Q1 2021 Nokia Oyj Earnings Call

Hello, and welcome to the Nokia first quarter 2021 earnings teleconference video call all participants will be in a listen only mode should you need assistance. Please signal conference specialist surplus of the Starkey followed by zero.

After todays presentation, there will be the opportunity to ask questions. If you could also viewing the video webcast. Please remember to mute the audio on your computer before asking your questions out there is the 30 day rate.

I ask a question you May press. The Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. The this event is being recorded I would now like to turn the conference over to Mr. Matt <unk> head of Investor Relations, Sir you may begin.

Yes.

Ladies and gentlemen, welcome to Nokia as first quarter 2021 conference call.

I'm, Matt CMO head of Nokia Investor Relations.

Like of Limbach, President and CEO of Nokia and Michael Wood at <unk>.

Nokia are here with me at the teleconference on video today.

During this call, we'll be making forward looking statements regarding our future business and financial performance and these statements are predictions that involve risks and uncertainties.

Actual results May therefore differ materially from the results. We currently expect.

Actors that could cause such differences can be both external as well as internal operating factors. We have identified such risks in more detail in the section titled operating and financial review on prospects risk factors of our 2020 annual report on form 20-F, as well as our other filings with the U S Securities and <unk>.

James Commission.

Please note that our results release, the complete report with tables and the presentation on our website include comparable results information. In addition to the reported results information.

Our complete financial report with tables available on our website includes a detailed explanation of the content the.

Comparable information and a reconciliation between the comparable and the reported information.

Todays stock exchange release and presentation can be found on the Investor Relations section of the Nokia website.

With that I would now like to turn the call over to Pekka.

Okay.

Thank you Matt.

Hello, everyone.

And thanks for joining the call on I Hope you and your families remain safe and well.

Yeah.

Well, we have had the great start to the year. It shows we are on track to deliver on the three phased plan to return the sustainable profitable growth.

We delivered 9% top line growth in constant currency and a 10.9% comparable operating margin of clear improvement year on year.

Net stand out with our network infrastructure business, which had a fantastic quarter with 28% net sales growth in constant currency and the double digit comparable up of any margin.

This business good balance on strong technology leadership, and we see robust demand for its products.

Solid progress also on mobile networks with the increased profitability growing sales can find James and good steps taken to word of securing full portfolio of competitiveness.

So.

I want to take you through our performance with an emphasis on how we are attaining technology leadership adapting to new business models, and addressing new and emerging areas of growth.

My presentation will begin with the overall picture looking at our Nokia level of sales margins cash on guidance.

I will then drill down into our four business groups to explain the underlying drivers and finally I will talk about holidays.

The quarter, it's the first quarter relates to the three phase plan, which we outlined at the capital markets day.

But let's begin with the Nokia level numbers and all of the net sales on the addressable market figures in my speech today will be in constant currency and four margin side, we'll focus on those on a comparable basis.

First sales.

So you can see from the slide we made good year on year of progress in Q1 net sales increased by 9% the $5 1 billion euro driven by strong growth in network infrastructure and solid growth in mobile networks.

In 2021, we expect our total addressable market growth to be of 3% year on year.

This is driven by increasing consumer capacity demand share by five G rollouts and by the increasing focus on Grace the damsel broadband.

We also see growth opportunities in the market for enterprise and web scale with Iot edge and the industrial digitalization.

These market drivers were reflected in the first quarter results in particular in the growth of <unk> sales demand for out of network infrastructure solutions, and 18% net sales growth with enterprise customers, which you can see on the slide.

This growth was the enterprise growth was driven by securing 63, new customers in Q1 more than double the number of we secured in Q1 last year.

Approximately half of these customers bought the private wireless solutions, meaning we now have over 290 private wireless customers.

And regionally we saw double digit net sales growth in North America, driven by network infrastructure.

We also saw double digit sales growth in greater China and in India.

This was partially offset by net sales declines in Asia Pacific and Middle East and Africa. Nevertheless, we believe our market position is stable in Asia Pacific and improving in Middle East and Africa.

We were pleased to see gross margin the gross profit increase in both regions this quarter.

Timing was wholesale the factor here.

For example in Japan of major service provider is deploying <unk> G on our competitors' footprint first and the deployment of our footprint footprint will happen later.

Now moving to our key figures, which you can see on the slide.

And how.

I was particularly pleased by the strength of the comparable operating margin, which hit the 10.9% up eight five percentage points year on year.

The improvement in comparable gross and operating margins was primarily driven by higher sales volumes favorable product on regional mix lower SG&A expenses and Nokia's venture fund investments.

From a business growth perspective, the improvement was driven by mobile networks and network infrastructure.

Comparable earnings per share was seven euro cents compared to one in Q1 2020.

Reported EPS was five year of sense compared to negative two cents a year ago.

On cash we delivered our fourth consecutive quarter of positive free cash flow in Q1.

We generated $1 2 billion euros of free cash flow and ended the quarter with net cash of $3 7 billion and the total cash of $8 8 billion euros.

Yeah.

So how does that relate to our guidance.

It is clear of course.

Cash that we are off to a strong start for the year and there is a lot to be excited about net sales growth improved gross margin strong operating margin and cash flow.

At this point, we are maintaining our outlook for the full year as we want to see how 2021 continues to develop.

The solid first quarter provides a good foundation for achieving the higher end of the seven to 10 compatible.

The 10% comparable operating margin range.

What is important to understand is that we expect the seasonality of do we usually see between quarters to be less pronounced in 2021. The first quarter has typically been one of the week of quarters for restaurant volatility throughout the year has tended to be significant.

In addition, various now less visibility to the semiconductor market in the second half of the year.

Due to our robust supply chain management, we have been able to successfully deliver to our customers during the global shortage, but we want to see how the situation develops and continue to give it the full attention in close dialogue with the suppliers.

Yeah.

So that sums up the Nokia level, the results and I'll now turn to the performance of our business groups.

First mobile networks.

As I have mentioned before our.

The priority here for 2021, securing full portfolio of competitiveness. So we were pleased to see a solid first quarter, we the uptick in profitability on good progress across the business groups focus areas.

Net sales rose by 2%. This was driven by continued momentum in the <unk> rollouts across all geographies, especially in North America, Greater China offset by the decline in May in mature radio technologies on deployment services.

Comparable gross margin in mobile networks reached the 33, 2% up two one percentage points year on year. The improvement came mainly from five G and the favorable product mix with the lower proportion of deployment services.

The same drivers helped to raise the comparable operating margins of three 4% up two eight percentage points year on year.

I mentioned that mobile networks made progress across all of their priority areas. As a reminder, there are three.

First.

Expand our technology leadership for critical networks.

Our <unk> powered by reef shark system on chip shipments hit the 44% this quarter remaining on track to end the year around 70%.

Second build and maintain scale through a good deal momentum this quarter, we achieved good wins with the.

For example, AT&T do.

And the startup of joint venture in Singapore, just dimension free access.

As you can see from the slide we are on track without kpis, including all of a targeted market share of 25 to 27 per cent per <unk> in 2021, excluding China.

We now have 160 commercial <unk> deals and 63 Lai of <unk> network deployment, and if we add paid trials the number of exceed 220 total five <unk> agreements.

And third we actively shape the market the Nokia edge automation solution allows customers to manage multiple cloud deployments supporting new <unk> use cases, and we announced partnerships with major web scales, including Google Amazon and Microsoft.

Overall this marks a solid start to the year and we are on track with the objectives laid out at the capital markets day, including plans to increase investments in five G Oran and be it on.

We expect five G and the enterprise private wireless the continued to drive mobile networks addressable market growth in 2021 with strong <unk> radio growth expected. This year in North America, Japan, Europe and also elsewhere.

Then moving on to network infrastructure.

Which had a fantastic quarter across its businesses with net sales increasing by 28 per cent.

In parts of this was due to a favorable year on year comparison as Q1 2020 was at the height of COVID-19 in China, which had an impact on both supply chain on the Liberty.

The strong performance in this quarter was driven by good supply chain execution on by areas of continued technology leadership.

Comparable gross margin improvement improvement stemmed mainly from might be optical on somebody networks.

Strong comparable operating margin of 13 percentage points year on year was primarily driven by higher volumes and lower SG&A expenses.

As we said at the capital markets Day next generation access is a big opportunity for us on.

Humorous businesses and governments are all pushing for ultra fast connections to all of them send workplaces.

Working from home it looks like it is here at the state.

We expect demand in the addressable market for network infrastructure to have solid growth of 4% in 2021.

Next I'll give you a bit more color on each of the four units with the network infrastructure.

Fixed networks sales were strong up 49% year on year, driven by fiber access technologies and broadband devices, partially offset by a.

The natural decline in corporate access technologies.

In IP networks net sales increased by 22% year on year, primarily driven by ongoing technology leadership and strong supply chain execution.

The 7% net sales growth in optical networks was primarily driven by India on greater China.

This is partially due to a favorable year on year comparison of wireless acceleration of some sales in North America also contributed to the increase.

Exceptional 57% net sales growth net sales growth in submarine networks was mainly driven by a continuation of the robust deployment activity and also partly due to a weak Q1 2020 impacted by profit.

We also ended the quarter with the strong order backlog.

And overall, great performance and I do want for the whole network infrastructure business group on debt.

That's why I do want to think of it Eric and his team for this excellent performance.

Yeah.

And the next.

With the cloud of network services, and I want to say a few words about the markets first.

As discussed at our capital markets day, 2021 will be will be a year of transition in which cloud and network services transform its business to better capture of growth opportunities.

These business day centered on driving our success in five focus areas.

<unk> core.

Analytics and AI.

Private wireless on the industrial automation.

Each of the operations and automation and managed security.

These priorities will also guide their R&D of focus on capital allocation cloud on network services net sales decreased 5%.

This was primarily driven by a comparison to the particularly strong Q1, 2020 and by cloud and cognitive services, where we continued to exit the poorly performing projects.

There are early indications of our ability to lead in the now chosen focus areas CNS has the strong book to bill of ratio and secured over a day UCSB of deals in the quarter, reflecting on our technology strength in telecommunications software and private wireless solutions.

For instance, dish using Nokia Snip garden sweep for the security automation and orchestration, while telenet in Belgium has chosen us to de lever of cloud native core interest types of products.

And in the next few weeks, we will launch. Another addition to the Nokia <unk> networks lighting solution, we will add the complete software automation stack the design deploy and issuer services at scale.

Comparable gross margin was down 0.9 percentage points year on year comparable operating loss was makeup the a 3% of net sales compared to an operating loss of neglect the of five 2%.

This year on year improvement was largely driven by SG&A expenses on the positive currency impact.

In summary, some positive steps in the quarter and the lot of necessary work underway to transform cloud of network services to where it needs to be.

Although the transition is never easy on.

I believe the team is on plan order intake is good on the cloud of network services portfolio the view.

He is well underway with rebalancing R&D spent.

And then finally Nokia technologies.

You will remember the building upon on protecting our intellectual property is a key part of our strategic commitments. This was reflected in the strong set of Q1 results in which net sales were up 6%.

The annualized net sales run rate was in the region of one four to $1 5 billion Euro.

The comparable a little bit of any profit also rose up 2% year on year compared up of liberating margin. So a slight drop due to increased investments in R&D business development patent portfolio of costs and licensing related expenses.

We announced new licensing agreements with Lenovo, and Samsung, which underlines, which of which underlines the strength of our sale of Lula and multimedia of patent portfolios and highlight the growth opportunities from licensing our award winning the innovations in video standards.

We continue to be of leading contributor to the development of future of Sandler letter on multimedia stand that sent to renew our industrial leading patent portfolio with over 3500 patent families now declared as essential defied James and in fact of the only yesterday, we were named once again as the industry leader in <unk>.

Standard essential patents by P. A consulting in the latest independent study.

That concludes our business groups.

Together. These results show that we are on the good path to deliver on our three phase plan, we announced at the capital markets day.

As a reminder, that plan began with the reset which commenced last August. It consists of moving away from end to end at the cornerstone of our equity story.

The new operating model.

Securing pool portfolio of competitiveness in mobile networks.

Resetting our cost base the.

Finishing our purpose on ways of working and getting a strong unified leadership the team in place.

On that note I'm pleased to say that the 11th and final member about group leadership team. Melissa shed is now in post that kind of a chief Corporate Affairs officer.

Once the reset is complete we will move on to the accelerating performance by increasing the digitalization of our own operations and our improved portfolio of competitiveness on investments in technology leadership gained through the recent phase will provide margin enhancement on growth opportunities through new products and services.

Yeah.

As we can see.

From the Q1 results actually on network infrastructure and Nokia technologies business groups are already entering entering the accelerated phase.

After accelerating with scale.

That means setting our sights on the new value that stems from next generation critical networks.

Of course.

Of course, we one type of business that has to be matched by our environmental and ethical success.

You will be aware that we launched our new debt this at capital markets day.

We create technology that helps the World Act together.

This purpose reflects Nokia role not only as a responsible unconscious actor ourselves, but as an enabler for other industries in the organizations to become cleaner more productive and more equal.

This quarter, Nokia announced that we aim to half of our emissions from 2019 the 2030.

This target is in line with a one five degree of global warming scenario and it applies to our own operations as well as so called scope three emissions covering our entire supply chain and also the use of our principles.

Of the use of our products by our customers.

Yeah.

We are also directing 30% of our corporate social responsibility spend towards improving diversity.

As one example, we announced in Q1 that we are targeting a minimum of 26% female hires and global external the crudes by the end of this year.

So that's what's the summary of our overall, the salt business groups and how our results relate to all of the three phase plan.

To conclude I'm very pleased with all of a strong start to the year with an increase in net sales profitability on cash. We are we have a good foundation to build on.

And while we still have significant work to do we can all be proud of the Israeli good quarter, we have the portfolio the ability on the confidence to drive consistent execution in all of our business groups.

Okay.

Thank you and now we'll now I will turn the call over to Michael.

Thank you Pekka.

And welcome from my side on Wall.

Pekka walk through our Q1 performance by business Corp, I was.

They start by giving a brief look at our group common and other results.

I will then take you through all of Q1 cash performance on liquidity position the non will cover the.

The first of all market and before closing I will.

Say, some words about our outlook as Paul.

So with that on to group common.

That's the reminder, under our new operating model could come on now consists of radio frequency systems or of tests, that's been calling Nokia growth partners and G. P. <unk>.

And certain corporate level and centrally managed expenses such as Nokia Bell Labs group staff functions.

And net sales here.

Is entirely related to RFS.

That will increase 9% on constant currency basis.

Driven mainly by North America.

And group Collins impact on the comparable operating profit improved over 100 million euros year on year.

I think Q4, we benefited from gains in our venture fund investments in Q1.

The part of this improvement was related to FX due to the.

The fact that moves in Euro U S right, which consequently drove the revelation of the USD denominated funds.

Moving to our cash flow performance now on.

I'm pleased with all of Q1 results, which now mark the fourth consecutive quarter of positive free cash flow.

The closure of drivers, where our overall strong profit and net working capital development in the quarter.

The overall net working capital.

Drove an increase in net cash of 910 million euros.

And within these receivables were the main component decreasing nearly $1 nine of one 1 million of 1 billion euros.

This was driven.

Seasonal decrease which is typically in Q1, followed by a strong Q4 net sales as well as good cash collection in the quarter.

Additionally, the inventories were flattish in the quarter, primarily due to the extended lead times on certain components.

These were partially offset by an overall decrease in liabilities.

There is one additional note that I would like to make regarding receivables.

Our focus is on the commercial discipline and terms and conditions and now we used the sale of receivables to manage the credit risks.

And by the end of last year, we significantly reduced the amount of sale of receivables.

Oh.

Now at the level that is normal for Nokia and our interest as well.

The Q1 cash flow strong profit and net working capital were partially offset by Capex and restructuring cash outflows and the relating to all the.

The previous cost saving programs.

These led to free cash flow of $1 2 billion euros in the quarter.

The very strong compared to our typical Q1 before Matt.

And looking forward keep in mind. The Q2 is when we typically pay our annual employee incentives for the prior year, which negatively impact cash.

And then stepping back to Q1 and looking at our overall liquidity position.

We ended the quarter with $3 7 billion of.

Net cash and <unk> 8 billion of total cash.

Regarding debt, we paid down the 350 million Europe.

In the quarter and on the next maturity comes due in June 2022, and this has already been pre financed with debt that we secured last year.

So all in all of our liquidity position remains strong on.

Both on net and total cash positions have pleasingly the steadily.

Steadily increasing since to the 19.

As we explained although of a couple of Morgan State on main focus is on deploying capital.

<unk> technology leadership.

And we feel that our liquidity position enables the.

The consistent long term R&D investments necessary to obtain and expand our technology leadership across the whole portfolio.

In addition, the <unk>.

Strong cash position provides flexibility to build additional inventory to mitigate the risk given the current at the time conditions on the global semiconductor market.

And before moving on to our outlook I wanted to touch upon.

The other point related to our report that we published today.

Eastern time efforts, the streamline and simplify the reporting you may have noticed that we are now providing some information about the addressable market development on M. I.

And the CNS.

First of all.

Please note that our addressable forecasts are based on your U S rate one twin of the free which parts of the rate at the end of the June 'twenty.

Overall, our view of the Chisholm 21, total addressable market increased slightly compared to the view that we had at the end of last year.

And this was driven by an improvement in the North American CSD market for mobile networks.

You may be wondering why our.

The market estimates differ from some of the external analysts news.

The difference here is mainly because of the FX for example.

The Lora.

Forecast only in the U S T.

Based on the reason the FX fluctuations this has a huge impact for companies that do not report in USD.

If you would adjust for the effects you would find that our growth rate assumptions or broadly consistent with the delora sphere.

And in <unk> remarks today, he provided comments on the constant currency addressable market growth rates.

We expect interest in 'twenty, one and the FX impact is clearly material.

And then finally into our outlook.

As Pekka.

Ed This is.

At this point, we are maintaining our outlook for the full year.

And we want to see how the Chisholm 'twenty one develops.

The solid first quarter provides a good foundation for achieving the higher end of the <unk>.

Seven to 10 per cent range for comparable operating margin.

The global semiconductor of availability in the second half of the year is the main uncertainty we face.

And we believe it is wise to be cautious until we have enough visibility to be confident.

We continue to be in close dialogue with all the suppliers and on giving the situation of our full attention.

So in conclusion.

We are pleased with our Q1 progress and we are well positioned to deliver on our full year of commitments, even though we expect less pronounced seasonality this year of keeping a strong Q1 results.

So with that I will hand over to Matt for Q&A.

Thank you Marco.

For the Q&A session. Please limit yourself to one question on.

As a courtesy to everyone else in the queue.

Cole. Please go ahead.

We will now begin the question of the once your social if you were also of Union. The video webcast. Please remember to mute the hardware on the computer before asking your question is there was a 32nd day right.

So the ask a question of a press the star of the World on the telephone keypad if you're on.

We're using a speakerphone please pick up your handset before pressing on the keys to withdraw your question. Please press the open to what this time of a pause momentarily to assemble the roster.

The first question today will come from Alexander Duval with Goldman Sachs. Please go ahead.

Yes. Good afternoon, many times of the question I Wonder if you could give us an update on your position on the wireless base station products on your progress revitalizing that business on.

One of your competitors has announced the lightweight massive mimo products. So how is your progress in the area and can you talk a bit about your confidence level on the wireless product more broadly for example, how would you assess the progress of multimedia based on that can do for Jean <unk> on what's the latest update on your timeline the guessing just put up the portfolio.

The wireless you will help you with my guidance.

Thank you Alex.

But that's of great question of statute.

So of course of highly relevant.

You asked about the confidence level is pretty high on we have made the gray.

The progress recently.

Dan.

The confirm that we have new radios coming to the market.

We have been talking about both.

The <unk> massive mimo radio and also a new baseband when it comes the massive Mimo radio.

The new product will be launched soon after I said that can control confirm it's coming and it's coming approximately at the same time when the the one without competitor that you are probably referring to.

We will launch the detailed specification of the radio later.

But a couple of sneak previews it pass.

Hi, your wider bandwidth.

On the one that are the competitor you're referring to will have on.

It also for certain high volume configurations, and I guess a.

32, the tier two are would be the best example here.

It will be a lighter weight than that of the competition. So we believe that it will be of highly competitive massive mimo radio the.

Then the second part of your question on has to do with the base.

On the baseband platform and I am pleased to confirm that.

That's our first the.

Come on baseband for of Gen five.

It is now.

Delivering.

To sum by.

Pilot customers and feedback is excellent.

The full ramp up will be will be done or starting now during the second quarter. So these product disorder the delivering on.

Based on what we our understanding we will have achieved.

Lower.

Follow up on Samsung.

The capacity the scalability of Dan overall, when we look at the.

Future proof of this platform is we have the good reasons to be optimistic on this whole question of the five day radio competitiveness will of course be absolutely central to the.

Overall competitiveness of our mobile networks business on.

That being half of the Nokia of course, the whole company.

Thank you Alex for your question.

Thank you.

Coal, let's take our next question please.

And our next question will come from Sami So called of the ancillary markets. Please go ahead.

I would like to move on to the network infrastructure, where we saw very high growth rates of IP.

Brooks fixed networks on the submarine networks, how do you see the demand outlook for Q2 on for the remainder of the year.

Are you concerned with the component of charter case interest.

Yes.

Yes, Thank you Sammy.

The demand outlook, it's pretty small.

Solid I mean, we had.

In some segments that we have the easy comparisons to.

The last year, but of course, the overall volume on profitability for the business, what's the what's good.

For example of somebody networks, we have record high order book at the end of the first quarter on the big trends that I was talking about in terms of the.

The demand for fixed broadband and so on they are not going to go away and we.

We should not forget that actually <unk> will start to drive the demand for fixed connections as well it is already doing that.

For base station connections for backhaul connections, we had some of that already in Q1, but then in the little bit longer term when we get to the face of that operators will start the <unk>.

The small high capacity of D. Small sales in millimeter wave frequencies that will actually increase the demand for fiber Wendy's.

Based on fashion is the smallest sales will have to be connected back to the networks. So.

I'd say that the Mega trends are on our side here now the component.

Hey, Jason we have been able to manage it pretty well on.

The guidance this business have done great job on supply chain management and also also getting prepared for the upcoming component.

But this is a question on that will just have continuous items. So we are working hard with our suppliers and.

As we also said in the release the limited I mean, there is the ability to the second half.

And our suppliers capability to deliver it is more limited than you would sort of lead times have increased.

The whole world the suffering from component shortage. So that's why I mean, that's why I say that the situation in these types of constant attention, but we have done well sell price.

Thank you Thomas for your question Colin Let's take our next question. Please.

And our next question will come from Arun <unk> with J P. Morgan. Please go ahead.

Alright, Thanks for taking my question Michael.

My question is on the North American market are very strong growth on the first quarter of the year of.

How do we reconfirm the list the share loss that you.

We're seeing a major north American telecom operator.

How are you looking at the <unk>.

Performance in this business going into the second half of the heel.

Yes.

Yes. Thank you first of all the day.

North American progress was.

Very good in Q1 double digit growth, primarily driven by network infrastructure business, but also on mobile networks.

I mean, yes, the market share loss with one particular customer.

The.

On the visible already in the second half of last year and now. It continue then it will that the effect of it continues to strengthen towards the end of the year, but.

The interesting thing is that the mobile networks in the first the quarter, where more of less able to compensate for that effect with the other customers, but this overall.

The kind of.

I guess it is fair to call it the challenging situation with market share and price pressure in the North American market.

It will continue what we have said earlier about the full year will be will be true and the impact will be gradually stronger when we get the towards the end of the year. On this is one key reason for saying that day.

The seasonality our results seasonality of that we have typically seen where the first quarter is weak and then improves on great fourth quarter of that we expect it to be less pronounced this year.

Thank you Barbara and Paul next question. Please.

And our next question will come from Robert Sanders with Deutsche Bank. Please go ahead.

Yeah, Hi, good afternoon, I was just going to ask a question about South Korea and Japan.

On your Swedish competitor sort of lot of strength in those countries in the quarter, but you saw a decline in your Asia Pac business ex China did something happen in those countries for example, <unk> share of loss.

It is the that is the case what of your prospects to recover share.

Thank you.

Actually that's the a little bit up on that in my opening remarks, where where I confirm that our market share our outlook for the Asia Pacific region is stable on the particular question about the the Japanese market on the comments made by my competitor May have.

You do with the timing.

Question on timing issues, where were some of the deployments of our first going on in our competitors.

The region on our agents will follow up later.

Thank you Rob.

Coal, let's take our next question please.

The next question will come from Simon Leopold with Raymond James. Please go ahead.

I appreciate that thanks for taking the question. This morning, I guess afternoon for you.

I want to really see if I could get a little bit better explanation around the operating margin trends here given that the March was really super strong, especially consider seasonality.

At 11%, yet you're you're maintaining the full year outlook of seven to 10 per cent and I know, you've you've talked about the supply chain risks, but you haven't adjusted.

Thoughts on on the revenue trajectory other than you did seasonality.

I feel like there's something I'm missing here, whether it's.

What are you thinking about operating expense trends or gross margin, if you could on Texas, a little bit more.

<unk> it.

Okay. Thank you, Matt, let's do so that I mentioned on a couple of things and then the amount of golf Michael will follow up.

Well first of all of this wasn't great.

The quarter, we saw we saw really good demand on.

The 9%.

Comparable currency.

The growth was a great start to the year, so that needs to be taken into account then.

We had really good mix in this quarter product wise and also regionally that is one thing then the second thing is.

The supply chain situation that we're monitoring carefully we want to be a little bit careful with how we the <unk>.

Look at the second half of the year.

Despite the fact that so far we have done extremely well then there is a third thing which is.

The R&D increase.

The increase that we have said that the label due this year.

When you look at our R&D expenditure in Q1, it was flat year over year. So that means that the increase will come later this year. So these are at least some of the reasons why we expect less of seasonality of.

This year and then one I already talked about earlier it is the profile of our North American market, especially the mobile networks and.

Still pretty good Q1, but then some of the things that I was talking about start thinking of bigger effect too much the second half of the year, but Michael.

Just building on what Pekka said that the.

The mix of a normalized most likely and throughout the year. So Q1, we had a very good yeah. The.

The mix impact both on product and geographical wise.

In addition to R&D, if you look on SG&A costs in Q1 on small so they were quite low ish. So.

And of course, there was several reasons for that of course the year on year compares some of these one on it.

We believe that of debt because the.

The organizational change that we've done on a personal model yeah.

We will have more SG&A cost of that should have come in Q1, perhaps on coming a little bit later.

And then there is a venture fund and reversal of bad debt.

Yeah, Yeah, that's the route.

The reversal.

We have made earlier on the customers that actually paid in the.

Actually the last days of March.

Bunch of funding is something that we had a good impact in Q1.

Yeah.

Thank you Simon for your question coal, let's take our next question.

Next question will come from Sigma or anyway Dnb. Please go ahead.

Yes, hi, everyone.

So.

My question relates really to the to your.

The relationship with the Horizon and you might have commented on that a bit earlier I had some technical the technical difficulties, but my question relates more to really weather.

What's the scope could be for a coming back on the on the radio side, given your new competitive upcoming.

The next generation radio products on based on on the fact that you are pretty much ahead of <unk>.

The others with regards to claw drawn on an open open ran type of architectures, which is probably one of the reasons why they've taken and Samsung of according to the press release that there. The outbreak. So now one of the points of that is Oh.

Open architecture is to be able to make some match introduced more vendors. So should there be room for common back from Nokia out there and some of that.

Some of that footprint, which.

The market for the desk price didn't hear that.

Most of the mine.

My question. Thank you.

Yes. Thank you that's all.

On understandable on the highly highly relevant the question on deal will also understand that that the various embedded much detail I can comment because because there are confidential.

Matt this matters here.

You may have noticed that the Verizon did list us as one of the radio partners at their capital market day.

So a lot of Nokia radio in their network at the same time. It is the fact that we have not announced any large scale.

The five <unk> band radio deals with them.

What I do want to highlight though is that true rather they're Iceland remains our.

The top three customer we have a.

Really good business with them in other sectors and we continue to work with them also in the right deal. In addition to IP networks, which for example of had the very strong Q1. So the relationship is strong.

The continuous to be strong and of course, we are.

Both the sale of last months of product to them as possible, but it would not be prudent for me at the start speculating on their behalf, but they might or might not decide in the future.

Thank you Frank coal.

Please.

Our next question will come from Frederic Russell with Keybanc. Please go ahead.

Thank you very much. Thank you for taking my question congratulations to Greg for the Salt I had a question on China again.

You alluded to that.

<unk>.

<unk> got a good good quarter, there and the network infrastructure, but I'm a little bit more interested in mobile networks on your.

The refresh of your products and all of that.

Moving on all of that China has some news on all of the time they are ongoing in the second quarter our U S.

What's your ambition to really step back into the Chinese market in terms of range of equipment products or is it so that you have.

Richard the view that its not really profitable to the either even though it might be good for your volumes globally speaking. Thank you.

We stand ready to serve the Chinese five day market on our.

Customers, they're it's a highly in the but they've of course also highly competitive market and the euro.

Absolutely correct that there will be new turned around.

Coming.

Later.

This year.

We are.

Vesting in China.

Our R&D units in China. For example, as one example, they are responsible for building our 700 megahertz, a five day product for the Chinese market on top of all of our global platform. So.

We will participate in the upcoming tendering.

And then what they may or may not lead to it's too early to speculate but we will participate.

Thank you Fred Eric for your question coal, but most of our next one on our next question will come from Dominick <unk> with Morgan Stanley. Please go ahead.

Yeah.

Hi afternoon, everyone.

Just the brief on whether you could clarify any potential impact from.

One of your licensees exiting of the hands of business Oh Geez the answer.

The business and what does that mean for the business in 'twenty one on it.

Thank you.

The.

L J.

It should be looked at from a broader perspective.

Or are the earlier we are.

Number one in the world in <unk>.

The standard the sense of patents, we have a strong position.

Our position there we have recently.

Close the new deals with handset makers.

Without commenting any specific deals of any specific customers, what we have to keep in mind is.

That day one.

Producer with the exit the market those volumes would then go to some other vendor. So we would most likely benefit the.

That way because we are so strong across this whole wholesale so we should not focus too much on the individual customers, but look at the big picture on the the five gape volume. So of course in general I'd expect it to grow in licensing in general of of course in the five <unk> will not the only be of.

About the fall and it will also be.

The increasingly about different types of Iot devices on debt.

The different connected devices that will also need the license for many of the technologies that way of providing.

Great. Thank you Tom will Schatsky coal lets go to our next question. Please the next.

Question will come from Stefan Slowinski with Exane BNP Paribas. Please go ahead.

Great. Thanks for taking my question just the one for Barco of just on cash flow the.

The guidance for the full year of I believe positive just wondering what it would take for you to move that up to clearly positive obviously after a very strong Q1.

And the comments you made about the seasonality does that apply free cash flow as well, meaning that we may not get the the big Q4, we typically get into that one of the reasons you might be holding back from nudging up the the cash flow guidance. Thank you.

Yes. Thank you.

Very good point on definitely Youre right that seasonality is also.

The same for the cash flow of that we have very good start of the year.

And then in Q2, we will have a much more cash outflow and then and then of course, if you look Q1 normally in Q1, we actually increase on inventories.

This time actually we didn't.

The normal increases between two to 300 million and.

And that will come.

In addition that we might increase also inventory beyond that because of the uncertainty of the component.

Supply and and.

And we definitely want to secure that we have enough inventories on the semiconductor side.

So things on the factors not all of our.

Affecting the cash flow and that's why we haven't changed our full year guidance on the cash flow, we keep it on positive side.

Thank you Stephane Paul next question please.

And our next question will come to of Alexandria bedroom with Societe Generale CIB. Please go ahead.

Good afternoon.

Thank you for taking my question.

Come back a little bit on on mobile.

Net works. So you had mentioned just keep it on the impact of the non conversion us towards the footprint of like G.

The Verizon does that index is going to amplify throughout the year to.

To what extent do you think there's the possibility of that you may be able to offset the negative momentum by.

Share gains that you saw outside of north.

North America.

For political reasons of my better.

Thank you.

Thank you.

And that's also of great. Great question, because there is a lot of kind of happening to market.

First with many of the of all better address we estimate that the.

If you take.

Kind of those.

The rate of decisions, where what where for various reasons operators have shifted our market shares.

In the especially.

Especially in Europe between 2019 on too.

Today, we have captured about half of the value of this.

200 days, but of course compared to North American.

Operators. Many of these are smaller and then very important to keep in mind that typically, especially if you're just swaps first year and sometimes you have taken the profitability of slow and then it gradually starts to.

The starts to increase if I may add one thing when it come when we talk about the <unk> shift which.

Which.

It makes us actually confident about the it's really that we are now seeing that in the shift we're forging volumes have gone down on <unk> volumes are going up we are now seeing.

A strengthening gross margin in <unk> when the volumes have started to grow up go up and when our product maturity.

The increases including the rate shock.

Shipments and it is now starting to be visible in gross margins. So.

We are fairly confident that that we are able to able to meet the get a lot of the impact of north American market share, but this is not something that we.

Will happen in one quarter or two because once again.

They are big customers on many of the replacing of customers are quite a lot smaller.

Thank you Alex for your question Colby I'll take the next question. Please. Your next question will come from the Charles will Tanya with Credit Suisse. Please go ahead.

Alright. Thanks.

Taking the question.

On the optics business.

Can you just help us understand.

<unk> product portfolio of cycle, where we are on both 400 gig and 800 gig product launches.

Clearly I think the.

A few new product launches from your cash from your competitor here So on 800 gig.

And that is something which has become quite topical with the number of operators.

So can you just had been the stand where Nokia as part of it but when you cycle is on the optics side. Thanks.

Yeah.

It will.

We have launched our our PSA Phi the.

Platform that the basically addresses the big shift in the market, which will which will increase the speed of the 200, mainly 204 hundred.

Gigabit per second.

We have optimized the based platform for the <unk>.

<unk> costs the performance ratio in the highest volume application. The stats, we believe that there will be eight.

800 gig will be there as well we can do that basically with two 400 gig debt line.

The line card so already now in this portfolio very compared at the way it will be of very small part of the market. Initially and then of course by the time it will become the volume market. We will then again half of new generations of available that we are very confident that our portfolio strategy.

As we on our laying it out for.

For the different parts of the network of long haul networks Metro networks.

Lately that they did say competitive set the chan.

If I the platform deliveries will will be a key element of that.

Yes.

Thank you of Chong co.

Let's take our final question for today.

And on final question will come from Paul Silverstein with Cowen. Please go ahead.

I appreciate India was the source of strength in the quarter can you address what youre seeing in human with respect to the pandemic impact on demand in the current quarter on the back half of the year is the flare up impact in the sort of a smarter deployment plans as one would think.

Yes.

Yes. Thank you the I mean.

Pandemic, obviously has several different the impacting different parts of the of the world. The overall it seems that because the net net what traffic has increased so much it is driving our customers the investments because of Oh working.

The working from home and so on and then of course <unk>.

The question is that how the N. The economic impact the index of the wheel will affect it on there. They're the jewelry is still still out we are of course pull on them very carefully the situation of for example, in India, India, where the when the pandemic situation is pretty bad debt, what the consequences of the economy.

It will be but the.

So far I would say that the the total impact to us has been probably more on the positive side, because we are seeing that the customers are ramping up ramping up investments.

Quite the left.

Alright. Thank you Paul for your question and thank you everyone for your questions today.

Ladies and gentlemen, this concludes today's call.

I would like to remind you that during the 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 as well as internal operating factors kind of identified these in more detail in the section titled operating and financial review and prospects risk factors of our 2020.

<unk> annual report on form 20-F, as well as our other filings with the U S Securities and Exchange Commission.

Thank you.

On the conference has now concluded. Thank you for attending today's presentation and at this time you may now disconnect your lines.

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