Nokia Oyj (NYSE:NOK) Q2 2025 Earnings Call Transcript

Nokia Oyj (NYSE:NOK) Q2 2025 Earnings Call Transcript July 24, 2025

Nokia Oyj misses on earnings expectations. Reported EPS is $0.05 EPS, expectations were $0.07.

David Terence Mulholland: Good morning, ladies and gentlemen. Welcome to Nokia’s Second Quarter 2025 Results Call. I’m David Mulholland, Head of Investor Relations. And today with me is Justin Hotard, our President and CEO; along with Marco Wiren, our CFO. Before we get started, a quick disclaimer. During this call, we will be making forward-looking statements regarding our future business and financial performance, and these statements or predictions that involve risks and uncertainties. Actual results may therefore differ materially from the results we currently expect. Factors that could cause such differences can be both external as well as internal operating factors. We have identified such risks in the Risk Factors section of our annual report on Form 20-F, which is available on our Investor Relations website.

Within today’s presentation, references to growth rates will mostly be on a constant currency and portfolio basis, and other financial items will be based on our comparable reporting. Please note that our Q2 report and the presentation that accompanies this call are published on our website. The report includes both reported and comparable financial results and reconciliation between the 2. In terms of the agenda for today, Justin will go through our key messages from the quarter and then Marco will go through the financial performance, and we’ll then move to Q&A. With that, let me hand over to Justin.

Justin Hotard: Thanks, David, and good morning. During my first quarter as President and CEO, I’ve spent significant time engaging with our stakeholders, and it has left me with 2 conclusions. First, I have increased optimism about our future opportunity. It is clear to me that connectivity will be a critical differentiator in the AI super cycle. That is true not only for the hyperscalers where it’s visible today, but also for communication service providers and increasingly in areas like defense and national security. With our portfolio in mobile and fiber access, transport and data center networks, Nokia is uniquely positioned to be a leader in this market transition. We are investing to capitalize on this opportunity, and we are already starting to see success today in areas like optical networking.

Second, our customers expect us to engage with them as one integrated company, as the majority of them partner with us across our portfolio. We benefit greatly from the financial accountability our business group structure gives us. However, we also need to evolve how we work so we can move faster, improve productivity and focus on what brings value to our customers. As a result, we’re unifying our corporate functions to simplify how we work and to build a more cohesive culture to help unlock operating leverage. I’m looking forward to discussing our strategy and full value creation story at our Capital Markets Day in New York on November 19. Turning to our second quarter results. Our performance was mixed. Good growth in both Network Infrastructure and Cloud and Network Services was offset by a decline in Mobile Networks, primarily related to the accelerated revenue recognition seen in the prior year quarter.

Our profitability was impacted by currency fluctuations, particularly the weaker U.S. dollar, which was both an operational headwind and a headwind in our venture fund. We had a EUR 50 million noncash negative impact from our venture funds in the quarter, which included a EUR 60 million negative impact from currency. Excluding currency, our profitability in the quarter would have been in line with our expectations, and we continue to make investments in longer-term growth opportunities. The second quarter was first full quarter since we acquired Infinera. The combined Optical Networks business has been performing well with a book-to-bill well above 1, showing continued strong commercial momentum to our growth, though our growth was tempered somewhat by its supply constraints, and we’re on track to achieve our committed synergies from the acquisition.

Q&A Session

Looking forward, the demand environment remains broadly consistent with what we said last quarter. Customers are largely continuing with the plans they laid out at the start of the year, and there has not been any major impact from geopolitical uncertainty. As a result, for the full year, we continue to expect strong growth in Network Infrastructure, growth in Cloud and Network Services and largely stable net sales in Mobile Networks. In Nokia Technologies, we still expect EUR 1.1 billion of operating profit. Let me share a few highlights from the quarter across our business groups. In Network Infrastructure, we continue to see a strong demand environment in Optical Networks and a positive reception to the Infinera acquisition from customers.

Two deals I’d like to highlight in Optical, our first award from a hyperscaler for 800 gig ZR/ZR+ pluggables and a deal with a large U.S. communication service provider. Overall, hyperscalers are one of the biggest drivers of our order intake in the quarter and remain a significant growth opportunity for our Network Infrastructure business. Across the whole of Nokia, hyperscalers accounted for 5% of net sales in the second quarter. In IP Networks, we continued our leading position in the market, remaining #1 in edge routing and #2 in total routing. We continue to see a long-term opportunity in AI infrastructure and are investing to accelerate growth. Recently, we’ve been an active participant in consortiums that are bidding to benefit from the EU’s EUR 20 billion program to build AI gigafactories in Europe.

In Fixed Networks, we still expect strong growth this year, and the appetite for fiber among Tier 1 CSPs remain strong. The past 12 months have seen us strengthen our market leadership position in the operator premise equipment, OLT, and we are continuing to invest in innovation in Passive Optical Networks. Turning to Mobile Networks. At the start of the quarter, we signed an extension to our RAN agreement with T-Mobile U.S., which we announced in our Q1 earnings. We also announced 5G deals with Elisa in Finland and Optus in Australia. We continue to see good overall commercial momentum, and the competitiveness of our products is resonating with customers. We are optimistic about the potential 3GPP technology we can bring into the defense sector.

In Q2, we announced a partnership with blackned in which Rheinmetall owns a majority stake, and we now have delivered Banshee Radio units to the U.S. Marine Corps through Nokia Federal Solutions. Finally, Cloud and Network Services had a strong quarter with new 5G core wins and deployments, including across India, Europe and the Middle East. We’re continuing to progress on our OpenAPI journey, with 57 partners announced for our Network as Code platform, including Telstra and the Bridge Alliance in Asia. We also announced a partnership with Verizon in the U.K. to provide private 5G networks across multiple Thames Freeport sites. Finally, let me turn to our outlook for the full year 2025. As we announced on Tuesday, we decided to take the prudent approach of lowering our full year outlook from EUR 1.9 billion to EUR 2.4 billion to a new range of EUR 1.6 billion to EUR 2.1 billion.

The change has been driven by 2 factors that are largely outside of our control. The first impact is currency. When we issued our — first issued our guidance for 2025, the euro-dollar rate was 1.04, and it has now moved significantly to 1.17. Altogether, this currency movement is posing a EUR 230 million headwind to our operating profit outlook for 2025, of which EUR 90 million is related to the noncash currency impact in our venture fund portfolio. Marco will provide you additional detail on this in his comments. The second is the tariff situation. For the full year 2025, we now expect to see an impact of between EUR 50 million and EUR 80 million tied to fulfillment of preexisting customer orders. The underlying performance across the business is in line with our expectations at the start of the year.

Therefore, it is these 2 factors that lead us to change comparable operating profit outlook. Our guidance for free cash flow conversion remains unchanged at 50% to 80% of comparable operating profit. With that, let me hand over to Marco.

Marco Wiren: Thank you, Justin, and hello from my side as well. I will start by discussing our overall growth performance. Quarter 2 net sales were at EUR 4.55 billion. That’s a 1% decline on constant currency and portfolio basis. Our gross margin was stable versus the year ago quarter at 44.7%. Mobile Networks and Network Infrastructure gross margins were broadly stable, while Cloud and Network Services delivered an improvement of 520 basis points, driven by top line growth. Operating margin declined to 6.6% as a result of the negative currency impact to our venture funds as well as the impact of tariffs, which were within the EUR 20 million to EUR 30 million range we had expected. Assuming existing tariff rates, we now expect an impact to our full year operating profit of around EUR 50 million to EUR 80 million.

And we generated EUR 88 million of free cash flow in the quarter and ended the quarter with EUR 2.9 billion of net cash. Now turning to our business growth performance. Network Infrastructure delivered 8% growth, and each business unit grew, with Fixed Networks having a particularly strong quarter, growing 17%, Optical Networks grew 6% and IP networks grew 3%. Optical Networks’ growth was hampered by some modest supply chain constraints and could have grown over 10%, and we expect these issues to improve in the second half. Gross margin was relatively stable, despite the 110 basis points impact from tariffs, in line with what we have expected. Operating margin declined slightly by 70 basis points year-on-year to 5.7%, and this was mainly the result of higher operating expenses associated with the Infinera acquisition as well as increased investments into growth opportunities.

It is worth noting that the ex-Infinera business was dilutive to operating margin in the quarter, although the integration process continues, and we are moving quickly to deliver on our committed synergies. Net sales in Mobile Networks declined by 13% in the quarter. As mentioned, much of this decline was because of the EUR 150 million in accelerated revenue recognition from a contract settlement that benefited the year ago quarter. Regionally, we saw mixed trends in Mobile Networks. The pause in rollouts impacted India. However, we did see some growth in Europe. Mobile Networks gross margin was 41.1% in the quarter, a 70 basis points decline year-over-year as favorable product and regional mix helped to offset a difficult comparison related to the settlement that benefited the prior year.

These factors led to operating profit and margin declining despite lower operating expenses. As we look to quarter 3, we expect gross margin to be below the normal run rate level as we expect an unfavorable product mix shift in the quarter. For the full year, Mobile Networks gross margin should remain in the normalized 37% to 38% range when excluding the onetime impact we saw in quarter 1. Cloud and Network Services net sales grew by 14% in the quarter, reflecting continued momentum in Core Networks. From a regional perspective, CNS saw growth, driven by North America and Asia Pacific and Japan. The higher level of net sales from strong expansion in both gross and operating margin, which improved 520 and 850 basis points, respectively. Nokia Technologies net sales increased by 3% on a constant currency basis.

We signed several new agreements as we continue to make progress in our gross — in our growth areas of automotive, consumer electronics, IoT and multimedia. Our net sales run rate remains approximately at EUR 1.4 billion. Now let’s look at the net sales by region. We saw a decline in North America, although this reflects mix trends. Mobile Networks declined because of the settlement in the year ago quarter, while we saw double-digit growth in both Network Infrastructure and Cloud and Network Services. Within APAC, India sales were flat, reflecting a pause in investment in Mobile Networks, which was offset by growth in Fixed Networks within Network Infrastructure as well as Cloud and Network Services. And Greater China continued to decline as expected based on the current market trends.

We saw strength in Europe with growth across all businesses. Now turning to our cash performance. We ended the quarter with a net cash position of EUR 2.9 billion. You can see on the slide that working capital was well managed in the quarter, as the expected payment of 2024 related incentives was largely offset by a strong collection in receivables. Free cash flow was positive EUR 88 million, leading to over EUR 800 million of free cash flow in the first half. As Justin noted, we continue to target 50% to 80% free cash flow conversion from comparable operating profit for the full year. The last topic I want to cover is our currency exposure, as I know there have been some questions following our announcement on Tuesday. First of all, we typically generate about 55% of our net sales and have 50% of our total costs in U.S. dollars, but we report in euros.

We have said in the past that we have a high degree of natural hedging with our operating business protecting our operating margin, but we still have an impact on an absolute basis when you convert USD profit back to euros for reporting purposes. Then on top of that, we have a hedging program, which helps to shield us on a short-term basis. So what happens this year? When we first provided our guidance in January, the euro-U.S. — the rate was at 1.04. Now the currency rate is around 1.17, and our guidance is assuming it remains there for the rest of the year. That is a significant USD 0.13 movement. There has also been significant strengthening in the euro against other currencies, including the Indian rupee. Assuming currency rates remain at the current level for the rest of the year, the currency movement compared to January is a 6% to 7% impact to our net sales outlook for the full year.

We do have a modest imbalance between net sales and total cost in our operating — operations, meaning a strengthening euro has a slight negative impact on our operating margin, which is then largely offset short term by hedging. When you combine all of these together, we see a EUR 140 million operating headwind compared to our expectations at the start of the year. And we hedge on a rolling 4-quarter basis, just that the first 2 quarters, net U.S. operational exposure is quite well hedged. And then the degree of hedging drops the third and fourth quarter. And this means that at the start of the year, we still had exposure to currency fluctuations for the second half, but that at this point of the year, we are now largely operationally hedged.

Finally, we have currency exposure from our venture fund investments. A lot of these assets are valued in U.S. dollars. These are illiquid investments that are only revalued when there is a capital event. However, under IFRS, we need to mark-to-market for currency each quarter, and this is creating a EUR 90 million impact currently for the full year. Considering this is both noncash and nonoperational telco businesses, we don’t hedge this. Through the rest of the year, and including the venture fund impact for modeling purposes, we estimate that every USD 0.01 movement in the euro-USD rate could have about EUR 10 million to EUR 15 million impact on our operating profit in 2025.

David Terence Mulholland: Thank you, Justin and Marco. Before we turn to the Q&A session, one date for your diary. We recently sent out a save-the-date confirming that Nokia will hold its Capital Markets Day this year in New York on November 19. We will be sending a formal registration shortly, and we hope as many of you as possible will be able to join us. [Operator Instructions] Darwin, could you please give the instructions?

Operator: [Operator Instructions] I will now hand the call back to Mr. David Mulholland.

David Terence Mulholland: Thanks, Darwin. We’ll take our first question today from Richard Kramer from Arete.

Richard Alan Kramer: Justin, I asked last call about what you thought was required to win large hyperscaler deals. And in your prepared remarks, you mentioned potential integration of business operations, even though a lot of those hyperscaler deals are for products that mostly sit in NI. Given the big increases we’ve seen from hyperscale CapEx, I mean, what is the unlock — or what do you see as the key issues for Nokia increasing materially that percentage of sales to hyperscalers that you’ve got now and moving towards double digits and beyond?

Justin Hotard: Yes. Richard, thank you for that. I think a couple of things. First of all, the functional changes are — that we’re making are really around functional support organizations. I think there’s plenty of companies that have their operating models aligned functionally like we’re doing. And again, just to reiterate, if you look at our organizations, our legal team — legal compliance and sustainability was actually operating this way already. And the other functions, we’re operating in a slightly different manner. So we’re just driving consistency within the company. Separating that, let’s talk about 2 things that are important for hyperscalers. One is a customer — is the customer relationship and customer intimacy.

This is where the BG structure and specifically the sales team we have in NI, including the team that we’ve integrated from Infinera is very important. And it’s understanding those customers, understanding they’re predicting — able to work with them around product design, forecasting, planning and, obviously, supply chain execution and delivery as well as negotiating terms and all the things you would expect. As I think about this, for me, the biggest opportunities for us right now, one, is continuing to focus on building the intimacy with those hyperscale customers through that team; and two is really the portfolio. And I think if you look at just the progress that we’re now disclosing in the second quarter with a book-to-bill that’s above that and an award that’s not in the second quarter, I think we’re making good progress.

We need to continue to gear our products and portfolios to exactly what those hyperscalers are looking for and then continue to work with them on a very close and intimate basis. And I think we’ve made progress. There’s still work to do. And obviously, we’re coming from a position of not having as much exposure there as you rightfully noted. So we’re in a bit of a challenger mode, and that also requires just investment in time, as I think I commented on last quarter.

Richard Alan Kramer: Okay. And just a quick follow-up. I mean, the area that we’re hearing a lot about expansions from big U.S. telcos is in their fiber build programs. Is that something you see accelerating into 2026, where these large announcements that have been made by the 2 largest U.S. carriers to increase fiber builds is something Nokia can directly address?

Justin Hotard: Yes. So this is a place where we have a very healthy portfolio, as you rightfully pointed out, Richard. And I think the other comment I would make is really encouraged by the announcements. I think it’s very positive sign around the Big Beautiful Bill in the U.S. that was enacted into law earlier this month, that there’s going to be continued investment. And I’m also cautiously optimistic that there’s going to be investment in Europe as well. I think for this — for us, this is 2 things. One is, obviously, opportunity for accelerating growth with our core OLT portfolio, the operator line terminals, but also opportunity for us to really think about innovation, how can we continue to help these customers. And back to my macro comments, I think it’s — I’m also hearing from customers that we have opportunity to partner with them in a more complete solution area in this space.

And that’s part of why I commented that we’re investing in innovation in this area.

David Terence Mulholland: Thanks, Richard. We’ll take our next question from Fredrik Lithell from Handelsbanken.

Fredrik Lithell: I have one. We saw yesterday, AT&T came with their report, and they talked about their CapEx for the coming years. And we also know Trump’s Big Beautiful Bill Act. And it seems like operators in the U.S. are getting some tax advantages here. Can you talk a little bit about what you see there on the CSP place, if that will be a driver for you?

Justin Hotard: Yes. And I think, Fredrik, I just answered this, but absolutely, we’re optimistic about this. I think anything that’s — it’s enabling investment in infrastructure is a positive for us and really encouraged by the comments out of some of our major customers in the U.S., including specifically AT&T, where we’re a key supplier today. But having said that, I think that doesn’t mean we can sit on our hands. We have to invest in innovation, which is why I made the comments.

David Terence Mulholland: Do you have a follow-up, Fredrik?

Fredrik Lithell: Yes, maybe a follow-up. If you could sort of expand a little bit on Europe. It looked quite healthy in the quarter. Is it really broad- based? Or could you sort of take 3 drivers behind the good momentum you saw in Europe?

Marco Wiren: Yes. This is Marco. And we actually saw a quite broad-based development in Europe in all businesses, and it was quite healthy and welcomed as well, considering that Europe has been a little bit muted in the past. And of course, we hope that we can see some more development in Europe going forward, just like Justin mentioned that, hopefully, the fiber investments also in Europe will take off more, but also the whole macroeconomic environment would give some improvement here.

David Terence Mulholland: Thanks, Fredrik. We’ll take our next question from Ulrich Rathe from Bernstein.

Ulrich Rathe: I wanted to ask about the guidance revision 2 days ago. Just to clarify, so you are halfway through the year, but I know that the range was still EUR 500 million as it was at the beginning of the year. So does this mean uncertainties have increased quite materially, doubled essentially? Or is there any other reason to keep the range? And then in this context also, why did you not just indicate the lower end of the prior range, but actually lower the midpoint of the range because the range was pretty wide, the downside sort of fits in that, and you could have just said it’s now at the low end of the original range? A bit more explanation, that would be helpful.

Justin Hotard: So Ulrich, thank you for that. A couple of comments. So first of all, if you go back to Q1, Marco and I both highlighted that we — given the onetime charges we had in MN and then the tariff in Q2, which largely played out as expected, the EUR 20 million to EUR 30 million that we called out, we thought we’d be at the — we thought that the top end of the range would be challenging. And then obviously, now we’ve incorporated a full year look on tariffs. And then, obviously, this currency shift, significant EUR 90 million of it in operational with the impact of venture funds. So with all of that in play, we felt it was prudent to lower the range as we said. What I would highlight is — what I would highlight in addition to that is that underlying it, I think we feel pretty good about operations because what you probably noted is we did not actually call down an impact from the onetime charge in mobile.

And I think that’s actually — that actually probably underscores a little bit of optimism outside of currency and tariffs, which we just felt that it was not prudent to assume we could absorb and still meet the guidance range.

David Terence Mulholland: Did you have a follow-up, Ulrich?

Ulrich Rathe: No, just to come back to part of the question. But why is the range still EUR 500 million when you have 6 months now reported?

Justin Hotard: Yes. Maybe just another point I’ll make, and I’ll let Marco comment, is in the second — obviously, if you look at our first half versus second half and particularly in Q4, other than ’23 and probably ’20, which disruption from COVID in ’23, we had a significant shift in CapEx from the — on the Mobile Network side, if you look at the business, we’re historically very back-end loaded. And as we talked about, we had expectation this quarter that we’d see more demand from India and Mobile Networks that did not happen. So we feel very back-end loaded, and we want to be balanced and disciplined in our forecast because so much is in the second half. Marco, anything you want to add there?

Marco Wiren: Yes. Just to add as well that we are still a little bit on the fly when it comes to tariffs. So now we have assumed situation as today. But as we all know that we don’t exactly know how these tariffs will land in the end. And that’s why we want to keep the range a little bit wider. So we have flexibility there.

David Terence Mulholland: Thanks, Ulrich. We’ll take our next question from Sami Sarkamies from Danske Bank.

Sami Sarkamies: Could you provide a bit of color on Network Infrastructure performance in Q2? And how do you expect things to develop during third and fourth quarter for NI? When we look at Q2, we see a bit weak growth at IP and Optical combined with gross margin weakness.

Justin Hotard: Sami, thanks. Yes, a couple of comments from my end. I think, first of all, if you look at us against our U.S. peers, obviously, we’re showing constant currency. There’s a benefit that you have to also consider for currency tailwinds that they’re reporting. So that’s one balance that we didn’t enjoy. The other thing I would just highlight, and we talked about this, was we had a bit of a shortfall due to supply chain constraints and an increasing demand environment. I’ll make 2 comments on that. We would have expected to double — just on that alone, on a constant currency basis, we would have expected double-digit growth, and we fulfilled that demand to a more consistent historical level. Second comment I would make is even with that, we’d have a strong book-to-bill.

And then again, that’s without the award that I touched on in my comments. So we feel quite good about the opportunity in terms of the second half. But again, this is largely driven off of any — of what we see as an increasing mix in hyperscale and AI data center customers.

David Terence Mulholland: Did you have a follow-up, Sami?

Sami Sarkamies: Maybe a quick one. You talked about the need to have a more integrated, fast-moving leader in Nokia. Can you elaborate on this a bit further? And will you be communicating related changes in the near term?

Justin Hotard: Yes. So we announced changes today around a single functional organization. Maybe the one I didn’t touch on as explicitly but we shared a few weeks back with the team is in response to customer feedback, we also announced — or reinforced the position of the executive account manager. So within each of the businesses today, we have specialist sales forces. But we had — we made the change a couple of years ago, we did not have a top accounts function. So we’ve built a little bit of that capability. I think this is really important because our customers are not organized by unified — by product line. And while there are differences in each of our product groups and they’re important, and they’re important not only because they touch areas of technology we invest in, the business model and how we monetize the technology, think of Core versus Mobile Network with radio and RAN versus Optical and IP, let alone broadband and fiber access networks.

While that’s important, it’s also important to understand that our customers are thinking about things on a more integrated basis because they’re also considering their customers who are — they are — many of our customers are increasingly addressing them in a more integrated manner. And then strategically from a technology road map perspective, we need to be thinking about it end-to-end. And if you think about things like security, obviously, platforms and services, AI and automation, there’s clear opportunities. And I’ve heard that from many of our customers, both strategically and tactically, and that’s all very important. So better service for customers, number one. And then underneath that, I think if you look at some of the industry players, certainly, some of our partners, I spent time studying our partners as well, and if you look at some of our partners that have announced continued operating leverage opportunities, both using AI for their operations, many of them are focused on productivity and agility as the key North Stars.

And so for us, I feel like it’s similar that we need to have that kind of mindset of functional excellence. And so we talked about this quite a bit as a leadership team and made the decision that this was the right step for the company, a consistent operating model across the functions and a mindset around excellence, so that we can improve agility and unlock operating leverage.

Marco Wiren: And just what Justin said, we believe that it’s important that all the businesses will have the P&L responsibility. And our ambition is not to increase the headquarters. If we want to do something, it’s actually decreased the number — the cost level of headquarters. Just to be clear here as well.

David Terence Mulholland: Thanks, Sami. We’ll take our next question from Simon Leopold from Raymond James.

Simon Matthew Leopold: So Justin, you’ve been at the firm now for roughly 100 days and you’ve talked a little bit about sort of priorities, but I guess what I’d like to get a sort of understanding of here is, having had sort of this period to learn and adjust and you’ve talked about some organizational shifts, how do you characterize your priorities going forward versus what you thought when you first took the job and started?

Justin Hotard: Yes. Thanks, Simon. I think a few — probably a few key learnings and maybe I’ll talk about them across, customers, technology and then operational and financial execution. I think, first of all, from a customer perspective, I think there’s a real opportunity to partner and to co-innovate with our customers. And certainly — and obviously, every customer has a slightly different strategy and value position and how they compete. But there — I think there’s been a number of conversations where I’ve been really encouraged about the opportunity to be innovating with our customers in a way that perhaps we haven’t. On the technology side, look, I think what’s important here is we have a lot of great technology and great people in the organization, particularly within our engineering and R&D teams.

I think what we have opportunity to do is continue to be better members in the tech ecosystem. And what I mean by that is partner — externally think outside in and collaborate more with what’s happening in tech and across the industries that we play in. And then I’ll make the other comment of just focusing, and not only the comments I made at the top around mobile and fixed access networks, transport and data center, but also as you think about in the stack, where does it make sense to partner versus where does it make sense to invest in core technology. Last comment I’ll make is just around financials and operations. And I think this is maybe the thing I haven’t emphasized in the comments I just made on function — on the functions that Marco and I touched on is that, specifically, I think we have an opportunity also to be more predictable and more productive.

And I think that’s one of the objectives I have is that — is not only to drive growth but to drive a level of predictability and growth because, obviously, when you look back historically, as you all well know, we haven’t been as predictable as certainly we would expect ourselves to be.

David Terence Mulholland: Do you have a follow-up, Simon?

Simon Matthew Leopold: As a follow-up — yes, please. At the end of June, there were some press reports suggesting that Nokia might be taking some actions to reduce headcount and to do some cost cutting. I know it sounds like a little bit of reorganizational efforts on your part, but it doesn’t sound like there were any major initiatives. Could you update us on really what you’re thinking about in terms of any initiatives around staffing, cost structure that might be related to those press reports?

Justin Hotard: Yes. Thanks, Simon. I’ll just make a couple of comments there. I think, first of all, we had a major restructuring program in ’23 that we announced that we’re still executing. So I think that’s important to understand, and we set some targets around that and obviously a range around the restructuring charges at that time. We’re still within that point of execution of that program. So we’re still within the window there. Second comment I would make is that I’m not — having been in this situation before, I don’t think, going forward, our objective should be to announce a big program, but also — but much more building the muscle and the capability around driving productivity and operating leverage as a discipline.

So there’s nothing new to update today on our restructuring program. But in addition, I think if you look at best practice, it will be around making announcements around continuing the productivity. And I think you’ll see that in our results over time versus me telling you it’s going to happen. Marco, do you want to…

Marco Wiren: No. I think just — what you have just said several times is continuous improvement is something that we have to have in our genes. And this is something that every part of the company has to work on that thesis as well. And this is something that we will focus on very much and hopefully see improvements in our efficiency and productivity in the company.

David Terence Mulholland: Thanks, Simon. We’ll take our next question from Rob Sanders at Deutsche Bank.

Robert Sanders: Justin, can you discuss your view of the Mobile Networks business? I mean, is this a business where you’re okay being relatively subscale and threading water? Or do you have strong ambitions to build back scale and recover share in 6G? I guess, another way of asking this question is relative to your 5% of sales that’s hyperscaler-led, how much of your R&D budget is going to go towards hyperscalers? Because I’m just trying to see — trying to understand how you’re going to orient the business going forward.

Justin Hotard: Thank you. So first of all, sort of 2 questions there. So let me — you’re asking I think an implicit capital allocation question as well. So let me answer the Mobile Networks business. I think, first of all, I believe this is a unique and highly strategic asset. There’s 4 scale players in the world, 2 are in the West, us and Ericsson. What I think is important, and I’ve said this consistently, is I don’t think it’s just about Mobile Networks. I understand how we report, but I think you have to look at Mobility Co. Every one of the scale players, including the 2 and — the 2 competitors we have out of China have the Core Networks business, the Mobile Networks assets, radios and RAN and a robust IP portfolio. And I think you have to look at the business in totality even as you report the segments.

And so I think, first of all, that’s really critical. Second, I would say, when you look at our customer base, it’s very clear to me, and I hear from my customers, that we have opportunity to do more with them. And then I would just say, third, as I’ve said before, I believe the AI super cycle is going to drive a refreshed wave of investment in this space. It’s not there today, but I think we have to be — we have to have a view of — over the longer term of whether it’s smart glasses, drones, autonomous vehicles, obviously, innovation that I think we’ll see even in the traditional mobile handset business. There’s going to be a set of innovations that drive opportunity for us and opportunity for our customers. And this is where also being a thoughtful partner to our customers, as I touched on earlier, is going to be important.

In terms of capital allocation, I think what’s happened in NI, and I would just emphasize this is one of the reasons I think Infinera was a very, very good acquisition for us is the market has shifted to cloud and AI driving the investment and the innovation curve on Fixed Networks. And used to be, a lot of this innovation was out of transport networks that’s now more and more — transport networks and data center driving the left edge, whether you think about Ethernet switching speeds or obviously optical technology, what’s happening with pluggables inside the data center, which we just talked about. The innovation curve has shifted. So by default, our R&D has to be invested in that areas. But it’s not just in that. I think if you look at the hyperscalers and public cloud, they set an expectation for security.

They set an expectation for ease of use and deployment of technology and performance. And so there’s a number of areas where I think we — as we’re targeting those customers in NI, we have opportunity to enable them — to enable advantages for us across our customer base in that portfolio. And that’s been reconfirmed with some of my customer conversations. And then back to the core and mobile, if you look at the portfolio on the mobile side, many of those cloud players and those hyperscalers are partners for us on mobile. We’ve been out — we talked about announcements in our core business as we’ve moved much more to a cloud-first strategy for core in terms of the tech stack, but also in terms of where we run those platforms. And I think, over time, we’re going to see some of those things move even into RAN.

And I think we need to be a partner there. So as I look at the — as I look at capital allocation, that’s one element. As I think about these partners as being broad partners across our business, I think there’s significant opportunity.

David Terence Mulholland: Did you have a quick follow-up, Rob?

Robert Sanders: Just quickly on the fixed wireless access rollout in India. How long can this last in terms of being a tailwind for your business?

Justin Hotard: Yes. Do you want to talk about this, Marco?

Marco Wiren: Yes. Thank you. I would say that many operators globally are looking into opportunities to utilize fixed wireless access whenever they — especially areas where they see that the mobile networks is not utilized fully, which is usually outside of the city centers, and there’s one way for them to capture more opportunities and customer base. And if and when there would be any fiber connection later, then they have already that customer connection, and they can just swap all of that customer from fixed wireless access into fiber customer. And different operators see these opportunities coming on different time lines as well. But right now, we’ve seen that Indian operators have been quite active and seeing this opportunity to capture the customer base. And that’s why we’re seeing the tailwind there.

Justin Hotard: I would just add — just to add on that front. I think when we look at this, there’s a couple of opportunities here. I think, first of all, broadband access, wireless or fiber are opportunities for growth for us. Second, there’s opportunities on the operator side, and you think about that as OLT as I touched on in my comments. But also it’s actually innovation and services and technology we can deliver at the radio layer. And we see that not only in India, but in North America as well. But there’s probably more we can do there. And then I would just say, third, obviously, it’s hard to predict exactly where the demand will go, and Marco rightfully pointed out that there’ll be — there’s usually a balance between how much wireless access you want to provide before you want to lay fiber. But I think the good thing — the unique thing for us is we can potentially benefit on both sides.

David Terence Mulholland: Thanks, Rob. We’ll take our next question from Sandeep Deshpande from JPMorgan. Sandeep, we can’t hear you.

Sandeep Sudhir Deshpande: Hello. Sorry. Can you hear me?

David Terence Mulholland: Yes, go ahead.

Sandeep Sudhir Deshpande: Yes, yes. My question is on Network Infrastructure. In the Network Infrastructure business, you are seeing this very strong growth in the Fixed Network business. I mean — and you’ve talked about that in earlier questions. I want to go back to the Optical business where you’ve highlighted the 6% organic growth. I mean, given the strength in the hyperscalers, why is that business not growing stronger at this point? Or is it that you need to expand your footprint and the customer base more? And following up on that, where are you in terms of the routing and switching in the hyperscalers and can — in terms of expanding your footprint with the hyperscalers?

Justin Hotard: Yes. Thanks, Sandeep. I think a couple of things. So on Optical, again, I think if you look at that, largely pre-acquisition, Nokia was not penetrated heavily in and Optical within the AI and cloud space. With Infinera, we’ve gained footprint there. But we’re behind our competition in terms of market share penetration. I believe we have opportunity. That’s why things like what we announced with the 800 gig pluggable platforms are important because that gets us back to being competitive. And you’ll note that we were behind in that space. So I think the work that David and the team have done to start to catch up there is very important, and we need to continue to do work to make sure we hit the — if you — hit future product intercepts.

Second thing I would comment on there, to answer your question on IP and switching and routing, is we’ve had some traction in routing. I think more work to do in that space, switching less traction. But obviously, this is a place of focus for us, but we’re — traditionally, we haven’t made this a priority. It’s one of the things, I think, David and the team are looking at to see how much potential is there. And we’ll give you more of a fulsome view on what we believe we can do there as we come to Capital Markets Day.

David Terence Mulholland: Thanks, Sandeep. Did you have a quick follow-up?

Sandeep Sudhir Deshpande: No, that’s it.

David Terence Mulholland: Thanks, Sandeep. We’ll take our next question from Felix Henriksson from Nordea.

Felix Henriksson: It’s on the Q3 outlook where you flagged somewhat stable operating margin sequentially, partly reflecting a bit weaker business mix. Is this reflective of just MN, which you highlighted? Or do you also see a bit of mix in the other segments? And also do you have any visibility on mix improvement for the fourth quarter of the year?

Marco Wiren: Yes. Thank you, Felix. I would say that if you look normal seasonality that we’ve seen in the past years as well, we have had quite strong quarter 4. And seasonally, we believe that we see this year as well came back more than normal seasonality. And when it comes to second half, we believe that we have a stronger performance in the second half compared to first half. And also if you look in the past, I think EUR 8 to EUR 10 seasonally between quarter 2 to quarter 3, the sales has been flat. And this is something that is also quite typical seasonality in the company. And — but also we want to highlight when it comes to quarter 3, specifically, is that in Mobile Networks, we see less software compared to quarter 2. And that will have, of course, impact on the margins as well in quarter 3.

David Terence Mulholland: Thanks, Felix. Did you have a follow-up?

Felix Henriksson: Yes. Just a quick one on the cost base in technologies because, I guess, if we play around with the numbers, it seems like your EUR 1.1 billion EBIT guidance for technologies of the year assumes a step down in OpEx for the back half of the year, assuming that your sort of sales run rate keeps at the current level. So could you just discuss that a little bit why should we expect lower OpEx for technologies in the second half of the year?

Justin Hotard: Yes. Thanks, Felix. I think the key thing here is OpEx is expected to be flat. We have some optimism on what we’ll do in the second half in terms of revenue.

David Terence Mulholland: Thanks, Felix. We’ll take our next question from Sebastien Sztabowicz from Kepler Cheuvreux.

Sébastien Sztabowicz: Yes, yes. Have you seen any kind of pull-in orders affecting any of your businesses over the past few months or you think the order intake has been tracking clearly, a normal evolution? That would be the first question. And second one is linked to competition because your Nordic competitor was blaming stronger price competition in the RAN market over the past few months. Have you seen any kind of change in pricing dynamics or competitive landscape over the past few months in Mobile Networks?

Justin Hotard: Yes. So I think on your first question, again, adjusting for — if you look at it on a constant currency basis, I think we feel pretty good about the forecast. I think it’s pretty consistent. Nothing in terms of pull-ins. I think probably more what we’re — what Marco and I are looking at is just given some of the news, particularly, which is a question really about the U.S., is there more opportunity, though, that feels like it’s more a ’26 and beyond thing based on some of the announcements that have been made. And then in terms of your second question around pricing, I wouldn’t say there’s anything that we see that’s abnormal at this point. As you know, the market regionally has very different dynamics. So in terms of pricing dynamics or specific competitive situations, it very much depends on the individual opportunity. I think we feel pretty good about what we see in terms of the market.

David Terence Mulholland: Thanks, Sebastien. We’ll take our next question from Jakob Bluestone from BNP Paribas Exane.

Jakob Bluestone: Just coming back to the sort of phasing. As you’ve mentioned a few times, it’s a very Q4 loaded year. I guess if you can, first of all, just explain a little bit more why is it quite so heavily skewed into Q4 and if you can maybe also help us understand just around your confidence. Is the midpoint of that guide covered out of your existing order book? Or how far away are you from sort of — in terms of your orders?

Marco Wiren: Yes. Thank you. I can start, and then Justin can build on. When it comes to the seasonality in this industry, it is pretty much driven actually of how customer behavior is and how they see what needs they do have when they are investing in their networks. And usually, towards the latter part of the year in quarter 4 as well, if they see that there’s some opportunities for them to do any upgrades or additional investments in the CapEx frame that they have, that’s when they usually come and ask us to do. And this has been the pattern in the market for quite a long time. And then when it comes to — in general, I would say that different sectors behave a little bit differently. So this is more the CSP side. Then when it comes to hyperscaler side, they are perhaps more focusing on gradual investments and not always thinking like CSPs that quarter 4 would be very heavy.

But as we said, only 5% of our sales is in hyperscalers today. That’s why we are quite dependent on the cycles that CSPs have. Yes. I can mention when it comes to order coverage, it depends also between different businesses. When you go to a project business like Mobile Networks, usually, your order book is longer and you have more coverage a couple of quarters ahead, while when you are in more — or shorter-term business like in Network Infrastructure, then your coverage is lower. But I would say that we don’t see any deviations from the normal pattern that we normally have in this year.

David Terence Mulholland: Thanks, Jakob. We’ll take our next question from Emil Immonen from Carnegie.

Emil Immonen: Just a couple more. Maybe on the order book, could you go into a little bit of detail on what the order book looks like as a whole in Network Infrastructure and how it has developed year-on-year and Q-on-Q?

Justin Hotard: Yes. I think just a couple of comments on this. We obviously don’t break this down in detail. But overall, group book-to-bill was well above 1. Optical was well above 1. And as I touched on, even — it would have remained well above 1 had we fulfilled all of the orders. We would historically have fulfilled based on traditional conversion rates. And then as I touched on the 800-gig order, we — the 800-gig award that we disclosed, that order has not been booked. So I think — and again, as you look at the overall funnel, we’re — I think we believe it’s quite healthy. But having said that, as I touched on earlier, we have a lot of work to do to continue to grow and scale in hyperscale because as Marco highlighted, we’re at 5% of the overall revenue mix. So there’s much more opportunity for us.

David Terence Mulholland: Did you have a quick follow-up, Emil?

Emil Immonen: Yes. Then on Mobile Networks, I just wanted to know, how do you think about the segment in terms of what is needed for that to return to revenue growth?

Justin Hotard: Yes. I think, first of all, obviously, this has been a challenging business for us over the last few years. Second of all, the market is flat, right? If you look at the market that’s addressable to us, and I’m really focused on geos where we can actually sell, we get to participate, the market is largely flat. That’s largely because data consumption is somewhat flat. Subscriber growth has flattened out. So I mean, the end customer metrics are there. I think what we shared at MWC — or the team shared at MWC was that we had — we’re starting to see recovered share from what we had lost in terms of cell sites. From my perspective, what I’m focused on, to your point, is overall revenue growth. I think right now, though, it’s about making sure we preserve market share in a flat market and then looking at where the opportunities are for us to gain share.

David Terence Mulholland: Thanks, Emil. We’ll take our next question from Francois Bouvignies from UBS.

Francois-Xavier Bouvignies: I have a quick question on the strategy just on this more integrated end-to-end maybe. When we look at what you did that in the past, Rajeev at the time when you acquired Alcatel, the idea was to do an end-to-end. And then Pekka came and then realized that maybe it was not a good solution. So we went back to best of breed. And now you seem to go back again to the integrated part, end-to-end. So how different is it from the previous work of Nokia? And — because what would make it work this time? Is there anything you can see in the past about what has been done and how you can be differently? Just trying to understand this strategy, given it didn’t work in the past.

Justin Hotard: Yes. Thank you, Francois. So first of all, I’d say a few things. One is in my career, I’ve worked in many different models, and I quite — spent a lot of time understanding this and probably studied it pretty deeply in terms of my own companies and others, there is no perfect model. It’s really about being customer in, marketing oriented and then being focused on core innovation. For me, there’s a couple of things that are really important. And I don’t — I think it’s also important not to say we’re going back to something that was there before. That’s not the case. What’s important here, and I think what we’re building on, is BG accountability is very important. The businesses have different cycles. They have different investment areas.

CNS is very focused on cloud native software, building a fabric and platform. We talk about APIs. That’s very different than a fixed broadband business, where we’re focused on OLT customers and in places where it makes sense. You’re obviously selling consumer premise equipment. Very, very different businesses. What’s important is that we have the accountability around that. The other thing is our customers are one customer set. I think sometimes from a model perspective, you can get caught up in having too many — you’re so focused on the portfolio you missed that the customer wants to engage with you in one way because there’s one procurement organization, there’s one group CTO, there’s one customer portfolio that they’re engaging with. And I think we need to orient to our customers, and that’s why we’re making a bit of the balance on the customer-facing side.

On the functional excellence piece, I think I covered this in my comments, the steps that we took in the past were the right steps at the time, and they’ve delivered value for the company. The reality is, as we look ahead, we felt like there were different set of steps we needed to take. And in spending time with the team, I made the decision that we needed to really drive consistency across the functions because, again, as I’ll point out, when I came in, we had different operating models depending on the function. So the reintegration of MBS, the alignment to the — of the functions to a consistent model, I think, is going to be valuable. I think it’s better for our people, and I think it will ultimately unlock operating leverage. And those were really my 2 key decisions on this.

So I would spend — obviously, I study history. I’m a student of history of what’s happened. I’ve studied other models. But I wouldn’t say that we’re dropping the prior model for the model that was 2 generations ago. I don’t think that’s the case at all. I think we’re taking a step in evolution that’s setting us up to be better positioned. And early feedback from customers, and candidly from our people, has been very positive around this more integrated approach since — particularly on the go-to-market side.

David Terence Mulholland: Did you have a quick follow-up?

Francois-Xavier Bouvignies: No, that’s fine. I’m conscious of time.

David Terence Mulholland: Thank you, all. That is our last question for today. Ladies and gentlemen, this concludes today’s call. I would like to remind you that during the call today, we have made a number of forward-looking statements that involve risks and uncertainties. Actual results may, therefore, differ materially from the results we currently expect. Factors that could cause such differences can be both external as well as internal operating factors. We have identified such risks in the Risk Factors section of our annual report on Form 20-F, which is available on our Investor Relations website. Thank you all for joining us.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.