Nokia Oyj (NOKIA) Earnings Call Transcript

Hello, and welcome to Nokia's Capital Markets Day. I'm Matt Shimao, Head of Investor Relations. I have the pleasure of being your host. Thank you for joining us. Today's Capital Markets Day is an opportunity to properly introduce you to Nokia's new group leadership team, their vision, approach and strategy. We will also provide you with clear targets and way of tracking our progress in executing our plan to return Nokia to profitable growth. First, Pekka Lundmark, our President and CEO, will discuss trends within our industry, his vision for the company and our strategy for creating value as a trusted provider of critical networks. Then Nishant Batra, our Chief Strategy and Technology Officer, will explain how our industry is evolving to enable critical networks. Next, Marco Wiren, our CFO, will explain his priorities and take you through our outlook for 2021 and 2023. And then we will host our first Q&A session with Pekka, Marco and Nishant. To meet your needs, we have built a lot of Q&A time into our agenda today. We will then take a 15-minute break. And when we resume, we will deep dive into our 4 business groups. We will start with Tommi Uitto, President of Mobile Networks. We will then move to Madrid for a presentation from Federico Guillén, President of Network Infrastructure. After that, we will jump to Raghav Sahgal, President of Cloud and Network Services, who will be joining us from Singapore. This will be followed by a presentation from Jenni Lukander, President of Nokia Technologies. Then we will conclude our day with our second Q&A, this time with all of our presenters. Following the close of the event, replays and slides will be made available on the Investor Relations section of our website. Finally, before we proceed, I would like to remind everyone that this event may contain forward-looking statements, including, but not limited to, our future performance and financial results. Forward-looking statements are inherently subject to risks, uncertainties and assumptions, and they are not guarantees of performance. I encourage you to read Nokia's filings with the SEC for a discussion of the risks that can affect Nokia's business, operations and performance. We are under no obligation and expressly disclaim any obligation to update, alter or otherwise revise any forward-looking statements, except as required by law. Now we have a lot of content for you today, so let's get going. Without further ado, Pekka, over to you.

Thank you, everyone, for joining today. I want to start with a couple of reflections from my first 8 months as President and CEO of Nokia. I rejoined Nokia on August 1 last year. Straight away, I told investors that I would like to take a bit of time to refamiliarize myself with the company and the market before making any big changes to direction. And that's what I have done. Over 150 calls with customers and partners, around 20 town halls, almost 40 opportunities to speak to our investors. I wish I could have done it in person, but even so, I've been energized to talk to so many people about Nokia. And what I have learned during those conversations is that this really is a great company. Our people are passionate about us and about our purpose. We have the trust of a wide range of customers, governments and other stakeholders. We have world-leading technology, comprehensive leadership in IP routing, thanks to our software and FP4 silicon, which you actually see on the screen, 25 gigabit per second passive optical network solution, private networking, the best 4G performance globally, the world-record 5G speed achieved together with our partners and an industry-leading patent portfolio with more than 3,500 patent families declared essential for 5G. There is a lot to like. But I have also learned that there's plenty of opportunity to get even better based on our unique market proposition. We've been selling connectivity since I was at Nokia for the first time in the 1990s. We have decades of experience in building high-performance, reliable, trustworthy networks for our CSP customers. Networks that are now able to underpin mission-critical activities, and this is what we call critical networks. Now we are able to bring that expertise to enterprises and webscales, too. Here, you see the target addressable market for those segments in euro terms. As you can see, the CSP market is broadly flat. There are, nevertheless, important dynamics within the overall market to understand. In addition to 5G driving growth by taking spending from 4G, there are some good pockets of growth, including IP routing with close to 3% CAGR, total fixed wireless access with 32% CAGR, managed security with 15% CAGR and network cognitive services with over 8% CAGR. While the CSP market is flattish, for Enterprise and Webscales, the market will grow at around 8% CAGR between 2021 and '23, becoming almost 1/5 of our total addressable market. The private wireless market specifically is showing 35% CAGR. Nokia is unique in our ability to approach all 3 segments with compelling offers. Today, I would like to talk about how we are doing that. Starting with the opportunities and trends we see, then how Nokia is evolving, and finally, what our future path looks like. Then I will hand over to my group leadership team colleagues who will focus on some specific parts of that journey. But let's begin with those trends. And I would like to highlight 2 highly relevant ones. First, next-generation access. Based on our assessment, the 5G market won't look like 4G, which had a steep acceleration to a peak and then a steep fall. 5G will be more stable. In fact, we estimate that the peak of the 5G market will last roughly twice as long as the peak of the 4G market. And we are still a long way off that peak. The 5G cycle is in a very early phase. The radio market will triple in EMEA and double in APAC over the next 3 years, while North America will grow by half during the same time. Overall, the 5G radio market is expected to be worth $26 billion by 2023. We are accelerating to seize this opportunity. Of the total value that operators moved from certain suppliers since 2019, we won approximately 50%. We currently have 196 commercial 5G agreements. We are forerunners in network slicing and over 100% digitalized 5G network deployments, speeding up delivery by 35%. And we are making good progress with securing full portfolio competitiveness in Mobile Networks. But it is important to note that 5G growth comes with a few strings attached. In a word, fiber. For mobile 5G, operators will use small cells to densify the network and improve coverage. But that requires a transport network that can carry traffic deep in the networks. Using existing fiber to the home fits the bill. It matches the expected 5G small cell footprint, it performs well and the economics make sense. This is fundamental to the gigabit world. In addition, backbone networks need to be optimized through transport technologies. We have a unique opportunity to drive this evolution. In transport, we are number two, excluding China, in CSP IP routing, with exceptional performance from our custom silicon and software. In addition, we are #2 globally in IP edge routing. For optical, our investments in coherent optical technologies, silicon photonics and automation have positioned us as top-tier vendor. Based on shipments, we are #2 globally in the fiber to the home access network segments that we address. We are already today #1 in 10 gigabit technology with XGS-PON. We were the first vendor to commercialize an end-to-end solution for 25 gigabit PON, and we were also the first to showcase 100 gigabit technology. 5G fixed wireless access is in its early days, and it is expected to grow at 100% CAGR through 2023. So there is strong demand for our solution. It's a great opportunity to lead in a fast-growing market. So with a strong position in fiber, transport and an improving position in 5G, we are clearly contributing to the gigabit world with more to come. Some of you will remember my statement from October last year that we will invest whatever it takes to repeat our 4G success in 5G, and I still mean it. The second trend I want to highlight as key for our industry is connected digital enterprise. One of the key technologies used today is 4G LTE. Many rail networks use a Nokia private LTE network to underpin operational communications as does the world's largest iron ore mine, the household name logistics company and many other customers across different sectors. And they lead to great results. Some examples include assembly line productivity, up 15%, overall equipment effectiveness in factories up 20% and imports a 40% drop in staff injuries. So yes, 4G LTE works, but 5G can do even more with its high-performance ultra-low latency and mission-critical capability. The figures I just mentioned can even double with 5G compared to previous generation technologies. For example, one of our big mechanical maintenance customers had has installed 5G in its factories, says the high-quality, high reliability, real-time video streaming capability alone has been transformative during COVID allowing them to do 100% of inspections remotely. Looking broadly across the sector of CSPs and enterprises, we have identified at least 4 big opportunities. First, software. In order to make most -- make the most out of your network, you need the right applications with the right capabilities, collecting, crunching and actioning data. Second, network slicing, which allows infinite network customization. This is hugely attractive to enterprises. Slicing as a service allows enterprises to buy automated customizable network slices in a matter of minutes, not months, with assured security and performance. Third, network automation which leads to cost benefits and reduce time to market. In fact, before too long, operating a network will be impossible without extreme automation. We foresee fully automated problem detection and correction, error prediction and prevention and self-configuration. And fourth, security solutions, which are becoming essential as network disaggregation accelerates and more countries pass data security laws. Machine learning and AI-based patent recognition in real-time are becoming necessities. These developments bring with them a significant value shift to new business models. This value will be captured by those enterprises who adopt them early and by the vendors with the technology leadership to serve them. And momentum has further accelerated over the pandemic. COVID has increased demand for next-generation products and services and exposed the big gap between digital haves and have nots. Our research shows that 5G mature companies are the only category of business to have experienced a net increase in credibility immediately following COVID, around 10%. Every business now realizes that if you aren't serious about digitalization, then you risk being left behind. As a result, we are seeing a global boom in which over 70% of large companies will invest in 5G over the next 5 years. We are addressing that appetite with Mobile Networks offering, the leading private wireless solutions according to multiple analysts. While in our Network Infrastructure business, the IP routing and new data center switching portfolios and select optical and fixed network offerings are seeing strong demand from webscale customers and enterprises. And our Cloud and Network Services business is addressing the value shift towards faster-growing emerging opportunities such as 5G core, managed security and private wireless, which are critical for both our CSP and Enterprise customers. Alongside these 2 opportunities of next-generation access and connected digital enterprise, there is something else, something worth keeping in mind, continued pressure on cost per bit. In short, recent traffic growth has required big investment by CSPs, but has not yet translated into revenue upside. The result is that CSPs are focused on maximizing performance per total cost of ownership. Given that energy costs represent 20% to 40% of the operational cost of the network, our customers also want to reduce the power consumption of network elements, both from a sustainability and from a cost perspective. As our customers strive for lower cost per bit, we are supporting them by aiming at technology leadership in several domains, including custom chips to increase performance, this underpins our competitive advantage in IP routing, optical networks, fixed access and, increasingly, 5G; spectral efficiency optimization across the low, mid and high bands for 5G; advanced software that enhances system performance; and openness, virtualization and cloudification. Overall, we believe we can offer a compelling proposition for CSPs that are undergoing a serious squeeze. So we are moving into an era of critical networks. This year will be defined by the 3 markets of CSPs, webscales and enterprises and by the acceleration of next-generation connectivity and connected digital enterprise. Going forward, Nokia will focus on 4 commitments that define our role in this evolving market. First, we are a trusted partner for critical networks. The trend shows that networks play an increasingly important role for both society and the economy. They underpin more and more mission-critical functions for both consumers and businesses. Value creation opportunities come from a deep partnership with our customers, for CSPs, for enterprises, both directly and through CSPs and for webscales. Second, we focus on technology leadership in each of our businesses. Cost and performance remain the top priorities for our customers. They build their critical networks based on a best-of-breed approach. In our highly competitive industry, one based on scale, this technology leadership is also needed to underpin momentum and financial returns. Third, we capture the value shift to cloud and new business models. We see networks evolving to further optimize performance to cost and we also see new business models developing. We will position ourselves to capture growth opportunities by investing in ORAN and cloudification, and building a winning proposition in security, automation and digitalized operations. And fourth, we create value with long-term research and intellectual property. Sustainable technology leadership requires us to anticipate, shape and invest in the next technology windows. Our innovations and research assets and intellectual property will provide both the technology and the financial platform we need in order to be successful. But this is not the full extent of our changes. As I have made clear since rejoining Nokia last August, we are taking several additional actions enabling us to improve our margins and return to growth. Resetting, then accelerating and then scaling. In October, we announced the first phase of our new strategy, outlining high-level strategic principles alongside a new operating model and provided guidance for 2021. And in December, we provided an update on our strategic focus areas and assumptions for our 4 new business groups in 2021 and over the long term. The actions following these announcements form the basis of our reset phase, and I want to mention 6 of them today. First, we moved away from end-to-end as a cornerstone of our equity story. The shift enables us to look at each of our businesses in their own right, creating value through technology leadership in each one of them. We will still provide end-to-end solutions to customers who want them. But for most of our partners, end-to-end simply did not fit how they wanted to buy. They were more focused on best-of-breed, so we wanted to align with their priorities. Second, to increase accountability and reduce complexity, we created a new operating model effective from January 1, which includes 4 empowered business groups. They are arranged according to how customers buy and are tasked with targeting the opportunities presented by the trends I mentioned earlier. The business groups are fully accountable, in charge of executing and developing their respective businesses. They will be responsible for earning their own cost of capital and aiming for technology leadership. And where we lack a clear path to technology leadership, we will assess our options. This will allow everyone to better assess the value of different parts of our business. Aside from the business groups, the new operating model also includes a new customer experience organization to provide a common interface for our partners, a uniformly excellent experience of dealing with Nokia and a guarantee that the voices of our customers will be heard across our businesses, including at group leadership team level. Another addition is the new strategy and technology organization, which will link our strategy with the technology essential to execute it. And finally, we will have a lean corporate center, focused on increasing efficiency and securing the empowerment of the business groups. In our new model, costs and headcount are mainly embedded in the business groups. As a result, around 14,000 people have moved from corporate functions to the business groups. We have matched that leanness in the group leadership team with the previous 17 members reduced to 11, shortening clearance processes and increasing agility. This is the third part of reset. We now have strong unified leadership in place. Over the course of this Capital Markets Day, 6 members of our group leadership team will tell you more about our future path. You will be very familiar with some of them. Tommi Uitto and Jenni Lukander between them have spent almost 40 years at Nokia. They now lead our Mobile Networks and Nokia Technologies business groups. Federico Guillén and Raghav Sahgal with long industry experience, now lead our other 2 new business groups, Network Infrastructure and Cloud and Network Services. Marco Wiren, our CFO, joined last year around the same time as me. And Nishant Batra, our new Chief Strategy and Technology Officer has strong experience in the key technology trends impacting our customers. The other members are not speaking today, but they are critical parts of my excellent management team. And they include Chief Corporate Affairs Officer, Melissa Schoeb, whose appointment we announced yesterday. Melissa will join on April 12, bringing extensive experience of communications, corporate affairs and thought leadership. The fourth part of our reset journey is to secure full portfolio competitiveness in Mobile Networks. We are making good progress. We exceeded the system-on-chip shipment targets for 2020 and are on the right track to reach 70% this year, up from last year's 43%. We will also take major steps in our base station portfolio renewal, enabling us to further drive down total cost of ownership for our customers. And in many areas, we are already ahead of our competition, including 4G performance, network slicing, 4G and 5G small cells and integrated active/passive antennas. And Tommi will talk more about this later. The fifth part of the reset is our cost base: further enhancing product quality and cost competitiveness and investing in future capabilities. Earlier this week, we shared that associated restructuring is expected to result in an 80,000 to 85,000 employee organization. This is down from the current number of 90,000 and will be delivered over an 18- to 24 month period. The exact size of the organization will depend on market developments over the next 2 years. On a group level, this is expected to lower our cost base by approximately EUR 600 million by the end of 2023, ahead of reinvestments, mainly in R&D. In addition, we expect approximately EUR 600 million to EUR 700 million of restructuring and associated charges by 2023. The sixth and final piece of our reset phase is refreshing our ways of working and our purpose. We promote a culture where our people are open to continuous development, fearless to experiment and empowered to act with clear accountability. Given all this change, not only Nokia but in the world around us, we also decided it was time to update our purpose because while lives may be getting longer, healthier and richer, the world is facing fundamental challenges. Pressure on the planet is increasing, productivity is stalling and access to opportunity remains stubbornly unequal. Technology is central to the solution, responding to climate change through more efficient use and reuse of the world resources, restoring productivity, by digitalization physical industry and providing more inclusive access to work, health care markets and education, meaningful interactions driving human progress. With that in mind, our new purpose at Nokia is to create technology that helps the world act together. With our customers, we create the critical networks that bring together the world's people, machines and devices. And everything we do in our business will contribute to this aim. Those 6 actions together comprise our reset phase. Once that is complete, we will move on to accelerating our performance. We will increase the digitalization of our own operations and our improved portfolio competitiveness and investments in technology leadership gained through the reset phase will provide margin enhancement and growth opportunities through new products and services. After accelerating, we scale. That means setting our sights on some of that new value that stems from next-generation critical networks that can integrate ORAN, vRAN, cloud-native software as a service business models and so on. Our business group presidents will discuss in more detail what this journey means to them. With that in mind, let's move on to financials. Our views on 2021 comparable operating margin remained unchanged since October last year. We continue to forecast a comparable operating margin of 7% to 10% for this year, with sales between EUR 20.6 billion to EUR 21.8 billion. Looking further forward, we see ourselves growing faster than the market in full year 2023 and achieving a comparable operating margin of between 10% to 13% in 2023. And finally, our target for the central part of sustainable value creation, sustainability itself. On climate, we recently announced that we will reduce emissions by 50% across both our own operations and products in use, so-called Scope 3, between 2019 and 2030. Our new recalibrated Science Based Targets fulfill our commitment to align with a 1.5-degree global warming scenario. On integrity, this year, we were recognized yet again as one of the world's most ethical companies by the Ethisphere Institute, and we will continue to strengthen our position. And on culture, we want to prioritize greater inclusion and diversity. And just as one example, we are targeting an increase of female hires in global external recruitments. So to conclude, let me repeat the key commitments that will take us to the next level. We are a trusted partner for critical networks. We focus on technology leadership in each business, we capture the value shift to cloud and new business models, and we create value with long-term research and intellectual property. We have a 3-phase journey of reset, accelerate and scale that will help us deliver on those commitments and return to sustainable profitable growth. I appreciate that I covered plenty of ground over the course of my presentation. So now I would like to hand over to our other speakers for a bit more detail on our journey. Starting with Nishant Batra, our Chief Strategy and Technology Officer. Thank you, everyone, for listening, and Nishant, over to you.

Thank you. Thank you, Pekka. In his presentation today, Pekka has given us a great context for the industry and for Nokia over the next few years, as we rise to the challenge of maximizing shareholder return. In my session, I will share a longer-term perspective on our industry and Nokia strategy to address this evolution. At Nokia, we envision that the telecommunications market will have 3 technology waves. The first wave represents system performance. We have been operating in this wave for decades. System performance is about driving capacity and coverage across generations of fixed, wireless and backbone technologies. It's about simultaneously optimizing a set of complex parameters: tower, power, air and light. Or in other words, optimizing the site and tower loading, power consumption, spectrum and optical resources. There have been major evolutionary shifts in the industry while we've ridden this first wave, for instance, the introduction of the smartphone. The smartphone changed the fundamental metric we use to measure performance. We moved from cost per [ hour length ] to now cost per bit. But I would argue these evolutionary shifts have all been very much grounded within the paradigm of system performance. We are now seeing the signs that system performance alone is not enough. And the second wave is emerging. We call this wave software agility. In the second wave, the focus on the industry is on being able to deliver new functionality at a rapid pace on webscaled network platforms. This is done through high-performance software. This is not to say that system performance thinking will be lost in the second wave of software agility. The cost per bit KPI will certainly remain relevant. However, other performance metrics like the levels of software automation and software monetization will gain an importance. I firmly believe the eventual winners of the 5G race will be the set of players who can ride this wave of software agility. The first wave of system performance may have lasted decades, but the next 2 waves are arriving in quick succession. We can soon expect software agility to be joined by a third wave, which we call network now as a service. In a way, this is already true in the consumer space. You and I don't pay for a part of the network as an asset, but rather for a service that we subscribe to. Similarly, enterprises today already consume traditional VPNs and other such static applications through the as-a-service model. However, as alluded to earlier, in Pekka's presentation, we see a future where enterprises will move away from paying for systems and specific performance-bound KPIs. Instead, they will buy automated services with discrete outcomes. For instance, a trucking company, they could subscribe to a location transfer and service API that allows it to optimize logistic environments through precise positioning of its assets. This would fundamentally change our industry. Instead of selling integrated systems, we would transition to providing outcome-based services. So where are we now? As I mentioned earlier, we're already seeing encouraging movement towards wave 2. Wave 3, however, isn't far behind. We see early signs of wave 3 being driven by the widespread adoption of 5G, growing enterprise digitalization and eager webscalers entering the frame. From a Nokia standpoint, we're poised to progress through these waves. And as this evolutionary marathon unfolds, we aspire to emerge as winner in the race. You have heard Pekka talking about the importance of critical networks transforming societies. The 3 waves of technology evolution will be the key building blocks of critical networks. As we move from wave to wave, more elements of the critical network will emerge. During this transition, there will be 2 prominent inflection points that I'd like to talk to you about today. The first inflection point. This represents the shift from networks enabling consumer connectivity to the growth of industrial or enterprise networks for industrial IoT use cases. The shift is marked by the confluence of the world of information and communication technologies, or ICT, with the world of operational technologies, or in other words, OT. This requires the high-performing systems in the OT industry to be transformed with the help of agile software and networks from the ICT industry to create a digital, connected enterprise. It is about the creation of a cyber-physical landscape that merges the 2 domains. Importantly, this is also the shift which makes it necessary for the value chain to migrate from a system-thinking to an application-first mindset. The second inflection. This represents a shift from agile but still very much in engineered networks to frictionless networks, where new levels of innovations are possible on top of easily consumable networks. Today, performance critical applications are dependent on networks, specifically engineered on pre-agreed SLAs and KPIs. In the future, critical applications will be executed via network instantiation through simple intent-based API calls in an as-a-service model. This will make critical networks frictionless. And these as-a-service business models will enable more rapid experimentation and integration into enterprise applications, allowing the network to be consumed like cloud services are consumed today. Enterprises today appreciate as-a-service option. This helps them speed the digital transformation of their business. It reduces their risk, it reduces their CapEx and they're able to flexibly simply adjust and scale at will. In summary, as you will hear multiple times across today's event, critical networks will play an increasingly important role in society and in the economy. To achieve this, we will need to hit 2 critical milestones: complementing consumer connectivity with industrial connectivity, and followed by the emergence of frictionless networks, enabling an as-a-service business model. Those inflection points will mark our progress through the waves of system performance, to software agility and then network as a service. At Nokia, we have a leading role to play across all these waves. Our new strategic commitments will shape these 3 ways and leverage them to create new value. You heard Pekka mention them earlier, but they deserve repetition. Our first commitment is to be a trusted partner for critical networks. Nokia's value creation opportunities come from deep partnerships with our customers: with the CSPs, enterprises or, increasingly, webscale players. Best performance at the lowest TCO remains the top priority for our customers, and be rest assured that this will remain constant across the 3 waves. Our customers increasingly look to build their critical networks based on a best-of-breed approach. And to address that, we commit to focus on technology leadership in each of our businesses. In the subsequent waves, as the world evolves to solve industrial use cases on the back of increased software velocity, the ability to capitalize on those trends will decide the winners. This would constitute Nokia's third commitment, and that is to capture the value shift to cloud and to new business models. And finally, the foundation of the technology innovation within these 3 waves is underpinned by research and intellectual property creation. And here, Nokia commits to create value with long-term research and intellectual property generation. With our world-renowned research arm, Nokia Bell Labs, Nokia has an edge, which very few, if any, can match in the industry. In the next few slides, I will try and provide an overview of our focus areas and our capabilities that will allow us to execute against the 3 waves and our strategic commitments. The focus in the first wave, as we saw, is to optimize power, tower, air and light, and ultimately, to provide the best cost per bit for our customers. We have a strong position here. Nokia has a wide portfolio across mobile and fixed access, IP and optical and transport networks. We draw our differentiation through custom hardware accelerators for specific workloads like L1 processing in RAN, IP packet processing in routing, [ covenant and coding ] and decoding in optical and also high-speed signal processing for fixed networks. Our leading system performance is visible in many areas, including our #1 position in performance in LTE globally, our positive 5G NSA performance for dual connectivity networks in a very competitive South Korean landscape as well in our FP generations of chipsets in IP routing, which has continued to lead the industry in capacity and density. Further, we have always pushed the limits of performance. Nokia Bell Labs has demonstrated over 1 petabit per second transmission optical fiber, multimodal optical fiber. And we have successfully demonstrated world's first 100-gig PON together with Vodafone. We will continue to take advantage of the latest developments in silicon process technology. And you will hear more about this from my colleagues Tommi and Federico in their presentations. In addition to custom silicon, advanced software is vital for optimizing overall system performance, ensuring high reliability and operationalizing specialized capabilities. A good example here is the SR OS operating system used for IP/MPLS. It is the field proven, feature-rich and highly resilient software that powers Nokia's extensive portfolio of leading routing and switching products. And that, my friends, is only one of many such examples. And finally, resource optimization also plays an important role in pushing the limits of physical performance across wireless, fixed and optical domains. Novel spectrum optimization approaches like massive MIMO; vectoring for DSL and coherent optical probabilistic constellation shaping or in other words, PCS, are eminent Bell Labs inventions. Nokia and Nokia Bell Labs have been behind many of the fundamental innovations that make up the industry we are in today. In this first wave, it is imperative that we continue that momentum by innovating in new technologies. For instance, advanced wireless spectrum efficiency techniques like distributed massive MIMO or optimizing the optical performance through spatial division multiplexing. As we look at system performance, we are aware that in certain domains, we are clear leaders, while in others, we must regain our leadership position. I can assure you today that there is a good amount of recognition, leadership and investment commitment in the company in order to achieve just that. In the second wave, there are enabling technologies that must be adopted to achieve the desired software agility. One aspect of this is a shift towards greater functional disaggregation and what we talk about as openness as typified by ORAN. Nokia has demonstrated a strong commitment to ORAN and has leveraged the web scale ecosystem, like the announcements we made earlier this week with AWS, Microsoft and Google Cloud platforms for implementing workloads in radio access networks, core and in other parts of the network. Open architectures and open interfaces have been the key to our fixed networks business as well. We have been the pioneers for software-defined access networks. And we have fostered industry initiatives such as BAA or Broadband Access Abstraction. Next, central to software agility is the full adoption of cloud-native principles. This is important. Today, Nokia container services can be used for deploying, orchestrating, monitoring and managing containers and container-based applications for telco cloud use cases in private clouds, in public clouds, and on [indiscernible], what we like to call on any cloud. Raghav will talk more about that. As cloud computing in all market segments move towards containerized workloads, and micro service-based applications, cloud solutions like the Nokia container services, offer greater agility and granular scalability for CSPs to be able to deploy their network. Finally, on this [ wave. ] One of the benefits of software agility in the network is that network functions can dynamically scale in and out as applications. This means we can place network workloads in their optimal cloud locations, thereby reducing latency, improving reliability and optimizing overall traffic. And as automation systems become increasingly sophisticated, as Pekka alluded to, we're tapping into the power of artificial intelligence to manage that complexity. These capabilities will be critical in the realm of 5G network slicing, which is a foundational step in the move towards a digitally connected enterprise. Talking about Wave 3, network as a service. Network resources will be consumed as easily and as elastically as today's cloud services, driving new value in the industry. In addition, traditionally engineered network systems will give way to what we talked about -- frictionless networks. This allows critical applications to run seamlessly through simple, intent-based API calls. The key to as-a-service delivery is the ability to shrinkwrap complex combinations of network functions in an easy to consume service. Many different network-as-a-service offerings are possible from both service providers and from network vendors such as ourselves. Today, Nokia is already offering NDAC, Nokia Digital Automation Cloud for private wireless networking and for automation services. We also offer WING, our worldwide IoT network grid, which serves IoT connectivity needs, spanning continents and operator networks globally. As we look to the future, we can see transport connectivity as a service, network slice as a service, edge cloud analytics as a service, endpoint security as a service and many such offers that service providers -- are open to developers and broader innovation ecosystems. The end goal of all this automation is to provide many high-impact industrial outcomes as a service. There are almost an unlimited number of industrial services that could be offered in such a way. Drone surveillance, asset tracking, digital twinning, robotic control, ARVR overlays and a combination of some of those and other critical communications. For instance, logistic players could subscribe to a precision asset tracking service or a power grid company might decide to leverage drone surveillance as a service. A series of simple API calls can trigger the orchestration of many network domains and cloud resources, delivering the specific outcomes desired by a specific industry at a specific instance. Examples like this illustrate how the market opportunity during this third wave will be significant, transformative, opening the door to new innovative business models as well as new innovators in the industrial ecosystem. At Nokia, we will help our service provider customers to open their networks to enable these industrial outcomes as a service and provide these solutions directly to enterprises as well. This will be an exciting transformation for an industry, a transformation that will build on the previous waves of superior system performance, higher software agility and then to network as a service. The 3 technology evolution waves we have laid out there are the foundation of the underlying leadership ambition of Nokia's 4 business groups that Pekka talked about. It is important to note that each business group is in a different stage of this transformative journey. Let's start with mobile networks. The immediate priority here is to continue our 5G performance renewal and to reach an industry-leading level of system performance. This is paramount for us. And as we do this, we will need to ensure that we leverage the evolving trends towards virtualization, cloud agility and open ecosystems. I repeat, the winners in this race will only be determined once the 5G trajectory has completely unfolded beyond the current consumer-focused offerings. And important to note that software agility will be the key differentiator here. Let's talk about network infrastructure. Here, we need to continue to iterate and sustain our already established leadership position in system performance. And in parallel, we need to progress on the automation and orchestration aspects of our IP/Optical and fixed access portfolios towards market leadership. In the markets that our cloud and network services business group addresses, there is already a strong push towards Wave 2 and increasingly strong push towards Wave 3. Nokia is rapidly evolving with the market needs here. Cloud and network services business will be spearheading Nokia's ongoing cloud-native evolution and will lead Nokia's business model evolution towards as a service. And finally, Nokia Technologies. Their strong intellectual property licensing program will continue to be powered by Nokia Bell Labs and the research assets we generate there as well as we generate these assets in other Nokia business groups. We need to ensure our leadership is sustained here as we see the industry evolve across the 3 waves by ensuring that we maintain our long-term thinking in asset generation. We will hear from the 4 BG presidents later today on all these aspects. With that, I would like to thank you for listening. And it is now my pleasure to pass it to Marco Wiren, our Chief Financial Officer.

Thanks, Nishant. Hello, all, and thank you for joining us today. I am Marco Wiren, I'm CFO of Nokia. Today, my agenda is focused around 2 main topics: first, I will take some time to walk you through my priorities as CFO. Then I want to provide a bit more color on our outlook for both 2021 and '23. With that, let's start. My first and main priority as a CFO is to create shareholder value. And since I have started my role as a CFO at Nokia, one of the first questions I have received from you, investors and analysts has been what are your key observations after coming into the company? And both Pekka and I were in a strong alignment with what we found. The end-to-end strategy that had been in place was clearly not aligned with how customers in this industry buy. Our matrix organization was overly complex, with a large leadership team and lack of clarity. And they have been very heavy steering at the corporate level in the past. In general, we noticed that there was a lot of unclear accountability internally. And then additional R&D investments were needed, especially in Mobile Networks. And as we have seen, our financial performance and stock price performance over the past 5 years has been clearly below our potential. But on a positive note, we see that our employees are truly passionate about working at Nokia with clear desire to succeed. And Nokia has some really great technology with leadership positions and pockets of strong financial performance in several areas, as you will hear more about today. And these key observations led us to make some drastic changes to the way we operate, which we have shared with you over the past few months as well. First, we will move from an end-to-end best of breed approach, and we will focus on driving true product leadership. And this shift doesn't mean that we will be siloed in our customer interface or will not have the ambition to develop system architecture, and we're willing to deliver compatible solutions when a customer buys from more than 1 business. But the main thing is, businesses will no longer be able to hide behind the idea of end-to-end. They must prove the ability to create value on their own. And in addition, we are reducing complexity throughout the organization when we're shifting away from the matrix organization, and we are moving to a lean corporate structure, which I will explain more about soon. We have empowered now the individual business groups and given them clear accountability. And lastly, as a tech company, we decided that R&D would be our clear priority to try sustainable tech leadership. And by changing the mindset within Nokia and making the BGs much more accountable, this will create a strong base for value creation. Under the new operational model, the BGs are responsible for, first, ensuring that the return on capital employed is higher than their cost of capital. Second, responsible for both portfolio management as well as go-to-market strategy, which will support growth. Third, generating free cash flow and looking in the ways to try working capital efficiencies. And four, of course, hitting their targets. In addition to BGs, I would like to highlight also the value creation opportunities of NGP Capital, our venture capital unit in corporate level. It was founded in 2005. NGP has made over 100 direct and over 400 indirect investments in areas including mobile technologies, advanced cloud capabilities and augmented intelligence. NGP is managing Nokia's venture programs across 6 funds today. And on a cumulative basis, through end of last year, NGP has returned nearly EUR 600 million of capital to Nokia, with performance in excess of 20% of IRR. And at the end of last year, our venture investments had a net asset value of EUR 750 million. Now we have established a clear change momentum in the organization. We have simplified our structure in order to empower our business growth. By removing the matrix organization, we are also moving the R&D closer to the customers. And with a lean corporate structure, we eliminated heavy cost allocations by moving the cost to our business growth control. And this will enable the BGs to optimize their businesses for future value creation. They will be able to determine what resources they will need and control their own destiny as well. To expand further on the BG-led restructuring that you've seen that earlier this week, we announced a restructuring that the plan is that we will lower our cost base by EUR 600 million by the end of 2023. And these plans are mainly in place for mobile networks and cloud and network services. The expected cost savings will offset increased investments that we are making now in R&D and future capabilities as well as related to salary inflation. Note that we expect annual salary inflation of approximately EUR 200 million. Also note that we did not change our 2021 guidance. And we have factored all of this into our '23 guidance as well. In total, we expect restructuring and associated charges relating to this plan to be about EUR 600 million to EUR 700 million. And please note also that we have about EUR 500 million cash outflows related to prior plans. Next, I want to explain how we will drive these improved returns through rigorous performance management. We have created a new Nokia Business system, which we will use to guide us on how to achieve performance and create value across our business groups for our shareholders and customers. It combines a group of procedures and processes into 1 essential management and reporting instrument. This new system is designed around our lean corporate structure, with decentralized operating model and empowered and accountable BGs. The Nokia business system establishes key management practices around 4 areas. First, capital allocation, an ambitious and fact-based long-term target setting for our business groups, including active portfolio choices, target setting with step-by-step improvements. The second area is in our rigorous performance management. This allows us to focus on risks and opportunities in performance discussions with P&L entities, which is measured via scorecards. It helps provide a consistent drum beat and acts as an early warning system. The third area is group policy setting and process architecture. And the interaction between corporate functions and business groups. We have decentralized lean process landscape where business groups are responsible for all business related processes, while group functions set the group common policies and processes. And this also sets a groundwork for managing the [ charging ] mechanism between business groups and shared service centers. And the fourth area, focus on talent management and value proposition to live up to our people and cultural mission. And this includes coaching employees to create a platform for success and also provide frequent feedback on performance during the year. And this enables us to empower and inspire people to create success. Then moving on to capital allocation and free cash flow. Consistent with our prudent capital structure philosophy, we have a clear set of capital allocation priorities. Our prime focus is on deploying capital to ensure technology leadership. And we are monitoring investment levels in these sectors where we compete to ensure that our capital allocation decisions are consistent with our leadership ambitions. We will invest in R&D to secure technology leadership. And as you know, we have said that we will increase our R&D in the low hundreds of millions in 2021. And all BGs and investments should earn returns above cost of capital. Our next priority is to provide shareholders with capital returns by improving our financial performance and continuing to build on our sound capital structure and solid capital allocation principles. And we have a clear ambition to improve our performance and being in a position where we can deliver returns for our shareholders by reestablishing the dividend. The Board of Directors will make a decision on the dividend after Q4 2021. We have also today introduced our new dividend policy, which is that we will target recurring, stable and over time, growing dividend payments. And in our dividend decision, we will take into account our financial position and business outlook. And the dividend would be started from a sustainable level. We strengthened our financial position during 2020 and ended the year with total cash of EUR 8.1 billion, which is up from EUR 6 billion at the end of 2019. We Intend to obtain a level of total cash and current financial investments at 30% or more of annual sales. This would provide Nokia with a strong enough balance sheet to be able to manage through potential macro and industry shocks and the ability to do bolt-on M&A. We have a clearly positive net cash position, meaning that we have sufficient cash to cover all debt maturities. We secured additional debt of $1 billion in May 2020, which is expiring 2025 and '28 as prefinancing for 2021 maturities, which was already paid earlier this year and 2022 maturities. So the next refinancing need is quite a ways off in Q1 2024. And I just want to highlight as well that we have a clear target to have an investment-grade credit trading. In 2021, we expect to generate positive free cash flow. Note that in Q4 2020, we received a EUR 500 million early payment as this was due in Q1 '21. On the left-hand side on the chart, we have provided detailed assumptions for 2021. Please note regarding the restructuring item in 2021, we expect cash flows related to restructuring of total about 2.5% of our net sales. And about half of this is related to older programs. I would also like to highlight that our ambition is to focus on working capital rotation days. And regarding inventories, we will optimize further by categorizing inventories into 3 buckets, which are fast movers, slow movers and dust collectors. When it comes to receivables, we will focus on commercial discipline and terms and conditions. Also, I want to highlight that by the end of '20, we significantly reduced the amount of sale of receivables and are currently at the level that is normal for Nokia and our industry as well. And going forward, we will focus on using factoring mainly to manage credit risks. Regarding payables, we are already doing well, and we'll continue to focus on securing optimized payment terms. By making progress with working capital efficiency and improving the profitability of the BGs, we target a meaningful uplift of free cash flow performance beyond 2021. We also focused on delivering transparent investor communications. And we are driving the following improvements. First, streamlining and simplifying our financial reports. We will make it easier for you to find the key content that you are looking for. And we now have these 4 BGs, for which we will provide transparency into our business performance to help you assess the true value of each of the businesses. And we will provide a balanced outlook and give transparent updates on a quarterly basis. And regarding ESG, we are working to further integrate ESG into our reporting. And I'm proud to say that we were recently ranked as #4 on Wall Street Journal's list of most sustainably managed companies. And Pekka already mentioned, the Ethisphere recognition. While these are both great achievements, we will not let up. We will continue to push forward on these areas. Now moving to our outlook for 2021 and '23. First of all, here is our outlook for 2021, which we have reiterated today. This slide also shows our outlook for 2023, which we published earlier today, as highlighted by Pekka. In full year 2023, we expect our net sales to grow faster than the market. This is driven by improved portfolio competitiveness and our investments in technology leadership. We believe we can expand our comparable operating margin to the 10% to 13% range in 2023. And this is driven by individual actions that each BG is taking. We also provided an outlook for free cash flow in 2023. For now, we're just guiding for clearly positive free cash flow. And we will consider providing quantitative free cash flow guidance in the future. And lastly, we have introduced comparable return on invested capital targets for both 2021 and '23 today. And while each BG will describe their expectations for 2021 and '23, I wanted to help bridge how this would look at the group level. And as you can see here, for 2021, improvements from network infrastructure, cloud and network services and technologies will be offset by mobile networks, which we have explained before as well. As we move to 2023, we expect improvements across the board. This is driven by concrete action that each business group will speak about today. Additionally, today, we have provided more granularity around each business group's longer-term comparable operating margin targets. And this demonstrates that each of our business groups will contribute to value creation as we look out to 2023. And you will hear from each BG President, so I will focus my commentary on some key points here. On Mobile Networks, that is expecting to show the most improvement from a comparable operating margin perspective. They're completing the turnaround this year and getting on a value creation path, and that's a priority for them. Network infrastructure is expected to show gradual improvement from an already strong base. And this business will continue to drive innovation as a competitive advantage. And focus areas include silicon and systems to deliver taste leading system performance and power efficiency, software leadership to deliver robust and reliable networks with critical capabilities at scale and software automation to provide agility and simplicity of operations. And cloud and network services is also expected to show significant more margin expansion as they optimize the portfolio to focus on accelerated growth and value creation. On this slide, you can see that the key emerging opportunities that cloud and network services is focused on [ providing ] towards. Nokia Technologies will continue to deliver strong comparable operating margin this year and through 2023. And they are driving innovation through investments in 5G and multimedia R&D, standardization and continue to renew the patent portfolio for long term. Secure renewals for major deals and expand coverage and diversify into new segments, including consumer electronics and connected vehicles. So clearly, there are a lot of opportunities to drive value creation in each of our 4 business groups. Furthermore, each business group has concrete plans to capture these opportunities. And this gives us confidence in our 2023 comparable operating margin target of 10% to 13%. And then moving to summary and some key takeaways. This leads us to a storyline that you will hear throughout the day today. We are going a phased journey, and this is not a quick fix. 2021 is a year of reset. We are building a foundation now, putting in the place what is needed to improve our performance going forward. And while this is a multistage journey, as Nishant and Pekka explained, different businesses are on different time lines of this journey. Some businesses are already in the accelerate stage. We believe that this positions us well to grow profitably in 2022 and beyond. So in summary, we have taken the necessary steps and adjusted our focus to ensure that we create shareholder value going forward. We are focused on driving a strong fundamental business performance by empowering our BGs and aligning them with how our customers buy. And we are focused on securing technology leadership. Rather than having end-to-end as a cornerstone of our equity story, we are now clearly focused on best-of-breed. And we have clear priorities regarding capital allocation, which are focused on value creation fundamentals. And all this will be tracked through rigorous performance management. This will provide us maximum foresight and the ability to put in place corrective actions in order to stay on course. Thank you. So this concludes my presentation. We will now move on to our first Q&A, which will be moderated by Matt Shimao. If you have been invited into the Zoom call, I would ask you to now log off the webcast and log on to Zoom. We will put a holding slide for a minute or 2 and give you a chance to swap formats. For the rest of the audience, please bear with us for a minute until we can start the live Q&A. [Break]

Hello, everyone, and welcome to the first Q&A with Pekka, Marco, and Nishant. This session will run for 30 minutes. As a reminder, we will have a second Q&A session later today following the business group presentations. If you have any questions that are clearly business group specific, I would like to ask you to consider saving those for the second Q&A session. Two 2 things from me. [Operator Instructions] So without further ado, let's start the Q&A session. [Operator Instructions]

We'll take our first question from Sandeep Deshpande from JPMorgan.

Pekka, I have a question in terms of how you see the nearer-term compared to '23. I mean, you are dealing with in the short-term share loss at some of your major customers. And so will we see that progression towards revenue growth in '22? Or is this still going to be weighing down on your sales? And that really beyond '22 is when we will see that growth beyond the market growth?

Thank you, Sandeep. And of course, we are not providing detailed guidance for '22. So I will basically comment '23 when -- as we said, that our target is then to grow faster than the market. But I still want to give you a little bit more context. Of course, this will be in a way a year of reset. And I'm very encouraged with what I'm seeing, both on the technology side, and you will hear from Tommi about the progress on his 5G turnaround road map. But perhaps even more importantly, the recent deal flow that we have had. You will have seen the T-Mobile deal in early this year, then CNS-led deals with all major web scales -- we have increased market share in IP routing, now later in optical networks, also in Europe. And then on top of everything, the very important 5-year 5G C-band deal with AT&T today. So this means that I'm growingly encouraged by our situation, and I certainly hope that this, in a way, hit that we took this year because of the earlier decisions by some of the customers that this will truly be a year of reset, and then we will start to see improvement already next year and not have to wait until '23.

For our next question, let's go to Dom Olszewski from Morgan Stanley.

Yes. Thanks for taking the question and for the presentation. On mobile networks, previously, you've obviously talked about the ReefShark deployments, which you were expecting to reach 100% of shipments by 2022 and that was to drive lower product costs that improve your margins. And obviously, you're guiding to 5% to 8% by 2023, while your main peer is in the mid- to high teens. So could you bridge us to explain what the delta is and what has to improve in order for you to hit that range?

First of all, you have to look at the trajectory between this year and then 2023 in Mobile Networks, and it is quite a significant improvement. And of course, we have not said that what we expect to achieve in '23 would be the ultimate target. But we have to be realistic as to how quick the improvement can be. And as I was describing in my presentation, we do believe that the peak of the 5G market will continue quite a long time, and it will be driven by the digital enterprise opportunity and 70% of world's enterprise is investing in 5G and so on. So all that makes me pretty optimistic about our 5G situation. And when you compare us to the competitor that you referred to, it's always important to keep in mind that there are some reporting structure differences. They are reporting some of their IP licensing business together with the networks business. If we were to report in the same way, our Mobile Networks profitability would be significantly better already today compared to what we are reporting.

Can I just build on what Pekka said? I think that if you listen to Tommi's presentation today, you will hear some more ambitions from Tommi as well, and you will get some more flavor on this as well. I think that Tommi will give a little bit more ambitions beyond '23 as well. Just a cliffhanger here.

Very good. Thank you, Dom. Let's take our next question from Alex Peterc at SG.

I'd just like to understand regarding the restructuring impact on your P&L. Are you going to actually reduce your OpEx at all? Or is it going to be broadly flat or perhaps even rising as you seek to reinvest into R&D and at the same time, you have also OpEx inflation. So it's basically all of the operating margin improvement going to stem from improved gross margins and economies of scale?

Yes. Thank you. As we said, 2 days ago, what we are really doing is that we are, in a way, making room with the cost reset. We are taking advantage of the new simplified operational model and this way, creating room for additional R&D investment because it is so important to be able to invest more, not only in mobile networks but also in some other parts of the businesses. So in relative terms, in our OpEx, in our personnel, the relative share of R&D of the total OpEx will increase. So this is kind of the high level picture. But then Marco, if you want to give a little bit more color on how the numbers will look like.

Yes. Thank you. Yes. As we are now guiding, we are saving about EUR 600 million during 2021 to '23. And at the same time, we are increasing our investments in R&D, like Pekka mentioned, and also capability shift. And also, we have the inflation. So we have areas which are increasing costs, but we are being able with this cost-saving program to invest in this area. But if you look beyond 2023, when we have received all of these savings, then actually the cost base is all other items equal, actually lower EUR 600 million than it would have been if we wouldn't have done this cost-saving program.

Thank you, Alex, for your question. For our next question, let's move to Daniel Djurberg from Handelsbanken. Daniel, whenever you're ready, please go ahead.

I was wondering if you can comment a little bit on the mobile network gross margin outlook for '21, '22 and possibly also '23 in terms of improvement and the impact on pricing issues this year?

You will actually hear in Tommi's presentation information and assumptions around the different parts of the P&L development. And of course, our general ambition level when the product competitiveness increases is that, that would then be reflected in the gross margin as well. But what we have decided quite clearly is that we do not guide separately on gross margin. We are just commenting the operating margin, which is then, of course, the product of gross margin and OpEx.

Thank you, Daniel. Appreciate your question. Let's take our next question from Richard Kramer at Arete.

Sorry. I didn't -- it was a bit of a surprise there. So Pekka, you're now on Nokia restructuring, maybe 3.0 or 4.0 since the Alcatel merger. And I guess when we look at the past plans, however, well intentioned that they were -- they didn't deliver sustainable cost cuts or higher profits. So -- and oftentimes, they stabilize the organization such that you had to make catch-up investments in R&D. I guess my question is, what is materially different this time? And specifically, when you talk about accountability for the business units, and equally, you mentioned all your enthusiasm for private networks, how are you going to address an area like enterprise, which cuts across business units? No one seems to have specific responsibility for that. And yet, it seems to be a big part of your future growth.

Thank you. Of course, I do not have all the details about the previous restructurings. I have been here only a few months. But what is really, really important this time now is that this is not only cost cutting. This is much more strategic. First of all, we are changing or have changed our operational model, significant simplification, removing many of the matrix complexities that we have, management team from 17 to 11. We had a management team structure where it was pretty unclear in some cases that who should make each decision. Now it is crystal clear, the BGs have full accountability. So we are simplifying the operational model and that is structurally enabling us to take out costs from certain parts of the organization. And we are reinvesting a lot of that money then in R&D. Because the important thing here to understand is that when you look at our performance over the past few years, we have had good pockets of performance and bad pockets. And overall, I guess, on aggregate, we cannot be happy with how things have gone. And there is a very direct connection between product competitiveness and the gross margin for that product and then overall profitability of that particular unit. And that's why it is extremely important that in those cases where we still have subscale performance that we find a way of becoming either #1 or #2 in technology. That is the only way to drive gross margin. That is the only way to drive profit. And that's why we are now doing the structural change through the operational model where we are taking out costs from somewhere else and putting it into R&D. This is really the biggest difference as I see it compared to the previous models that we have had.

Thank you, Richard. Our next question...

Then -- sorry. Hey, sorry. I forgot -- Hey, Matt, sorry. I forgot to answer the second part of the question, which was the enterprise. Because, of course, we are pretty bullish about the potential of the connected digital enterprise where, of course, private wireless is one part. And yes, our business structure is solution-based. So we are not structuring the business groups around the customer groups. They are structured around technologies and solutions, and all of them will be selling to different customer groups. But what we have done is that we have created one integrated sales force for enterprise customers that is pulling together the solutions from the 3 BGs. This sales force is organized under the cloud and network services business. It is one sales force going after the enterprise customers, adjusting to the clock speed that the enterprise customers need, which is often a different clock speed from CSPs. And then financially, the end result will be reported in the 3 BGs, depending on which part of the solution we are selling.

Yes. Sorry about that. Thank you, Richard. For our next question, let's go to the line of Peter Kurt Nielsen from ABG.

I seem to have some issues with my video. Thank you for the presentations and for the opportunity. I'd like to return to the issue of return on capital employed, please. The more than 7% a target over time does not seem overly ambitious. Can that be reached through the 2023 targets, which you have outlined? And perhaps could you elaborate on longer-term ambitions for that and the impact of -- scale on this and where that would leave you sort of going forward? Any elaborations on this would be much appreciated.

Thank you. We have actually guided today also comparable return on capital employed at the group level. So for 2021, we've said between 10% to 15%. And for 2023, we've said between 15% and 20%. And the 7% is only cost of capital that the group has today. And of course, each of the businesses, we will assess what is the maximum opportunity we see there and set the targets based on their circumstances and opportunities as well. So we definitely are driving higher returns than the cost of capital. And this is not another maximum ambition level that we have.

Okay. May I ask a follow-up in relation to the outlook? At the strategy update in December, you provided some indicative margin guidance for the business areas for '21 and also longer term. I guess the '23 does not qualify as longer term. So are we to understand is that you do see further upside to long-term margins beyond 2023?

Yes. Now we are focused on guiding for 2021 and '23. And if you listen to each of the BG's presentations today, I think that you will get some more flavor on as well where we are. And as we've said many times, the technology investments are extremely critical here, and we believe that we have a very good foundation to be a leader in these areas.

Thank you, Peter Kurt. Appreciate your question. For our next question, let's go to the line of Stefan Slowinski from Exane BNP. Stefan, I think you're on mute. Still can't hear you. Stefan, why don't we get right back to you. Let's hope we can sort this out and get right back to you. I'm going to move ahead. I'm going to move ahead to the next question. And I believe, the next question will come from the line of Artem Beletski from SEB. Artem, if you're there, please go ahead. Artem, can you hear me?

Yes, I can.

Please go ahead, Artem.

I would like to ask further on stepping up R&D investments. Could you maybe talk about the key areas where you build the increasing investments going forward? And maybe continue on the same topic what comes to mobile networks. Do you still expect that this year will be basically a peak in terms of R&D spend?

Yes. Thank you. I will ask Nishant to get into a bit more details. But of course, when we talk about the R&D investment, the biggest increase is really in Tommi's 5G R&D. And then, of course, yes, I understand the question that when will it peak? When it comes to the FPGA R&D, which is one part of it, I mean, that will come to an end development-wise when we complete the SoC program. And as you know, the target is 100% deliveries based on SoCs by the end of next year. And that means that then the FPGA part of the development can be ramped down with the exception of some maintenance. Then the overall R&D, we are not currently guiding separately because it will then move on how -- it will depend on how much opportunities we will see in other businesses and what other segments we are going to invest in mobile networks. That's why we are only guiding the operating margin. And the expected R&D investment is now embedded in the 2023 guidance. But Nishant, why don't you comment a little bit the most potential R&D investment areas going forward?

Yes. Thanks, Pekka. And here, it's about having a very targeted approach. Within mobile networks, of course, the focus here has been to invest on the silicon side of things for system-on-chip. There's also been a focus to invest on critical areas like L1 and linearization software for radio. Very important for not just catch up but LeapFrog. Within cloud and network services, it's really around the strategy of digital orchestration, security and automation. And for NI, here, it's about data center switching. It's about also orchestration and automation and control platforms. And finally, for our long-term investments that we do within this BG on technologies is about device-centric investments. You will see 2 big trends, software increasingly becoming important across the BGs. And I would also highlight that we have started investing in early research on 5G evolution towards 6G.

Thank you, Artem. Yes, thank you, Artem. Let's take our next question from Simon Leopold at Raymond James.

I understand and appreciate the pivot in operating expenses in favor of R&D. But what I'm really seeking is maybe a clear understanding of what are the sacrifices Nokia will make. In other words, what is it you would have done that you're no longer going to do in these efforts to restructure and become leaner?

Well, when we are removing the matrix structures and simplifying the organization, that makes it possible to rationalize layers of the organization, simplifying and increasing cost efficiency of support functions, administration and so on. R&D is something that we are protecting. We are increasing it. The customer interface, the key salespeople are also, of course, in an extremely important and crucial role. But I would say that everything else, everybody else, everything in the organization, not R&D, not taking care of the customer interface, we have identified a lot of opportunities to improve cost efficiency. And then also, as you will hear in the BG presentations, even though we are saying that we are increasing R&D investment to go for technology leadership, there is opportunities to rationalize the product portfolio and reduce R&D in products, which are getting closer to the end of its life cycle. So the R&D investment, even though we are talking so much about that, that does not mean that there would not be possibilities to optimize, rationalize and scrutinize that either. But the general name of the game is that we are taking cost out from everything else but the customer interface and R&D and then investing it in mostly R&D. We -- I believe that we -- and we have evidence of that, that the customer interface, the sales organization, the account teams that we have, that's a really, really high-quality organization. I do not see that being a bottleneck. On the R&D side, yes, there have been bottlenecks, and this is how we are creating funding for that.

Thank you, Simon. Now let's try to take Stefan Slowinski's question once more.

Great. Hopefully, you can hear me now. Sorry about that. First of all, thank you to Pekka and Marco and Nishant for the presentation. And just a question for Marco around cash flow and the profile of the cash outflow for this newest round of restructuring. You still have the EUR 500 million leftover from previous rounds. Will the cash outflow for the current new restructuring, will that match the P&L charges? I'm not sure if you've provided that yet. And along the same lines in terms of cash flow from now to 2023, do you expect any changes in the technologies group and the cash conversion there from EBIT to free cash flow and how that could impact cash flow over the coming couple of years?

Thank you, Stefan. What comes to the restructuring, as you mentioned, we have the EUR 500 million, and about half of that will be in this year's cash outflow. The new program we have guided that about the same amount would be impacted this year's cash flow. And then when it comes to later years, we haven't actually guided yet because we have to see also with those countries where we have Works Council negotiations, how those negotiations are going and what is the pace of those. And then we will give you more guidance when we know that. When it comes to the technology and cash flow versus EBIT difference, as we've guided now for this year, it's about EUR 600 million difference. Going forward, it depends totally on what are the deals we are signing and what is the cash flow timing issue in those deals. Some deals could be so that we get some prepayments, but then we might have deals that we don't get any prepayments. It will follow the OPs, operating profit as well. So it's very difficult to predict yet. But here as well, I promise we will give you guidance when we have more visibility on this issue.

Thank you, Stefan. Thank you. For our next question, let's go to Amit Harchandani at Citi.

This is Amit Harchandani from Citi. I would like to go back to the topic of gross margins, please. I must admit, I'm still not clear why you would not like to guide specifically on gross margins given it's such a key metric that investors look at. But at least qualitatively, could you give us a sense of what are the key -- the most critical drivers that would drive the uplift in gross margins? Is it lower cost of product? Exit from lower margin contracts? Any other avenues? So anything you can share with us to help build a trajectory for gross margins over the next 3 years would be helpful.

Thank you. That's an excellent question. And of course, I mean, in the big picture, why are we investing in technology leadership and in #1 or #2 technology position in those segments where we have decided to compete. The fundamental reason for that is to drive gross margin up because the technology position, first of all, it gives you pricing power in the deals that you are making, so you get higher prices. But then very importantly, as you will see, for example, in Tommi's presentation later, when we are proceeding in R&D, that is lowering the cost of goods sold, the cost of the product. And then, yes, especially in Raghav's business in the new structure, there is still some old lower gross margin contracts in the services business that we are rationalizing at the moment. So actually, this is an excellent question. It's all of those together. We have decided to guide on top line and then operating margin for the businesses, but we have decided not to provide more granularity than this. And I do not believe that this is that untypical on the market. But the ambition, I promise, is very clear that through the technology investment, our ambition is to drive gross margins up.

Thank you, Amit. And for our final question for this session, we'll go to the line of Andrew Gardiner from Barclays.

I had another one sort of on a related topic in terms of R&D and leading to that gross margin competitiveness that you were just talking about, Pekka. You guys have talked about returning to industry leadership in technology. But I'm just wondering about your relative levels of competitiveness within R&D. You haven't been specific in terms of the R&D levels as we look out a few years. But it feels like you're still going to be about 1/3 below where Ericsson would be on a comparable basis. Who knows exactly what is going to happen with Huawei, but they clearly are investing more as well. So what is it about the current plan that is giving you the confidence, indeed, getting to a #1, #2 position in terms of technology with a much leaner R&D budget?

I will ask Nishant to comment this. But before he does, I will comment on a general level. And then, of course, the business groups will zoom into this in their particular parts. But this has a very important connection to the operational model now. And this is, to some extent, different from the past that when we say that a BG is fully accountable for the business, one of the key reasons why we made this change was that we wanted to create a direct connection accountability-wise between the significant R&D investment, EUR 4.1 billion last year and what we produced with that all the way to the customer interface. In the previous operational model, this accountability was not clear because it came to the leadership team and, ultimately, to me through 2 different dimensions in the organization. Now the responsibility is in the same hands. Whoever is responsible for the R&D investment that has the R&D budget is also responsible for the success of the product in the customer interface. And as I said earlier, if we have products or segments where we do not see a path to leadership, then we will assess our options. Nishant?

Yes. I think it's -- first, without commenting on competition, I'm not sure if that's sort of the difference in R&D intensity on the group level. But if we specifically look at the -- I can speak from experience. The biggest bank for the buck is when you know what you're going to build. Target, active portfolio management gets you the best returns, and that is a big focus for us as a management team. The second piece is actually R&D intensity, so you're investing in us. And then we find the right nuggets, we feel that there is adequate investment behind. We're solving the bottlenecks. I talked about some of them. We're solving for where we really needed extra hands and feet behind them. Finally, it's about R&D productivity and that has many facets to it. It's about digitalization of processes and tools. In aggregation, I would say we as a management feel rather confident between the right portfolio choices, sufficient R&D investments and intensity in the right targeted areas and the right R&D productivity curve, which we have seen over the last 2 years, especially in ML. We feel that there is enough muscle to take the 1 or 2 spot that Pekka talked about in each of the businesses.

Thank you, Andrew, for your question. And thank you again to everyone for all of your questions for this session. This concludes our first Q&A session. We will now take a 10-minute break and start the business group part of our Capital Markets Day at the top of the hour. For our sell side analysts, please log back into the regular webcast when you return. See you shortly. [Break]

Welcome back, everyone. I hope you are refreshed and ready for Part 2, which is on our business groups. First up, we have Tommi Uitto, President of Mobile Networks. Tommi, over to you.

Hi, everyone. My name is Tommi Uitto. I have been leading the product part of Nokia's Mobile Networks for the past 2 years. In this presentation, I will introduce Mobile Networks, describe the starting point in the beginning of 2019 and the foundation we have laid with the product and R&D turnaround in 2019 and '20. I will describe our addressable market and its interesting dynamics, our vision for technology leadership and improved value creation, translating that to financials with focus on operating margin, then show you that we have what it takes to succeed and win, and finally, the time line of how we will make it happen. Let me first introduce who we are in Mobile Networks. Mobile Networks is a wireless leader and trusted partner for critical networks, both for operators or CSPs, like we call them, and increasingly, for enterprise customers, especially industry verticals. As many as 29 of the 30 largest mobile operator groups and operators run Nokia base stations. From the start of the year, we brought together the wireless networks and services under one roof in this business group to better align with the way how our customers buy. The annual revenue for our scope of the business was some EUR 10 billion last year. We have approximately 18,000 R&D engineers in Mobile Networks. In 4G and 5G Radio Access Networks, or RAN, we are #2 in the market, excluding Mainland China. We have 196 commercial 5G agreements, of which 146 are supply agreements for wide-scale deployments, 55 of those networks are live today. We also have a smaller but nicely profitable microwave radio business. Let me then move on to talk about our turnaround program. In the beginning of 2019, we started implementing a 2-year turnaround program, including 70 major changes in 5 main domains to improve the competitiveness of our R&D and 5G products. First, I wanted to ensure we had the right leaders with the required leadership skills to lead the turnaround and the technical skills to get our product development methods to a new level. This meant renewing the leadership team, but also consolidating R&D to fewer units and sites and, very importantly, growing 5G R&D significantly. As a result, we have grown our 5G R&D headcount by 40% over the past 2 years. Within this 40%, we grew system-on-chip, or SoC, development by even 200%, or tripled it, and we grew headcount in some software areas by much more than 100%. Second, together with Nokia Bell Labs, we increased significantly 3GPP wireless research, connected our research teams with product management and implemented a gated and data-driven product decision process. One example of the success is our #1 position in granted 5G standard essential patents, or SEPs, as reconfirmed by an independent study by IPlytics just 1 month ago. Third, we improved the product development processes, methods and tools. Our 5G R&D has been transforming from waterfall mode of operation to large-scale agile incremental development. This increased speed and improved productivity and quality. One example of the success is that software feature output has increased by some 60%, so more than the headcount increase as the productivity improved. At the same time, R&D became more predictable. The so-called feature-built accuracy increased from 60% to 90%. Fourth, we renewed the processor base and rearchitected monolithic software in some areas to make it modular. Nokia had had to introduce our first 5G products with FPGA technology for 5G baseband and massive MIMO. We diversified our SoC partner base from 1 to 3. And as said, we tripled our workforce developing SoCs. We now have ReefShark SoCs for all 5G base station functions, and we are integrating SoC-based products to complete the portfolio. The share of SoC-based 5G products has grown from basically nothing to over 40%, and we will be at some 70% by the end of this year, growing to 100% in 2022. Fifth, we evolved the culture towards high-performance culture and a learning organization. We conducted hundreds of so-called autopsies without blame to make systemic improvements. Based on Accenture transformation map, some 75% of our teams scored higher than the average of more than 200 benchmark companies. As a result of this turnaround, we have seen the 5G road map gap to our key competition narrow significantly. We have gotten complementary feedback from our key customers, such as Vodafone and Vodafone CTO, Johan Wibergh, about the turnaround and having narrowed the gap to competition. Since the full benefit of these changes will show in the products that come to market this year and thereafter, as there is basically an 18 months lead time in SoCs or ASICs, we expect to close the gap in those areas where we have been behind during this year. I am extremely proud about how far we have come. This is an important foundation for the next steps in our journey. I will share with you later in this presentation how we in Mobile Networks will benefit from the new operating model that Pekka Lundmark and Marco Wiren helped us design and implement as well as from the further increased 5G R&D capacity. Let's then take a look at the market where we operate. In this graph, you can see the RAN market of products and attached services and the composition of the market. Let me explain what is happening in this market. In short, 5G technology and enterprise segment are driving growth in Mobile Networks. For one, in the somewhat flattish CSP market using actual FX rates against euro, 5G is growing and replacing volumes of previous generations. Second, trust and security are increasing in importance, and this has opened up interesting opportunities for us. Third, the enterprise use cases are driving growth beyond basic voice connectivity and mobile broadband. Industry verticals are automating their business processes using either CSP's commercial networks, logical slices of those networks, private wireless networks or a combination of this. Fourth, there is gradual adoption and drive towards open RAN and virtualized RAN. More on this topic later. One important thing to note is that we are still in the early phase of the 5G cycle. Another important thing to note is that we expect the peak of the 5G cycle to be extended and longer than it was in 4G. The reason for this is that the first phase of 5G is mostly about mobile broadband, but the second overlapping phase comes with great Internet of Things capabilities with ultra reliability, low latency and extreme IoT connectivity. Over the next 10 years, industry verticals will learn how to exploit wireless networks and IoT to automate their business processes. We expect our market share in 4G, 5G to be between 25% and 27% this year, excluding Mainland China. This exclusion said, China is a big market and there are important innovations there. So we are keeping a close eye on how we could increase our 5G share in that market. Overall, our addressable RAN market is expected to grow by 1% through 2023 or by 2% at constant currency. But within this market, private wireless networks market is expected to grow at a CAGR of 35%. This is an important point. We have done remarkably well in 5G and RAN business overall despite of the early difficulties in 5G. Our success rate in converting our own 4G customers to 5G, considering also customers and share that we have won from competitors or share loss to competitors, is approximately 90%, excluding Mainland China. It was even more than 100% before we suffered from specific headwinds in North America. Over the course of the last 2 years, we have won 22 completely new customers in RAN. Further, we have grown our RAN share in 20 such incumbent accounts where we were already present, but we took share from competition. Of the total value that operators moved from some suppliers since 2019, we have won approximately 50%. This will help offset the headwind we suffered in Mainland China and North America. It also tells you about the momentum with our improving 5G and resilience of the business. There are still further opportunities to win completely new RAN customers in transition from 4G to 5G and to grow our share in RAN rate accounts. The size of such opportunity could be up to the same size as the cases that were decided in 2019 and '20. Let's then move on to the segment of enterprise and especially private wireless networks. We are already the leader in this segment, which is growing at 35% CAGR. Like I said, asset-heavy industries and industry verticals are starting to make use of wireless technology and Internet of Things to automate their business processes. Our Bell Labs colleagues say that most industries have been able to improve their productivity, thanks to computers and digitalization, by an average of up to 3% per year over the past decades. But the so-called physical industries, industries where something is moving, changing form or needs to be controlled, have lagged behind with less than 1% productivity growth CAGR. The reason is that there was no proper technology to connect objects in a wireless and reliable manner. 5G is totally changing this. To date, we have sold already networks to more than 260 private wireless customers through CSPs or directly and more than 30 of these are 5G. Industry analyst firms such as Omdia and Analysys Mason have confirmed Nokia to be the clear leader in private wireless. My business group of Mobile Networks makes the RAN part, the wireless part for this private wireless networks that are solutioned and sold by our cloud and network services business group led by my colleague, Raghav Sahgal. In our go-to-market approach, our priority is SPAP, Service Provider as a Partner, where we help our customers build these private wireless networks for their enterprise customers. But if our CSP partners are not interested, then, of course, we will sell direct. One of the interesting dynamics in our addressable market is the evolution and adoption of so-called Open RAN or ORAN and virtualized RAN, making use of cloud computing in RAN. ORAN is about opening base station interfaces to drive innovation and scale, among other things and vRAN is about bringing the benefits of cloud computing to the basement processing of base stations. We are fully committed to ORAN. Nokia was the only large established supplier who endorsed and helped foundation of Open RAN Alliance when it was only 5 operators. Today, there are 27 large operators in ORAN Alliance, and 23 of them, all but 4 are my RAN customers. Therefore, this is a highly strategic topic for us. We have been a key contributor to the ORAN standard and specifications. It was Nokia who contributed the specification of the so-called open easy preop interface between radio and baseband. You see, we rather create the future than to try and hang on to the past. We believe it's better to be part of shaping the future and be part of it than fight against it. By being a leader in ORAN and vRAN, we can make sure that our SoCs and our platforms are compatible with ORAN and vRAN. We believe that by being leaders in ORAN and vRAN, endorsing them and defining them when some of our competition is not, we can win more share and margin than we would lose simply by opening base station interfaces. With our new product platforms, we are ready to face any competition from the new entrants, and we can take share from those who refuse or hesitate to comply with ORAN and vRAN. There are certain technical and operational challenges to be sorted out in ORAN and vRAN. The technologies are not yet fully mature or cost competitive. But engineers are smart, and we will be able to overcome those challenges. Like I said, it's better to be part of solving those problems than be on the fence. What is interesting is that many of the industry verticals are particularly interested in cloud computing in general. We are experimenting with web scalers to see how to make our RAN software run in their public service clouds for vRAN. This all ties back to our strategy in the enterprise segment. What is also interesting is the value shift. Value will shift from baseband hardware to software, and with massive MIMO from baseband to even radio with more and more software content in radio. In fact, in vRAN, we may not even sell any baseband hardware and our business becomes pure software. And even if radio cannot be virtualized, after all it's radio, with sophisticated beam forming, it will become more software-centric. As you may know, Deutsche Telekom in Europe was not satisfied with our single RAN and 5G radio technology in 2018 and before that. Nevertheless, what we and DT agreed to do in early 2019 when I started was that we would keep DT updated on our progress in product and R&D turnaround. They have been pleased with our approach and the progress like Vodafone has. For one, DT has recently chosen our mainstream 5G RAN for one of their large European affiliates. Not only that, but we grew our share from 4G to 5G there. Second, DT announced in December that it has chosen Nokia in so-called ORAN town pilot network in Neubrandenburg in Germany. These are good examples of our progress in 5G overall, but also in ORAN. So where do we go from here? What is our vision on achieving technology leadership and improving value creation? Here it is. We will become the leading and trusted secure partner for 5G wireless networks for both CSPs and enterprise alike. There are 4 strategic focus areas here: maintaining and winning scale; further improving our product competitiveness; shaping the market and defining our own future; and resetting the fixed cost base to fund 5G R&D, ORAN, vRAN and better profits. This is how it works. We will continue converting our 4G CSP customers to 5G because some of our 4G customers have not yet made their first 5G deals. We will continue winning new CSP customers, just like we have done in the past 2 years. We will continue to lead the market in enterprise segment with private wireless networks and win many more deals in this segment. This requires that we further improve competitiveness of our 5G products, specifically in the CSP space. We will build on the R&D and product platform turnaround that we implemented in the past 2 years. We will further increase our 5G R&D to finalize the catch-up job and put this 5G road map topic to bed for good, and we will continue to reduce product cost and services cost. And more than that, we will be shaping the industry, shaping the market, creating the future. We are already leading solutions for enterprise segments, such as the private wireless networks or in end-to-end 4G, 5G network slicing across radio, transport and core. We will keep this lead. We will make ORAN a commercial reality to gain share and margin. We will bring the benefits of cloud computing to RAN. In order to fund the increased R&D spend and improve operating profit, we will reset the fixed cost base enabled by our new operating model. This will take us from this year's breakeven result to 5% to 8% operating margin in 2023. Beyond that, we will have the ability to get to 10% or more. Let's then look at how this translates to the financials and our operating margin in more detail. Let me take you through this bridge chart, showing the evolution of our operating margin from 2019 to 2023 and onwards. Starting from the left. With the current scope of Mobile Networks, Nokia made a 2% operating margin back in 2019. But then thanks to the R&D and product platform turnaround, we were able to improve the profitability of the product business significantly in 2020. In our services business, we cleaned up or exited low-margin deployment business. As a result, the comparable operating margin improved to approximately 8%. Unfortunately, we suffered from some specific headwind in the U.S. in the second half of 2020, taking us back in 2021. To a lesser extent, there's also impact from China where our 4G volumes are going down but are not replaced with the same amount of 5G business. And as we have said, we are increasing our 5G R&D spend to secure the full competitiveness in the CSP space. Like Pekka Lundmark has said, we will invest whatever it takes. And of course, in the private wireless segment, we already are the leader. This is the year when we get the first impact of resetting the fixed cost base in reducing all but 5G R&D costs. We are specifically streamlining our OpEx and fixed production overhead cost through restructuring. This will take us to approximately breakeven result this year from negative 1% to positive 2%. Going forward, we will adapt to the growing 5G market, the enterprise market to grow our volumes. We continue converting our 4G customers to 5G, winning new CSP customers, growing share in RAN rate CSP accounts, winning in private wireless and leveraging our ORAN, vRAN traction to take share. One thing to note is that the -- initially, the cases that we won from competitors have a lesser margin profile due to the swaps, but they will recover in margins when the swap phase is over. We will continue to improve gross margins with new SoCs, with the new product platforms and further digitalization of service delivery. And we will get the full benefit of resetting the fixed cost base. By doing this, we will get to 5% to 8% operating margin. And in the longer term, we will be in the position to make 10% or better operating margin. We have what it takes to succeed and win in this market. Let's take a look at the couple of examples of these critical success factors. We have the first generation ReefShark now for all base station computing functions, both in baseband and radio, including massive MIMO. The share of ReefShark-based products is increasing constantly. So that at the end of this year, only some configurations will still rely fully on FPGA as opposed to SoC. We will be making more product launches for the new platforms in due course. So stay tuned. In 2022, we will be done with the transition. And note that we have already the next-generation SoCs in the works. What's particularly interesting with this is that when our competition has just launched their new silicon and their new platforms, we're already working on the next SoC technology, again, packing -- higher packing density and capacity in silicon. So there's a cadence in introducing these platforms. Services have a key role in improving the competitiveness of our products and overall profitability of the business. With our integrated operating model for Mobile Networks products and attached services, we can now better consider services requirements in product development, helping to reduce cost and optimize the total cost of ownership. We are progressing well with digitalization in the service delivery. This means automation, remotization and digital end-to-end services delivery orchestration. All of our 5G deployments are already digitalized. We have exciting new use cases with digitalization, benefiting from AI, ML, chatbots and zero-touch approaches. Independent industry analyst firms like TBR say that Nokia is leading the charge in digitalizing deployment services. And thanks to this, we can see a 35% reduction in the end-to-end deployment time and up to 30% reduction in case handling time in technical support. One of the crown jewels in my business is that I have the team that can make the best-performing wireless networks in the market. In this graph, you can see the crowd-sourced daily 4G network performance data from 36 representative countries around the world from 226 large cities from December 2020 to February '21. It shows that on average, Nokia supplied networks deliver higher downlink speed from network to device, higher uplink speed from device to network and shorter latencies from device to network and back. This data comes from Tutela, who gets network performance KPIs in the background from many popular apps in iOS and Android devices. There are tens, hundreds of millions of data points. Here, it is not possible to identify test drivers and allocate all network resources to those testers because almost everyone is a test driver. Moreover, the traffic profile here is real, unlike in many of the tests using large file downloads. And due to the very large sample size from so many networks in so many countries and cities, the data is representative of our capabilities. Why is this so relevant? It's because I have now moved the people who made this great 4G product to lead our 5G development. This team has what it takes to win in this market. This operation just had to be organized and led better. So let's look at how we're doing in 5G. We had a difficult start in 5G. When we launched the first 5G networks in the world on April 3, 2019, in South Korea, frankly, we were not as competitive as we would have wanted to be. But look at where we are today. This graph is from one of the networks in South Korea, from a network with 3 RAN suppliers. It shows the daily average downlink speed from January 21 to February 21, so very recent data in this 5G dual connectivity network. It shows that our dual connectivity performance is already on par with competition. This data is also from Tutela. It is crowd-sourced, it is reliable and representative. And this is the real user experience because this is how basically all 5G networks are built today, dual connectivity and because this is the real traffic profile. Of course, we do continue to work relentlessly to improve in any 5G performance characteristic where we may still be behind, and we expect to close whatever such gap during this year. Let me then share with you how we will benefit from the new operating model that Pekka Lundmark and Marco Wiren helped us design and implement. The new operating model is enabling us to reset the fixed cost base, while maintaining full focus on customers, products and R&D. We will manage P&L in just one dimension, in the business group dimension, no more matrix. We are fully accountable for the P&L of our business group, meaning that I'm also accountable for the support function costs in my business with full authority. We are now also managing the P&L of product, plus attached services as one business optimizing the whole rather than optimizing separately product and services business, which are essentially just one business. This operating model makes it a lot easier to run strong financial performance management, thanks to clear accountabilities and responsibilities. And in the new setup, we will continue to nurture and evolve our culture with a focus on learning, commitment, collaboration and trust. I will conclude my part by describing the time line of our turnaround and how it relates to the overall Nokia plan. This year, 2021, is all about the reset. We will finalize the renewal of most of our RAN product portfolio. We will continue our strong momentum with CSPs and enterprise segment. We will make the first fully ORAN compatible deliveries and deliver fully virtualized vRAN with hardware acceleration. We will reset our fixed cost base to fund 5G R&D increase and to preserve profits. In 2021, we expect to make between negative 1% and positive 2% operating margin. The next 2 years are about acceleration. Once we have caught up in whatever remaining aspects of 5G, we will go for leadership in 5G, just like we lead in 4G performance. We will convert this portfolio competitiveness to further sales and margin with new CSP customers, new enterprise customers and better margin in the RAN rate business. We will capitalize on early ORAN and vRAN market-making, and we will get the full benefit of the fixed cost reset. These actions will help us improve operating margin to 5% to 8% in 2023. And then as of 2024, we will be completing 5G coverage build-outs, densifying networks with small cells and millimeter wave hotspots. We will be driving further 5G growth. We do use cases for private wireless networks amongst the industry verticals with new IoT capabilities. We will be refarming more and more operator spectrum to 5G and profiting from our leadership in carrier-grade high-performance ORAN and cost-efficient vRAN. And then we'll start preparing for 6G. In the longer term, we will be in the position to make 10% or more operating margin. That's what one can and shall make in this business, and that's exactly what I and my team are determined to do. Thank you very much for listening.

Thank you, Tommi. Hello, everyone. It's a pleasure to have the opportunity to talk to you today, even though circumstances mean we cannot meet in person. I'd like to start by introducing you to Nokia's new Network Infrastructure business group. You might have heard the expression, if you want to go fast, go alone. If you want to go far, go together. NI is able to do both. We do this by bringing together 4 complementary business divisions that can serve best practice and collaborate on technology and operations, while maintaining specialized and highly customer-centric approach. In doing that, we strive to be the world's most trusted systems partner for the world's most critical networks. These networks support consumers, enterprises and web scales. They provide applications and services to established telecom operators and new players. They are enabling the new wave of industrial digitalization. Spanning the globe, both on land and under the sea, our networks are the capillaries of connectivity. To do this, we invest in our people, aiming to attract the best and brightest talents and to drive customer-focused innovation faster and further. Together with the other business groups, we are helping Nokia create technology that helps the world act together. To deliver on our ambition, we have built a strong foundation for growth and value creation. In 2020, the divisions that now make up Network Infrastructure together delivered revenue of about EUR 7 billion at a respectable 7% operating profit. However, we are not really interested in only having respectable margins. We intend to leverage our advantages of technology leadership, scale and customer focus to exceed our current performance and build on our solid foundation in the CSP market to deliver higher growth and profitability. And we want to do that through projects that will have a direct and positive effect on people working on personal lines. We are a global leader in service provider routing, optical transport, next-generation fiber and global turnkey submarine cable solutions. Today, 99 out of the top 100 telecom operators, 7 of the top 8 cloud providers and over 1,500 enterprises rely on us for their network infrastructure. From this base, we see plenty of opportunities for future growth through targeted cross-selling, market share increase and new customer acquisition in the non-CSP market. Let's now look at each division in more detail. The IP Networks division reported EUR 2.8 billion in revenue in 2020. It's a global leader in IP routing networks and services, and we have shipped more than 1 million routers. Our Optical Networks division delivered EUR 1.7 billion in revenue in 2020. It's a leader in optical transport networks for metro, regional, long-haul and ultra long-haul applications. Our Optical Networks portfolio helps network operators build smarter, more automated transport networks for a streamlined service delivery and lower network total cost of ownership. The IP Networks and Optical Networks organizations have new leaders. In both cases, internal appointments of individuals with a long history within the Nokia family. They both bring tremendous technology, business and leadership skills. The Fixed Networks division reported EUR 1.8 billion in revenue in 2020. Fixed Networks is a global leader in the fast-growing fiber access and established copper segments, with over 100 million passive Optical Networks access connection shipped to date. The team is also an emerging leader in the fixed wireless access segment. Our Submarine Networks division is the market leader in this vital and highly specialized field. This division provides undersea cable transmission for service providers and the largest cloud providers. It is benefiting from a surge in investment by these customers, while we are also introducing new products to strengthen ongoing diversification in the oil and gas industries. That's where we stand today. But how do we intend to save the future? Several industry dynamics are important to critical network infrastructure, and they are in many ways interrelated. Let's take a look at each. First, 5G will drive the need for more capacity, and this translates into investment in mobile transport, including Anyhaul and network slicing. At the same time, it has created a new market in 5G fixed wireless access. Second is enterprise digital transformation. This drives demand for capacity in IP and Optical Networks, backbones and submarine cables. It's also a relatively greenfield which means that new business models, such as cloud-enabled as-a-service models are finally gaining traction in our industry. The ongoing pandemic has thrown the importance of telecommunication networks into sharp relief. We don't see this trend reversing entirely post-pandemic. Access investment with 5G and fiber will only become more critical. Service migration to cloud will only accelerate. We expect more demand for lower latency, higher resiliency and, of course, bandwidth. There's really no looking back. Finally, the transformation of enterprise verticals, including manufacturing, through Industry 4.0 initiatives presents another opportunity for network evolution and for new solutions. As a result, we believe the addressable market for NI, excluding submarine and data center networks, will grow more than 2% annually from EUR 42.3 billion in 2020 to EUR 45.1 billion by 2023. This takes into account a broadly flat telecom operator market, combined with a higher growth enterprise market driven mainly by industrial networks and cloud providers. While the market presents a number of opportunities, we know that we must take active steps to ensure that we seize these chances and capitalize on these prospects we see opening up. We'll do this in 3 ways: first, we will continue to drive intense innovation in our portfolio across all our divisions. Second, we will focus on the need of our largest customer group, the service providers. We'll continue to focus intensively on the evolving requirements of these customers. And we are building the right core technologies, including custom routing, optical and active silicon to address their needs for performance and service delivery. As a result, we are aiming to gain share with existing customers and take share from competition in this customer segment. Finally, we will increase our business with non-CSP customers by leveraging the same core technologies that differentiate us in the services space into verticals that highly value our approach to deterministic performance, rock-solid reliability and simplified operations. Through deep engagements in vertical industries such as utilities, transportation and mining, we have developed solutions to address industry-specific needs. Examples include networks for air traffic control, mission-critical power transmission grid communications and mission-critical communications for the oil and gas industry. We will continue developing our solutions, and we will continue to drive value from our R&D investments. For example, by adopting a solution developed for one vertical industry to suit another. We are also making a specific investment in solutions designed particularly for web-scale companies and cloud builders. Network Infrastructure host on behalf of all Nokia, our verticalized team focused on web scalers, and we will drive success with these customers in areas like data center switching, data center interconnect and subsea cables. Now I'd like to take that first point, portfolio innovation, and explore how it applies to each of the Network Infrastructure divisions. In IP Networks, our success has been based on driving innovation. We will continue to focus on innovation in our core technologies, including our in-house developed IP routing silicon, FP4 is our current generation, a broad range of systems that allow us to deliver the right cost and performance to the right place in the network. Our deep commitment to show our excellence will also continue. This is an essential differentiator for us, and it is acknowledged by customers. It is also one of our paths into the data center switching market. Finally, with all the drivers for change in the market today, our core technology innovation, complemented by our investment in network automation and tools, will help our customers remain a step ahead and ready for the unexpected. In our Optical Networks division, we intend to drive growth and continue to scale the business. We will do that partly by delivering next-generation DSPs to increase capacity eventually to its technical limits. And increase in our investment in silicon photonics, photonic switching and network automation tools, which are essential to helping improve overall total cost of ownership in Optical Networks through increased efficiency and cost savings in network operations. As attention moves from cost per bit to the overall cost of the network, this is of increasing importance. Our next-generation PSE-V DSP will be our fifth generation of coherent optical technology and will enable service providers to combine higher spectral efficiency with the lowest power consumption in the industry. Our acquisition of Elenion, a silicon photonics specialist, also gives us the ability to closely link our DSPs with a highly efficient optical front end, enabling us to bring yet more competitive solutions to the market. We heard Pekka talk about the importance of fiber in our journey, and that is very much reflected in the way we steer our Fixed Networks division. Here, we are #1 in 10-gig, and we were the first in the industry to offer a 25-gig PON commercial product. The recent commitment of such a large and influential player as AT&T to the multi-source agreement group highlights the importance of 25GS-PON to the telecommunications industry. Our investment here will be targeted at driving an increase in our technology leadership with an in-house silicon and optical modules development. We'll complement that with continued cost optimization to ensure that our products remain highly competitive. We will continue to drive the adoption of cloud-native SOAR by our customer installed base. In the relatively new area of 5G fixed wireless access, we have established a leadership position based on innovative solutions that bring high usability and performance. We are already working with Tier 1 customers in this area, and we are currently running the largest 5G fixed wireless access network in the world. Our Submarine Networks division represent a different kind of business with a large physical infrastructure and a strongly cyclical business pattern. At the moment, with web scales and other companies building out submarine capacity, the market is strong, and Nokia is the leader. We will capitalize on this situation and smooth out the business cycle by consolidating our leadership position in turnkey subsea cables, while taking the opportunity to update our fleet and convert a strong backlog of orders into revenues. While each of our divisions will be a strong business in its own right, we are by no means overlooking the advantages offered by bringing these 4 divisions together into Network Infrastructure. We will find areas of collaboration and best practice in business operations and in research and development that will enable us to maximize the number of projects we can take on efficiently. That is we aim to do more with the same. For example, there is a great potential for IP and optical convergence to explore. With the advent of pluggable optical models for routers and the associated need to provide coordinated management and operations across both IP and optical layers. And in a further example of cross-NI collaboration, we are leveraging our proven and globally deployed IP routing SOAR in our Fixed Networks platforms. Portfolio innovation is the first part of our strategy in Network Infrastructure. Now I'd like to look at the 2 other areas covered by the strategy: our customer-focused CSP and non-CSP approaches. In both areas, we recognize the opportunities ahead. We have also identified the challenges we are likely to face, and we have plans to maximize our success and minimize risks. First, let's look at the large data center switching market, where we have taken our first steps and where we can bring our reputation and building massive scale, complex and highly reliable IP networks. This market features well-established players and is challenging for a new entrant. Nevertheless, over the past 3 years, we have been able to partner with leaders in the web scale space and learn about their real-life issues. We work with them to build from scratch, a totally new and robust foundation for data center networking, one that can be easily tailored to any operating environment. Early endorsement came from a win with Apple, and we intend rapidly to increase our customer list in this area. 5G fixed wireless access is an area that is beginning to take off this year. We expect this market to grow, although from a modest starting position at nearly 100% CAGR between now and 2023. Nokia solution is highly in demand and a significant challenge will be to meet the demand with the limited diversity of silicon suppliers. Across our portfolio, the current pressure on component suppliers represent a threat. However, Network Infrastructure intends to convert this threat into an opportunity through our investment capacity and superior planning and forecasting, jointly undertaking with our customers. We believe that supply chain is going to be a competitive battlefield and that it can be a competitive advantage for us. Coming to the third box on the slides, we see a global trend for new builders in the form of companies with fiber assets to build networks. They are taking advantage of the demand for bandwidth driven by cloud and digitalization. We will adjust our sales engagement model to convert as many of them as possible into Nokia customers. We aim to take on the role of network and technology partners to these businesses. We also see increasing interest in new network architecture model as open as disaggregated structure become available. This is an important trend in our market, and we are ready to support customers who choose this route. We are positioning ourselves for these moves with openness built into our solution where that makes sense. And we are supporting these aggregated solutions such as the separation of control and user plane where this adds value to customers. Finally, on the topic of global trends, we are all aware of the geopolitical trends in our markets. This cannot be seen in simple terms. The market is interconnected in many ways. We will ensure that customers are aware of the advantages Nokia offers as they look for alternative suppliers while at the same time, remaining aware of the changes driven by geopolitics in, for example, supply chains. We believe that our strategy provides a firm foundation for financial success for our business group. We intend to grow faster than the market by taking share among operator customers and by closing new business in the growing enterprise segments in which we play. We will do this through our own web scale-focused verticalized team and by collaborating with Nokia's dedicated enterprise sales team in CNS. NI products already represents a sizable proportion of Nokia's enterprise revenue, and there is opportunity to drive that higher. As a result, we are targeting net sales substantially higher than the estimated 2% CAGR growth in our total addressable market. Achieving these results and maintaining our technology leadership position will require increased investment in R&D to cover the areas of portfolio innovation I have outlined. We will also need to make initial investment in new sales engagement models to ensure we are able to extend our customer base as we planned. As a result, we will take steps to defend and gradually increase our profitability while we grow. Our aim is simple, do more with the same. We will keep our operating expenses flat as a percentage of sales, partly by leveraging Nokia's new operating model. As a result, we believe we will be able to streamline sales, general and administrative costs in the range of 1.3 points as a percentage of sales. Taking all these factors into consideration, we expect to deliver operating profit in the range of 9% to 12% by 2023, ensuring that Network Infrastructure remains a strong driver of profitability for Nokia as a whole. In Network Infrastructure, we are leveraging our experience, our market position, our technology foundation and our customer relationships to accelerate our performance. We see opportunities for value creation based on our strong foundation with a global customer base, portfolio leadership and innovative technology, combined with market growth and opportunity driven by increased demand for network transformation and capacity. Market dynamics are driving ongoing demand for network transformation and capacity expansion. By following our strategy of intense customer focus both in the CSP and non-CSP customer segments, we will not only take advantage of this growth, but we'll fuel and accelerate it. In doing this, we will scale our business to take advantage of new opportunities. Finally, we will fund this growth strategy with the smart efficiency drivers. This include making the most of Nokia's new operating model, combining our forces to cover more customers and solutions with the same cost, investing in our people to drive innovation and customer focus, and finding new ways to enable Nokia to create technology that helps the world act together.

Good afternoon. It's great to be with you all today. Let me start by providing you an overview of the Cloud and Network Services business. The business focuses on software and cloud. It's what we sell. It's where we have our leadership. It's our DNA. We are a EUR 3.2 billion business built on a strong foundation for growth. And when I say a strong foundation, I mean that we are a leader in multiple markets. We are #1 in communication software, #1 in private wireless networks and #1 in cognitive or intelligent services. In the aggregate, our estimated market opportunity is quite large, EUR 25 billion. And it is expected to grow at a 2% compound annual growth rate over the period of 2020 to 2023. As you'll see in a minute, there are pockets of much stronger growth that we address. Perhaps most importantly, Cloud and Network Services is a business that is taking share and growing faster than the overall market. We are focused on creating value for service providers and enterprise customers by leading the transition to cloud-native software and as-a-service delivery model as demand for critical networks accelerates. Now let me take you through some of the key market dynamics and disruptions that are driving the growth in our business. Our service provider clients are facing unprecedented revenue and cost pressures as increasing competition emerges in the race to 5G. To win, they are changing how they architect, operate and secure their networks. They need to quickly automate and improve efficiency. They are looking for flexible ways to deploy their capital, get to market quickly and monetize their assets. And it goes without saying that COVID changed everything. Resiliency, capacity and automation requirements increased dramatically. According to our own Deepfield network intelligence report, many networks experienced up to 50% traffic growth in just a few weeks. With data traffic up, it's no surprise that security attacks also rose by 50%. As CSPs disaggregate and open their networks, and industrial enterprises increasingly connect more of their previously air-locked mission-critical assets, the data explosion and security challenges only increase, driving the need for an end-to-end protection with strong security software and processes. Finally, when we think about mission-critical assets in the enterprise market, we must acknowledge the megatrend towards industrial automation and the digitization of industries. While the trend started several years ago, the market is at what I call a private wireless inflection point. Today, it is so well recognized that industrial private wireless networks now provide a level of predictable performance that is required to drive industrial automation and digital transformation. Collectively, these market dynamics are creating new opportunities for Nokia and our customers. Simply put, agile, cloud-native software is becoming a requirement. Automation of the network and of mission-critical assets are moving to the top of our customers' agendas. Security is the top concern we hear from both our service provider and enterprise customers. Monetization of network capabilities and information is an opportunity for our customers to go beyond the basic broadband connectivity services. And finally, consumption and delivery models like Software as a Service are emerging as an important way to get to market quickly and deploy capital efficiently. The trends are creating growth in our addressable market. As I noted in my introduction, we expect our overall opportunity to grow at a 2% compound annual growth rate from 2020 to 2023. However, there are pockets of strong growth in emerging areas within our market. The emerging areas are tied closely to the trends I just highlighted. These areas are: growth in 5G core; widening use of analytics and AI-based services that will add intelligence to the network and how it is managed; accelerating uptake of private wireless and industrial automation; increasing investments in digital operations and closed-loop automation; and surging interest in managed security. In these areas, we expect the market growth of 150% between 2020 and 2023. Meanwhile, we expect declines in the 3G, 4G core markets, in several legacy application markets and in the legacy transactional managed and network performance services markets. It goes without saying that we are focused on the high-growth opportunities. We are actively pivoting our R&D to capture technology leadership in these areas and expect our business mix to change dramatically as a result. By 2023, we expect to nearly double the portion of our business that comes from the emerging opportunities to realize the benefits in both our top and bottom line. In Cloud and Network Services, our fundamental strategy is based on having technology leadership. There are 4 areas of technology leadership and 2 important enablers that will collectively drive our success in the emerging market opportunities. They are security software, automation software, monetization software and something we call everything as a service. Each of those technologies is powered by advances in analytical and artificial intelligence with flexibility of operation on an any cloud infrastructure. Let me provide a little bit more context around how we are leading in each one of these areas. As I shared earlier, security is the top concern we hear from our service provider and industrial customers. Governments globally, such as the United States, U.K., India, France and others are strengthening the security requirements for critical infrastructure. We have responded and are protecting our customers' networks with end-to-end security automation and self-protected networks. As an example, Telia has trusted us to help simplify their security operations. Our security solution equips Telia with security orchestration, automation and response capabilities to enable what we call the self-protected network. This means we are rapidly preventing and stopping threats before they materialize and do so almost instantly. Further, Telia can be confident that it is in full compliance with the European Union's General Data Protection Regulation. Telia is just one example amongst many where we are providing a technology leadership in the security domain. Automation is another area of technology leadership for us. It is arguably the most important aspect of 5G because it enables end-to-end network slicing at scale across Nokia's portfolio and in a multi-vendor configuration. Automated network slicing is the key to creating and monetizing unique 5G services. One customer who's leveraging our leading-edge innovation in this area is Singtel. With Singtel, we are implementing 5G network slicing to provide highly customizable services and faster time to market for a variety of 5G use cases and applications such as virtual reality, IoT and smart factory applications. With this cutting-edge technology, Singtel will be able to offer an enterprise customer a secured network sliced in a matter of minutes versus the current weeks and months it would take. In monetization, we are offering our customers top line growth beyond the traditional broadband capacity model that is prevalent in the market today. Service providers that are creating a digital brand see clearly the opportunity to customize services that can be activated by the end user, or create entirely new revenue streams from cloud gaming or secure VPN services. We recently deployed our fully cloud-native monetization suite with agile rules technology to Rakuten to enable new digital and network slicing services. This provides Rakuten the ability to rapidly package price and promote a wide range of consumer and business services. With this deployment, Rakuten can give its mobile customers a truly new digital experience across multiple services and enhance the monetization of its network assets. And we don't stop there. While our customers appreciate a secure, automated and monetizable network, it is their as-a-service model that gets them to market more quickly with new services in a capital-efficient way. Our enterprise customers such as utilities, ports, mines and manufacturing, have rapidly embraced this approach in deploying private wireless networks and industrial automation as they embark on their digital transformation journeys. For example, we were recently selected by Tideworks Technology to deploy an industrial-grade private wireless network as a service at the Port of Seattle in the United States to enable port automation. We are providing our cloud-based automation service platform called NDAC to give the Port of Seattle a reliable, secure and a high-performance private wireless network, which will deliver major increases in efficiency, worker safety and terminal handling capabilities performance by reducing the complexity of port flow. Our leading edge platform will deliver seamless connectivity as a service, indoors and across port operations, cranes, trucks and lifts. One reason we have technology leadership is because we have built those technologies based on analytics and artificial intelligence. Self-protected, self-healing user-activated networks are simply not possible without analytics and AI. Take Telefónica in Colombia, its affiliate, Movistar, is leveraging our digital operations software that is allowing it to complete more than 43 million tasks on a monthly basis through near-zero touch automation, coupled with analytics and AI. Optimizing Telefónica, Movistar's network processes and providing a better experience to its customers. Another reason our customers value our technology is our approach to openness. Our technology is deployable in any cloud environment, public or private. This provides our customers with the flexibility to consume the technology to suit their business model. In addition to the technology leadership we have today, we continue to invest for the long term through collaborations with Nokia Bell Labs. As I said, our strategy is based on technology leadership, and I hope you have a deeper sense of what we bring to the table and how we are investing to address those emerging opportunities and create value for our customers. As you see, our customers recognize our technology leadership, and more importantly, they value what we deliver to them. Let me share with you some important proof points of what we have accomplished with our customers thus far. Over 50 5G stand-alone cores. First, with 5G stand-alone charging and first to deliver private wireless as a service for enterprise clients. All of these accomplishments enable faster time to market with new technology-based capabilities. Our customers rely on our expertise in critical networks, and we deliver. We are a leader in the core market with 250-plus networks deployed. For enterprise, we have delivered over 1,500 mission-critical networks across industry segments such as energy, transportation, manufacturing and public safety. We also operate and manage networks and security services, covering over 1 billion subscribers. To thrive in the emerging digital ecosystem, our customers require our software openness to multi-vendor settings with no lock-in. We actively engage with them on open software standards, open source and open APIs. And finally, our customers are looking for a partner that they can trust. Trust is the reason we work with every one of the top 50 service providers globally. It is why we have a leadership with 260 private wireless networks deployed. And it was a critical reason we were recently selected as a partner by the U.S. National Cybersecurity Center of Excellence for the 5G Cybersecurity Project. Let me now shift to the financial assumptions for the Cloud and Network Services business. Before I begin looking forward, it is important to note that in the new operating model, the business no longer includes the network management and self-organizing networks portfolios. Likewise, we have added the Nokia Software business, the managed services, the GSMR Railway (sic) [ GSM-Railway ], the Packet Core and the Nokia Digital Automation Cloud portfolios. These changes in the operating model reset are comparable operating margin from 19% to negative 2%, which is the foundation from which we will begin to build. From here, we expect to reset the business and rapidly improve to finish 2021 with an operating margin in the 3% to 6% range. Let me take you through the plan we are executing that drives my confidence in achieving those improvements. First, the business had a few projects where our delivery fell short of expectations. We have quickly reengineered those projects, and we'll see the bottom line recover in 2021. As stated earlier, we expect to grow faster than the market and expect our mix to shift to the faster growing, higher-margin emerging opportunities. This will have a net positive impact on our margins in 2021. In addition to address the faster-growing higher-margin opportunities in the future, we are rebalancing our R&D spend and investing in the areas of technology leadership I mentioned. These investments will secure our technology leadership position in the years to come. Restructuring will play a role in our improved financial performance. As we restructure, we will automate many of our operating processes, we will invest in our remote delivery capacity and we will create several centers of excellence and consolidate our workforce in those centers. In addition, we are planning for some salary inflation and other additional savings that will be partially offset by foreign exchange rate changes. As I said, we expect these steps to result in a business growing faster than the market with assumption of 3% to 6% comparable operating margins for 2021. After having set a strong foundation in 2021 and looking ahead to 2023, I expect that the business will begin to accelerate and scale. This would drive operating margins significantly higher to the 8% to 11% range. To achieve this, I have the following plan: focused execution on sales growth and the change in mix towards the emerging market opportunities which will drive solid operating margin benefits; next, continue to fuel and differentiate the business by further rebalancing our R&D investments towards the emerging opportunities, and more significantly, to Software as a Service. With this shift in investment, we extend our leadership and become a technology disruptor in the market. We plan to continue to realize savings from restructuring, most of which will come from actions in 2021. As we restructure, investments will continue in building workforce capabilities in key areas like cloud, automation and artificial intelligence. Building on our expected 2021 progress, additional benefits from automating our operations, shifting to remote delivery and establishing a few centers of excellence will continue to drive improved collaboration and customer satisfaction. Wage inflation and a few other operating model savings will be realized. As a result of these actions, I expect the business will have comparable operating margins in the 8% to 11% range at the end of 2023. To close, let me reinforce a few points. With our strong foundation in software, services and private wireless, Cloud and Network Services group will: reset our business in 2021; refocus our investment to drive our business mix to the faster-growing, emerging opportunities where we already have a solid foundation; increase our R&D to drive technology leadership to be #1 or #2 in the markets we serve; implement the SaaS model and aim to have 1,000 customers leveraging this platform by 2023, up from 250 today; finally, with the collective actions we are taking to reset and accelerate the business, we expect to outgrow our market each year within the period 2021 to 2023 and deliver healthy profitability. Thank you for listening. This now concludes my presentation. And now I will pass it back to Espoo and to Jenni Lukander, President of Nokia Technologies. Jenni?

Thanks, Raghav. Hello, everyone. I'm Jenni Lukander, President of Nokia Technologies. Today, I'm going to talk about how we deliver value from licensing our intellectual property. Over the next 20 minutes, I'll summarize our strategy and priorities, highlight our proven track record and explain why I believe we are set up to continue to win. So what is Nokia Technologies? In a sentence, Nokia Technologies is a highly profitable and sustainable licensing business. Our purpose is to monetize and grow the value of Nokia's intellectual property and licensing revenue. We have 3 businesses: patent licensing, technology licensing and brand licensing. Patent licensing forms the vast majority of our revenues. Here, we license Nokia's innovations and contributions to industry standards to other companies, so they can build on our innovations without having to make their own investments in R&D. In return, they pay royalty fees for the use of our technology, which we reinvest, along with additional investment in developing the next-generation of inventions. It's a virtuous circle. A wheel that has been turning for many years powering innovation. In addition to patents, we also license our proprietary OZO multimedia software in particular, our audio technologies, to companies like ASUS, Axon, OPPO, OnePlus and Panasonic to enhance the capabilities of their smartphones and cameras. And finally, we license the globally recognized Nokia brand to consumer device manufacturers around the world. We work with these brand partners to increase the reach and strength of the Nokia brand, while helping them to increase their sales. We delivered a solid financial performance in 2020, finishing the year with a strong quarter. Full year sales were EUR 1.4 billion, down 6% year-on-year because of a reduction in brand licensing revenue due to the impact of COVID-19 on the smartphone market and certain one-off items in 2019. But the patent licensing business model and our strategy proved to be resilient in adverse market conditions, and operating profit remained strong with an operating margin of 80%. Nokia is a technology leader and an innovation powerhouse. For more than 30 years, we have defined many of the fundamental technologies used in virtually all mobile devices and taken a leadership role in standards setting. As a result, we own a leading share of standards essential patents in every generation of cellular standards. Our world-class standardization experts are internationally renowned, holding more than 100 board members and other senior positions across all key standardization bodies, shaping the development of industry standards. We own one of the broadest and strongest patent portfolios in the mobile communications sector with around 20,000 patent families and over 3,500 patent families declared as essential to 5G. When we talk about our portfolio, we talk about patent families. Each family is made up of 1 invention protected by multiple patents in different countries. Some companies prefer to talk about the number of individual patents. But we believe that patent families is a more meaningful measure as it accurately describes the number of actual inventions. Our portfolio has a long lifetime with the vast majority of patents still in force in 10 years' time. This provides a long-term foundation for the business. And we continue to refresh the portfolio, investing over EUR 4 billion in R&D last year and filing patent applications on more than 1,500 new inventions. Our aim is to maintain the high quality of the portfolio. We relinquish patents that no longer generate value and that way, manage its cost. Several independent studies have confirmed the strength of our industry-leading portfolio. A study published by PA Consulting last year concluded that Nokia is #1 for ownership of granted patents that they found essential to the 5G standard. A study published last month by IPlytics ranked Nokia as #1 for ownership of active and granted U.S. and European patents declared as essential to 5G standards. What is significant about the PA Consulting study in particular is that they made their own independent technical analysis of declared standards essential patents, investigating whether the patents indeed are part of the standard. This is an important point because assessing the strength of a portfolio is much more than just a numbers game as some patents are more relevant and valuable than others, so you need to look at the quality of the patents. And then sometimes, you have to prove the value of your inventions in court, something that Nokia has successfully accomplished over many years. As a result, we have market acceptance. On the whole, companies recognize that they need to pay to use our inventions. And we have over 200 licensees across all our programs. Companies like Apple, Samsung, Audi, BMW, all paying royalties. In terms of revenue, we are #2 in the licensing market, second only to Qualcomm, who have a different bundled business model with their chipset business. This is where we are today and where we intend to stay. In terms of what's actually in our portfolio of 20,000 patent families, our inventions fall into 4 categories: cellular standards, multimedia technologies, other device-related technologies and network technologies. The technologies within these 4 categories include connectivity, user interface, antenna security, artificial intelligence, machine learning, sensing and sensors, multimedia and other emerging technologies. Around 20% of our patent portfolio are standards essential patents, inventions that have been contributed to industry standards like 5G, and that have to be used in order for a device or service to comply with these standards. In practice, this means that any device that's connected to any cellular network automatically uses Nokia's intellectual property and requires a license and a royalty payment. While we have actively managed the size of our portfolio over the years to keep costs on a reasonable level, we have focused on growing the most valuable parts of the portfolio. For example, the size of our 2 to 5G cellular standards essential patent portfolio has tripled in size over the past 6 years, and it's no exaggeration to say that entire industries are powered by these inventions. Therefore, we have a strong foundation to continue our smartphone licensing, to broaden our consumer electronics and automotive licensing programs, and over time, to tap into the opportunities that will arise from IoT. Our successful, well-established mobile devices licensing program is the core of our business and provides strong recurring revenue. We have high coverage with licensing agreements in place with most major smartphone vendors. There are still some untapped opportunities, and we are working on these. The global smartphone market declined both in terms of volume and value in 2020 due to COVID-related supply constraints and delayed launches of new devices. But despite these adverse market conditions, our smartphone licensing program proved to be resilient. Recurring revenue and profitability were stable and unimpacted by COVID-19 due to the structure of our licensing agreements. We renewed a major license agreement in Q3 last year. In a way, that demonstrates the strength of our 5G portfolio. Other deals are coming up for renewal over the next few years, and we are well placed, thanks to the continued investment in our 5G portfolio. In addition to our leadership in cellular technologies, we also have a strong multimedia patent portfolio built on 30 years of investment in R&D. In particular, we excel in video standards, including video compression technology that enables large data files to be shared across the Internet. Without this technology, you couldn't stream a high-definition video or hold a video conference meeting. The work of Nokia engineers in video research and standardization has been recognized with numerous international awards, including 4 Technology and Engineering Emmy Awards. We have an established licensing program for consumer electronic devices that licenses these video standard technologies. While licensing maturity has been relatively low, it has been increasing, and we see significant opportunities. For example, last week, we announced a patent license agreement with Samsung which covers the use of Nokia's video standard technologies. This deal is separate to our long-standing smartphone license agreement with Samsung. And other deals with other companies will follow. We are also on course for further growth with our automotive licensing program. The cellular technology that's used by the automotive industry are the same as those used in smartphones and deliver significant benefits to drivers and car companies, including enhanced safety, information and entertainment features. Car companies charge their customers a premium for many of these services. The size of the addressable market will increase with over 50 million connected vehicles expected to be sold in 2023. Plus 5G is likely to become mainstream in connected cars in the next 3 to 4 years, offering further opportunities. Licensing maturity has been relatively low, but is increasing as we have licensing agreements with automotive companies, including BMW, Volkswagen and Volvo, and others are likely to follow. In fact, only last month, we signed a new licensee through the Avanci patent pool program, of which we are a leading member. These agreements have been concluded on an amicable basis, confirming that our licensing offers have been viewed as fair and acceptable by the automotive industry. But litigation can be necessary in any patent business, and we have an ongoing action against Daimler. We won landmark patent judgments in Germany last year, which confirmed the strength of our patents. These cases are currently under appeal. But overall, our overall position in the dispute remains strong. IoT will also significantly expand our long-term addressable market impact and licensing from dozens of companies to hundreds of potential customers. The market is still in development mode with different connectivity technologies being tested, and so our licensing program is also in its early stages. Our current focus is in payment terminals, utility smart meters and vehicle telematics. There are many other long-term opportunities as everything becomes connected, but it will take time to unlock some of this potential. Patent licensing contributes the majority of our revenues, but we are much more than just the patent licensing business. We have a unique offering with a combination of patents, technology and brand that we can offer to our potential licensees. For example, many of our patent licensees also use our OZO Audio software to improve their products. We offer a number of features, Audio Zoom is my favorite. It enables you to zoom audio when recording a video on your phone, just like you can zoom the image and filter out unwanted surrounding noise. It's just one of the things in our toolbox that make us a more attractive partner. We are also a partner in innovation, whose world-leading experts can collaborate on R&D together with our licensees. Let me share a bit more detail on our smartphone agreements which form the majority of our net sales. As I mentioned earlier, we have successfully generated recurring revenue streams from most major mobile device players. You can see from the chart how we have built this sustainable business over time. The duration of these agreements varies from 3 to 10 years. To put that in context, on a 5-year rolling average, around 15% to 20% of our top line each year represents existing large deals that are coming up for renewal. As you can see from the chart, this is a very, very much business as usual for us. We have a proven track record for continually renewing our agreements. For some agreements, we received large prepayments in cash at the beginning of the contract term. We recognize these royalties, however, as net sales over the lifetime of the agreement. As a result, the annual free cash flow performance can differ significantly from our P&L performance, both up and down. Of course, the free cash flow performance matches the P&L performance over the life of each agreement. On the slide, we have provided the cash payments to revenue ratio for the past 7 years. You can see how the ratio has fluctuated. For example, from 3.5 in 2014 when some large prepayments took place to 0.4 the following year in 2015. Moving on to our focus areas and expectations. Our strategy remains unchanged in the new Nokia operating model. The priority is on accelerating execution of the strategy. We have 4 areas of strategic focus. Firstly, driving continued innovation, securing monetizable IP assets and renewing our patent portfolio for the long term with investments in 5G, 6G, multimedia R&D and standardization. We do this in close collaboration with Nokia Bell Labs. The fact that Nokia was recently chosen to lead the European Commission's flagship 6G research initiative underlines our strength in this area. Secondly, continuing to renew major smartphone licensing deals and secure agreements with remaining uncontracted vendors. Thirdly, expand our coverage with growth in. Consumer electronics, automotive and IoT and other emerging segments. Our new agreement with Samsung covering the use of Nokia's innovations in video standards highlights the potential here. And fourthly, build brand partnerships and grow brand value by developing new brand licensing opportunities, including smart home and other connected devices. In terms of guidance, we expect to deliver comparable operating margin of more than 75% in 2021 and 2023. In addition, we continue to maintain our expectation to deliver a slight improvement in comparable operating profit in full year 2021 relative to full year 2020. Naturally, from year-to-year, there are ups and downs. But generally speaking, we are predicting stable performance over the long term. I'd like to finish by summarizing why I believe we are well-positioned to continue to win. Firstly, we have a strong asset, an industry-leading portfolio, which will remain strong as a result of continued investment in its renewal with investments in 5G, 6G and in multimedia. Secondly, we have attractive growth opportunities from our leading 5G and multimedia patent portfolios from growth areas like consumer electronics, automotive, and in the longer term, IoT. This is underlined by the fact that the 5G cycle is in its early phase, and it's expected to last longer than the 4G cycle. Thirdly, we have a proven track record in all major geographies. We have agreements with most major smartphone vendors and over 200 licenses across all our programs. And in cases where litigation has been necessary, our litigation track record is strong. And we have a world-class team, end-to-end, world-class research and standardization teams across Nokia but especially in Bell Labs; a highly skilled patenting team in Nokia Technologies, along with the licensing, legal and technical analysis teams that relate to it. So when you add all it together, we are and we will remain a highly profitable and sustainable licensing business that harnesses the value of Nokia's research and intellectual property and delivers that value to shareholders, industry partners and the next generation of inventors. Thank you for listening. I am now going to pass back to Matt for the live Q&A. Matt, over to you.

Thank you, Jenni. So that concludes our presentations, and now we will have our second Q&A session with all of our presenters. For our sell-side analyst, please log off the webcast and on to the Zoom session. Once again, we will have a holding slide for a minute to allow you to swap formats. [Break]

Welcome, everyone, to the second Q&A session. This session will include all of today's speakers. [Operator Instructions] With that, let's start the Q&A session. [Operator Instructions]

And our first question will come from Achal Sultania at Crédit Suisse.

Maybe a question for Raghav on the CNS business. Raghav, you talked about a lot of things that are going to help improve the margins over time. You're starting from a very low base of minus 2% last year. I'm just trying to understand, what's going to be the biggest delta driver for improvement in margins? You have quite an ambitious target of reaching 10% over time. We've seen with one of your peer group companies that margin improvement in this part of the business is proving to be challenging. So I'm just trying to understand, like if we were to pick 1 or 2 items of all the measures that you're trying to take, what can we focus on to give us confidence on that big improvement?

Sure, sure, sure. So thank you very much for the question, and it's a good question, by the way. So first of all, as I talked about in my presentation, we are really focusing on 5 key areas of the market that are really growing fast and where our customers are looking for us to create value. And that's 5G core, it's digital operations, it's private wireless, it's AI-based services, and it's in the managed security. And you will see that this market in itself in 2021 grows at 10% on a CAGR basis and will grow up onto 15% in a CAGR basis as we go forward. Today, our business mix in that particular segment is about 37% of our business sits in that segment. And as we go into 2023, almost 67% of our business will come from those emerging opportunities. And that is going to be a big driver for our margin improvement growth, all the way from '21 to '23. In addition to that, obviously, we are driving a lot of efficiencies. We are driving remotization of our services and our care. We are building, consolidating our workforce into Centers of Excellence to drive productivity as well as delivering better customer satisfaction. We are digitizing processes, which will provide us more agility and response. And these will be the key drivers that will really drive our margin improvements on the bottom line all, the way from '21 to '23, and we will continue to grow faster than the market in each one of these years as we go forward.

Thank you, Achal. And for our next question, we'll go to Sami Sarkamies from Nordea.

This will go to Tommi Uitto at mobile networks. Can you help us understand why the EBIT margin target stands at only 5% to 8% for '23 following all the planned measures, as you were already at that level last year? And then when looking at your close peer, Ericsson, they were 15% excluding IPR revenues last year and are targeting even higher us going forward. What explains such a big difference in margin level?

Right. Thank you, Sami. So in my presentation, I shared with you why we moved from last year's 8% to around breakeven this year, so from minus 1% to positive 2%. And most of this is due to the headwinds suffered in North America last year. And then part of it is because our 4G volumes in China are going down but are not replaced by the same amount of 5G in China, and then partly because we have this increased R&D investment in 5G. So that takes us to around breakeven, which is a tough starting point. And this is the year of the reset. And then going forward, as of right now, there are many levers that we are pulling to get to the 5% to 8%. So the margin improvement comes in '21 to '22 to '23 for many sources. So we have volume increase because we expect to continue to win more new customers and increase share in incumbent accounts in the CSP space because of the growth in the private wireless segment; because of cost of goods sold reduction; because we continue to reduce product and services cost with SoCs designed for serviceability, digitalization of the service delivery comes from mix; because we will be more selective on low-margin deployment services business comes from central cost of sales; because we're making operational and quality improvements that help reduce fixed production overheads and other items like warranty, excess and obsolescence; and then, of course, OpEx because we will be reducing cost in support functions and administration and so on in non-R&D OpEx. And so this year is a tough starting point. And this is the objective and honest and transparent plan that we have going forward. And of course, beyond '23, the ambition is to get to 10% or better operating margin.

Thank you, Sami. Yes. Thank you, Sami. Let's go to Fredrik Lithell at Danske Bank for our next question.

Could I stay with Tommi maybe for a second question here? You described the falling volumes in China on 4G and that you are not really participating to the same extent on 5G, and that was something that just sort of happened during the course of 2020. What do you see are your possibilities to go sort of come back in China, if you want to come back in China? Is there another situation now? Or is it so that, that decision is complete for the long term? I felt that you alluded to that in your presentation, that you keep a foot in, in China because it's a very advanced market.

Thank you, Fredrik. Good question. And so let's first look at the starting point. So actually, we had never made a decision that we would not participate in 5G radio access in China. And in fact, we did participate and we did win some market share in 5G with China Mobile and then the joint venture of China Telecom, China Unicom, even if, of course, much smaller market share than what we have had in 4G. So we have supplied our 2.5-gigahertz 5G to China Mobile and 3.5 gigahertz to CTC, CUC, both in macro and small cells, including some important cities like Shanghai. But at the time of the central purchasing rounds, the first ones, we were still in the middle of that product turnaround. And we didn't really have a fully competitive product for the Chinese customers' needs, especially in the RF bandwidth. And when you don't score well in the technical evaluation in China, then you have to go to -- and give very significant discounts to secure share, which is why we decided to take very little share at the time. But that was back then. Let's talk about today and the future. We are participating in the next central purchasing rounds of 5G in China with China Mobile, China Telecom, China Unicom as well as China Broadcast Network or CBN. Because like I said, China is a big market. There are important innovations there. Our product is more competitive after the last 2 years of turnaround and continues to improve through this year. Taking an example. So the 700-megahertz 5G product offered to CBN has actually, to a good extent, being developed by our R&D in Hangzhou and Nanjing. We are the first supplier who has completed the tests in 26-gigahertz millimeter wave with MIIT, the ministry. So we are trying to increase our share there. But this said, it is, of course, challenging to increase share in the latter central purchasing rounds when most of the market share has been awarded in the first central purchasing rounds. I hope I was able to add color to -- and answer your question properly.