Nokia Corporation (NYSE:NOK)
Barclays Capital Global Technology Conference Call
December 8, 2011 10:30 am ET
Stephen Elop - President & CEO
Andrew Gardiner - Barclays Capital
Andrew Gardiner - Barclays Capital
Good morning everybody. Thanks very much for joining us early this morning. My name is Andrew Gardiner, and on behalf of the Barclays tech team and my colleague, Jeff Kvaal seated to my right, it is our pleasure to have with us this morning Nokia, represented by CEO, Stephen Elop. Stephen is going to make a few introductory comments and then Jeff and I are going to grill him with questions shortly thereafter.
And then I'm sure we will have some time for questions from the audience as well at the end of that. But over to you, Steve.
Very good, thank you. I'll just wander over here so I can walk around a little bit. Well, good morning and thank you for joining us here today. It is obviously a very interesting and exciting time in Nokia's journey as we go through this transition, a series of changes and so forth. But I'll tell you there is nothing more gratifying than what is happening to me more and more. Typically in public places someone will come up and they will say what is that and of course what they are asking about is this, which is the Lumia 800 which is the recently released smartphone device.
It happened to me on the way here last evening. Someone came up to me and said what is it, I show it to them, I share a little bit of the experience, the live tiles, how it’s unique, how it’s differentiated and so forth, but the humorous thing that seems to happen a lot is they want to put it in their hand.
They take it out of my hand and there's all my confidential email and all that, there it goes, then their hand and then they do what seems like the Nokia Lumia shake, they sort of just do this little thing with their hand, they shake it a little bit and of course what they are doing is they are feeling the quality and how well it fits in the hand and so forth.
So what I am going to do today is to spend a few minutes talking about the journey we've been on, the strategy changes we are introducing and what we are seeing so far. Before I get into any details I have to of course do the Safe Harbor statement. We had a statement up there a minute ago. You are welcome to read that uncertainties, risks documentation available. I just want to make sure that that's on record. Now the conversations with different people that approach me in airports and public places all over the world really tell some different stories about Nokia. Because Nokia has several different faces to the world. That vary from country to country. And this is very, very important to understand about Nokia as you look at how are moving forward and how we are introducing new products.
For example there is a collection of countries around the world where the Nokia brand is remarkably strong where people walk in the stores not looking for phones, but they are looking for Nokias. Sometimes they buy a Samsung Nokia, but they are looking for Nokia. China, India, Russia, Brazil, Mexico, the Middle East, Africa, many regions of the world but the Nokia brand is very, very strong. As we introduce new strategies, new products and so forth in markets like that it’s a very different cadence through which we have to go. We have many loyal consumers who we have to transition in the new platforms.
It is a very different conversation. There is a second group of countries where our brand has recently been strong but we have been under significant competitive threat from Android, from iPhone where we have seen market share decline. We were having to claw our way back as we introduced new strategies. In particular here I am referring to the European countries, whether it is the United Kingdom, France, Germany what have you. Those are markets where our current market share has declined substantially and we are in a position where we have recency like over the last couple to three years we have had very significant market share positions. But right now we are in a tough spot and we have to fight back and therefore our strategies and approaches in those markets need to be quite different.
And then of course there is a third set of countries relatively small set of countries, but nonetheless very important and it is those countries where our brand is virtually unknown or only a faint memory. The United States is a good example of that and clearly that says that as we go forward our strategy for entering markets like the United States needs to be different from the European markets and needs to be different from those countries where we have tremendous brand strength. In recognition of all of this and in recognition of the changes in the market place, we undertook early in 2011 a very significant analysis around what do we need to change in the company and it was on February 11, that we announced our new strategy to begin to pursue these markets in different ways.
The simple summary is here on these slides where essentially, first of all, it’s about building, delivering, selling great mobile products and we announced this part of the three significant pillars to our strategy.
Obviously for smartphones, it was the partnership we entered in to with Microsoft to take advantage of the Windows Phone Platform as we go forward in the smartphone space and I’ll talk more about that in a moment.
We also talked about changes in our strategy for what we call mobile phones, the lower price point devices, where we said that we’re going to aggressively pursue the next billion consumers, the next billion people who today have no access to the internet, but who are right for an opportunity. It’s a very good opportunity for us given our strength in those markets around the world.
We also talked about the importance of future disruptions. What is the next platform, the next user experience, the next hardware capabilities that need to be introduced, so we can be the disrupters in the future. Through all of this and this is a word that I will over use today. We talked about the importance of differentiation. Whatever we do, whatever decision we make, it must be on the basis of somehow we are better, different, faster or ahead of the competition. Clearly, industrial design is the key point of differentiation for us, what the device looks and feels like. But clearly, elements of software and services, location-based services and so forth are very, very important here.
But arguably, the most important thing on this slide and the thing that you’re seeing most clearly in how we’re executing today is changing how we operate. Nokia, over the years, was in a position of great strength and with great strength comes certain patterns of behavior. And my role and the role of the Nokia leadership team is to fundamentally change that right to its core and I’ll talk about that more in a few moments as well.
So if I double click just on the next billion strategy here for a moment I am going to spend just a second talking about what we are doing in the lower priced tier devices, the mobile phone space. This was fundamentally about a shift in our mindset as it relates to this market opportunity. It was the case that it was looked at as good profit opportunity, but feature phones are fading away. Let’s take it as long as we can, manage it for value, all of those types of things. And what we said on February 11th was no. There is a real ongoing business opportunity here, not around feature phones per se, but around whatever devices meet the needs of those people who only have the economic means to purchase so far up the pyramid, very large volumes, lower prices, very competitive. But clearly an opportunity for innovation and differentiation.
So we said on February 11, we are going to invest more here. We are going to do more here so that we can push back against the obvious competitors and you have seen the early results. We made a significant investment in a new line of dual sim products, products that you can put multiple sim cards in, crucial for markets like India. We introduced five new products in the space. We saw the first full quarter results in Q3. We sold 18 million of those devices in Q3 which is an amazing turnaround and an amazing recapture of share in India and obviously with innovation you can differentiate.
Where did the share come from? It came principally from low cost local and Chinese manufacturers. We can compete with those organizations and we are demonstrating that there. We also had the opportunity to introduce yet another family of devices for the space. We introduced it in late October, the Nokia Asha family of products. Again new innovation, a lot of focus on QWERTY. It is amazing how much the QWERTY form fact, you know having the keyboard on the device is popular in a lot of these emerging markets. It is very dominant in some market. So a lot of focus on those opportunities there. What you should expect in the space clearly is ongoing innovation and the recognition that regardless of what technology is down in those price points.
It’s going to get smarter and smarter and smarter and we are competing aggressively in that space. We have some great inherent advantages.
Now, also on February 11, we announced the partnership with Microsoft. So I am going to spend a moment talking about what's going on, as it relates to our smart devices strategy. We entered into a partnership with Microsoft as one of three options that we were facing at the time. We could continue with our current, smartphone, operating system strategies around Symbian and something new that was underway called MeeGo. We could make a bold move and move to Android and become a part of that ecosystem or we could do something with Microsoft.
The fundamental recognition here is that the entire environment had changed from a battle of individual devices to a war of ecosystems. So we recognized we needed to align with and be a part of an ecosystem, something that we couldn’t do entirely on our own.
A short version of the story is differentiation. We became absolutely convinced that our ability to differentiate relative to Apple and Android and within an ecosystem was largest or most opportunistic with the Microsoft relationship. So we announced it on February 11. We signed the contract on April 27 and six months later we were very proud to stand on stage in London, October 26 and say, “Ladies and gentlemen here are the first Nokia Lumia devices using the Windows phone platform, the Lumia 800 and the Lumia 710.”
Now, I am going to refer here back to the point about changing how we operate, because when we signed the agreement with Microsoft we did not have a plan that said, “Oh, we will get this done in time for October” or whatever. We didn't have that plan, but we are fundamentally changing how we are executing, bringing timelines forward, changing the clock speed of the company and therefore fundamentally exceeding my own expectations in terms of what we could accomplish in what period of time.
We showed these devices for the first time on October 26. I am sure many of you have seen the reviews that are out there from all the people who follow the industry very, very positive; the industry analysts in terms of our strategy, how we are differentiating with software and services very positive.
But of course the question is how are consumers responding to this? As we have said in the first few weeks and months of the launch, the critical metric, for us fundamentally, is something we call a Net Promoter Score, the NPS. How likely are you to recommend this device to your friends? So now we have the opportunity in the first six European markets to ask that question and we are asking that question. And as we have said a couple of weeks ago, the NPS scores for these devices are the highest that we have seen in recent history as it relates to Nokia smartphones. We have great products and that is not just a relative statement. The scores on an absolutely basis are very high. So we are very, very encouraged by that.
We said a couple of weeks ago early sales activity is exciting, it is good. We are looking forward to everything that comes with that. And what we are seeing now is as we begin to broaden and go into other markets; you can see the energy building. For example, we launched in Singapore 48 hours ago, we had thousands of people lined down the streets. That was good. Russia, thousands of people in the stores ; in the United Kingdom, France and Germany, we are seeing things ramping up, we are seeing things going in the right direction. So the buzz is good.
One of the things that I appreciate a great deal and this is something that particularly in that set of markets where our brand has been more challenge recently is what happens when you walk into the store? If you go into London right now, go on Oxford Street, walk into some stores and just ask some vague questions about what smartphone you should purchase; by the way there is a hundreds of people doing this everyday from Nokia, from analysts, with purchases getting flooded with this.
So what you are going to see is that the young retail sales professional, those people reading the consumers about the moment of truth are now presenting three broad opportunities. There is the iPhone, there is the Android, but look at what Nokia is doing and I’ll tell you that’s the first time we’ve been in that consideration set for quite some time. So that change has begun. The U.K. is our toughest market in Europe and you’re seeing it happen right there on the streets. So, that’s really, really good.
Now, there is lots more to come here as it relates to the launch of Lumia and this whole product line. As we said, we started in six European markets just to get started. The full force of marketing is just now ramping up. So that’s good. You have seen launches in beginning or underway in five other markets, including India and Russia. So that’s happening. But we’ve also indicated that early in 2012, we will be entering the US markets. We’ve also indicated that we will be supporting additional radio technologies like CDMA, like LTE. So that’s relevant.
We’ve also indicated that we’ll be launching in China in the first half of 2012. I was in Brazil and Mexico a few days ago and talked about the first Latin American countries as well.
So you can see what we’re doing; a very deliberate, country-by-country, market-by-market introduction; as all of the conditions; as all of the operator support and everything is put in to place.
It’s worth noting finally, that one of the things that I think everyone in the industry is excited about, actually that’s unfair. Most people in the industry are excited about, not our competitors, is the fact that, operators and retailers around the world, very much want this third ecosystem. They want balance. Having a duopoly in the providers, fundamentally, is not good in terms of their ability to adjust styles and drive their business the best way they can. They want the third ecosystem. So this opportunity with Nokia, with Microsoft, is getting a lot of support.
As we said in our European launch, we had 31 operators and retailers contributing more to the marketing effort and more to training and everything else than has been seen by Nokia ever. So we’re getting that support and we’re seeing that in markets around the world for our future plans as well.
So, a lot of excitement ahead still in smart devices, which really brings us to, so what is ahead and how should we think about what is going forward. Clearly, we are in a day-to-day, step-by-step journey. A launch of a device is exciting. The launch of the next device will be really exciting and on and on, but it is about day-to-day execution that retail sales associate in that store in Paris, has to be brought along. We have to have an impact, we have to sell devices.
But as we sort our minds eye towards what do we need to focus on overtime, these are few things that are worth highlighting. I have already used the word differentiation. That is good thing that we got our focus on. With the Nokia Lumia 800, what you see on the device are the first examples of how we intend to differentiate; the industrial design, the quality of the user experience, but also the unique location-based services, entertainment services, partnerships. For example with ESPN you have seen the signals of how we intend to differentiate but we have so much more we can do in that space.
What we can do in the first round was very much limited by getting the first devices out in six months. We are in a point now we are now part of the Microsoft design and development process for Windows phone, which we weren’t for the previous release because of when we signed the agreement. So we are fully engaged and therefore drive the differentiation that we believe is important to success in the future. So differentiation is really important.
A second key point is, it’s our belief that to compete successfully, we have to cover the full range of price points and configurations, appropriate for the smartphone space. You have seen the first two devices that we have introduced. There is opportunity to go up in price point, in terms of even more higher level hero capabilities, as well as going well down the price curve.
Wherever there is a full functionality smart phone capability, we intend to compete with the Lumia family of products and successors. So that is something that we are focused on.
A third thing that is something a lot of people ask us about and very much if you like quietly behind the scene there is an area of activity for us and that relates to the B2B or enterprise opportunity. There's a fair bit of churn in this space in our industry as you are well aware and we see a very distinct opportunity between Microsoft’s services and software, our devices and in many countries the operator role that they can play in driving small midsized and even large business opportunities to go after that enterprise space, all of the critical ingredients are there. Now that we have the first devices, it’s an opportunity for us to pursue, the B2B opportunity.
But the final thing I will say about what's next and what are we focused on is very much again changing the way the company operates. Who Nokia is? How we can turn up every morning? We are investing significantly in changing the attitudes and behaviors of how this company operates.
For example, there are three attitudes that we focus on very aggressively right now, because we believe they are the most important things today for our company. The first of those is accountability. Its not about committees and consensus and you know all of these different things that go on and nothing really happens, its about having clear lines of accountability, people know their decision rights, what they can get done, which product is theirs, they get to decide, they get to run and they are held accountable for it, it’s a very different approach than the past and its something that's already paying dividends.
We were having a conversation just before we came on stage. Our team in San Diego, they had responsibility for Lumia 800. It was their job to get this device out in eight or nine months, they did it in six months. There's a team that pulled together. They know what they are accountable for and they love it and it’s just amazing what an impact on motivation it has to be able to move through things that quickly and make the decisions you need to make.
The second attitude we are focused on is urgency. You've heard me talk about changing the clock speed of the company. I am doing everything throughout the company and the leadership team is we can pull down the traditional barriers and boards and committees and all of these things that have existed to move the company forward at a far more aggressive rate. People are positively surprised with what we had accomplished on October 26th and we have a lot more to come, so urgency, key focus.
And then finally, the attitude we’re focused on very much is empathy. That makes sound like a fuzzy word, but let me put some definition around it. Empathy is about listening and hearing, listening to the consumers and delivering to them what they actually need and maybe some things they haven’t figured out that they yet need, but nonetheless listening, the same with suppliers, the same with operators.
One of the changes going on at Nokia is very much no, not one global solution fits all; and we have the best to answer, but I think far more in tune with then listening to what’s going on in specific market. So why we are launching early in 2012 in the United States instead of why didn’t we do it eight weeks ago, because there are some very specific product requirements and capabilities that are right for the American consumer and we will deliver products in the U.S. when they are right for the American consumer and guess what that is different from Finland, it is different from Indian and it is different from China. So we have to shift our thinking empathy.
So how we will know we succeed? I mean that’s the hard question always. We have provided some broad statements about growing faster than market to non-IFRS operating margins of 10% or more as targets for us overtime. Internally, when we divide up the metrics in the KPIs, there is a simple statement we use to sort of organize our thinking. It’s about inspired employees delivering great products that delight consumers which leads to superior financial results.
Those four pieces, the employees, the products they create, the consumer reaction and a financial result. And what we are structured around internally in terms of the KPIs and how we are paid and all of those things is in each of those four categories. So yes, we care about NPS. We care about the quality of the device. We obviously care about the ultimate financial results.
So I have been at Nokia for 14 months something like that, February 11th we announced a major change. I have been showing PowerPoint for months. Now I am showing products and as we go forward, we’re going to be showing some great results.
So thank you for your attention during my first remarks. I’ll have a seat and you guys can ask questions. Thank you very much.
Thank you, Stephen for kicking this off and covering a lot of our topics here. I think one of the unique characteristics of doing this in the US is that it’s a different investor group perhaps than one typically has over on the other side upon. And I think it’s fair to say that the Nokia brand which was exceptionally strong 10 years ago, in the TV maydays, is really quite low.
And I think when we are speaking to investors about Nokia, the Windows Phone launch, I think it’s quite easy for or it’s quite a common question. So why is Windows Phone going to launch more strongly this time with Nokia than it has in prior iterations and perhaps maybe to broaden that question a bit, what is Nokia doing in general, globally to make sure that this time, it sticks and it pushes?
You know, it’s a really good question, because of course there were some earlier Windows Phone devices that didn’t make a big market in the marketplace, didn’t move the share needle in the right direction so forth. So fundamentally the difference is that Nokia step forward and said, core to our strategy would be this relationship around Windows Phone. We drove unique relationship with Microsoft that allows us to deliver truly differentiated products with the best examples of craftsmanship and design and everything that goes with it.
And so if you were to layout for example all of the Windows Phone devices on the table, but then put this one right beside it, it would be like okay, finally. And I said this on stage on October 26th and upset all of our competitors. The first real Windows Phone. This is what was intended.
The quality of the user experience that comes through with the Windows Phone software is unique and differentiated, consumers love it and we are clearly seeing that response to it instead of the standard layout of the app icon that are just motionless on the screen you have this whole concept of live tiles with, everything you need in your experience, what’s going on in your email, what’s happening in Twitter and Facebook or stock market whatever is brought to the surface; it’s alive.
And so that experience combined with our commitment to do our best work for Windows Phone is what I think is going to move the needle. The other vendors are focused on other ecosystem, that’s when their first and best work is done I understand why that is; but as it relates to this opportunity, this third ecosystem, we are clearly the ones saying we are placing a bet on this and doing our best work there. And I think the Lumia 800 shows our intent there; again with still more to come.
I always loved the large icons because there weren’t many apps.
Well, absolutely not; what’s interesting is as it relates the developers and applications when we announced our intention to go Windows Phone there were 6000 apps out there. On the day we showed Lumia 800, I don’t know the exact number but it was somewhere between 30,000 and 40,000 apps. But here is the really interesting thing and this is something we clearly knew in February that the world did not yet know and that is the impact that potentially Windows I am talking big Windows for PCs would have on this space.
Just a couple of weeks ago Microsoft showed Windows 8 and they showed it on PCs and tablets and thing that they showed is that they were introducing a new user experience for the Windows users with tablets in mind and that user experience what it looks like, is this; it looks like these live tiles obviously it’s on bigger screens, on more powerful devices but it’s the same experience across Windows and Windows Phone and who knows what else in the future.
And so you see this common experience, you can see how from a development perspective with things like HTML 5, more development will come in common. So all of a sudden the definition of the ecosystem is in how many apps are there just for the Lumia 800 or whatever even though that's growing nicely. It’s the broader statement of what this ecosystem promises and that's the battlefront. It’s not about just this device, it’s about that broader collection of hardware, software and all of the services around it.
I think you've done a good job of illustrating how the Windows Phone ecosystem is coming together and just as you’re saying with Big Windows as well how there's more momentum behind that ecosystem, but in terms of differentiation with in it, I am interested in perhaps what you can tell us in terms of how that's going to look going forward particularly given the changing landscape within Windows Phone and since you have announced your decision to head in that direction, it has been all sorts of IP battles and Samsung as a result of that is indicating an increased commitment to Windows Phone as well and let's see what HTC do too, but between the various vendors within Windows Phone, what is Nokia going to do to maintain that differentiation within the ecosystem?
So first of all it’s important to point out that in these early days of this ecosystem battle, the most important competitive battle for us is with Android and iPhone. Those are the primary battle lines. We have to be competing there first and foremost. So you mentioned Samsung, if you think about our relationship with Samsung, you know Nokia to Samsung, on the one hand they are a principle supplier to us. On another hand they are a principal competitor with Android and other lower end technologies all around the world.
And on the third hand of that they are a colleague, a partner, working for the success of Windows Phone. So you have this very strange dynamic in the marketplace. Now you can imagine what the top to top meetings are like, as we are talking about each of these different aspects. It is the case though that because we made the decision that we did to commit our best work to Microsoft and to Windows Phone that would be our focus that we would bring those volumes.
We established a unique relationship with Microsoft. So our ability to differentiate be it through what we do in hardware, what we do with adjunct software and services, our influence over the design, our participation in the early trials of all versions of software. All of those things clearly as a result of the relationship we have established, we have got the opportunity for sustaining differentiation. And we will use that appropriately.
Now I say appropriately because there are things we could to differentiate that may not be smart. For example let’s say we took this user experience and made it quite a bit different. We could do that. We could take the Windows Phone platform and change a whole bunch of the UI and say that is the Nokia UI. That’s not good for the ecosystem though because all of a sudden you dilute what Windows Phone stands for. You are seeing that going on with Android right now. I defy anyone in this audience to define what the Android user experience is all about because it is changing from device to device to release to release. The consistency is being fragmented. So we wouldn’t want to do that form of differentiation.
Similarly we could do things to extend the developer environment to introduce new SDKs and so forth. We can do that. We can differentiate that way if we wanted to but if we break the promise to developers of consistency across all Windows Phone devices we are doing the ecosystem a disservice. So we have a tremendous capability to differentiate. We have to be smart about how we do it.
Can we talk about to how quickly you can get the Lumia to and you talked a little bit about new geographies, but also about new price points. And I feel like one of the context of that questions is the Symbian phones have done very well and well not as well as what we would have liked a couple of years ago, but that sold a lot in tens of millions every quarter. In the sub-300 euro and now Lumia is coming in above that. How did you manage to trade off between the high-end Lumias? How do we think about the tail off and where Symbian is?
So, first of all, the Lumia 710 is already below €300. So, we’re already in some of those lower price points. The way to think about it is you will see over the next couple of years, successive cascades of product families that push the price point lower and lower. You see a few clues about this when people announce alternative chipsets being provided to Windows Phone and so forth and some of that news is out there.
So you can see that there is clearly an effort underway. The one thing I will emphasize though is when we were discussing with Microsoft, the potential for this partnership, there were two or three really critical issues that before you could write anything on our term sheet, we had to talk about. The first on that list was this very question about, you know, Windows Phone, how quickly and can it come down in price point and what we actually did, before we put the term sheet together is we put the engineers on it because I wanted a clear line of engineering side to the ability to do it. What tradeoffs we would have to make, what would it mean to the experience. So that was determined and off to the races as we came to term sheet mode. So it’s something that will come quite aggressively. It’s something we’re excited about.
And so another question around Microsoft that we get a lot is related to the billion that you’ve talked about and the platform payment and how the financial arrangement is working with them, which now clearly given that you’ve started to ship devices has actually kicked off and we should be able to see it in the fourth quarter, but can you remind us as best you can, how that’s going to work and how we’re going to see it in the financials?
Yeah so the overall relationship with Microsoft has several different elements to it. In its simplest form, they are developing software that we’re licensing and we’re paying them a royalty for the benefit of that and of course we believe we’re getting a pretty good royalty because of pretty good volumes in all of those types of things. So that stands very much on its own clearly in balance with that we have announced some very significant cost savings as it relates to R&D expenses because of the changes that we are making.
So very much in balance. There is a second component to the agreement which is very much about the fact that in the same way that we are dependant on them for the operating platform they have taken a hard dependency on us for location based services. Mapping, navigation, augmented reality, local commerce and a while variety of things which is a revenue source for us over time. But it is the case that you will see on Bing maps and even on other people’s hardware platforms if they are using Bing maps, the Nokia logo coming up because we are participating in that. It was a critical part of the agreement to have hard dependencies on both directions. So that we had some mutual assured success if you like.
It was also elements of the agreement which were about intellectual property and making sure the Windows Phone ecosystem was well protected. That involved IP moving in certain directions, money changing hands and so forth. The final piece and this is what I think you are referencing specifically is that it was also the case that Nokia made this significant commitment. When we went with Windows Phone we said this is the focus for our best work. We are not focusing our best work on Android for example and so that clearly had some value. Related to that therefore is the transfer of some billions of dollars over time in this agreement.
What you will see in Q4 because it is the quarter where we first start shipping the devices is the first signs of that showing up on our financial statements. What you will generally see is cash arriving on the balance sheet in amounts in the quarter, but what I don’t know how you will exactly see it, but what we will also be going on because we are shipping our first devices is obviously royalties and therefore in COGS we will start shifting to Microsoft. But that cash on the balance sheet will be I will use the word loosely not an accounting term, but recognize that cash will be recognized into the income statement in the form of a contra COGS essentially money that is going to lower our COGS as a result of the shipment of devices. So that’s the fundamental dynamic that you will see. So you will see cash, cash arriving, and then things will be shuffling around within the context of our gross margin.
How should we be gauging success in the Lumia launch? I mean I know we will have our whisper numbers for the fourth quarter and 2012 and you can update them if you want but I don't really expect you to.
Yeah, its probably not the best form for that.
I think we think it is but should we be thinking, should be monitoring what your overall vendor smartphone share is, just think about what metrics should we be gauging to determine a plus or minus on that.
So in the very early days, I will just share what I monitor in most closely, the NPS scores the quality of the devices, the consumer reaction, monitoring very closely because this is a long-term strategic investment. So how many phones did we sell on Tuesday. I know some people like to write articles about that one, Tuesday they did this, oh my goodness or whatever.
It doesn't matter, it really doesn't matter, its about our consumers being satisfied, do we have products that matter. Then beyond that is are we getting traction in top retail markets and again that's not something you decide in a day or a week or a month. Its whether you see, for example in those shops in London or in a small shop in India or whatever are the retail sales associates effectively selling the devices and beginning to build the momentum. Is it something that's beginning to build.
I don't actually know what the right trajectory is, or what exactly it should look like, but I do know, I want to make sure that next month is stronger than this month. I want to see that it builds and grows and is moving in the right direction, as we go forward. We can take action to accelerate or deal with issues along the way, but fundamentally we have to have something that's beginning to stick and moving forward well, and that's what we are most focused on.
So I don't know what's the best or the right number or whatever and I don't think anyone who speculates on that. Its so difficult, largely because of what I said about those three different markets.
In the United States every phone we sell is market share positive. So that is good. In Europe we have a different challenge. In the emerging market, there is a different challenge altogether. So you have to look at very carefully.
Are you sure you know what your NPS score actually is?
No. But as I said substantially higher than anything seen in recent history.
And in terms of shifting from how the consumers react to it, towards the enterprise, which I think is not an area that us or many investors have been focused on for Nokia in recent history?
You mentioned it this morning, you mentioned at Nokia world as well. How are you going to go about attacking that category and again, I suppose any phone there was also net positive in terms of market share given the way you are starting?
Now. Absolutely and the enterprise market, we have to be mindful of who has what channels and access and things like that. Nokia doesn’t have a large enterprise sales force calling on large enterprises or even setting up for smaller mid-size businesses. So clearly part of our strategy development has to be around how do we take advantage of the sales forces and go-to-market methods of, for example Microsoft who has enterprise agreements with a large percentage of large enterprises who has recently announced, this was something that was started under my time of Microsoft, a small and mid-size business service called Office 365 has just been launched in the market broadly. But clearly there is an opportunity to use those channels to drive forward the mobile aspect of B2B.
The other one to watch for is the operator channels. The operators, depending on the nature of the operator in the country, many of them have a very long reach into small or mid-sizes business for packages that include traditional voice, might include the radio signal or the TV signal for the shop, it can include mobility, certainly includes broadband and so forth. So those are the types of channels. And this is something were in the conversations with operators ,there is a lot of interest right now.
Because they recognizes that, the preferences if you like and some of the dynamics in the market place are shifting and I think the reason they are shifting fundamentally is the same war of ecosystems applies to B2B as well. I keep talking about ecosystems. It’s the hardware, it’s the software on the device, but it’s a search. It’s unified communications, it’s entertainment. It is location-based services. It is device managements and control for banks and so forth. It’s all of these things that must work effectively together. That define the proposition to consumers and to people working on enterprises today and its quite clear in the market place that there is only a few collections of companies that have amassed that range of capability.
Can we talk about the ecosystem question for a second. I mean I think, one of the things that our work has shown that the top 50 apps are the ones that generate 60% of the usage or what have you?. There are two questions there. One is and once the app counts are all normalized north of 50 or 100,000, pick your number, what's the differentiation then between the ecosystems. And the other thing is, Stephen you alluded to it a little bit earlier but how monolithic are these ecosystems. I mean, the people who walk in to the phone, to the store to buy Windows Phone and then pick which vendor they want or do they walk in and say you know, I am going to get myself a Nokia, with obviously a Windows Phone.
So, first of all, on the differentiation of the ecosystems. If you were to accept that the only way to present and experience is a grid of static application icons, then you’re right. It’s hard to differentiate. What we’ve done with the Lumia products, with the support of Windows Phone is to say now there is a much different or better approach to the integration of applications.
So for example, for my Lumia 800, I have a Facebook app. I’ve got a Twitter app, I’ve got, all of those apps that you would need, all the top ones that matter for me. They’re all there. But the real magic is in the willingness to integrate them more deeply into the experience.
So for example, on my device there is a tile, a live tile that is called Me, it happens to be Me; it says right now there is 51 new items and in the last final half hour 51 new things have been said about me, somewhere and somebody from this room I am sure. But the point is deep in the experience, the Twitter the LinkedIn, the Facebook all of those feeds, all of that is built into the experience.
So when I am about to place a phone call to you, what I am looking at is everything about you, your latest Facebook post and what’s going to be a subject of privacy and etcetera, etcetera. But it’s deeply integrated into the experience. So you have the standalone apps, but it’s the willingness to integrate them and make them something more special that really brings it to life.
And that’s why this whole concept of the device being alive; as I stare at the screen it is bringing forward the information about the people, the places and things that I actually care about. So I think that’s a key part of the differentiator.
And your second question just remind me you, I lost it actually.
People going into the shops…
This is a very, very good question. When you look at what brands are carrying, what brands matter and all of that type of thing; my experience in going into stores right now is increasingly people are steering around the ecosystem in the western market, so we’ve this android stuff, we’ve got this iPhone stuff and there are some Windows Phone product; you are seeing some of that, but it is very much our intent to make sure that we are taking advantage of the brand strength we have. It is the case when we go into a shop in many countries around the world, people are coming in to see what’s new from Nokia.
And so therefore it makes all the sense in the world to focus on Nokia and make sure that’s the lead thing. You will notice the Lumia 800; it is a beautiful device; it’s a got a little flag here which is a clue that is a Windows Phone device, but we are out there making sure the Nokia brand and the Lumia products stand front and foremost.
And I think probably related to that, we spend a lot of time talking about Windows Phone and as you pointed out in the presentation, there has been a lot of work done on the core mobile phone, the portfolio in particular, the new devices that you've launched at Nokia world the Asha family of phones and it seemed like a smartphone from a couple of years ago and they are fairly high powered devices, but at a very low price point. And how are you seeing reaction to those and what can you tell us in terms of the dual SIM revival that you are seeing?
The reaction, the thing to realize, when as I said I was in Brazil and Mexico, when you go and meet consumers who are just struggling to afford their first device or maybe they are buying their second device and they want more capability. The thing to realize is that the aspirations of that next billion consumers who tend to be young urban people, 25 years old in very large metropolis like São Paulo or Delhi or whatever. Those people have exactly the same aspirations that we might have and we are going out to punk $400 or $500 to $600 on a piece of equipment. I mean they aspire to the some things. So our job is to deliver them as much as of that as we can within the price points that they can afford.
So a good example of that is like the Asha products, at those price points you cannot afford to have a GPS receiver in them and yet they still provide some basic navigation services by doing some very special three-way triangulation with cell towers that we've introduced into the products.
Similarly they are very, very cost conscious on data plans, I mean we don't think twice about firing up the browser and generating some traffic, it just washes through our credit card or whatever, but for them they are counting every penny and so we've introduced proxy browser technology. So when they look at a website, its hugely compressed and much faster and dramatically cheaper for them and those types of advantages they recognize, they measure, they buy as a result.
Now on dual SIM, you know everyone was saying, oh you've got to introduce dual SIM, you've got to introduce dual SIM, I was saying its got to be differentiated, its got to, we can't just do what others have done and hope to compete and this is where good R&D and innovation pay-off because if you take a Nokia dual SIM device, the experience is entirely different.
Specifically, the second SIM slot is on the outside and with the device still turned on you can take out a SIM card, plug in a different SIM card, it remembers that SIM card and carries on right there. Now you still have multiple phone calls coming in for multiple SIM cards. A lot of people in India carry three, four, five SIM cards with them everyday and are constantly swapping. Their competitive devices have to be turned off, they have to reset it every time. With ours, you can do it we call it easy swap. It may seem simple. It’s a real engineering challenge, but it’s an example of how innovation can drive great results.
Perhaps, we have time for one more, I was going to ask is Amazon is giving away the tablets, making money of their services, may be their dual phone, really low cost giving away margin, how is the room for 10% operating margin for the hardware vendors?
I think everybody has the opportunity to collect margin in different ways and clearly we have the opportunity to collect it from the device side. But that doesn’t mean that that is the principle source of innovation that drives our ability to monetize that way. It happens to be the way we do it.
You have heard us talk about location base services, we acquired an assets some years ago called NAVTEQ and we have clearly signaled that we are putting a lot more behind the strategic value of NAVTEQ in the products we deliver and that’s a statement not just for a simple mobile experience, but even more broadly than that.
There is an opportunity with location based services. In the same way that a Google has topically base search, a Facebook has a socially connected network. There is a huge opportunity around location connected elements and we showed some of this at Nokia World; augmented reality capabilities, new advertising opportunities, the way we look at it though is, there are some monetization through services available there for us, but that’s also something we can use for significant differentiation in our devices that others cannot avail themselves up to the same extent. And therefore, yes, we will monetize it through the device, but its services we’re monetizing through the device channel.
So everyone has the opportunity. If they have something unique to monetize it in different ways; Amazon clearly has a different form of monetization available to them. So they’re taking advantage of what they’ve got and to the market and as you know, it’s very interesting to see how that will play out.
But one thing I noticed that, it’s another example of Android, but it doesn’t look like Android. Another version of an app store, but its not the main app store. Don’t know what those things mean, but it’s going to be very interesting to see how that plays out.
Andrew Gardiner - Barclays Capital
Okay. I think we are just about out of time with Nokia. We’re all going to have another keynote here on stage shortly, but I’ll leave you in Jeff’s capable hands. Stephen and I will depart, but thank you very much for coming and for telling us all about the Nokia story.
My pleasure, and thank you all.
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