Good morning and welcome. I'm Matt Shimao, head of Nokia Investor Relations, and your host for today. Our last capital markets day was way back in 2009. It's been quite a journey. For those of you who were with us back then, welcome back. For those of you who are with us for the first time, welcome. Today, our goal is to provide you with a clear overview of the new Nokia and each of our three businesses. We will cover our vision, our culture, the strengths we've built, the significant opportunities ahead of us, where we're focusing, and why we believe we're well-positioned. Rajeev and Timo will start, then we'll dive deeper into each of our three businesses. To meet your needs, we've designed today's event to be very interactive. After each section, we will have a Q&A session.
In addition, during lunch, you'll be able to interact directly with today's speakers. We will have a networking-style lunch instead of a sit-down lunch. Finally, after the presentations today, we will host a networking reception. This will give you another opportunity to interact directly with today's speakers. Both the lunch and the reception will be upstairs in the room with the demos. Please note that during today's presentations, we will be making forward-looking statements regarding the future business and financial performance of Nokia and its industry. These statements are predictions that involve risk and uncertainties. Actual results could 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 these in more detail in the risk factors section of our 20-F for 2013, in our interim reports, and in our Capital Markets Day press release issued today. Three more things from me before we get started. First, this meeting is being webcast, and archives of each section will be available on our Investor Relations website. Second, if you have any logistical questions during today, we have an information desk right outside of this room. Third, and this is really important, after today's presentations, you will receive an email with a link to a web-based survey. Please fill it out. It will only take 10 minutes, and it will help us design future investor events. Now, we have a lot of content to cover today, so let's get going. It is truly my pleasure to introduce President and CEO of Nokia, Rajeev Suri.
Thank you, Matt. It is a pleasure to see all of you here, particularly given that I know it's been a hectic week for many of you. I would like to think that ours is the only event that truly matters, but I'm a realist. I understand that many of you were on the last and late flight out of Stockholm yesterday, and I really appreciate you making the effort to join us here in London. So what do we want to accomplish today? Well, many things. Ultimately, however, I want to address three questions. What is the future for networks in a market where growth is limited? Why do we still see opportunity with HERE, our mapping business? And what is the potential of technologies, both in terms of licensing and the creation of new business opportunities?
Since my appointment as CEO, we've been hard at work on developing answers to these questions, and I believe that we now have clarity about our strategic direction. Our last capital markets day was in 2009, and almost everything about Nokia is different since then. There have been some difficult changes, no doubt about it, for us and for you, but we now have a strong foundation for the future. As evidence, just look at our recent performance. We are generating cash, not burning it, producing profits, not losses. We have a strong capital structure and have gone from a long period of decline to our first quarter of year-on-year growth since early 2011. Our third quarter results were strong. Non-IFRS EPS, diluted EPS, up 50% from the same time one year ago. Sales increases in all three of our businesses, and net cash up more than 100%.
Overall, a good outcome by any standard. Now, to go a bit deeper, look at the third quarter performance of our three businesses, starting with Networks. Net sales up 13% year-on-year, gross margin at an industry-leading 39.1%, non-IFRS operating margin at 13.5%, operating expenses basically flat. For HERE, we also saw a return to growth with a 12% year-on-year improvement. Profitability, however, was only at the break-even level. Then Technologies. While sales were up by 9% and non-IFRS operating profit by 17%, this business is still in its infancy. Our foundation is more than just recent performance and financial strength. Embedded in our three businesses are some unique assets that we can build on in the future. We have deep technological competencies, particularly in emerging areas around analytics, cloud, and virtualization. I like to think we have unparalleled innovation capabilities across the company.
We're often an unrecognized software powerhouse, one of the top 15 software companies in the world today. We have a remarkable brand. Yes, maybe tarnished somewhat, but still in a position that is the envy of others. We have trusted customer relationships, particularly with some of the world's largest telecom operators and automotive companies. We have a disciplined operating model designed to get the most from every euro that we spend and to ensure that we have the resources to invest where we need to invest. And we have intellectual property. The Nokia patent portfolio is one of the finest in the world, and it continues to grow every day. In short, we have a strong starting point. But to create future value, we certainly cannot, and we will not stand still. After all, the world of technology is moving fast, along a path that started many years ago.
Today, most humans are connected. By 2020, we believe that number will reach around 5 billion. Now, we are quickly entering a totally new phase, a phase that is all about connecting things in addition to people. By 2025, we believe there will be at least 50 billion connected devices, things, devices, modules, and sensors. In time, all these connected things will come together in extraordinary ways. Software will be the glue. Analytics and intelligence will bring meaning, and automated action will bring simplicity and efficiency. Some have called this the programmable world. That's a term we like as it captures two important changes that are on the horizon. First, vast amounts of information that is now trapped in devices will become unlocked for use in powerful ways.
Second, connected devices will be so ubiquitous that they will become programmable as a system, essentially a virtual computing platform that spans the globe. The benefits that will appear from all of this are extraordinary. New levels of business efficiency from pharmaceuticals, power distribution, fleet management, and beyond. Better use of scarce resources through precision agriculture and improved water management. More effective healthcare through cloud-connected home monitoring devices. More leisure time as technology automates the many little things which can suck our time away. It is important to understand, however, that these benefits also have their share of risks. Those risks have become abundantly clear in the post-Snowden world: overwhelming breadth of choice, complexity, intrusion, alienation, dependence. We cannot be in denial about these things. At the same time, I believe, and as a company, we believe that the positives will continue to far outweigh the negatives.
We also know that great companies and great brands are built on resolving conflicts, which brings me to our company vision, a vision that gives us purpose and a reason to exist. It gives us a long-term opportunity for differentiation and creates new possibilities for us in the years to come. At Nokia, our focus has always, always been on people. As we move forward, our vision, our purpose, our brand promise is all about expanding the human possibilities of the connected world. We're focused on designing technology to help people thrive, creating new possibilities and new experiences for people through technology. The vision is not something just for the future. We're already living it today with things like the Retina project in networks, which uses massive processing power to help operators adapt and adjust their networks in real time.
The Z Launcher, which simplifies Android with a swipe of a letter on the screen. Things like high-performance networks, such as the one we provided in Korea, under the massive traffic load during their annual fireworks festival, our network stayed true while others collapsed. Or things like HERE's Transit app, which makes life just a little easier for people going about their business each day. All this and more in the service of expanding the human possibilities of the connected world. With its three strong businesses, Nokia is well-positioned to deliver on this vision and capture the opportunities of the programmable world. Now, let's turn to how we see these opportunities developing. Clearly, our number one target as a corporation is to create shareholder value. Now, in his remarks, Timo, we'll share our specific long-term guidance as well as that for 2015.
Let me give you a directional sense of where we would like to go in order to set the context for the rest of my remarks. In terms of our businesses, for Networks, our long-term ambition is to grow slightly faster than the market and deliver non-IFRS operating margins between 8%-11%. To achieve this, we need to build further and faster on those areas where we are strong today, grab new share as technology goes through significant transitions, and extend our business into some interesting near-adjacencies. For HERE, we certainly have a desire to grow in the long term, but we will also focus on improving profitability. That will require focusing on the right segments and significantly improving operational effectiveness.
There's still a lot of work to do in this case before we understand how far we can improve performance, but there should be no doubt about our intent. For technologies, we also need more experience to say what is possible with certainty. The timing and outcome of licensing deals remain uncertain, as does our ability to develop new technology and bring it to market. That said, it is certainly our ambition to deliver sales growth while maintaining strong non-IFRS operating margins. Achieving this will require that we expand standard-essential , and implementation patent licensing to new licensees, as well as improve royalty terms with existing licensees, as agreements that are currently in place expire and are being renegotiated. It also requires near-term investments that will drive up operating expenses, but we believe that that is the right choice in order to enable long-term growth.
To achieve these long-term goals and maximize value creation, we will focus our approach in four areas: disciplined portfolio management and capital allocation, business-specific strategies, operational excellence in every part of our business, and a high-performance culture and strong values. Let me now turn to these topics in greater detail. First up is how we manage our portfolio. Don't worry, I'm not going to plan to go into the details of these charts that you see on the screen. Rather, I want to share with you the three lenses that we use to assess our portfolio. The first is about whether the opportunity is a fit for us, both in terms of growth and also in terms of whether we have a right to win in this space. The right to win is based on things like closeness to existing customers and our ability to leverage our assets and capabilities.
From this perspective, both fleet management for HERE's enterprise segment and machine-to-machine, or otherwise called IoT platforms in networks, appears to be worth further investigation. The second lens looks at how those opportunities fit with what we already have in order to balance our portfolio. We know that parts of the portfolio will be in decline, like legacy radio technologies and networks. Those areas that are falling off need to be offset by compelling new prospects with the right growth and profitability potential. In technologies alone, we assessed 170 opportunities, and we got that down to a much smaller, more manageable number of options to pursue in greater detail. The third lens is to look at where we are spending our money to ensure that we are not just milking what we have but also investing in the long term.
Our plan in 2015 is to allocate around 50%, 50% of our company-wide R&D spend on products and services that are in the growth, introduction, and early-stage categories. Finally, after applying the three lenses, we prioritize them. That starts with protecting the core. The worst thing that we could do would be to squander what we already have today, such as our remarkable patent portfolio. The next priority is investing in longevity so that we can win in the long term. Think about 5G in this regard. Third is expanding into adjacencies, where we can attack a new market while building on assets that we already have. Again, fleet management fits well here. Finally, exploring big opportunities in the Internet of Things, which could include analytics and machine-to-machine connectivity platforms. The cross-portfolio analysis that we do at group level is then combined with business-specific strategies.
To understand those strategies, you really need to understand the overall market dynamics specific to each area. So let me start with networks, looking at market growth, the competitive environment, and the challenges that our customers are facing. In the coming years, our view is that growth will remain flattish in our addressable networks market. And that is exactly what we have seen in recent years. Operator investments in new technologies like 4G have simply offset declines in older technologies like 2G, which has plummeted by more than 40% over the past five years. But a flat market or a flattish market does not mean that growth is not possible. Indeed, we see a number of segments in which we have strong or developing positions where growth is expected to be robust.
This year, we have seen the 4G radio market grow at more than 50%, and we expect it to continue to grow beyond 2019. Voice services will follow as networks become all-IP-based, as voice over Wi-Fi becomes embedded in smartphones like the new iPhone 6. Small cells and the services needed to deploy them are another segment that we expect will start to really take off in order to meet both growing indoor and outdoor capacity demands. Given our ambition to deliver growth that is slightly better than the market rates over the longer term, it is critical that we target these growth areas. Over the past decade, the competitive environments in telecom infrastructure have gone through deep change, and that change is not yet over.
While there are six primary companies that focus on wireless today, only three of them have a credible claim to true global scale: Huawei, Ericsson, and of course, Nokia. In radio equipment overall, the top three players have gone from having below 60% share to nearly 80%. With this market-driven consolidation, there has been some, but just some, easing of pricing pressures in recent years. The difference between 3G and 4G is illustrative here. Strong profitability in 3G only came after about eight years. For 4G, things are moving much faster. Arguably, this consolidation creates at least the potential for longer-term market stabilization. Now, this could certainly have an impact on our ability to create value in the coming years. That said, no one should jump the gun here. We expect robust competition to persist in the near term.
Smaller players will likely behave quite aggressively in their attempts to gain share and relevance. Companies from the IT world can also be expected to try to enter our market. Thus, while we could benefit from underlying structural changes in the long term, we're not counting on them in the short term. Rather, we will focus on what we can control and on positioning ourselves most effectively in a world where our operator customers are facing some serious challenges. Now, as industry observers, you know those challenges rather well. They're not trivial, and there is no easy way out, but there are ways out.
In order for operators to succeed, we believe that they need to build on what they do well, and that is the delivery of network services that capture the value of data traffic, offering differentiated service levels, and providing a network that delivers the highest levels of connectivity. They need to do all that in a way that keeps costs low and the agility to target new revenue high. They need to capture every penny of value from data traffic on their networks and be incredibly efficient in the delivery of every bit. That means a future that is based on cloud-enabled, all-IP, virtualized, and data-focused networks with multiple types of access managed efficiently with software. Let there be no doubt that change is coming. Just look at the quote from AT&T on the screen.
At the same time, we also know that change in the telecom world never quite comes as fast as most people think. Previous generations of technology simply do not disappear overnight. To take just one example, we believe that 4G will coexist with 5G for many years, many, many years, adding both coverage and capacity. Investments in connectivity overall will remain a very large share of operator CapEx. In fact, we predict 80% for well into the future. These dynamics and this tension between old and new are at the core of our network strategy. That strategy takes a fundamentally different approach than previous years. It is no secret that since 2011, we retrenched considerably, selling businesses, exiting countries, contracts, and sharpening our portfolio. At the start of this year, we began to move in a new direction with a focus on returning to growth within our existing portfolio.
We've used our strong cost position to enlarge our footprint, ensured in the third quarter that increasing net sales and profit quality both were possible. Now, we're looking to increase our addressable market and move smartly into new areas where we believe we can create additional value in the years to come. While we will stay flexible about whether we could buy, build, or partner, we see expansion potential in: 1) antennas, both passive and intelligent. 2) public safety. 3) mobile backhaul. 4) small cells and Wi-Fi. 5) security. 6) telco cloud and software-defined networking. And 7) network analytics. We will also explore opportunities in machine-to-machine and user analytics. As I go through our network strategy in greater detail, I will touch on each of these areas so you can see where they fit within our overall portfolio thinking.
Our network strategy has four pillars, the first of which is to accelerate our leadership in radio. In 4G, we continue to invest heavily, and the quality of our products is indeed very, very good. In LTE-Advanced, we are performing well in cutting-edge markets like Korea and Japan, and we have many firsts in the area of carrier aggregation. While market share still fluctuates a good bit between each quarter as rollouts happen in different markets, we believe that we will maintain our long-term position in the top three. When it comes to small cells, I've always said that when the market was there, we would be there. Now is that time. Our product is superb with the same features as macro cells and the capability to bring 4G and Wi-Fi together as a unified radio technology, and that's important.
We've also launched a very capable indoor small cell product given that 80% of traffic comes from indoors. Our small cell deployment capabilities are strong and include unique 3D mapping capabilities for precise positioning. I was quite pleased to see how last month's Gartner analysis noted that Nokia has the most visionary small cells portfolio. Second is building strong positions in the coming technology transitions: 5G, Cloud RAN, intelligent antennas, filters, and more. We predict the first pre-standardization 5G trials to come in Korea in 2018, and we will be ready. Hossein, our CTO for networks, will talk more about 5G later. But I would just note that we have gained share in every transition of radio technology so far, and we have every intention of maintaining that trend going forward. The third part of radio leadership is about selectively filling gaps in our portfolio.
As an example, we could maximize the value we get at every site through efficient delivery of passive antennas. Mobile backhaul is another such area. While we do not necessarily want to get into this business directly, we see opportunities to create more effective, valuable partnerships. Finally, it is about targeting a new segment: 4G-based public safety. Now, we've been focused on this in North America, and with relatively small incremental investment, we can take it globally, working with experienced channel partners to reach new types of government customers. The second pillar of our network strategy is about services. We have a strong and focused portfolio, an efficient end-to-end delivery capability with an increasing presence and increasing percentage of work done through our global delivery remote management centers, and exciting innovations like predictive operations and intelligent self-optimizing networks.
As we move forward, our goal is to reposition our portfolio towards professional services. To be clear, this does not mean that we are no longer interested in the Network Implementation or the rollout business or care, i.e., maintenance. We absolutely are. Together, they make up about 70% of our services sales, and they're performing well. But as attached services, their growth potential is tightly linked to product sales and how we maximize our attach rates. There's still some room to improve, but as our attach rates are already quite good, the upside there is limited.
We see greater potential, more transformative potential, in our three professional services segments: systems integration, particularly as we expand in Telco Cloud, analytics, customer experience management, and security. Network planning and optimization, leveraging our 3D geolocation capability and addressing the challenges of heterogeneous networks, small cells, densification. And the third is managed services, building on new innovation in Big Data services, going up the stack, predictive operations, and Software-as-a-Service offerings. The third pillar of our network strategy is about disrupting in the area of Telco Cloud and Software-Defined Networking. In a world that is becoming software everywhere and moving rapidly to the cloud, we will seize every opportunity we can. Our goal, and this is important, is to become a domain aggregator in Telco Cloud, which requires four key capabilities: 1) virtualized network functions. 2) Software-Defined Networking. 3) network orchestration. And the fourth is systems integration.
We are moving fast in this direction. We were first to market with a commercial network function virtualization solution. We've already launched a cloud application manager and virtualized OSS. We're engaged in virtualized trials in pre-commercial projects with 70 customers, and we've gone live in a number of commercial networks, including with Vodafone. Parallel to this activity, we are building systems integration capabilities, modular software assets, cloud-based security technologies, and partnerships with key companies like HP, Red Hat, Juniper. We also see possibilities in software-defined networking, where we are building our own capabilities for base station connectivity as well as leveraging partnerships for areas beyond that, including partnering for SDN software. The fourth pillar of our network strategy is about smartly targeting adjacencies in the area of intelligent data in the emerging Internet of Things. Intelligent data starts with network data analytics.
That's the basis, where network performance is the overall goal. We have a solid position here with capabilities in key areas like customer experience management and service fulfillment and assurance. But that, to me, is just a start. We can move from network analytics to operator analytics, helping operators manage their customers. We're already pioneering the use of analytics for use in network security and predictive operations, where our operator customers can predict faults 48 hours before they occur in a real-life environment. We also see an opportunity to help operators generate new revenue through the use of the predictive analytics suite that came with our acquisition of Medio. Now, this is a very powerful tool. For one large operator, it delivered $100 million in incremental revenue, a massive reduction in KPI complexity, and a fall in marketing campaign implementation time from days to hours.
In terms of the Internet of Things, we are already building our networks to be ready to address the very different demands that will get placed on them in the future. Smart meters, cars, healthcare solutions, and other machine-to-machine connections have rather different characteristics than those of mobile phones and tablets, very different consumption patterns. In fact, we believe that with our Liquid Applications edge computing product, we may be the only vendor today capable of meeting the latency, the low latency, and the rapid burst requirements necessary for intelligent, semi-autonomous driving. Extremely fast, reliable connectivity is a must to meet traffic and safety requirements. This is one of a growing list of areas where networks and HERE are able to join together and do some quite exciting things just six months from the beginning of the new company.
To build on this, we're exploring further Internet of Things opportunities that range from becoming a connectivity platform vendor to targeting select verticals, like the connected car as an example. Cutting across three pillars are four enablers. Let me comment just briefly on them. First, our quality progress continues. In fact, close to 100% of our software releases this year have met our Virtual Zero requirements, which set extremely strict quality standards: no critical defects, no major defects, just 15 cosmetic defects are permissible. Huge transformation there. Outages and defects are down, and on-time delivery is up, as are our customer-perceived value scores, CPV, which is a richer measure than archaic, simple loyalty scores. And that is because customer-perceived value not only measures your current performance, our current performance, but also our potential and, more importantly, the strategic fit with customers.
Now, these scores have continued to climb, and recently, they reached an all-time high. We are now in second place based on our measurements, with a significant gap between us and the competition in third place. We are now aggressively taking our quality methodology and standards into our supply chain in order to drive a further step change improvement, in fact, throughout the company. Second, innovation, which Hossein will talk about in greater detail. Our view is that innovation in this industry is required, but it's often not rewarded. As a result, we are focused only on innovation that truly matters to our customers.
Now, examples of that include work that we are doing to create a step change in radio filter technology or to reduce the time it takes to develop new radio frequency variants from months to days, very important given the number of LTE frequency variants needed around the world. By the end of the year, we expect to have filed hundreds of new patent applications in some of the most critical areas of network technology. Third is partnering, which is an area where we see considerable opportunity and where we are looking to grow our revenue significantly. While we've not executed particularly well in partnering in the previous years, we have now created a partnering business unit, which went live in September, and this is to drive stronger performance. Finally, automation, which we see as essential to maintaining our cost leadership, to maintaining our cost leadership in sophisticated ways.
Across all of networks, we are working to simplify and automate wherever possible. Now, in the first of two examples, just last week at our internal quality awards, I reviewed a project where the use of cloud-based automation in one of our R&D labs led to a 90% reduction in lab deployment and waiting time, annual CapEx savings of 75%, OpEx savings of 55%, and faster R&D feedback cycles. The second example is in our services business, where lean process improvements combined with automation have allowed us to deal, in some of these examples, with reported faults 90% faster and improve overall efficiency by 35%. While pricing is not explicitly flagged in our strategy, I do not want to leave you thinking that we are losing focus there. We absolutely are not.
The model that we have built over the past years with centralized war rooms on pricing, strict governance, granular project performance reviews, and clear levels of authority will remain firmly in place. Let me move to the market dynamics of HERE, where fast change is underway and there is real growth potential. Exciting times in this area. For HERE's market dynamics, consider these five areas, starting with the acceleration of cloud services. So between 2015 and 2017, the global business cloud, it's expected to grow by about 145%. Part of that growth comes from automotive companies that are looking to capture data from car sensors for processing in the cloud. Second, connected devices. They're increasingly everywhere, and that's not news to anyone in this room. But many of those devices, they're useless or partially useful without location context.
Third, cars are becoming smarter in ways that go beyond just embedded navigation: more processing power, many more sensors, more connectivity, and more intelligence. Fourth, competition is evolving as well. Free location and navigation functionality is now part of the major operating system ecosystems. And when it comes to map content, there are really only two global players, HERE and Google, both strong and both evolving in different directions. Finally, requirements for map content quality are increasing. Consider this: if you're steering your car and your navigation system says to turn in 150 feet, but the turn is actually in 140 feet, you'll probably be just fine. But if your car is steering itself, that small difference could end up creating a big problem. So these five things are at the heart of our strategy for HERE.
We started to share the adjusted HERE strategy when we announced our third-quarter results, so I will not go into too much detail today. But let's start with automotive, where we have a truly extraordinary position in what is a very good business. In fact, I will bet that many of you do not know that more than 60% of the revenue in the HERE plan over the next few years is already pretty much there, provided that take-up rates in auto markets develop in accordance with recent trends. Moving forward, we need to build on our leadership position in two ways. First, in the smart guidance space, think navigation systems by moving up the stack to deliver cloud experiences. Now, this often requires complex and embedded systems, an area where we have unique competencies.
Second, by capturing the potential of the intelligent car as semi-autonomous and autonomous driving gets closer to reality. Among many things, this requires high-definition maps with live updates, compelling human interfaces, and connected services delivered through a cloud-based platform. We believe that no other company is positioned as well as we are in the automotive space, no other company. I talked to a number of HERE customers at the Paris Motor Show several weeks ago, and they left me in no doubt about the strength of our position. They believe we have unique assets that others cannot match, and they want us to further step up to lead the industry going forward. Then, enterprise. Enterprise is a small business for us today, but one that is showing good growth and long-term potential.
While basic business mapping is not of huge interest to us, as that space is being commoditized by Google, we see opportunity where their model is a poor fit. In particular, we like the area of smart asset management. What is that about? It's all about managing dispersed assets, both mobile and fixed, in a way that has significant impact on operational efficiency. We like the market potential, and we also like the ability to leverage HERE's existing assets to build a strong offer with relatively small incremental investment, so you get more operating leverage. And it's through reliance on selling horizontally through value-added resellers. Finally, consumer, where our real opportunity is in the B2B2C area. Think about the many companies out there who want a credible location alternative to Google: Amazon, Samsung, Yahoo, Microsoft, and many others.
Working with them is a good business for us and will ensure that we remain fully tapped into the innovation of the consumer ecosystem, the scale of the consumer ecosystem, while leveraging our existing assets similar to what we're doing in enterprise. This approach will also limit the risk that would come from trying to take Google on directly with our own B2C business or direct-to-consumer business. To close on HERE, many of you will have noticed a change from a growth-only view of the world in my comments. That is true, even as I remain optimistic about the business. Over the past months, I have increasingly come to the view that there are more similarities than differences between the operating model of HERE and Networks, even if their markets are clearly very different.
Both have large customers with long and often complex buying cycles, both spend heavily in R&D and have large organizations, both have significant future investment requirements, both have a limited set of tough competitors. So I could go on, but more similarities than differences. Given this, we will now start to take some of the tools that we've used to great success in networks and apply them to HERE: quality, continuous improvement, discipline governance, lean Kaizen, decision-making. All these are just a few of the things on that list, but they are things that can make a real tangible difference. I'm confident that we can take costs down without jeopardizing the long-term, as we've been able to do in networks. I simply do not.
Indeed, I cannot accept HERE being a break-even business, and I'm sure that we can do better, and we will do better while not losing sight of our growth ambitions. Now, given that I mentioned Google several times in the last few minutes, let me pause and make a few brief comments about them. There is no doubt that they are a tough competitor. We believe that in a world where there are two mapping players with global scale, there is room for coexistence, including coexistence in the car, given that our approach is quite different than theirs. Our business model is flexible. Our focus is on complex, often embedded automotive and enterprise systems. Much of our distribution is based on deep and trusted relationships, particularly in the automotive segment, and we can tap the ecosystems of Google competitors.
Ultimately, though, even though we are confident that our mapping content is extremely good, our basis for competition with Google is less about that and more about different customer needs. Now, onto the last of the three business-specific strategies, that for technologies. Their market context is the technological changes that are underway that I talked about earlier: IoT, programmable world, and so on. So I won't go into a separate slide on that. We see the role of this business as providing the core technology and products necessary for the programmable world. In terms of patent licensing, both standard essential and implementation, we seek to maximize the value of our existing portfolio. Where we can, we will seek to reach agreement with those who are using our technology through negotiation, but we will also not hesitate to litigate when needed.
Much of the attention has been focused on licensing agreements with the largest mobile device players. We're also pursuing negotiations with all mid-tier device vendors as well and expanding to smaller vendors when and where we are able to do so in a cost-effective manner. Then, technology licensing, where we have strong assets such as video codecs and where we aim to build more in the future. We will target both pure-play licensing, simpler licensing, as well as the possibility of B2B component sales. Some revenue opportunities in this area are expected to materialize in 2015, but most of the bets that we are making are longer-term, with significant revenues only coming in the longer term. Third is brand licensing. As I noted earlier, the Nokia brand is still extremely powerful, and we see considerable interest in licensing it.
We will certainly pursue these opportunities while maintaining the discipline to ensure that licensed products are 100% consistent with our brand promise. So we will do this in a thoughtful and considered way. We want there to be no clear difference between the products and services we might produce and sell in-house versus those that come through our brand licensing partners. That brings me to the fourth pillar that I want to talk about: product and service incubation. As I mentioned earlier, we will go beyond our licensing business. We want to invest in products and services incubation, which will help ensure that we don't miss opportunities in the broader programmable world market. For instance, we're looking at enabling virtual reality for displays such as the well-known Oculus Rift, exciting new materials like graphene, and other opportunities in the multimedia space.
While we're absolutely ready and willing to invest into new areas, we will do so prudently. We have in place a structured, gated investment process designed to match our spending to technical progress and market opportunities. Before I close on technologies, I would just like to make a brief comment on the patent licensing opportunities that we see coming. If you look at the two charts on this slide, I hope it becomes clear that we have not yet tapped the full potential of our patent portfolio. Now, I don't want to go into a lot of detail for competitive reasons, but simply want to make two points. First, as you can see on the chart on the left, we have many patents that we have not yet sought to monetize.
Second, we have opportunities that go well beyond just device manufacturers and would extend to a wide range of areas. Think about security systems, cameras, internet services, and even set-top boxes. As you can see on the chart on the right, our addressable market in these areas is expected to grow in the coming years. So as I said in the context of our third-quarter earnings call, it will take time for many of these opportunities to come to fruition. New licensing agreements can take 18 months for negotiations, and potential litigation can take even longer. We are taking steps now to seize these opportunities, but I would suggest some caution when it comes to timing. Operational excellence. This has been at our core in networks, and we will make this at the heart of Nokia in the future.
For the whole company, we will utilize the Nokia Business System or NBS to help target strong value creation. NBS covers investment optimization, which I've already talked about, as well as performance management and talent management. Timo will share much more about this topic during his slot today. Then, each business will have own specific approaches of its own. As an example, the Smarter program in networks that Samih Elhage will cover in his presentation is designed to drive continuous productivity and continuous improvements and cost efficiency in networks. We do this by developing and embedding performance excellence across the business, along with standardized implementation for all major transformation projects. The third level is best practice sharing, industrialized best practice sharing, where we will test activities in one business and then apply it successfully to other ones over time.
In the near term, we believe that the pioneering work that we are doing in networks can be applied more broadly across the company. To give just one example of this, we recently ran a Kaizen project, which is all about re-engineering current processes. We ran this in Japan for a telecom operator. The result was interesting. Overall effort was reduced by 60%, and all non-value-adding activities waste were stripped out. That, in turn, just in that one project resulted in run rate savings of close to EUR 13 million, as well as a happier customer. Because what would we do? We take the freed up resources and accelerate the overall implementation of the network. Underpinning everything I've just discussed must be a high-performance culture and strong values. When I took over as CEO, I pledged to move fast on these topics, and progress has been good.
We launched our new company values in July, and the reception from our employees has been extremely strong. Awareness has hit about 95%, and favorability is close to 90%. This is incredibly important. I believe that values serve as a beacon. They offer a clear direction about how we behave, how we make decisions, and how we treat our customers, pretty much everything we do. Now, we're moving from that to dealing with culture. Nokia has stumbled in the recent past, in my view. One of the root causes of those stumbles was, in fact, culture. We do not intend to allow that to happen again. We have just set off on a three-year transformation program designed to build the high-performance culture at Nokia that will help our people and our three businesses execute on our strategy.
We want to build a culture that is deeply ambitious, driven even, passionate about work and winning even while remaining grounded and humble, always learning with an obsessive refusal to ever accept inefficiency and waste. That is not an easy task, given the diversity of our geography, leadership styles, business focus, acquisitions, and so on. We've aligned on key attributes that will be common across the group, and we will bring the same discipline to this work that we did in our restructuring and transformation of networks. Let me close by going back to the three questions that I posed at the start: What is the future for networks in a market where growth is limited? Our answer is that we see a bright future, a future where we target pockets of growth, build on our existing strengths, and maintain our superior execution and cost discipline.
We see a future where we can expand our market, we can create disruptive products and services, we can grow slightly above the market, and deliver on our profitability goals. Why do we still see opportunity with HERE, our mapping business? Our answer is that we see good reasons to believe in the business. We see good reasons why we can win against tough competitors, good reasons why we can apply some of the efficiency lessons that we've learned from networks and improve profitability, good reasons why we can win in automotive, grow in enterprise, and leverage our unique assets with leading internet players. What is the potential of our technologies business, both in terms of licensing and the creation of new business opportunities? The potential is considerable.
On the patent licensing side, we still have runway in front of us with more innovations that we can bring to more customers. In terms of new business opportunities, there is potential as well, but we know that we have to prove that to you and others in the months and years to come. On a final and personal note, almost 20 years ago, I joined Nokia. A lot has changed since then, that is for sure, but opportunity remains. I would not have accepted the role of CEO if I did not believe that we could tap that opportunity, do more, and do better in the future. I'm not a status quo CEO, and I do not have a status quo team. We're all hungry to win, motivated by the future, and excited by our prospects. We're optimists at heart but pragmatic, grounded, and humble in how we work.
I hope that as you learn more over the course of the day about where we want to go and how we want to get there, you will see and you will feel that spirit. So let me thank you for your time, thank you for your attention, and thanks again for joining us today. Now, I'd like to welcome our CFO, Timo Ihamuotila, to the stage. Ti
Thank you. Hello. Good morning. I am Timo Ihamuotila, and as most of you know, I am the group CFO for Nokia. I really hope our capital markets today will give you valuable insights into our business, into our leadership, and into the opportunities we see in front of us to build an even more sustainable company to create long-term shareholder value.
So in this presentation, I will focus loosely on three themes: first, the Nokia Business System , which Rajeev spoke about, second, Nokia's financial metrics and targets, and third, our capital structure and capital allocation. So let us start with the Nokia Business System . Nokia Business System is our approach for governing Nokia and its business portfolio. As you know, we have three distinct businesses that are all in line with our vision but are still clearly managed separately from each other. The presentations of my colleagues later today will dive deeper into each of these three businesses, so let me discuss this a bit more from a portfolio perspective. After the Microsoft transaction, we ended up with this business portfolio because of some pretty hefty dealmaking. As we have said earlier, we do not force synergies between these businesses, and this continues to hold.
However, we will implement best practices across the Nokia business portfolio. We want to be absolutely clear on what are the group-level responsibilities and what are the responsibilities of each of the three businesses, and we want to drive this focus relentlessly. For this purpose, we have identified three focus areas and five core processes which form the Nokia Business System . These will be group-level activities governing our business portfolio. The focus areas are: one, investment optimization; two, performance management; and three, talent management. Behind each of these are one or more key processes, so let's now take a closer look at each focus area and these respective key processes. The first focus area is investment optimization. This consists of two processes: first, the strategy and financial planning process; and second, the end-to-end M&A process. We have an integrated planning process with some key outputs.
The first output is the capital allocation for our portfolio purposes. We divide our investments into five buckets: early stage, introduction, growth, mature, and decline, and follow thoroughly that we invest enough both to protect our current businesses as well as to create future growth opportunities. The second output is our business strategies and related long-term financial plans. The third output is our annual plan and related execution milestones. Regarding M&A, we are building an agile M&A process. This consists of M&A target funnel management, which is done together with business development, actual M&A execution, and maybe most importantly - and this is something where many companies fail - a vigorous business case follow-up and postmortem analysis.
All of our M&A cases will become integrated into our strategy, annual plans, and long-range plans, and we pay particular focus on business leaders reaching the targets that have been set for the deals, both financial and non-financial. The second focus area is performance management. We run rigorous monthly performance reviews where we monitor realization of annual plans and related execution milestones. And where needed, we launch prompt corrective actions on any points where the targets might not have been fully met. The second key process behind performance management is the key performance indicator framework and strategic scorecards. We use these to cascade the right targets throughout the organization and to make sure that all our efforts are geared towards long-term value creation. Then the third area of Nokia Business System is talent management.
This is a group-wide HR practice supporting the identification of best internal talent, succession planning both internal and external, and people development, including rotations between different businesses and organizations. Now, for any technology company, people are its most important asset, and we really want to recognize that through the Nokia Business System . To summarize the Nokia Business System , it is our tool to ensure that we leverage group-level activities so that we have clear accountabilities and deliver business results effectively. The Nokia Business System is a very important part of our high-performance culture, and we want to institutionalize it across the whole company with all the Nokians. Next, I would like to move to our financial metrics and targets. Broadly speaking, we divide our financial targets into group-level targets and business-level targets. On group level, the key targets we follow are EPS and free cash flow.
Even if we are not going to disclose any quantitative targets on EPS and free cash flow today, we want to assure you that our key focus will be on long-term shareholder value creation. Regarding EPS, it is important to note that for 2015, we have a headwind related to tax compared to 2014, as we will be recording taxes at our targeted long-term effective tax rate of approximately 25%. Now, this will be an EPS headwind, not a free cash flow headwind, all other things equal. Then into other group-level items. In terms of capital expenditures, we expect the group-level CAPEX to amount to approximately EUR 200 million in 2015, primarily attributable to capital expenditures in Nokia Networks. This compares to the expected full-year 2014 CAPEX of approximately EUR 250 million. The purpose of our Group Common function is to support all our three businesses and our corporate governance.
For 2015, we expect the Group Common expenses to amount to about EUR 120 million. As a reminder, the operating expenses in Group Common are often quite stable, but other income and expense can fluctuate. Then moving on to financial income and expenses, we expect Nokia Group's financial income and expenses to be an expense of approximately EUR 160 million for 2015. This is clearly lower as compared to 2014. We have been able to make progress on financial income and expenses run rate during past several quarters, with reduced interest expenses run rate being the key driver for the development, as the light bar on this, sorry, the light gray line on this chart, shows. I also want to touch upon foreign exchange hedging just to describe our approach.
Our policy is to hedge material net exposures in each currency by hedging the corresponding portion of either sales or costs, provided that it is financially sound to do so. We typically use a 6-12-month hedging horizon. We work hard to naturally offset as much of the exposures as possible. We apply rigorous hedge accounting to most of our hedges, documenting the relationship between the hedges and future expected cash flows carefully. This allows us to only recognize the realized hedging results against the effect's impact that we experience without a need to revalue the entire hedging portfolio, the entire hedging position through P&L each quarter. Applying hedge accounting reduces the short-term P&L volatility from changes in foreign exchange rates, as in our opinion, hedging should do. Let's then have a closer look at targets for each of our three businesses.
In Nokia Networks, we are today providing targets both for the longer term as well as for full-year 2015. In the longer term, we expect to grow our net sales slightly faster than the market. This is in context of a flattish market. On profitability, we continue to try the right best balance for long-term profitability and growth. As Nokia Networks now have a more proven operating model, we have decided to increase our longer-term non-IFRS operating margin target for Nokia Networks business to 8%-11%. This is an update to our earlier target of 5%-10%. For full-year 2015, we expect Nokia Networks net sales to grow year-over-year, and we expect Nokia Networks non-IFRS operating margin to be in line with our new long-term guidance rate of 8%-11%.
The primary driver of our expected profitability is our unique operating model, which we believe has shown to sustainably improve our results within Nokia Networks. As Rajeev discussed for HERE, we are adjusting our operating model and are thus not providing any longer-term guidance. For 2015, we expect to show year-on-year net sales growth for HERE. We see continued opportunities within the automotive sector as well as in the enterprise business. Regarding this year's profitability for the full-year 2015, we expect non-IFRS operating margin to increase to 5%-10%. On profitability, we expect to see results from the sharpened focus on the operations at HERE, including continued benefits arising from further automation of research and development processes. In Nokia Technologies, we continue not to take a stand on the Samsung arbitration, which we continue to expect to be concluded in 2015.
Excluding this, we expect Nokia Technologies to achieve year-on-year net sales growth in 2015. Additionally, we expect investment needs in Nokia Technologies to increase meaningfully. These investments are primarily related to licensing programs, focused research programs driving future business, and building business enablers like go-to-market and business development capabilities. We are also improving our business management processes and infrastructure within Nokia Technologies to enable scaling up this very important activity. In Nokia Technologies, we have one of the best teams and some of the most interesting assets in the industry, and we aim to diligently and aggressively capitalize on that. I will then, in my final part, concentrate on our capital structure and capital allocation approach.
Our capital structure has significantly improved over the past quarters, primarily driven by the proceeds from our successful divestment of devices and services business to Microsoft that closed, as most of you know, Q2 2014. As we closed the transaction and outlined our future strategy, we also launched a EUR 5 billion capital structure optimization program spanning over two years through the end of Q2 2016. The capital structure optimization program is a comprehensive and balanced program. The two main areas consist of shareholder returns totaling approximately EUR 3 billion and the reduction of debt totaling EUR 2 billion. On the shareholder returns, we decided to recommend payment of ordinary dividends, pay a special dividend in 2014, and launch a share repurchase program, all in order to have balanced means of returning capital to shareholders.
In addition to bringing our capital structure to an optimal level, we also set the goal of becoming an investment-grade company again, and we believe we are on track to meeting that target. Since we announced the capital structure optimization program, we have already completed about EUR 2.5 billion, or half of the program. We have redeemed essentially all the former NSN bonds, which have eliminated materially all financial covenants we were subject to. In addition, during Q3, we paid dividend both ordinary and special totaling approximately EUR 1.4 billion. We also commenced the share repurchases. During Q3, we purchased approximately 35 million shares, returning approximately EUR 220 million to shareholders. So clearly, our first quarter of share repurchases was somewhat front-end loaded when put into the two-year timeframe. As you see, we have also continued the share repurchases during the fourth quarter.
In terms of debt reduction, we set a target of achieving over EUR 100 million of capital savings in interest expenses of the capital structure optimization program when it's completed at the end of second quarter 2016. Looking at Q2 2014 as a reference point, we have already achieved over half of the expected savings, so we are well on track on meeting that target as well. Moving on to our approach on capital allocation decisions. As you recall, I started this presentation talking about the Nokia Business System . Our strategy and financial planning process is an integral part of the Nokia Business System , and it is a key component on how we make capital allocation decisions between our three businesses and further within opportunities inside these businesses.
In doing this, we have a prudent and pragmatic approach and conduct deep analysis from multiple perspectives to ensure our allocation decisions are based on a robust understanding of the opportunities and their fit for Nokia. Let me now move into discussing the decision-making criteria for our capital allocation in more detail. The three perspectives, or lenses, which Rajeev also touched on a bit, look at potential opportunities at the market from a value and ownership perspective. So first, from the market perspective, there are two key dimensions to analyze: how attractive is the market, i.e., what is the projected growth, competitive situation, and so on? And also our ability to win on this market, i.e., do we have the edge required to be the winner in the marketplace, whether this is technology, competence, a unique value-adding approach, or something else? Second, we look at this from a value perspective.
For example, if we are evaluating two opportunities in the same market, we look at the financial attractiveness of the business case balanced with the risks entailed. In other words, which opportunities have the best risk-reward ratios? Third, from the ownership perspective, we look at how the opportunities fit within our current businesses. Simply put, what kind of synergies would a particular opportunity have with one or more of our businesses? After we come to a conclusion on how to allocate capital, we measure how well we are doing in creating value. We have concentrated on four areas of key performance indicators, or KPIs, that we follow. We look at growth, profitability, financial strength, and capital efficiency. Some of these elements we have decided to monitor on an individual business level and some on the group level.
We see net sales growth, operating margin, and operating profit as clear business-level KPIs, and due to the different nature of our three businesses, it makes much more sense to keep them at that level. The group-level growth and profitability are seen as a result of our ability to execute in the three businesses and not necessarily a metric that would help us evaluate progress against our strategies in these businesses. At the group level, we follow a different set of KPIs. For profitability, these are EPS and free cash flow. For balance sheet strength, this is net cash. And for capital efficiency, we will look further into return on invested capital and return on equity. We believe that as a combination, these business-level and group-level metrics give good checks and balances for long-term value creation, benefiting both our equity as well as our debt holders.
So in summary, we continue to believe that we are well positioned to create value. We are implementing the Nokia Business System to leverage best practices across our three businesses. In Nokia Networks, we seek to find the right balance between growth and profitability. In HERE, we look to capitalize on our unique assets while further improving efficiency. And in Nokia Technologies, we are building a new business model with multiple, very interesting business opportunities. And to close, our commitment to both effectively deploying capital and maintaining an efficient capital structure remains. We are delivering on our capital structure optimization program and utilizing key processes for capital deployment decisions. We think that this prudent and pragmatic approach has served us well and will lead into the best possible value creation for Nokia and our shareholders also going forward. Thank you.
With that, I will hand over to Matt, I guess, for the first Q&A of the day.
Okay, we'll now take questions for the next 20 minutes for Rajeev and Timo. Let's start with number 2.
Great, thanks. It's Mike Walkley with Canaccord Genuity. Question for you, Rajeev. Just with some of your competitors also looking to gain market share in networks, can you just share with us some of the assumptions for Nokia to slightly gain share while maintaining margins? Are you assuming that the little bit better pricing environment continues, or do you have more cost-cutting that you can do in the business? And then lastly, I know that you're very involved in the pricing committee still for networks. Maybe you can share some thoughts on how that committee works together to keep your margins where they are. Thank you.
Thanks, Mike. So I think the first thing to note is between the different competitors, there is a different addressable market. So we're not present in some of the areas that our competitors are in. So just got to watch for the like-for-like comparison. We do this forecast based on bottom-up best estimates that we get. We do the long-range planning. And then, of course, for the following year, we have the best estimate of the bottom-up forecast that we do sort of every month. So our impression is that we can grow slightly faster in the market because, as CEO, I want to make sure that we are balancing growth and profitability. And that's very important to me. It's very important to us as a team. In terms of the gross margin drivers and the overall operating margin drivers, there are some positives.
So, of course, the cost efficiency will continue. You'll hear from Samih that we are in the phase two of starting to reduce costs, which are much more sophisticated methods: lean, Kaizen, quality, all linked to the operating model that we have. And there are other drivers as well, such as growth in itself, which will be a driver for profitability. There are some negative drivers as well. Price aggression or competitive dynamics could potentially be a negative driver, although we don't foresee it at this point in time. And then there's always the regional and business mix that one's got to look at. So we had a fantastic regional business mix in Q3, we benefited from, but that's not always the case.
On the pricing committee, yes, I'm very firm and I'm still chairing the pricing committee in the company, both the strategic pricing that looks at how do we price for the future because machine-to-machine and connections of that kind are not going to be about capacity. It's not going to be about throughput or bandwidth. It's going to be about transactions. That's different pricing from what you do for normal LTE throughput. But our limits of authority bodies are in place. The tactical deal committees are in place. So we have D, C, B, and A-level bodies, and I chair the A-level body where decisions are made on the most strategic or challenging near-term profitability deals. And this whole notion of pricing war rooms continues. That's all about benchmarking pricing from one case to the other, industrializing that.
No deal in our company will sort of escape a pricing war room. Every deal has to go through a pricing war room. The pricing lead in the company has to make sure he and his team sort of look at the pricing across the board. Pricing is an important lever. Continuing to cut cost and give that away is not a value driver. We're very, very focused on pricing, and I think we have good operational discipline around pricing.
Let's go with Mike, number 3, please.
Thanks. It's Gareth Jenkins from UBS. Just a couple, if I could. Firstly, you're very concentrated today on radio access, and I understand the strategy in terms of diversification, but do you feel there's a portfolio risk that needs addressing insofar as if RAN starts to weaken going forwards? And then just secondly, on technologies, I think you put up a slideshow in market growth of 20% through to 2018. Do you feel you can outgrow that on a sort of underlying basis through that time period? And should we read your comments on investments that profit in absolute terms comes down for 2015? Thank you.
Thanks, Gareth. So let me take the first one, and that's about radio. So we're not as concentrated as sometimes people think on radio. So we have radio. We have core networks, both the legacy voice core, the IP core, such as IMS and packet core and evolved packet core and all of that, and the evolution of telco cloud from within. And then, of course, we also have the analytics in the software business, such as customer experience management, OSS, service fulfillment, and insurance. So we think the portfolio is broad. And if you look at our strength in Q3, or in fact, in the first nine months of the year, we saw strength in radio. We saw 33% growth in MBB, mobile broadband as an example. And that was driven, yes, by LTE and radio, but also by core, which continues to be in a strong position.
I believe that we are continuing to expand our position and our share in core. Then the diversification to the opportunities I mentioned are a way to expand the business beyond what we do today.
Yeah, and regarding the Technologies guidance statement, then Ramzi will talk more about the Technologies market later this afternoon. So we did not take a stance on Rajeev's picture versus what we guided. So we simply said that we are expecting year-on-year growth in Technologies, excluding the result from the Samsung arbitration and simultaneous that we are expecting meaningfully to increase investment in that business. So we are not really giving any direct guidance on the operating margin for the business.
Let's go with Mike, number 1, please.
Hey, thank you. It's Ehud Gelblum from Citigroup over here. Sitting on technologies for a moment, clearly, Timo Ihamuotila, since you're not including any resolution on Samsung in your thought process and your guidance, and you said that there will be a decision sometime in 2015, just making sure that by the time we get to December 31st of 2015, we'll probably have seen a revenue number higher than what you're talking about right now because it will include some sort of resolutions. I just want to make sure that page-wise, whether we include it or not now, we will be on December 31st of 2015 having seen a little bit more revenue. And then you made, Rajeev Suri, you made the comment that you're looking at, obviously, a lot of midsized vendors in addition to the big fish out there as well.
Can you give us a size in terms of if some of those are successful, how should we comp the size of the revenue potential in those midsized opportunities you're looking at versus the two large ones that we know about and kind of are looking at over the next couple of years? Thanks.
Yeah, so again, related to the technologies guidance as such, I don't think I have anything to add to the previous answer. When we look at our licensing model, as we have said earlier, we aspire to move more into a unit-based licensing model or other things equal. That should, of course, help long term even out some of the lumpiness what we have had in this business. I don't think we can really give much more on the shorter term sort of opportunity regarding to these unlicensed players. I mean, we have said earlier that this is a business model which takes time to build. So from the start of the process, it can easily take a year and a half before you end into some kind of resolution.
That's why I think Rajeev also noted that we, of course, try to get into as much negotiated outcomes as possible.
So I guess, Ehud, to the second question, it's, yes, all device vendors are someone we need to negotiate with, and we're targeting all of those negotiations. But it's then hard to give any more color than Timo already said in terms of what the mid-tier and the lower-tier device vendors might mean. There, of course, is the opportunity also expanding beyond the smart device sector, as I commented in my remarks, both in IP patent licensing but also in technology licensing eventually. So we're focused on driving both for the long term.
Okay, let's go to Mike, number 4, please.
Thanks. It's Kai Korschelt from Merrill Lynch. Timo, just a question on the longer-term capital allocation. Obviously, we know your plan until the end of next year. And I'm just wondering, is there a minimum net cash level that you think the business needs or the ratings agencies require to have roughly? What level would that be? And then should we think about your capital allocation going forward in the long term as you potentially handing back any excess levels, any excess above those levels to shareholders or use it for M&A? Is that the right way to think about the framework, I guess? And then my second question was, it's sort of a little bit offside, but I think there were some rumors about Nokia potentially reentering the handset market. Given your experience with that chapter, are you considering it? Why would you consider it? Thank you.
I'll give Rajeev the second question, okay? But on the first question, so our thinking really on the capital allocation in that regard has not changed. As we said when we announced our capital structure optimization program, we went through these different parameters, which were market disruption, business disruption, then also some room for M&A and the rating agency considerations. And the rating agencies continue to see us as a business which probably needs to have, I don't know what is the exact percentage, but maybe 40% of our sales as gross cash. And then we can't have much more than 1.5x gross debt to EBITDA. And that leads to these kinds of cash levels where we are at the moment leaving a bit of buffer for M&A. So that continues to be our thinking.
Then if we look at sort of expectations on further capital returns, which I think was one part of your question, I think our board will take the same approach as it has done earlier, i.e., in January. We look where we ended up with the business for this year, 2014, included then with our capital structure at the time and future business prospects. Those will impact the decisions. But the board said already when we announced our new strategy that we look at minimum €0.11 from this year. That, of course, is there.
On the wonderful consumer question, so I think you can expect that our brand will return to the consumer world. But the operative word there is brand. So we see brand licensing as an opportunity, and that's something we should and we will target. But again, I'd say it's more a longer-term opportunity. Apart from that, you know what we're doing in HERE, which is the B2B2C opportunity. And we're not looking at a direct consumer entry in handset per se. So brand licensing is the operative word.
Let's go back to Mike, number three, please.
Sandeep Deshpande, JPMorgan. Two quick questions, if I may, on technologies. You're highlighting that you will grow next year in technologies. Is this on the back of existing deals that you have signed, or this is new deals that you have signed? Some of the old cross-licensing which expired, and these are new deals which are causing the growth in your technology licensing business. And secondly, Rajeev, I mean, on a more fundamental ground, I mean, when we look at the Nokia Group growing over the next five years, you've talked about the different aspects. But when you look at the three businesses in Nokia, we've got networks which is mostly flatlining. You'll do better than that, hopefully. But where do you see the greatest potential for profit growth within the group over the next few years?
Yeah, so maybe if I'll take the first one. So it's mainly based on our existing deals, including certain estimates for new deals as well. But that's kind of how we look at the growth.
Thanks, Sandeep. So I think your question about profitability, where does it come from in the longer term? I think all three businesses will provide that opportunity over the longer term. Networks through growing faster than the market, but also through continued efficiency. And we're getting quite sophisticated in finding new ways of efficiency. It's not the brute force restructuring that has been done that others are now focused on. We moved into the next more elegant phase, if you like. And then, of course, we see HERE returning to profitability, as we said. And so growth trends there, given the strong position in automotive and the good trends in automotive and given the recurring and annuity revenue nature of that part of the business, but also enterprise as a growth opportunity.
Technologies, as we commented, based on the long-term potential moving beyond what we do today from IP licensing to technology licensing, more vendors, and so on. So I would say all three businesses will provide that opportunity for growth and profit.
Mike, 1, please.
Thanks, guys. I'm trying to tie together two things that you said about consolidation, improving the profitability in the networks market, and what Timo said about agile M&A. Is there any intent on Nokia's part to drive further consolidation in the infrastructure market, or would you rather see that agile M&A devoted to some of the new areas, analytics, cloud, etc., that you laid out? Maybe one other question for Timo, how do you think about the long-term cash generation of the business? By that, I mean that over time, the businesses that you're moving towards should be more cash-generative, less capital-intensive. Do you think that there is a business model change over the next three to five years that you see at Nokia that isn't evident in the results today? Thanks.
Thanks, Richard. So on consolidation, I think market forces-driven consolidation has already happened, is happening, is underway. So that has stabilized pricing, let's be clear, because we've seen that stability come through. When you compete, you know that the top three players really matter in most of the geographies. And that's one. And I think that will continue. We've seen that happen in Korea, in Japan, and some of those sort of trends will continue with this market-driven consolidation. In terms of how I look at consolidation otherwise, we like bolt-on type of acquisitions, and they have to fulfill a couple of criteria. One, can we get a technology that's disruptive that allows our products to get better? Ceramic filters, Mesaplexx is an example of that in networks.
Medio Systems is an example of that that will be used to improve predictive operations and predictive management of traffic and so on in the platform in HERE, but also as an analytics opportunity for networks. Then we have market-driven, geographical footprint-driven acquisitions like SAC Wireless or the one we made with Panasonic that we announced. That gives us the reach into Docomo and to customers like AT&T and Sprint and others in the U.S. with SAC Wireless. I think I like those kinds. I also like Apertio that we did a few years ago in 2008. That basically was a great next-generation technology in directory management, subscriber data management that allowed us to leverage the breadth of our channel, which is pretty awesome in the network space. So then you can just get revenue synergies. Having said that, I mean, we're also watchful of other M&A.
It's my job as CEO to also prudently look at if there are other opportunities that might create value. But Bolton's are the ones that we've been focused on. Yeah, and in the longer-term cash flow generation, so I think first thing to notice that now when we are really moving from a restructuring phase or have moved away from a restructuring phase to more of a transitional phase, these methodologies on the further operational efficiency do not require similar cash outflows as we have had in restructuring so that we should not stay in a similar extent. We have said EUR 150 million for networks for 2015, but we would expect that not to be a similar headwind as it has been in the past. And then for the businesses itself in networks, and here we would expect that the operating profitability level would pretty nicely convert into cash.
That is, of course, our aspiration to bring our cash conversion rate up. Then in technologies, it is still going to be lumpy. There we have the headwind from the Microsoft transaction where the licensing part of that deal will continue to flow through P&L when we already got that EUR 1.65 billion of cash upfront this year. That continues to be a small headwind.
Let's go to Mike, 3, and I'd ask for just 1 question, please.
It's called the Kulbinder Garcha Forum. Rajeev, I guess, going back to a previous question, what I wouldn't answer, sorry. You talked about all businesses could grow, but if I actually look at the guidance you're giving, networks doesn't grow that quickly. You've always said that the industry doesn't. You might gain a bit of share, but your margins actually might come down at the midpoint from where we are today. Even if your MAPS guidance was conservative by 100%, it's not going to move the needle that much. So if you're going to really create shareholder value, it probably implies Nokia have to meaningfully execute advanced technologies significantly growing. I'm not asking for next year. I'm talking three to five years. Is that the right way to judge this company for shareholder value creation? And what's your confidence in the time frame of this playing out?
I'm not asking about next year because there's lots of negotiations that we can't all predict, and maybe you can't predict. But is that the right way to judge this company, do you think?
Thanks, Gudmundur. No, I think I talked about growth and profit. That was the question. So we see the opportunity for shareholder value creation coming actually from all the three units. As I said, networks, growth-driven, every incremental growth gives us operating leverage, but also the efficiency programs that we have in place as Sami will talk about here coming back to profitability and also being a possible growth driver. And then, of course, technologies, as we mentioned. So I'm not singling out any one particular business opportunity that will drive. But of course, networks being the largest business, in absolute terms, that will be the stronger driver. But in relative terms, I see all three contributing to increase in shareholder value creation.
It's Mike, 1, please. 1 question.
Thank you, Pierre Ferragu. Rajeev, you've mentioned the fact that Nokia Siemens over time has always gained share in technology transitions. I think it's very fair. There is a more general rule in this industry, which is that the largest players get larger over time. You've been a beneficiary in that, and you are in the top three of the industry. But if I look at it going forward, you have only very, very few and very small players, smaller than you, left in the industry. So when you think about growing faster than the market going forward, do you think about the change in competitive dynamics, and do you see yourself gaining share from larger players, or do you just target what's left of smaller players going away from the industry?
Matt, I'm really, really sorry, but just I have one more very small question.
Let's just take this one.
Okay.
Let's go. Yep, thanks, Pierre. So let me start. So I see a combination of both, really. It's both, some geographies from the larger players, from the smaller players. Like Korea, we took it from larger players. Japan, we took it from smaller players. So I think it's always a combination of both. And clearly, given our customer-perceived value, we're focused on high-performance networks and matched with the operators' focus on high-performance networks now, where quality is becoming a differentiator. I see a terrific match. And so I think the short answer is it's a combination of both. And we've seen, even with today's Dell'Oro report, that suggests that we continue our strength in LTE. But it'll be driven by LTE, small cells, the move to the cloud. We did not take the move to the cloud as a threat. We took it as an opportunity.
It's a real opportunity for us to grow in the core business, but also in systems integration to drive professional services. Security, analytics, antennas, public safety requires a little bit of OpEx investment, but it opens up a whole new opportunity for us by way of a new channel. So it's also through expansion to different businesses.
We can take one last question. Let's go with three.
Thank you. It's Tim Long at BMO Capital Markets. If we could just talk about the services business for a little bit, kind of similar to what you talked about with pricing for the networks business. I'm just curious. Obviously, Nokia has walked away from a lot of unprofitable deals, as have some of your competitors. So two-part, I'm curious. Number one, do you think there will be more of that in the future that you have to do? And number two, by doing that in the industry and by the industry being a little more conscious of profitability of some of these deals, is the operator environment changing a little bit where potentially it can be a more lucrative business for everyone involved because maybe these service providers don't want to take these deals back in-house and therefore industry pricing gets better?
So, just will we see more heat, and could overall industry be better?
Thanks. No, we don't see a lot more of those managed services. I guess you're talking about exits as such. But we've learned some lessons. We brought that into operational discipline. The way I see managed services deals are that we're very, very clear about the deals we want. We're selective, and we will take deals where we can clearly transform in taking that managed service deal, and within three months, we should be able to start the transformation of that. We will take deals that are end-to-end, not just field services, but they need to be field with the high-end component, which is Network Operations Center, that we can use through our global delivery centers and reduce the cost base quite significantly with our processes, automation, and centralized competence management. If we don't see that happening, those deals are not of interest to us.
We're not in the sake of top-line-driven deals. The rigor we have about project performance reviews, the audits that we do in going to the deal before we take the deal on, before you put the bid, then you sort of get selected, and then you start to do an audit. There's a time that we give that if we find the things are different from what we bid for, we would even reserve our right to exit. So we're very careful, not cautious, but selective, careful, and the same pricing discipline applies. Every single managed services deal comes right up to the top, meaning the A level that I talked about. So Sami, myself, sit on that. So very disciplined. Now, has that changed the environment? Yes, somewhat, because the operators and service providers have said, "Well, hang on a minute.
Let's just give those deals that make sense and are win-win for both parties." It's not completely changed, but I think we set the bar very clearly. This is what we're interested in. I think that sort of created a bit of a knock-on environment in the peers of ours that they also started to get sort of a bit more selective around the dealmaking. Having said that, we haven't seen full sanity emerge in this business, but we're very clear about what we want and what we don't want. That pricing and operational discipline will absolutely 100% remain.
Okay. Thank you for your great questions. Sorry, we couldn't get to all of them, but you'll get a chance to speak with Tim and Rajeev during lunch. We'll now take a 15-minute break and start the Nokia Networks section promptly at 10:50 A.M. So please try to be back in your seats a few minutes early, 10:50 A.M. Okay, everyone. Welcome back from the break. Hope everyone gets settled soon. Okay, good. Welcome back from the break, everyone. Now it's my pleasure to kick off the Nokia Networks section. We'll start with Samih Elhage, Chief Financial and Operating Officer of Nokia Networks. Welcome, Samih.
Good morning, everyone, and thank you for being with us today. My name is Samih Elhage, and I am the Chief Financial and Operating Officer of Nokia Networks. I will be introducing the network session this morning, and I have with me my colleagues, Marc Rouanne.
He will lead us through the mobile broadband business, and then I will be followed, actually, by Igor Leprince. He will lead us through the Global Services business, and then we have Hossein Moiin, who will lead us through what we are doing in technology and innovations at Networks. At the end of this session, we will have a Q&A session by which we can address all of us your questions. What I will not be talking today about is about our restructuring that delivered more than EUR 1.5 billion saving. I will not be talking today about our transformation that led to a strong position in China and the US, as well as building strengths and a continued strength in Korea and Japan. I will not be talking today about how we strengthened our capital structure, our cash management, as well as our financial performance of the past.
What I will not be talking to you today is about how we improved our portfolio, as well as our roadmap and ability to delight our customers. But what I will be talking today is about where we are and where we are heading. Where are we today? We are a strong company with a clear strategy, with a strong financial performance, with a clear path to continuous improvement. What I will be focusing on in the next 20 minutes is about how we are driving continuous improvement in our business, addressing five key areas. The first one is how we are winning in the market. If you look at this chart of the last two years, our revenues have been declining, and we were cognizant of that.
This is driven by our strategy, where we needed to focus on what matters to improve our profitability, as well as where we divested businesses not in line with our strategic focus. At the same time, we exited specific contracts and countries that do not represent enough profitability for us, and this led to a decline down to close to 26% year-over-year by Q3 2013. But when we net out divestment, country, and contract exit, this number will be year-over-year in Q3 2013 negative 15%. So we were cognizant of that. But what we have done, we started our journey back to growth in the first half of 2013, and we put all the efforts to allow us to drive the trajectory of the curve upward, and we were able to achieve year-over-year growth in Q3 2014 of 13%.
What is interesting about this year-over-year 13% that is coming not from a single region, not from a single customer, is coming from a multiple region and a customer base around the globe. We increased our revenue by 53% year-over-year in the U.S., in North America by 53%, Greater China by 33%, Europe by 9%, and the Middle East and Africa by 13%. This is a very important data point to give you the action that we implemented across the company in order to drive growth. But more importantly, when you look at the different business segments that we have, the growth of a mobile broadband business started in Q1, and we have been in three consecutive quarters in growth mode for mobile broadband, and we reached 33% in Q3 and with a stronger growth in both radio and core.
Yes, you can see on this chart as well that the Global Services business is yet to grow, but usually, and there is, we are declining year on year by 5%, but usually there is a lag between our product business and the services business of 2-3 quarters, and this is normal in our business. But what I want to stop here, how did we achieve this kind of performance? For us, execution, execution, execution matters, and it is a critical and integral part of our operating model. Just to give you an example, the way we run our business, our customer operations team is structured in 6 regions, and where we have 350 customer teams.
350 customer teams, where we expect each of the customer teams to have a clearer strategy how to win in the market, a clearer plan how to drive the revenues, and a clear performance-driven culture to execute on the plan. We instituted clear KPIs by which we measure the funnel, the value of the funnel, total value one, conversion rate from the funnel to revenues, and win rate, and we manage the business on a daily basis like this, and this is really an integral part of our operating model. At the same time, what we have instituted is a very strong culture and a governance and operating rhythm in place in order to allow us to drive the right decisions, the right decision to enable our customer teams to win at the right price and to protect our profitability.
But as we are doing this, we ensure that our customer base is extremely important for us to drive upsell opportunities. So the rigor in execution in winning in the market is very critical for us, an integral part of our operating model. Now, what I talked to you about how we are focusing on our core business to win in the market, but we are focusing equally to win in the market in leveraging two key things. One, expanding our partnering. And you've heard, Rajeev, that we are very serious and committed to win with our partners in the market. We instituted two solid organizations, one focusing on bringing these products, services, and solutions to our channels and by which we can expand the revenue opportunities.
We have a dedicated sales organization with a global mandate to drive our partners' revenues and partners' products into our channels to realize the revenues. At the same time, this global sales organization has a mandate to work with our partners in order to take our product and channel these products through our partners' channel. This, we believe, will be a win-win scenario. The second way how we are looking to win in the market is to leverage acquisition. We take acquisition with enough precision to ensure success, and these acquisitions either strengthen the portfolio or strengthen our go-to-market. If you look in SAC Wireless, an acquisition that we have made in the U.S., strengthening our portfolio and Network Implementation and go-to-market capabilities in the Tier 1 accounts in the U.S.
Our acquisition of Panasonic System Networks is to strengthen our position in Japan and to leverage the technology in Japan to win in a bigger way in Japan. These are only a couple of examples, and this is really how we are leveraging partnering and acquisition to continue to win in the market. Gross margin. We are paranoid about the gross margin. We are committed to win in the market, but while we want to protect the gross margin, and we want to protect the gross margin, and we do everything to protect the gross margin. If you look over the last two years, we improved the gross margin by 12 points. 12 points. Many of you think that all these improvements are coming from divestment, from country exit, from contract exit.
Well, let me tell you that divestment has more impact on OpEx, and if I even take divestment, country exit, contract exit, as well as shift in business mix, this all accounts for around 3 points. 3 points. And the remaining 9 points are coming from operational excellence, how we are running the business, and this is an integral part of our mode of operation and operating model. But let me stop here to give you some highlights of what exactly I mean by that. One, you heard about pricing from Rajeev. For us, pricing is a key element to ensure that we protect our gross margin. Key element. Every single dealer around the globe has to go through a pricing war room to ensure that we have the right strategy, the right pricing structure, minimize the price erosion, and to ensure that we will win the deal.
Second, total cost of ownership. Well, procurement is extremely important for us, and driving the highest level of productivity from procurement organization is key, and hence, we extremely focus on this area. Second, design to cost. Design to cost, we drive it in an aggressive way on a continuous basis in order to allow us to improve productivity in our hardware products. And the third is as it relates to the overhead cost to be in supply chain and manufacturing operations. All this, we put it under the umbrella of total cost of ownership. Third, regional delivery. As you know, we have more than 16,000 people in our Global Services organization, and most of these people, they are working in the field executing on specific projects, and this is extremely critical to improve for us our gross margin in services. I want to give you an example.
One of the regions that we had at the beginning of 2012, where we had an operating margin of 9%, we redesigned completely the business in this region, completely, bottom up, customer by customer, contract by contract. We resized completely the workforce, where we reduced by 62% the workforce in this particular region, and we redesigned the mode of operation, how we manage every single project to optimize profitability with a clear culture of high performance, and we redesigned how we work with our subcontractors because significantly spent in the region with our subcontractors, and this led us to significantly improve the profitability of the business. And guess what? In two years, we were able to improve gross margin by 23 points. This is what we call operational excellence. These are the means by which we will protect the gross margins.
In addition to that, global delivery centers, they are how we are taking cost or activities and the cost that are being done in the local customer areas, and we take them into global delivery centers, and Igor will talk more about that. So this is really how we are protecting gross margin. There is another important element in this chart. When you look over the last four quarters, when we started our actions to grow, over the last four quarters, we grew by almost 250 basis points, our gross margin. So despite the growth that we achieved on the mobile broadband over the last three quarters and as well the arresting of the decline of Global Services , our gross margin improvement continued. This is operational excellence. We manage our OPEX very, very tightly. Yes, we reduce our OPEX by 22%, R&D by 19%.
Some of you, you are worried probably we are not investing enough. Well, let me tell you, the majority of this reduction is coming from the divestment. Our R&D in mobile broadband did not reduce. We did not reduce our investment in mobile broadband. On the contrary, we rebalanced lots of our spend into these growth areas, 4G, cloud. We shifted lots of cost from high cost to low cost, and we improved significantly our efficiency, and Mark will lead you through that. But guess what? We reduced our R&D spend in line with our revenues, and we developed agility in how we manage our cost in line with our revenues. But when you look around, every euro of spend at the end increased significantly the output that our engineering organization is delivering. The same way on S&E&A, we tightly manage our G&A.
We know every single department and every single individual how much we spend on travel, for say, and we determine what actions we need to implement at what time. Even in S&M, we reduced our S&M as well while at the same time, we improved by 22% the revenue per headcount. So SG&A, we reduced it by 25% while the effectiveness and efficiency of every euro significantly increased. All this is translating into operating profit performance. If you look at this chart in Q1 2012, we were at -5%. We finished in Q3 at 13.5%. You know that our previous guidance was to be between 5%-10% on the long-term guidance. We've been eight quarters between 7%-14%, and we are proud about this performance. But the beauty about this chart is that the performance is coming from both our business segments, our Global Services business.
You can see that we have been 6 quarters consecutively with a double-digit operating margin, and over the last 4 quarters, where our mobile broadband operating margin has been improving, and we reached 15% in Q3. But yes, there was some business mix and some catch-up in the revenues in mobile broadband in Q3, but what is important is the trajectory of this chart, specifically in mobile broadband. So all this is great, but we are striving for more. We are striving for more, driving continuous improvement in every single area of the business. When you look at this chart, in the center of it is what we call the quality business system and has always two-dimensional aspects. One is customer-driven. We have to delight our customer in every way in order to translate our quality into top-line growth.
The second dimension is to eliminate waste and defect in every single area of the business in order to improve bottom line. How we do that is driven by a very transparent look across all areas of the business with a clear link to the P&L. We apply quality methodology across all areas of the business, Kaizen, Lean, Six Sigma, to eliminate waste. But guess what? We declared war on waste. We declare war on waste. We declare war on waste in Nokia. We will find it in every area of the business, and we will take it out. Our operating model with deep KPIs, to be operational or financials, is deeply rooted in the organization, deeply rooted in the organization at the working level, middle management, and senior executives.
We have a very clear governance in place by which we manage the progress of our performance across all layers of the organization. When the team does not deliver on the plan, the team has to get back to plan with a recovery plan. This is really high-performance culture, and this is really how we drive our business. All this is instituted in these quality improvement principles and directly linked to the P&L or to drive customer acquisition opportunities. An example of that, in my finance organization, I have a dedicated organization focusing to work with our chief transformation office organization to identify all these opportunities, link them to a specific benefit, link to the P&L, and tracing every single euro in different lines in the P&L. And we manage this on a daily basis like any other thing that we have in the company. It's not about one-off.
It's about the Nokia Networks and Nokia Operating Model and the Nokia Operating Excellence philosophy that we have. Now, we are not stopping only from having the principles and mode of operations. It's really now we have programs behind all these, programs, and we have multiple programs across all areas of the company. Here, I want to stop on nine, and we have what we call the Smarter programs, and we monitor these programs at the highest level of the organization. First, pricing. We are driving significant changes in pricing, and these changes are structural changes. Our business is becoming increasingly software-based, and we needed to ensure how we price the software will deliver the highest return for us. This has a direct impact on that sales and gross margin. We have three key programs impacting gross margin.
One is the services area, what we call the service productivity and the cost improvement. This is really a program that actually we initiated back in 2012, and it's called RSPI or Region Service Profitability Improvement Program, and now we are in version 4 of this program, 4.0, and this looks at the end-to-end process of how we deliver services from the global delivery center down to the customer location, and based on which, we optimize every single step of the process in order to take cost out and take waste out to improve the gross margin in the Global Services . Design to cost and hardware cost improvement, this is our continuation in improving how we do procurement of components and how we aggressively improve our hardware costs by applying aggressive design-to-cost principles.
Design for serviceability, these are the feature and functionality that we are including in our products to better manage our customer networks, and this will have significant impact on lowering the TCO for our customers, but at the same time, reducing the cost in managing and supporting our customer networks. All this will impact gross margin. Quality improvement across all areas of the business, there are still pockets where we can improve. We are finding them and taking them out, and then this is really where we'll impact positively gross margin and OPEX. R&D transformation, this is a major initiative, and my colleague, Mark, will lead you through that in a second. IT transformation, as we are making these deep changes and structural changes in the organization, we need the IT infrastructure to come along with us to further improve what we are doing.
This will include the infrastructure of IT, but as well, will include every single tool that we are using to optimize the business. End-to-end supply chain improvement, where we are looking from the demand planning, starting at the customer team, going down, going through product design to operations, all this end-to-end process, we are streamlining in order to give us agility in responding to peak customer demands at a certain point in time. And this is exactly what we have done this year in order to cope with the shortages of components and at the same time, responding to the peak demand coming from China. And the finance backbone, this is really, again, an enabler program by which we are upgrading significantly our finance system to allow us to drive the best transparency and facilitate the decision-making process. What does all this mean to us?
What does all this mean to us? Five key things. We continue to focus on winning in the market. We continue to leverage partners to win in the market, and we continue to drive selective acquisition in order to allow us to win in the market. We will continue to protect our gross margin. We are paranoid about the gross margin, and we will protect the gross margin. We will find every single way to optimize our OpEx. This is very clear to us to optimize our profitability. We will be protecting our operating profit performance for networks and every single business segment and every single thing that we do across the business. But more importantly, really, we'll continue to differentiate with our operating model and our operational excellence to continue to drive operating performance for Nokia.
What I have talked to you about is how we are building financial strengths and how we are driving the operating model in order to protect the financial strength that we had. This is really one element in supporting the strategies that Rajeev mentioned, but there are other elements, the portfolio, our mobile broadband portfolio, and the Global Services portfolio. These are equally critical that Marc Rouanne and Igor Leprince will lead us through, and as well, our innovation. Our innovation is critical for us because this is really what will shape for us the future, and Hossein will lead us through that. These three elements are extremely important to deliver and execute on the strategies that Rajeev outlined. Thank you. Now, I want to introduce Marc Rouanne, my colleagues that will lead you in the mobile broadband business. Thank you. Good morning.
So my name is Marc Rouanne, and I am the executive vice president of the mobile broadband business unit of Nokia Networks. So now, we're going to see what it takes to be the mobile broadband specialist. So we just explained that Nokia intends to become the technology partner for the telecom operator of the future through four stages, one, two, three, four. First, Nokia Networks specializes in mobile broadband. Our mobile broadband unit intends to accelerate this leadership by leveraging our radio technology. Second, Nokia Networks will reposition its service offering by using the mobile broadband unit technology to grow professional services. And third, our mobile broadband unit intends to disrupt and win through the transition to the telco cloud and to the software-defined networks.
And last and fourth, given that one, two, and three will have been successful, we'll create an opportunity to extend and to target the Internet of Things and the analytics. So now, let me insist on the four key elements that you have heard that drive our strategy to success: quality, innovation, partnering, and automation. So you have heard mobile broadband business unit is already differentiating through quality and through innovation. The next two steps, partnering and automation, are more recent. Partnering, we have launched in a big way recently with the ambition to leverage the good work done by our suppliers across the world. We become our partners when they co-invest with us. Automation, well, it's an integral part of the network operations today, but it's also our R&D processes. Our way of working aims towards maximum automation and reuse of all the design steps in a cloud environment.
So now, let me tell you why Nokia Networks is strong where it matters. First, let's look at the financial performance of the unit. What you see here is the sales and operating profit development of the business that I run, the mobile broadband segment, which is the product and the software part of Nokia Networks. As you see here, 2012 and 2013 were two transition years when we transformed our activity with the objective of, first, you heard it, improving our selling margins, second, reducing OpEx, and third, resuming our growth at the end of the transition. Well, I guess we can proudly say that as a team, this has been achieved. Right, Samih? As a CFO, I know. I see you smiling, and I love that.
Of course, we had already started streamlining right after the merger of Nokia and Siemens, which, as you see, was already bringing in some benefits in 2012, but we wanted to continuously transform, and we wanted to deliver a stronger portfolio and productivity. The year-to-date, represented by the first three quarters of 2014, showed indeed strong progress, good growth, and profitability. Net sales improved by 13% year-to-date and operating margin by 2.8 percentage points. This solid performance comes from continued growth within LTE, but we also see good growth in core, in particular with EPC, which is the packet core in the cloud, voice-over LTE with IMS, and we have also seen this year a significant number of evolutions of existing 3G core towards virtualized core. Now, why does it matter to be strong within these technologies for the future?
As you have heard with Rajeev, Nokia aims to expand the human possibilities of the connected world, and I believe in developing strategies that are deeply rooted in our assets. So the foundation of our technology, as you see here on the left part, is designed to deliver large capacities and support, as you see in the middle, the increase of billions of devices everywhere. Now, guess what? This requires intense computing power, extremely fast networking (think of it, multiply those numbers), unbreakable software, all of which Nokia believes it does well. As a result, we are investing heavily to have a fast and efficient way of managing, processing, and analyzing all this massive information, and most importantly, into leveraging our capability to keep our word simple, to keep our word human. Like we have achieved with cellular networks over the years, it's easy to use cellular networks.
As a fact, the communication network is the largest programmable entity in the world. So how do we do it? We start with our massive distributive computing install base, massive, developing into the cloud technologies for mobility, which we know well. The approach that Nokia takes is differentiated. Think of it. First, we bring the computing power and then use SDN tailored for mobile broadband, and then aim at expanding through the Internet of Things enabled by wireless connectivity. And eventually, this may translate expanding towards the program world connected over the air. This is the telco way. This is our way. So next, I would like to highlight our portfolio and focus and differentiators. Well, it all starts with our ability to focus, our ability to focus on the right technologies and allocate R&D intensity accordingly.
My unit objective is relentlessly focusing on the future portfolio: cloud, 4G, then 5G, and more and more analytics, and to enhance our capability and capacity to develop the best software and the best algorithms. As a result, today, we are one of the largest software companies in the world. Today, in my MBB organization, 90% of our people are software engineers. And next, I'm taking a very structured approach to make each of these engineers use the full potential of the cloud. So let me give you some example. It all started 5 years ago with Nokia's unique software-driven architecture, unique in the market, where we created our architecture around the concept, the famous concept of liquid software, and expanded that to the core.
Then, 3 years ago, we invested in the next generation of carrier-grade products on new IT-based servers, bringing very high-level densification as well as NFV and virtualization. More recently, 1 year ago, we started a groundbreaking open ecosystem approach, really groundbreaking in the telco world, to drive the cloud disruption with our customers and with our partners. On the left here, you see the R&D intensity diagram that shows how this transformation translates into a very focused investment in 4G and the cloud core. This focus and our agility to move R&D intensity allow us to generate significant innovation. Now, let's discuss why we believe we invest where it matters and why we believe our portfolio fits with the market outlook. The market remains flattish, and we see segments with potential for robust growth with technology acceleration, such as LTE.
The emergence of ultra-dense networks requires sites and small cells to be able to capture the high speed and capacity of the networks. Cloud is a disruption from a technology point of view, but it's also driving some new business models. Security remains high on the agenda of businesses and governments, and analytics are already a very powerful part of network operations to deliver the traffic where it matters, where you are, and study our subscribers, how you perceive the mobile broadband experience. On the longer term, our systematic portfolio evolution will create expansion possibilities for Nokia. As I explained the strategy part, we love to build on our position as mobile broadband specialists and drive the disruption the telco way.
Our portfolio has very strong foundations today in radio, in core, and in analytics, and we see multiple LTE expansion opportunities, like, for example, LTE for public safety, for broadcast, device to device, and more. Then, we see the expansion to the radio cloud with new architecture concepts emerging brought by our research scientists that Hossein is leading, and the ultimate destination is ultra-dense networks set up by 5G. Cloud is a prime example of a world defined by software, by agility, enabling fast and smooth service introduction. The aim is set for converged cloud and flat network data centers that we will build on our SDN and IP routing for the base station capabilities, as well as to network orchestration and securing the cloud.
Our current portfolio and positions offer a very good starting point for advanced networks analytics and an opportunity to expand the current network analytics even further to operator data analytics. As a result, the cognitive networks of the future are cloud-enabled. They are all IP, they are virtualized, and they are data-focused with multiple types of access managed efficiently through software. So let me conclude this portfolio part with some reference points for your use. First, the market reach. Successfully executing the strategy that we set for ourselves two years ago on our key markets has positioned Nokia for capturing growth and for building for the megacities, a key target. Our presence in North America, Korea, and Japan benefits from an advanced exposure to ecosystems, advanced ecosystems where we can pioneer new technologies. And remember, these three countries represent over 80% of the LTE subscriptions.
High performance is a trademark of Nokia. You heard that we are the suppliers for operators with over 4 billion subscriptions. Our networks are globally and consistently proving even under the highest load. Let me come back to what we mentioned earlier at the Busan Fireworks in Korea. I'll give you a number. Over 1 million people enjoyed an average voice-over LTE and call success rate of 99.4%. Wow, this is a number. This is a differentiating figure in the industry, I tell you. Our integration capability makes us a partner for transforming from traditional network to virtualization and later to the cloud. It means, right Igor, we're easy to work with and can deploy quick and smoothly. Integration skills are crucial for succeeding in an open cloud system and are at the core of realizing our strategy.
Our agility and capability to generate data with intelligent probes deep in the networks makes us a partner to help operators study how they can monetize that data. So next, I would like to conclude with our transformation capabilities, and Samih has been explaining deep. Now, I'm going to focus on R&D. At Nokia Networks, we build R&D efficiency and agility as a differentiator. R&D transformation is a massive and deeply structured undertaking. Let me explain with the right side on that slide. During the last year, we have systematically, successfully transformed R&D. As a result, we work with an outstanding R&D efficiency. We use the freedom capacity of this transformation for quality, for innovation, for new feature developments, for product cost reductions, as well as reinvesting in new transformation initiatives. Virtual Zero. Well, this was hard, I tell you, very hard.
Our Virtual Zero approach for quality is a very high standard that has been developed by my Six Sigma quality people. As an example, in some of my product lines, we used to have 70% of the people used for test, integration, and corrections. We now have 70% of these people developing new features as a result of Virtual Zero. We're moving from agile to continuous delivery with Six Sigma quality. This is, again, a very strong contributor to efficiency as well, closing the whole loop of the transformation. One of the most important assets for any company is to be able to put resources very fast where they are needed. At Nokia, we have implemented a method to shift resources fast and in a continuous manner.
As an example, close to 30%, close to 30% of our employees are this year only benefiting from our capability to redeploy people quickly, close to 30%. Of course, I'm very proud of these results. For two consecutive years, we have delivered an efficiency gain of over 20%, and I expect similar gains in 2014. Over 80% of our R&D workforce is located at these 12 global R&D centers that we have built, and we continue to develop the local ecosystem around us and the site identities further. Our long-term investment is now visible to our customers through the robustness of our network. At the end of 2013, over 90% of our R&D staff had been trained on Six Sigma. Well, I must say that I've not yet heard of any similar results elsewhere. I have not.
This is how our transformation capabilities and the resulting efficiency have become a true differentiator for Nokia. Moreover, our transformation enables our strategy. Looking forward, and I'm going to make a very important statement from us, we are going to transform not out of necessity. We are going to transform out of ambition. It means that we're setting the bar ever higher, right Samih? Ever higher. We go for better efficiency, higher quality, and more innovations. I've put for some reference here some of the transformation programs we drive at the scale of the unit I lead. There are many more, even some very secret transformation programs, very unique. This gives you some insights for our way forward. For example, you see that we implement a new architecture-driven design methodology, quite novel, and we're expanding our modern cloud-based verification environment.
So let me conclude with some very simple key takeaways that will end up this mobile broadband presentation. Our first two priorities going forward start with driving for continued profitability. You heard it loud and clear. And portfolio innovations. We enable efficiency and innovation through a tradition of software-driven architecture, combined with what we believe are the most modern R&D processes. We have an ambition for future continuous transformation, from agile to continuous delivery, with Six Sigma quality embedded into systematic R&D center development with emphasis on competence and capabilities as well as knowledge sharing. And last, we aim at selectively extending our portfolio with partnering and acquisition and we trust in an open ecosystem where active learning, sharing can be promoted. We strive for shared incubation with customers and prototyping with partners. So thank you for your attention.
With this, I would like to give the floor to my colleague Igor Leprince who is leading our other global business unit, the service unit. Igor.
Thank you. Okay, good morning everyone, and a very warm welcome from me as well to our Nokia Capital Markets Day. As you might have understood by now, yes, you're going to have two Frenchmen presenting in a row, so I hope you enjoy the French accent. But I know there's been a lot of Capital Markets Days this week. I just want to make sure that you understand you're truly and fully in the Nokia Capital Markets. So jokes apart, my name is Igor Leprince, and actually very excited to be here with you today as I've been appointed actually to this role to lead the services business in Nokia Networks a week ago.
And while I joined from running the Middle East and Africa region in the last 3.5 years, my background and my passion is fully and truly in services since pretty much I started to work for operators 20 years ago. And I also had the pleasure in Nokia Networks. There, the network planning and optimization, and the care businesses. And that was before my Middle East and Africa region role. So today, when you look at services as an industry, efficiency is really key. And we see an increasing amount of automation, of robotization, and you will hear me talk a lot about that today. But services is also very much a people business, and we are interacting actually extremely closely with our customer, and we need to have the expertise.
So expertise and efficiency have to go together, and this is how we see services developing and continuing to prosper in Nokia. Ultimately, what our customer expects from our services business is to bring the expertise to make these complex networks work seamlessly, the networks that Mark presented before, but also to help them to remain competitive operationally. And that's ultimately what we do in services. So now, let me go back to what Rajiv talked about around our network strategic direction. Our services business has a role in all this area, and actually we strongly build also on all the horizontal that you see on this slide too. We deploy, we optimize, we maintain our radio business with all our services. We drive the repositioning of our professional services, and then we develop services for telco cloud and software-defined network anticipating this disruption.
And then in the longer term, we will extend our services to benefit more and more from the IoT and analytics too. So in this presentation today, I would like to share with you some background of where we are coming from, where we are today, and what's our strategy going forward. So let me first talk about the agenda, which is going to be around our journey from 2011 until today. I will then talk about the market trends and our services strategy to address this trend and drive growth in services, and finally, our key priorities going forward. But first, let me start by telling you a little bit more what exactly we do in services as this is a very important part of our business, both financially and strategically.
So today, in Global Services , we have five business lines and obviously the Global Service Delivery Center , which I will talk about. On the slide, you see the main portfolio item of each of these business lines as well as some of our very impressive credentials in services. On the bottom part, we have our traditional services. These are Network Implementation and care, and with them, we deploy and we maintain our mobile broadband products that Mark presented for our customer, and we make them work at their best in the real world. And while Network Implementation is more of a project business, which naturally follows the mobile broadband from a revenue recognition standpoint, care is an annuity business, and both to a large extent are based on our install base. Now, on the upper row of this chart are our professional services.
In professional services, we design, we optimize, we integrate, and we manage the networks that we have built through our Network Implementation . But we also do this for networks that are not necessarily Nokia products. Network planning and optimization, managed services, and by definition, system integration are multi-vendor business. These services provide a significant value and differentiator for our customer, especially network planning optimization and system integration where we bring the expertise I was talking about before. I'll come to our strategy later, but overall, our services bring are really designed for operators to bring the best user experience and the maximum efficiency to their networks and their operation. Let me step back a little bit and go back to 2011. In 2011, we decided to focus on mobile broadband and the attached services that I've defined before.
We also decided to build on our global service delivery model and accelerate very strongly centralization. We also decided to streamline the services organization and to focus extremely strongly on quality and execution excellence. The financials that you show on this slide show how this previous focus strategy has worked. The revenue decline in 2013 as a consequence of this strategy to some extent due to the contract and country exit, but also implication from all the strategic choices that we made around portfolio, around dealmaking, around divestment that Samih talked about, around market development, and also some negative effect from foreign exchange. Then at the same time, we have seen the non-IFRS operating profit growing and margin reaching, sorry, a double-digit level, primarily driven by the operational improvement that we made, the centralization, the automation, as well as some cost saving.
I think it's important to state, as Samih said before, that the impact from the contract and country exits was actually limited. At the end of 2013, we had a very strong foundation to start looking for growth opportunities. Now, where are we today, year to date, after Q3 for 2014? Well, first of all, the net sales figures show that we have managed to slow down the year-on-year revenue decline trend. Actually, our top line has been improving sequentially despite the typical seasonality in the weak Q3. We continue to show very strong profitability. Actually, Q3 2014 was our sixth consecutive quarter of double-digit operating margin. Today, we are in a very good position to continue driving for growth with strong profitability, and I will talk in the next part on how we intend to do that.
But before I do that, let me come back briefly on two key elements of our past success, which are also critical for our future success. And these are end-to-end delivery capabilities and execution excellence that you heard before also. So we think that actually our end-to-end delivery capability, our global service delivery model, is actually very unique and very advanced. If you think about the last few years, we really boosted the centralization from 11% in 2011 to 32% today. We transitioned work in more than 80 countries, and we actually consolidated 49 centers into two main centers in India and in Portugal. We developed our remote delivery capability, our tools, our automation, and we actually invested a significant amount of money in this area.
What we also did is put a very special focus on cooperation between the global delivery center and the local team, ensuring really this end-to-end capability. If you look at where we are today, we are managing close to 1 billion network elements remotely, and this is really becoming a true differentiator in driving the quality and the efficiency of our delivery, and this is recognized by our customer. Altogether, when you look at services today, it's 20,000 service experts in our delivery centers and in the region who can literally deliver from Myanmar to Nigeria, from Peru to Russia seamlessly with local experts supported by the global delivery centers. The second element is execution excellence based on quality, efficiency, and innovation.
On quality, I think we have received an amazing amount of positive comments from our customer in our regular services like the customer perceived value that Rajeev talked about, and actually in particular around this end-to-end delivery model, unique model that I've talked about, and our Global Service Delivery Center . While we are very happy with the progress we made on efficiency, this is today something that we are driving every day, and we continue to drive efficiency by applying Kaizen and Lean methodology systematically in our global delivery center and in the region. And then we boost innovation. Very clearly, we are very proud to have been recognized by external industry for some of the portfolio that we launched together with our customer, and we were also the first to launch some of the portfolios such as predictive operation or 3D geolocation planning.
So again, quality, efficiency, innovation are important to our future. So let me talk a little bit now about the market trend and our strategy. So I've spoken before, the Global Services market is flattish, but there are very clear segments of robust growth, especially within professional services: network optimization, managed services, system integration, security. And as stated by Rajeev at the start, a flat market doesn't mean that you cannot grow. At the same time, we expect and we see a lot of shift in the main business domain: increased complexity, cloud, software centricity, high capacity demand. And in my view, this area will also represent opportunities in the future, especially for our professional services. So let's look a little bit at this market trend and what they mean for us. So if you think end user, they are mobile. It's you in this room.
You use several devices, and you expect seamless experience. But as Rajeev and Marc talked about, there are also going to be billions of objects and machines connected to this network. Again, a great opportunity for optimization services. If you think our customer, they clearly need to focus and adopt new business models, they seek further efficiency, and here, professional and managed services can help them to do so. If you look at technologies, the disruption that Marc talked about around virtualization, cloudification, software-defined network, and so on, again, system integration and optimization will be key to manage this disruption. And then our industry, obviously, evolving towards the heterogeneous network, 1,000 times more capacity, different technologies, different layers, different spectrum, different vendors, extremely complex. And again, expertise needed, especially in optimization, will help our customer to address that.
So while these trends are emerging, I think we're also happy to state that many of the recent portfolios that we launched are directly addressing these trends today. If you think industry, we have complemented our services for HetNets by offering and demonstrating 3D planning in Barcelona, then with a 3D geolocation solution, which we bought from NICE in July, and then now in September with a small cell delivery model. In technology, we launch our cloud umbrella offering, which we called actually Nokia Cloud and Network Services in September. And then we have also complemented our managed services offering with a predictive operation, which is related to the big data trend in the technology category, and also with the OSS as a service, which really represents the new business model thinking for our customer in managed services.
And while we do all that, we use also different ways to complement our portfolios and our capabilities. We acquired SAC Wireless. We talked about that before in the U.S. to complement our implementation. We mentioned NICE already. I mentioned NICE already around the 3D geolocation solution, and we work very closely with a number of partners as well. So our strategic goal in services is to drive growth with strong profitability. And in my mind, all parts of our portfolio will support that goal. The aim is to include more services in the product deals by increasing the attach rate and bring these services where we add a lot of value. We continue to boost the professional services, and over the long term, we aim to reposition them very clearly and increase their share of our overall revenue in services.
We continue developing our optimization portfolio and capabilities to ensure our customer can provide the best experience to their customer, to the end user. We continue evolving our managed services portfolio and capabilities, and especially towards service management as well. Then we make the best use of our expertise to expand our system integration faster than the market. So let me summarize really what I've talked about today and our key priorities going forward. We have a very strong foundation in place for our services business. We have a focused portfolio, an end-to-end delivery capability, which is unique, and a very strong execution culture. The portfolio innovation that we have launched in the last few months is addressing already the market trend that we're seeing in the future. We obviously have very strong non-IFRS operating profitability.
As I said before, despite our significant improvement in efficiency, we'll continue boosting operational excellence on a daily basis. And then we want to drive growth, especially in the professional services area, but also with new services, new innovation, and in line with our overall goal to drive growth with continued strong profitability. Drive growth with continued strong profitability. So thank you very much for your attention, and I would like to introduce Hossein. We will talk about future technologies within networks. Thank you again.
Thank you, Igor. So I actually moved to a flat not far from here in 1997. I was walking yesterday by the train station, and I remembered what the technology world looked like in 1997. Some of you are not probably old enough to remember this, so let me take you back. In 1997, most Londoners actually dreamt about having these bricks to make and receive calls. Okay? In 1997, Microsoft was without a doubt the king of technology mountain. Apple has been a company that had a very cute PC but also a failed device called Newton and a returning founder. Google had five employees. How quickly the world changed. Why did it change? It changed for one reason and one reason alone: innovation. That's what I want to talk to you about.
It's my passion, and it's my pleasure to lead you through our innovation, why we innovate, how we innovate, and what we innovate on. Good morning. My name is Hossein Moiin. I'm the Executive Vice President for Technology and Innovation in Nokia Networks, and I'm the Chief Technology Officer of that unit. So let me begin by looking at the approach to innovation, complement that with the drivers that I see in the ecosystem, and how I translate those drivers into focused areas of innovation. And last but not least, give you and maybe open the kimono a bit and give you a view into the pipeline that we're developing. So first, let me walk you through our approach. Our approach is based on product lifecycle. Our product lifecycle begins with research.
We then look at the results of our research and see if there are partners who can help us realize our dreams. So Mark talked about running a factory. I run also a factory. I run the dream factory. Okay? We dream of what is possible. And by the way, most people think that I have the best job in the company. It is true. I have the best job in the company. So I dream, and then I look at it, and I say, can I build it myself? Can Mark build it himself? And then we say, "Maybe, maybe not. Let's look at partners." Then if the idea is good, we'll take it to a customer. We trial it with a customer. We'll look at it, and I'll give you a few examples of each.
And then once it passes the critical test, we look at it as a portfolio element where it stays there, where folks in services and MBB decide to improve on the existing product and take it to the next level. Throughout this process, as Samih explained, we optimize our processes. We look at the business models. What does this result? This results in a company-wide, in a network approach towards innovation. So innovation is not just my job. It is the job of everyone in our unit. In Nokia Networks, innovation is one of the key pillars of our strategy since I've joined, which is 2010. Now, some examples. I won't talk about all of them. I'll just talk about one. But each year, consistently, we've been able to deliver a breakthrough innovation. Since the foundation of Nokia Siemens Networks in 2007, each year you see a huge breakthrough.
It started with the revolutionary Flexi, and last year we had a cloud application management, which unifies management of telco and IT clouds. But let me talk about something which I really like. It's called centralized RAN. And what it does is actually solves a very relevant problem for the current generation. So one of the key things about the generation of today is that they're very much focused on themselves, right? So what do they do? They go to a concert, say, take O2 Center as an example. They go to a concert with all their friends, and they take pictures of themselves, right, the selfies, and they upload it to Facebook, right? And by doing that, and I mean, all their friends are there. They don't need to do this, you know? But they still do it.
What they do is they actually create a massive backlog in the uplink. Centralized RAN was exactly the solution for Generation Me, generation which is all about yourself. It actually allows a device not only to send a signal to one but to many receivers. These are the access points. By doing this, it improves the uplink efficiency of the network by a factor of 100%. In addition to how we innovate, we also innovate with partners. Igor talked about two of these projects. In 2013, I ran a competition in Israel, and the winner, first place, led to something called predictive operations, and the second place, to the 3D geolocation. We believe that we have a lot of good ideas but not all the good ideas. We believe that the ecosystem as a whole can help us create much greater value for our customers.
And we've seen the examples of this in Igor's presentation and in Mark's presentation. We also believe that our customers, who are very close to the end users of mobile devices and mobile services, are great partners in innovation. This is what we do. We create a platform. Think of a competition as one such platform. Think of LTE as another such platform. Think of core as a third platform. We then orchestrate the ecosystem to solve a specific problem. Okay? This is very different from our competition, where they're very much internally focused. So I talked about how we innovate. Let me talk about the drivers and the investment focus of our innovation engine. The first problem I've observed is how do we design networks today, and how do we design them in the future? Today, most networks are designed with the network in mind.
Tomorrow, the networks need to be designed with the user in mind. What does that mean? That means that today, the users adapt to the network. Tomorrow, the network will be absorbed in their everyday life. Today, networks are built to deliver specific services. So if you look at 2G, it was to deliver voice. It was to deliver text. 3G started some data delivery. LTE was definitely driven by mobile broadband. Tomorrow, when we look at 5G, it will have so many use cases that it will have to be a different type of network. It has to be personalized. It has to be personalized not only to the user but also to what they're doing, to their context. These are fundamental revolutions in network design. But that's not all that changes. Also, deployment changes.
Today, when I look at the networks that I run, it is based on standards. Tomorrow, there'll probably be more compliance. Today, when I look at this, it's a bunch of large NEPs. Tomorrow, it will be collaboration and partnerships. Today, it's a vertically integrated system. Tomorrow, perhaps, very much cloud-based and much more horizontal with very clear interfaces. But out of all of this, what's most important is, in my view, the value will shift back to the network. Why? Because what becomes important is how you deliver an application. Is it secure? Is it private? Is it reliable? As we put more and more of our lives into the digital mobile domain, we need these networks to protect us and ensure and give us the security that we have in today's physical world.
This will shift undoubtedly the value back to the network, which is why I'm very optimistic. So how do we use these drivers? We use these drivers in order to drive a vision. This is my vision. It's a very simple one. I believe that mobile networks will deliver gigabytes of personalized data per user, per day, and they will do so profitably. Profitable for me because I need to make sure I can survive. Profitable for my customer so they can provide services. But most importantly, profitable for end users, both consumers and enterprises. Based on this simple vision, we define investment areas. These are six investment areas that we specifically drive. One is improving the capacity of the network by a factor of three, 1,000 times more than today. Two, reducing the latency so it is not observed by the end user.
Three, ensuring that the networks are intelligent so they can manage themselves, they can heal themselves, and they can optimize themselves. Fourth, ensuring that we do so without adding cost to energy, both as responsible global citizens but maybe more importantly, and immediately, to minimize OpEx for our customers. Fifth, take advantage of the cloud. Cloud gives you an ability to be agile, and Nokia will lead the cloud revolution. Last but not least, what I'm truly passionate about is personalizing the network experience. Similar to what happened to our devices, I believe our networks can also be personalized. And we have some examples on how to do this. Now, I talked about the drivers. Let me just briefly open the kimono. There are some nice examples upstairs and show you what's in the pipeline.
In 2014, Rajeev talked about predictive operations as well as the convergence of TD and FDD, which, by the way, I saw I heard that another European vendor claimed that they did it first. We did this in January of last year and demonstrated it in Mobile World Congress. Secondly, we can look at what's down the pipe immediately. Rajeev talked about our big data platform, Retina. I'll take two examples on how to manage the customer experience dynamically and how to use LTE, expanding the LTE that Mark talked about, into television for broadcasting. Last but not least, I don't think innovation will end in 2020. And we see that 5G as an era and an area of very fruitful research where we can truly expand our ecosystem to transform every vertical on the planet. And that is the 5G era, which comes after 2020.
First, let's take a look at how to use LTE for broadcasting. What is the problem we're trying to solve? People like to look at TV in a variety of contexts. The existing delivery mechanism of DTT is inefficient because it requires such a receiver in every handset, increasing the cost of the handset. Handset manufacturers are not willing to do this. What did we do? We said, "Can we help in this problem?" The answer is, probably. How? Well, we have a platform, which is the LTE. If we can orchestrate the ecosystem of broadcasters as well as mobile operators, we can then create a win-win situation for both parties that will ultimately benefit the end users. This is what LTE for broadcasting is all about. This was demonstrated over the summer with a very large German operator in Berlin.
A second example is very personal. Two months ago and three days ago, I called my service provider. I said, "Guys, I'm not getting text messages. And some of my colleagues and my boss, they actually like sending text messages. And I'm not getting them. So can you please do something about it? By the way, I know what's wrong. Can you do this?" So the operator actually started telling me, "Have you turned your phone off and on?" I'm like, "Excuse me. I'm the CTO of Nokia Networks. I actually know exactly what's going on. Can you help me? I'll tell you what you need to do." After an hour, I was so angry. Okay? Two months later, my problem still exists. So, by the way, I can't receive texts for all of you there. So which may or may not be a problem, right, thinking about it better.
But what really happened was she created a report, sent it to the IT system, and the IT system said, "Okay. Maybe we need some different parameter setting on the APN, on the network." Okay. And I still have the problem. If I were a little bit less lazy, I would have walked out of or hadn't discovered the benefit of not receiving text. I would have certainly walked out of that contract. Churn. This sort of behavior, static customer anger management, is a leading cause of churn. Okay? What can we do as a technology provider to solve this? So we have massive amounts of data. Okay? The network generates all sorts of things. So what we do is sense that data, analyze that data through artificial intelligence techniques, not too dissimilar to what you have on if you have iPhones to what Siri does.
In fact, it's the same technology. And then feed that information back to the network so the network, without you having to report any problems, can actually and continuously improve your quality of experience. This has resulted in significant improvement and four times improved customer satisfaction. And this is an example of how a technology can be embedded and absorbed in everyday life. So two examples that I talked about, this is a little bit future. I personally don't believe that the demand for mobile data will slow down. If it continues as it has in the past, it will be a growth rate which cannot be sustained with the technologies of today. So we, as radio designers, as engineers, we've started looking at what it takes to design the next network.
Upstairs, there's a demo. I wouldn't call it a demo, but a table with much more information on this, which I encourage you to see. But basically, fifth generation of mobile networks will cater to many use cases. We have some very interesting examples about cars. We have some very interesting examples about driverless cars and many other things. I encourage you to see this. But my targets are very clear. One is that I would have a system pre-commercial for Tokyo Olympics in 2020. Secondly, we, as an ecosystem, together with our customers, partners, even competitors, need to ensure that we have appropriate spectrum to deliver all these services. Thirdly, flexibility or liquid nature of the network becomes the key design criteria for that network. Fourth, it requires collaboration. And it will be standardized if it is to help create a large ecosystem.
And last, it is possible to take the advantage of mobility and pay a mobile dividend to every industry on the planet. So let me summarize. In Nokia Networks, we have a unique and truly credible approach to innovation. Secondly, we have focused innovations around the common vision, identifying pillars and using these to drive individual programs. Last, our innovation pipeline is very much focused on delivering value. We measure what we do not only in terms of portfolio innovation, patent generation, but actually in terms of real financial impact that it makes to the company. With that, I'd like to invite my colleagues back to the stage. And we'll do a Q&A. Thank you.
Great. Hello. Great. So we'll take questions for the Nokia Networks team for the next 15 minutes. As we get set up here, I'd like to ask that you try to keep your questions to operational topics that we will be able to provide more color on as opposed to more financial details that go beyond our financial guidance. So please, let's open it up. We'll start with four.
Thank you. It's Mark Sue, RBC Capital Markets. Gentlemen, thank you for the focus in terms of operational improvements, total quality management, all the things that you're doing in a somewhat flat-ish market. If we look at the way that the technology has been priced in the past, it's always been about capacity and also about performance. With all the new things that you're working on in the future, is there a revenue model potential change so that you could take advantage of the customers that they're doing? So whether it's transactional, whether it's all the benefits that you move into this relationship approach of network management, how should investors think about that over the longer term, what your carrier relationships?
More intention. So thank you. Actually, this is an excellent question. If you recall, one of the programs that we have is how we want to structurally change a lot of our pricing mechanism. The industry is still, in many instances, applying traditional approaches. However, we started at Nokia to take different elements and how best we can leverage these elements to maximize value for us. An example of that, yes, capacity is really how much capacity a user is being used or capacity by base station. Yes, traditional approaches, you use subscriber-based pricing mechanism. Now, we are evolving to capacity as well as evolving to how we want to price more to value because specifically, as you are going into software, it's not anymore important how much the cost. It is of what you produce is what is the value that you can deliver, and you price accordingly.
We are applying lots of new techniques, how we are pricing, leveraging lots of knowledge from the IT industry. Because more and more, our business is software-oriented, and all these elements are coming together for us as we speak.
Okay. Let's go to mic three.
Yes, hi, Alexander Peterc, Exane BNP Paribas. I'd like to shed a little bit of light on the development with regards to SDN and NFV in the industry, what's going to happen to the overall addressable market for you guys, what's going to happen to industry margins as well, how these new developments are going to influence your metrics going forward, and also how you intend to change pricing when it comes to infrastructure as a service or any such developments. Thanks.
So let me start with the technology side. So we have a twofold approach. Internally, we spend a lot of efforts on the SDN part, efficiency of the base station internal transport. The base station is becoming they're centralized RAN. They had the Flexi Zone. They had very different types of topologies that require a lot of networking and computing. And we apply those techniques inside our massive computing power. When it comes to the transport and the SDN and IP, we have partners where we're deeply engaged with them through the overall chain, Juniper being one of them through the transport IP. And we work with them to optimize the cost of the transport and the speed of the transport through SDN. So these are the two approaches we have.
Mic 2, please.
Thanks. Johannes Schaller from Deutsche Bank. You've quite clearly talked about your expectations for a flat market in services and also equipment. But then you guide for revenue growth. I just wanted to understand a bit better how much of that growth is coming from your existing contract portfolios or the existing footprint you have, and how much of that outperformance will rely on new contract wins. And then also, we've heard some news that China Unicom is probably becoming a bit more aggressive in the rollout. I mean, China is a very strong market for you. You have a good market share. Should we assume that a big part of this, say, outperformance versus a flat market, is being driven by China, at least for the time being? Thank you.
Maybe I can start with services as it was addressed. But yes, we've said that the market is flat in services. But we also highlighted that there are robust areas of growth, especially in the professional services area. So that's one key area where we'll put a lot of our focus to try and grab the growth in the professional services area. So just to repeat again, it's optimization, it's system integration, which is also relevant in SDN areas, it's managed services, it's security overall. So these are the area where we want to focus. And as Reggie said at the beginning, reposition and aim to reposition our services towards professional services and drive the growth with strong profitability through that. Yeah. You want to tackle that?
If I may add to this, as you've heard from Rajiv earlier today, our strategy, while we are playing in a flat-ish market, there are opportunities of growth. You have seen as part of our Q3 results, the growth did not happen in only one region, as I stated earlier. It happened in North America, Greater China, in Europe, and in the Middle East and Africa. This is really our focus, is to find these opportunities and to go after them in order to support our strategy from a growth perspective.
We're sure. Let's go with mic three, please.
Thanks. It's Gareth Jenkins from UBS. Just a quick philosophical question, I guess, around partnering. I just wonder whether you feel there's a benefit to partnering versus actually owning assets internally in terms of speed of decision-making. Maybe partnerships in the past haven't worked out quite as well in this sector as maybe others. Thanks.
Yeah. So we have learned those lessons. And we have a way to execute partnering where we discuss that right away with our partners so that the go-to-market has to be very fast and has to be very natural, right, where the roadmaps have to be compatible, but they have to be driven by the different partners, like you see in the open ecosystem, right? So this is not joint development. This is not joint roadmap. This is really going to market together to accelerate. And the one key metric we measure is the time to market. What we have in our mind is what I said, the continuous delivery where the objective is to be able to deliver features at the speed at what we see in the pure internet. That's really the metric we're targeting with our partners.
Let's go with mic 4. Gentlemen in the pink shirt. Oh, pink shirt.
Thank you. Patrick Donegan with Heavy Reading. Earlier this year at Mobile World Congress, Rajeev announced that Nokia was looking at the mobile backhaul space, looking at a new line of business in mobile backhaul. Very little, if anything, has been said until this morning when Rajeev said that you decided that you won't necessarily be going directly. Rather, you'll be going with some kind of partnership situation. Sounds like you looked seriously at developing your own products but have decided against that. Could you walk us through if that is correct? Could you walk us through the thought process that you went through there?
I think we have always been clear that we had very strong partners in the mobile backhaul. We have strengthened that. This is part of our partnering strategy in the transport. We're just accelerating that strategy. That's what Rajeev shared. This was a transport strategy based on partnering, including backhauling, microwave, front hauling. We're expanding on that.
Oh, one, please.
Thanks, Matt. It's Ehud again at Citigroup. I wanted to talk a little about services and the Global Services opportunity and managed services and other areas. Back in the day, a lot of managed service deals were sort of the price you had to pay to get into the RAN business and to get into product and radio. And that's how a lot of you and your competitors sort of got into trouble with giving away the farm on the profit margins in exchange for being able to play going forward in the product side. How has that changed? Obviously, you got out of a number of contracts over the last year and a half to two years to lift the profit margin in services. Have the carriers learned their lesson, or are there still deals out there?
What makes you confident that in order to keep pace with the market, certainly on the product side, that we won't have a return to having to give away profit margin on the services side just to be able to play in those types of deals? It sounds like we've come a long way, and margins are good. But how can you be positive that we're not going to go back there? Has carrier behavior changed in that way?
Okay. No, thank you very much for your question. I think actually, Rajiv answered very eloquently to this question earlier today. I think just to repeat some of the key message around that, we are interested in managed services where we can transform, where it makes sense for us, and it makes sense also for our customer. And I think we've got a long experience now of doing that in the last few years. So when we can transform, when we can bring that to our GNOC, where we can bring value, where we can move to service management, for example, where it's beyond really just the field services, we'll look at that. We'll be interested in that. And we're actually developing our portfolio, our innovation, our centralization, our global delivery center to be able to add this value, be able to transform. But we'll be selective.
We'll continue to be selective in this area because we have to have that value and add that value for us to transform this managed services deal. So we'll use the lesson from the past, both our customer and ourselves, and move forward. But managed services is an area of potential growth for us that we're looking at.
Okay. 3, please.
Before I guess Sami or Marc, with respect to the US market, do you think you can organically improve your position there over the next few years? And I appreciate you're going to say that you have business with T-Mobile and Sprint, and you have some with AT&T and Verizon, but you don't have radio business with them. And it is an advanced market. And you want to be an advanced market. So is there an organic opportunity with 5G, or is there not an opportunity? Or do you think you can be successful in this industry without having those carriers as more meaningful partners?
So as I mentioned earlier, and Rajeev has been very vocal about the importance of the U.S. market for us and hence the success that we have made in T-Mobile and Sprint, we are not stopping there. We continue to optimize our position in the U.S. And then hence, we made the acquisition of SAC to help us improve and increase our impact on the services side in a tier one account. This is really one decision we have made this year. But in addition to that, you have to understand how the Verizon and AT&T, they drive the buying cycles. Usually, every three years, they go into a process. And we are cognizant of that. And we are engaged in a very systematic way and really in a systematic and aggressive way, positioning our technologies.
You will hear more about that as we are moving forward, where we are creating impact. Hence, there will be certainly specific decision and schedule that we needed to work with our customer in order to get us to the next step.
Now, it's clear when we got Sprint, the feedback we got that our technology made a big impact in our selection. Well, we think it's an asset we can use again and again. So we want to have this technology differentiation.
Our last question. Let's go with Didier.
Hi there. I'm just wondering what management thinks about the portfolio of the business when the RAN cycle turns. You had a very strong RAN cycle over the last 2-3 years. Whereas the U.S., China, Europe, to some degree at the moment, what happens when that business turns, given that it's 90% of the mobile broadband business?
Yeah. So if I start, and my colleagues will add, certainly. First, you see, we have to be cognizant of the fact our business is not only about radio. It's our business about radio, about core, and about services. This is really one. Second is, today, we are still in the first steps of deployment of LTE and the 4G technology. And many of the areas in the world, they are yet to commence the deployment of LTE. But even when you look at the different areas that they aggressively deployed LTE, they start with a coverage. And then as you go with coverage, as the capacity increases and the demand for bandwidth increases, the customer has to continue to invest to accommodate this particular bandwidth and capacity to the end users.
So it will be for a long time where this investment is needed in those networks that are being deployed, as well as in these areas where LTE, yes, to commence. But more importantly, is really you have to keep in mind our core strategy is extremely important for us. And hence, we are making significant progress and growth in our core in addition to our services.
Yeah. And the other thing, Rajeev, you've spent quite some time on that, the natural expansion of our addressable market. I mean, one that is very obvious is usage of LTE in public safety, device to device. For this, this is a marginal investment for a larger market, right? And there are others, like the fact that now the form factor of our small cell allows us to address the combined Wi-Fi and LTE. So all of a sudden, we were not in the Wi-Fi. All of a sudden, when we bring LTE to buildings, well, we're looking at the Wi-Fi mobility. And there were a number of things that we explained that create marginal investment but expand the possibilities of our markets and that will participate in continuing our developments. So that's an important part of the new strategy that we explain, right?
I will also talk about that. I think when you think about a gigabyte of personalized data per day, I mean, the investment in the RAN area is going to have to be considerable in the next few years to cope with the data demand that we are seeing as well. So that's another aspect that we need to keep in mind when we look at that.
The last one that is key to my heart. It's a bit plumbing, but when we expand the spectrum, we have more and more chunks. It brings more carriers, Carrier Aggregation, but you need to invest in antenna systems, multiband. We have antennas that are more complex. The antenna systems, the RF carriers, are a pretty healthy ecosystem right now. We're doing pretty well there. It will require spectrum. When it requires spectrum, it requires equipment and software from us.
We really don't see any slowing down to the demand. So it's important to go back maybe in history. So we had 3G. Then HSPA came along. So there is every maybe four, five years, once that cycle is done in developed markets, the next version will come. So in LTE's case, it will be LTE-Advanced before we get to 5G. So there is plenty of investment that's required. And I think our customers in advanced markets fully understand this.
Fantastic question, Didier. Thank you for all of your questions. Now it's time for lunch upstairs. Please also check out the demos. We will start the HERE section promptly in this room at 1:45 P.M. Okay, good. Welcome back from lunch. Hope it was a good one. Based on the time difference, I'm pretty sure that investors in the U.S. are now joining us on the webcast, so where's the camera? U.S. investors, welcome. Good morning. It looks like everyone is now settled. Yes. Now that everyone's settled, it is my pleasure to introduce Sean Fernbach, President of HERE. Sean, welcome.
Thank you. Good afternoon. In today's presentation, I'm going to focus on the competitive advantages that we have, including how building the world's best map and why it's very, very important to us. I'm going to cover the opportunities for HERE in automotive, enterprise, and consumer.
Automotive represents 55% of our revenue last year, and this is very critical to our business. We are the leader in maps for embedded navigation, and we have a great opportunity to go from delivering content only to becoming the key technology partner for the automotive manufacturers as they move towards automated driving. And after my presentation, Ogi Redzic, our head of Connected Driving , will have the pleasure of talking about our role in that evolution. Let's be clear about our ambition. Our ambition is to be the leading location cloud, serving a broad range of customers in automotive, enterprise, and consumer. And we believe our capabilities and our competitive advantages will allow us to do this. In each of our three segments, we can leverage our automotive-grade map and our platform. We are committed to operational excellence, and we need to become faster and more responsive and more cost-efficient.
In fact, let me say a few words about what I think we must do operationally in the near term to set ourselves up for success. We know we must strengthen our profitability. And these are the things we're going to do. We will target four areas. We will streamline our product portfolio. We will focus on the must-win opportunities. And we must look to monetize consumer only through the work that we do with the large consumer partners. And we have already started to announce our plans to close a number of programs that we thought had higher risk in terms of revenue opportunity. Effective cost management. We plan to move to a clearer and more consistent cost management approach. And as part of that, we will review our site strategy and our organizational setup. Effective process management.
We have started to identify greater efficiencies in the organization and will continue to identify more. This means reducing overlaps and streamlining many of our internal processes. We must continue to invest in future growth. We want to be a tighter-run operation so that we can enable these investments for the long term. The investments we make will be very targeted and not opportunistic. Now, we have a good position today from which to build. We have competitive strengths that we believe hold us in good stead both in and outside the car. Our strong competitive position has been built over the last 25 years. We have a tremendous heritage in map-making. But all this time, we have been very focused on our customers, on how we design our products for these customers. Automotive manufacturers take priority.
The map needs to work for them as they have the highest standards in terms of quality, accuracy, and freshness. For years, we have retained highly experienced cartographers that understand our customers' needs. We understand legislation, regulations, road network changes, and local driving habits. Equally important, we have flexible business models. You can choose content as a product or platform as a service. We let the customers choose. We support their ability to differentiate in accordance with their own unique strategies and the way that their customers like to do business. This has helped us develop a deep understanding and very, very strong relationships in both the automotive, enterprise, and consumer space. Today, 70% of key decision-makers in the auto manufacturers see us as a strategic partner. We have helped them with the marketing and sales of our services for many years.
Now, we are moving beyond that, and our customers are becoming partners, and our relationships are also about value exchange. Customers also value the way in which we manage their data, and trust is a very critical point. We will allow the automotive manufacturers to retain relationships with their consumers. We are not like Google. They want to monetize the consumer data in a way that would be a conflict with the auto manufacturer's strategies. Our aim is to use the data to make our offerings better, for example, probes, but also leave the auto manufacturers to decide how their customer data can serve their own platform needs. Now the map itself. I'll spend a little bit of time on this over the next few slides. We want to keep improving our toolsets. In the map industry, we are leading.
I want to take you through a few aspects of our map-building process. We don't believe that anybody else does this better. You may have seen our cars. There are two upstairs that drive the streets capturing data. The gray car is very different to the blue car. A growing number of our fleet are on-order mapping cars. We have moved from having two people in a vehicle to a one-person in a vehicle. Why? Because sensors are doing all the work. In the gray car upstairs, there's a thing on top called a LiDAR system that has 32 rotating lasers that capture 700,000 data points a second. They create the point cloud, and this helps us create better maps than ever before. On the left of this image, you see the raw LiDAR data captured by the car. And on the right is the resulting 3D image.
Our maps are becoming realistic 3D representations of the real world. Drivers, enterprises, consumers will be seeing maps like this in our offerings in the not-too-distant future. But we are also very much focused on efficient map creation. We have invested and will further invest in automation tools that speed up production and will save us money. For example, as shown here, we've been doing this for the detection of street signs through image processing. But let me be very clear. Our aim to increase efficiency will not compromise on our own high standards of quality. We are very committed to quality and focused on improving this even further. We test our data in the real world. This year alone, we have tested in 300 cities in 50 countries, and we take that data, and we benchmark it against competition, and we are industry-leading.
But our data is becoming far richer. I mentioned the 700,000 data points captured a second by the LiDAR vehicle. We are apparently ranked in the top five in AWS, Amazon Web Services, in terms of data storage. We have just under 50 PB of data. I think that's something we should be proud of. But we need a platform to deliver this. Customers are moving away from pure content to platform, and they are looking for a partner that will provide them with a platform that enables them to leverage our services but also to allow them to bring in their own services. They also want to run their own private data networks within our platform. What does that mean?
For example, an automotive manufacturer might want to have a degree of control over the sensor data that their vehicles capture, and they want to keep that for their own use and not for our use or, more important, any other automotive manufacturer. We allow them to let that happen. We will help speed up their time to market, and we will help reduce their costs. With this, they are moving up the stack, which gives us great opportunity for an increase in revenue. The result of all these capabilities is a fresher, more accurate, and more reliable map than ever before. These capabilities set us up well for opportunities in our three markets: automotive, enterprise, and consumer. So let's start with automotive. There is no question that market trends are positive.
Between 2010 and 2013, our automotive business grew from approximately 35% of sales to 55% of sales. This is due to two very powerful trends that we are seeing and we hope will continue. The first trend is the steady growth in global auto sales. The second trend is the rapid rise in the adoption of embedded navigation systems. We are strong believers in embedded navigation. People predicted a decline when PNDs emerged, but that did not happen. The take rate of embedded navigation systems will continue to grow. People like the elegance of embedded navigation, and the automotive manufacturers are very motivated to deliver better embedded navigation systems and, more importantly, connected navigation systems. We have many new, exciting offerings that are just around the corner. This chart shows HERE's progress plotted against the industry trend. From 2010 to 2013, HERE's trend was much stronger.
But the automotive industry is very, very demanding, and HERE has built a strong and loyal competitive position, which bodes us very well for our future. Another great indicator for us is that we are already designed to enter the majority of cars in North America and Europe in 2015. You can see this on this chart. At the recent Paris Motor Show, 50 out of 62 vehicles on display contained a HERE product, 50 out of 62. As connected cars become more widespread and as embedded navigation continues to grow, we are poised to benefit. Many of you probably don't realize, and I think Rajeev touched on this this morning, that a very high percentage of the revenue in our long-term financial plan is already there, assuming that these take-up rates continue.
So in summary, the industry trends and our very strong competitive market position provide HERE for a very solid foundation for growth. Now let's take a look at enterprise. We have a small but well-established enterprise business, and this has great growth opportunities. We do business primarily with VARs, value-added resellers, but we also work with much larger enterprises such as SAP, which we announced just last week. The great thing about enterprise is with some modest incremental investments we're able to develop very compelling offerings, and we do this by leveraging off our existing automotive and platform assets. So our offerings in enterprise are twofold: it's about basic business mapping, and it's about smart asset management. For companies with geographically dispersed operations, our offering can do wonders for their business.
We bring location precision, richer attributes, deeper analytics, and the ability for a company to use those assets is HERE as a result of connectivity. Connectivity is ubiquitous, as we all know. So this opens up new possibilities for business to manage their assets, the way they're utilized, stored, and moved. We can help companies combine their data sets with our rich location data to give them new insight into their own operations. Data visualization is a good example of this, where a customer can enrich their data with our geocoding service in order to make better and informed business decisions. Now let's have a look at consumer. Consumer is very important to us. In consumer, we generate revenues from doing business with companies like this, shown on the right. We license content and services to these big internet and consumer players.
In addition to direct-to-consumer activities, we are going to be pulling back from some certain higher-risk opportunities, as I mentioned earlier, and we're going to focus very much on our app development and leveraging the work that we do in that app development to win those customers. This is a very important slide. The customers, as you see on the right, don't want to run platforms and services where their data is used by a third party that monetizes that data and that revenue flow doesn't go back to them. I think we all know who that is. This is a tremendous opportunity for us, and we will continue to invest in making our B2B2C channels a success.
Our app is a great showcase to take our innovation, test our innovation, more importantly, take our map and distribute that map to a broad reach of users and test that map. Everything that we learn, of course, comes back into the platform and comes back into the map, builds on the quality, and that, of course, then goes into our core, which means that our enterprise and our automotive customers benefit from that. You may have heard that we have launched the beta of our app. Just wanted to see how it would do. We haven't done an official launch yet. It's not on Google Play. We have just under 1 million downloads in 3 weeks, so we're quite proud of that. Our other customers benefit as well. HERE is becoming the de facto standard with extensive consumer reach.
Our automotive customers will benefit from this. If you drive a German car, you will probably own an iPhone. We believe it's important that a driver can access our services on his phone too. We want to be able to deliver the same experiences across all screens. Our consumer activities also enable us to test innovation in the market, something that our automotive OEMs are very, very interested in. Let me summarize. Most importantly, we need to target to strengthen our profitability, and we need to drive down our costs. I also hope that I've been able to show you how we want to master our core capabilities in map-making and that we are very much seen increasingly as a trusted partner, not only to the internet companies but more so to the automotive customers. We will generate new opportunities both in the near and long term.
One of these most crucial and important opportunities is connected and automated driving. It's with my great pleasure that I will now introduce Ogi Redzic, who will take you through this extremely exciting topic. Thank you.
Thank you, Sean. Hi, everybody. My name is Ogi Redzic. I'm responsible for Connected Driving Business Group within HERE. It is my great privilege to be trusted to give you an update on some of the most exciting developments that we have in HERE. But before I give you details of our Connected Driving offering, I figured that I will take you through a little journey, give you an evolution of driving in general, provide a little bit of a backdrop, a framework, in which you can place why we're doing things we're doing and when we're gonna do them. So as you're probably aware of, driving industry started with the invention of automobile in late 19th century.
And for most of the next 100 years, if you wanted to go from point A to point B, which was the original promise of the vehicle, you had to either know your directions or you had to have a wife or a colleague sit in the front seat and turn the map upside down, try to get directions, or you would roll down the window and ask a complete stranger for direction. Now, that's still being done, as you know, in some parts of the world. Certainly, India comes to mind that that's a very common way of getting directions. But it was only in mid-1990s, mid-1990s, when three technology trends converged and made basic navigation possible. So first, GPS, which was, prior to that point used only for military, was made available for civilian use.
Then GPS sensors became small enough so you can put them in a car. The second big trend was that computers obviously became smaller, more powerful. And again, you could put them in a car, and the screens also became portable and lent themselves to be in a vehicle. But then a third big trend, something that we're very proud of because we actually invented it, is digital maps. So navigation does not have happen without digital maps, and we're very proud to have powered the very first nav system in Europe in 1994 with BMW and a year later in North America. So the whole industry started back in 1994. And for the following 20 years or so, there's been continuous improvement, obviously. Maps became much better. The processing power in the car became better, and the experience got much better.
But I think I can safely say it was only recently that connectivity enabled an entire new set of experiences that are possible in a car. All of a sudden, you can pass cloud services into the vehicle. All of a sudden, you can get traffic across all the roads. You can get information about real-time parking availability, gas prices, other content. And you can extract information from the car as well. So that becomes very important because cloud is intelligent, and cloud can actually run predictive analytics and tell more to the vehicle if it knows in which direction it's going. What you see in light blue are some of the enabling technologies that we provide from HERE. What will get us really exciting is the peek into the future. What comes next? You all hear about automated driving. I mean, it's everywhere in the press.
You write about it yourself, some of you. You analyze it. What does it mean for all of us? First of all, my strong opinion and our opinion, it's not gonna be a revolution. It's gonna be an evolution of capabilities. We're gonna begin with highly automated driving, what Rajeev referred to as semi-autonomous cars. And what highly autonomous driving highly automated driving is all about is the vehicle is gonna be able to drive itself for extended periods of time, but you will still be a driver. You will not be able to fall asleep, and you will not be able to drink. So in essence, you, at the request of the vehicle, will have to take control of the vehicle. So this is what we believe will happen around 2018, and we're very much engaged in projects with some leading OEMs to make this happen.
Fully automated driving, we believe, will happen a few years later. The reason for this is not so much technology. Technology has some obstacles to overcome still, but reality is that we don't have legislative framework, and we still have a lot of liability issues to address before this can be properly introduced to public roads. We believe at HERE that we have a major role to play in this. As you see in light blue, there are a number of enablers. I'll touch on them later in the presentation, but these are critical in our opinion, but more importantly, in the opinion of OEMs that we talk to. Another thing I think is very important. We are extremely proud of where we've been and what we've accomplished. The market share that we have is unprecedented, but we are thrilled about where we're going.
We're thrilled about the opportunities that we have in automotive. Smart guidance, we're building on position of strength. We're building on our core assets and moving up the stack. So we have the best content in the world. We don't question this. We believe it. And then we're able to move up the stack and provide full experience to drivers. And all of that will enable us to come with great intelligent car solutions. Car is becoming such a powerful computing device that with proper information, it can really do miracles itself, and that's coming; it's right around the corner. So let's begin with smart guidance. Smart guidance is one of our two key value propositions. It really begins from a very simple premise. We believe that the car should not and is not an extension of a smartphone.
We believe firmly the car is a unique device in the ecosystem of smart devices. It's also the most expensive device you're likely to buy. Therefore, it's gotta be treated as a superintelligent device. What you see on the picture, and what I hope you will go to the third floor and check out for yourself, is a screenshot from our HERE Auto product, a key product in smart guidance portfolio. It's connected, which means that you can get maps updated in real time. So as the real world changes, you can pass that information to the vehicle. The second thing that you see here in an example is that if there's an accident on the route that you were taking to school or to work, you will be automatically rerouted. You don't have to be in navigation mode for this.
The vehicle can learn about your preference. It can actually learn about roads that you're taking and suggest alternatives based on the assumption as to where you're going. There are two driving principles for us for developing smart guidance solutions. One, we want information to be relevant. What does that mean? Contextual. Okay, you may ask, what is contextual? Well, let's say I'm driving from home to dinner to a restaurant in a city. Contextual simply means that show me information that's relevant to me at that point. So if I'm driving towards a city, I don't necessarily need to know where the parking garages are at the beginning of the trip. I want parking information to show itself only when I'm close to the destination. Second, dynamic. Well, I'm very interested about garages that have available parking.
I actually don't wanna see any garages on my screen cluttering the screen if they don't have parking availability. So I want those taken off. And the third, personalized. Well, essentially, information that's shown to me should be very different than information that's shown to my wife. I may have preference for one parking garage provider. I may have a credit card that's on file with them, and she may have somebody else. And the second important thing about a smart guidance solution is seamless. So for us, we believe that navigation experience doesn't begin and end in the car. It begins when you start your tablet, you do your route planning, you pass that information to the cloud. It's in the car when you're in the car. And when you leave the car, you take your companion application, and you can find your car afterwards.
You can do that last-mile guidance on foot or on public transit. Seamless and relevant. And again, I really encourage you all to go up to the third floor and check HERE Auto. Let's talk about the future. Real exciting stuff, intelligent car. This is our view of a highly automated car. This is what we believe your experience will be like in 5-10 years. There's still a steering wheel, but steering wheel is really used more for infotainment, for communication, for productivity. You have a full heads-up display. Your heads-up display full augmented reality experience where you will be able to see what's happening in the world around you and overlay computer images on top of it. Then a single dash that your console, your in-dash display, they're all connected together.
You may ask, what is the role that Nokia is gonna play in this? Well, the role is very simple. We solve three problems, and these three problems are all targeted at machines. So this is pure M2M machine-to-machine play. We actually provide information for the intelligent car to make intelligent decisions. The first question we're answering is, where am I? So the car needs to know exactly where it is. Our solution for that is called HD Map. The second big question is, what lies ahead? I have very good sensors. I'm a car. I have very good sensors on me, but my sensors can't see everything. So I need something that will help me extend the reach of my sensors, also help bring down the cost of the sensors that I need to put in the car.
Finally, in order for this technology to be adopted, it really needs to be targeting humans, and human behavior needs to be taken into account. That's the third piece of our solution. We call it humanized driving. Now, what should be very obvious is that all three of these are cloud services. Everything goes through HERE Location Cloud. It's an essential piece. These are not content products that are embedded in the car. These are cloud services that continuously get updated as the vehicle goes through its lifecycle. Let's talk about HD map, the core offer that we have. This is the critical, most important product that we're building. What you see on the screen is something that Sean already touched on. It's not a black-and-white photo, what this is. It's a LiDAR representation of the real world.
Every little dot that you see on the screen is part of the point cloud, one of the 700,000 observations that we collect every point every second, and also something that would really, really be probably the best representation of reality you can think of today. So this real-time map, real-time image, called a LiDAR image, we overlay what you call what, what we call standard map. So this map is used for navigation. And that map is created by finding the center lines of the road, and everywhere where you have a center line, you draw a line. So this map is what we use for what I previously described as basic navigation. Now, as Rajeev mentioned today, hey, if your nav system tells you 150 yards, turn right, and if you do it in 140 yards, you really know what you're doing because that information is targeting human.
But HD map is targeting machine. So in order for us to build something a machine can really understand and take advantage of, we go and model each lane individually. Now, this is not trivial. So each lane is now connected to every other lane in the road network that you can legally maneuver into. Yeah? And then we don't stop there. We actually, because we have X, Y, Z of every single point in this image, we can actually create height, slope, curvature, and even bank of the road. We have so much information. Now, we need to process and make that information useful. I mean, look at this image. If you just wanted to pass the raster info, so the core info from this from this data, it would be massive. The city of London would be terabytes and terabytes of data. So we do something very smart.
We turn that information into vector information. So through complex mathematical formulas, each lane is modeled individually through mathematical splines. And that becomes updatable then. This map then gets updated in real time. Based on the changes in the real world through sensors in the car, we can keep this map up to date, HD Map. And just for comparison purposes, I'm putting the old map, the current standard map, and the HD Map so you can see the difference. Second big product that we are building is called Live Roads. Live Roads is essentially helping us with accurate planning of vehicle control beyond sensor visibility. Remember, second big problem is help the vehicle plan its next maneuver. This car is driving itself. It wants to properly plan its next maneuver. So I think this image really tells the whole story.
The sensor in the blue car would not be able to see the accident that just happened. It is our ambition to create a cloud service that will keep track of everything that's going on on the roads so that vehicles that cannot with their own sensors observe these situations can still benefit from this info. Think black ice. Think major potholes. Think rain, heavy rain, hail. All this type of information, particularly around accidents, would be extremely valuable, construction, to pass to the car so they can properly maneuver into the right lane and can really make their planning, next maneuver significantly better. And then last but certainly not least, we call humanized driving. Let me give you an example. We believe that in order for automated driving to get adopted easier, we make this technology we have to make this technology be acceptable to humans.
At a very simple level, this is what humanized driving is all about. Imagine on one side you have robots driving, and on the other side you have humans trying to really get their way with these machines that are on the road. We believe that humans would be significantly more comfortable if they were in robotic cars or outside if the cars behaved more like humans would behave. So what did we do to show you an example of this product that we're building? We took observation over 4 years on a particular stretch of a road. We have all this data because we provide traffic services in 43 countries. So because we have all this accumulated data on speeds on all the roads in the world, we looked at this particular exit ramp off the highway. I think you can see it in the upper right corner.
And then what did we do? We observed that people, as they exit the highway and go into the exit ramp, they all come very fast. So you see this plotted on y-axis as speeds, 120 km/h. They exit, and what you would expect maybe that, if you had robots do the driving, they would just linearly decelerate to the speed limit. But you see people don't do that. People go much faster. They all eventually slow down and actually, at the end, go below the speed limit because that's how this stretch of a road looks like. So then we have three individual profiles that emerge from the data, clusters of data, provide us three different profiles. One is we call sport, one standard, the third comfort. But really, the data itself doesn't lie.
It can be many, many other patterns that you can see from the data. And then imagine now programming the robotic car. You would actually want it programmed so that depending on maybe whether you have kids in the car or not, whether you're running late or not, you will have different modes in which you can have the car run. And then maybe a different way of looking at it is these three modes could be overlaid so the robotic cars, depending on what you want, your personal preferences, and also what happened in the past, could take one of these three modes. Another way of looking at it completely is to see, what would you like your automatic car to drive you like? Kimi Räikkönen, Formula One driver, or a Granny? You all have different preferences, right? It's completely to be expected.
But we believe, again, that it should be based on your personal preference and based on the wisdom of the crowd. Wisdom of the crowd will say, "This is how people normally drive." But on a more serious note, and to wrap up this part of the presentation, we're extremely proud of everything we've accomplished in the automotive industry. We're humble. We're proud, but we're humble. We also know that we need to continuously create value for our customers in order to keep the position that we have. Extremely humble. But when you think about where we're starting from, we're starting from this position where we helped all these OEMs, and I'm pretty sure that all of you will find your car manufacturer on this list. We helped them bring the products to market over the last 20 years.
There's a level of trust that we've developed, a level of trust that now materializes itself in R&D programs around next-generation technologies that we wanna see in the market in the next few years, something we're extremely proud of. So with all that position that we're in and all the key assets that we're building, we feel quite good about the world of automated driving that's heading in our direction. And I wanna thank you for your time, and I wanna bring Sean and Matt back to the stage so we can answer some questions. Thank you. Any preference? Okay. Now we'll take questions on HERE for 15 minutes. Where are the let's start with Mic One.
Hi. Thanks. Question maybe for each of you. First question is on the consumer side and apps. Can you talk in a little bit more detail about, over the next few years, how you might monetize the consumer opportunity working with the big internet companies that and Samsung the likes of Samsung that you mentioned? And with respect to, the Location Cloud and the updates of the maps, are you suggesting that each car will have a modem and will be, connected to an LTE network over time? How are we going to get those real-time updates into the car, and is that going to be a, a global service that, HERE will run on behalf of consumers, automakers, etc.? Thanks.
I'll take the first one.
Yes. I'll answer the first part of the question. So I think, to be clear, you know, we build the app, for a number of reasons which I pointed out. It helps us test innovation. It helps us test the quality of a map. It showcases what we're capable of. And the app you know, I like to think the app more as a marketing tool that enables us to do business in B2B2C, and it's proving to be that. If we didn't have a consumer presence and anything to show, I think that it would be harder to have that dialogue with those internet companies and CE companies like Samsung that you mentioned. So I think it's very important, and we will continue to do that.
I think, you know, going back to a common theme that you probably all heard that, you know, today is we talk a lot about operational excellence, you know, and here needs to focus. You know, I met you earlier over lunch, and you said that, you know, Michael had great vision, but his vision that visionary thinking never stopped. You know, we had a huge portfolio of activities, all good, but, you know, we need to take the ones that, you know, we need to place our bets carefully. Like I say, we need to pick on the must wins.
So we decided to take the idea that we would build a revenue, build a business out of monetizing an app off the table at this time, so that we can focus on the real business and where the realistic operational opportunities are. We believe they are certainly in the B2B2C channels. Now, that said, we have to wait and see the success of the app. You know, like I say, it's I like to look at it as a tool. We'll publish it, you know, towards the end of the year, and we'll see what happens. And only when we have sizable reach, then I would bring the discussion back to the table about whether we wanted to look at a monetization opportunity, but not right now.
And to answer the second part of your question, absolutely, we do believe that all cars will, over time, get connected. Research supports this. 72% of cars are expected to be connected by 2020. So we do believe that this wave is inevitable and coming. And, frankly, it's something that we intend to fully try to help make, and to some extent, help the OEM take advantage of new services that can be provided. But then absolutely, you're right. The map update, particularly for HD map, something that's as precise as HD map and as important, not just for navigation, which is really more of a helper in your daily life, but it's not core to safety as automated driving will be. For automated driving maps, you need to update them from the sensors in the car.
We have great cars to collect the data, but we don't have enough cars to keep all the roads updated all the time. We really need to rely on our OEM partners. So absolutely, part of our value proposition to OEMs is actually to engage in exchange of data from the vehicles, with respect to the map and all the other services that we can provide.
Mic Three, please.
Yes. Sandeep Deshpande, JPMorgan. Two questions, quick, quick questions. Firstly, on the auto market, you're talking about all these new features which are gonna come into your product over the next few years. How do you see the monetization of those features in your product impacting your revenues over the next few years? So I mean, are these step changes which are gonna occur, say, 2017, 2019, or I mean, is there a time horizon in which this monetization takes place? And secondly, again, in the car market, I mean, you said you are in 85% of the cars. You also talked about Google as your main competitor. Do you see Google up for every contract you work with in the industry, or who else is competing with you in the auto market?
Because this seems to be the main focus of your monetization efforts.
Yeah. So I'll answer, maybe start with the second part of the question. So do we see Google competing with us? Not just on maps because Google doesn't license content. So with Google, it's more or less, "Here's the whole solution. Take it or leave it." That's certainly not how we work. We provide all the way from content only to platform solution to the entire stack. So for us, it's really about helping the existing ecosystems, both OEMs, be as successful as possible. So when it comes to revenue, first part of your question, some of these solutions are going to be hitting the market sooner. So, for us, the value extraction is based on building on top of the stack that we have today.
So moving up the stack essentially means that we can now monetize services because cars are getting connected, and we have services that we offer to automotive. And then we can also monetize our application. So when you have all of that, and then you can remotely update the software in the car, there's additional value that you can offer to OEM and also jointly extract from the whole experience in the vehicle. When it comes to step function, particularly around intelligent car because, as you know, automotive cycles are very long. So we get built into the cycle. If Rajeev was mentioning that some of up to 60% of our revenue, we have good visibility to. The good news about that is that once the platform is in production, very rarely do you have any kind of running change on that platform.
So once you get a relationship with an OEM on a platform, it's likely to continue for the lifetime of that platform. Right now, we're working on projects for 2017, 2018 when it comes to smart guidance. And intelligent car, as we said, we really view that more like 2019, 2019 to begin with, but then we expect that market to be significant because we do believe automated driving will happen in a big way.
Mic Four , please.
Thank you. Just on the fair market adjustment and the impairment of the goodwill, what was the thinking in terms of the amount that you had adjusted for that? And I ask because some of that was, we understand the B2C is business-to-consumer change, but it seems it was more than that. And then separately, as we move into the auto market, how should we gauge your success? Should we look at RPUs increasing per auto? We understand that the penetration. And how you might be seeing that in the near term in terms of the dollar content per vehicle?
Yes. Well, I can partly answer the first part of the question. I mean, as to the amount, it's not something I can comment on. But, you know, like any reasonable business, you know, the, the board took a view, that they wanted to, revalue the asset effectively. So they, and that's what they decided to do, and that's why there was a write-down.
And the RPU going forward?
Yeah. So obviously, moving up the stack will allow us to extract additional value from every car that's being sold. But I think that's one way of looking at it. We will be getting more value for the cars where we sell maps to, but it also enables us to sell some services into cars that may not even have maps. So that RPU may you know, the volume will grow if we can offer these services, and that's certainly good business for us as well. So it doesn't necessarily mean that every new car will have the entire stack. Sometimes it'll be just a service for an app that goes into the car.
Can you give us a sense of the lifetime, life cycle, what you what you go in with and how that grows?
I can't give you actual average selling price for our products, sorry.
Okay. Next question. We'll go back to three.
Thanks, Sharif. So, thank you, guys. I just wondered if I could ask a couple of quick ones. Firstly, the slide you put up on embedded navigation, the penetration rate of 36% in 2020 doesn't look a particular stretch, but is that because there's a lot of low-end vehicles going out without embedded on? And so the penetration rate in sort of the mid and high-range vehicles is closer to 100%. You know, how should we think about that mixed dynamic? And then secondly, I think you touched on legislation. Could you talk about the liability if I'm being driven around a corner by my grandfather, Kimi Räikkönen, and he crashes into the car in front of me because the network's down? Who carries the liability?
Are you working with insurance companies in a more positive manner that they're willing to actually engage and pay you for some of these systems? Thank you.
Sure. So, no, though I prefer the second question. The first question, I'm sorry. The first question was.
Embedded.
Embedded. Yeah, embedded penetration numbers that you saw were global numbers. So when you look at the more advanced market, the penetration rate's already higher. So when you look at all the markets in the world, you go to a country like India, and there are so few cars that have enabled navigation, yet the volumes are growing. So, you have to take that into account. So we do believe that in advanced market, penetration rate is both, the slope is much fast much higher, but also there is a significantly higher number already in the market. So, but those are also the markets where most value, today can be, obtained from as well. Second part of your question when it comes to liability, some part of that is within our control.
But to be, to be very honest, when it comes to long-term, fully automated driving, I think we're just at the beginning. We ourselves have discussions with insurance companies, some of the leading insurance companies in the world, and they are trying to figure out what does this mean for their models today. I really don't wanna speak on their behalf. OEMs are also looking at this, together with insurance companies. This there's a lot of work ahead for the whole industry.
We're being very proactive in this process of trying to work with the standards, you know, with standardization and, of course, the compliance authorities because, you know, we're—it's a very good question. And we also see this looming on the horizon. So we're very proactively engaged with the, you know, the right authorities and to drive this discussion forward.
Mic One, please.
Great. Thanks to Mike Walkley with Canaccord Genuity. Just focusing on HERE, growth driver, you've talked about 60% of future revenues already in backlog. So when you look at a one- to two-year horizon for your growth drivers, is it just executing against these long car cycles, or do you see incremental chance to sell services such as real-time parking, traffic information? Is that a bigger near-term driver? Thank you.
I think some of the opportunities in the near term relate to licensing the platform as a service. And this is a model that we're developing that, and we will move to in 2015. To date, we've been pretty much pure content licensing. So, I expect to, you know, see some growth out of that, certainly, as we hope with as I mentioned, the big internet players. But we also expect to, as I mentioned, scale our enterprise business. I think it's very relatively young. It's about a year old, and it's done very well in 2014. And we have great plans for it, you know, again in 2015, 2016. So it's not just growth through the automotive sector, although that is the majority at the moment.
We have a question there. Mic Three.
Thanks, Joseph Fassara from Barclays. Some of what you showed us, and I'm sure you have the greatest solution out there, but some of what you showed us, we've seen as well from some of your competitors, like, for instance, the live data and the sampling over multiple years to try and use that as a frame for traffic. So, what really is your competitive advantage here, except from the past relationships? And actually, the answer of that could be answering my second question, which is, how do you link that into the synergies with the rest of the business? Is it that HERE in a car works better with Nokia Networks, IMS, and services? Well, thank you.
Well, when we talk about competitive advantage, there's a number of competitive advantages. But certainly, if we just look at the map, I mean, I think what Ogi was illustrating is that we build an HD map. It's a very complex map to build. It's a very important asset that we're investing in, for the future, in terms of automated driving, Connected Driving . We're not building a map to drive search, and we're not building a map to drive search that drives ad placements and ad revenue. That's somebody else's business model. And if you work back from that, you build a very different map. You build a map that's very tuned to consumer, tuned to mobile, tuned to web, but beyond that, not very well tuned to, let's say, perhaps enterprise and certainly not automotive. So, you know, we will coexist.
I feel that what we're doing in our map innovations and our map investments is very different. I think a testament to that is clearly reflected in the business wins that we are getting through automotive, which, as you know, are very significant. They look very hard at what we do. We don't just show them PowerPoint. So, I think we feel confident, but we know we have a lot to do to complete and to deliver that HD Map.
Great.
The link to services and networks?
Yeah, sure. The LTE.
So, it's probably a little too soon to talk in greater detail, but in Detroit, we have publicly demonstrated at ITS World Congress ability of HERE and Networks to get together. Rajeev mentioned that a little bit and showcase vehicle-to-vehicle communication in milliseconds leveraging existing LTE network. So while we're nowhere near what I would call product-ready, this all started within the last six months of us coming together as an organization. We were already able to demonstrate how assets from location and assets from networks together can create entirely new use case that would allow us to do vehicle-to-vehicle that could be used for automated driving as well in the long run and benefit from that versus installing DSRC, which is dedicated spectrum, very expensive infrastructure would have to be deployed.
So, I mean, I think there are plenty of opportunities for us to explore that further when it comes to connected car digital infrastructure space.
Great. Thank you for your questions on HERE. Thank you, Sean. Thank you, Ogi.
Thank you. Thank you.
Great. So now, we'll go straight into our presentation on Nokia Technologies. Please welcome President of Nokia Technologies, Ramzi Haidamus.
Thanks, Matt. Hello, everybody. Good afternoon. I'm delighted to be here. I'm honored to be here. I'm on my third month at Nokia, and it's been a fantastic journey. I have been meeting with quite a bit of the team, and you're gonna be hearing me talk a lot about assets. And I want you to know that this comes from spending two and a half months conducting 70 interviews one-on-one, getting to know every person that matters around my new life. So, it's been a wonderful journey so far, full of surprises, and expectations exceeded. You might wonder, what do you mean by surprise? I found out that the majority, if not all, of the people that matter in the R&D team did not move to Microsoft. They all still were Nokia.
I thought I was gonna join Nokia and build a research and development team, but I found out that, with the exception of 35 people, the researchers and the developers that developed amazing components and software are still with Nokia in something called Nokia Labs and Nokia Technologies. So that gives you a strong confidence that we have a great start. I don't wanna talk to you a little bit more about where we're headed. So as you saw today from Rajeev, we have four areas we're gonna be focusing on in terms of putting us on the trajectory to grow the company and create value: our patent licensing business, our technology licensing business, our brand licensing business, and the incubation team, all supported by a world-class laboratory and research and development team. So why don't we start with who we are?
We're a company that is less than a year old, backed up by a 150-year-old culture and excellence in performance and an amazing research and development team and a huge patent portfolio that's second to none. We are also been freed from a hand that has been tied behind our back for quite some time. As you know, the purpose of the CTO's office in the past used to be to protect a very large and successful business. They did a great job because, at one point, Nokia had 38% market share. You don't do that with a weak patent portfolio. You do that with a world-class patent portfolio and amazing licensing team. Now, that's how we reach 38%. The good news is that that same team remains with us today.
We are in a position to unlock the patent portfolio potential, unlock the value, and start monetizing and maximizing the value of our innovation and our patent portfolio. How are we gonna do this? We will start with three businesses. One, you're already familiar with, and that's the essential patent licensing business. A great team has already delivered. You're already familiar with the numbers, but that's not enough. Most of our work so far has been in extracting value from the mobile area using our standard essential patents. The team has done a great job. But we can take those essential patents, license the remaining unlicensed mobile companies, and go beyond that because some of our technologies that are essential also read on non-mobile devices. I'll give you an example. H.264 is a video codec. Nokia does not belong to any licensing patent pool.
Therefore, it's upon us to go out and extract value for H.264 from any product that uses that technology, whether it be mobile or not, in the essential patent world using FRAND conditions, of course. Beyond essential patents, we have our implementation patents. This constitutes 90% of the patent portfolio. There's a lot of area here. There's a lot of room to maneuver. There's a lot of products and more and areas we can go after. Currently, we are investing in this area, which I'll be talking to you about how we're gonna monetize the remaining of the patent portfolio. Then there's technology licensing. I'm gonna be spending quite a bit of time today on technology licensing because it's the least understood business, and it means different things for different companies.
So it is important that we spend a little bit of time understanding what that means. However, I will argue that we have been doing this for over a decade. We have been doing this for over a decade. What do I mean by this? Well, if you rewind about a few years and you take a look at how Nokia operated, we had a CTO's office, which is today called the Nokia Lab in Nokia Tech, which was there creating inventions, all types of amazing products, whether it be cameras or video codecs or audio codecs. And right next door, you had the devices team that were asking for wonderful features to be put in those products so they can sell their phones and differentiate themselves from the competitor. The CTO's office would deliver a camera or deliver a video codec or what have you.
And then the device engineer or the product manager at Nokia would integrate it and deliver it into the C market. And as you know, Nokia did quite well for a long time. What I just summarized to you is technology licensing in a very basic form. And I'll talk about that a little bit later. Then there's the brand licensing. We have a very valuable brand. And as Rajeev said today, yes, it is diminishing in value. And that is why it is important that we reverse that trend very quickly, imminently. And I will share with you what that will look like today. But I know many of you wanna hear about patent licensing some more. But before we do that, I'd like to talk some more about technology licensing. Here is a map of what technology licensing will look like at Nokia.
The research and development team or Nokia Labs or what used to be called the CTO's office is there. I have seen some pretty cool, amazing technologies that are ready to be brought to the marketplace. That in itself is not alone. Just taking a technology and throwing it over the fence to your customer doesn't really help. We need an engineering team, a product management team, a go-to-market team. We need a team that understands the needs of many customers, not just one devices company but hundreds of them and not just in the mobile business but in multimedia and beyond, maybe even healthcare one day. That team, after they build a product that believes meets the market, will hand it over to a sales team, which we still need to build.
And that sales team, working with a top-class negotiating legal team, will deliver to the customer value in the form of software, reference designs, and one day, maybe even sensors. When this product gets delivered to the customer and the customer sells it into the channel, that triggers a royalty event. Let's double-click on this further. Today, we have an audio engineering team in Finland that's working on some superb audio technologies, recording in surround sound from his cell phone and playing it back. We see recording in high-def. Why not record in surround sound and playing it back?
You can imagine a research team like this delivering the core technology to a productization team that will package this software on a CD along with the proper documentation supported by sales and sales operation, delivering it to a customer that might build a television, a phone, a camera, anything that might need some high-end audio for recording and playback. Once a product product like this is built and delivered into the channel, that triggers a royalty event. Now, unlike the FRAND world, unlike the essential patent world, the beauty of this model is we're not constrained by any one model. The essential patents are very strict in the sense of how you deliver them and how you collect 'cause you have to treat everybody under the same conditions. The beauty here is you can be flexible.
You can say, "I wanna collect on a per-unit basis." If you have a freemium based model , I'll attach myself to your freemium model. If you have a free model but you have an ad-based model, and you wanna attach yourself to that, you can. So this opens up all types of possibility from a licensing perspective. And that's our technology licensing business. Let's back up a bit. If you are one of the team members sitting either in patent licensing team or in the technology licensing team or in the brand licensing team, what is the market you're going after? This is the market that we see. If you're in patent licensing, as I will demonstrate later, with 10,000 patent families constituting both essential and non-essential, we cover just about every market you're looking at here.
If you're in brand licensing, clearly, you wanna start with the mobile devices, where we're loved in many countries, tablets, and in certain countries, even more beyond these two areas where Nokia is known for. And of course, in technology licensing, you take the dozen or so pro-projects that we have, and you try to see where you wanna bring it and which market you wanna address to differentiate your customers from their competitors. So now that I've shared with you who we are and what we are, let's talk about our assets. What is our starting point before we start investing further? As I mentioned to you earlier, I have interviewed everybody that's going to make a big difference on this team.
And coming from an ex-CEO of a patent licensing company and a head of a worldwide technology licensing business, I can tell you that we have a team that's second to none and a patent portfolio that's second to none. You add that to a brand that's worth in the billions of dollars, and you have some pretty lethal ingredients you're working with. This is a dynamic picture I wanna share with you. This is not a snapshot. What I mean by that is, yes, we invested EUR 50 billion cumulatively and historically, but our plan is to continue to invest to create more patents in multiple areas. And this continued investment is key to us adding value into the marketplace. Our goal is not just to go out there and purely monetize our patents. Our goal is to create ecosystem and create value in the marketplace.
Yes, we wanna maximize our patent portfolio, but we also wanna create value and reverse the trend on our brand. What's even more interesting here is the family of standard essential patents. I know companies who will be celebrating in the street if they had one essential patent on a standard. We have 1,200 that will go to 2024 and beyond because we're gonna continue to file patents. As you heard earlier from the Net team , we're working on 4G and 5G. So is tech. We're working together and coordinating efforts. How about non-mobile coverage? Now, as you can see from this area, our patents and most of our monetization that has taken place so far by the patent licensing team has covered the standard essential patents on radio and other technologies you can see from this graph. But what about software? What about user interface?
What about maps and location? Well, another surprise I found out, a pleasant one, is that the tech team also manages the HERE IP portfolio. This means when we do approach companies, we're covering the map and location intellectual property area and not only the other mobile space. So it, again, beefs up our approach to the patent licensing world. And you might want a hard data point about the team. What do you mean they're great? What I mean is that 75% of these patents have been created by the team that still is at Nokia Labs today. That's the strength of the research and development team that we have with us today. And the value of the Nokia brand, it's still up there. It's in the top 100 brands according to Interbrand. But we need to fix this trend.
We need to fix this trend immediately by starting to license where we can license. Many of you know that there are certain restrictions on the Microsoft deal when we did the divestiture. This gives you a couple of data points on those restrictions. The first one is we cannot license our brand and smartphones before Q4 of 2016. The other one is the feature phone area, which is shrinking and fading away. Nevertheless, they have a license for 10 years on the brand. So it is our goal to start licensing our brand in areas other than these two restricted areas, starting this quarter, actually. What about our objectives? Let's talk about what we're planning to do short-term and the long-term. It starts with research. We plan to continue to innovate.
We have to stay at the edge of research and innovation. We'll continue to make sure that we are the best in this market. Rajeev mentioned the idea of phased and milestone-based funding, a responsible way to manage a technology portfolio where you double down on successful technologies and you stop others. What I wanna highlight is that standard will also apply to research. This is not research to no end. This is research with an investor for every researcher and a customer for every researcher. Meaning, if you're sitting in the lab, you have to think, "Who's paying me to continue my research and to what end? Even if it's five years out, why am I doing this work?" So this kinda discipline will be introduced in the labs as much as it will be for the technologies.
The research will cover R&D standardization work, which, as you know, creates a huge patent portfolio for us that's solid for the entire company. It will include emerging areas, so not necessarily just mobile area. So we're gonna go beyond. And we'll work on disruptive technologies, one of them being the graphene example that I will be talking about today, a truly interesting area for us to discover. As far as objectives in the patent licensing, it is our goal to focus on monetizing our standard essential patents outside of the mobile area. There remains to be a very significant target in the mobile area, and I'm gonna cover that. But equally important to start diversifying our team so that we're looking beyond the mobile area. Any product that uses our standardized technology is a target for us.
There will be a new team that's built that will be focusing on implementation patents, meaning non-essential patents outside of the standards world. The technology, it is our goal to build a portfolio of products that can get delivered on a B2B basis, sometimes supported by the brand, sometimes not. These technologies, as I showed you in the audio example, will constitute brand, patents, know-how, support, all in the name of providing our customers best-in-class technologies that they cannot get anywhere else. The idea is to generate reliable, repeatable, predictable revenue in the long term. On the brand licensing, it is our goal to immediately start licensing the brand in the areas where we can, in the areas where the brand is relevant, and start monetizing it. Let me just pause for a moment.
I think we all know of some pretty bad examples out there of people licensing their brands and having that brand deteriorate very quickly. This is not your average and typical brand licensing exercise. As I found out what our assets are, I also found out that the great industrial design team that has done some amazing jobs with our phone still is with us in Sunnyvale. The software that has been built and distributed, in some cases, is still with us. And therefore, this is a brand licensing team backed up by some very strict industrial design guidelines, software guidelines, with the idea that if you are a consumer and you walk into a store or you download or you buy your new Nokia-branded product, it will look and feel and behave just like as if Nokia made it.
Our goal is that the consumer will not be able to differentiate between a branded licensed product and a Nokia-built branded product. Of course, here in this room, we should know the difference. The P&L picture's different. The revenue's different. And the entire structure of the business is different. And then there's incubation. Our goal is to experiment. Our goal is to create products that have some very interesting and innovative features, which then we give to the technology licensing team, and they demonstrate those products to their potential customers. It's very interesting when you actually build the thing that you wanna sell the sensor for or the software for, and you show it in full functioning mode to your customer when you're in the technology licensing business as opposed to sell them an idea. So this is the demonstration team.
This is a rapid prototyping team that will take what technology licensing wants to sell. They will build it in a real product, and they will demonstrate it to the customer. Occasionally, we might come up with some interesting product ideas, B2B or B2C, and we will consider taking those products directly to the consumer. But no such decision has been made yet. So what will it take to do all this? It's gonna take investment in all five of the areas I just described. In the labs, we're gonna need to invest in renewing our patent portfolio. We wanna continue to maintain around 10,000 patent families. We will divest. We will sell. We will abandon, but all with the goal of keeping about an average of 10,000 high-quality patents to cover multiple areas.
We wanna expand our licensing effort and invest in a team that can tear down products, reverse engineer them, and identify where some of the features violate some of our patents. Most of the time, there will be non-essential patents that are being violated. Therefore, we have to go and create claim charts and go after some of the targets. And that's how you need to invest in this area. In the technology licensing, this is an investment in a typical engineering company, a high-tech company. So engineering, go-to-market, sales and marketing, product management. So you'd imagine the type of investment here that needs to take these technologies to the marketplace. Brand licensing, this is a small team. This is not a large team, but it has to be somebody who understands the brand and needs to keep the highest possible standards.
So a small team that will go out and make sure we pick the right ODMs and IDMs that will work with us to make sure we build top-notch products and bring them to the market as if they were our own. And then the rapid prototyping team that's focused on experimentation and possibilities. Most of the time, the products will go directly to technology licensing to demonstrate. And like I said, occasionally, we might take a look at building the product ourselves and get back into the business. What about short-term? Our short-term objective is to continue to monetize our our patent portfolio. As I will mention in a minute, there are quite a few companies that continue to be unlicensed. We'll build on our momentum today and continue to make sure we license all of them and generate revenue and value for the essential patent portfolio.
As Rajeev mentioned, we do have an arbitration pending with Samsung. We do believe that it will come to conclusion sometime towards the end of 2015. Of course, expansion of the both implementation and essential patent continues to be our short-term objective. Occasionally, you hear noise about patent licensing around the world, noise from regulatory groups about asking certain companies to change their behavior in the way they're licensing essential patents. I just wanted to share with you that today, Nokia has not received any request to change the way we license our patent portfolio. So why do we believe we can succeed? Let's start with our core. Let's start with our strength. We know mobile business like no one else's.
If you were to take a typical mobile manufacturer and you take all their SKUs and ask yourself, outside of the essential patent world, what might some of their feature read on in terms of our patent? This is an example of how many patents will be touched by the features in those phones. So you can see that these are not short conversations we're having with mobile manufacturers. This is a very strong patent portfolio that will be monetized over time. And what about our track record? I would say looking at these companies, we had a pretty good track record. So that should give you the confidence that moving forward, we'll continue to deliver. We believe we have a great team that has built wonderful relationships.
Even in the patent licensing world, where things can get a little hairy, a little touchy, they've done a wonderful job keeping our litigation costs down and settling at reasonable rates where we can deliver value and continue to be partners. 'Cause you these are the same companies we're gonna come back to and sell technology to in the future, as I mentioned. We believe our approach to licensing has kept our regulatory risk quite low. And I think over time, as we manage our business model, we're gonna be able to predict our revenue better and give you a higher quality, more predictable revenue profile. Again, what about the remaining licensing, opportunities for us in the mobile space? Today, we have licensed at least 8 of the top 15 vendors. And this is not comprehensive, by the way.
But we do have a target of 7 unlicensed companies in the mobile space, which we plan to go after this year. You add this to the Samsung arbitration, and it's enough to keep the team pretty busy over the course of the year. What about opportunities beyond the mobile market? So if you extract the mobile market from the TAM I showed you earlier, you're left with $385 billion in TAM in 2014 or $463 billion in 2018. Again, whether you're sitting in the patent licensing group, in the brand licensing group, or in the technology licensing, this is a pretty attractive opportunity. So I would argue that we are starting from a wonderful place. We are positioned with a great team. We have an amazing patent portfolio that's second to none.
We have a strategy to build a patent licensing team to go beyond essential patents, focus on non-essential patents, a technology licensing team that's to be invested in and built, an industry team, leading portfolio in itself. Our key objectives in the short term will be to monetize our patent licensing portfolio. So the team is today ready to engage and is already engaged with multiple companies in the mobile space, and we'll continue that engagement. In the long term, we're gonna continue to invest in innovation and technology licensing, in our brand to reverse the trend that we've shared with you, and make sure that we monetize our product across the board, our IP portfolio across the board. And we wanna leave on the table the possibilities of getting back into products and services if it makes sense for the company.
We believe we are best placed to start creating value today. We have an amazing team with great relationships. Our opportunities beyond handset are clear, all backed up by a clear overlap between our patent licensing and the markets that they read on, our patents and the markets they read on. And our track record positions us in a way that shows you that we have the right that we have what it takes to start delivering for you. So with that, I'm going to open it up for questions. I have my colleague, Paul Melin, who has taken on the new role of head of technology licensing. Welcome, Paul. Paul used to be the head of the patent licensing for several years. So I'm really happy to have him on my team. So let's get started. Okay.
Jeff, okay. Let's open up with the mic number 3, but this direction.
Thanks. It's Lee Simpson here from Jefferies. Just two or three quick questions, if I could. Maybe just in regards to that patent claims and regulatory risk that you mentioned in your presentation, can you give us a sense for the size of legal counsel or patent lawyers that you would have and how they're distributed globally, you know, M&A and we're dealing with NDRC in China, dealing with the EU? Secondly, you know, we're moving towards $50 reference designs and handsets, in many cases. I just wonder how that might limit ambitions for influence and design with ODMs and where you can get brand value there. Then thirdly, the next couple of years, OpEx is moving on meaningfully, we've been told. I just wondered how that would split between 5G implementation, brand, and then with sales teams and go-to-market teams as well. Thanks.
Sure. So I won't break down the legal cost, you know, line item by line item. But suffice it to say that, first, we have our own team that is approaching customers directly, that is global, obviously, depending where the manufacturers are and where the ODMs are. So that is the tech team. But on the governmental relations and s relations team, this is one of the examples of great synergies we find with the rest of the company. Net has an excellent team of experts who have been doing this quite well, given the type of business Net is in. And we work very closely to make sure that our approach to regulators and government relations is well-coordinated. And that's a global effort. Net has hundreds of offices around the world, and we make sure that we make use of some of those assets.
This is not just limited by tech's own capabilities. Before I move on to the next question, Paul, do you wanna add anything on the regulatory area?
Well, if I understood correctly, the question was also about the size of the team. So, in the legal area, of course, we have very good in-house capabilities, but that's typically an area where you want to also leverage the best local expertise through externals. So we are not constrained by the size of our team.
On the second question, the reference to the reference designs, as I mentioned earlier, the model is very flexible. You go out and you try to license your brand. You have some very solid examples for what additional premium a brand can extract. And of course, we've done this research already, and we understand what we can command as a premium on a product that has a brand versus a product that does not have our brand. And it is that premium that we'll be going after. And we believe with a reasonable approach, we can close a good amount of business. And the third question, again, was the distribution of the OpEx? Okay.
So, I would say look, I'm not gonna go into the detail of our OpEx structure, other than to say that these five areas are equally important. What we're doing is we are investing in a very carefully architected milestone-based funding. And that is a very rigid venture capital model. So we're not soft. We don't fund things just to be nice. We do them because they pass some significant milestone either on the business side or on the technology side. Some projects will not go through, and some projects will. And that's the way we're gonna manage our cost. But because we are doing this across five businesses, you can imagine that's gonna take some investment for some time.
I'll take a question here. Mic four.
Thank you. Per Lindberg from ABG. At the time of the deal being struck between Nokia and Microsoft, Microsoft told its investors in justifying the EUR 1.65 billion cross-licensing deal that it considered, i.e., the legal counsel himself, Brad Smith, that Nokia's wireless connectivity portfolio was one of the two strongest in the world, the other being Qualcomm's. Given that, do you agree with this statement? And if so, how do you differ from Qualcomm qualitatively, quantitatively? And how do we explain, if possibly, the 10x difference in Qualcomm's extraction of revenues from device manufacturers compared with Nokia, in the recent past? Thank you.
Sure. We have a very strong patent portfolio, as I mentioned earlier. This is a business that is about 9-12 months old. So you have to keep the trajectory in mind of where Qualcomm is starting from and where we're starting from and where we're headed. Yes, we do have connectivity solutions, and we do have connectivities and demos that I have seen. The question is how to go about monetizing it. Do you use the patent licensing approach? Do you use the technology licensing approach? Do you build products and back them up with a strong patent portfolio, or you just go after the patent monetization scheme? Then these are some of the strategies that we have to yet work out.
I don't wanna get into an apples-to-apples comparison between us and Qualcomm because a lot of differences, being in a chip company and tying a chip business to the patent licensing business is a whole different ballgame that I'm not really ready to comment on. I'd leave that to Qualcomm to do. But we're really in a very different situation. We're not in a semiconductor business. We're in the licensing business, either in the know-how licensing or patent licensing business. Did you wanna add anything to that? You were pretty familiar with some of that.
I think you covered it.
All right.
Let's go with Kulbinder with mic three.
Thanks. Just one clarification and a question. Ram, did you mention that the Samsung phone will be towards the end of 2015, I think? I think that was deliberately said, I assume, because it wasn't a mistake because previously, Nokia hadn't even said when it would be in the year. And has it been delayed?
No. It's sometime in 2015. That was not deliberate.
It was a mistake?
Yes.
Good.
Humble, remember?
I'm happy I've got now. I've forgotten my next question. Oh, yeah.
Did I surprise you?
So basically, on the 7 of the 15 vendors that you are targeting.
Mm-hmm.
In the handset industry.
Mm-hmm.
Are many of them Chinese? That's one question. And then the other thing is, have you already reached out to all these vendors, and you're in talks with them? And I'm just kind of curious how that process works, that you're reaching out to them. This is, like, a multi-year process. I'm just trying to think. This is gonna be three years before we hear, or we'll hear things about in 2015?
Yeah. So Paul is the one who's been doing most of this work until I arrived. So it's a great question for Paul to take.
Many of those companies are Chinese. We have been in discussions already before the closing of the Microsoft transaction with many of them. We are currently in negotiations with many more. The 15 was just a summary of, for the statistics here. We have a more broad-based approach to towards the market. We are not commenting on the exact timing of, when these deals are expected to close as such.
Thanks. Questions from someone we haven't? There's one, back there. Cindy. Yes, perfect.
Thanks. It's Kai Korschelt from Merrill Lynch. The first question.
Thank you.
I changed seats. Sorry. I was trying to trick you. It worked anyway. Okay. So I just had a quick question. Obviously, given you just started, you know, in the sort of fairly recent past, by all means, your royalty rate looks, you know, fairly depressed as a consequence of the cross-licensing. So I'm just wondering, how do you think about the kind of starting points, you know, looking, obviously, at, you know, other companies, the royalty rates they generate? So how do you look at kind of what ultimately is the opportunity for the business without, you know, asking, obviously, for specific guidance on your target royalty rate? But clearly, there's, you know, there's an opportunity. So I'm just wondering what, you know, what areas you look at. And the second question was, just on the OpEx.
I think this year, you, you probably meant to have an OpEx run rate of something like EUR 200 million. Obviously, you are talking about a significant increase. I'm just wondering, what magnitude of increase should we think about, roughly? Thank you.
Yeah. We're not. Let me start with your second question. We're not really guiding to any one OpEx target, neither a ceiling nor floor. We are currently in investment mode. But what I can, you know, the level of comfort I can share with you is that this is a very disciplined approach to investment. This is not just build it and hope they will come. This is, build it very carefully, show demonstrate progress before you get your next tranche. And this is a very responsible investment. So I can assure you that that will happen across the five groups of the company we're investing in. As far as modeling, to my knowledge, we have not announced anything about our royalty rate. So I'm not gonna comment on what our starting point is.
I would say our starting point will be depending on the business, depending on the technology, the value it brings, relative to the product. There's many things that play out. Now, I'm specifically talking about our technology licensing business because in the patent licensing business, things are very tricky right now. There's a lot of legal elements and arbitration. I'm gonna leave that on the side. Specifically around technology licensing, where we have a lot more freedom to set the right price, there is a lot of proof point out there as to what kind of value your technology can command depending on what products it gets into goes into the price of that product. Are you charging a percentage of that product? So it's ASP or selling price or a tiered starting fixed fee?
Is there an ongoing R&D relationship with the company, or is this just a transactional? So we have multiple opportunities here to architect the right business model for the right markets and the right companies. As you and as you can tell, by the way, I'm talking about it, this has not been decided yet. We have not launched any technology licensing business yet. So this is all in the process of being architected. But the beauty of the approach is its flexibility, unlike in the essential patent world. And in fact, Paul is going to be running the technology licensing business moving forward. Paul, you wanna add anything to that?
Yeah. Maybe, maybe if I touch on your first question about the royalty rates, kind of, we have had a programmatic approach towards licensing our standard essential patents in the cellular area for a long time. So we do have a established program structure and price level, for substantially cash-only licensees. So situations where there has not been a significant, reciprocal license to influence the net royalty terms. When you look at the largest part of the market, the majority of our existing agreements with the leading vendors have been negotiated in a very different situation when we also were receiving valuable licenses for Nokia's device business. So just looking at our royalty revenue and dividing that by the licensed market revenues does not necessarily give you an accurate picture about the monetary terms that we are negotiating about.
Sure. If you could take one from back there.
Yeah. Johannes Schaller from Deutsche Bank again. Thanks. You talked about the regulatory situation, and you said that you haven't really been asked so far by any regulator to review how you charge your licensees. I guess that is somehow also related to the fact that you haven't really tried to raise the kind of fees that you charge to your existing licensees so far. So could you help us maybe a bit understand from your discussions you had with regulators how much headroom you have to increase, really, the amount you charge for existing licenses? And also in that context, how should we think about growth going forward? Is it gonna come more from signing new licensees, or is it also gonna come from charging more to existing licensees? Thank you.
Yeah. I'll take your second question first. The majority of the growth will come from signing new licensees. This is, as I showed you earlier, the TAM is quite significant. We've only tapped into the mobile market. And even within that market, we've tapped into the essential patent licensing. So you can imagine the number of companies out there, on both types of technologies, the type of essential patents and non-essential patents, different markets, different technologies, gives us a very large area to go and pursue as opposed to try to extract the last dime from existing companies. And I go back to your question about regulators. We have not, as I mentioned, had detailed discussion with regulators to really revise our pricing. And therefore, it's not really a discussion that has been had.
May I add a bit of color to that? So, as you may know, in the connection of the Microsoft transaction, Nokia's patent licensing was a matter of significant public discussion. And, when that transaction was approved in several major jurisdictions, the regulators took a very detailed look at our licensing program and at the terms that we are licensing with and some of the existing license agreements. None of those regulators asked us to change our practices. Rather, many of the regulators asked us to continue to license along the same terms.
When I'm now talking about the same terms, I'll kind of refer to my previous comment that the terms for a substantially cash-only agreement are then variable on either per unit or per revenue basis. When you look at the possibilities for us to increase our royalties, the lack of need to acquire inbound licensees is one of those drivers that may give us the ability to increase the balancing amounts that we receive without actually changing the one-way per unit fee that we would charge in a substantially cash-only situation. Now, what gives us flexibility is the ability that we can now also expand the scope of our license offering beyond those standard essential patents that we have been focusing on in the past.
We can add new technologies into the mix on a voluntary basis and helping our licensees improve the functionality of their products and bring new features to the market. So we can also increase the per unit opportunities by expanding the scope of the licensees. But then that is very much driven by the value that we actually bring them with those additional technologies.
Final question, mic three with Sandeep.
Thanks. A couple of questions here. You talked about most of your opportunity coming from this new technology licensing that you are embarking on. But when you look at the EUR 500 million Nokia generated last year before this addition of the Microsoft payment, all of most of that was through cross-licensing agreements rather than from, as you said, a cash direct cash payments from those vendors. So would there not be growth on that cross-licensing as those old cross-licensing agreements end and they're enrolled to, to, to generate a cash payment to Nokia? And secondly, when you look at that group of like new licensees that you are targeting in this market, have you already? I mean, as you've, you've talked about, you know, you're gonna start talking to them in 2015 many of those others in the handset market, particularly in 2015.
But some of them have had agreements with you in other guises because they have many acquired businesses, etc. So does that change the overall position of the licensing? So is that gonna be an earlier what I'm trying to figure out, is that an earlier driver of your revenues than technology licensing, which may take two, three years to materialize in terms of real revenues coming?
Relative to the technology licensing business, the general answer is yes. Patent licensing will be the major driver in the next year and beyond, and as you see the technology licensing ramp up. So that goes without saying just because the team is in place, and many of the companies that I mentioned are already on notice. This is not gonna be, like, some big surprise. So we have discussions with them already. And these discussions, as Rajeev mentioned earlier, take 18 months, from the time of first notice to the time we might have an agreement. If you don't end up in court, it can take quite some time. And a lot of discussions have begun. So yes, it will be based on that.
But in terms of the mix between cross-licensing, turning into cash, why don't I turn over to Paul and have him answer that question?
Yes. Well, it is a mixture. As we showed in the numbers, there is still a substantial number of companies unlicensed which are kind of purely new opportunities. And also the scope of the licensees we have agreed with the already licensed companies varies also company by company. And these opportunities will come as some of the agreements terminate. But mostly, we are looking at expanding to new licensees.
Thank you for your questions. Thank you, Ramzi. Thank you, Paul.
Thanks.
So I hope today's presentations have given you a new appreciation of the reinvented Nokia and where we're heading. For some reflection thus on today's event, please welcome Rajeev Suri.
Thank you, Matt. Thanks to all of you for listening and engaging over the course of the day. It's been quite a journey for Nokia over the past few years. Since our last CMD, pretty much everything has changed. A new CEO, a shift to Windows Phone, the launch of a new strategy and massive restructuring at what was then NSN, the creation of HERE, the return of NSN to profitability, the acquisition of the Siemens share of NSN, the sale of the devices business to Microsoft, another new CEO. Now, here we are today. Some have suggested that this is the end of our journey, that the big opportunities to create value are behind us. I hope that you got the sense over the course of the day that we do not believe that to be true. In fact, not at all.
While we have learned from the past, we are not shackled by it. In fact, we believe we're only at the start of our journey. We begin with a clear sense of direction, a sharp vision and strategy, a relentless focus on execution, ambitious but achievable financial goals, a commitment to creating value for our shareholders. We also talked about our guidance, what we think we can deliver in the near term, and some of our goals for the long term. But while our direction is clear, our final destination is not. We need to learn, to test, to gain more experience, to see what is fully possible. Do I believe we can improve profitability in HERE while also delivering growth? Yes, absolutely, 100%. What we do not yet know is just how far and how fast.
We know there are opportunities for relatively easy short-term cost improvements, but deeper structural changes like we have done in Networks take longer to assess, implement, and deliver results. We also believe the growth potential in HERE is good as well. But if you take the enterprise segment as an example, we need to see just how much and how fast. The situation is similar when it comes to Nokia Technologies. We have no doubt about our ability to get more from our stellar patent portfolio and to successfully create new opportunities for the future. But as I suggested this morning, these things take time. Just how far we can take it is very hard to predict at this point. For Nokia Networks, we have created an operationally powerful machine. This is a unique competitive advantage that we don't intend to lose, ever.
In fact, it is particularly important at a time when you have probably listened to some fairly similar things from our competitors over the last few days. The areas to target for growth are no secret. I'm sure you've heard about cloud and small cells and virtualization, about adjacencies, and about expansion, about gaining share in a low-growth market. But the reality is that our portfolios are different, and we have different focus areas. Even more than that, we believe our operational model and lean cost structure give us an advantage that others will struggle to match. It enables us to go after share while minimizing the impact on profitability. I'm pretty sure that you also heard plenty about restructuring and ways to take out costs earlier in the week.
We know something about this topic and know that the early phases tend to be about brute-force reductions where the risk of losing focus on customers is very high. We went through that phase in 2012 and have since moved on to a much more sophisticated approaches that can have a deeper and longer-lasting impact. But we also know that we need to go beyond operational effectiveness and efficiency and try new things and expand into new areas. I'm sure that most of those activities will be successful, and it is our responsibility to make it that way. Exactly how much, however, we will only learn in time. If our ambition was low, it would be easier to give you clarity about our final destination. But it is not. In fact, far from it. I said earlier that we are not a status quo team.
We have ambition, and we have drive to do great things, to build a Nokia that meets its near-term commitments and is strong and sustainable for the long term. If we were runners, we would target to run a sub-2-hour marathon. Even if we fell a bit short and only clocked 2 hours and 2 minutes, that would be a pretty good achievement. In fact, it would be a record time. But it would still leave us hungry for more. I'm sure we will have ups and downs in our future marathons where our pace does not meet our ambition. But our focus is clear, and that is on creating shareholder value. If delivering that means buying businesses, we will do so. If it means selling them, we will certainly not cling stubbornly onto any assets.
Today, however, we believe we have three strong businesses well-suited to meeting the needs of the changing world of technology. We believe we have the right strategy, the right team, and the right ambition. Our journey is just starting, and we're ready. With that, I wanna thank you for attending. Thanks for listening, and thanks for your support. Matt, back to you.
Thank you, Rajeev. Thank you again to everyone who joined us today. Please enjoy the reception upstairs. I'd like to remind you that during the presentations today, we've made a number of forward-looking statements that involve risk 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 these in more detail in the risk factors section of our 20-F for 2013 in our interim reports and in our Capital Markets Day release issued today. Thank you.