Q2 2020 Nokia Oyj Earnings Call
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Hello, and welcome to Nokia second quarter 2020 earnings Conference call, all participants will be in listen only mode.
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Let me.
How about you may begin okay.
Ladies and gentlemen, welcome to Nokia second quarter Conference call.
She mouth, Nokia Investor relations for cheap Suri.
And see a Nokia and Christian CLO see Oh, Nokia or here with me be a conference call today.
During this call will be making forward looking statements regarding the future business and not to performance Nokia and its industry.
Statements, our predictions that involve risk and uncertainties.
Two results made therefore differ materially from the results. We currently expect factors that could cause such differences can be both external so just general economic and industry conditions. That's wallets internal operating factors identified such risk in more detail into section titled operating and financial review and prospects. This factors.
Our 2019th annual report on form 20-F, our financial report for Q1 published on April Thirtyth on form 6K, a smallish <unk> other filings with the U.S. Securities and Exchange Commission.
Please note that our results release, the complete interim report with tables and the Pete's presentation on our website include non our breast results information. In addition to the reported results information.
Complete for not to report with tables available on our website includes a detailed explanation of the content, but not a press information as a reconciliation between phenomenon for us and the reported information.
With that Ritchie over to you.
Thanks, Matt and thanks to all of you put joining today.
I hope you all continuing to stay well and see amid the cobot 19 pandemic.
Well leased to say that all second quarter, who is another proof point that we continued to make strong and meaningful improvements in our business football.
We had been consistent in saying that we are taking the white steps to deliver progressive improvement over the course of this year in my view, we remain on the whiteboard to deliver on that promise.
In fact, we went into the second quartile did something so and given the ongoing pandemic, but we ended being quite pleased with where we landed.
Instead of the following highlights first you on your profitability was.
One I have thought of it diluted earnings per share with six year old that's one said.
Nokia level non life artist operating margin was up 40 basis points.
11, gross margin, but back to around 40%.
Looks lot margin was up 450 basis points. Following its 350 basis point again in Q1.
And mobile access gross margin was up significantly.
Second we saw significant improvement in cash generation. We ended Q2 with 1.6 billion euros and net cash from 1.3 billion into the quarter and build to cash of 7.5 billion euros.
Free cash flow in the quarter with positive $265 million books is negative 1 billion in Q2 20 Nike.
Given our strong saw improvement we now expect free cash flow will get 2020 to be clearly positive compared to our audio guidance of positive.
So even if revenue was down by 11%. The majority of that decline was the result of the impact on our business for gold at 19 as relative significant drop in sales in China, given the prudent approach we have taken in that market.
We also saw a reduction driven by our proactive steps to reduce the volume low margin. So this is business.
In terms of depend demick, we saw adult played in back to about 300 million euros in the quarter and most of that we expect maybe shifted to future periods.
Based on the solid improvement I would like to spend some time talking about the underlying why about the drivers that we believe that's supported this outcome.
We had both the favorable product mix more capacity less deployment. So this is as well as region that makes that more North America and let's try.
Why some of this will likely continue in the near term, we would expect it to be slightly less well known as compared to the just ended cool.
I would note on the capacity topic that we saw better than expected results from a fourg LTE business in the quarter, what is being a capacity phase in some markets has now become worldwide developed.
This has happened it's like the foster then be anticipated, possibly driven by net book with Wyman during the pandemic and be expected it's hill the staple sometime.
Ultimately how that but we believe that a key driver of the games. We have seen so far this year are based on underlying structural improvements.
To get more perspective on this topic I would like to spend the rest of my time on four key areas.
One mobile access and the improvements in that business.
Two.
Actions to strengthen cash generation.
Three progress within our business groups and for progress you know strategic diversification in enterprise and software.
Let's talk with mobile access.
We have said that executing in mobile access is one about two priorities looks like equating to do that we said, we would improve profitability through consistent product cost reductions.
Maintained scale necessary to be competitive.
Enhanced commercial management and deal discipline and sent an operational performance in services.
In each area progress continued into adults are becoming more and more how it.
And don't so part of cost reductions.
Shipments up all Fiveg, followed by be shocked continues to grow in Q1 bulk shipments was 17% about fiveg deliveries in Q2, we landed at 25%.
We believe that we remain on track to reach 35% mobile by yearend and more it's very possible. Although that is dependent on the speed of cost most transitioning to be technology during dependency.
You don't have Roadmaps were on mobile video products, we are making meaningful progress in closing gaps to the competition, where they exist those gaps or certainly not everywhere and in some areas. We are ahead and it seemed that suspected validated in recent gotten with it.
As examples when you look at the next generation technology that will be critical for the future such as you ran cloud ran and open Brian Nokia is in a leadership position without globally available solutions.
Also differentiated by the brick off our massive mimo inphi be small cells portfolio.
You May also have seen that in June we announced our collaboration that Broadcom one system on chip technology that will be integrated into our five you bought by be shocked whatsoever.
Builds on earlier agreements with Intel and Marvell and completes our efforts to diversify our supplier base in this critical area.
Well those of you interested in more details on our progress in mobile video.
I would encourage you to go to Nokia Dot Com and look at the blog that told me, we talked resident up on mobile networks business has booked it today.
And is blog told me coupled with some key changes we have made including a doubling of system on chip Doubleclick.
Increased R&D velocity by approximately 50%.
New leadership in terrified accountability.
Transition to a large scale agile development model with end to end feature teams.
I don't think embedded software quality and foster type two market with the flexibility to adapt to changing market requirements and much more.
These efforts have resulted in a broad based improvement across essentially all of our key operational can't be ice for the business, including software release delivery accuracy hardware and software quality.
Feature development efficiency and as I've noted roadmap competitiveness.
In short we are moving Fox to ensure that our entire mobile product portfolio is extremely competitive.
Then maintaining ski where we continue to track to our plan to have fourg, but slides you market share excluding China at around 27% at the end of Twentytwenty.
No. It 83 commercial Fiveg <unk> Cody to life network deployments with more to come shortly in book.
We're also better position in large scale mid band radio with products deployed 55 customers in the first like see bad network demonstrated in the U.S. This means that we have a solution ready to go fall when spectrum auctions that completed in the U.S. later this year.
Our confidence is supported by our win rate at the end of Q2 arc five you win rate remained strong at over 100% outside of China.
Including China, we moved into the low 90, it wasn't trial from the midpoint does that mean, given our continued privatization up our R&D to meet future requirements and more profitable markets.
The next point I want to make about mobile access relates to advancing promotion of management than deal visibly.
As I've discussed before we have spent and many of our corporate offices and reinvigorated governance would do get approved.
This methodical approach is particularly important as Ben to seek to maximize footprint gains in the early stage of the Fiveg.
At Nokia, we will take steps to maintain sustainable market share, but we will not do so by going down the rabbit hole of pursuing deals that make no sense over the longer term.
We are seeing the results of this 10th and approach when we look at a fool deals that will be executed in the future. We see an uptick in projected gross margin operating profit and returning capital employed compared to earlier.
This is not just one quarter event that we have seen similar developments going back to Q4 ready 90.
It was another factor that gives us confidence that we are creating sustainable change.
My final point to mobile access is improving operational performance in services.
Mobile access services saw a revenue declined in the second quarter, but some of that will do without fully conscious strategy to exit unprofitable projects in deduce future low margin business.
We also saw a significant Colby 19 impact what services business in the quarter as well as an expected slow ramp up with the key customer in North America that ramp up should accelerate in the second huh.
Pleasingly, despite the revenue declined profitability and so this is down just slightly in the quarter, which testify it's not just do a strict deal approach, but to the underlying work. We are linked to ensure stronger operational discipline better project execution and increased automation.
Not only has this what benefited our performance, but it has driven better customer satisfaction with our most recent show sobi showing a significant upswing.
[noise] the second topic I want to talk about albeit briefly is our other top priority for 2020 strengthening cash generation.
I already talked about on much improved outcome in the second quarter. This was driven by the structured program that we put in place sometime ago that included a centralized wardrobe to drive a companywide focus on free cash flow and beliefs of working capital.
Project asset optimization.
Clinton contractual terms with customers and suppliers reinforce controlled across our supply chain and showing the right people have the right incentive targets optimizing inventory and board.
Our discipline and focus in this area is clearly delivering results.
We believe the work we have done has put in place the right processes to deliver sustainable progress in this critical area.
The topic I want to cover it is about the progress we are making in the performance of our various business groups.
I talked about mobile access already I would like to couple of some other developments starting with fixed networks, where we already have you seen signs of improved execution.
Our fixed business grew in mid single digits in Q2, excluding China with robust profitability.
Orders improved on a year on year basis, and if we have visibility to longer term opportunities, particularly in fiber deployments that stem from the response do cooking 90.
We've also taken the step is you have seen earlier this week to streamline the fixed network business by selling part of our cable industry portfolio to best ever networks.
This asset sale concerns our gainspeed portfolio, although we will continue to so the existing cable comfortable with fiber software routing transport mobile and fixed wireless access solutions.
The 16 lumps and good wins in the quarter, including one with Openreach. That's significant be extends the alternatives for fiber network capacity and coverage and 20 million homes in the UK.
And one with National broadband island to deploy fiber broadband solution for 540000, Louisville premises Tonight.
Then our IP routing and optical networks or high on business.
On the IP routing site sales were down in Q2 books is last year, but it is important to remember that in the first off of last year, we will catching up from the supply chain shortages, we experienced towards the end 2080.
When you adjust googles catch up sales routing would've been roughly flat year on year.
We are confident that opposition and routing remains very strong with excellent you to profitability clear product leadership and healthy market momentum.
As one example, we ended the quarter with more than 220 customer projects underway using our new before chipset and around two thirds of those budgets in bulk either new footprint for Nokia or Nokia displacing a competitor.
As we've said in previous quarters, we believe we are clearly gaining market share.
I Hope you all solar announcement shortly after the end of the quarter that we were expanding our IP routing business into the data center networking bucket.
Our approach is unique to clean sheet rethink designed to get control back to cloud business. We co developed solution with leading global Webscale companies, including Apple who is deploying our technology at its data centers.
We also have strong support from BT.
Equinix, London, Internet exchange or links docs, so and others.
On the optical side Q2 sales was soft, but all doesn't this lets talk of the <unk> excellent we faced some supply issues, but they see fit.
Hey, Mike Koban 19, but see that situation easing in Q3.
Christian will cover Nokia technologies, So I will limit my comments to note that gross margin was robust although operating profit was hit by sales declined driven by one I'll be able to draw skill and the impact of the pandemic on brand licensing royalties.
We continue to generate new intellectual property at a robust rate and expect to remain the top two in fiveg extends essential patents.
Diversification continues as well and as one example, we are seeing growing consumer electronics wins were also audio which is now into what do you want devices, including Panasonic, one plus and of suits.
Finally, let me cover the progress we are making it our strategic focus areas of Nokia enterprise and knock yourself.
So no if your enterprise, which had a terrific quarter constant currency sales growth of 18% was solidly into double digits and margins expanded nicely.
Driving this momentum with our web scale in private wireless business, particularly in the energy manufacturing and logistics sector.
In addition, we now have more than 180, private fourg and Fiveg and 83, new enterprise customer that we needed. So far this year as we continue to expand off with it.
Overall I remain very pleased with the trajectory of this business, so far or enterprise customer base has remained relatively resilient during dependency we continue to see a buck do double digit growth on a full year basis.
Next Nokia software, which had headwinds that we flagged in our Q1 commentary do with particularly strong Q2 2019 comparison.
When you look at software more broadly on a force cost basis constant currency sales were up in all these key growth markets, including North America, and down just in China, and India and its margins were healthy as though for the first six months.
Nokia software continues to progress well against big strategy and against the competition underpinned by strong execution and the comprehensiveness of our portfolio in common software Foundation.
This platform offers the industrys, leading cloud native multi vendor and multi network solutions combined with a robust partner ecosystem and we continue to see the proof of that in onto your win rate.
For the sake. This time I will keep my regional comments very short.
In China sales declined significantly based on the prudent approach we've taken to the bucket.
You're on your sales were down 2% in Europe. The route early signs of recovery in that market as the Corbett 19 pandemic become more under control and transition to Fiveg accelerates.
In India part of our reported Asia Pacific business, we saw some negative impact due to ongoing market uncertainty. Although we continue to believe we're number one in India.
In.
Hey, BJ, excluding India, we grew in the quarter showing a widespread trend in the region.
Latin America has been hit very hard by the Cobiz 19, pandemic and that had a significant impact on a field in the region.
Middle Eastern Africa is facing is somewhat similar situation, although to a lesser extent.
North America sales were down 4% year on you.
Better results than the company as a whole this region was unfortunately hit by supply issues with belting from Corbett 90.
There was a considerable amount of activity in the market related to now completed merger of T mobile and sprint preparation for the release of traditional mid band spectrum operators assessing their cloud strategy than anymore.
Enterprise demand also remains robust, especially wide area network builds by utilities, and we are preparing to expand to us that will business in the coming quarters.
Even if we had some challenges with U.S. customers related to our video portfolio in the past many of those issues are now largely history. Despite those issues. If you look the albeit mobile radio product capability. We think we are well positioned given our robust mid band Big your portfolio and announced plans to accelerate in overhead and b.
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My last comment about regions is related to geopolitical trends.
In the past we have said that we were watching the situation closely and we're ready to meet customer needs.
That remains true today, although unlike what we have seen before we announced the concrete mixer opportunities emerging.
As those develop further we believe we are well positioned and don't the book product capability and capacity.
The underlying issue remains a topic for government to result, but we are ready and able to provide any necessarily support.
Last quarter I finished my remarks by touching upon our sustainability strategy and I want to do the same again today at Nokia, we strongly believe that conductivity and technology will play a key role in helping solve future challenges.
Sustainability at the broad topic and at the company, we have chosen to focus on climate integrity and culture.
Climate, we continued our project to recalibrate, our existing science based topics. According to the 1.5 degree Celsius warming scenario and we are seeing progress in commercializing solutions that decrease network related issues.
With regard to integrity. In addition to our well established process that we launched new training in the quarter covering our human rights Bose. Additionally, following the launch of our corporate 19 donation fund in Q1, we continue to engage with local organizations such as hospitals community groups and NGL than nearly 50 countries, helping them fight dependent it can mitigate.
It's impacts.
Regarding culture, we continue to promote it cultural conclusion that diversity with a focus on accelerating our progress on increasing.
The share of women in leadership.
With that let me hand over to Christian.
Thank you rigid today I'd like to kick things off by walking you through our current liquidity position and our cash performance in Q2, I will then briefly touch upon our financial results for bolt Nokia technologies and group common and other and then take you through a few group level highlights, including an update.
On our cost savings program, and finally close with some remarks on our guidance.
Let's start with our liquidity pushy petition on cash performance, both of which exemplifies the strong progress we have made over the last year. We closed the quarter. We just strong total cash position of 7.5 billion euros, a sequential increase of approximately 1.2 billion euros. They went to primary drivers for this increase.
Hi.
The proceeds from the debt issuance that we successfully successfully completed in early May and second strong cash performance in the quarter. In addition to our cash position. We continued to have a 1.5 billion euro revolving credit facility available to US This facility remains undrawn.
And in June we exercised our option to extend the maturity date by one year into 2025.
Looking at our debt. We now have approximately 6 billion outstanding all of which is financial covenant free and with an average maturity of six years and a smooth repayment schedule. This includes the 1 billion euro debt traced in Q2, when a net basis.
I am confident that we have taken to write that chance to conservatively manage our bank balance sheets. This positions us well from a liquidity.
Standpoint in these uncertain economic times.
Sequentially Nokia's net cash increased by approximately 230 million euros do a quarter and balance a 1.6 billion. This increase was attributable to a positive free cash flow in the quarter, which was largely driven by our solid adjusted net profit.
In Q2, net working capital excluding restructuring cash outflows resulted in approximately 90 million euro decrease in net cash into quarter.
We didn't net working capital we saw the following largely offsetting drivers liabilities declined by approximately 230 million euros due to the payment of 2019 performance related employee incentives to employees, partly offset by a seasonal increase in.
Payable.
Inventories increased by approximately 80 million euro primarily due to a seasonal increase in inventory, partly offset by temporary supply chain disruptions related to probably 90.
Receivables declined by approximately 220 million euro primarily due to improve black chance, partly offset by a seasonal increase in receivables as well as a sequential lower balance sheet impact related to the sale of receivables.
In addition to that in addition to this.
What do other cash related items I wanted to touch upon first capex, which came in lower than expected at approximately 90 million euro into your through our spending was affected by the timing of Capex year to temporary copied night Dean disruptions. Consequently, we have reduced our outlook assumption.
For Capex to 550 million for 2020 from 600 million euros.
The second item was cash taxes, which were also 90 million euro and benefited from copied tax related actual actually really really it's because of this we have also updated our cash tax assumption and now expect 2020 cash taxes to be approx.
Exactly 400 million euros, or 50 million euro lower than previously expected.
Just to the marks the fourth quarter in our role where we have shown progress in turning our.
Cash performance around which gives me confidence that we are driving the right rigor and making the right decisions when it comes to especially working capital management.
Since we established the free cash flow programming 2019, we have put in place actions to strengthen contractual terms with customers and suppliers reinforced controls to close across our supply chain and optimizing inventories. These actions are now taking hold strongly and there is further potential for it.
Women.
Moving on to our financial results, we didn't Nokia technologies, a combination of lower onetime net sales lower brand licensing and lower patent licensing net sales do you do expired patent licensing agreements led to a 11% year on year declining constant currency X.
Including the onetime net sales Nokia technologies topline would've been down 6% year on year.
End of Q2, our annualized lice licensing run rate rounded down to approximately 1.3 billion euros.
This was related to a norm to normal quarterly flux fluctuations as well as small reductions due to lower brand licensing, which was driven by copied 19 haswell less the expiration of some small patent licensing agreements.
Profits remain strong in Q2, but declined mainly as a result of lower net sales.
From an operational perspective, our existing licensing agreements continues to provide us with near term stability Nokia continues to invest in fundamental R&D, which enables us to maintain our market leading patent for portfolio during the fiveg transition and positions us well before the read renewals to calm.
Moving on to group coming on other where net sales declined 21% year on year on a constant currency basis as expected, we experienced headwinds related to Colby, which totaled approximately 150 million euros.
The net sales decline was primarily related to radio frequency systems used to lower net sales of remote radio head cables and lower net sales to a number of customers in North America.
Alcatel submarine networks or ASEAN also declined as the impact of the closure of production facilities do you deployed 19, what's most was almost entirely offset by the ramp up of new projects.
Sense order book, an underlying business momentum remain very solid and would have had would have delivered good financial performance in Q2, if not for these will be related disruptions.
Furthermore, production has returned to a more normal state and thus we feel very well positioned in this basin has asked me as we entered the second half.
The operating loss for group common on other berson year on year, primarily reflecting a gross loss compared to a gross profit last year as well as a negative a net negative fluctuation in the value of our venture fund investments. The gross loss was primarily driven by HSN.
Then on a on the venture funds the net negative outcome reflected mainly changes in foreign exchange rates as most of our venture fund investments I U.S. dollar based.
Looking at Nokia group level results as Rajiv already touched upon a number of give financial highlights there I just a few group blue belt topics that I would like to point out.
Nokia no not for us gross and operating margin expanded in the quarter, primarily driven by strong results in mobile access we didnt networks, we have very encouraged by the attraction. We have established but there is still a lot of work ahead of ourselves.
Group level operating expenses were down year on year, reflecting continued progress related to Nokia cost savings program and lower travel expenses due to pull the 19.
This was partly offset by higher investments in Fiveg R&D to accelerate our product roadmaps and cost competitiveness in mobile access which is clearly paying off.
We have said that we would continue to invest in R&D and this is exactly what we're doing.
Looking at financial income and expenses the year on year improvement was driven primarily by lower cost related to the sale of receivables and improved foreign exchange results.
Please note for your models that we have updated our outlook assumption also for financial income and expenses and we now expect that to be an expense of 300 million for the full year 2020, aswell less for the long term.
This update is due to our expectation for two Alex first lower cost related to sale of receivables as we have put in place improved processes that are working well and that are sustainable all the time second as a result of improved.
Foreign exchange results both of these items.
I have been positively impacted by the lower U.S. dollar LIBOR rates.
Our Q2 and on that price tax rate was 22, which was lowered your deployed 19 related tax relief.
Our non I first SBS was six cents in in Q2 2020 compared to five cents into Eurobulk quarter.
Next a brief updates on our cost savings program. We believe we are on track to realize the 500 million euro target our expectation for restructuring charges and cash outflows continued to remain the same it's worth noting that seems to be announcement of the plan in October 20.
18, net foreign exchange fluctuations have resulted in an increase in it in estimated full year when he 20 fixed cost of approximately.
70 million euros. This has created an additional headwind to achieve our planned savings. Despite this we remain confident that we will hit our targets.
As we have said in the past when modeling 2020, we request sell side to model our non IRS operating expenses for 2020 as follows the number for your 2020 more those should be approximately 50 million higher than our no Niobrara no not price operating expenses in 29.
Being which were approximately 6.5 billion euros keep in mind, our non-GAAP operating expenses and fixed production overheads benefited from reduced incentive accruals in the second half of 29, Dean consistent with our business performance these policies speed.
Okay.
First and approximately 200 million euro benefit to operating expenses.
And second and approximately 100 million euro benefit to gross margin.
It is so important that you consider these headwinds as you model for the second half results for 2020.
Then finally, let's turn to our outlook, where we have again made a number of adjustments following our Q2 results.
First we have updated our view on our primary addressable market for 2020, we now expect the market to be flattish, excluding China following a lower than expected market impact your deposited into second quarter. However, we now expect dislike the underperform our primary addressable market due to lower network deployments.
Services, we didn't mobile access.
Our expectation for operating profit seasonality remains unchanged for 2020, the majority of operating profit expected to be generated in the fourth quarter. However, given our strong free cash flow results into first half and the work we have done to improve our net working capital we no longer.
We expect free cash flow seasonality to be similar to last year. If you recall last year, our cash flow performance in the first plot first half was quite weak.
Following the.
Intention to provide updates each quarter through our progress against the midpoint. So our outlook ranges and given the strong first half results. We have adjusted the Midpoints of both our no nitropress operating margin and diluted EPS expectations for 2020.
And we didn't the previous previously provided ranges. We now expect our non night first operating margin to be nine and a half plus minus 1.5 percentage points and our non IRS diluted.
Yes to be 25 cents plus minus five cents.
Finally, and very pleasingly.
As we have delivered better than expected free cash flow into first half of the year. We now expect regarding free cash flow to be clearly positive for 2020.
Despite the ongoing macro economic uncertainty I feel we are managing very battled through these challenging times our year on year to date performance, our strong liquidity position and our resilient customer base given gives us increased confidence that we are on the right track.
Before handing the call there they have before handing the call over at the Matt I would just to say I would just like to say. Thank you. As you know this is my last quarterly earnings call with Nokia eye care deeply about this company and I know many of you also care a lot about Nokia future success I cherish there.
Relationships, we have built over the years and I'm grateful over the many learning experiences that we have shared together. Thank you.
With that I'll handover the call back to match book Una.
Thank you Christian.
Your next question. Please limit yourself to one question only as a courtesy to everyone else into Q.
Call. Please go ahead.
And we will now begin to question and answer session to ask a question in your press Star then one on your telephone keypad.
If you're using speakerphone, please pick up your handset before pressing the key.
Withdraw your question. Please press Star then too please limit yourself to one question only.
First question today will come from Sandeep, just funded with JP Morgan. Please go ahead.
Hi, Thanks for letting me on.
The best year as even Christian any future endeavors. My question, you've had a very good second quarter incomes off your margin.
If one looks set your gross margin in Netflix.
That is almost 500 beeps on more than 500 bits improvement from the first quarter clearly I mean you.
The building you've seen data points from the supply chain off.
Fly is beginning to supply to you on that he speaks so I'm trying to understand.
If one projects this gross margin into the second half of the other yard Mark your guidance should be much higher than what you have guided the market to at this point. So why are you seeing at this point that your gross margin is going to decline into the thinking off of the given the significant improvement you've seen in the current quarter or is it that there was a huge.
Shifting to kind of what are we just knocked want to be sustained need to the second alethia. Thanks.
Thanks, Sandeep and thanks for the good wishes so.
What's what's on deep I think we if we put in place this strong centralized because most of the management deal discipline.
Last year that is.
Helping us with the underlying structural improvements.
And so if you think about where that margin strength came from.
The first as Fourg LTE, because fourg LTE is now pretty much on a worldwide basis entering this capacity phase.
The second of course, because of our Fiveg system on chip.
[music].
It helps us in Fourg LTE, when we are bidding for the combined deals, which have fourg and fiveg, having said that we havent yet so the impact in any meaningful way from the Fiveg I still see which will come in due course, because remember that the six month lag between shipments said.
And actually banking some of the benefit.
The other areas today, we benefited with IP routing.
Fixed.
And.
Hi, good all these other technology leadership, we have still been door remains open for us.
But that was also.
This product and regional mix issue that we.
We benefited from in the quarter.
Which would be slightly less pronounced as you move forward. So those kind of the puts and takes fourg routing.
And then this product regional mix that.
It will be less pronounced and yes.
Thank you Sandeep coal next question please.
And our next question will come from Robert Sanders with Deutsche Bank. Please go ahead.
Yeah, Hi, good afternoon, and my best wishes to you guys as well. My question is just about why way why dominant footprint, what do you actually hearing from operators.
Tend to be getting look and how are you going about engaging with these operators that maybe you have engaged with for a while and within that are you seeing any particular region, where those operations that were previously dependent on Wally now coming to you is that Europe middle east toward the even Asia well. Thank you.
Thanks, Rob.
Yes, we're seeing.
Several countries consider their fiveg technology vendors options.
I think Europe is clearly one of one of them.
Thats, probably most of that momentum.
Not whatever the government's decisions are we update to help our customers wherever they are the ones that we have the capacity we have given the scalability good about the products.
And to me it isn't just about radio, but it's also about core.
That being sensitive, but it's also about confidence or routing in particular I mean, that's also consider.
The court and then due to a lesser degree also fixed so I think is going beyond the evaluation or the revaluation of Ventas Lexus, resulting in concrete medium term opportunities the emphasis on on medium Tom.
And that's that things are so we've seen already before in Canada that we were able to expand our shared we saw that in Japan with Softbank with Kennedy.
In order for not just in Australia, where we entered.
Where we would not a supplier a call and now we have a sole supplier.
Im comfortable radio and transport.
Thanks for the wishes.
Thank you Rob coal will take a next question. Please.
And our next question will come from David Mulholland with yes. Please go ahead.
Hi, Thanks for taking the question and good luck from as well just on the country or on wind right on market share.
Obviously still remaining above 100% ex China.
As you look at thought into the second half the year and into Q3 in Q4 in a given current visibility and deals you think are up for grabs shrink or something you can still sustain from here obviously, there's some opportunities from hallway, but are there any other areas you're feeling some pressure.
Thanks, David So at this point based on the visibility we have we we believe that that 40, plus fiveg market share of 27% than you know the the win rate of about 100%. Excluding China is is what we're looking at that's what they're.
We're seeing and ended up puts and takes is August in this business Thats a win backs that sounds dresses, but.
So far that's that's the the number we've we've seen.
Thank you David call next question. Please.
The next question will come from a child full taunia with credit Suisse.
Go ahead.
Hi, good afternoon.
All the best can move and Christian from my side is that.
Maybe I think are given you've touched upon this.
Topic in the U.S.
Highlighting that one of the key customer we're still seeing slow ramp in Q2.
And obviously you're talking about the.
Acceleration in the second out there.
Can you help us understand is it going to be across the board or is it isn't going to be with one specific customer than we think about about second half and then what exactly.
Kind of product is this customer looking.
Deployed in the U.S. is it mainly focused strong mid band or is it a combination of a macro mid band and and small cells and then software upgrades as well. Thank you.
Yes, thanks, so a child so what we seem to find the U.S. is that those being re farming preparation for dynamic spectrum sharing for that means low band Fiveg right at 5900 and so on.
What we saw last deal with millimeter wave, but.
Also low band in the case of BT mobile.
600 and.
No I think up with this so.
Much of coming together and and clarity in terms of second half.
We see that the ramp up will increase in both the.
Low band with that particular, operator, but also also the mid band right. That's the spectrum, but they've now got.
And so there is in Q2, it with a big soft.
Especially in services and now as the sites come on come on line than if they get clarity off.
All.
On road map.
And that will accelerate in the second though when you talk about C band, which is of the broader auction space that will happen at the end of this yard results would happen at some point in Q1 next year end and that spectrum will be code for use.
The offered as out of the Windows in that space on the you know by the end of next year and then of course.
On a different related note that the the CBR rest that opens up opportunities for enterprise, particularly utilities that we'll look to drive field area networks and go from our enterprise business.
On that opportunity as well.
Thank you Charles Cold next question. Please.
And the next question will come from Simon Leopold with Raymond James. Please go ahead.
Well. Thank you for a particular question Rajiv good luck on your next adventure.
Just just wanted to maybe get to a key point here given the 2020 outlook you've provided can we consider this evidence that your relationship with Verizon likely one of your biggest customers.
Remained solid and that your plans with that customer on Fiveg are on track per year. Prior plants. Thank you.
Thanks, Simon Weeden, not comment on our customers vendor strategy.
Not yet proud to celebrate and then we are committed to continuing to help them bill the best reliable and highest performing well we work with them across multiple technologies, so far into and portfolio if not all and we have a longstanding strategic partnership in technologies.
And we play a critical role than horizons.
Fourg networks and continue to work with them to accelerate innovation around Fiveg technology.
Thank you Simon coal well take our next question. Please.
And the next question will come from Alex Duval with Goldman Sachs. Please go ahead.
Yes, hi that make sense and the question.
Thanks.
Some questions that walls.
Just one if I may talked about comes needs platform.
Talk shipments.
Yeah, I wanted to talk more broadly about how you assess and make sustainable products.
Competitiveness on wireless.
Hi.
I want to Paul.
Yes, I wonder.
Talk about some of the other dimensions.
Thanks, Alex so by the end of the second quarter, the new shop efficacy based massive mimo radio units.
These this product family was shipping in about 13 variants across the global market in different frequency ranges.
And this number continues to rise that's that's the one thing remember we said, let's start with the RF part of you know the SSC.
And then we also have the reef shop as proceeds available for the next generation of Nokia.
Monkey radio Basebands. So this is the next thing that we said we would start shipping and we're on track to start shipping.
The base that bodes by the end of 2020 and then if you look at next year, we expect that I'll be chalk equity base based bank and radio units would take the lions share of our delivery so reaching at least.
Around 70% by by year end.
So that's how we see it in terms of the park Competiveness competitiveness, we are shipping products now with lower power consumption performance and lower.
Part of thoughts and then when it comes to features.
I think the catch up has accelerated in the last few quarters and yes, and some features but a little bit behind in the order of you know if you'll months and then in some other places like small cells.
Retro where we're also ahead and then when it comes to the next generation we get this feedback from all of our customers that headwind be around cloud ran an open radnet and we are going up.
We are going to continue to accelerate.
Thanks Dennis.
Thank you Alex coal next question please.
And the next question will come from Alexander pattern.
If you think I'd, rather see I'd be please go ahead.
Hi, Thank you so for taking my question best wishes to two boats as you Smile on my side can you features.
I can you just provide for new business on a.
On the margin recovery across much of it probably in.
The networks business, particularly mobile.
If you could tell us if it's more in the hardware side or inside its delivery, we want the contribution of both of these.
The improvement thanks.
In Q2, Alex.
Yeah.
So yes, it was up.
Greetings from mobile access lawn.
The reduction in low margin services like so exiting some unprofitable managed services contracts and and reduction of deployment services proactively out of choice.
Second Fourg LTE being in the capacity phase. So we saw an uplift in margins and Fourg LTE and we will not see for the same extent in future quarters It will be.
Thank you go extent, but the fact that Fourg LTE isn't as capacity phase worldwide. It's just going to remain as a reality and also for the.
Medium to long term and then.
The third was though of course in Fiveg will see when you have more of these associated shipping system on chip products that lower product costs that makes you competitive then in Bates and that means that you are more competitive.
Retain more margins in Fourg as well so you get that indirect benefit we haven't yet seen fiveg system on chip material benefits, yes, because yes, because we only have 10%.
Run rate at the end of Q4 and member doesn't six month lag and that is yet to come. So I think what I'm, saying is that with both the commercial management and deal discipline as well as some of these product benefits now we're seeing.
For the most box structural improvements on an underlying basis.
With the exception of Q2, where we saw little bit better regional mix and product mix that that might not because at the same.
Thank you Alex coal next question please.
And the next question will come from Dominic holding ski with Morgan Stanley. Please go ahead.
Hi, everyone. Thanks for taking my question and I'll add my best wishes to.
Then.
My question is around the recent news reports on.
Exports from China, maybe could you discuss smoke his ability to service the rest of your global customers should you see export controls the put in place for example in China, but elsewhere.
And how independent and Modularized is your internal supply chain mobile.
Thanks Dominic.
Look as a global company operating in a multitude of regions. If we have.
More than 31.
Network of tell you one package.
Suppliers, we have a number of fulfillment hub for logistics. So we are mindful of the geopolitical environment than the risks and opportunities that creates for us.
We have a global supply chain footprint.
Designed for optimize global supply.
Designed to mitigate against risks such as local disrupted and then so transportation capacity, you're actually it's become even more agile because we've had to do this in the pandemic than ever.
Because we would seem effects and lock on some countries you got to move.
Factory capacity to other countries and and so once that literally on a week by week basis, you have to have the agility. So we are continuously reviewing our supply chain strategy and.
Given both will be thinking on the geopolitical situation that this is receiving a greater than usual.
Mentioned with multiple scenarios and so on that you're working on into keyword as agility.
[noise]. Thank you Dominic coal next question please.
The next question will come from Richard Kramer with Alright. The research. Please go ahead.
Thank you very much.
Like an engineering guides.
Right now the industry discussion seems to be dominated by opening Ram and indeed, Tommy blog posts and is creating future Raman protecting the past.
One of the big questions from investors seem the impact of White box vendor is an area like networking in server is the implications for Nokia profit pools in network equipment, given you're shifting announcement and specifically also for the future of your services business, where are you still have a lot of headcount. So can you talk through how you might transmissions.
Iran and protect your profit pool, when we've seen similar moves guestimate profit pools and office sector.
Thanks, Richard I think the floating I'll start with is that we have seen the same thing happened in core networks right. We saw that when it started to shift to virtualize and no cloud native so we have some experience with navigating that space and and what I would say so given some puts and takes the first of all we started when we started to somebody like we have along.
Three of involvement in open initiatives on TGP Linux Foundation going up initiative multi access it's computing working with Rockwood that we took a step in that direction already in Fourg.
Head of open about in Fiveg, we joined the opened around.
Policy coalition because it gives us the opportunity promote open standards of the strategic.
Policy level.
Well it from a technology standpoint so.
If we do this well the opportunity is that.
So this is could grow there could be more software.
And.
My favorite one is that we'll stop swapping each other because mix and match if not a bad thing right. So we swap each other so the modern equipment sometime because there's an entry barrier if you're not in the game in that network.
And then I would remind.
Remind us all that.
The amount of feature that we have in our operators need by they will feature parity.
And what that some of the smaller and with our offerings I mean, they have 50 60 70 features.
Maybe more suited for enterprise, but when it comes to the providers housing the feature that they want to sadiola from Fourg to Fiveg and next generation Fiveg and then system on chip will be a key the dominant there as well it may not be as much will be right, but absolutely will be for full open ran because a lot of the network performance lower power consumption, the better product cost efficiency.
All come from let's see so those are some of the advantage it.
Of course, there's also a threat in the installed base. If you have a strong installed bases that you get that but I think that I hope you've got the secular pros and cons and we want to leap and not protect because with or without us open that is coming it would come over to Peter in time some of the forward leaning operatives, let's talk first but the reality is and greenfield that already doing it.
We ought to be that it's happening all but over time, and we want to lead rather than per day.
Thank you Richard coal well take our next question.
And the next question will come from Stephens Lewinsky with Exane BNP BNP Paribas. Please go ahead.
Great. Thank you for taking my question I'm just.
With that.
China. The U.S. is obviously, becoming an even more important market for you and I just a question on the mobile access side there.
You confirm sort of the outlook for 2020, if we looked at 2021 the markets still expected to be quite healthy how do you see or your share in the U.S. on the mobile access side evolving into Twentytwenty why is there opportunity to increase share and that growing market or is there risk that you could see some some sums some share loss. Thank you.
Yeah.
Again as I've said, we're supplying to all of the operators there.
And we are.
We've got our C band product, we have supplied 55 customers out of our 83 Fiveg networks on the on mid band basically C band is mid band.
So we're ready for that game the spectrum auctions will take time.
And of course T mobile is happening as we speak so hard to say how shabelle evolved some of the C band tendering activity will will will.
Some of it in motion some of it will begin to happen but.
All we can say is that we have a strong position today, it's a focus area and outside of the service provider space, but also other opportunity that we're focused on so so far it's fine we just need to keep up the good luck in terms of although about competitiveness.
Thank you Stefan I'll call looking at the time I think we have time for one more question for today's call.
And that question will come from Sammy sarcomere with or Dan markets. Please go ahead.
Hi, Thanks for taking my question Youre, not expecting to underperform slightly your address or markets. Excluding China can you elaborate on the assumptions to tap change during the second quarter I'm, especially interested in whether it is anyway related to use market developments.
Thanks semi that's up as we cut offs when our press release Thats related to a reduction of low margin services deployment services in particular, but also you know managed services.
As one meaningful.
For example.
Okay. Thank you all for your great questions today, I'm, sorry, we weren't able to get completely through the Q.
But with this I'd now like to turn the call back to Ritchie.
Thanks, all for the good wishes very much appreciate it's been great working well with you all.
I mentioned in my remarks that we were pleased with where we landed overall this quarter given the impact of the quoted 19 pandemic and.
Underlines the bank, we are seeing and making meaningful improvements to our business performance.
Of course, the pandemic is far from over in many parts of the world are currently in a very tough situation.
Health and safety apart employees remains at the top of our priority list, what I'm satisfied with the work we have done so far to keep up people say, we will remain extremely vigilant as a situation develops.
And finally this is my last walking the CEO my last what the announcement and I want to close that in order. Thanks.
A lot of one wishes to all the few I leave knowing that you will be in good times the tecogen Mark.
With whom the transition instituting an orderly manner and who will talk to you next quarter. It has been a great privilege and honor to lead this incredible company in the classic fields and Nokia Siemens networks before that for five you other than to be a part of the Nokia family over the past 25 years, thanks to our shareholders. Thanks to our customers. Thanks to our many other stakeholders in particular.
Thanks to the great employees of Nokia.
You are constantly made me proud and expect that you will continue to do so in the many years to come. Thank you. All it has been a pleasure than an owner with that I will hand, the call back over to met.
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 differ 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 wherever identified these in more detail in the section titled operational and financial review and prospects risk factors of our 2019 annual report on form 20-F, our financial report for Q1 published on April Thirtyth on form 6K, as well as our other filings with the.
Securities and Exchange Commission.
Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Your lines. This time.