business compared to SI. Then, we've seen the impact of strategic deals and the sort of cost of fund that I commented on. Fundamentally, I mean this is a project business and typically in some quarters, the activity is actually -- determines the visibility close to the end of the quarter. And those are acceptances which then drive your revenue and also software revenue. So in terms of acceptances, notably on higher NI and lower SI and software revenue, we've seen that impact at the tail end of the quarter. Again as I said, I look at a lot of these things easing in the second half of the year.

If I may add quickly. So of course we’re absolutely not pleased with Q1, but we of course need to recognize that Q1 is seasonally the weakest quarter in this business. And last year i.e. 2014, we had some I will call them abnormally high software sales during the quarter which maybe sort changed those dynamics for 2014.

Your next question comes from the line of Andrew Gardiner with Barclays. Your line is open.

You’ve given us a better sense as to the moving parts within the different units. But I am just wondering if you can help with how you are seeing the group as a whole after the first quarter? And just for example, tell your guidance to Networks midpoint of the range, 9.5% margin that’s roughly a EUR 120 million reduction in Networks profit for the full year relative to prior market expectations. And then conversely on HERE your upgraded guidance is worth about EUR 20 million and then Technologies was about EUR 100 million ahead of the normal run rate in first quarter. So, if I take those moving parts together, then I'm not seeing much change in terms of the full year profit expectations. I just wanted to make sure I’m understanding your guidance correctly, if there is any other moving parts you can point to.

So of course, I can take stands on where you started to move from regarding your getting to 9.5 but I of course recognize the math what you are describing here, and I would say that the only other thing we have mentioned today besides the parameters what you mentioned was and should be where we said that we expect to have some positive impact from that to EPS but we did not quantify exactly when that would come.

Your next question comes from the line of Alexander Peterc with Exane BNP Paribas. Your line is open.

I’d just like to elaborate a little bit on the Networks gross margin situation. You’ve got 600 basis points contraction year-on-year which is quite a lot and you do say that you have some currency benefit there. So could you quantify that for us? Also if you could tell us how much of your gross margin contraction is attributable to lower capacity sales i.e. software? In other words what’s out to the mix and what is out to the footprint acquisition that you also have planned?

I will start and then you can maybe Rajeev talk bit more about the software. So basically, FX as such, when we look at the gross margin, is not a big driver because on absolute gross margin, it is more of the driver but on the actual percentage point, it is not that big. So clearly, the biggest of the drivers what you mentioned is software sales part which we actually described as 5% year-over-year.

And we did say that a year ago, we had this somewhat abnormal situation with higher software sales. But again, we see a core networks coming to more normalized levels during the year, and we also see that software will come to normalized levels and we see also, on this point, we made about system integration coming to more normalized levels and so on. So those are the drivers that we’re executing.

Your next question comes from the line of Pierre Ferragu with Bernstein. Your line is open.

Rajeev, you mentioned a couple of times the changing competitive dynamics which didn't really that was recent comments from some of your competitors. So, I was just wondering if you see in the quarter like some softer degree in pricing pressure around these and is that something that you just saw in the quarter and impacted your number for this quarter because that sounds like a very quick turnover which you really deal that have negotiated on a long period of time and impact to P&L only a bit later. And then maybe on your comments about efficiencies drove the year and how to think about OpEx in Networks, so your run rate -- quarterly run rate is 815 million this quarter, is it reasonable to expect that this number is going to come down a bit during the year or should we consider that as a reasonable run rate for the full year?

I would like to always point out when we see a change in trend with regard to competitive intensity which we have to give it a period of observation to know that it's not just a tactical but it is bit of a trend. So at this point in time, based on what I see, I think it’s worth pointing out that the competitive intensity has increased. Now, there are reasons for it; there are some markets that offer significant large footprint for the long-term and so they are hotly contested and China is an example of that. And of course they do offer long term footprint opportunities. And then there are other things that will change competitive intensity like perhaps one of the reasons is that we have seen growth in the last three quarters, if I include the current one, Q1 and there is a competitive response to some of that as well. Finally, I think when you look at -- overall there are challenging market conditions when it comes to CapEx because there are markets that are more slower and there are other markets that have momentum. So I think Middle East and Africa, Southern Europe, China, India have momentum, recognizing that China is somewhat dilutive at this point in time. At the same time, North America, Asia Pacific, Europe and Eastern Europe don’t have an up momentum and particularly in APAC countries like Indonesia, Korea, Thailand and Japan which have been somewhat more robust in the past and Europe is characterized by both the macroeconomic situations particularly in Eastern Europe but also generally and the fact that this consolidation of operator landscape is underway and it's really happening. And that does mean that it puts pauses in terms of CapEx spend. So, there are fewer deals to go for and the competitive intensity increases. So, I'm not sure if this is a structural trend yet, but it’s worth pointing out that this has changed.

And maybe I will comment on the OpEx side Pierre. So, we have $99 million up about 14% 15% year-on-year OpEx in to Nokia Networks. And we do not expect similar kind of optic rate to continue during the year; we actually expect this call it optic in OpEx year-on-year basis to ease towards the latter part of the year.

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

The working presumption was that the consolidation in the network equipment space would improve profits over the longer term. However, we're moving the other way and with the change in trend and three dominant places to remain; can we still get to the EUR 900 million? And if so, will that actually hamper Nokia's ability to grow market share in the future? So, it has to be one or the other.

Maybe I'll take the EUR 900 million, question and you can discuss a little bit about the market situation. So, no, we expect no change in our ability to execute 900 million planned cost reductions in the Alcatel-Lucent planned transaction. We are actually confident that we can execute as we have discussed during the last weeks or so. We have a very robust and detailed model through which we have worked where we expect the synergy benefits to come on the cost side. And we think that that’s a very prudent analysis and very executable.

On the market conditions, the consolidation and whether -- of course we seen, just being more rational over the last couple of years. And this year, there have been some markets that offer this long-term footprint that is driven the intensity. But apart from that there are markets on balance that generally it’s slow start to the year from a CapEx standpoint. And therefore there’s been more competitive intensity to go after those smaller deals, so the lesser amount of deals and more players are active on that. Do I see this is a defining trend? One quarter should not necessarily define a trend. However, we have seen that this has changed. Now, going back to our transaction in Alcatel-Lucent, this is why I think it is different and it makes a lot of sense and strategic rational because that is more about scope than about scale. I absolutely believe that the winning providers of the future will be stronger full scope providers with the necessary scale in the individual businesses that they operate in. And that transaction with Alcatel-Lucent give us that platform. And with the operating model that we have, I think it allows us to benefit much more over the longer term.

Your next question comes from the line of Sandeep Deshpande with JP Morgan. Your line is open.

My question is regarding that one-off which occurred because of the acquisition of new customers. You identified 5% was because of the lack of software in the first quarter. How would you place this additional cost of acquiring these new customers? And secondly, also I have a question on the IPR that even excluding the one-off associated with some past deals that you have recognized in the quarter, you saw upside year-on-year because of some volume increases or something with the existing customers. Could you please give some details on that?

So, allow me here to step back a little bit and give a more elaborated response because of course this question has come in multiple ways. So I think it merits a better response as to why do I feel confident about the remainder of the year. So first of all, and I'll bucket this into two, what are the structural things and what are the actions we're taking. One, our funnel of sales opportunities remains strong; we have a high win rate; that matters. Second, I see the impact of strategic entry deals to ease in the second half, most of which you take these deals to take the cost somewhat upfront. So, I see that easing. I see momentum in some regions overall improving the mix for us, way that more poor networks will be there in the mix relative to radio. I see systems integration coming back to normalized levels and also software coming back to more normalized levels. Then, what are the actions we’re taking? We’re taking sales acceleration actions, particularly software sales, expanded software up-sale program with the top 100 customers, with the sharper focus on earlier on recovery of some of these entry and other low margin projects. Then, you recall the programs that we have, that’s not changed but we will accelerate them. We have had programs for cost to our business transformation board, reducing discretionary spending, overhead spending, improving cost of sales in both products and services and some of the R&D efficiency programs. Then headcount control that’s something we will do as well. And then there are these smarter transformation programs we spoke about which is all about eliminating waste from LEAN and Kaizen, automation and tools but also driving a higher share of global delivery, i.e. remote delivery to improve margins relative to onsite delivery. So that’s kind of the actions we will take. And some of the trends that are changing.

And maybe a quick comment Sandeep on the 5% software. So that’s of course the year-over-year delta, and that delta has elements of being abnormally high last year as well as elements of being abnormally low this year. So, it's not like everything would be sorted from call it normal level to down. So I think that’s an important thing to know. Then on IPR, the year-on-year and sequential increase in Nokia Technologies net sales include revenue from all of the Technologies licensing negotiations, litigations and arbitrations to the extent that we believe is currently required but they are not a broadcast of the likely future outcome of ongoing licensing projects. Now, when you look at these numbers sequentially and you look at the sequential increase from the 149 million to 266 million, we said that about 80% of that will be classified as non-recurring and about 20% would be classified as recurring. So that leads to a number between 20 million and 25 million which we have kind of like described as regard.

Your next question comes from the line of Andrew Humphrey with Morgan Stanley. Your line is open.

Actually it’s Francois. In terms of the R&D spending, I'm very, very, very surprised that you indicating more spending on 4G and 5G. I think we discussed this intensively last year especially at the Analyst Day that actually you had the right budget and everything for the future. So what has changed basically since Analyst Day; did you have any pressure from the customers to spend more; what has changed basically?

Of course it’s a dynamic market, so number one I believe the industry requires more investments in LTE, particularly in driving LTE advanced carrier aggregation, three carrier aggregation and so on, 5G and cloud. And some of these LTE are driven by competitive feature requirements. Now I can sit there and just wait to lose competitiveness or can take action and say we want to be actually at the forefront of competitiveness and we want to meet and get ahead of some of the customer needs. So that’s what’s driving both of that. Listen again, as we explained before, there are headwinds from ForEx that negatively impact both OpEx and cost of sales. And as we said, there are tailwinds to revenues. So this also -- that thing you have to keep in perspective.

But again, as we discussed earlier today, so this year-on-year increase in OpEx, so if we call that the pressure, then that pressure we clearly expect to ease towards the latter part of the year.

Your next question comes from the line of Richard Kramer with Arete Research. You line is open.

Rajeev, since you mentioned you had gone and spoken to a number of customers, what are they telling you about their installed basis of relative Nokia and Alcatel-Lucent equipment? And what has that told you about how you might be able to reduce costs in roadmaps? And one other simple question, maybe for Timo, within Technologies, it seems like the time is running fairly short in which you might want to conclude a larger brand licensing deal. Do you feel that’s something that might contribute materially to income in 2015, or is that something you are going to take your time doing and sort of feel your way into the market as you were with the N1 tablet.

Let me start with the roadmap question. So, I would characterize the discussion with -- discussions with operators as being quite pragmatic. We've talked about these open interfaces and the fact that there is interface [ph] between radiofrequency and the baseband unit and base station, they will be similar open interfaces in IMS, VoLTE and many of those core network platforms. And I think the reception is positive for that kind of thinking. It's positive fact that after those don't want large scale swaps, when it's not necessary and particularly because technology has about to a point. So, what I expected has made out well in the discussions, but it’s of course early days because we are not at the point that we have made any portfolio decisions and that we only happen towards closing. But remarkably positive discussions so far.

And then regarding the brand licensing. So clearly, as you say, we have tested the brand licensing business model on the market with N1 tablet and this is really a learning exercise for us. And I want to remind that we invested over 20 billion into brand marketing during the time when we were in the devices business. So this is really a brand which is recognized at whatever 4 billion or some people on the planet and is pretty soon going to be without the product. So, we think it's a vacuum which we need to try to field with a very smart business model i.e. licensing business model which is capital light and force the licensing business model on the other businesses in our technologies suite. Now then, what comes to 2015 as this licensing business unit -- brand licensing business is different from IPR licensing and technologies because it does not have in the same this kind of one big dynamic necessarily or I believe how we understand it currently. And for that to be a meaningful contributor to bottom line, we of course need to ramp up portfolio because business model is really volume based. In that sense, I would say that it would be unrealistic to expect that that would have a significant impact on Nokia's 2015 numbers. On the other hand, I think it's a very interesting business opportunity long-term for the technologies business unit, particularly when latter part of 2016, the brand does not have any of these limitations anymore and we can also consider licensing it for smartphones.

Your next question comes from the line of Joanne Zuo with Deutsche Bank. Your line is open.

I was just wondering with the increase from Microsoft and Technologies, is it fair to assume that Microsoft currently accounts for roughly pretty close to one third of your Technologies revenues? And may be in that context, what would happen if one of your smartphone licensees decides to exit the smartphone business. Can you maybe give us a bit of detail of how such a deal would then work, how the contracts are currently structured with the licensing revenue drop-off pretty quickly or would that phase out over longer period of time, it would be great to understand.

First on the Microsoft, so the example that I gave earlier in the call i.e. comparing the 149 to 266 i.e. the sequential example. Microsoft was already in those numbers when we were talking about the year-on-year example, then in that comparison Microsoft plays a role, out just to be very clear on that. We have not discussed exactly why or kind of like what was the Microsoft tale that we just went through with that in the actual Microsoft transaction that was the new license, so in essence I can give you more color there. Then if we look at any of these licensing deals, so they different forms, some are fixed payment and fixed annual schedule and some are more based on volumes and potential numbers on those volumes. And then there is mix in between. So I really cannot give you one answer to what will happen if suddenly somebody would decide to exit the handset business. So it really depends on the contract structure. But I just want to remind that typically these contracts are fairly long in nature, so people generally don’t want to make short term licensing contracts because of course you utilize a technology in your devices for long term or whatever consumer electronics or other devices you would be making an investment, it doesn’t make sense to try to negotiate this for a very short period.

Your next question comes from the line of Vincent Maulay with Oddo. Your line is open.

Question on the rational of R&D acceleration in 5G, cloud relative to of Alcatel-Lucent merger, how do you know that it's not a volatile catalyst in R&D to be short to other full synergies?

Of course we are competitors at this point and we continue to behave like that. So 5G, if you think about the complementarity, we are stronger in 5G or in radio overall. So it kind of would make sense for us to be beneficiary of the fact that we are sort of driving all the investments in that phase. Cloud, again if I step back and say is it complementary, yes we have a lot of the virtualization elements the NFB elements on our side. And actually they bring software defined networking, they bring IP routing, they bring orchestration. So, I don’t know what they will do but if they continue to do well in those areas, it’s pretty complementary to cloud core portfolio.

But clearly, having -- as we said earlier, we continue to be competitors on the market. And it is of course natural that both companies will need to continue to invest in areas to stay competitive on the market until the transaction closes. I think it’s typical in these situations and is unavoidable. And of course that is then some of the cost that can be taken out when the transaction closes.

Your next question comes from the line of Tim Long with BMO Capital. Your line is open.

Just to parter back on the Technologies business. First, could you just give us a sense, you talked about some good visibility into new licensees; so, could you just give us a sense were there any new licensees added in the quarter and how does that look for the next -- rest of the year? And then, have you gotten a chance yet to give a look at what adding Alcatel-Lucent, they had their own programs where they were trying to increase their monetization of patents, do you have a review of what you will be able to do with the combined portfolios, will that be pretty additive to what Nokia is currently doing?

So, first on the overall Technologies, really the situation is that the year-on-year and sequential increases in Nokia Technologies net sales included revenue from all of the technologies licensing negotiations, litigations and arbitrations to the extent that we believe is currently required. But again, remind, they are not forecast of the likely future outcome ongoing licensing projects, so that's really as far as we can go there. Then what comes to our portfolio, so you are absolutely correct that our has a broad IP portfolio, of course there -- our understanding because we have of course not been able to really move DB into the portfolio, has been slightly in different areas. We of course have had lot more investment in the handset related IPR, so that's a difference in the portfolios. Now, the way think about it and this is what we have said during last couple of weeks as well is that we think we have a unique structural operating model where we have some IPR in the Technologies unit and that is something what people need to license if they want to do certain businesses in the consumer electronics and particularly in the mobile handset space. And then we have some IPR in Nokia Networks which has been, generated during the MSN [ph] times that is separate unencumbered portfolio which the Networks business is willing to grow license if so needs. And our thinking here would be, and again this requires more restructuring is that our portfolio likely would end up being merged into the Technologies business, so that the business -- sorry, end up being merged into the Networks business so that the business model in Technologies stays intact. And that way we can then see what in the end would be the optimal utilization of the combined companies might be. And of course the utilization possibilities are license being or then may be selling some IP depending on how that would pan out. I would also make another very important point that for longer term, this new company would be investing EUR 4 billion to EUR 5 billion into R&D annually. And of course the machinery which will create new IPR will also be significantly enhanced.

Your last question comes from the line of Ehud Gelblum with Citigroup. Your line is open.

Timo, a couple of clarifications and then a broader question for Rajeev. First of all, IPR Timo, I was under the understanding and other companies do this as well but it’s collected in dollars. And so it would have had an -- FX would have a bigger impact on transition to euros but clearly it's probably not the case. So, if you can just let us know, how is IPR stated in contracts? The second clarification is Networks IPR seem to drop 25 million this quarter and that you didn’t call out, it certainly has an impact on your margin in Networks. Give us a sense as to why that happened and how much more IPR is there in Networks that could fall off as the year goes on. So, what kind of headwinds are you facing on the margin side there versus could you get some of that back and can that actually help restore some of the Networks margin as we go through the year? The broader question Rajeev is I am, still kind of square the circle on how your funnel can remain strong and yet the market conditions seem to be more challenging now than they seem to be in January and even a couple of weeks ago when you announced the Alcatel purchase. I am trying to understand who the price aggressor is because it's clearly not the guy you are purchasing, so it must come out of China. And why they would certainly be doing this after a couple of years assuming at the end of the day a more calm outlook on the pricing environment?

May be I will start with IPR. So actually in our case and may be you can look at this as a long-term, I don’t know. Majority of our IPR is in euros and I think that is because when we negotiate bid, much of this, at the time we were in a position where we could remind that and it made sense for the situation at the time, so you have to remember that a lot -- a big part of our IPR which is contributing to current revenues has to be negotiated before this plan change or happening change in the business model. So, we have actually fairly little FX impact on top-line at the moment in our IPR revenues. And then regarding Networks IPRs, yes, we called out in Q4 that 25 million in Networks. And that of course is a sequential change towards Q1 and not year-on-year change and that’s we have not been discussing that earlier in the call. And Networks has generated as I a significant IPR pool of which is in our Networks business, and of course we look to opportunities continue to monetize that portfolio as well. But of course majority of that is there for Networks cross licensing purposes, but there can be further monetization opportunities.

I would just say a couple of things quickly. So, one just on IPR still on Nokia Technologies, I want to just say that the sales funnel is strong, we have a robust pipeline, there is a strong discipline on driving that, I have been reviewing this and hiring this, we run the unit. And clearly we have a capacity to run multiple cases in parallel compared to the old Nokia. And we need to run it in the balance of negotiations, litigation, arbitration, so that I just wanted to add. Then Ehud on your question on sales funnel being strong, yes, market conditions offer volatility in terms of CapEx, our win rate is stronger. Our portfolio has got stronger and that’s allowed for a more healthier sales funnel including our qualification of criteria, the ones we go after is stronger than before. In terms of who the aggressor might be, I think I’d not want to go there.

And actually with that I would like to turn the call back over Rajeev for some closing remarks.

Thanks Matt, thanks Timo for your comments. And thanks again to all of you for joining. We have had a lot of discussion today about Q1 performance but I wanted to reiterate our strong belief that the purchase of Alcatel-Lucent offers the best direction for Nokia to ensure long-term growth as well as to create long-term value. I said when we announced the transaction that I firmly believe it was the right deal, with the right logic at the right time. Everything I have heard since then has strengthened that view. The second comment is simply to acknowledge that while we’re displeased with Networks financial results in Q1, I am confident that we've built an organization and culture that is resilient and strong. In more challenging time the exceptional execution capabilities of the Networks team will be even more important as we implement detailed plans to deliver on our financial targets for the full year. Of course we also need to maintain the momentum in both technologies in HERE. We approach those challenges with optimism with the strong desire to meet our commitments and with the team that has a strong aversion to missing goals. We’re realistic about the risks that lie ahead but also seek opportunities and we’re intent on mitigating the risks and seizing the opportunities. With that thank you very much for your time and attention. Matt, back to you.

Ladies and gentlemen this concludes our conference call. I would like to remind you that during the conference call today, we have made a number of forward-looking statements that involve risks and uncertainties. Actual results may therefore differ materially from the results currently expected. Factors that could cause such differences can be both, external, such as general, economic and industry conditions, as well as internal operating factors. We have identified these in more detail on pages 74 through 89 of our 2014 Annual Report on Form 20-F, our interim report for Q1 2015 issued today as well as our other filings with the U.S. Securities and Exchange Commission. Thank you.

This concludes today's conference call. You may now disconnect.