Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Nokia conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I will now turn the call over to Mr. Matt Shimao, Head of Investor Relations. Sir, you may begin.
Hello, and thank you for joining us for today's conference call. I'm Matt Shimao, Head of Nokia Investor Relations. Stephen Elop, President and CEO of Nokia, and Timo Ihamuotila, CFO of Nokia, are here in Espoo with me today. During this call, we'll be making forward-looking statements regarding the future business and financial performance of Nokia and its industry. These statements are predictions that involve 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 on pages 13 through 47 of our 2011 20-F and in our strategy-related press release issued today. With that, Stephen, over to you.
Thank you, Matt. Since the press release was issued 5.5 hours ago, and most of you have been able to read and think about the information in the release, I will keep my opening comments brief so we can take as many of your questions as possible. Today, we outlined how we are further focusing our strategy to build Nokia's future, and we lowered our outlook for Q2. To put this into context, in the 16 months since we unveiled our new strategy on February 11, 2011, we've made progress in many areas, but we've also faced challenges. We delivered award-winning Lumia and Asha products, which demonstrate our great product design and software innovation. However, the competitive environment in the mobile device industry has evolved, and our financial performance has suffered.
Not only do we need to act decisively to preserve our strong financial position, we need to ensure the long-term competitiveness of Nokia. The good news is that we believe we have the assets to create shareholder value. We can build on our strengths, our brand, design, and scale. In addition, as we assess the competitive environment, we believe our intellectual property and location-based services assets are highly valuable. Our IPR portfolio provides us with a source of recurring cash flow, with an estimated annual IPR royalty income run rate of approximately EUR 500 million currently. In addition, the trend of computing going mobile is very clear, and in this light, we believe the value of our industry-leading IPR and location services assets is tremendous, with significant value creation potential ahead.
Moving forward, as we reduce our OpEx structure, we intend to concentrate our efforts behind our most promising opportunities. We plan to invest to broaden the price range of Lumia devices and create differentiated Lumia products and experiences. We plan to invest in location-based services as an area of competitive differentiation for Nokia products. We also intend to extend our mapping technology to multiple industries to strengthen the platform and generate new revenue. In mobile phones, Nokia intends to improve its competitiveness and profitability. Nokia aims to further develop its Series 40 and Series 30 devices and invest in key feature phone technologies like the Nokia Browser, aiming to be the world's most data-efficient mobile browser. However, we must reduce our cost structure in order to put devices and services on a clear path towards profitability.
We believe we have the net cash needed to manage through this transition, and the scope of today's changes is designed to ensure this remains true. We now target to reduce our devices and services non-IFRS operating expenses to an annualized run rate of approximately EUR 3 billion by the end of 2013. This is an update to our target to reduce devices and services non-IFRS operating expenses by more than EUR 1 billion for the full year 2013, compared to the full year 2010 devices and services non-IFRS operating expenses of EUR 5.35 billion. This means that in addition to the already achieved annualized run rate savings of approximately EUR 700 million at the end of first quarter 2012, we target to implement approximately EUR 1.6 billion of additional cost reductions by the end of 2013.
The difficult impact is that we plan to reduce the number of Nokia jobs by up to 10,000 by the end of 2013. We have also made changes to the senior management team. In February 2011, we outlined a new strategy for Nokia. Today, we are building on its strengths while also ensuring focus on those elements that will build our future success. As Nokia has done in the past, we are making the changes that will allow us to emerge as a more agile and focused competitor. With that, I will now turn the call back over to Matt for Q&A.
Thank you, Stephen. For the Q&A session, please limit yourself to one question only, since we intend to end this call at 3:45 local time, which is approximately 40 minutes from now. Operator, please go ahead.
At this time, I would like to remind everyone, in order to ask a question, press star followed by the number one on your telephone keypad. Your first question will come from the line of Gareth Jenkins with UBS.
Thanks, Stephen. Just, I guess, a strategic question around operating systems. You mentioned that you'll invest further and develop further S40 and S30, and I just wondered whether you feel that going forward the adoption of Android at the low end is feasible? Is it something that's desirable? Whether you feel that you can take Lumia down to low enough price points before competition intensifies, as we see Android devices push down into kind of sub-$100 and lower over the coming months?
Great. Thanks very much for your, for your question on this, because this is one of the key strategic, if you like, frontiers or, or elements of everything that, that we're focused on. First of all, Series 40 and Series 30 in the feature phone opportunity, we see as a continued area of opportunity for us, even although it's in a declining market. We have a strong share position, and we can continue to maintain that or potentially even increase it if we, if we are successful in our plans. So we will continue to invest in real innovation, real advances in, in that product set of product lines. However, it's not about Series 40 competing with a full-on Android experience. Our strategy to compete with Android is through Windows Phone and the Lumia product line. That's very clear and unambiguous for us.
We don't consider it an appropriate approach to try and compete in part of the markets with Android and Windows Phone and so forth. We think we need to be very focused on Windows Phone. Now, one of the key elements of what we described today in terms of our refocusing of strategy was our intent to broaden the price point range that we're pursuing with Lumia. We're able to make those statements because of specific support from Microsoft in terms of engineering and other forms of support that allow us to achieve things that we did not previously have line of sight to. So it is very much the case that we're pursuing lower and lower price points with the Lumia product line to compete face-to-face with Android.
Mm-hmm. Yeah, Timo here. Maybe it's worth noting that we just launched the new full touch feature phones, and we continue to think that in that market, i.e., the feature phones market, which can well be a consolidating market, that the key driver for value in the future will be the lowest cost, full touch experience with the lowest total cost of ownership, access to internet, i.e., the most efficient browser, and we are doing these things.
Thank you, Gareth. Operator, next question, please.
Your next question will come from the line of Mike Walkley with Canaccord Genuity.
Great, thank you. Yeah, Stephen, just a high-level question. You know, given the need to rapidly innovate your smartphone and feature phone lineups, you know, how do you keep the team focused with management changes and also, in another round of larger headcount reductions? How do you make sure you get your products out on time to keep the business running forward?
Thank you, and it's a good question because unfortunately, whenever you make restructuring moves and so forth, there are different elements of disruption and so forth that are introduced, and so we're very focused on how to do that. Of course, if you look at the areas where we're saying we're specifically investing and putting more emphasis and so forth in terms of how we look at the business, as an example, the Lumia product line is an area of obviously principal strategic import and focus for us. What that means is that in those groups, the impact of these types of changes are much, much less and perhaps very isolated, relative to other areas within the organization where we are taking a more aggressive stance.
So there are certain R&D projects unrelated to our principal areas of identified focus, which are heavily impacted, and of course, we're making that decision because we've deemed that certain initiatives are not as important now relative to our primary focus. So there the price of disruption sadly is low, and so we're more willing to be aggressive there. And of course, behind the scenes, there are areas where we are making significant changes that we have to be cautious about how we implement. Corporate functions, for example, we have to be very thoughtful about how we make those changes so that they don't disrupt the primary product-making activities and also the primary selling activities in our most important markets.
Thank you, Mike. Operator, next question, please.
Your next question will come from the line of Alexander Peterc with Exane BNP Paribas.
Yes, hi, thank you for taking my question. I'd just like to inquire a little bit on when we could expect the broader Lumia range to hit the market, and should we expect significantly lower pricing than the current low end of the range, i.e., the Lumia 610? And how you will exactly work around the hardware limitations that is imposed to you by Windows Phone OS? Thanks.
Thanks. So we're not publishing any dates today about future product portfolio. But clearly, broadly, in the broad Windows ecosystem, there are some important catalyst dates ahead, and those dates obviously excite us as it relates to whatever the date ends up being precisely around Windows and also the next version of Windows Phone itself. Those items we look at with a great deal of interest, and we believe are very important milestones as it relates to the future of our Lumia activities. To answer your other question, relative to, you know, being able to bring to price points lower than the 610, absolutely, and that's part of what we've tried to make clear in these initial announcements.
We had plans already to go lower than 610, but part of what we've been able to do, as I mentioned, with specific support from Microsoft, is identified ways to go even further than we anticipated. We need to compete with Android aggressively, and the low-end price point war is an important part of that.
Thank you, Alexander. Operator, next question, please.
Your next question will come from the line of Mark Sue with RBC.
Thank you. Good morning. I guess investors are asking if, with everything going on, is there a plan B, or is it a little too late for that? And as you make a bigger bet on Windows, are there other sources to fund your Lumia, Lumia push? If it does get worse, what other actions can you take? Because, you're now at a point of selling assets at depressed prices. So as, things deteriorate, how do you kind of provide some cushion to kind of continue your big bet on Windows?
Mm-hmm.
First of all, Timo here, before Stephen goes on, we are not selling assets at depressed prices. That's not how we think about it. We have a strong balance sheet to manage through this transition. We sell assets at the prices which are appropriate and when we get a good price for our shareholders.
Yeah, no, absolutely. I mean, we're very much in a situation where, you know, a non-core asset like Vertu, which we also announced the sale of today, we're quite comfortable selling if we get the right price for it, and that's very much the mode. And one should think of us as in that mode. If there's non-core elements that we can deal with and that's appropriate, we will do so, but not at depressed prices. Now, in terms of how we think about this, our primary smartphone bet is on Windows Phone. But as we also outlined in various of our comments during the course of today, we continue to invest in what we think of as future disruptions. You know, it's not about doing something different today.
We are, you know, all in with our efforts on Windows Phone. But of course, we're doing work to anticipate what the future holds, how things evolve beyond how we currently understand the mobile ecosystem. A really good example of that is the work that we're doing in location-based services. If you notice the various events and announcements from certain competitors over the last week or so, it's very clear that companies are just entering or making a lot of noise about areas where we've been investing for quite some time. We believe we have some of the strongest location-based assets in the industry by far, in many cases. And so that's an example of where we have been placing investments.
And so when you think about how does the strategy unfold, which is how I prefer to, to think of your question, you need to think about it as we're doing something very deliberately right now in today's war of ecosystems, but of course, we're investing in what those next steps are. And it's really, really important to understand that as we have been, been introducing, these tough changes today, you know, announcing headcount reductions and what have you, that we have been really, really thoughtful, thoughtful about making sure that we're continuing to invest in those things that define our future, as well as facilitating the sales activities and what we need to do to win today with the Lumia product line. Now, you also, asked the question related to, you know, other sources of support for Lumia and so forth.
A couple of things I'll say here is, you know, in our various comments, we talked about the importance of focusing on selected markets. You know, part of what is happening and part of what has led us to this strategy refocusing that we've been doing is we've been at the Lumia effort for about six months now, give or take, in terms of... I mean, it was announced much earlier, but in terms of time in the market. And, you know, there's some clear patterns emerging in terms of what works better, how to get things started and so forth.
So for example, aligning with a T-Mobile in the U.S. or an AT&T in the U.S., and having a concentrated, focused effort with good marketing support from us, from AT&T, from Microsoft, that clearly yields better results than a broader-brush approach that we've tried in different countries as well. So that's part of what we've adjusted with our strategy is: How do we get more resources behind, you know, clearly identified bets, be it a geography or operator, in order to make, make this accelerate?
Yeah. And maybe I'll just comment a little bit on the cash generation side of the longer term of the model. So we have clearly positive cash generation opportunities from the feature phone market, from IPR. We also have a stable cash flow inside LFC from car industry, and we are taking our OpEx down significantly, as Stephen mentioned, on run rate basis, EUR 1.6 billion, targeting EUR 3 billion run rate. So of course, all these elements are there to make sure that we have enough financing capacity for our focused strategy.
Thank you, Mark. Operator, next question, please.
Your next question will come from the line of Pierre Ferragu with Bernstein.
Thank you for taking my question. I'll, Stephen, I think you partly answered it in the previous one. I was wondering if I look back at nine months ago, you probably had better ambitions for the company than where we are today. So things played out not probably as well as you were expecting. Can you tell us in terms of products, in terms of how the market reacted to your products, what played out the wrong way and took us where we are today, and how you see that changing over the in the near future?
Thanks, Pierre. So as it relates to our products, this is an area where I'm very proud of the work that has been done, and I am very, very encouraged by what we see when one of our products, a Lumia product, and this is also true of Asha as well in the feature phone space, when they are in the hands of a consumer, and when we're able to judge how well they respond to it, how willing they are to present that to their friends and encourage other sales. We are, you know, overall, it varies market to market, but overall, very, very surprised positively about that, and that's great. The challenge, therefore, is how do you break through? How do you get your message through? How do you get the attention of a retail sales associate? How do you get a preferred position on a shelf?
How do you make sure the lights on your device are brighter than the ones from, you know, down the road? You know, all of those types of things are really, really hard in the context of Android and Apple, you know, being so strong right now. But where we can break through and get that going, the products are well received. So again, part of what we announced today is being far more deliberate in terms of being focused on specific markets so that we can concentrate more resource on those to get, if necessary, a smaller number of markets where we're breaking through, getting the traction, and then rebuilding from there. So that's something that's very clearly on our mind. So we're focused on the execution, on sales, on marketing, on the retail sales associates.
Now, at the same time, you know, part of what we did with our employees today, you know, obviously, it's a very hard day at Nokia House, at our Salo facility, and Oulu, and all over the world. At the same time, we spent quite a bit of time presenting the longer-term aspects of our vision. We've shared with a wider group of people within the company, the product roadmap that extends further out, other things that we're doing, how we take advantage of this location-based services opportunity and what that could represent in the form of products and other new ideas. And there is so much positiveness that comes out of that, so much encouragement because we can see that what we're doing are things that consumers will respond well to.
This is part of the, if you like, the challenge or even the frustration, is that it all begins with crafting great products, and we're doing that. We're doing it faster than we've ever done it before. We're getting great consumer feedback. We've got a breakthrough. And of course, just to relate it to another piece of the news today, because all of this has been done very thoughtfully, but very deliberately. You know, I focused very heavily early on, on strategy, on product making, on making sure that we can win the hearts and minds of consumers. But we've got a lot of work to do in sales and marketing.
As you saw in the changes, I made the decision very clearly that I was going to elevate in terms of the focus, the sales, sales and marketing and operational aspects of the company, reporting directly to me, now with, with new leaders reporting to me in a, in a new structure. The, the reason for that, of course, is because as we've gone through this and gotten to the point where the product-making machine is delivering award-winning stuff again, we're now in a situation where we've got to make sure we're breaking through and selling. So some of the moves, for example, selecting the gentleman from the United States, who's helped us to understand how to really break through in a particular environment, still with a huge amount of work ahead.
I don't want to overstate it, but nonetheless, those patterns are beginning to form, and we're placing bets on the patterns that we believe will work for the future.
Thank you, Pierre. Operator, next question, please.
Your next question will come from the line of Jeff Kvaal with Barclays.
Yes, thank you very much. I was wondering, you haven't commented very much on the revenue picture here. I'm wondering if it is possible to give us a sense of why, you know, what is happening in revenues, or short of that, why you are fine-tuning your operating margin guidance a little bit lower? And then for a, for a clarification, those employees, those are Nokia-only employees, not, this is not anything to do with the NSN restructuring plan, just to be clear. Thank you.
Yeah. Yeah, first of all, the last question, Timo here, absolutely has nothing to do with the NSN plan. This is a separate plan, and this up to 10,000 employees is a Nokia number, Nokia excluding NSN number. And then what comes to revenue, so basically, we are not giving revenue guidance. We have no revenue guidance out there for devices and services, and in that sense, we are not really here to give revenue guidance. You asked about the operating margin, and because we now have two months behind us, and so in conjunction with our announcement today, related to restructuring, strategy focus, and also the management changes, we just felt it was appropriate to update the market also about the fact that we no longer think that the device and services operating margin would be that 3%.
So that's really what we wanted to highlight with that slight change in the guidance.
Okay, thank you, Jeff. Operator, next question, please.
Your next question will come from the line of Ittai Kidron with Oppenheimer.
Thanks. Timo, I wanted to get into a little bit more color about the cuts, and I'm trying to understand what is the underlying basic assumption behind this cut. Is it, it clearly, you know, as you went through the math, you had to figure out, why not cut to EUR 2 billion or why not only cut only to EUR 4 billion run rate. And I'm trying to understand, what is sort of the level of deterioration in business? Where do you expect some stability in your business that ties into that, 10,000 headcount cut? You know, where, where, how much more breathing room you think it gives you, you know, from a, you know, a top-line deterioration standpoint or a timeline by which you think the business does turn around?
Any color you can give us behind your assumptions, again, versus, you know, versus your revenue targets or versus the competitive environment would be appreciated.
Yeah, thanks for the question, first of all. So as we say, we have really designed the model in a way that we would get device and services to sustained profitability as fast as possible. And there is, of course, also a limit on how fast you can cut before you will have a big impact on top line and gross margin. We are, of course, trying to optimize that equation to our best ability. It is also a dynamic equation, and so we are clearly building the model in a way that we can react then, you know, to further changes. I mean, I think I said after the Q1 call that we will not use unrealistic assumptions when we look at this. I don't think we have done that either.
So in that sense, we feel quite good about this model at this point in time.
Yeah, the only thing I would add to that is, you know, something I said in the prepared remarks, is the belief that we have the net cash necessary to manage through the transition, and now adding emphasis, and the scope of today's changes, we designed them specifically to make sure that remains true. So that was the belief that we had. Of course, all of these things can change, et cetera, et cetera, but it is the case that we went at this in a way we felt was a deliberately, you know, hard, really push it through, really dive into it, so that we can make sure that we are in a position to be in the right spot to manage cash-wise through the transition.
Thank you, Ittai Operator, next question, please.
Your next question will come from the line of Sandeep Deshpande with J.P. Morgan.
Hi, just a question on your strategy, Stephen. You've talked about products that you are going to attack, I mean, location and then Lumia, of course. But can you talk about, I mean, your channel itself? I mean, are you going to restrict yourself to some parts which you think are core markets to yourself, or is Nokia going to continue to be this big global player, given that your market share in some markets has deteriorated substantially?
Thank you for asking that. It's a very good clarification because one of the key things we were trying to signal in our press release and so forth is that we were going to be more deliberate about which markets get the most concentrated access. So there's a relatively small number of markets where we will put the maximum resource in because they perhaps are big signaling markets or they're big markets overall, or what have you. So obviously, the U.S., the U.K., China, certain other European markets, certain other Asian markets and so forth, where we've said we're going to really emphasize those markets. You know, if we're doing a deal with an operator or something like that, doing it much larger than we've done before to break through where we haven't before. So more concentration there.
And then what we're systematically doing around the world is reclassifying the level of effort that we think is appropriate for different tiers of countries. So at the tail end of this, if you like, in the smallest countries or the markets that, that are least strategic or have the least potential upside for us in a reasonable period of time, they may be markets where we have a small sales presence today, that tomorrow will be best served by distributors out of a, a more central hub and so forth. So we're deliberately going through a cycle of concentrating on some markets at the expense of others. So I'm glad, glad you asked that question.
Yeah. So maybe if you, Stephen, allow, I'll just kind of like highlight one more thing, which I think is really important. So regarding our investment, we will focus our investment in channel or in sales and marketing, absolutely into frontline sales resources and into marketing, which is at consumer space. So those are the two things we will be shielding here, and then we will optimize our investment into the markets where we can get best bang for the buck from Microsoft, as well as our operator partners combined with Nokia.
Thank you, Sandeep. Operator, next question, please.
Your next question will come from the line of Kai Korschelt with Deutsche Bank.
Yeah, thanks for taking my question. My first one was really, if you could maybe give some color on what longer-term smartphone market share your model is targeting looks like. Lumia is tracking at around sort of 1.5%. So I'm just wondering, you know, are we targeting double-digit market share in smartphones, particularly also given that the mobile phone business seems to be in sustained decline? And my second question was just a quick follow-up for Timo. Just how much of the extra EUR 1.5 billion in savings, OpEx versus COGS? Thank you.
Okay, hey, thanks for the question. Maybe I'll try to answer both of them. So first of all, regarding the smart devices market share. So first of all, it's important that the value share of the smart devices markets is absolutely a key KPI for Nokia. We have also said that, longer term, with no timestamp on it, 10% market share for the Windows Phone ecosystem is important. So those are really the parameters we are working with when we look at the market share target. Then regarding the EUR 1.6 billion run rate reduction target for Nokia, excluding NSN, so this is really an operating expenses target, so it's not in COGS. We have other programs ongoing in COGS as well, where we are absolutely improving the equation or the gross margin from COGS perspective as well.
Also, just to add on the Windows Phone ecosystem. One of the things we're really pleased with is that the rate of application development for the Windows Phone ecosystem is clearly accelerating, and we announced just a few weeks ago, 80,000. We're closing in on another really important milestone very soon here. So we're very encouraged by what we're seeing there, both from the larger contributors, you know, the most popular applications as well as the long tail. So the critical momentum or flywheel effect that we talked about over a year ago, that we would need to get started around Windows Phone app development is clearly underway.
And again, I mention again the catalyst of Windows and Windows Phone 8, you know, coming out sometime, perhaps later this year or whenever, you know, that particular catalyst is clearly attracting a lot of attention as well.
Thank you, Kai. Operator, next question, please.
Your next question will come from the line of Zahid Hussain with Citigroup.
Hi, thanks very much. Could we have a little bit of color around where the OpEx will come from? So is it 50/50 between smartphones and mobile phones and really sort of similar kind of thinking around R&D and sales and marketing? It looks like there's more cuts to be made in R&D at the moment, but any color you can give us around that would be very helpful. Thanks.
Yeah. So if I'll, if I'll try to address that one. So when we look at the, at the OpEx equation, so first of all, R&D and R&D-related is the biggest area, and thereafter, sales and marketing. And in that R&D and R&D-related, as Stephen was saying earlier, we are cutting certain specific R&D-related projects so that we can really do this in a way that groups of people who are working on the areas where we focus our efforts can continue undisrupted. So very important. And then we spoke about the sales and marketing dynamics as well, but as I said, that's little less than the R&D-related. And then after that, we also have proportionately, maybe the biggest cuts in G&A, but because that's less of a, of an absolute number, so that kind of like comes third on the list.
Thank you, Zahid. Operator, next question, please.
Your next question will come from the line of Tim Long with Bank of Montreal.
Thank you. Stephen, you mentioned the IPR traction. I think given the challenges that continue in the device market, you know, IPR is something that you can cling to. What—how, how do these announcements relate to your desire to ramp up that business and to enforce more and to increase that revenue stream? And you talked about EUR 500 million, I think, annualized rate. Where do you think that can go?
So I can't really provide a forward guidance. Actually, if you could go on mute, I'm getting an echo. Okay, thanks. I can't really provide forward guidance on revenue associated with the IPR. But yes, indeed, we are clearly looking for ways of monetizing the IPR portfolio more effectively. You've seen a few examples of that break into the public domain as various legal actions take place and so forth. It's also important to note, and this is one of the interesting changes as it relates to the pattern of engineering at Nokia that we specifically set out to drive, and that is that even although we've reduced R&D, we specifically concentrated R&D on those things that are most differentiating.
So it is the case that, for example, in the first half of 2012, already with a significant reduction in R&D, we have applied for more patents in that six-month period than we have in any other six-month period dating back to 2007. So it's a good example of how we're creating new intellectual property for the benefit of our products, you know, further strengthening our intellectual property portfolio and creating an environment, ultimately, that can lead to monetization, be that through improved gross margins on what we're selling and/or licensing to, to other parties.
Thank you. Operator, next question, please.
Your next question will come from the line of Andrew Humphrey with Morgan Stanley.
Hi, it's Andrew Humphrey for François Meunier here. Thanks for, for taking my question. Maybe just another one on the, the IP portfolio. I think you've told us in, in some detail about how you would plan to, increase revenue from that, how you're being more aggressive in, in defense of your patents. One thing I think you mentioned on the, on the Q1 call, was that there may be groups of those patents that, would, would be more valuable outside Nokia than, than within Nokia. And I think, you know, a key area of focus may be, how much of your current patent portfolio you might sell, and the potential timing on that. So if you could give us any more granularity on that, that would be great.
Yeah, I'll try to highlight some of that, Timo, here. So I think it's important that we note that we have many different patent families and many valuable patents in each of those families. And in that sense, if you pick some from each of the families, you can have a valuable portfolio of patents, and you can still keep in the remaining portfolio the strength, both on the defensive side as well as on the offensive side, on the IPR negotiations. And that's a business what we are doing all the time. We are evaluating those opportunities all the time. And as I said earlier in the call, with the right price, we will be a seller.
Thank you, Andrew. Operator, next question, please.
Your next question will come from the line of Richard Kramer with Arete.
Thanks very much. I just have a fairly basic question for Stephen. Back at Mobile World Congress a couple of years ago, you spoke about creating unique Nokia experiences on the Microsoft platform software, and you mentioned it again today. Now that you're further down the road, can you lay out for us what the two or three unique experiences that Nokia customers might be getting on the, on, on your products that they wouldn't get on others? Because I think what we see is in location, for example, your competitors all have 3D maps and turn-by-turn navigation, and it just seems like many of the differences are rather subtle. And then maybe one other quick thing. You mentioned before the Meltemi software platform. Is that now something you still intend to launch? Thanks.
Thanks. I don't have quite exactly the same recollection of what I may have mentioned in the past. Just on your second question, we've never publicly used the term that you mentioned, so we don't have any specific comments on a specific engineering effort, although it is the case that we have canceled certain specific engineering projects, you know, as part of our changes. In terms of unique development on the Microsoft software platform, you know, with the first range of devices, we joined the Microsoft Windows Phone family late in the cycle, so couldn't have as much influence as we clearly do now as we go forward. But even with that, there's some great examples of entertainment services.
For example, the MixRadio service that we provide uniquely on the Lumia devices has a very high first-time activation and also a very solid active user 30 count. In other words, people who, after 30 days, continue to use and reuse and so forth. In terms of the location-based services, if you look closely at what others are doing, certainly mapping and navigation are more broadly available. Most often, they're the turn-by-turn navigation is something that one pays extra for. That's true on many other platforms at this point, not all of them, but some. But if you take a look at the work that is going on right now in areas like Nokia Public Transport, where people can, you know, do navigation that incorporates public transportation systems.
If you take a look at what has just begun to be shown with Nokia City Lens, which is the augmented reality capability, where you hold up your phone, you're looking through the camera lens, so you see the world around you. But what you see overlaid on that world are where your friends are, where the Groupon offer is, where, you know, all of these different things that may be appropriate based on your interests. Those are examples, and of course, others will copy, and they'll attempt to catch up with those things. But we have a very solid lead in the ability to develop these services. And indeed, it's something that may, in the first round of what we've done, be relatively subtle.
But as we've had more influence over the Windows Phone platform, as we've had more time to develop, I think you'll be, be pleasantly surprised by a, a lot of what we have coming. One final area that Nokia has, has very traditionally been strong in, and you've seen some examples of this in our Symbian line most recently, is in the area of broadly optics, photography, capturing entire experiences. The Nokia PureView 808 with the 41-megapixel sensor has clearly just completely changed the, the game in photography, and that is intellectual property that we've developed, is a good example of something that one wouldn't sell or license or whatever. Indeed, you'd make acquisitions to strengthen it, which we also announced today with our an, acquisition of certain assets from a company by the name of Scalado.
But those types of capabilities, clearly, you'll see the broad range of photography, optics, and those strengths, land, you know, in our smartphone lineup, in the future. So there's a lot of exciting things like that to come, which will differentiate us from Android as well as us within Windows Phone.
Thank you, Richard. Operator, next question, please.
Your next question will come from the line of Stuart Jeffrey with Nomura.
Thanks. Just like to come back to something that Timo mentioned, that there's a limit to how much you can cut OpEx before you impact your top line gross margin. And now you're proposing to cut the device and services OpEx by around 40%. So could you give a bit more color on how you see this impacting your revenue potential? And specifically, how much of the cost are you moving from OpEx to the cost of goods sold there? Thanks.
So, maybe if I'll take your last question first. So no, we, we have not built this in a way that there is a huge amount of OpEx moving to COGS. That's not what we are thinking. These are real planned reductions on our model. And as we are focusing our investment, so we are, of course, trying to do it in the way that it would have as little impact on the top line and gross margin as possible. So basically, we are focusing so that we have as little impact as possible on the core product making at the moment, on frontline sales and on marketing, which I described as being in consumer space, i.e., in the working marketing part, and then we reduce elsewhere. So that's really how we are doing the equation.
Of course, just to add to that, the reason we're making a number of these changes in sales and driving concentration on certain markets is because we believe that will improve the situation as well. There's offsetting factors here. We're really doing it also because we've learned that it can have a positive impact.
Thank you, Stuart. Operator, next question, please.
Your next question will come from the line of Achal Sultania with Credit Suisse.
Thanks. So Stephen, when you talk about competitive dynamics in the smartphone business, can you provide some more color as to what you've seen so far in different markets like the U.S., Europe, and China? Then, also, where do you see this competition having the impact the most on, is it on your Lumia volumes or the gross margins that you make on these devices? Thanks.
Thanks. Well, obviously, you know, volumes and gross margins in some way are two sides of the, the same coin, so you know, you can play it either way. But in terms of the, the competitive dynamics, the, the strength of Android, particularly as it pushes down in price point, is, you know, something that has clearly caused, you know, a lot of challenge. We're, we're working hard on driving the Lumia price points lower, and, you know, that's part of what we're, we're focused on today in, in our announcements. And so that clearly will help with that situation. But, you know, that's something that, that is pretty significant. In terms of the United States, what we believe we have learned is with the right degree of focus, concentration, and resources applied, you can begin to get that traction.
Now, of course, we have to follow that up and continue that with future initiatives, future products, and so forth, and we'll obviously do that. We're then taking that model to other places around the world to drive the same thing. We're in the very early days in China with the Lumia product line, and you know, we're quite pleased with what's going on in China right now. It's complicated because you have to engage in, for example, the operator discussions with the low price, you know, operator rate plan bundling that's going on. And we were very pleased that even with the price point of the Lumia 610, for the first time, we broke through there and now are part of some of those plans with China Unicom, which is something three months ago we hadn't achieved.
But that's just the beginning, and it's at the high end of that bundling area, so I'm, you know, providing balance in my comments here. But we're demonstrating that we have the capacity to accomplish these things, and now we've got to, now we've got to push a lot harder on it.
Thank you, Achal. Operator, we'll now take our last question for today.
Your final question will come from the line of James Faucette with Pacific Crest Securities.
Hello, can you hear me okay?
Sure can.
Great. I just wanted to follow up on some of the questions that have been asked, specifically on the smartphone and the competition space. Can you outline for us a little bit more where the disappointment has come? Has it been on the volumes or the pricing? We've heard you talk about being pleased with how launches have gone in various markets around the world at different points. But, yeah, we seem to follow that up with a level of disappointment. So I'm just trying to figure out, like, where that breakdown starts to take place and how you're following up on that. Thank you.
Yeah, where I think that the biggest challenges are is actually getting and retaining the attention of retail sales associates who, when you walk into a store and say, "I want to buy a smartphone," maybe my first smartphone ever, whatever, or I'm looking for what's new. Getting us into that conversation is hugely critical. This is something where in China, there's obviously a tradition, a far, far more common tradition of using promoters. I was recently in China, where, you know, the army of thousands of Nokia promoters has been deployed against the Lumia launch. And just observing from afar as these promoters engage and present the proposition, someone tries the device, one breaks through. The dynamics in different markets, though, in some cases, you can get the attention of the sales associates by making arrangements with the operators. AT&T is an example of that.
In other situations, like, take the U.K., for example, it's far more fractured in terms of being able to get things like that done. And so you know, you have to, have to go to other lengths. Concentrating on certain retailers, like Phones 4u, where we've had, had quite a bit of success. Those types of things can help. Now, of course, it would also help if we could drive not only greater consumer awareness, but willingness to ask. Coming in and saying, "I've heard there's something new from Nokia. I've heard about this Windows Phone thing. I've heard about Lumia," whatever that entry is.
So I think that the challenge in all of this, the fundamental challenge, has been breaking through the strength that Android and Apple have in a retail environment, whether it's by driving greater awareness or greater suggestion from the retail sales associate. That's the real heart of this. And so we're really, really focused on how to adjust the messaging, how to concentrate the resources, how to better train people, how to make sure there's live devices in the hands and pockets of these salespeople, so that they experience it themselves and can talk about it intelligently. These are the types of things that, you know, when we have truly great products, but we aren't getting the traction that we would prefer, those are the things that we clearly have to focus on.
Okay, with that, I'd like to thank everyone for joining us on relatively short notice. Just to summarize, and clearly, we're taking very decisive actions today to reduce costs. You know, we're doing this in order to preserve our strong financial position. We're absolutely preserving our ability to invest in key areas. We're getting very focused on those key areas. I hope you recognize we're willing to make the tough decisions necessary to create shareholder value. So thank you for your continued support, and I look forward to talking with you more in the future.
Ladies and gentlemen, this concludes our conference call. I would like to remind you that during this conference call today, we have made a number of forward-looking statements that involve risks and uncertainties. Actual results may therefore differ materially from the results currently expected. Factors that could cause such differences can be both external, such as general economic and industry conditions, as well as internal operating factors. We have identified these in more detail on pages 13 through 47 in our 2011 20-F and in our strategy-related press release issued today. Thank you.
Ladies and gentlemen, this does conclude today's conference. Thank you all for joining, and you may now disconnect.