I would now like to turn the call over to Matt Shimao, Head of Investor Relations. Mr. Shimao, you may begin.
Ladies and gentlemen, welcome to Nokia's first quarter 2015 conference call. I'm Matt Shimao, Head of Nokia Investor Relations. Rajeev Suri, President and CEO of Nokia, and Timo Ihamuotila, EVP and Group CFO of Nokia, are here in Espoo with me today. During this call, we'll be making forward-looking statements regarding the future business and financial performance of Nokia and its industry. These statements are predictions that involve risks and uncertainties. Actual results may therefore differ materially from the results we currently expect. Factors that could cause such differences can be both external, such as general economic and industry conditions, as well as internal operating factors. We have identified such risks in more detail on pages 74 through 89 of our 2014 annual report on Form 20-F, our interim report for Q1 2015 issued today, as well as our other filings with the U.S. Securities and Exchange Commission.
Please note that our results release, the complete interim report with tables, and the presentation on our website include non-IFRS results information in addition to the reported results information. Our complete results report with tables available on our website includes a detailed explanation of the content of the non-IFRS information and a reconciliation between the non-IFRS and the reported information. With that, Rajeev, over to you.
Thank you, Matt, and thanks to all of you for joining. Nokia delivered strong year-on-year sales growth in the first quarter with weak Nokia Networks profitability compensated by very good performances from Nokia Technologies and HERE. I will come back to the results of the quarter but would first like to take a moment to comment on two recent announcements, the proposed acquisition of Alcatel-Lucent and the strategic review of HERE. As I want to focus my time on these topics, I've asked Timo to cover most of the quarterly details related to HERE and Nokia Technologies. Let me start with Alcatel-Lucent. Given that Timo and I have talked with many of you when we announced the transaction and in the days since, I won't repeat the deal details or strategic rationale here. Rather, let me share some thoughts about what we have learned since the agreement.
First, I've met with many customers over the last two weeks, and every single one has expressed their support. They see it as a way to ensure three strong global competitors and not as a reduction in competition. They see it as a way to protect their investments of the past while enabling the needed innovation in future technologies and services. They see the portfolio mix of the two companies as compelling and well suited to meeting their future requirements. Second, we've had initial conversations with key government officials in many countries, and while it is still early, the tone has been quite positive. Some reason for optimism. Additionally, as you may have seen, a number of our competitors in both Europe and China have expressed support for the transaction. Third, we've heard concerns about execution risk.
Given the issues associated with similar transactions in the past, that is a very fair concern. I do believe that this time can be different. The transaction is not structured as a joint venture. It is an acquisition by Nokia with clarity in terms of leadership and governance. This will allow us to move fast, to avoid politics, and to show that history does not have to repeat itself. Both companies, Nokia and Alcatel-Lucent, have been through significant recent transformation and restructurings, and both have learned from those experiences. On the Nokia side, we have focused on creating a disciplined operating model that will serve us well as we proceed with integration planning and eventual integration execution. We have already appointed an integration leader and are moving fast to get detailed planning underway.
As we do so, we will ensure the integration planning work is separated from our day-to-day business operations in order to minimize the risk of any disruption. In addition, technology has changed. As the telecom world has transitioned away from customized hardware and more to software, and as open interfaces have become more prevalent, the pain of disruptive and expensive swaps can be mitigated. Fourth, we've also heard questions from some of you on the call today about why now, and in my view, the answer to that lies in the technology transitions that are underway and the progress that has been made at both Nokia and Alcatel-Lucent that I just noted. We are now in a cycle between 4G and 5G, and the timing of this deal will allow us to accelerate spending on 5G immediately upon closing.
In addition, the combined portfolio will put the company in an excellent position as the transition to cloud accelerates. Finally, we have heard some concerns about the commitments we have proposed to make to the French government in order to ensure their support for the deal. We believe those commitments are manageable within the business case of the transaction, and they include sufficient flexibility to align with our business needs. Also, R&D capabilities that we will gain in France will make strong contributions to enhance the future of the combined company. Now, let me turn to HERE and the strategic review that we have announced. We embarked on that process in the context of two developments. The first is that location services are becoming of even greater strategic importance to automotive companies and others. Second, it is clear that Nokia's portfolio will become increasingly networks-focused once the Alcatel-Lucent transaction closes.
In light of these two things, we wanted to take a step back and at least ask the question of whether owning HERE still made sense. Following our review, we could choose to sell HERE in full or in part, or we could decide to keep it unchanged from today. No one should assume that there is a predetermined outcome. We are looking for the best solution for Nokia and its shareholders, for HERE and its employees and customers. We're in no rush, under no pressure to sell, and regardless of the option we choose, I have no doubt that the future of HERE is bright. With that, onto the quarter, where at the group level, we delivered good results with sales of EUR 3.2 billion, up 20% year-on-year, and non-IFRS diluted EPS up 25%. Non-IFRS operating profit of EUR 265 million, or 8.3% of sales, was down 13% year-on-year.
HERE and Nokia Technologies both performed very well in the quarter, while good growth at Nokia Networks was offset by unsatisfactory profitability. Despite the slow start at Networks, however, I am confident that we remain on track to meet our targets for the full year. Let me now turn to Networks in more detail. As I noted, Networks delivered good year-on-year growth in the quarter of 15%. When you exclude the currency impact, net sales were up by 5%, still a healthy number, and the early signs are that we grew faster than the market in the quarter. Our Mobile Broadband and Global Services business units both grew with a particularly strong showing by the services team, which delivered year-on-year growth of 21%. Our business mix during the quarter was 52% Mobile Broadband versus 48% for Global Services.
For the same quarter one year ago, Mobile Broadband was at 54%, although on a sequential basis, the mix between segments has not changed. Within the segments, however, there were some mix shift in Q1. With more network implementation and less systems integration and services, and more LTE and less core networking revenues in Mobile Broadband. These shifts were part of the reason for the first quarter's weak profitability. On a regional basis, we saw year-on-year growth in four of our six regions, with particular strength in North America, Greater China, and the Middle East and Africa. India, in particular, was a standout performer both on the Mobile Broadband and Global Services sides. Overall, however, growth was not the issue for Networks in Q1. The issue, as you've seen, was profitability. We saw a non-IFRS gross margin and operating margin in the quarter of 33.7% and 3.2% respectively.
We have done an intensive analysis to ensure that we understand what happened during the quarter. More importantly, what we need to do to improve going forward. In today's press release, we called out a number of drivers for the profit decline. I would like to take the next few minutes to give you some additional color. First, software sales were down by approximately five percentage points from the same quarter one year ago. This was driven largely by lower core networking revenue and lower software sales in Japan and North America. We do not see any evidence that this decline represents a structural change in our market. We continue to watch the situation closely and are taking actions to get software sales back on track.
Second, strategic entry deals, particularly in China, had a more significant effect in Q1 of this year than the same quarter last year. While we continue to require that such deals have the right long-term profitability profile, the short-term impact can be sizable. That said, we expect this situation to ease as we head towards the second half of the year. Third, as I think you will have seen from the results of other companies in our sector, market conditions are challenging. While we believe that with our lean cost structure and disciplined operating model, we are well positioned in this environment, there is evidence of a near-term shift in market behavior. Fourth, operating expenses. As I'm sure you understand, a large portion of the OpEx increase reflected negative Forex impacts. Some of the increase also reflected increased investment in growth technology areas, including 4G, 5G, and Cloud Core.
Given the market environment that I just mentioned, we will continue to manage OpEx extremely prudently. Finally, Global Services, where we saw a 350 basis point decline in operating margin. This was a result of a mixed shift in the quarter, which was heavier than normal in network implementation and lighter in systems integration. Systems integration had a challenging quarter, although it is a relatively small part of our overall services business. In particular, systems integration was impacted by significantly lower, very high margin business from one customer compared to the previous year. At the same time, our systems integration pipeline has continued to increase since the start of the year. To give just one example, we won a very large new customer in Q1 that should benefit the business in quarters to come.
Overall, I believe that our Global Services organization remains strong when its performance compares quite favorably to others in our sector. Despite the slow start, we remain confident in our ability to deliver on our commitments for the full year. Let me just share a few other points that support that confidence. First, on the revenue side, our funnel of opportunities remains strong and our win rate remains high. Second, we are launching several margin improvement actions, including an expanded software upsell program and a sharper focus on earlier than planned recovery of entry and other low margin projects. Third, we continue to be very aggressive in driving cost and efficiency improvements through our business transformation board. We have active projects with clear targets and tracking mechanisms spanning a wide range of areas.
Discretionary and overhead spending, improving cost of sales in both products and services, and further R&D transformation, just to name a few. Finally, when we look at the strategic entry deals we have taken on, we see margins starting to improve as we head to the second half of the year, driven by contractual terms and ongoing cost and execution improvements. To sum up, we clearly cannot be satisfied with the Networks numbers we announced today but feel there are good reasons to have confidence for the full year. The Networks team has shown that they can deliver consistently strong results, and I know they are motivated to deliver better performance in the quarters to come. To HERE. HERE delivered excellent results with significant improvement in both year-on-year sales and profitability.
The automotive segment continues to go from strength to strength. Shortly after the end of the quarter, I was particularly pleased to see that Jaguar Land Rover has decided to be the first car maker to implement HERE Auto, the industry's leading connected navigation suite inside its cars. We look forward to seeing how that will be received by drivers this summer. This was a groundbreaking win for HERE. The team is working very hard to follow that up with more. Other notable activities in the quarter included HERE launching its map app for iPhone users, making it available for free download from App Store. To date, the reception has been excellent, with the app downloaded a combined 6 million times for both iOS and Android and getting glowing reviews in the process.
Finally, on to Nokia Technologies, which also had a very strong quarter, with sales and operating margin up sharply both year-on-year and sequentially. I am more confident than ever that licensing activities are tracking well and that there is a robust pipeline of potential new licensees. This is a business with a unique operating model, excellent assets, and a world-class team. Work is progressing well. Costs were higher in technologies on a year-on-year basis due to investments in business infrastructure and new innovation, but roughly flat on a sequential basis. While we will continue to invest where we believe there are compelling opportunities, we're also taking steps to focus the work of the technologies team on projects that present the most interesting opportunities. In short, more disciplined management of the licensing pipeline and a sharper strategic focus to future investments.
Let me now hand the call over to Timo for some more details. Then we can turn to your questions. Timo, the floor is yours.
Okay. Thank you, Rajeev. I would like to spend the next few minutes taking you through the performance of Nokia Technologies and HERE in the quarter before turning to foreign exchange movements, my customary discussion on cash performance, and finally, a few words on our outlook. Starting with Nokia Technologies, net sales of EUR 266 million in the first quarter increased by 103% year-on-year. We continue to make very good progress in our broader licensing activities. We remain confident in the long-term monetization opportunity for Nokia Technologies. However, it is important to reiterate that this can be an inherently lumpy business, particularly when viewed through a quarterly lens. This was the case in Q1.
Approximately two-thirds of the year-on-year growth in Nokia Technologies net sales in Q1 related to non-recurring adjustments to accrued net sales from existing agreements as well as revenue shares related to previously divested IPR and IPR divested during the quarter. Approximately one-third of the growth related to higher intellectual property licensing income from existing licensees, including Microsoft becoming a more significant licensee. While we did see underlying growth in Nokia Technologies' quarterly net sales run rate in the first quarter, you should not simply extrapolate the whole Q1 net sales level going forward. Nokia Technologies net sales in Q1 included revenue from all of technologies licensing negotiations, litigations, and arbitrations to the extent that we believe is currently required, but this is not the forecast of the likely future outcome of ongoing licensing projects. Turning on to HERE, which delivered a strong top-line growth and continued improvement in profitability.
As I have commented on previous calls, we believe HERE has strong long-term growth prospects and is capitalizing on the trends we see, particularly in the automotive segment. This is really key to driving operating leverage and cash flow generation. In Q1, HERE delivered year-on-year net sales growth of 25% or 17% on a constant currency basis. New vehicle licenses of 3.6 million units in the quarter, compared to 2.8 million units in the first quarter of 2014 or 29% year-on-year growth. HERE's non-IFRS operating margin of 7.3%, up 250 basis points year-on-year, was primarily driven by operating leverage from the higher net sales, which more than offset higher non-IFRS operating expenses. Taking into account HERE's performance in Q1, its leading market position, as well as positive industry trends, we have narrowed HERE's 2015 non-IFRS operating margin outlook from between 7% and 12% to between 9% and 12%.
Turning on to foreign exchange. We have included a new table in our Q1 press release on page 28, which provides a quarterly analysis of our revenue and cost exposure by major currency. At the high level, as I commented last quarter, we are well-balanced in terms of our net sales and cost exposures against the euro. In Q1, approximately 30% of our net sales and total costs were euro denominated. Therefore, everything else being equal, a weakening euro relative to all our other currency exposures has a positive impact on our overall net sales, but negative on our operating costs, with the overall impact on our non-IFRS operating profit being relatively small. In terms of the U.S. dollar, approximately 35% of our net sales in Q1 were U.S. dollar denominated, compared to about 30% in our costs.
Turning back to our Q1 2015 year-on-year net sales growth of 20%, approximately nine percentage points of this growth resulted from foreign exchange movements, primarily due to the stronger dollar. Sequentially, foreign exchange movements benefited Nokia's reported net sales by approximately 5%, driven by general euro weakness relative to our non-euro denominated sales. Turning on to our cash performance during Q1. On sequential basis, Nokia's gross cash declined by approximately EUR 200 million with a quarter ending balance of approximately EUR 7.5 billion. Net cash and other liquid assets declined by approximately EUR 350 million with a quarter-ending balance of approximately EUR 4.7 billion. Looking at the primary drivers of the movements in our net cash balance in Q1. Nokia's adjusted net profit before changes in net working capital was EUR 368 million in the first quarter, primarily driven by Nokia Technologies and Nokia Networks.
Nokia's net cash from operations was €199 million outflow, primarily driven by cash outflows related to other financial income and expense. I will come back to this in a few moments. In Q1, Nokia's continuing operations had net working capital cash outflows of approximately €100 million, which included approximately €50 million of restructuring related cash outflows at Nokia Networks. Excluding these, cash outflows from net working capital was approximately €50 million, as the negative cash impact from decreases in short-term liabilities was partially offset by the positive impact from a decrease in receivables. Continuing operations had cash inflows of approximately €30 million related to net financial income and expenses, but approximately €400 million of outflows recorded in other financial income and expense, and approximately €100 million related to taxes. Looking at the approximately €400 million of outflows related to other financial income and expense in bit more detail.
Approximately half or around €200 million of the outflows related to foreign exchange hedging on forecasted cash flows and hedging of Nokia's non-euro cash and cash equivalents. The other half of the outflows mainly relate to the timing mismatch between foreign exchange cash flow impact on other non-euro denominated balance sheet items, such as trade payables and receivables, as well as internal and external financial items other than cash and cash equivalents, and the corresponding hedges for the net exposures. Assuming static FX rates compared to the end of Q1, we currently expect that approximately €200 million of the Q1 cash outflows will be largely offset by benefits to Nokia's cash performance related to these items in the next two quarters. Partially in other financial income and expense line, and partially on other lines of operative cash flow.
Discontinued operations had cash inflows related to net working capital and taxes totaling approximately €10 million in Q1. From a financing cash flow perspective, outflows were primarily due to share buybacks, which totaled approximately €160 million in Q1. During the first quarter, we repurchased approximately 25 million shares. As I highlighted on our call on April 15th, following the announcement of the proposed acquisition of Alcatel-Lucent, we have suspended our capital structure optimization program, including suspending the share repurchase program execution until the closing of the transaction. From an investing cash flow perspective, cash outflows of approximately €70 million related to continuing operations capital expenditures and approximately €50 million related to the acquisitions, which we completed in the quarter. Finally, foreign exchange rate had an approximately €150 million positive translation impact on our net cash. Now a few words on our venture fund investments.
I think we have a unique long-term corporate venturing business model, and we have built a strong track record of growth stage investing through the Nokia Growth Partners and Blue Run Ventures entities. After the end of Q1, Nokia Growth Partners sold its holdings in Ganji.com, a major online local services marketplace platform in China, to 58.com. Under the terms of the transaction, both Nokia Growth Partners and Blue Run Ventures will receive a combination of 58.com shares and cash, valuing Nokia's indirect holdings at approximately €200 million. We expect to record benefits from the transaction when cash distributions are made. The final amount and timing of the benefits will, of course, depend on the value and date at which the venture funds liquidate the shares and is expected to have a positive impact on our EPS accordingly.
At the end of the first quarter, the fair value of our venture fund investments was approximately EUR 1 billion as compared to approximately EUR 800 million at the end of 2014. This amount is included in available for sale investments under non-current assets in Nokia's balance sheet. Overall, I believe that both Nokia Growth Partners and BlueRun Ventures will continue to serve as sources of value creation for Nokia shareholders. Finally, I'd like to spend a few moments on our guidance. First, for Nokia Networks, we have updated our full year non-IFRS operating margin and now expect it to be around the midpoint of our long-term 8%-11% margin range. This update reflects the weaker Q1 performance as well as our expectations for the rest of the year.
More specifically, we expect some of the negative factors that impacted Q1 profitability to ease, particularly in the second half of 2015. For the longer term, on a standalone basis, Nokia Networks' non-IFRS operating margin guidance continues to be 8%-11%. For the new combined entity with Alcatel-Lucent, we have said that we expect to achieve approximately EUR 900 million of cost synergies in 2019. For HERE, we are encouraged with the improvement in profitability and its ability to capitalize on strong industry trends, particularly in the automotive sector. This has resulted in the upward revision to the full-year outlook. For Nokia Technologies, the quarter was impacted by some non-recurring items. However, we did see underlying growth in the quarterly net sales run rate, and we have a robust pipeline going forward. Thus, overall, we think we are well-positioned to achieve our targets for 2015.
With that, I'll hand it over to Matt for Q&A.
Thank you, Timo. For the Q&A session, please limit yourself to one question only. Stephanie, please go ahead.
Your first question comes from the line of Gareth Jenkins with UBS. Your line is open.
Thanks. Just one question on China, if I may. I think there's been a clear impact in the quarter on margins from the ramp at China Telecom and China Unicom on the FDD-LTE spectrum, I just wondered whether we're at the maximum point of pain in terms of recognizing OpEx, but not necessarily recognizing revenue, given that those licenses were really only issued in the middle of the quarter. Thank you.
Yeah. In China, thanks, Gareth, there are three key operators, of course, They all have different schedule with different intensity of deployment. What we've said is that the impact of strategic entries, notably some in China, require an upfront component of cost, That's why it has seen its impact in the quarter. Overall, if I step back from the equation and say, how do I look at the second half of the year, not just China, but overall as a business, I see the impact of strategic entries to ease in the second half of the year.
Thank you, Gareth. Stephanie, we'll take our next question, please.
Your next question comes from the line of Kulbinder Garcha with Credit Suisse. Your line is open.
Yeah, thank you for the question. For Rajeev, I guess I understand the explanations you're giving on the lower margins in Networks, but my basic question, Rajeev, is that for the last two years, you've given quite a clear message on how you run the business in terms of its predictability, in terms of that you forecast forward all the contracts, you allocate them to the P&L. We wouldn't typically the variability. My question is just that visibility you have into your business each quarter. What NSN had managed to do is not have the volatility of your peers, whereas today we're seeing that. Just on that visibility you have into it, I guess I'd appreciate your perspective on perhaps what went wrong and why this wouldn't be repeated in terms of your ability to anticipate this volatility quarter-to-quarter. Thanks.
Thanks, Kulbinder. I've always been saying that there are four broad drivers in the business. One is the competitive dynamics, second is business mix, the third is regional mix, and fourth is something that we fully impact, which is operational excellence. We've seen the competitive dynamics intensify, and I've always been consistent in trying to call it out when I see a change in trend. I want to do so again today. The business mix, yes, we've seen lower software, lower core, and lower margin activity on systems integration and a higher component of network implementation, which is structurally a lower margin business compared to SI. We've seen the impact of strategic deals, and the sort of cost up front that I commented on.
Fundamentally, this is a project business, and typically in some quarters, the activity is actually determines the visibility close to the end of the quarter. Those are acceptances, which then drive your revenue and also software revenue. In terms of acceptances, notably on higher NI and lower SI and software revenue, we've seen that impact at the tail end of the quarter. Again, as I've said, I look at a lot of these things easing in the second half of the year.
If I may add quickly. Of course, we are absolutely not pleased with Q1, but we of course, need to recognize that Q1 is seasonally the weakest quarter in this business. Last year, i.e., 2014, we had some, I'll call them abnormally high software sales during the quarter, which maybe sort of changed those dynamics for 2014 a bit.
Yeah.
Thank you, Kulbinder. Stephanie, we'll take our next question.
Your next question comes from the line of Andrew Gardner with Barclays. Your line is open.
Good afternoon. Thank you. You've both given us a better sense as to the moving parts within the different units, I'm just wondering if you can help with how you're seeing the group as a whole after the first quarter. Just for example, if I take your guidance for networks, the midpoint of the range, 9.5% margins, that's roughly a EUR 120 million reduction in networks profit for the full year relative to prior market expectations. Then conversely on HERE, your upgrade to guidance is worth about EUR 20 million, then technologies was about EUR 100 million ahead of the normal run rate in the first quarter. If I take those moving parts together, then I'm not seeing much change in terms of the full-year profit expectations.
I just want to make sure I'm sort of understanding your guidance correctly, if there's any other moving parts you can point to.
Timo here. Hey, thanks, Andrew, for the question. Of course, I can't take stance on where you started to move from regarding your getting to 9.5. I, of course, recognize the math what you are describing here, and I would say that the only other thing we have mentioned today besides the parameters what you mentioned was the NGP, where we said that we expect to have some positive impact from that to EPS, but we did not quantify exactly when that would have come.
Thank you, Andrew. Stephanie, next question, please.
Your next question comes from the line of Aleksander Peterc with Exane BNP Paribas. Your line is open.
Hi. Thanks for the question. I'd just like you to elaborate a little bit on the Networks gross margin situation. You've got 600 basis points contraction year-on-year, which is quite a lot, and you do say that you have some currency benefit there. Could you quantify that for us? If you could tell us how much of your gross margin contraction is attributable to lower capacity sales, i.e. software. In other words, what's out of the mix and what is down to the footprint acquisition that you also have flagged. Thank you so much.
Okay. Thanks, Aleks. Maybe I'll start, and you can maybe, Rajeev, talk a bit more about the software. FX as such, when we look at the gross margin, is not a big driver, because on absolute gross margin it is more of a driver, but on the actual percentage point, it is not that big. The biggest of the drivers, what you mentioned, is the software sales part, which we actually described as 5% on year-over-year.
We did say that a year ago, we had this somewhat abnormal situation with higher software sales. We see core networks coming to more normalized levels during the year. We also see that software will come to normalized levels. We see also on this point we made about system integration coming to more normalized levels, and so on. Those are the drivers that we're executing.
Thank you, Aleks. Stephanie, next question, please.
Your next question comes from the line of Pierre Ferragu with Bernstein. Your line is open.
Thanks a lot for taking my question. Rajeev, you mentioned a couple of times a change in competitive dynamics, which didn't really tally with recent comments from some of your competitors. I was just wondering if you've seen in the quarter some sort of increase in pricing pressure around these, is that something that you just saw in the quarter and impacted your number for this quarter? Because that sounds like a very quick turnout. Usually, these are negotiated on a long period of time and impact the P&L only a bit later. Maybe on your comments about efficiency throughout the year and how to think about OpEx in networks to your run rate. Quarterly run rate is EUR 850 million this quarter.
Is it reasonable to expect that this number is going to come down a bit during the year, or should we consider that as a reasonable run rate for the full year? Thank you.
I think, Pierre, thanks for that. I'd like to always point out when we see a change in trend with regard to competitive intensity, you have to give it a period of observation to know that it's not just tactical, but it is a bit of a trend. At this point in time, based on what I see, I think it's worth pointing out that the competitive intensity has increased. Now, there are reasons for it. There are some markets that offer significant large footprint for the long term, they are hotly contested, and China is an example of that. Of course, they do offer long-term footprint opportunities.
There are other things that have changed competitive intensity, perhaps one of the reasons is that we have seen growth in the last three quarters, if I include the current one, Q1, there's a competitive response to some of that as well. When you look at overall, there are challenging market conditions when it comes to CapEx because there are markets that are more slow and there are other markets that have momentum. Middle East and Africa, Southern Europe, China, India have momentum, recognizing that China is somewhat dilutive at this point in time. At the same time, North America, Asia Pacific, Europe and Eastern Europe do not have enough momentum. Particularly in APAC countries like Indonesia, Korea, Thailand, Japan, which have been somewhat more robust in the past.
Europe is characterized by both the macroeconomic situation, particularly in Eastern Europe, but also generally, it's really happening. That does mean that it puts pauses in terms of CapEx spend, there are fewer deals to go for and the competitive intensity increases. I am not sure if this is a structural trend yet, but it's worth pointing out that this has changed.
Maybe I will comment on the OpEx side here. We had EUR 99 million, up about 14%-15% year-on-year OpEx in Nokia Networks. We do not expect a similar kind of uptick rate to continue during the year. We actually expect this, call it uptick in OpEx year-on-year basis to ease towards the latter part of the year.
Thank you, Pierre. Stephanie, next question, please.
Your next question comes from the line of Mark Sue with RBC Capital Markets. Your line is open.
Thank you. The working presumption was that the consolidation in the network equipment space would improve profits over the longer term. We're moving the other way, with the change in trend and three dominant players to remain, can we still get to the 900 million EUR? If so, will that actually hamper Nokia's ability to grow market share in the future? Does it have to be one or the other?
Maybe I'll take the 900 million EUR question, and you can discuss a little bit about the market situation. No, we expect no change in our ability to execute the 900 million EUR planned cost reductions in the Alcatel-Lucent planned transaction. We are actually confident that we can execute it, as we have discussed during the last weeks or so. We have a very robust and detailed model through which we have worked, where we expect the synergy benefits to come on the cost side, we think that that's a very prudent analysis and very executable.
Yeah, on the market conditions, the consolidation and weather, of course, we have seen this being more rational over the last couple of years. This year there have been some markets that offer this long-term footprint that has driven the intensity. Apart from that, there are markets on balance that generally, it's a slow start to the year from a CapEx standpoint. Therefore, there's been more competitive intensity to go after those smaller deals, sort of lesser amount of deals, and more players are active on that. Do I see this as a defining trend? One quarter should not necessarily define a trend. We have seen that this has changed. Going back to our transaction on Alcatel-Lucent, this is why I think it is different and it makes a lot of sense and strategic rationale because that is more about scope than about scale.
I absolutely believe that the winning providers of the future will be stronger full-scope providers with the necessary scale in the individual businesses that they operate in. That transaction with Alcatel-Lucent gives us that platform. With the operating model that we have, I think it allows us to benefit much more over the longer term.
Thank you, Mark. Stephanie, we will take our next question, please.
Your next question comes from the line of Sandeep Deshpande with J.P. Morgan. Your line is open.
Yeah, hi. My question is regarding that one-off which occurred because of the acquisition of new customers. You identified 5% was because of the lack of software in the first quarter. How would you place this additional cost of acquiring these new customers? Secondly, also I have a question on your IPR that even excluding the one-off associated with some past deals that you have recognized in the quarter, you saw upside year-over-year because of some volume increases or something with your existing customers. Could you please give some details on that? Thanks.
Thanks, Sandeep. Allow me here to step back a little bit and give a more elaborate response because, of course, this question has come in multiple ways. I think it merits a better response as to why do I feel confident about the remainder of the year. First of all, I'll bucket this into two. What are the structural things and what are the actions we're taking? One, our funnel of sales opportunities remains strong. We have a high win rate. That matters. Second, I see the impact of strategic entry deals to ease in the second half. Most of which you take these deals, you take the cost somewhat upfront, right? I see that easing. I see momentum in some regions overall improving the mix for us in a way that more core networks will be there in the mix relative to radio.
I see systems integration coming back to normalized levels and also software coming back to more normalized levels. What are the actions we're taking? We're taking sales acceleration actions, particularly software sales, expanded software upsell program with the top 100 customers with a sharper focus on earlier, on recovery of some of these entry and other low-margin projects. You recall the programs that we have. That's not changed, but we'll accelerate them. We have had programs for cost through our business transformation board, reducing discretionary spending, overhead spending, improving cost of sales in both products and services, and some of the R&D efficiency programs. Headcount control. That's something we will do as well.
There are these smarter transformation program we spoke about, which is all about eliminating waste from lean and Kaizen, automation and tools, but also driving a higher share of global delivery, i.e., remote delivery, to improve margins relative to on-site delivery. That's kind of the action that we will take and some of the trends that I see changing.
Maybe a quick comment, Sandeep, on the 5% software. That's of course the year-over-year delta, and that delta has elements of being abnormally high last year as well as elements of being abnormally low this year. It's not like everything would be sort of from, call it, normal level to down. I think that's just an important thing to note. On IPR, I mean, the year-over-year and sequential increase in Nokia Technologies net sales include revenue from all of Technologies licensing negotiations, litigations, and arbitrations to the extent that we believe is currently required, but they are not a forecast of the likely future outcome of ongoing licensing projects.
When you look at these numbers sequentially and you look at the sequential increase from the EUR 149 million to the EUR 266 million, we said that about 80% of that would be classified as non-recurring and about 20% leads to a number between EUR 20 million and EUR 25 million, which we have described as recurring.
Thank you, Sandeep. Stephanie, next question, please.
Your next question comes from the line of Andrew Humphrey with Morgan Stanley. Your line is open.
Hello. Actually, it's François. In terms of the R&D spending, I am very surprised about you indicating more spending on 4G and 5G. I think we discussed this intensively last year, especially at the analyst day, that actually, you had the right budget and everything for the future. What has changed, basically, since the analyst day? Did you have any pressure from your customers to spend more? What has changed, basically? Thank you.
Thanks, François. Of course, it's a dynamic market. Number 1, I believe the industry requires more investments in LTE, particularly in driving LTE Advanced carrier aggregation, 3 carrier aggregation, and so on, 5G and cloud. Some of these LTE are driven by competitive feature requirements. I can sit there and just wait to lose competitiveness, or I can take action and say, "We want to be actually at the forefront of competitiveness, and we want to meet, and get ahead of some of the customer needs." That's what's driving those investments. Again, as we explained before, there are headwinds from Forex that negatively impact both OpEx and cost of sales. As we said, there are tailwinds to revenue. There's also that thing that you have to keep in perspective.
Again, as we discussed earlier today, this year-on-year increase in OpEx. If we call that the pressure, that pressure we clearly expect to ease towards the latter part of the year.
Thank you, François. Stephanie, next question, please.
Your next question comes from the line of Richard Kramer with Arete Research. Your line is open.
Thanks very much. Rajeev, since you mentioned you'd gone and spoken to a number of customers, what are they telling you about their installed bases of relative Nokia and Alcatel-Lucent equipment? What has that told you about how you might be able to reduce costs and roadmaps? One other simple question, maybe for Timo. Within Nokia Technologies, it seems like the time is running fairly short in which you might want to conclude a larger brand licensing deal. Do you feel that's something that might contribute materially to income in 2015? Or is that something you're going to take your time doing, and sort of feel your way into the market as you were with the Nokia N1 tablet? Thank you.
Thanks, Richard. Let me start with the roadmap question. I would characterize the discussions with operators as being quite pragmatic. We've talked about these open interfaces and the fact that there is the CPRI interface between the radio frequency and the baseband unit in a base station. There will be similar open interfaces in IMS, VoLTE, and many of those core network platforms. I think the reception is positive to that kind of thinking. It's positive to the fact that operators don't want large-scale swaps when it's not necessary, and particularly because technology has evolved to a point. What I expected has played out well in the discussions, but it's, of course, early days because we're not at the point that we've made any portfolio decisions, and that will only happen towards closing. Remarkably positive discussion so far.
Okay, regarding the brand licensing. Clearly, as you say, we have tested the brand licensing business model on the market with the Nokia N1 tablet, and this is really a learning exercise for us. I want to remind that we invested over EUR 20 billion into brand marketing during the time when we were in the devices business. This is really a brand which is recognized, by whatever, 4 billion or some people on the planet, and is pretty soon going to be without a product. We think it's a vacuum which we need to try to fill with a very smart business model, i.e., a licensing business model, which is capital light and follows the licensing business model of the other businesses in our Nokia Technologies unit.
What comes to 2015, as this licensing business unit or brand licensing business is different from IPR licensing in Nokia Technologies because it does not have, in the same way, these kind of lumpy dynamics necessarily, or at least how we understand it currently. For that to be a meaningful contributor to bottom line, we of course need to ramp up a lot of volume because business model is really volume-based. In that sense, I would say that it would be unrealistic to expect that that would have a significant impact on Nokia's 2015 numbers. On the other hand, I think it's a very interesting business opportunity long term for the Nokia Technologies business unit, particularly when latter part of 2016, the brand does not have any of these limitations anymore, and we can also consider licensing it for smartphones.
Thank you, Richard. Stephanie, next question, please.
Your next question comes from the line of Johannes Schaller with Deutsche Bank. Your line is open.
Hi there. Thanks for taking my question. I was just wondering, with the increase from Microsoft in Nokia Technologies, is it fair to assume that Microsoft currently accounts for roughly pretty close to one-third of your Nokia Technologies revenues? Maybe in that context, what would happen if one of your smartphone licensees decides to exit the smartphone business? Can you maybe give us a bit of detail of how such a deal would then work, how the contracts are currently structured? Would the licensing revenue drop off pretty quickly, or would that phase out over a longer period of time? That would be great to understand. Thank you.
Thanks for the question, Johannes. First on the Microsoft. The example that I gave earlier in the call, i.e. comparing the EUR 149 to EUR 266, i.e. the sequential example, Microsoft was already in those numbers when we were talking about the year-on-year example. In that comparison, Microsoft plays a role. Just to be very clear on that. We have not discussed exactly in a while kind of like what was the Microsoft deal. We just went through that in the actual Microsoft transaction, that what was the new license. In that sense, I can't give you more color there than if we look at any of these licensing deals. They take different forms. Some have a fixed payment and fixed annual schedule, and some are more based on volumes and percentual numbers on those volumes, and then there is mix in between.
I really cannot give you one answer to what will happen, if suddenly somebody would decide to exit the handset business. It really depends on the contract structure. I just want to remind that typically these contracts are fairly long in nature, so people generally don't want to make short-term licensing contracts because, of course, you utilize a technology in your devices for long term or whatever consumer electronics or other devices you would be making. In that sense, it doesn't make sense to try to negotiate this for a very short period.
Thank you, Johannes. Stephanie, next question, please.
Your next question comes from the line of Vincent Maliepaard. It's Oddo. Your line is open.
Yeah, good morning. A question on the rationale of R&D acceleration in 5G Cloud ahead of Alcatel-Lucent merger. How do you know that it's not overlapping Alcatel-Lucent R&D to be sure to have full synergies?
Thanks, Vincent. Of course, we are competitors at this point, we continue to behave like that. 5G, if you think about the complementarity, we are stronger in 5G or in radio overall, it kind of would make sense for us to be beneficiary of the fact that we are sort of driving all the investments in that space. Cloud, again, I step back and say, is it complementary? Yes, we have a lot of the virtualization elements, the NFV elements on our side. Actually they bring software-defined networking, they bring IP routing, they bring orchestration. I don't know what they will do, but if they continue to do well in those areas, it's a completely complementary telco cloud core portfolio.
Yeah. Clearly, as was said earlier, we continue to be competitors on the market, it is, of course, natural that both companies will need to continue to invest in areas to stay competitive on the market until the transaction closes. I think it's typical in these kind of situations and is unavoidable. Of course, that is then some of the cost that can be taken out when the transaction closes.
Thank you, Vincent. Stephanie, next question, please.
Your next question comes from the line of Tim Long with BMO Capital. Your line is open.
Thank you. Just a two-parter back on the Technologies business. First, could you just give us a sense, you talked about some good visibility into new licensees. Could you just give us a sense, were there any new licensees added in the quarter, and how does that look for the next rest of the year? Then have you gotten a chance yet to give a look at what adding Alcatel-Lucent, they had their own programs where they were trying to increase their monetization of patents. Do you have a view of what you'll be able to do with the combined portfolios? Will that be pretty additive to what Nokia is currently doing? Thank you.
Okay. First on the overall Technologies, really the situation is that the year-on-year and sequential increases in Nokia Technologies net sales include revenue from all of the Technologies, licensing negotiations, litigations, and arbitrations to the extent that we believe is currently required. Again, remind they are not the forecast of the likely future outcome of ongoing licensing projects. That's really as far as we can go there. What comes to the ALU portfolio. You are absolutely correct that ALU has a broad IPR portfolio. Of course, to our understanding, because we have, of course, not been able to really look deeply into the portfolio, has been slightly in different areas. We, of course, have had a lot more investment in the handset-related IPR, that's a difference in the portfolios.
The way we think about it, this is what we have said during the last couple of weeks as well, is that we think we have a unique structural operating model where we have some IPR in the Technologies unit, that is simply something what people need to license if they want to do certain businesses in the consumer electronics and particularly in the mobile handset space. Then we have some IPR in Nokia Networks, which has been generated during the NSN times. That's a separate unencumbered portfolio, which the Networks business is willing to cross-license if it so needs.
Our thinking here would be, again, this requires more restructuring, is that the ALU portfolio likely would end up being merged into the Technologies business, that the business model in Technologies stays intact. That way we can then see what in the end would be the optimal utilization of the combined company's IP and, of course, the utilization possibilities are licensing or maybe selling some IP, depending on how that would pan out. I would also make another very important point that for longer term, this new company would be investing EUR 4 billion to EUR 5 billion into R&D annually. Of course, the machinery which will create new IPR will also be significantly enhanced.
Thank you, Tim. Stephanie, we'll take our last question for today, please.
Certainly. Your last question comes from the line of Ehab Gomaa with Citigroup. Your line is open.
Thanks very much, guys. Thanks for getting me in. I'm going to make this a good one. Timo, a couple clarifications and then a broader question for Rajeev. First of all, IPR, Timo, I was always under the understanding, and other companies do this as well, that it's collected in $, and FX would've had a bigger impact than translation to EUR. But clearly that's probably not the case. If you can just let us know, how is IPR stated in contracts? The second clarification is Networks IPR seemed to drop EUR 25 million this quarter, and that you didn't call out, but certainly has an impact on your margin and Networks. Give us a sense as to why that happened, and how much more IPR is there in Networks that could fall off as the year goes on.
What kind of headwind are you facing on the margin side there, versus could you get some of that back, and can that actually help restore some of the Networks' margin as we go through the year? The broader question, Rajeev, is I'm still trying to square the circle on how your funnel can remain strong, and yet the market conditions seem to be more challenging now than they seemed to be in January and even a couple of weeks ago when you announced the Alcatel purchase. Trying to understand who the price aggressor is, because it's clearly not the guy you're purchasing. It must come out of China. Why they would suddenly be doing this after a couple of years of seeming to have a more calm outlook on the pricing environment. Thank you.
Okay. Thanks. Maybe I'll start with the IPR. Actually in our case, and maybe you can look at this as a long-term, well, I don't know. No, I'll stay. Majority of our IPR is in EUR, and I think that is because when we negotiated much of this, at the time, we were in a position where we could command that, and it made sense for the situation at the time. You have to remember that a big part of our IPR, which is contributing to current revenues, has been negotiated before this planned change or happening change in the business model. We have actually fairly little FX impact on top line at the moment in our IPR revenues.
Regarding Networks IPR, yes, we called out in Q4 that EUR 25 million in Networks, and that, of course, is a sequential change towards Q1 and not year-over-year change, and that's why we have not been discussing that earlier in the call. Networks has generated a, as I said, significant IPR pool, which sits in our Networks business. Of course, we look to opportunities to continue to monetize that portfolio as well. Of course, majority of that is there for Networks cross-licensing purposes, but there can be further monetization opportunities.
I'll just say a couple things quickly. One, just on IPR still on Nokia Technologies, I want to just say that the sales funnel is strong. We have a robust pipeline. There's a strong discipline on driving that. I've been reviewing this with Ramzi Haidamus, who runs the unit. Clearly, we have a capacity to run multiple cases in parallel compared to the old Nokia. We need to run it in a balance of negotiations, litigation, arbitration. That I just wanted to add. Ehab, on your question on sales funnel being strong. Market conditions offer volatility in terms of CapEx. Our win rate is stronger. Our portfolio has got stronger. That's allowed for a healthier sales funnel, including our qualification of criteria. The ones we go after is stronger than before.
In terms of who the aggressor might be, I think I'd not want to go there.
Thank you, Ehab, for your question. Actually with that, I'd like to turn the call back over to Rajeev for some closing remarks.
Thanks, Matt. Thanks, Timo, for your comments, and thanks again to all of you for joining. We've had a lot of discussion today about Q1 performance, but I wanted to reiterate our strong belief that the purchase of Alcatel-Lucent offers the best direction for Nokia to ensure long-term growth as well as to create long-term value. I said when we announced the transaction that I firmly believed it was the right deal with the right logic at the right time. Everything I've heard since then has strengthened that view. The second comment is simply to acknowledge that while we are displeased with Networks' financial results in Q1, I am confident that we have built an organization and culture that is resilient and strong.
In more challenging times, the exceptional execution capabilities of the Networks team will be even more important as we implement detailed plans to deliver on our financial targets for the full year. Of course, we also need to maintain the momentum in both Technologies and HERE. We approach those challenges with optimism, with a strong desire to meet our commitments, and with a team that has a strong aversion to missing goals. We are realistic about the risks that lie ahead, but also see opportunities, and we are intent on mitigating the risks and seizing the opportunities. With that, thank you very much for your time and attention. Matt, back to you.
Ladies and gentlemen, this concludes our conference call. I would like to remind you that during the conference call today, we have made a number of forward-looking statements that involve risk and uncertainties. Actual results may therefore differ materially from the results currently expected. Factors that could cause such differences can be both external, such as general economic and industry conditions, as well as internal operating factors. We have identified these in more detail on pages 74 through 89 of our 2014 annual report on Form 20-F, our interim report for Q1 2015 issued today, as well as our other filings with the U.S. Securities and Exchange Commission. Thank you.
This concludes today's conference call. You may now disconnect.