Q1 2024 Nokia Oyj Earnings Call
Good morning, ladies and gentlemen, welcome to Nokia's first quarter 2024 results call of digital <unk> head of Nokia Investor Relations and today with me as Pekka Lundmark, our president and CEO, along with Mark <unk> our CFO.
Unknown Executive: Welcome to Nokia's first quarter of 2024. Today with me is Pekka Lundmark, our President and CEO, along with Marco Wirn, our CFO. Before we get started, a quick reminder. During this call, we will be making forward-looking statements regarding our future business and financial performance, and these statements are predictions that involve risks and uncertainties. Actual results may therefore differ materially from the results we currently expect. Factors that can cause such differences can be both external as well as internal operating factors.
We get started a quick disclaimer during this call we will be making forward looking statements regarding our future business and financial performance.
Statements are predictions that involve risks and uncertainties actual results may therefore differ materially from the results. We currently expect factors that could cause such differences can be both external as well as internal operating factors.
David Mulholland: We have identified such risks in the Risk Factor 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 mainly be on a cost and currency basis, and margins will refer to our comparable reporting. Please note that our Q4 report and a presentation that accompanies the call are published on our website. This report includes both reported and comparable financial results and a reconciliation between the two parties.
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 mainly be on a constant currency basis, but margins will be referring to our comparable reporting.
Please note that our Q4 report and the presentation that accompanies the call are published on our website.
This report includes Rick.
Reported and comparable financial results and a reconciliation between the two.
David Mulholland: In terms of the agenda for today, Pekka will go through the key messages from the quarter, Marco will go through the financial performance in a bit more detail, and then Pekka will make a few comments on a couple of particular highlights from the quarter, and we'll then move to Q&A. With that, let me hand over to Pekka.
In terms of the agenda for today I will go through the key messages from the quarter, Mark who will go through the financial performance in a bit more detail and then well make a few comments on a couple of particular highlights in the quarter and will then move to Q&A.
With that let me hand over to Pekka.
Pekka Ilmari Lundmark: Thanks, David, and thank you all for dialing in today. We said back in January that we expected a challenging environment in the first half of this year, and that's what we saw in Q1. Our net sales declined 19% year-on-year in constant currency as the weak spending environment that started to take hold in Q2 last year remained with us.
Sure.
Pekka: Thanks, David and thank you all for dialing in today.
Pekka: We said back in January that we expected a challenging environment in the first half of this year and that's what we saw in Q1.
Pekka: Our net sales declined 19% year on year in constant currency as the weak spending environment that started to take hold in Q2 last year remained with us.
Pekka Ilmari Lundmark: This impacted the profitability of our three networks businesses but was offset by the benefit of deals signed in Nokia Technologies and the ongoing cost reduction. Marco will go into more detail shortly about our financial performance in the quarter. You may also recall that we started to talk about improved order intake trends in Q4, particularly in our network infrastructure business. I'm pleased to say that this has continued in Q1.
Pekka: This impacted the profitability of our Korean networks businesses, but was offset by the benefit of deals signed in Nokia technologies.
Pekka: And the ongoing cost reductions.
Pekka: Michael will go into more detail shortly about our financial performance in the quarter.
Pekka: You May also recall that we started to talk about improved order intake trends in Q4, particularly in our network infrastructure business.
Pekka: Pleased to say that this has continued in Q1.
Pekka Ilmari Lundmark: We have seen good growth in order intake year on year, and the book to build in network infrastructure was above one. The outlook for fixed networks has improved over the past three months, which is important, as this is often the market that recovers first in our. However, it might take somewhat longer for our optical networks business to recover. With the continued order intake strength, I remain confident that we will see a stronger second half performance and that for the full year, our network infrastructure business will return to growth.
Pekka: We have seen good growth in order intake year on year and the book to Bill in network infrastructure wasn't a borgwarner.
Pekka: The outlook for fixed networks has improved over the past three months, which is C, which is important that's thesis Austin the market. That's recovered first thing in our business.
Pekka: However, it might take somewhat longer for our optical networks business to recover.
Pekka: With the continued order intake strength I remain confident that we will see a stronger second half performance and that's for the full year, our network infrastructure business will return to growth.
Pekka Ilmari Lundmark: We have also been executing quickly on our cost reduction program, where we target to achieve between 800 million and 1.2 billion euros in cost savings by 2026. We are well on track, with many actions already taken in Q4 and Q1.
Pekka: We have also been executing quickly on our cost reduction program, where we target to achieve between 800 million and $1 2 billion Euro in cost savings by 2026, we are well on track with many actions already taken in Q4 and Q1 to achieve the total of 500 million euro or in your savings in 2020.
Pekka: For 400 million of this relates to the new program, we announced in October.
Pekka: One of the biggest highlights from Q1 is that three smartphone licensing deals that were signed.
Pekka: Delighted we have now concluded our smartphone licensing renewal cycle and will have no more major he knew those for a number of years.
Pekka Ilmari Lundmark: 400 million of this relates to the new program we announced in October. One of the biggest highlights from Q1 was the three smartphone licensing deals that we signed. I'm delighted that we have now concluded our smartphone licensing renewal cycle, and we'll have no more major renewals for a number of years.
Pekka: With these deals we now have an annual net sales run rate of approximately $1 3 billion Euro in Nokia technologies.
Pekka: We have also benefited from over 400 million euro of catch up net sales in the quarter related to these deals.
Pekka: Nokia technologies team will now focus their efforts on expanding in new growth areas and we have a promising pipeline to help us deliver on our next target to increase our run rate to one four to 1.15 billion euro in the midterm.
Pekka Ilmari Lundmark: With these deals, we now have an annual net sales run rate of approximately 1.3 billion euros in Nokia technology. We have also benefited from over 400 million euros of catch-up net sales in the quarter related to these deals. Nokia Technologies will now focus their efforts on expanding in new growth areas, and we have a promising pipeline to help us deliver on our next target to increase our run rate to 1.4 to 1.5 billion euros in the midterm. Finally, we saw strong free cash flow generation in the quarter with almost €1 billion of free cash flow.
Pekka: Finally, we saw strong free cash flow from generation.
Pekka: We saw strong free cash flow generation in the quarter with almost 1 billion euro of free cash flow along with the benefits and operating profit that we saw from the deal signed in Nokia technologies. We have also seen some unwind of the working capital investment we made over the past two years related to the supply chain challenges.
Pekka: Some growth opportunities we had.
Pekka: So overall the first half of 'twenty 'twenty four will remain challenging in our networks businesses, but with the improving order trends progress made in Nokia technologies and how quick action on cost we remain solidly on track to achieve our full year outlook with that let me hand, it over to Marcos to go through the financial.
Pekka Ilmari Lundmark: Along with the benefits in operating profit that we saw from the deal signed in Nokia Technologies, we have also seen some unwind of the working capital investment we made over the past two years related to the supply chain challenges and some growth opportunities we had. So overall, the first half of 2024 will remain challenging in our networks businesses.
Marcos: Four months in more detail.
Marcos: Thanks, Pat and good morning from my side on a small.
Marcos: Mentioned, we saw a weak start up 24 with a 19% decline in our net sales that's the challenging environment.
Marcos: <unk> of 23 remind with us.
Marcos: Our gross margin improved significantly year on year to 48, 6% and this is due to a combination of an improved gross margin in mobile networks and deals we signed in Nokia technologies.
Marcos: Our operating margin also benefited from these deals, which offset lower profitability in our networks businesses.
Marco Wirn: But with the improving order of trends, progress made in Nokia technologies, and our quick action on cost, we remain solidly on track to achieve our full year out. With that, let me hand it over to Marco to go through the financial performance in more detail. Thanks Pekka, and good morning from my side as well.
Marcos: Free cash flow generation was strong in the quarter as a result of the Nokia technologies catch up payments and broken capital improvements.
Marcos: This means that we ended the quarter with a net cash collateral.
Marcos: <unk> 1 billion.
Speaker Change: And I will now take you through the individual performances of our business groups.
Speaker Change: And in network infrastructure sales declined by 26% compare to a very strong year ago quarter, while we still benefited from supply chain catch up.
Marco Wirn: As mentioned, we saw a weak start of 24 with a 19% decline in our net sales. The challenging environment of the second half of 2003 reminds us, Our gross margin improved significantly year-on-year to 48.6%, and this is due to a combination of an improved gross margin in mobile networks and deals we signed in Nokia Technologies. Our operating margin also benefited from these deals, which offset low profitability in our network. Pre-tax flow generation was strong in the quarter as a result of the Nokia Technologies catch-up payments and broken capital improvements. This means that we ended the quarter with a net cash balance of 5.1 billion.
Speaker Change: I would also call out that in the quarter, we saw a 23% year on year already decline in submarine networks.
Speaker Change: And this was related to project timing, along with some disruption given ongoing red Sea complex.
Speaker Change: We continue to sign new deals that increased our backlog in submarine.
Speaker Change: Gross margin declined slightly.
Speaker Change: Lower net sales coverage and less favorable business mix and this flowed through to operating margin.
Speaker Change: Yeah.
Speaker Change: The effect of highlighted order trends improved again in the quarter, which gives us continued confidence that quarter, one will mark the low point from a net sales perspective.
Speaker Change: And that the business will see stronger trends into the second half of 'twenty four.
Speaker Change: He is supporting the assumption that net Brooklyn structural will return to growth on a constant currency basis in full year 'twenty four.
Speaker Change: And turning to mobile networks.
Speaker Change: As you recall, our first harm obtained three most driven by significant <unk> deployments in India.
Marco Wirn: And I will now take you through the individual performances of the business, and in network infrastructure sales, we declined by 26% compared to a very strong year-ago quarter where we still benefited from supply chain catch-up. I would also call out that in the quarter we saw a 23% year-on-year decline in submarine sales, and this was related to project timing along with some destruction given the ongoing Red Sea conflict. We continue to sign new deals that increase our backlog of submarines. First margin declined slightly because of lower net sales coverage and a less favorable business mix, and this flowed through to operating margin.
Speaker Change: That then started to normalize in the second half of last year.
Speaker Change: And this means that we face a very challenging comparison in the first half with easier.
Speaker Change: And this combined with ongoing low levels of activity in North America led to a 37% net sales declined in the quarter.
Speaker Change: We do expect that quarter, one will represent the low point of net sales.
Both India and North America in 'twenty four.
Speaker Change: We saw a strong increase in gross margins, which was 42 point at 42, 4% in the quarter.
Speaker Change: And half of that year on year increase was the result of positive regional and product mix and the reminder, was due to exceptionally low indirect cost of sales, which we expect to normalize going forward.
Speaker Change: Operating margin declined due to lower net sales coverage.
Speaker Change: And cloud and network services also saw a soft start of the year, but we are seeing improving order intake and pipeline momentum also in this business and our full year assumptions remain unchanged.
Marco Wirn: As Pekka highlighted, audit trends improved again in the quarter, which gives continued confidence that Q1 will mark the low point from a net sales perspective and that the business will see stronger trends into the second half of 2024. This is supporting the assumption that networking infrastructure will return to growth on a constant current basis in four years' time, turning to mobile networks. As you recall, our first half of 2023 was driven by significant 5G deployments in India that then started to normalize in the second half of last year.
Speaker Change: Gross margin increased by 310 basis points in the quarter, thanks to a favorable product mix and regional mix.
Speaker Change: Operating margin declined compared to prior year due to a lower net sales coverage.
Speaker Change: And as a reminder, in quarter four we announced the sale of our device management and service management businesses to lumi.
Speaker Change: And this transaction has now closed and we will have a modest impact on CNS in quarter, two and onwards to give you some context, the business generating more than 100 million euro.
Speaker Change: Euro annual sales.
Speaker Change: <unk> profitability.
Speaker Change: And then briefly on Nokia technologies.
Speaker Change: We were very pleased to see at the conclusion of the smartphone renewal cycle, which brought with it over 400 million in catch up payments in the quarter.
Marco Wirn: And this means that we face a very challenging comparison in the first half of this year, and this, combined with ongoing low levels of activity in North America, led to 37% net sales declining in the quarter.
Speaker Change: And these increased our run rate from $900 million 1 billion, which we had at the end of the quarter four to $1 3 billion. We currently have.
Speaker Change: And now the next goal is to increase on licensing net sales run rate to between one four to $1 5 billion for the medium term as we grow in other areas pick couple of explain later.
Marco Wirn: We do expect that quota 1 will represent the low point of net sales in both India and North America in 2024. We saw a strong increase in cross margins, which was 42.4% in the quarter. Half of that year-on-year increase was a result of positive regional and product mix, and the remainder was due to exceptionally low indirect cost of sales, which we expect to normalize going forward. Operator margin declined due to low net sales coverage.
Speaker Change: And then the regional picture.
Speaker Change: Was FX fixed data with sequel can decline in India, which had completed a large deployment in 'twenty three.
Speaker Change: Literally the North American decline reflected continuation of low levels of deployment that we saw during the second half 'twenty three.
Speaker Change: And elsewhere, we launched LEEP saw declines in most regions, reflecting the ongoing weak market environment, while we continued to see growth in middle East and Africa.
Speaker Change: Yeah.
Speaker Change: And finally on cash.
Speaker Change: You can see from the chart here that the dual impact of the catch up payments and look at the countries and the release of working capital led to generation of almost $1 billion of free cash flow.
Marco Wirn: And cloud and network services also saw a soft start of the year, but we are seeing improving order intake and pipeline momentum. Also, in this, and our full-year assumptions remain unchanged. Cross margin increased by 310 basis points in the quarter thanks to a favorable product mix and retail.
Speaker Change: We also reduced the level of sale of receivables in the quarter.
Speaker Change: And we therefore, therefore ended the quarter with $5 1 billion net cash.
Speaker Change: We are on track to achieve our targeted free cash flow conversion of 30% to 60%.
Speaker Change: And with that let me hand, you back over to Pekka.
Marco Wirn: Operating margin declined compared to the prior year due to lower net sales coverage. And as a reminder, in quarter four, we announced the sale of our device management and service management business. Jelumin, and this transaction has now closed and will have a modest impact on CNS in Q2 and onwards, give you some context, thank you to the business for generating more than 100 million euros of annual sales with good profitability, and then briefly on Nokia technology.
Pekka: Thank you Marco.
Pekka: Firstly I want to touch on fixed networks.
Pekka: We are the market leader with over 40% market share globally, excluding China, I know L D products without product portfolio and the ability to offer customers a roadmap to deploy.
Pekka: Keep on X G S. Born in 25 coupon in the same line card, we have a compelling value proposition.
Pekka: <unk> can also upgrade to 50 G and 100 G. In the same chassis is down the line without lights, Ben if M. M. M F 14 platform.
Pekka: We also launched new O N T products for 25 <unk> in the first quarter. These O N T S support both business as well, especially downhole applications.
Marco Wirn: We were very pleased to see the conclusion of the smartphone renewal cycle, which brought with it over 400 million in catch-up payments in the quarter, and this increased our run rate from 900 million to 1 billion, which we had at the end of the quarter four to 1.3 billion we currently have. And now the next call is... We plan to increase our licensing net sales run rate to between 1.4 to 1.5 billion in the midterm as we grow in the other areas that Pekka will explain later, and then the regional picture was as expected, with a significant decline in India, which had completed a large deployment in 23. Similarly, the North American decline reflected a continuation of low levels of deployment that we saw during the second half of 2023.
Pekka: Looking then at market dynamics. It is important to remember that globally, excluding China over 70% of homes are still not connected by fiber and there is a significant opportunity remaining in our biggest markets, both North America and Europe.
Pekka: In North America, we are now seeing some stabilization in demand as the inventory positions have improved and we see the bead funding program progressing well, which we will still expect will start to benefit in the second half and more meaningfully in 2025.
Pekka: In Europe, we see deployments remaining at a high level in markets with low penetration and we are seeing some mature markets starting to upgrade to X G. S born and twenty-five cheap one we.
Pekka: We are also seeing good momentum and growth opportunity at least here in many of our other agents for fixed networks.
Speaker Change: Next I wanted to highlight.
Speaker Change: Our optical networks business as we had a number of important launches in the quarter.
Marco Wirn: And elsewhere, we largely saw declines in most regions, reflecting the ongoing weak market environment, while we continued to see growth in Middle Eastern and Africa, and finally Uncaps. You can see from the chart here that the dual impact of the catch-up payments in Nokia technologies and the release of working capital led to a generation of almost 1 billion of free cash. We also reduced the level of sale of preservables in the quarter. And we therefore ended the quarter with 5.1 billion net cash and are on track to achieve our targeted free cash flow conversion of 30 to 60%. And with that, let me hand you back over to Pekka.
Speaker Change: New services and applications are driving significant increases in optical network capacity to the metro edge.
Speaker Change: Therefore, we have expanded our optical portfolio to address these needs.
Speaker Change: March we announced the expansion of our plug about coherent optics portfolio to now include 100, 408 hundred gigabit per second Transceivers.
Speaker Change: We also introduced new interface cards chassis that bring scale and efficiency to metro edge applications that serve a diverse set of networking functions needed by our various customer types.
Speaker Change: In both IP and optical networking, we are clearly recognized as a market leader. This means we are uniquely positioned to serve the evolving needs of our customers in an unbiased way as they consider various converged IP optical network architecture alternatives this truly differentiates us.
Pekka Ilmari Lundmark: Thank you, Marco. Firstly, I want to touch on fixed networks. We are the market leader with over 40% market share globally, excluding China and OLT products. With our product portfolio and ability to offer customers a roadmap to deploy XGPON, XGSPON, and 25GPON in the same line card, we have a compelling value proposition. Customers can also upgrade to 50G and 100G in the same chassis down the line with our Lightspan MF14 platform.
Speaker Change: From the competition as typically they only have scale in either IP or obstacle.
Speaker Change: Yeah.
Speaker Change: I now wanted to provide a few words on our mobile networks business and our portfolio. Firstly you can see in the charts our products now deliver market leading throughput to performance a few years ago, we were behind on Lyme networks performance full flight Jean.
Speaker Change: If you look at performance in live networks today.
Most cities that use our products are delivering better downlink performance and slightly better uplink performance than our competitors with each generation of software release, we continued to improve on this.
Pekka Ilmari Lundmark: We also launched new ONT products for 25G in the first quarter. These ONTs support both business as well as residential applications. Looking then at market dynamics, it's important to remember that globally, excluding China, over 70% of homes are still not connected by fiber. And there is significant opportunity remaining in our biggest markets of both North America and Europe. In North America, we are now seeing some stabilization in demand as inventory positions have improved. And we see the BID funding program progressing well, which we still expect will start to benefit in the second half and more meaningfully in 2025.
Speaker Change: Secondly.
Speaker Change: We offer our customers the greatest flexibility in terms of deployment for their networks.
Speaker Change: Operators are looking at opportunities to virtualize and optimize their network deployments.
Speaker Change: With our any of them approach, we offer the greatest flexibility and compute platform between different servers, Cpus and even cloud platforms for their baseband deployments, all while maintaining feature parity without purpose built baseband solutions.
Speaker Change: Finally, we remain the most committed and engaged so the traditional equipment vendors to Orion.
Speaker Change: We have the largest contributor to developing the open interfaces with a transparent roadmap on product availability.
Speaker Change: We have completed their ability with five different radio suppliers.
Speaker Change: This has also been helping us commercially with deal signed with Deutsche Telekom and NTT Docomo last year, along with the deal we signed in February with truck with them.
Pekka Ilmari Lundmark: In Europe, we see deployments remaining at a high level in markets with low penetration, and we are seeing some mature markets starting to upgrade to XGS PON and 25G PON. We are also seeing good momentum and growth opportunities this year in many of our other regions for fixed networks. Next, I wanted to highlight our optical networks business as we had a number of important launches in the quarter. New services and applications are driving significant increases in optical network capacity to the metro edge. Therefore, we have expanded our optical portfolio to address these needs. In March, we announced the expansion of our pluggable coherent optics portfolio to now include 100, 400, and 800 gigabits per second transceivers.
Speaker Change: Yeah.
Speaker Change: The next topic I wanted to talk about is how we are helping operators address their two biggest challenge is automating their operations and reducing opex as niche what complexity grows and also how they can monetize their <unk> networks.
Speaker Change: Let me explain how our technology enables this in a way that nobody else in the market is doing.
Speaker Change: <unk> automation, we have the capability to drive zero touch autonomous operations across all net with domains.
Speaker Change: We manage autonomous operations across multi vendor networks, meaning that we are providing this service management and orchestration in customer networks that combine multiple vendors rather than only orchestrating our own networks.
Speaker Change: This has been helping us to win against the competition and benefits from a position of having firsthand knowledge and deep expertise across ran transport corridor and the many different capability as you'll see on the slides.
Speaker Change: On the monetization side, our holistic solution is what also enables network program ability and the ability for csp's to expose their Apis to developers using our network is called platform. This.
Speaker Change: This is a key point and we already have 11, operator agreements for our platform to fully benefit from the emerging network can't be ice csp's need to their operations to be fully automate did because the API paradigm assume certain applications interact directly with the network in real time.
Pekka Ilmari Lundmark: We also introduced new interface cards and chassis that bring scale and efficiency to Metro Edge applications that serve a diverse set of networking functions needed by our various customer types. In both IP and optical networking, we are clearly recognized as a market leader. This means we are uniquely positioned to serve the evolving needs of our customers in an unbiased way as they consider various converged IP and optical network architecture alternatives. This truly differentiates us from the competition, as, typically, they only have scale in either IP or optical.
In fact, we have customers who are purchasing our autonomous operations, specifically to accelerate their API exposure that that chip.
Speaker Change: Secure autonomous operations also underpins the ability to achieve network slicing at scale, which is another five G. A monetization vehicle.
Speaker Change: To conclude we have a highly differentiated solution for orchestration, which enables our customers to monetize their networks and run a secure autonomous operations to address their biggest challenge is in a way that none of our competitors can do.
Speaker Change: Yeah.
Pekka Ilmari Lundmark: I now wanted to provide a few words on our mobile networks business and our portfolio. Firstly, as you can see in the charts, our products now deliver market-leading throughput performance. A few years ago, we were behind on live network performance for 5G.
Speaker Change: I also wanted to highlight some partnerships that we announced in the quarter that will benefit both our mobile networks and cloud and network services businesses at.
Speaker Change: At mobile World Congress, we announced the strategic partnership with Dell.
Speaker Change: On the Nokia side, we will now adopt Dell as a preferred infrastructure partner for existing Nokia airframe customers, which will enable us to refocus our R&D airports into areas, where we can really defense differentiate that's Nokia.
Pekka Ilmari Lundmark: If you look at performance in live networks today, those cities that use our products are delivering better downlink performance and slightly better uplink performance than our competitors. With each generation of software release, we continue to improve. Secondly, we offer customers the greatest flexibility in terms of deployment for their network. Operators are looking at opportunities to virtualize and optimize their network deployment. With our AnyRAM approach, we offer the greatest flexibility in compute platform between different servers, CPUs, and even cloud platforms for their baseband deployment, all while maintaining feature parity with our purpose-built basebans.
Speaker Change: Secondly, our private wireless solution N deck, or Nokia digital automation cloud will become <unk> preferred private wireless platform for enterprise customers and we can see this becoming a very powerful channel to further drive growth in private wireless.
Speaker Change: We also announced the partnership with Nvidia that will help us to broaden the compute platforms, we support without any resolution that I talked about earlier for cloud Ram deployments. This will help us to accelerate the opportunities to bring AI capabilities into the ran network. We will also partner with Nvidia.
Speaker Change: On some elements of <unk> research.
Speaker Change: And finally in Nokia technologies.
Speaker Change: Reminder of some of the new growth areas, we are now focusing on.
Speaker Change: We have been making strong progress in more developed areas like automotive and consumer electronics, you can see on the slide some of the recent deal examples here.
Pekka Ilmari Lundmark: Finally, we remain the most committed and engaged of the traditional equipment vendors to O-RAN. We are the largest contributor to developing the open interfaces with a transparent roadmap for product availability. We have completed operability with five different radio suppliers.
Speaker Change: We also see areas like Iot and multimedia a strong opportunity is where we are in active negotiations, but the markets are still in the early stages of development in multimedia for example, we have a strong patent portfolio covering multiple technologies, including video compression content delivery com.
Speaker Change: Recommendation and aspects related to hardware in these areas, we see a promising pipeline to increase our licensing net sales run rate.
Pekka Ilmari Lundmark: This has also been helping us commercially with deals signed with Deutsche Telekom and Entity Docomo last year, along with the deal we signed in February with Rakuten. The next topic I wanted to talk about is how we are helping operators address their two biggest challenges, automating their operations and reducing OPEX as network complexity grows and also how they can monetize their 5G network. Let me explain how our technology enables this in a way that nobody else in the market is doing. Regarding automation, we have the capability to drive zero-touch autonomous operations across all network domains.
Speaker Change: So to conclude while the market weakness remains we do see improving order trends, giving us confidence that we will return to growth in the second half of the year, particularly in network infrastructure.
We have now concluded the smartphone renewal cycle, which allows Nokia technologies to enter a period of stability and can therefore focus its efforts on the expansion areas. We discussed the deal signed also contributed to the strong cash generation we saw in Q1.
Speaker Change: In the meantime, we will continue to execute on our cost savings plans to optimize margins during this weaker environment, while maintaining our commitment to R&D investment.
Speaker Change: These cost actions along with the expected improvements in net sales into the second half of the year give us confidence that we are solidly on track to deliver our outlook for 2024.
Speaker Change: So with that let me pass you back to David who will introduce the Q&A section of the call. Thank.
Pekka Ilmari Lundmark: We manage autonomous operations across multi-vendor networks, meaning that we are providing this service management and orchestration in customer networks that combine multiple vendors, rather than only orchestrating our own network. This has been helping us to win against the competition and benefits from our position of having first-hand knowledge and deep expertise across RAN, Transport, Core, and the many different capabilities you see on the slide. On the monetization side, our holistic solution is what also enables network programmability and the ability for CSPs to expose their APIs to developers using our network as code platform.
David: Thank you.
David: The Q&A session as a courtesy to others.
David: Please limit yourself to one question and a brief follow up.
David: George could you please give the instructions.
George: We will now begin the question answer session.
George: You've got also the video webcast. Please remember to get the audio on your <unk> there.
George: Before asking your question there is a 32nd delay to ask a question you May press star and one of your telephone.
George: If youre using a speakerphone, please pick up the handset before pressing the keys.
George: We drove good question. Please press star two.
George: I will now hand, the call back to Mr. David Mulholland.
George: Thanks, George we'll take our first question today from Artem <unk> from Seb Artem. Please go ahead.
Artem: Hi, Yes, hi, and thank you for taking my question I actually would like the stock price itself.
Artem: That's for me regarding full year guidance.
Artem: Looking at Q1 development I think it's fair to say is that the what comes to network segment. So as it has been a bit steeper declines than what you have suggested initially but at the same time you are quiet.
Pekka Ilmari Lundmark: This is a key point, and we already have 11 operator agreements for our platform. To fully benefit from the emerging network APIs, CSPs need their operations to be fully automated because the API paradigm assumes an application interacts directly with the network in real time.
Artem: Fortunately for control situation could you maybe comment on balance are you more confident in what comes through.
Artem: Guidance and outlook.
Artem: That's as previously for example.
Speaker Change: We see for yourself. Thank you.
Speaker Change: Okay. Thank you.
Speaker Change: Well first of all as I already said, we saw some positive order trends already in Q4, especially in network infrastructure and we.
Speaker Change: We were pleased to see that those trends are.
Pekka Ilmari Lundmark: In fact, we have customers who are purchasing our autonomous operations specifically to accelerate their API exposure strategy. Secure autonomous operations also underpin the ability to achieve network slicing at scale, which is another 5G monetization vehicle. To conclude, we have a highly differentiated solution for orchestration that enables our customers to monetize their networks and run secure, autonomous operations to address their biggest challenges in a way that none of our competitors can do. I also wanted to highlight some partnerships that we announced in the quarter that will benefit both our mobile networks and our cloud and network services business. At Mobile World Congress, we announced a strategic partnership with Dell.
Speaker Change: Continued in Q1 and then in addition to Eni. We also comment there that the order trends in CNS.
Speaker Change: Positive in Q1, and Theres just not only on the orders that we have them, but this also led to the pipeline of new opportunities that we are seeing so obviously, it's hard to give a simple answer on the confidence or.
Speaker Change: Level, but nothing has really changed I mean, we remain confident on our full year forecast. We are obviously three months into it into the year and the trends are largely playing out from order intake perspective, as we would have hoped.
Speaker Change: Oh, because there is always some variability between quarters, and then and you saw that our our kind of our comments, we're now a bit more positive on our fixed networks and a bit more cautious on optical networks, but as a whole.
Speaker Change: Nothing has changed from Q4.
Speaker Change: Did you have a follow up.
Speaker Change: Yes, it would be fair and as a quick follow up you can beat related to fixed networks and as you mentioned.
The outlook for E. T R has improved.
Speaker Change: You may be elaborate the beat that we had a problem with this common easy beat program more broad base. The inventory situation served right now Joe.
Pekka Ilmari Lundmark: On the Nokia side, we will now adopt Dell as our preferred infrastructure partner for existing Nokia Airframe customers, which will enable us to refocus our R&D efforts into areas where we can really differentiate as Nokia. Secondly, our private wireless solution, NDAC, or Nokia Digital Automation Cloud, will become Dell's preferred private wireless platform for enterprise customers, and we can see this becoming a very powerful channel to further drive growth in private wireless.
Joe: It's actually a combination of those I mean, the outlook in North America is.
Joe: It's looking more positive now we have some some exciting fixed wireless access developments in Asia Pacific.
Joe: I think it's fairly broad based then when it comes to bid.
Joe: Of course, I mean that is say.
Long term development. So you will see some benefit from that in the second half of the year, but then even more in the 25 and 26.
Joe: We will take our next question from Daniel Djurberg.
Daniel Djurberg: Daniel Please go ahead.
Daniel Djurberg: Thank you David and good morning, Marco I pick up now I don't have a question a little bit on the organizational changes that you did starting from Q4, but.
Daniel Djurberg: Took place so officially from start to the year, a little bit of reshuffling, I guess and also in C level managers et cetera.
Pekka Ilmari Lundmark: We also announced a partnership with Nvidia that will help us to broaden the compute platforms we support with our AnyRAN solution that I talked about earlier for CloudRAN deployment. This will help us to accelerate the opportunities to bring AI capabilities into the RAN network. We will also partner with NVIDIA on some elements of 6G research. And finally, on Nokia Technologies, as a quick reminder of some of the new growth areas we are now focusing on. We have been making strong progress in more developed areas like automotive and consumer electronics. You can see on the slide some recent deal examples here.
Marco: How has this impacted the operations in Q1 should we.
Marco: This too if it has.
Speaker Change: Is it now settled and so the focus can be on customer going forward. Thanks.
Speaker Change: Yeah. Thank you. Thank you Danielle good morning, Gomorrah and they reached the shuffling of the organization has has been completed we did it very quickly quickly. It was put into force in the in the beginning of the year, we basically use Q4 for planning the old Oregon.
I'd say, it's remained in place all Q4, and then overnight.
Speaker Change: On January 1st are the new organization was put in place. Obviously there is when you do this type of a reshuffle of course, there is a period of instability, but we already behind.
Speaker Change: That now we are seeing the new organization has.
Speaker Change: <unk> started to accumulate.
I can get a more gain more and more traction what I do want to emphasize is that when we talk about.
Pekka Ilmari Lundmark: We also see areas like IoT and multimedia as strong opportunities where we are in active negotiation. But the markets are still in the early stages of development. In multimedia, for example, we have a strong patent portfolio covering multiple technologies, including video compression, content delivery, content recommendation, and aspects related to hardware.
Speaker Change: The business groups are being more autonomous and also running sales.
Speaker Change: Very important principle also in the new model is that for all key customers. There is always an account executed that is responsible for our overall relationship with the customer being one part of their all and then the second part of they're all being the coordination of all multi business.
Speaker Change: Topics for that.
Speaker Change: Customer. So this is important to note that we are not approaching these customers in silos.
Speaker Change: The purpose of this whole thing as I communicated also earlier is to really bring the customers closer to.
Speaker Change: The decision makers of our businesses and the people that make decisions on the solutions that we bring to the market and people that sit on the crucial R&D resources, we want to shorten the distance between the customer and the business decision makers and really.
Pekka Ilmari Lundmark: In these areas, we see a promising pipeline to increase our licensing net sales run rate. So to conclude, while the market weakness remains, we do see improving order trends giving us confidence that we will return to growth in the second half of the year, particularly in network infrastructure. We have now concluded the smartphone renewal cycle, which allows Nokia technologies to enter a period of stability and can, therefore, focus its efforts on the expansion areas we discussed.
Speaker Change: <unk> highly empowered teams.
Speaker Change: In front of the customer.
Speaker Change: Yeah.
Speaker Change: Daniel.
Daniel Djurberg: Yeah, I can take a quick one on the mobile networks do you did you have any you know.
Daniel Djurberg: Contract breach finds from AT&T or something in the in the numbers or should we expect anything like that to materialize ahead. Thanks.
Speaker Change: There were no such elements in the Q1 <unk>.
Speaker Change: <unk>.
Speaker Change: When it comes to the AT&T say, Trish and we do not have any updates at this stage.
David Mulholland: The deals signed also contributed to the strong cash generation we saw in Q1. In the meantime, we will continue to execute on our cost savings plans to optimize margins during this weaker environment while maintaining our commitment to R&D investment. These cost actions, along with the expected improvements in net sales into the second half of the year, give us confidence that we are solidly on track to deliver our outlook for 2024. So with that, let me pass you back to David, who will introduce the Q&A section of the call. With courtesy to other executives, could you please limit yourself to one question and a brief statement, George, could you please give the instructions?
Speaker Change: Negotiations are still ongoing with respect to the conclusion of the existing contract.
Speaker Change: Thanks Daniel.
Speaker Change: Next question from Alexander Duval from Goldman Sachs. Alex. Please go ahead.
Alexander Duval: Yes, thanks, very much David for the question Firstly, you referenced around our solutions.
Alexander Duval: So I think one of your competitors talk is talking about seeing increased market activity in that area. So I was just curious if you're seeing a greater prevalence of Oran requests in deal discussions.
Alexander Duval: So whether that has any implications for your R&D Road map.
Second of all just to come back on and I just wondered if you could help us sort of understand the degree of visibility you have that Oh, you've talked about some improvement in orders has the last year I think that was a sort of a very positive outlook started yet and then through the things became more tricky on that.
David Mulholland: We will now begin the question and answer session. If you are also viewing the video webcast, please remember to mute the audio on your computer before asking your question, as there is a 30 second delay. To ask a question, you may press star and 1 on your telephone.
Alexander Duval: Slide.
Alexander Duval: So just wondering if something has changed this year, which would be the sort of key positive drivers that give you confidence on the visibility that many thanks.
Speaker Change: Okay. Thank you if I take the <unk> question first so.
Speaker Change: The interest is gradually.
Speaker Change: Increasing and and Oh I think it's a good good thing we are as you know we have been from the beginning a strong supporter of our and the strongest contributor to the standard we have say that all our real Custer.
Operator: If you are using a speakerphone, please pick up the handset before pressing the, To withdraw your question, please press the star and then. I will now hand the call back to Mr. David Mulholland. Thanks George. We'll take our first question today from Artem Beletski from SEB. Artem, please go ahead.
Speaker Change: Customer implementations commercial implementation is underway and we are clearly the leader as the company all of the companies who have tested and demonstrated interoperability between us our solutions. Another vendor solutions. So we are welcoming the increased interest on order and we believe that the that we are oh.
Artem Beletski: Yes, hi, thank you for taking my question. I actually would like to pick up some further thoughts from you regarding full year guidance. So looking at the Q1 development, I think it's fair to say that when it comes to network segments, there have been a bit steeper declines than what you suggested initially, but at the same time, you are quite positive when it comes to all the situations. Could you maybe comment on that balance? Are you more confident when it comes to full year guidance? [inaudible] Thank you, Artem.
Speaker Change: Fully.
Speaker Change: Competitive.
Speaker Change: Regardless of which of the scenarios in terms of ore and speed will materialize of course, a part of this is also also the other aspect of network evolution development, which is the qualification of the especially the baseband functions of the network and are there I can say the same thing. This is of course, a different thing from the open front.
Speaker Change: Totally interface that Oran will bring but often these two will coexist in the future and we are equally pleased to be clearly one of the leaders in the cloud or in development as well exciting initiatives going on with multiple customers.
Pekka Ilmari Lundmark: Well, first of all, as I already said, we saw some positive order trends in Q4, especially for network infrastructure, and we were pleased to see that those trends continued in Q1. And then, in addition to NI, we also commented that order trends in CNS were positive in Q1. And this is not only orders that we have, but this has also led to the pipeline of new opportunities that we are seeing. So, obviously, it's hard to give a simple answer on the confidence level, but nothing has really changed. I mean, we remain confident in the full year forecast.
Speaker Change: In different parts of the.
Speaker Change: The world.
Speaker Change: Then when it comes to the <unk>.
Speaker Change: Of course, a very important thing to note there, which we have said earlier by Baidu repeat. It also here is that 2023. It was kind of an exception because there was in Q1 as you remember more than 15% margin operating margin and NII because of the catch up deliveries that we had that when that came from.
Speaker Change: Supply chain shortages that are that affected volumes in 2022. So there were two things that happened in 'twenty three operators network build out face a slow pace slowed down and on top of that they consumed a lot of the inventories that they had built and then then we.
Pekka Ilmari Lundmark: We are obviously three months into the year, and the trends are largely playing out from an order intake perspective, as we would have hoped. There is always some variability between quarters, and in NI, you saw that our kind of comments were now a bit more positive on fixed networks and a bit more cautious on optical networks, but as a whole, nothing has changed from Q4. Yes indeed, and the quick follow-up is related to fixed networks, and as you mentioned, the outlook for this year has improved. Could you maybe elaborate a bit where this is coming from? Is it a big program, more broad-based inventory situation as you see it right now, and so on? It's actually a combination of those three.
Speaker Change: We're recovering some of the supply chain situation. So the dynamics of 2023 were really really exceptional and this year. We are we are moving back to a much more kind of normal seasonality, where Q1 is the weakest and then gradually it improves to watch.
Speaker Change: Towards a stronger second half and then Q4 being the strongest. So this is what we are expecting this year and the good thing is that that's the <unk>.
Speaker Change: Order trends that we see in ni. They started to support this already in Q4 of last year and those trends have continued in the first quarter of this year, especially in fixed networks in North America in our fixed wireless access in fixed wireless action access for example, with the <unk>.
Pekka Ilmari Lundmark: I mean, the outlook in North America is looking more positive, and now we have some exciting fixed wireless access developments in Asia Pacific. It's fairly broad-based, and when it comes to bids, of course, I mean, that is a long-term development. So you will see some benefit from that in the second half of the year, but then even more into 2025 and 2026. Thanks Orson, we'll take our next question from Daniel Djurberg. Daniel, please go ahead. Thank you, David. And good morning, Marco and Pekka.
Speaker Change: Significant customer in Asia Asia Pacific in IP networks, we continue to see a tailwind in the.
Speaker Change: The second half of the year from enterprise and web scale when some as I've said it now seems that in optical networks recovery could take a little bit longer than originally expected. This is consistent with what some of our optical networks competitors have a comment there and then may be finally on submarine networks.
Speaker Change: There we are executing on a strong backlog so the week deliberate so weak top line in Q1 was more related to project timing are impacting Q1, then the strength of the order backlog and in addition to the order backlog and stop Marion There is a strong pipeline of new opportunities as well.
Daniel Djurberg: I will have a question a little bit on the organizational changes you did, starting from Q4, but which took place officially from the start of the year. A little bit of reshuffling, I guess, and also in C-level managers, etc. The purpose of this whole thing, as I also communicated earlier, is to really bring customers closer to the decision makers of our businesses and the people that make decisions on the solutions that we bring to the market and the people that sit on the crucial R&D resources.
Speaker Change: So maybe there is there is some ammunition to deal with your address your question with this thinks that I went through.
Speaker Change: Thanks, Alex we'll take our next question from Sebastian <unk> from Jefferies.
Sebastian: Sebastian Please go ahead.
Sebastian: Yeah, how do we win on mobile networks, you felt that the year on the V. So fast and you need to exit its two video revenue growth in <unk>.
Sebastian: Next two quarters to reach your guidance minus 10 minus 15.
Daniel Djurberg: We want to shorten the distance between the customer and the business decision makers, putting highly empowered teams in front of the customer. Yeah, I can take a quick one on mobile networks. Do you know, did you have any, you know, contract breach fines from AT&T or something in the numbers, or should we expect anything like that to materialize ahead? There were no such elements in the Q1 numbers.
Sebastian: What kind of visibility do you have on the acceleration of <unk> growth in mobile networks and the second question is on the U S market specifically in mobile.
Sebastian: It seems as if you buy them.
Sebastian: Humans depressed in the first quarter when do you expect the inventory collection.
To be completed though the demand to be back in the U S market T mobile networks. Thank you.
Sebastian: Q1 was of course very weak from a topline perspective, this was largely because of India.
Marco Wirn: When it comes to the AT&T situation, we do not have any updates at this stage. Negotiations are still ongoing with respect to the conclusion of the existing contract. We'll take our next question from Alexander Duval from Goldman Sachs. Aleks, please go ahead.
Sebastian: And again here you have to remember what happened last year, especially the first half of 'twenty.
Sebastian: 2023 saw.
A massive.
<unk> deployment in India now those volumes have a normalized.
Sebastian: We do expect that a the low volumes in both India and North America in Q1 will improve there.
Sebastian: In the coming quarters and this is based on obviously a combination of the visibility we have through order backlog and then also also the discussions on the pipeline that we have with these customers. So we do maintain a.
Alexander Duval: Yes, thanks so much, David, for the question. Firstly, you referenced the O-RAN solution. Thank you for joining us today. I think one of your competitors is talking about seeing increased market activity in that area. So I was just curious if you're seeing a greater prevalence of O-RAN requests in deal discussions, and if so, whether that has any implications for your R&D roadmap. And second of all, just to come back on NI, I just wondered if you could help sort of understand the degree of visibility you have there.
Sebastian: The 10 to 15 per cent decline expectation in mobile networks for the year.
Sebastian: The second question was about inventory levels in North America.
Sebastian: Yeah.
Sebastian: We said last year in quarter four as well.
Sebastian: The inventory level issue was more in 'twenty three issue and it's much less an issue this year.
Sebastian: The wood, we have seen though in North America instead of course, the macroeconomic environment is also impacting.
Sebastian: Impacting our customers' investment levels and.
Sebastian: We will see these.
Sebastian: During this year as well.
Pekka Ilmari Lundmark: Obviously, you've talked about some improvement in orders. However, last year, I think there was a sort of very positive outlook at the start of the year, and then through the year, things became more tricky on that side.
Sebastian: But it will also mentioned that quarter, one is exceptionally low and we see them.
Sebastian: Yeah that is the low point of mobile networks.
Sebastian: Our top line as well.
Sebastian: Thanks, So much well take our next question from the semi <unk> from Danske Bank.
Danske Bank: Please go ahead.
Pekka Ilmari Lundmark: So just wondered if anything has changed this year, and what the sort of key positive drivers that give you confidence in the visibility there are? Okay, thank you. If I take the O-REN question first, so the interest is gradually increasing, and I think it's a good thing. We are, as you know, we have been from the beginning a strong supporter of O-REN, the strongest contributor to the standard. We have several real customer implementations, and commercial implementations underway, and we are clearly the leader as to the company, all the companies who have tested and demonstrated interoperability between us, our solutions, and other vendor solutions.
Danske Bank: Hi, Thanks for taking my question.
Have a question regarding your balance sheet.
Danske Bank: Looking at quite Overcapitalized relative D. Our net cash target range.
Danske Bank: And that he would think about the share buyback programs that you have decided for this year next year, we'll see kind of million euros, that's unlikely to collect fix the overcapitalized.
Danske Bank: Amortization issue.
Danske Bank: Are you willing to revisit.
Danske Bank: The share buyback program decision before 26 as.
Danske Bank: I think you may be in a position to buy back more than the 600 million that has been decided already.
Yeah, Thank you Simeon and.
Speaker Change: Yes, we are we had a very good cash generation this year in quarter, one and about $1 billion and the net Kashi is at $5 1 billion at the moment.
Speaker Change: We will.
Speaker Change: Looking to these.
Speaker Change: More over time, and what actions, we should take but of course in the end. It is the board of directors decision.
Pekka Ilmari Lundmark: So we are welcoming the increased interest in O-RAN, and we believe that we are fully competitive, regardless of which of the scenarios in terms of O-RAN speed will materialize. Of course, part of this is also the other aspect of network evolution development, which is the cloudification of, especially, the basement functions of the network. And there I can say the same thing.
Speaker Change: This is what they want to do.
Speaker Change: And.
As we've said that our target is to have.
Speaker Change: Yeah.
Speaker Change: Net cash position between 10% to 15%.
Speaker Change: Of our net sales and that target remains.
Speaker Change: So we.
Speaker Change: There is no immediate actions that are expected, but that of course is something that the company on the bodies looking over.
Speaker Change: Overtime.
Speaker Change: Okay.
Speaker Change: Did you have a follow up sorry.
Speaker Change: Yeah, maybe regarding the gross margin at mobile networks, you commented that.
Speaker Change: Half of the improvement was not sustainable is that going to normalize already in the second quarter.
Pekka Ilmari Lundmark: This is, of course, a different thing from the open frontal interface that O-RAN will bring, but often these two will coexist in the future. And we are equally pleased to be clearly one of the leaders in the cloud and development as well. Exciting initiatives going on with multiple customers in different parts of the world. Then when it comes to NI, of course, a very important thing to note there, which we have said earlier, but I do repeat it also here, is that 2023 was kind of an exception because there was, in Q1, as you remember, more than 15% operating margin in NI because of the catch-up deliveries that we had that came from the supply chain shortages that affected volumes in So there were two things that happened at 23.
Speaker Change: Yeah, I would say that as we mentioned is more about retrofit them warranty and that kind of costs that were exceptionally low in the first quarter and we expect that.
Speaker Change: They should be more normalized going forward.
Speaker Change: Thanks, a lot.
Speaker Change: Thank you. Our next question from Simon Leopold from Raymond James Simon. Please go ahead.
Simon Leopold: Thank you very much for taking the question I wanted to see if you could talk a little bit about the diversification efforts you you Didnt update us this quarter I think.
Simon Leopold: The portion of revenue coming from enterprises, and other non telcos and within that.
Simon Leopold: If you could elaborate on your expectations for how particularly the web scale could develop if you could envision.
Simon Leopold: Your switching business contributions they are getting bigger than optical and routing. Thank you.
Simon Leopold: Well. This is this is not a negative comment about optical and routing in any way, but but we absolutely target.
Simon Leopold: Grow the switching business as quickly.
Simon Leopold: It's possible, but of course, when you deal with a large, especially with the large web scale or is it takes time with these customers to ramp up.
Simon Leopold: But that business is clearly ramping as we speak and it is a it is ramping based on some real deals that we have with these customers in general.
Pekka Ilmari Lundmark: Operators' network build-out phase slowed down, and on top of that, they consumed a lot of the inventories that they had built. And then we were recovering from the supply chain situation. So the dynamics of 2023 were really, really exceptional.
Simon Leopold: The non CSP business, which is our which is the part of share of which we intend to grow.
Simon Leopold: We had also in that.
Simon Leopold: Segment customer segment.
Simon Leopold: Good order intake growth in our Q1 much better order so that in Q1 last year and we do expect.
Pekka Ilmari Lundmark: And this year we are moving back to a much more kind of normal stationality where Q1 is the weakest, and then gradually it improves towards a stronger second half and then Q4 being the strongest. So this is what we are expecting this year. And the good thing is that
Simon Leopold: When we look at the full year that the double digit topline growth will continue in the non CSP segment.
Simon Leopold: Do you have a follow up Simon yes, just a brief follow up I know, it's it's a gradual transition, but any updates you can offer in terms of displacements of Huawei, particularly in Europe hasn't been progress there. Thank you.
Pekka Ilmari Lundmark: All the trends that we see in NI started to support this already in Q4 last year, and those trends have continued in the first quarter of this year, especially in fixed networks in North America, in fixed wireless access, for example, with a significant customer in Asia Pacific. In IP networks, we continue to see tailwinds in the second half of the year from enterprise and web scale winds. And as I said, it now seems that in optical networks, recovery could take a little bit longer than originally expected.
Yes. It is it is it is gradual.
Simon Leopold: Progress.
So it's difficult to give you any kind of overnight change so anything like that but but then typically Chinese vendors.
Simon Leopold: 20% to 30% in markets outside of China outside of the U S.
Speaker Change: Of course.
Speaker Change: We estimate that last year.
Speaker Change: In mobile networks and network infrastructure.
Speaker Change: Hum.
Speaker Change: The Chinese vendors have roughly or hydraulic 12 billion in sales outside of China.
Speaker Change: China and about half, which is $6 billion of that in Europe and this is obviously an ongoing discussion in several European countries that are how they should deal with that question, but.
Pekka Ilmari Lundmark: This is consistent with what some of our optical network competitors have commented. And then, maybe finally, on submarine networks, there we are executing on a strong backlog. So the weak delivery, so the weak top line in Q1 was more related to project timing impact in Q1 than the strength of the order backlog. And in addition to the order backlog in submarines, there is a strong pipeline of new opportunities as well. So maybe there is some ammunition to address your question with these things that I have gone. Thanks, Aleks. We'll take our next question from Sbastien Sztabowicz from Kepler. Sebastien, please go ahead. Yeah, hello everyone.
Speaker Change: Gradually the importance of this opportunity for US is it's is continuing to grow.
Speaker Change: Thanks, Todd we'll take our next question from Richard Kramer from Arete say Richard Please go ahead.
Richard Kramer: Thanks, very much pack I appreciate this might be a difficult question. When we look at and then sales they're down by about a third but R&D is actually up.
Richard Kramer: And you know remaining well over 500 million euros in your guidance is for low single digit margin.
Richard Kramer: How how do you potentially reduce exposure over time to M N given.
Richard Kramer: What's going to be a lower margin profile for that business and reduce scale is there any way to bring down that R&D expenditure, while remaining competitive or is that just simply going to be the lower margin portion of your business for the foreseeable future.
Sbastien Sztabowicz: On mobile networks, you started the year on a very soft path, and you need to accelerate strongly your revenue growth in the next two quarters to reach your guidance, minus 10, minus 15. What kind of visibility do you have on the acceleration of sales growth in mobile networks? And the second question is about the U.S. market, specifically in mobile. It seems the environment remains depressed in the first quarter.
Richard Kramer: Well, obviously when we are when.
Richard Kramer: When we are implementing our cost reductions.
Richard Kramer: You remember, what we announced on a group level.
Richard Kramer: After Q3 800 $200 million cost reduction I think we said that about 60% of that would be mobile networks.
Richard Kramer: But clearly implement it in such a way that we would always protect R&D output.
Richard Kramer: Because that is crucial.
Richard Kramer: We are not going to let.
Richard Kramer: Let the situation repeat itself, where we were behind our competition in five <unk> competitiveness in the early stages of <unk> now we have caught up and we.
Marco Wirn: When do you expect the inventory correction to be completed or the demand to be back in the U.S. market for mobile networks? Thank you. Q1 was, of course, very weak from a top line perspective. This was largely because of India.
Richard Kramer: Intend to stay in that late when we gradually develop towards five G. Advanced and then six gene. So that is something that we will always protect but having said that of course, there are always ways to improve our R&D productivity.
Marco Wirn: And again, here you have to remember what happened last year, especially in the first half of 2023, a massive 5G deployment in India, and now those volumes have normalized. We do expect that the low volumes in both India and North America in Q1 will improve in the coming quarters, and this is based on, obviously, a combination of the visibility we have through order backlog and then also the discussions on the pipeline that we have with this customer.
Richard Kramer: And that is something that we are investing heavily on AR and AR with pretty good results are I mean, we have been able to increase our R&D output.
Richard Kramer: Productivity with fairly stable.
Richard Kramer: R&D investment that this is something that we expect to continue in the future I'm, not saying exactly where the R&D volume in terms of euros in am and will be in the future through.
Richard Kramer: AI.
Richard Kramer: With the co pilots.
Richard Kramer: For social that programmers etcetera, there is a real case for improving software.
Marco Wirn: So we do maintain the 10 to 15 percent decline expectation in mobile networks for the year. The second question was about inventory levels in North America. Do you want to take that, Marco? Yeah, I can take that one.
Richard Kramer: R&D productivity and of course, we will seek to take maximum advantage of these opportunities.
Well.
Speaker Change: Okay. Thanks, Yeah, Yeah, very quickly for Marco you're coming up at the end of June to sort of.
Speaker Change: The extended contractual agreement with Nokia Shanghai Bell can you give us a sense, but by the time you report next time, you'll have to have concluded that where where you're going to stand with respect to that the potential.
Marco Wirn: As we said last year in quarter four, the inventory level issue was more of a 23 an issue this year. What we see now in North America is that, of course, the macroeconomic environment is also impacting our customers' investment levels. And we will see this during this year as well, but we'll also mention that quarter one is exceptionally low, and we see that this is a low point on the mobile network's top line as well. Sbastien.
Speaker Change: Liabilities in and how you expect that to play out with the with that long standing asset you've had in China.
Speaker Change: Yes. This is something that that Oh of course, we will discuss with our counterparty in China as well and.
Speaker Change: Whenever we have any news we will inform you about this.
Speaker Change: Thanks, Richard we will take our next question from Joseph Zhou from Barclays. Joseph Please go ahead.
Joseph Zhou: Thank you for taking my questions. The first one is can you quantify how much of the 47% organic decline in mobile networks or the 40% in North America for that division was really driven by the impact of the AT&T deal.
Sbastien Sztabowicz: We'll take our next question from Sami Sarkamies from Donsk. Sami, please go ahead. Hi, thanks for taking my question. I have a question regarding your balance sheet. It's looking quite overcapitalized relative to your net cash target range. And if we think about the share buyback programs you have decided for this year and next year for 600 million euros, that's unlikely to fix the overcapitalization issue. Are you willing to revisit the share buyback program decision before 26? As I think you may be in a position to buy back more than the 600 million that has been decided already. Yeah, thank you, Sami.
Speaker Change: Thank you Joseph.
Joseph Zhou: Yeah, The North America.
Speaker Change: As a whole we saw weakness in quarter one.
Speaker Change: Yeah, theres not any specific customer that that disease.
Speaker Change: Yeah.
Speaker Change: Direct it to and what counts to AT&T and we don't have any any update on what's kind of comes to the contractual discussions or negotiations that we have with them right now is still ongoing and whenever we conclude we will inform.
Speaker Change: Inform you about that as well.
Speaker Change: And.
Speaker Change: Exactly how the rest of the year will will develop in North America.
Speaker Change: We follow that very carefully as well and.
Sami Sarkamies: And yes, we are. We had a very good cash generation this year in quarter one and about 1 billion. And the net cash is at 5.1 billion at the moment. We will look into this more over time and what actions we should take. But of course, in the end, it is the board of directors' decision what they want to do.
Speaker Change: And then.
Speaker Change: Remember that that yeah.
Speaker Change: AT&T continues to be a very important customer for Nokia as a group, but also for our mobile networks. They continue to to sell other services too.
Speaker Change: T like FEMSA microwave and and some other services as well going forward.
Speaker Change: Could you help with co op Joseph Yes. My second question is just basically on China and there has been some recent news about the garments.
Marco Wirn: And as we've said, our target is to have a net cash position between 10 to 15% of our net sales, and that target remains. So, there are no immediate actions that are expected, but of course, this is something that the company and the board are looking at over time. Yeah, maybe regarding the gross margin on mobile networks, you commented that half of the improvement was not sustainable. Is that going to normalize in the second quarter?
Joseph Zhou: Kind of stripping out the foreign chips from the on the telecom equipment and as I understand all your chips are a foreign chips, I mean coming from the likes them, allowing tower broadcom et cetera, and does it mean your China sales will that theres, a risk that you're trying to sell.
Joseph Zhou: Go to <unk>.
Joseph Zhou: Very minimal and and also have you seen any impact from that in Q1 at all with the most features likes the current books.
Speaker Change: No no. We have we have not seen any impact of that then I have to say that we still need more clarity around that statement.
Marco Wirn: Yeah, I would say that, as we mentioned, it's more about retrofit and warranty, and that kind of cost that was exceptionally low in the first quarter, and we expect that they should be more normalized going forward. We'll take our next question from Simon Leopold on behalf of Ramy James. Simon, please go ahead.
Speaker Change: Statement because there are.
Speaker Change: So the so called foreign chips.
Speaker Change: Pretty much all parts overall networks.
Speaker Change: So it's very hard to see if thats, what that would mean in practice, so we need more clarity about about that but.
Speaker Change: Important for US is it still of course remember that.
Speaker Change: Our market share in China is fairly low.
Speaker Change: Low.
Simon Leopold: Thank you very much for taking the question. I wanted to see if you could talk a little bit about the diversification efforts. You didn't update us this quarter, I think, on the portion of revenue coming from enterprises and other non-telcos. And within that, if you could elaborate on your expectations for how the web scale could develop, if you could envision your switching business contributions there getting bigger than optical and routing. Thank you.
Speaker Change: And China accounts, only mainland China accounts only for a low single digit percentage of our sales.
Speaker Change: Thanks, Joseph Let's take our next question from Sandeep Deshpande from Jpmorgan. Please go ahead.
Sandeep Deshpande: Hi, Thanks for letting me on I have a question on.
Sandeep Deshpande: The group LCR routing and switching business in the enterprise and where you are at this point there in terms of design win activity. There was a lot of design win activity in this business.
Sandeep Deshpande: Slightly more than a year ago, but it seems to have.
Sandeep Deshpande: Not being followed up to some extent, so maybe I'd like to hear on that business and then I have a follow up on the mobile business itself.
Pekka Ilmari Lundmark: Well, this is not a negative comment about optical and routing in any way, but we absolutely target to grow the switching business as quickly as possible. But of course, when you deal with large customers, especially large web scalers, it takes time with these customers to ramp up volumes. But that business is clearly booming as we speak, and it is booming based on some real deals that we have with these customers.
Sandeep Deshpande: Now when.
Sandeep Deshpande: With the loss of the U S customers. I mean, you are clearly thinking about the mobile business in the long term clearly you have a strategy for 2020 six but is that a strategy beyond does this does this have to go back and get back to U S customers or is this that is going to be to be the subscale business for you are there.
Sandeep Deshpande: Some other standards or to make it a bunch more profitable business.
Speaker Change: Okay. Thank you sandeep.
Web scale customers first there there are some undisclosed deals that we are working on to implement and ramp up at the moment hopefully we will soon be able to able to publish all of these guys are.
Speaker Change: So so that one is ramping.
Pekka Ilmari Lundmark: The non-CSP business, which is the part of the share of which we intend to grow, we had good order intake growth in Q1, much better orders than in Q1 last year, and we do expect that when we look at the full year, the double digit top line growth will continue in the non-CSP segment. Yeah, just a brief follow up.
Speaker Change: Ramping and we.
Speaker Change: We continue to believe that switching for web scale or so will be a key growth driver in our known CSP growth not only Florida for ni, but for for Nokia as a whole.
Speaker Change: Then when it comes to mobile networks.
Speaker Change: The U S.
Speaker Change: Absolutely our target is to is to maximize our market position than they are in the mid to mid to long term.
Speaker Change: And.
Speaker Change: We believe that that our offering is strong.
Speaker Change: I have nothing to be ashamed off there and of course AT&T has confirmed that the reason for the decision was not the strength of our offering so absolutely we plan to fight back and when it comes to mobile networks in North America in General of course, one thing is there is the big three operators then there is a tier two and tier.
Simon Leopold: I know it's a gradual transition, but any updates you can offer in terms of the movement of Huawei, particularly in Europe? Has there been progress there? Thank you. Yes, it is, it is, it is gradual progress. So it's difficult to give you any kind of overnight changes or anything like that.
Speaker Change: Three as well, but then.
Speaker Change: In addition to that there is a growing private wireless business.
Speaker Change: North America that we are doing with the several of our partners and then in addition to all of this there is.
Speaker Change: There is there are.
Speaker Change: In the mid to long term significant potential with the defense industry that is considering to start taking commercial technologists that five G into that mill.
Pekka Ilmari Lundmark: But typically, Chinese vendors account for 20-30% in markets outside of China, outside of the US, of course. We estimate that last year in mobile networks and network infrastructure, Chinese vendors had roughly or had roughly 12 billion in sales outside of China, and about half, which is 6 billion of that, in Europe, and this is obviously an ongoing discussion in several European countries about how they should deal with that question, but gradually, the importance of this opportunity for us is continuing to grow. Simon, we'll take our next question from Richard Kramer from Morete. Richard, please go ahead.
Speaker Change: Applications, including tactical use. So these are all important drivers for most of the mobile networks in North America.
Speaker Change: Absolutely we are not going to be happy and settled with the market position that we currently have there.
Speaker Change: Thank you Sandeep, we will take our next question from Jacob Bluestone from BNP Paribas Jacob. Please go ahead.
Jakob Bluestone: Thanks for taking the question I had a question a quick follow up after that.
Jakob Bluestone: Just on the optical network side.
Jakob Bluestone: It struck a more cautious tone just be interested in hearing what is behind that and what is sort of the timeframe you're thinking about a recovery happening there.
Speaker Change: [noise] exact time frame is difficult to say.
Speaker Change: Say I will comment there that it seems to be happening a little bit slower than we are.
Speaker Change: So at the earlier at the same time, when we comment there that the fixed network seems to be recovering a bit faster.
Richard Kramer: Thanks very much. You know, Pekka, I appreciate this might be a difficult question, but when we look at MN sales, they're down by about a third, but R&D is actually up. And, you know, remaining well over 500 million euros, and your guidance is for a low single-digit margin. How do you potentially reduce exposure over time to MN given what's going to be a lower margin profile for that business and reduced scale?
Speaker Change: Faster. So these two would in a way balance.
Speaker Change: Each other out we had a book to bill in optical networks that was about one.
Speaker Change: In Q1, so it is contributing to the increase in order.
Speaker Change: Order backlog.
Speaker Change: Ni.
Speaker Change: We also have especially.
Speaker Change: Especially tough comparables in optical networks compared to Q1, 'twenty three or when we especially in that business recovered from the supply chain.
Pekka Ilmari Lundmark: Is there any way to bring down that R&D expenditure while remaining competitive, or is that just simply going to be the lower margin portion of your business for the foreseeable future? Well, obviously, when we are implementing our cost reductions, and you remember what we announced on a group level after Q3, 800 to 1200 million cost reduction, I think we said that about 60% of that would be mobile networks, but clearly implemented in such a way that we would always protect R&D, because that is crucial.
Speaker Change: Next we had a if you remember we had 45% growth.
Speaker Change: In optical in Q1 last year. So that's the compatible so that we are facing on the product side.
Speaker Change: We are highly confident that our that we are in a good place our new PSC six and six <unk> platforms continues to pick up momentum we have to say that all customers up there are doing trials. We are delivering best in class performance. We had you may have seen our recent announcement with the <unk>.
Speaker Change: <unk> net so again highly confident on the product.
Speaker Change: And.
Speaker Change: Clearly everything we have seen in AI and cloud compute will drive investments are into data centers into data center fabric itself, which of course will benefit switching and then the data center, Interconnects, which will benefit the optical and again the big advantage that we have.
Pekka Ilmari Lundmark: We are not going to let the situation repeat itself, where we were behind our competition in 5G competitiveness in the early stages of 5G. Now we have caught up, and we intend to stay in that lead when we gradually develop towards 5G advanced and then 6G. So that is something that we will always protect.
Speaker Change: There too I would say anyone else.
Speaker Change: Is that we have scale, both in IP and optical so depending on the rig.
Pekka Ilmari Lundmark: But having said that, of course, there are always ways to improve R&D productivity, and that is something that we are investing heavily in, and with pretty good results. We've been able to increase our R&D output and productivity with fairly stable R&D investment, and this is something that we expect to continue in the future. I'm not saying exactly where the R&D volume in terms of euros in MN will be in the future through AI with co-pilots for software programmers, etc., but there is a real case for improving software R&D productivity.
Speaker Change: Godless I'll follow up Eric just wanted to play this architectural game. That's what you are doing.
Speaker Change: In the network on the optical layer in what you are doing on the IP layer, we will have an answer to their needs.
Speaker Change: Thanks for that if I can just ask ask a quick follow up I think he made a comment earlier that you expected that Q1 was the low point for North American mobile networks revenues as well as India.
Speaker Change: Just to make sure I got that right. So even with AT&T, maybe falling out later in the year, you still expect that sort of roughly $400 million.
Speaker Change: Networks' revenues are in North America to be the low point for the year.
Speaker Change: Yes.
Speaker Change: Correct, that's what we that's what we said.
And the AT&T is attrition has been taken into account in that statement.
Speaker Change: Thanks, Jacob we'll take our next question from Felix Henriksen from Nordea.
Marco Wirn: And of course, we will seek to take maximum advantage of this opportunity, as well. Marco, you're coming up at the end of June to sort of an extended contractual agreement with Nokia Shanghai Bell. Can you give us a sense of where you're going to stand with respect to that, the potential liabilities, and how you expect that to play out with that longstanding asset you've had? Yeah, this is something that, of course, we will discuss with our counterparty in China as well. And whenever we have any news, we will inform you. Thanks, Richard. We'll take our next question from Joseph Zhou from Barclays. Joseph, please go ahead.
Felix Henriksson: Please go ahead.
Felix Henriksson: Alright, Thanks for taking my question I wanted to revisit the mobile networks revenue growth guidance is what I'm speaking to my understand percent core for the year and see whether or not you have sort of used to be.
On a 4% market growth rates by delauro, which are.
Farmer called up a soft domestic and deriving is ASO basis for market growth.
Speaker Change: What gives you confidence to call out the market bottoming back into North America corner Q1, given that you must be losing volumes from the AT&T customers. Thank you.
Speaker Change: Well, obviously, we are part of the same.
Speaker Change: The market with our Swedish.
Speaker Change: Swedish French who who made that comment.
Speaker Change: Comment and I have really nothing to add that comment I mean, we are seeing the same thing where do we expect that the whole market will remain weak this year.
Joseph Zhou: Thank you for taking my questions. And the first one is, can you quantify how much of the 37% organic sales decline in mobile networks or the 40% in North America for that division was really driven by the impact of the AT&T deal? Yeah, thank you, Joseph.
Speaker Change: There seems to be a slightly different dynamics, especially when it comes to India.
Speaker Change: India, we had huge ramp up in India in the first half of the year, which gave us extremely tough comparable comparables, which will then help us quite a lot in the year over year comparison for the second.
Speaker Change: Half of the year. So that's why when we are combining that with the fact that we believe in this we are seeing through our rotor.
Marco Wirn: North America as a whole, we saw weakness in quarter one, and there's not any specific customer that this is directed to. And what comes to AT&T, we don't have any update on the contractual discussions and negotiations that we have with them right now. They're still ongoing.
Backlog and the discussions with customers that we we believe that we saw the low point in deliveries now in Q1, both in North America and in India that then combined with the activities and the rest rest of the world we are hopeful that.
Marco Wirn: And whenever we conclude, we will inform you about that as well. And exactly how the rest of the year will develop in North America. We follow that very carefully as well.
Speaker Change: In our case, our a M and top line.
Speaker Change: <unk> would pick up.
Speaker Change: For the rest of the year the remaining quarters from the level in Q1, but that does not change that does not change. The fact that the full year will be weak for the whole of our mobile networks and when you talk about our topline.
Marco Wirn: And then remember that AT&T continues to be a very important customer for Nokia as a group, but also for mobile networks. They will continue to sell other services to AT&T like FEMTA, Microwave, and some other services as well going forward. Did you have a follow-up, Joseph?
Speaker Change: Forecast compared to delauro for.
Cost of course, what needs to be kept in mind. There is Israeli the India situation, where we have a very high market share in India, and when that market ramps up massively and then drops significantly back to kind of more normal levels in one year obviously.
Joseph Zhou: Yes, my second question is basically about China, and there has been some recent news about the government. [inaudible] No, we have not seen any impact of that. And I have to say that we still need more clarity around that statement because there are so-called foreign chips in pretty much all parts of all networks, so it's very hard to see what that would mean in practice, so we need more clarity on that. But, important for us is, of course, to remember that our market share in China is fairly low, and mainland China accounts only for a low single-digit percentage of our sales. Joseph, we'll take our Sandeep, please go ahead.
Speaker Change: And to be reflected in our top line also when you are comparing our top line development to whatever the global market development will be.
Speaker Change: I have a quick follow up visits.
Speaker Change: Yeah, just quickly do you still expect to see continued free cash flow support from a decrease in receivables related to India in the coming quarters or has this sort of like.
Working capital profile are related to India now normalized.
Speaker Change: Yes, we started to see the net working capital release already in the quarter four if you remember that in continued no.
Speaker Change: Specifically in quarter, one what comes to accounts receivables.
Speaker Change: And.
Speaker Change: Yeah.
Speaker Change: Of course.
Speaker Change: It always depend a little bit.
Speaker Change: What is the geographical or customer mix as well.
Sandeep Deshpande: Yeah, hi, thanks for letting me on. I have a question about the growth of your routing and switches business in the enterprise and where you are at this point in terms of design with activity. There was a lot of design activity in this business a year or slightly more than a year ago, but it seems to have not been followed up to some extent. So maybe I'd like to hear about that business.
Speaker Change: But I believe that there is still potential in the broking capital.
Speaker Change: To improve them.
Speaker Change: Exactly how and what the timing is.
Speaker Change: And it depends also.
Speaker Change: Throughout.
Speaker Change: Throughout the Europe.
Speaker Change: What how the mix is between different geographies and regions, but also the timing of the revenues.
Between different quarters because of course, when you have a very heavy quarter for you.
Pekka Ilmari Lundmark: And then I have a follow-up on the mobile business itself. Now, when you lose your US customers, I mean, you are clearly thinking about the mobile business in the long term. Clearly, you have a strategy for 2026.
Speaker Change: Yeah, then usually.
Speaker Change: That ties up our accounts receivables towards the end of the year and payments coming in quarter one.
Speaker Change: But we are we.
Speaker Change: We started the year extremely well on and.
Pekka Ilmari Lundmark: But is there a strategy beyond, does this business have to go back and get back to US customers? Or is this going to be the beta subscale business for you? Or is there some other strategy to make it much more profitable?
Speaker Change: We believe that we are you know.
Speaker Change: A very solid track two to that outlook that we have what comes to a free cash flow generation.
Speaker Change: There are some between 60%.
Speaker Change: And remember also that quarter two we usually are impacted by the annual variable pay.
Pekka Ilmari Lundmark: Thank you, Sandeep. WebScale customers first. There are some undisclosed deals that we are working on to implement and ramp up at the moment. Hopefully, we will soon be able to publish who these guys are.
That always comes in quadrature.
Thanks, So much we will take our final question this morning from <unk>.
Speaker Change: <unk> from Carnegie. Please go ahead.
Speaker Change: Yeah.
Speaker Change: Hi, Thank you for taking my questions.
Speaker Change: I just wanted to understand the cost savings program was there something already visible from that in Q1 or worse when she quit.
Pekka Ilmari Lundmark: So that one is ramping, and we continue to believe that switching for web scalers will be a key growth driver in our non-CSP growth, not only for NI, but for Nokia as a whole. Then when it comes to mobile networks in the US, absolutely our target is to maximize our market position there in the mid to long term, and we believe that that our offering is strong we have nothing to be ashamed of there and of course AT&T has confirmed that the reason for the decision was not the strength of our offering so absolutely we plan to fight back and when it comes to mobile networks in North America in general of course one thing is the is the big three operators then there is uh tier two and tier three as well but then In addition to that, there is a growing private wireless business in North America that we are doing with several of our partners.
Speaker Change: Expect that to.
Speaker Change: Start to show in our results.
Speaker Change: Yeah. Thank you.
Speaker Change: Yeah, we we started the actions immediately in October when we announced.
Speaker Change: The cost saving program and.
Of course, it usually takes some time, but we start to see already in quarter, one impacts of the cost saving program in and just give you some.
Speaker Change: Yeah more facts behind this that if you look number of employees.
Speaker Change: Yeah in the end of quarter, one compared to end of quarter four of last year or so we've been reducing number of employees more than 2000 people already in quarter one.
So we are in a good.
Speaker Change: Position.
Speaker Change: To execute the expected cost savings for this year.
Speaker Change: Yeah, it's totally in your savings of 500 400 is coming from our new program.
Speaker Change: I have a quick follow up on them.
Yeah, just on the admin side. So can you help me understand where it's about the breakeven point in sales for your operating profit.
Pekka Ilmari Lundmark: And then in addition to all of this, there is, there is the in the mid to long term significant potential with the defense industry that is considering to start taking commercial technologies that 5G into the military applications including tactical use.
Speaker Change: We have.
Speaker Change: <unk> been working with our mobile networks has been working on reducing their cost base, but also what comes to a breakeven point and then.
Speaker Change: With these actions that we have been taking and will take in the new year the cost saving program. The ambition level is that we will.
Pekka Ilmari Lundmark: So these are all important drivers for most mobile networks in North America. Absolutely, we are not going to be happy and settle with the market position that we currently have there. Thank you, Sandeep. We'll take our next question from Jakob Bluestone from BNP Paribas Exxon. Jakob, please go ahead.
Speaker Change: Reached the breakeven point of topline around 8 billion by children 26 at the same time, we also.
Speaker Change: And lower.
The breakeven point or the point, where we would reach double digit operating margin.
Jakob Bluestone: Thanks for taking the question. I had a question and a quick follow-up after, just on the optical network side, where you struck a more cautious tone. I'd be interested in hearing what is behind that, and what is sort of the timeframe you're thinking about a recovery happening?
Speaker Change: Which used to be 11, five I know believe that will be taken down to $10 billion.
Speaker Change: Thank you Rami and thank you everyone for your questions 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 currently expected factors that could cause such differences can be both external.
Pekka Ilmari Lundmark: The exact time frame is difficult to say. We commented that it seems to be happening a little bit slower than we thought earlier, at the same time as we commented that the fixed network seems to be recovering a bit faster, so these two would, in a way, balance each other out. We had booked a bill for optical networks that was above one in Q1, so it is contributing to the increasing order backlog of NI.
Speaker Change: As well as internal operating factors, we've 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.
Speaker Change: Yeah.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Pekka Ilmari Lundmark: We also have especially tough comparables in optical networks compared to Q1-23, when we especially in that business recovered from the supply chain bottlenecks. We had, if you remember, 45% growth in optical in Q1 last year, so that's the comparables that we are facing. On the product side, we are highly confident that we are in a good place. Our new PSC6 and 6S platforms continue to pick up momentum. We have several new customers there doing trials.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: [music].
Pekka Ilmari Lundmark: We are delivering best-in-class performance. You may have seen our recent announcement with SurfNet, so again, highly confident on the product side. Clearly, everything we are seeing in AI and cloud compute will drive investments into data centers, into the data center fabric itself, which of course will benefit switching, and then the data center interconnects, which will benefit the optical.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].
Jakob Bluestone: Again, the big advantage that we have compared to, I would say, anyone else is that we have scale, both in IP and optical, so depending on, regardless of how operators want to play this architectural game, that what you are doing in the network on the optical layer and what you are doing on the IP layer, we will have an answer to their needs. Thanks for that. I just wanted to ask a quick follow-up question.
Jakob Bluestone: I think you made a comment earlier that you expected that Q1 was the low point for North American mobile network revenues, as well as for Indian. So just make sure I got that right. So even with AT&T maybe falling out later in the year, you still expect roughly 400 million mobile network revenues in North America to be the low point for the year. Yes, you are correct.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Pekka Ilmari Lundmark: That's what we said, and the AT&T situation has been taken into account in that statement. Thanks Jakob. We'll take our next question from Felix Henriksson from Nordea. Felix, please go ahead.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Yeah.
Felix Henriksson: Hi, thanks for taking my question. I wanted to revisit the Mobile Networks revenue growth guidance of minus 15 to minus 10% for the year and see whether or not you sort of use the minus 4% market growth rates by Delora, which are from a PR call that was optimistic in derived, as a basis for market growth and sort of revisit what gives you confidence to call out the market bottom in North America for Q1, given that you must be losing volumes from the AT&T customers. Thank you. Well, obviously, we are part of the same market with our Swedish friends who made that comment, and I really have nothing to add to that comment. I mean, we are seeing the same thing.
Speaker Change:
Speaker Change: [music].
Speaker Change: Yes.
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Speaker Change: Yeah.
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Speaker Change: Mhm.
Pekka Ilmari Lundmark: We do expect that the whole market will remain weak this year. There seems to be slightly different dynamics, especially when it comes to India. We had a huge ramp-up in India in the first half of the year, which gives us extremely tough comparables, which will then help us quite a lot in the year-over-year comparison for the second half of the year. So, that's why, when we are combining that with the fact that we believe, and this we are seeing through our order backlog and the discussions with customers, that we believe that we saw the lowest point in deliveries now in Q1, both in North America and in India.
Speaker Change: Yes.
Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: [music].
Uh huh.
Speaker Change: [music].
Pekka Ilmari Lundmark: That, combined with the activities in the rest of the world, we are hopeful that, in our case, our MN top line would pick up for the rest of the year, the remaining quarters from the level in Q1. But that does not change the fact that the full year will be weak for the whole of mobile networks. [inaudible] Hello, Philly.
Marco Wirn: Yeah, just quickly, do you still expect to see continued free cash flow support from a decrease in receivables related to India in the coming quarters? Or has this sort of networking capital profile related to India now normalized? Yeah, we started seeing the net working capital release already in quarter four, if you remember that, and it continued now, and specifically in quarter one when it comes to accounts receivables. And then, of course, it always depends a little bit on the geographical or customer mix as well, but I believe that there is still potential in the working capital to improve exactly how the timing is, and it depends also throughout the year.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Hmm.
Speaker Change: [music].
Marco Wirn: But we started the year extremely well, and we believe that we are on a very solid track to that outlook that we have when it comes to free cash flow generation or conversion between 30 to 60%, and also, remember also that quarter two we are usually impacted by the annual variable pay that that always comes in quarter. Thanks Felix. We'll take our final question this morning from Emil Immonen of Carnegie. Emil, please go ahead. Hi, and thank you for taking my questions. I just wanted to understand the cost savings program. Was there anything already visible from that in Q1, or when should we expect it?
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Uh huh.
Speaker Change: Okay.
Speaker Change: [music].
Emil Immonen: Expect that to start to show in your results. Yeah, thank you, Emil. Yeah, we started actions immediately in October when we announced the cost saving program. And, of course, it usually takes some time, but we start to see the impacts of the cost saving program already in quarter one. And, just give you some more facts behind this. So if you look at the number of employees at the end of quarter one, compared to the end of quarter four last year, we've been reducing the number of employees by more than 2000 people already in quarter one.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: [music].
Emil Immonen: So we are in a good, I would say, position to execute the expected cost savings for this year. It's totally in your savings of $500, where $400 is coming from a new program. Quick follow-up, Emil? Yeah, just on the admin side.
Marco Wirn: So can you help me understand where the break even point in sales for your operation is? Yeah, we have been working with our mobile networks on reducing their cost base, but also what comes to the break even point. And with these actions that we have been taking and will take in the new cost saving program, the ambition level is that we will reach the break-even point of the top line of around 8 billion by 2026.
Speaker Change: Hum.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Hum.
Speaker Change: Yeah.
Speaker Change: Yeah.
Marco Wirn: At the same time, we also lower the break even point or the point where we would reach a double-digit operating margin, which used to be 11.5. I now believe that will be taken down to 10 billion.
Speaker Change: [music].
Emil Immonen: Thank you, Emil, and thank you everyone for your questions today. Ladies and gentlemen, this concludes today's call. I would like to remind you that during the call today, we made a number of forward-looking statements that involve risks and uncertainty. The actual results may therefore differ materially from the results currently expected. Factors that could cause such differences can be both external as well as internal operating factors.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Okay.
[music].
David Mulholland: We have identified such risks in the risk factor section of our annual report on Form 20-F, which is available on our investor relations website. Thank you all for joining us. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: Yeah.
Speaker Change: [music].
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Speaker Change: Yeah.
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Speaker Change: Sure.
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