Good morning, ladies and gentlemen. Welcome to Nokia's Third Quarter 2022 Results Call. I'm David Mulholland, Head of Nokia Investor Relations. And today with me is Pekka Lundmark, our President and CEO; along with Marco Wiren, our CFO.

Before we get started, a quick disclaimer. During this call, we will be making forward-looking statements regarding our future business and financial performance and these statements are predictions that involve risks and uncertainties. Actual results may, therefore, differ materially from the results we currently expect. Factors that could cause such differences can be both external as well as internal operating factors. We have identified such risks in the Risk Factors section of our annual report on Form 20-F which is available on our Investor Relations website.

Within today's presentation, references to growth rates will mostly be on a constant currency growth rate and margins will be on our comparable reporting. Please note that our Q3 report and a presentation that accompanies this call are published on our website. The report includes both reported and comparable financial results and reconciliation between the two.

In terms of the agenda for today, Pekka will give a quick overview of our financial and strategic progress in the quarter. Marco will then go into a bit more detail of some of the key factors impacting our financial performance following with our outlook for 2022.

With that, let me hand over to Pekka.

Pekka Lundmark - President & Chief Executive Officer

Thank you, David and good morning, everybody. The third quarter marked a very important step for our company in the execution of our 3-phase strategy. If you recall, in the beginning of this year, we said we had completed our reset in 2021 and that we were moving it to accelerate in 2022, where we would focus on accelerating our sales growth and expanding our margins. For the first half of this year, the supply chain has really constrained us from delivering on that growth. But as we start to see some improvements in the supply chain, we are also seeing good progress on growth.

In the third quarter, our growth accelerated to 6% year-on-year, up from the 3% that we delivered in Q2. Importantly, this was driven by a strong improvement in Mobile Networks as we start to see benefits of our renewed competitiveness. From a profitability perspective, our margins continue to be impacted by the timing effects of outstanding deals in Nokia Technologies which meant that our gross margin declined 40 basis points year-on-year and our operating margin declined 120 basis points.

To better understand the margin progress in our business without the volatility of the timing of Nokia Technologies deals, you can see on the slide the progress of our gross margin and operating margin, both including and excluding Nokia Technologies. The charts clearly illustrate the progress we are making in our underlying product business with our operating margin up 70 basis points year-over-year in Q3. Clearly, we remain focused on resolving the outstanding deals in Nokia Technologies but we are also focused on protecting the value of our patent portfolio over achieving any specific time frame.

I will now turn to each of the business group's performances in more detail, starting with Mobile Networks. You will know the challenges that impacted our financial performance and particularly our top line performance in 2021 but we are now really starting to see the benefits of our new products and renewed competitiveness.

We delivered 12% net sales growth in Q3, representing a strong acceleration. We are starting to see some improvements in the supply chain with it becoming less of a constraint on the business. We did benefit from an element of catch-up sales in the quarter which we could have shipped early in the year but the overriding point here is that we are now clearly on a path to grow on a full year basis in Mobile Networks.

On top of the sales growth we have already - we are already seeing, we also signed some significant contracts in India in Q3 with Bharti Airtel we've been awarded a 45% share of their planned 5G network continuing our long-standing good partnership. On top of that, just this week, we announced a deal with the Reliance Jio, where we will be a major supplier for their planned 5G network deployments.

As you know, we have not been a radio access supplier to Reliance Jio previously, so this is a very meaningful new customer engagement for us and an important market share gain. We have stated previously that our ambition is to grow faster than the market in Mobile Networks and to gain share and it is deals like this which we believe will firmly put us on a path to deliver that.

Our margins also continued to improve in Q3 with operating margin up 250 basis points year-over-year, although we did continue to benefit from a favorable regional mix in the quarter which we expect will somewhat reverse in Q4.

Turning to Network Infrastructure, where we continue to see robust growth despite increasingly challenging comparisons. This was particularly the case in our Fixed Networks business which still delivered 7% growth. We also continue to extend our technology leadership with the announcement of our Lightspan MF-14 platform earlier this week which gives us a clear road map all the way towards 50G and 100G solutions. It will obviously be many years before these are in wider commercial use but it gives customers the confidence in our future road map for them to invest in today.

Our Optical Networks business still faces some specific supply chain constraints but it's doing a good job managing the situation and demand remains strong. We believe the supply situation should continue to improve through Q4 and into the first half of 2023.

In IP Networks, we continue to progress well on our FP5 ramp-up and are also making encouraging progress in webscale. And finally, in Submarine Networks, we continue to execute against its substantial backlog of subsea fiber deployments. While gross margin was stable, operating margin for Network Infrastructure was up 50 basis points due to operating leverage on fixed costs.

In Cloud and Network Services, there was a slight decline in net sales but we continue to make progress with our portfolio rebalancing. Gross margin continued to show improvements, expanding by 140 basis points, while our increased investments in private wireless meant that operating margin showed a decline of 210 basis points, yet we saw continued momentum in our Enterprise Solutions business which grew at a double-digit rate in the quarter.

In Nokia Technologies, there was good progress in their new growth areas including in consumer electronics and automotive which have achieved more than EUR100 million in net sales over the last 12 months from being negligible in 2018. The ongoing timing of contract renewals we have referred to previously continued to adversely impact the quarter. These renewals continue to progress and we remain confident in our ability to return to a run rate of EUR1.4 billion to EUR1.5 billion once these renewal discussions have closed.

One of the biggest opportunities we have in the midterm is to grow our business beyond CSPs into the Enterprise segment. We believe this will be the fastest-growing portion of our addressable market and our products are increasingly compelling. In recent quarters, we have highlighted how strong our order growth has been. In Q3, I was pleased to see Enterprise accelerate strongly, delivering 22% growth in constant currency year-over-year supported by the improving supply chain situation.

We continue to have great momentum in the private wireless space, where we added another 30 customers in Q3. We are building the engagements we need with our partner network to really scale this business for the future. I should also mention that we signed a new webscale customer for our IP routing products in the quarter.

All of these points are very important for our longer-term strategy as it's critical that we build momentum in Enterprise to deliver on our longer-term growth ambitions. From what I have seen so far, I'm confident this will remain our fastest-growing customer segment over time.

Two other topics I want to touch on before handing over to Marco, supply chain and how we plan to navigate the ongoing macro uncertainty. On supply chain, the situation is improving but remains tight. In many areas of the business, it's now becoming less of a constraint. In some areas, we were even able to catch up on some of our backlog from prior quarters.

However, in other areas, such as in Optical Networks, it remains an issue. So overall, the picture is improving but we still believe it will not be before the first half of 2023 before there are no longer material constraints on any part of the business.

Finally, we fully recognize the ongoing macro and geopolitical uncertainty. If anything, those uncertainties have increased in recent months. There is clearly a risk that this could start to impact the capex spending of some of our customers. However, as we look ahead to 2023, considering the significant ramp-ups that are expected in regions like India which are just beginning their 5G journeys, the ongoing fiber rollout which is also now supported by a number of government funding programs and the opportunities we see in Enterprise, we currently expect our addressable market will grow on a constant currency basis.

Against this backdrop, we believe we are putting ourselves firmly on a path to outperform the market and gain market share. We will not become complacent and we will continue to evolve our plans as the outlook for our end markets become clearer but I'm talking today about what we are currently seeing from a bottom-up perspective.

With that, I'll hand over to Marco and look forward to your questions.

Marco Wiren - Chief Financial Officer

Thanks, Pekka and hello from my side as well.

If we now look a bit deeper into our financial results, group net sales growth accelerated in Q3 to 16% on a reported basis and 6% at constant currency. While FX had a clear positive impact on our net sales, we also saw constant currency growth across many of our regions.

Once again, we had a strong growth in North America, increasing 10% year-over-year as ongoing 5G deployments in the region drove double-digit growth in Mobile Networks. This was somewhat muted by Network Infrastructure which declined mostly due to the Fixed Networks as continued strength in fiber was not enough to offset declines in fixed wireless access while - which is quite sensitive to a small number of customers.

In Europe, net sales grew slightly in the quarter. And excluding the impact from Nokia Technologies which is entirely reported in this region, Europe would have grown at a double-digit rate. This largely reflected strength in both Mobile Networks and Network Infrastructure.

Elsewhere, we saw growth in Latin America, Greater China and Middle East and Africa, while Asia Pacific and India declined. India was impacted by 5G license timing with expected deployments to ramp up in the coming quarters.

If we then turn to profitability, you can see the changes on the slide by business group. In Mobile Networks, our operating margin expanded by 250 basis points year-over-year as the strong net sales growth also translated into good margin expansion. We continued to see a shift towards product sales and away from services and the business also had a strong regional mix in the quarter which we do assume will become less favorable in the fourth quarter.

Network Infrastructure continued the strong execution we've seen over the past couple of years with operating margin up 50 basis points year-over-year. And this is largely thanks to the growth we saw in the business.

Cloud and Network Services had a slight decline in profitability year-over-year but this was due to the investments we are making into private wireless to ensure we capitalize on our early market leadership. And we continue to see strong double-digit growth in net sales in this area. And we are confident these investments into both our competitiveness and growing market channels will pay off.

And on Nokia Technologies, the effects of closing some outstanding deals continue to impact us in the quarter. As we have stated before, we will prioritize making sure that we achieve the right deal instead of achieving specific timing such as by the end of the year.

In Group Common, we saw a net positive impact from venture funds of about EUR20 million as some underlying downward revaluations were offset by the continued strengthening of the U.S. dollar. So overall, considering the progress of both Mobile Networks and Network Infrastructure, we delivered a good performance in terms of operating margins in quarter three.

And now turning to our cash performance. We generated EUR266 million of free cash flow in quarter three, as outflows related to net working capital, taxes and restructurings were more than offset by adjusted profits. Within net working capital, we saw large movements across the individual components. Inventories increased EUR480 million in the quarter, as we continue to build inventory given the challenging supply chain environment and as we anticipate the ramp-up of India 5G deployments.

Receivables increased in the quarter, part of which was driven by a decrease of the sale of receivables. Liabilities also increased which reflect the higher accounts payable and accruals for employee variable pay. Once again, we saw outflows of around EUR200 million related to payment of our dividend and continuation of our share repurchase program. In turn, this led to a net cash position of EUR4.7 billion at the end of the quarter.

And now looking at our total addressable market. We have updated this to show our latest view across business groups. While they have not been any major changes to any specific business group, we have seen some slight uplift across each which led to higher rounding of the overall addressable market to now be 5% which is up from previous 4%. Pleasingly, we see a robust demand across markets.

Before turning to Q&A, I want to touch briefly on our outlook for 2022. Our full year net sales guidance remains unchanged in constant currency, reflecting the euro-USD rate of 0.97, as of end of September. Our net sales outlook is now EUR23.9 billion to EUR25.1 billion.

We have also reiterated our comparable operating margin guidance which is expected to be between 11% to 13.5%. While risks remain around the timing of outstanding licensing deals, assuming these close, we continue to track towards the higher end of our net sales range and towards the midpoint of the comparable operating margin range.

We also updated two of our outlook assumptions today. The first one is financial income and expenses which we now expect to be between EUR50 million and EUR150 million this year and over the longer term, given the recent foreign exchange volatility and its related impact. And the second is around our capex assumptions, we have lowered our expectation for this year to EUR600 million and continue to expect around EUR600 million over the longer term, of course, with some year-to-year variation.

So with that, I will hand it back to David for Q&A.

David Mulholland - Head of Investor Relations

Thank you, Marco and Pekka for your remarks. Before we move to the Q&A session, I just wanted to highlight that we will be hosting our next progress update presentation on the 1st of December focused on our Mobile Networks business with Tommi Uitto, our President of Mobile Networks. The event will be a hybrid event with the in-person element hosted in London.

With that, let's start the Q&A. As a courtesy to others in the queue could you please limit yourself to one question and a brief follow up? Rachel, could you please give the instructions?

Question & Answers

Operator

[Operator Instructions] I'll now hand the call back to David.

David Mulholland - Head of Investor Relations

Thanks, Rachel. Our first question comes from Andrew Gardiner from Citi. Andrew, please go ahead.

Andrew Gardiner - Citi - Analyst

Good morning, David. Thank you. Good morning, Pekka, Marco as well. I had a question for you on Mobile Networks. So you've done another good job in the quarter, as you highlighted in terms of the margins, that takes you to about 9.6% operating margins for Mobile Networks on a year-to-date basis. Yet for the full year, your assumption is still between 6.5% and 9.5%. I mean even to get to the top end of that range would require a deterioration in 4Q which is something we normally don't see seasonally. You have just told us that your mix is changing, so I can anticipate perhaps some of that. But it feels like that guidance range looks particularly conservative given what you've already done on a year-to-date basis. Is there anything we're missing there? I mean what are you trying to tell us with that margin range and what's implied for 4Q? Thank you.

Marco Wiren - Chief Financial Officer

Yes. Thank you, Andrew. First of all, I just want to be very clear that our midpoint guidance is on the group level and not on the individual BGs. And just like you rightly pointed out as well that we've been performing quite well on our margins so far within Mobile Networks. But as we also stated clearly that we have had very good regional mix in Mobile Networks so far. And in the fourth quarter, we actually believe that the mix will be less favorable compared to as we've seen now, where the North American region has been very strong so far in this year. So this is the main reason that we are keeping our guidance or assumption on the Mobile Networks and not changing that.

David Mulholland - Head of Investor Relations

Thank you, Andy. Do you have a follow-up?

Andrew Gardiner - Citi - Analyst

Yes. I mean I suppose just as you're saying, the midpoint of the range is for the group level but it feels like your answer there in terms of mobile is clearly pointing is to the high end of the mobile range?

Marco Wiren - Chief Financial Officer

Yes. As we see, we only guide at the group level and give some assumptions per BG. So we haven't given any detailed but as you see, you pointed out as well, that year-to-date, the margin on Mobile Networks is 9.7 - 9.6%. And of course, the less favorable regional mix will impact that in quarter four. And that's why we guide as we do.

David Mulholland - Head of Investor Relations

Thank you, Andrew. We'll take our next question from Aleksander Peterc from Societe Generale.

Aleksander Peterc - Societe Generale - Analyst

Yes, good morning. Thank you for the question. I just have one and then a quick follow-up. So the first one would be, just to be very clear and I know I could work this out myself but your current '22 margin guidance is clearly contingent on a timely resolution of the ongoing licensing negotiations and litigations. What does this margin range look like if these do not resolve as you currently expect and they settle in Q4 and fall into '23? So just to give us what you think the margin will be in that case? And then a quick follow-up would be really just a broad outlook on '23, you seem to be fairly confident on growth there which is positive. Can you also tell us if excluding Technologies which can be erratic, obviously and there could be further licensing negotiations and so on? But excluding Technologies, would it be safe to assume that's continuing growth in your end markets and your market share gains will also warrant an EBIT margin improvement for Mobile Networks, Network Infrastructures and CNS as a whole? Are there any headwinds that you bear in mind going into '23? Thank you.

Marco Wiren - Chief Financial Officer

Yes, thank you. Starting with the first part of your question, what comes to license litigations and their resolution for 2022 guidance, now we have assumed that some of these outstanding renewals will be solved and in our guidance. If that would not be the case, we believe that we will still be in the range of 11% to 13.5%. And your second question, what comes to MN and NI and CNS and when it comes to 2023 outlook, I would say that it is a little bit too early to give any specific guidance on 2023 and we will revisit this and get back to you when we report quarter four results as well and then we have a better understanding of visibility how the different regions and our customers' capex plans will be evolving as well.

And - but I can just mention that, just like we've said earlier, our longer-term guidance is to deliver at least 14% and we aim to step by step continuously improve our performance towards that goal as well. What comes to different regions and the regional mix that could be changed year-by-year, that could always impact our performance on the gross margin side. But the scale effect could also offset this and give us improvement in our operational margin side.

David Mulholland - Head of Investor Relations

Thank you, Alex. We'll take our next question from Sebastien Sztabowicz from Kepler Cheuvreux. Sebastien, please go ahead.

Sebastien Sztabowicz - Kepler Chevreux - Analyst

Yes, hello everyone and thanks for taking the questions. You expect some growth in your addressable market in 2023. Where do you see specific upside or downward pressure in your main markets, including Mobile, NI or Cloud and Network Services? And on a follow-up, on IPR renewal, do you have any substantial IPR contracts that are coming to renewal moving into 2023? Or it is more for 2024 onward? Thank you.

Marco Wiren - Chief Financial Officer

Yes, I can take the IPR question. And I would say that we have - every year, we have some renewals. And sometimes we have bigger ones. Sometimes we have smaller ones. Usually, the average contract period, it varies a lot between 3 to 7, up to 10 years. So, this is quite normal business for us that we have renewals. So unfortunately, we cannot go into details on different deals and the terms and conditions of those because of the restrictions that we have written in those agreements.

Pekka Lundmark - President & Chief Executive Officer

Then when it comes to the expected mix in 2023, especially on Mobile Networks, because in the other businesses, the mix changes will most likely not be that meaningful. But in Mobile Networks, we are ramping up strongly in India. And at the same time, it is quite likely that the capex of the North American customers will at least somewhat normalize after a very strong year. So that does mean that there will be a mix change in Mobile Networks towards emerging markets which, as Marco already said, will put some pressure on gross margin. But at the same time, the scale effects will be meaningful, meaning that we will get through the scale better leverage on our fixed cost which should then support the operating margin.

David Mulholland - Head of Investor Relations

Thank you, Sebastien. We will take our next question from Frank Maao from DNB. Frank, please go ahead.

Frank Maao - DNB - Analyst

Yes, most of my questions have actually been answered on the gross margin and IPR side, so I'll pass that on. Thank you.

David Mulholland - Head of Investor Relations

Thanks, Frank. We'll take our next question from Francois Bouvignies from UBS. Francois, please go ahead.

Francois Bouvignies - UBS - Analyst

Hi, thank you very much. My first question is on the mix that you just talked about into next year. I mean it seems that it's going to change dramatically with maybe lower U.S. and maybe more emerging, like you just described. Should we see the Q4 performance as a good indication of the mix impact into 2023 because it looks like the U.S. will come down significantly? And I was wondering, the India, how does it compare this region margin versus the group. Would be helpful to know but just to know if the Q4 margin should be seen as kind of the level of the mix impact into 2023? And the second question is you slightly increased your addressable market for this year but you didn't increase your revenue at constant currency. So I understand it's a small increase but nevertheless, I mean, any reason why you didn't increase your forecast as well? Or anything you could track there would be helpful? Thank you.

Pekka Lundmark - President & Chief Executive Officer

I think what we said about next year is that we expect our addressable market to grow next year, number one. And then number two, we would expect to take market share. But in general, whether it comes to top line or margins, as Marco said, it is too early today to give guidance for next year. We will come back to that question when we publish Q4 results. And in the same way, I would say that it would be premature today to speculate on whether or not Q4 would be indicative of next year's margin. You have to remember that it's not only the regional mix that we are talking about. It is also improving product competitiveness. It is volumes. And then it is also the quarterly seasonality that we have. So that's why it is not that straightforward that this year's Q4 would be an indication of next year.

David Mulholland - Head of Investor Relations

Thank you, Francois. And we'll take our next question from Sami Sarkamies from Danske Bank. Sami, please go ahead.

Sami Sarkamies - Danske Bank - Analyst

Okay, hi. Thanks. I have a question regarding your operating expenses in the third quarter which were quite a bit above expectations and actually grew faster than revenues. I think hedging explains part of this but were there any other temporary factors that impacted third quarter negatively? And then maybe sort of a comment on the sort of cost base going into Q4, will that sort of still come up on an underlying basis? Or is it just about seasonality?

Marco Wiren - Chief Financial Officer

Yes. Thank you, Sami. And just like rightly you pointed out as well, of course, FX had a quite big impact on our opex negatively impacting year-on-year comparison. Another item that affected our opex is also the fact that we have annual salary rounds that started in 1st of July, so impacting quarter three as well. And last year, actually, we started that in 1st of October, so that's where you have - if you compare quarter three this year and last year, you have that difference there as well. Otherwise, investments in - continuation investments in R&D to secure our technology leadership going forward as well was a big part of the increase as well.

Pekka Lundmark - President & Chief Executive Officer

Just Sami, to be very clear on what Marco was saying, since you were referring to the opex growth percentage compared to last year and you were comparing understandably that to top line, so the reason why it is higher is, as Marco said, that we - in a way, we have double salary increases now compared to last year because the timing of the previous salary reviews was different this year. So that is, in a way, an exceptional item in the year-over-year comparison in Q3 average.

David Mulholland - Head of Investor Relations

Did you have a follow-up, Sami?

Sami Sarkamies - Danske Bank - Analyst

Down in Q4?

David Mulholland - Head of Investor Relations

I didn't catch that, Sami.

Sami Sarkamies - Danske Bank - Analyst

Yes, I was just sort of stating that the growth rate should then come down in Q4.

Pekka Lundmark - President & Chief Executive Officer

For this part, yes, in Q4, there is not any more double effect compared to last year. It's only normal annual salary inflation.

Sami Sarkamies - Danske Bank - Analyst

Okay, thank you.

David Mulholland - Head of Investor Relations

Thanks, Sami. We'll take our next question from Simon Leopold from Raymond James. Simon, please go ahead.

Simon Leopold - Raymond James - Analyst

Thanks for taking the question. First, I just want to see if you could give us some sense or quantification of how to think about the contributions you expect from your wins in India and to any extent that you could see pull-through beyond the mobility portion which would be obvious around a 5G win for your Network Infrastructure business as well. And then I've got a quick follow-up, if I might.

Pekka Lundmark - President & Chief Executive Officer

Yes, the - I mean, we are not at this time giving more detailed guidance on as to how big the India volumes will be. Of course, they will be meaningful. We have won 45% of the 5G radio network for Bharti Airtel and then, of course, the fact that we now have a deal with Reliance Jio as well is really significant because that is a customer where we were not in radio network business in 4G at all, our market share there was 0%. Now we have not published what our market share will be in their 5G network. We will see when that could be disclosed but it is a meaningful market share. It's not a small piece. It is a meaningful market share. So this represents a significant volume potential for us.

And you are absolutely right that getting in this big way into two significant radio networks has potential then pull-through, so whatever you want to call them, into Network Infrastructure. There is very interesting Optical Network opportunities, for example, as a consequence of these deals. This applies to Network Infrastructure in general in India.

David Mulholland - Head of Investor Relations

Thanks, Simon. Did you have a follow-up?

Simon Leopold - Raymond James - Analyst

Yes, please. So you've been clear in quantifying the constant currency or the impact of foreign exchange rate changes on revenue. Could you help us understand year-to-date how foreign exchange rate changes have affected gross margin and opex? Are those things you could quantify?

Marco Wiren - Chief Financial Officer

Yes. Thank you for the question. What we show in our report is only with the extra currencies and not the comparison with constant currencies. What we do is that we have a net hedging methodology which means that we basically look at the net inflow and outflow currency and we hedge that net inflow. And this is the reason why we also report the hedging impact in only one row in other operating income and expenses.

David Mulholland - Head of Investor Relations

Thanks, Simon. We'll take our next question from Rob Sanders from Deutsche Bank. Rob, please go ahead.

Rob Sanders - Deutsche Bank - Analyst

Hi. I just had a question about 5G stand-alone deployment. There doesn't seem to be any momentum at all in the West behind 5G stand-alone. Most operators seem to be sticking on NSA. And Ericsson flagged that as a headwind, the 5G core momentum just being slow. I was just wondering how exposed you are to this trend. And then given that you've signed a lot of contracts but there's not so many live networks, do you tend to sign a lot of the value upfront in a contract? Or is a lot of the value kind of contingent on the degree to which these networks to deploy? Thanks.

Pekka Lundmark - President & Chief Executive Officer

Thank you. This is a very good question and you are on the right track on this one because, clearly, I mean, this is one of the reasons why the Cloud and Network Services which, of course, includes the Core Network, top line development is a bit weak. Actually, we had and have a strong position in 3G Core Networks in different parts of the world. And what is happening right now is that, that market is actually going down faster than the 5G stand-alone core market is growing. That market will come, I mean, there's no doubt about that but that is, in a way, a bit late cyclical compared to the radio development because that we have - I mean, we are good in terms of making deals but the revenue coming through requires that there is traffic, there is load on the networks and that will come later.

So in general, of course, I mean, your observation as to the speed with which 5G stand-alone is spreading, it is quite slow at the moment. But it will speed up. And I mean we have so many discussions with operators who realize that in order to then get the full benefits out of 5G, including all the new monetization cases and to do really compelling slicing for enterprise customers and so on and so on, you will need stand-alone. 5G operators understand this. But it is just in many cases an enormous amount of complexity that they need to go through in order to be able to truly rely on stand-alone 5G. It's not a simple thing for them but I'm confident that they will get there and that's definitely their plan.

David Mulholland - Head of Investor Relations

Thanks, Rob. We'll take our next question from Artem Beletski from SEB. Artem, please go ahead.

Artem Beletski - SEB - Analyst

Yes, hi. And thank you for taking my question. Actually, I have one related to supply chain situation and especially Mobile Networks that delivered quite healthy growth in the quarter. Do we see that there is still some catch-up to be done relating to supply chain situation? Or has basically situation normalized what comes to this particular business area?

Pekka Lundmark - President & Chief Executive Officer

Yes, Artem, there is still more catch-up to be done. It is normalizing but it is not yet fully back to normal. And we should assume that it will not be before the first half of 2023 before we should assume that we are more or less back to a normal situation.

David Mulholland - Head of Investor Relations

Thanks, Artem. Did you have a follow-up?

Artem Beletski - SEB - Analyst

Yes, indeed, a quick one relating to IPR. So basically, ongoing dispute resolved, so will you basically reach target run rate range of EUR1.4 billion to EUR1.5 billion? Or does it require some agreement as well?

Marco Wiren - Chief Financial Officer

Yes, thank you. We assume that when we have signed these deals that are open up, we will return to that EUR1.4 billion to EUR1.5 billion top line levels.

David Mulholland - Head of Investor Relations

Thanks, Artem. We'll take our next question from Janardan Menon from Jefferies. Please go ahead.

Janardan Menon - Jefferies - Analyst

Hi, good morning. Thanks for taking the question. I just want to focus a little bit on the Network Infrastructure business particularly as it goes into 2023. My point is, I mean, given that there is some uncertainty on regional mix, et cetera, on the Mobile Networks side of things, if your overall margin has to go up, then presumably, it will also require some kind of positive momentum in the other divisions, especially on Network Infrastructure. So when we look at it, there is a slowing-down effect that seems to be coming through on the Fixed Network side, where your growth has slowed to 7% from higher levels previously. How do you see that continuing? Is that something which could further decelerate because of the high base and the reduction in fixed wireless access that you pulled out in your release? And when you look at IP Networks which I would assume is the highest-margin part of that division, does the new - there is a new webscale win there give you significant upside there? And will that be a positive margin driver into 2023? If you could just give us a bit of overall flavor on how you see the various parts of that business progressing into next year, that would be great.

Pekka Lundmark - President & Chief Executive Officer

Okay. Thanks. I will try to answer your question without giving detailed guidance for next year because, again, we will come back to that one - when we publish Q4. You are absolutely right that some of the comparisons are getting tougher especially in Fixed Networks which obviously will limit some of the growth opportunities. But we still do believe that there will be growth opportunities actually in all of the businesses that we have in Network Infrastructure. We have to remember that in relative terms, in Fixed, in IP Networks, in Optical Networks, in all of this, we are improving our relative competitiveness and technology position.

In IP Networks, we are now ramping up in the second half of the year the FP5 platform. FP4 solutions already provide a compelling solution and they actually still very well. And now we are adding FP5 that further increases our competitiveness. So our target - regardless of how the market develops, our target is to take market share in that business going forward. In Optical Networks, as I mentioned earlier, we have had some component supply chain challenges which we believe that will also be sorted out. We have diversified the component-based excellence feedback from customers on the new PSC5 generation of products. And there is more to come in the pipeline. So also in this business, there are good possibilities to take market share next year.

And then on Fixed, you may have seen that we just launched a new platform for fixed broadband access passive optical networks that is actually future-proof. If customers now start making investments, that platform will be upgradable in the future even to 50 gigabit or even 100 gigabits on in the future. So that is a future proof - highly future-proof platform.

And at the same time, we are seeing that not only in Mobile Networks but increasingly in Fixed also the trustworthiness of the supplier and all aspects related to it is waving higher and higher in customer decision-making criteria. So overall, I'm optimistic both when it comes to market development and our relative competitiveness in Network Infrastructure actually in all segments. You have seen - you will have seen the progress we have made this year and actually, it started already last year. We are not going to be immune to the macroeconomic cycles or anything like that. But whatever the market will be, we believe that we will be able to continue to improve our relative position in the market next year.

And then finally, you asked about webscalers. These are slow processes. We signed a deal with Microsoft for Tier 2 switching earlier in the year. Now we, in this quarter, signed a deal with another webscaler, name cannot be disclosed at this stage. There is more potential. The nature of these customers is that it takes a long time to get in. But once you are in, you are in and then there is actually a lot of revenue upside. But we have to be realistic that this is not something that is a question of one or two quarters here. You need to be - you need a little bit patience.

David Mulholland - Head of Investor Relations

Thanks, Janardan. We'll take our next question from Sandeep Deshpande from JP Morgan. Sandeep, please go ahead.

Sandeep Deshpande - JPMorgan - Analyst

Hi. My question is a more longer-term question. When we looked at Nokia's margin in Mobile Networks, you see today 9.6%, 9.7% margin in the first three quarters of the year. You're saying that in the fourth quarter, there will be some mix impact. Your margin is still substantially below your peer margin in Mobile Networks. Are you now saying that your margin will not go towards your peer network margin? Or is this just a small short-term impact that you're talking about? Because this mix in the Mobile Network business will change over the next few years as it has always changed in the Mobile Network business as the shift in the end market sector? Thank you.

Pekka Lundmark - President & Chief Executive Officer

Well, first of all, as you have seen, we have in a pretty fundamental way strengthened our competitiveness in this business in the past couple of years. And as we have said many times, the main reason why we have lower margins in this business than our key competitor is clearly the top line and the regional mix in our respective portfolios and the fact that we have had, because of some earlier customer decisions, a lower market share especially in the North American market. With similar volume and similar geographical mix, I do not see any reason why we would not be able to have similar margins.

Now of course, I mean you are absolutely right that there will be in the world 5G market, there will be a certain shift towards more emerging markets that will affect us and our competitors in a similar way. So from that point of view, it should be a more level playing field going forward. We have said that our ambition in this business is double-digit margin - double-digit margins going forward. And that supports then Nokia's overall 14% operating or comparable operating margin goal. So let's now see first that when we get to double digits and then, then is the time to talk about potential next steps after that.

David Mulholland - Head of Investor Relations

Did you have a follow-up, Sandeep?

Sandeep Deshpande - JPMorgan - Analyst

Yes, just a quick follow-up. Are you seeing a significant shift in the mix? Is the U.S. substantially weakening next year versus the growth in the rest of the market?

Pekka Lundmark - President & Chief Executive Officer

No, we need to still see that where the U.S. customers' capex plans. And I mean as you have seen, they have made some indications, there are still a lot of things that they need to confirm. This has been a very strong year in North America, so it is prudent to expect some normalization. And at the same time, as mentioned, India 5G basically goes from zero to very high levels in a short period of time. Operators 5G ramp-up plans are really, really aggressive and that will affect a lot volume in India in '23 and, consequently, also the mix.

David Mulholland - Head of Investor Relations

Thanks, Sandeep. We'll take our next question from Adithya Metuku from Credit Suisse. Adithya, please go ahead.

Adithya Metuku - Credit Suisse - Analyst

Yes, good morning guys. Can you hear me?

David Mulholland - Head of Investor Relations

Yes, go ahead.

Adithya Metuku - Credit Suisse - Analyst

Yes, thank you. Thank you for taking my question. So two, please. Firstly, there's been some talk from European operators about pushing out investments to protect our free cash flow in light of higher energy costs. The Head of Vodafone Italy mentioned this. So I just wondered, are you seeing any reductions in capex budgets or any discussions that corroborate this view with wireless operators in Europe? And are you seeing anything similar outside Europe? And then my second question is on any measures you have in place to pass on any inflationary cost increases as you go into 2023. Thank you.

Pekka Lundmark - President & Chief Executive Officer

So, inflationary cost increases, of course, we are passing on continuously and you have seen when you look at the Mobile Networks and NI margins that we have been fairly successful in that. Of course, as we have said, it's always easier - much easier to do that in new contracts than in all the existing contracts. And depending on the business, typical contract length is sometimes two-years in Mobile Networks, typically is three years, so the effect comes gradually. But what we are seeing in our margins is obviously a combination of our pricing power and ability to pass on the inflation to customer prices. But then also the fundamental product cost, I mean, like in Mobile Networks, we have been pretty successful in pushing down the technology - basic technology cost. And now you see the results in the expanding margin in Mobile Networks.

Then when it comes to energy, of course, we all know that the energy situation especially in Europe is very challenging. Electricity prices are up, gas prices are up. You can taper that in two ways. I mean in some cases, operators may speed up their investments because, through new generation of products, they can lower their electricity consumption. That is one way to look at it.

Then the other way is, of course, that you want to cut your capex because you need to be able to spend more on electricity and I believe that we will see both types of cases. There has been some announcements, not that many but there has been some announcements by operators that they would be looking into their capex next year because of this. But again, we have taken this into account when we estimate that our total market still continues to increase globally next year. And again, this is something that operators, each operator needs to speak for themselves. It is not for us to comment on their behalf what their actual plans then will be.

David Mulholland - Head of Investor Relations

Thanks, Adi. We'll take our next question from Richard Kramer from Arete. Richard, please go ahead.

Richard Kramer - Arete Research - Analyst

Thanks very much. It's interesting to see some growth resume in China but can you describe what your approach will be next year to the market? Is there scope at all to materially improve your market share position especially in Mobile? And are you going to face any restrictions based on the U.S. chip restrictions that are currently coming into play?

Pekka Lundmark - President & Chief Executive Officer

Yes. We don't believe that the U.S. restrictions would have any direct effects on us. But this is, of course, something that needs to be followed on a continuous basis because the situation restrictions and especially then the enforcement and implementation is a matter that is work in progress and they are still going to discuss with many other countries in detail that what it will mean. But it's very clear that the trade restrictions are getting tougher and tougher and they are adding new things into it. It's not only anymore about semiconductors. It's also about design tools and it's about software, et cetera. So that could then, of course, have potentially quite a big indirect effect on the market dynamics because it may change the competitive - relative competitive positions of different players in the market depending on who has and who has not access to the latest tools and the latest chipset generations.

Then when it comes to our market position in China, I am a bit skeptical as to a possibility that there would be any big positive news coming. I mean we continue to fight on the market. It is, of course, a very large market, it will continue to be so. But the reality is that market shares that are available for non-Chinese players in China, they have been coming down for some years already. And it's a little bit hard to see in today's geopolitical environment that - how that could change in a big way. China - Greater China region which, of course, includes Taiwan, in our case, I think it's around 6% or something like that of our total. So it is much lower than it was still some years ago and again, it's hard to see how that could change.

David Mulholland - Head of Investor Relations

Thanks, Richard. We'll take our next question from Fredrik Lithell from Handelsbanken. Fredrik, please go ahead.

Fredrik Lithell - Handelsbanken - Analyst

Thank you very much. Many questions have been answered, so I just want to have a little bit on a detailed level within Technologies. You write in the text you have two license agreements that ended in '21 that now are in litigation/renewals. So does that mean that one is in litigation, the one we know with Oppo? And the other one is still negotiated around even though you don't have a contract since'21, just to maybe clarify that? Thank you.

Marco Wiren - Chief Financial Officer

Yes, thank you. And we are in both litigations with both but also renegotiations with both. So litigation doesn't mean that we end the negotiations. That will continue anyway. So that's the situation. And both of these ended during 2021 and that's why when we didn't see that there was a good enough traction on the negotiation phase, that's why we had to enter into a litigation in different countries. And litigation is always the final step in when we see that negotiations do not bear fruit. So we try to avoid those as much as possible. But in these two cases, we came to conclusion that we believe that's the best way to continue.

David Mulholland - Head of Investor Relations

Thanks, Fredrik. And we'll take our last question this morning from Joseph Zhou from Redburn. Joseph, please go ahead.

Joseph Zhou - Redburn - Analyst

Yes, hi. Good morning, David and Pekka and Marco. Thank you for taking my question. I have two and I will go one at a time. So firstly, just returning to the Reliance Jio contract win in India, I understand you do not want to disclose the market share. But as you alluded to earlier, you are a major provider, so can we assume that the contract is more or less evenly split between the players at least? And also, where are we with margin in India versus group? And also given that Reliance is going for a stand-alone deployment, so can you maybe tell us a bit about the margin difference potentially between a stand-alone deployment compared to an SA deployment for 5G, please? That's my first question.

Pekka Lundmark - President & Chief Executive Officer

Yes. Unfortunately, I'm not in a position to give you more details on the market share and especially not comment anything on our competitors' behalf. The only thing I am able to say that it is a meaningful market share. And for us, it is a significant new entry since we did not have radio network with this customer in 4G at all. Then it is, of course, a well-known fact that the India market is highly competitive and that will put pressure on gross margin. But as I said earlier, then on the other hand, the scale effects will be so big that we believe that entering this business will actually support our path towards our group operating margin targets.

David Mulholland - Head of Investor Relations

And your follow-up, Joseph?

Joseph Zhou - Redburn - Analyst

And on standalone in general, anything on that?

Pekka Lundmark - President & Chief Executive Officer

No. Well, I mean this is now a radio network deal and that is not a relevant consideration in a deal like that. So that is - that question is not driving any margin development as such.

David Mulholland - Head of Investor Relations

Did you have a quick follow-up, Joseph?

Joseph Zhou - Redburn - Analyst

Yes, David, just a quick follow-up on FX. So I calculated for the quarter the FX had a dilution impact of 120 bps on your operating margin and which is a bit higher than I was expecting given your guidance for the USD movements versus the euro non-negative even with hedging, it should be slightly dilutive. About 120 bps sounds a lot. Can you maybe indicate does the comparative become better in that quarter? And - or should we expect a similar kind of a dilution impact from FX?

David Mulholland - Head of Investor Relations

Just I'll maybe take that one offline with me. We can run through the numbers. But obviously, there's nothing's changed in our underlying currency exposures, as we outlined back in our Q2 presentation when we went into it in detail. But I'll - we'll follow up with you separately on the numbers on that. But with that, ladies and gentlemen, this concludes today's call. I would like to remind you that during the call today, we have made a number of forward-looking statements that involve risks and uncertainties. Actual results may therefore differ materially from the results currently expected. Factors that could cause such differences can be both external as well as internal operating factors. We have identified such risks in the risk factors section of our annual report on Form 20-F which is available on our Investor Relations website.

Thank you all for joining us today.

Operator

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NOKIA CORP

Q3 2022

Earnings Transcript

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