Q1 2025 Nokia Oyj Earnings Call
Speaker Change: Good morning, ladies and gentlemen. Welcome to Nokia's first quarter, 2025 results call.
Speaker Change: David Mulholland, Head of Nokia Invest Relations, and today with me is Justin Hotard, our president and CEO , along with Marco Varen or CFO .
Speaker Change: Before we get started, a quick disclaimer. During this call, we will be making forward-looking statements regarding our future business, transactions and financial performance and these statements are predictions that involve risks and uncertainties.
Speaker Change: Actual results may therefore differ materially from the results we currently expect.
Speaker Change: Factors that could cause such differences can be both external as well as internal operating factors. We have identified such risks in the risk factor section of our annual report on Form 20F, which is available on our Invest relations website. We have identified such risks in the risk factor section of our annual report on Form 20F.
Speaker Change: Within today's presentation, references to growth rates will be mostly on a constant currency and portfolio basis, and this is basically to take into account both acquisitions that we've done and looked at on a life-like basis, if that'd been present in both periods, along with any disposals.
Speaker Change: Where we refer to margins, it will be based on our comparable reporting Please note that our Q1 report and a presentation that accompanies this call are published on our website The report includes both reported and comparable financial results and a reconciliation between the two [inaudible]
Speaker Change: In terms of the agenda for today's call, Justin will go through some of the key messages from the quarter, but then Marco will go through the financial performance before we move to Q&A. With that, let me hand over to Justin.
Justin Hotard: Thank you David, and let me also welcome you to our conference call today. I'm honored to have been given the opportunity to lead Nokia. Nokia is a true global leader in connectivity with a strong heritage in technology. Thank you.
Justin Hotard: Well, I will share my initial observations with you today. Please bear in mind it has only been three weeks since I started. I look forward to sharing more with you in the coming months and ultimately presenting our complete value creation vision for Nokia at a capital market stay that we will hold in November .
Justin Hotard: I also look forward to meeting with many of our shareholders and analysts in the coming months as I ramp up.
Justin Hotard: I've already had some great engagements with some of our customers, employees, and other key stakeholders.
Justin Hotard: I'm impressed by our core technology base and the strength of our portfolio, including in ran and core, as well as across IP optical and fiber networking technologies. Thank you very much.
Justin Hotard: We have a very strong base of products and services and I think that is well recognized by our customers.
Justin Hotard: It is also clear from my initial customer conversations that we are a critical trusted partner for their mobile and fixed infrastructure. In addition, we have significant potential to expand our presence in hyperscale enterprise and defense markets. Thank you very much.
Justin Hotard: In the time I've spent with our employees, I've been impressed with their innovative spirit, energy, and drive to unlock Nokia's full potential.
Justin Hotard: I see opportunities across our portfolio to accelerate the transformation that is already underway.
Justin Hotard: Turning to our Q1 financial performance, we continued to see encouraging signs of market recovery with solid order growth across the businesses.
Justin Hotard: In the first quarter are net sales to climb 3% year-over-year. However, when you adjust for the over 400 million euro of catch-up net sales and Nokia technologies, net sales grew 7% [inaudible]
Justin Hotard: Specifically, we drew 11% in network infrastructure with all units growing and particularly had strong growth in optical networks at 15%.
Justin Hotard: Cloud and Network Services, Groate Percent, was strong demand for 5G Core, and had significant wins at AT&T, Boost Mobile, Ordukatar, and Telefonica.
Justin Hotard: Mobile networks, continued disease sales, sales stabilized, growing 2% in a quarter
Justin Hotard: I'm pleased to share that today we've also announced an extension of our RAN agreement with T Mobile US.
Justin Hotard: Our profitability in the quarter was impacted by the catch-up net sales and Nokia technologies in the prior year, along with a one-time contract settlement and mobile networks of 120 million euros.
Justin Hotard: Operating Margin in network infrastructure expanded 190 basis points, and cloud and network services expanded 930 basis points.
Justin Hotard: Our free cashflow performance in the quarter was also strong at over 700 million euros, resulting in a net cash position of 3 billion euros at the end of the quarter.
Let me now touch on the current environment. [inaudible]
Justin Hotard: While we are not immune to the evolving global trade landscape, my initial customer feedback indicates that our markets should prove to be relatively resilient.
Justin Hotard: Considering this, we continue to expect strong growth in network infrastructure, growth in cloud and network services, and largely stable net sales and mobile networks.
Justin Hotard: We are actively monitoring the situation and staying closely engaged with our customers [inaudible]
Justin Hotard: With the visibility we have today, we expect tariffs could have a 20 to 30 million euro impact to our operating profiting Q2.
Justin Hotard: Our supply chain teams are proactively working to further mitigate the exposure, leveraging our global manufacturing network.
Therefore, our guidance remains unchanged.
Justin Hotard: It should be noted however that considering the unexpected charge that impacted mobile networks in the quarter, achieving the top end of the operating profit range will now be more challenging. Thank you very much.
Justin Hotard: Reclarity, considering the volatility of the situation, we have not taken an assumption related to tariffs in our second half of 2025, and the integration of
Justin Hotard: The final topic I want to touch on this morning is the Infinite Era Acquisition [inaudible]
Justin Hotard: Based on my initial assessment, I'm convinced of its value creation potential, and confident we will achieve the expected synergies.
Justin Hotard: As a quick reminder, this acquisition brings a number of significant benefits.
Justin Hotard: It gives us the scale to accelerate our product roadmaps and to drive more innovation.
Justin Hotard: It also increases our access to hyperscale customers, Richard T. Growth Driver, both Cloud and AI Data Center investments.
Justin Hotard: Finally, it's a complimentary acquisition in terms of the customer, geographic and technology profile.
Justin Hotard: The Q1 performance illustrated a number of these points clearly, with strong momentum in the business.
Justin Hotard: Optical Network, screw 15% in a quarter, as I mentioned, and with a book to bill above one.
Justin Hotard: As a part of the integration, we've already made many portfolio decisions and communicated them to customers. Their feedback continues to be positive and we are on track to achieve the synergy targets.
Justin Hotard: While this progress is encouraging, there is still a lot of work out of us.
Justin Hotard: With that, let me hand over to Marco to go through the financials and more detail.
Marco Varenne: Thanks Justin and Hello for my side as well. I will start by discussing our overall group performance.
Justin Hotard: Q1 net sales declined 3% on a constant currency and portfolio basis.
Justin Hotard: As Justin explained, we saw strong growth in both network infrastructure and cloud and network services, while mobile networks also grew somewhat.
Justin Hotard: These were offset by a challenging comparison in Nokia technologies, as the euro-go-quarter benefited from over 400 million of catch-up net sales, related to license in deals signed in the quarter.
Justin Hotard: Cross-Morgin decreased by 820 basis points to 42.3% and this is mainly the result of the lower Nokia technology's net sales.
Justin Hotard: and it was also impacted by the one-off settlement charge in mobile networks. [inaudible]
Justin Hotard: Vies, in addition to higher opics and a currency related loss in Nokia venture funds that to a 3.6% operator margin in Q1.
Justin Hotard: Pleasantly, we generated over 700 million of free cash flow in the quarter and ended quarter with a 3 billion of net cash, which I will go into more detail on shortly.
Justin Hotard: Now, turning to financial performance for business growth. First, network infrastructure, they delivered a strong element present growth. These reflected growth across each of the business
Fix Networks, and IP Networks crew 9% and 7% respectively. [inaudible]
Justin Hotard: First margin was relative stable, while operator margin expanded 190 basis points euro euro to 7.8%.
Justin Hotard: And this is mainly the result of the higher net sales offsetting increased investments into growth opportunities.
Justin Hotard: Stabilization in more Binatsburgs, continuing Q1, with the net sales growing 2%, the net sales in North America grew at a double-digit pace, as there were a low levels of investment activity in the year-a-go quarter.
Ross Morden declined 10% response to 30.9%
Justin Hotard: If you exclude this mobile network's cross-margin would have been more aligned with the normalized cross-margin range of 38-39%, we had seen during 24.
Justin Hotard: Operating margin was negative 8.8, mainly the result of the lower cross margin.
Turning to Cloud and Network Services,
Justin Hotard: The net sales crew by 8% of the quarter are reflecting continued momentum in core networks and mainly in 5G core.
Justin Hotard: From a regional perspective, CNS saw broad-based growth with strength in India.
Justin Hotard: The higher level of net sales drove strong expansion in both course and upgraded margin, giving the business a strong start to the year.
Justin Hotard: And turning now to Nokia Technologies, Net sales declined 52%, but this was entirely due to a challenging comparison in the year ago quarter, which benefited from over 400 million of catch-up net sales.
Justin Hotard: This was somewhat offset by the deals signed over the past 12 months, and ketchup net sales booked in the quarter related to agreements signed in quarter one.
Justin Hotard: Nokia technologies continue to execute and sign a deal with Amazon in addition to other smaller deals.
Justin Hotard: The annual net sales run rate has now increased to approximately 1.4 billion, despite a headwind from present currency movements.
Justin Hotard: Let's now look at the net sales bar region and a few things to point out here. First, you can see that North America was once again one of the biggest contributors to the net sales growth. [inaudible]
Justin Hotard: We saw strong growth across each of the network's business groups with particular strength in network infrastructure and mobile networks.
Justin Hotard: India returned to growth mainly to run by an network infrastructure, and especially by fixed networks where we benefited from a strong fixed wireless access demand. [inaudible]
Justin Hotard: India also grew in mobile networks and cloud and network services.
Justin Hotard: Europe saw a sizable decline, but this was mostly to remember Nokia technologies, as all its net sales are booked in this region. Excluding this, net sales in Europe would have declined 7%.
Justin Hotard: A couple of words about our cash performance in quarter one. We generated over 700 million in free cash flow. And as we saw sizable inflows related to net working capital. And this came mainly from the seasonal decline in receivables we typically see in Q1.
Justin Hotard: We ended the quarter with 3 billion in net cash. As you can see on the slide, the decline in net cash mainly reflected the acquisition of infinite era with cash outflows in the quarter.
Justin Hotard: and this consisted of Cass Proceed related to Infinera equity, the Converables.
Justin Hotard: As well as the shared buybacks we did to offset the delusion from the Nokia shares issued as part of the deal.
Justin Hotard: As a reminder, when modeling quarter two cash, this is when you see the outflows related to our 24 performance related employee variable pay.
Justin Hotard: Finally, moving to our season 25 outlook, which remains unchanged, we continue to expect our 25 comparable operating profit to be in the range of 1.9 to 2.4 billion.
However, given the unexpected charge that impacted more of our networks, [inaudible]
Justin Hotard: It will be more challenging to achieve the top end of this range.
Justin Hotard: And with that, let me hand it over to David for Q&A. Thank you Justin and Marco for your comments. As usual, for the Q&A session, as a courtesy to others in the queue, could you please limit yourself to one question and a brief follow-up? Sasha, could you please give the instructions?
Speaker Change: We now begin the question and answer session. If you're also viewing the webcast, please remember to mute the audio on your computer before asking your question as there is a third of the second delay.
Speaker Change: Just a question, you may present the one on your telephone keyboard. If you're using a speaker phone, please pick up your hands up before pressing the keys. Do we draw your questions, please press down on two? [inaudible]
Speaker Change: And we now hand back the call to Mr. David Mulholland.
David Mulholland: Thanks, Sasha. We'll take the first question from Alexander Duval from Goldman Sachs. Alex, please go ahead.
David Mulholland: Yes, many thanks for the question. You mentioned the team of USA Concert Extension. I wondered if you could give some colour on duration and how important this is and what it implies to Nokia product positioning.
David Mulholland: and then perhaps as quick follow-up, you highlighted a growing backlog in the network infrastructure segment, clearly again, on certain macro, the helpful to get a sense of what the key factors have been in this regard and how you see this going forward.
Speaker Change: Yeah, absolutely, Alex, a couple things. I'll start with T Mobile. First of all, we have a broad and deep partnership across the group company with T Mobile. [inaudible]
in the US, and...
Speaker Change: Well, we aren't sharing a lot of details on the contract but we can share as it's a significant multi-year extension in our ran contract. This is the contract.
Speaker Change: We think that this is a great opportunity for us to continue the partnership to shape the next chapter of mobile connectivity in the US with T Mobile, who's clearly an innovative leader in this space.
Speaker Change: and we're optimistic that this will continue to drive growth for us with T Mobile.
Regarding network infrastructure, your second question. [inaudible]
Speaker Change: I think this is obviously very consistent with the rationale that we've shared on the infinite air acquisition and the comments that I made. This is about giving us incremental access in the US.
Speaker Change: which is a high-growth geography, and of course with hyperscale customers who are driving much of the AI and data center build. And the way I think about the market in AI, particularly with optical is...
Speaker Change: If you look at the build out of data center, what's happening with AI is it's driving, as we all know, significant new data center build, but it's also driving new connectivity demands between data centers. Both whether it's for training or inference or some of the convergence we're seeing with AI reasoning models. [inaudible]
Speaker Change: So this is a favorable trend for us, it's also notable that we're starting to see optical cool.
Speaker Change: Come into the data center, and you're seeing that, and if you listen, as you listen and look to some of the...
Bindus Respond,
The other key thing I'll highlight is...
Speaker Change: When you think about networking as a whole, and I'm now talking about our optical and IP networks business, you think about networking in AI, it's actually the second largest bucket of technology spend behind GPUs. And this probably doesn't get emphasized enough, but from our perspective, this is why we felt that Infinera was so strategic. Thank you very much.
Speaker Change: And the net of all of that is if you look at your growth in the quarter, what was as encouraging was the point that I touched on that our book to Bill was above one, both for NI as a whole and for optical networks. [inaudible]
Speaker Change: Thanks, Alex. We'll take our next question from Daniel Djurberg, from Handel Spankin, Daniel, please go ahead.
Thank you for tuning in.
very much.
Speaker Change: Good morning, gentlemen, and welcome aboard Justin. A question first, a detail on infinity era. It was supported from 20th of February , 30th of March.
Speaker Change: and it will also hurt one million, that surprised me a bit at least. [inaudible]
Speaker Change: Ergeven, that I thought March was holding onto, you know, roughly 60% of revenues in the quarter and should be supported to margins. So my question is, did you do any, you know, kitchen thinking in this 31 million loss or should we have this? [inaudible]
Speaker Change: Infiniera, Figures in our report also in perform a basis so you can compare.
Speaker Change: How would that look like if we would have had that already from 1 January 24 in all comparisons as well? So that lost that you are referring to is quarter one. [inaudible]
Speaker Change: We closed the deal in 28 February , so we actually booked only March month in our books and in March actually they had positive results. [inaudible]
Speaker Change: and I would say that if you look how inferno was...
Performing in 2004, including... [inaudible]
The Stock-based Compensation in their operating profit level. [inaudible]
then actually see that they were lost making last year. [inaudible]
Speaker Change: and these were some things that we explained as well when we acquired that...
Speaker Change: There's a scale issue with Infinera and together with Nokia and our optical
Speaker Change: And we believe that we will definitely see acceleration in 2005 as well in an infinite performance in our optical, but as we mentioned also that...
Speaker Change: Infinite itself, it's not the needle mover for our operating profit in 2025
Thank you Daniel, did you have a quick follow? [inaudible]
and the other networks on the... Can you hear me?
Yep, yes, go ahead.
Speaker Change: Perfect, yeah, a shortfall up on mobile networks. Can you give some lights on the quite dramatic one time contract settlement of the 120 million in the quarter? Should we correlate this with the news of the mobile US extension? Or, and also can this, you know, happen again? Why? That way.
How worried should we be as shareholders here?
Speaker Change: Thank you, Daniel, and it's nice to meet you as well. Let me unpack this a little bit. First of all, we're not disclosing the customer related to this.
Speaker Change: This was a customer specific project that was from 2019 and I think is probably you're aware we've had a significant amount of work and a significant amount of investment we've made to
Speaker Change: Stabilize and bring back the competitiveness of our portfolio really over the last four to five years so this actually goes back and predates that. The surprise here was that as this has been going on and we've been working on repeating this issue. [inaudible]
Speaker Change: The discussions were ongoing, but we did not have full visibility to the total cost.
Speaker Change: and this was a gap in terms of our assessment of the cost. [inaudible]
Speaker Change: And as we spent time with the customer, the cost became clear to remediate.
Speaker Change: The issue, and therefore we made the decision to take a charge. In fact, this was something as I looked at it. I felt it was important to do a couple of things. One was take a charge that fully addresses the situation. You know, as importantly if not more importantly, number two was make sure we're doing what the customer needs.
Speaker Change: So that with this specific project we're addressing their needs fully to their satisfaction given the issue.
Speaker Change: And then number three, obviously put this into our comparable operating profit because it's not a... Well, it's a one-time issue. It's not something that's not operating. So that was important for me in terms of the principles. In addition, I'll make a couple of other comments.
Speaker Change: Again, this was a customer specific project, we don't see risk with other customers . . .
Speaker Change: Obviously, as I've come in and I made this decision, one of the key questions I have for the MN team is making sure we have we have learnings from this and we improve visibility but at this time we don't foresee any other issues like this. [inaudible]
Speaker Change: And of course this goes back to a project that again was during a time where we know we had some portfolio issues that we've subsequently addressed.
Speaker Change: So I'm confident that this is a one-time issue specific to this project. However, obviously there's things that I will be looking at for how we continue to improve our operational visibility as I come in and continue to spend time with the team.
Speaker Change: Thanks, Daniel. We'll take our next question from Richard Kramer, from Aretsai, Richard, please go ahead.
Richard Kramer: Thanks very much. Justin, we heard from many years from Basil and then Pekka and others about long-promised hyperscaler deals.
Richard Kramer: What do you from your perspective think is required to win these large AI data center deals? Is it money in terms of incremental R&D and product investment? Is it time to test new products like your switching products? What's the unlock for those deals? Thanks. Thank you.
Thank you, Richard. First of all,
Richard Kramer: I think there's a couple of things. One is our portfolio, our portfolio, particularly in IP networks and to a large extent optical networks has really been oriented towards the telecommunication service providers. [inaudible]
Richard Kramer: I think there's a couple things that have happened. And certainly if you look at it versus, let's say, Legacy Enterprise IP Networks.
One is the scale and the bandwidth.
Richard Kramer: The customers are demanding in hyperscale, largely driven, not only by AI but also by cloud.
Richard Kramer: has started to come into a more consistent technology stack with our traditional telecommunications.
solutions.
Richard Kramer: The second thing there is the reliability and the performance which is just much higher. And so I think the cloud and AI build.
Richard Kramer: with our hyperscale customers. They're now expecting and demanding the same kinds of capabilities. [inaudible]
Richard Kramer: I think this has opened up opportunities that make us more relevant. I think further candidly is we're now investing much more aggressively in this opportunity and that's witnessed by the Infinite Air Acquisition and Optical.
Speaker Change: I do think you, you know, in your question you touched on something that's insightful and important, which is
Speaker Change: Heard getting designed in, getting support takes time, and I think that's obviously going back to Infanera. That's one of the things that was attractive about Infanera was their work and their development of some of these customers and the investments they made on the optical side. I do think there's a lot of learnings and leverage there as we look at the IP networks.
Did you have a quick follow up Richard? [inaudible]
Richard Kramer: Marco, with the Amazon Licensing Deal as a positive example, will Nokia be increasing the long-standing sort of hundred million of non-smart phone IP sales guidance in technologies? Thanks.
Thank you. Thank you.
Richard Kramer: I think in December 23, we mentioned that we had that 150 million...
Level of known smartphone licensing deals, and we haven't updated that.
Richard Kramer: Figures in STEM but most likely at the couple of markets they later this year will give you more flavor on that as well. [inaudible]
We're quite happy to see how this...
Richard Kramer: Other segments have been increasing and developing, and this latest deal is one of those proof points as well. We're quite happy.
Speaker Change: Thanks Richard. Thanks Richard. From Ulrich Roth, Bernstein Ulrich, please go ahead.
Ulrich Roth: Yeah, thank you. I want you to ask on a sort of bit of color on the 20 to 30 million tariff impact, whether the underlying assumptions, what are the puts and takes, can you...
Ulrich Roth: Flex the, or reassign the capacity you have in the infanera facilities, what is the demand situation for the relatively limited contract manufacturing base that is actually located within the U.S. I suppose everyone
Speaker Change: was doing similar things as currently sort of trying to talk to those people. Could you just unravel that a little bit in terms of where the limits are and what you're doing, what you can do and really what you have assumed there was a 20 to 30 million. Thank you very much.
Speaker Change: Yeah, absolutely, I think let me just maybe touch on a couple things to make sure we're breaking out our assumptions. So our focus in the 20 to 30 million is really around the cost impact. We've not assumed anything in pricing and this assessment.
Speaker Change: So it's just on our own costs, so that's the first point. The second point is this is based on what we've seen today or what our current perspective is on the situation. That's why we're so focused on Q2 because obviously this is a very dynamic situation. Thank you very much.
Speaker Change: My message to the team and Markos as well is let's make sure we focus on what we can control.
Speaker Change: And so we're really looking at the impact based on a short-term impact. [inaudible]
Speaker Change: given the supply chain and the manufacturing network we have. Obviously, we're looking at things we can do to mitigate it, both in the short term.
Speaker Change: and strategically. You know, one thing I will just, you know, also notice, we actually have five manufacturing facilities in the U.S. today, two that are coming within Finara with the acquisition and three others pre-existing. Thank you.
So the key thing for us is...
Speaker Change: Making sure we're mitigating the impact short-term so we can provide supply continuity.
to our customers,
Speaker Change: is given the dynamic situation. We're unclear on exactly what the situation will be going into the second half. [inaudible] We've never seen this.
Speaker Change: But there's a set of mitigation that we're evaluating and pursuing that's beyond just the second quarter and we're evaluating longer-term strategic, you know, strategic options as well. Do I will tell you I was planning on that anyway as we think about our, you know, I think about some of the options for the business as I come in and assess the business, that's something I would look at naturally. Thank you very much.
Did you have a quick follow up, Ulrich? [inaudible]
haven�t changed your
Speaker Change: Is this still in place or can you give us additional color on these divisional items that you talked about at the fourth quarter? Thank you.
Thank you, and... [inaudible]
Speaker Change: And we continue to reiterate what we said in the fourth quarter as well that we believe that in network infrastructure we see strong growth in 2025.
Speaker Change: And then, of course, we are investing also additional 100 million for the IP side to capture those opportunities in hyperscaler and data center segments.
Speaker Change: What comes to more by networks, we see a stable development.
Speaker Change: Even if we had this headwind in AT&T, as you remember, and then on cloud and network services we see a good growth momentum, specifically on the core side. [inaudible]
Speaker Change: And what comes to look at the technologies we are giving approximately 1.1 billion operating profit assumption.
Speaker Change: Thanks Ulrich, and we'll take our next question from Simon Leopold, from Raymond James, Simon, please go ahead.
Simon Leopold: Thank you very much, David and Justin, welcome to Nokia. Justin, I wanted to see what you thought would be maybe any contrast between your views and your predecessors views. Thank you very much.
Speaker Change: and I guess within this context, what surprised you most since joining Nokia? Then I've got a quick follow-up.
Thanks Simon, good to speak with you again.
Speaker Change: I think a couple things I touched on some of these observations in my commentary but I was pleasantly surprised by the technology base and we talked a lot about the product. [inaudible]
Speaker Change: We have under research there as well and the potential for that and and just seeing this across if you know obviously a few different companies.
Speaker Change: And knowing the broader landscape like I do, I just it was pleasantly surprised with the progress that we've made around commercialization I think that goes back to [inaudible]
Speaker Change: and some of the principles of Nokia Bell Labs and their heritage. The other thing is I've been very impressed with the employee base, and I touched on this in my comments, but maybe just to underscore it. [inaudible]
I think the passion that the... [inaudible]
Speaker Change: that the employees have, the team's mindset around really taking advantage of some of these opportunities, and the openness and learning mindset they have around continuing to evolve the business. So I think for me that's probably key things I'd say in terms of highlights.
Speaker Change: You know, as I think about, and again, I touched a little bit of some comments, were you just to underscore it a little bit, Simon, as I think about opportunities. Thank you very much.
Speaker Change: You know, for me there's always been two focuses and if you go, you should really go back to some of the companies I've worked for before. One of the things is around driving efficiencies and driving efficiencies in areas that are not core to our growth. [inaudible]
Speaker Change: In the areas that are quarter of a growth, there are going to be our R&D investment, go to market investment, whether it's organic, just obviously always the preference. [inaudible]
Speaker Change: Or inorganic where we have opportunities to make smart acquisitions that we can synergize both in terms of...
Speaker Change: But I think the other thing I look at quite a bit is, where are the opportunities for us to drive meaningful scale value in the company? You know, this is a, this is a $20 billion company.
Speaker Change: and so therefore as we look at growth segments and we look at investments we need to make, I'm going to look at things that really move the needle and drive material growth and obviously with the profit profile we have. Thank you very much.
I mean, if you look at our current guidance.
Speaker Change: We need things over time, they're going to be additives in the overall profit, such that drive meaningful cash flow for the business. And so those two things are really where I think I come in, I think that's where you're going to probably see a little bit of focus for me, is making sure we have the discipline to say, hey this may be an exciting opportunity, but...
Speaker Change: It's not going to be material enough to impact our business.
Speaker Change: These may be things that we could actually spend a little bit more on, and I think that's another thing that we see quite a bit with [inaudible]
Speaker Change: with technology companies that win, they spend enough to win. So are there places where we can spend more in these areas to really differentiate ourselves or get an advantage of these VR competitors and provide value to our customers that's unique? Thank you very much.
And you're saying so? [inaudible]
Matt, or the timing of that particular traction. Thank you. Thank you.
Speaker Change: Yeah, I think a couple of things I'll just touch on Simon. I think first of all obviously we reported in an enterprise bucket. [inaudible]
It's very clear to me coming into hyperscale enterprise. [inaudible]
Speaker Change: R2 different markets, right? And so just to make sure that we're, you know, I'm articulating that clearly. Do you hyper scale for me as a? [inaudible]
Speaker Change: Hyperscale, and AI Data Center in particular, or a key focus for us. Obviously, when you talk about some of the growth that we had, we talked about it quite a bit in the context of the optical networking business and our portfolio that we acquired through in Finera. I think these are. Let's go around.
Speaker Change: These are clearly what we're seeing the most growth today. I do believe there is opportunity and some early activity in IP networks. And as I touched on earlier in an answer to the earlier question. Thank you very much.
Speaker Change: I do think there's a bit of a longer cycle that we need to expect in terms of...
Speaker Change: of IP Networks and seeing that revenue grow, you know, vis-a-vis the customers in this space. [inaudible]
Speaker Change: Those investments have happened already in optical, and particularly with some of the some of the things that attracted us to Infanera. [inaudible]
Speaker Change: The one other comment I'll make is, you know, in the fourth quarter earnings call, Pekka and Marco talked about the investment of 100 million euros per year to drive an incremental billion in sales in 28.
Speaker Change: specifically around this networking opportunity, and I think as I look at the portfolio, one of my questions obviously is how big is that opportunity for us. [inaudible]
How much more can we do there? And...
Speaker Change: Can we have the right technology stack to maximize value to customers? And I think there's positive indications, but obviously I'll be looking at what we may need to evolve or do incrementally to accelerate that growth.
Speaker Change: Thanks, Anna, and we'll take our next question from Artem Beletski from S.E.B. Artem, please go ahead.
Artem Boletsky: It's really optical networks showing the best growth on organic basis. How do you use a year for different areas here? [inaudible]
Artem Boletsky: Yeah, maybe I'll start and let Marco add some comments, but I think from my perspective, I think if you look at the businesses and we've been talking around this, just make it very explicit in the different questions, I think we see the biggest opportunity for growth this year in optical. Thank you, Marco.
I believe IP is the...
IP Networks is the next largest opportunity for us. [inaudible]
Eddie Fripe, I'm as focused on...
Artem Boletsky: It's seen traction in momentum with hyperscalers in terms of orders as well as...
Artem Boletsky: Revenue in the Year, but I do think it's the next piece. [inaudible]
Artem Boletsky: And then Fix Networks is a more predictable, stable, growing business. We are continuing to see demand for fiber.
Artem Boletsky: We talked about fixed wireless access as well as a...
Artem Boletsky: as a, you know, as something that contributed to our growth in the first quarter. [inaudible]
Artem Boletsky: But this is an area where I think we also need to realize that business is not growing at the pace of optical or IP given, you know, from an end market perspective. [inaudible]
Marco Varenne: And so from a tab, you know, as we think about tab and how we're addressing it, I think it's optical IP fixed networks, Marco anything you would add to it. Yeah, I think just to build on what you said. Yeah, yeah, yeah, yeah.
and Optical, and...
Marco Varenne: We were quite pleased to see as well that in quarter one optical ordained take, Infinia Open.
Marco Varenne: Scyde was very good and very strong on the hyperscaler side. [inaudible]
actually better than what we expected as wall. [inaudible]
Marco Varenne: and what comes to fixed networks, this year we will definitely see.
and the Fixed Files Crowe.
Marco Varenne: of 9% partly drew them by fixed wise access in India and that we will see that it will continue as well.
Marco Varenne: And of course we continue to pursue those hyperscaler and CSP opportunities in IP side as we go and invest more specifically onto IP data center side.
Did you have a quick follow up, Artem?
Artem Boletsky: Yeah, thank you. What we have now said is that what we see for this year, is that there are growth-wise, and we said that mobile networks is stabilizing, and otherwise we haven't given any more indication on mobile networks.
Artem Boletsky: We will have a couple of more guests stay later this year and we will give you more understanding of the more Barnetberg's business as a whole and I hope that you will get more food for thought from that event as well. Thank you very much.
Speaker Change: Thanks, Artem. We'll take the next question from Sami Sarkamies from Danskebank. Sami please go ahead.
Sami Sarkhamis: Hi, I want to get a bit more color on enterprise sales, which were the bright spot in the report with 27% organic growth.
Sami Sarkhamis: Can you be a bit more specific on what drove the growth in terms of product areas or regions? And do you expect to maintain this moment in the coming quarters as well?
Sami Sarkhamis: Yeah, so Sami, so Enterprise Sales as I just touched on in a previous question.
Sami Sarkhamis: In our definition has included hyperscale, which is really what the growth driver was.
Sami Sarkhamis: And again, this was really driven by optical and more acutely by byinfinera. And again, this is right back to the core thesis of what we talked about. The other point geographically is that this was largely in the US. [inaudible]
Sami Sarkhamis: So as you think about this, a lot of the growth and really validating your early thesis on an infinite era, you know, team, you know, team in that segment.
Did you have a quick follow-up, Sammy?
Speaker Change: Yeah, remember not to do the Amazon video IPLizing deal? Can you explain why it didn't contain any catch-up elements even though they've been violating Nokia IPR for a number of years?
Speaker Change: and is the implication that we will not be seeing those in the future deals either.
As you know, Sami. Yeah.
So we cannot go into details of those.
Speaker Change: We can just say that we are happy to see that we amicably signed the deal and this also end all the litigation issues that we had with Amazon, and...
Speaker Change: and we said that in quarter one we had some catch-up payments. Payments, um,
Related to this agreement, but...
Justin Hotard: We cannot give any more details on that. Justin, you want to add anything? Yeah, just two things. I think one is, you know, we're pleased overall with text.
Justin Hotard: Net Sales Run Rate, so Nokia Technologies is now increased to 1.4 billion euros in terms of the net sales run rate. This is in line with our 1.4 billion to 1.5 billion guide.
Justin Hotard: I think that's a good thing and then just back to Amazon. It's on Amazon.
This is a very important customer.
very important hyperscale customer for us.
across our, you know, certainly our NI business as well.
Justin Hotard: and then they're also an important partner for us in terms of our cloud and network services business as well as a public cloud where we're running certain platforms and services and there's been announcements around that.
Justin Hotard: Publicly, so I think for me, I really look at this as a 360 relationship, and obviously this is one element, and it's important to recognize that there's other value in the partnership beyond just a tech license agreement. [inaudible]
Speaker Change: Thanks, Sami. We'll take our next question from Francois Vivignier, from UBS, Francois, please go ahead.
Francois Bouvinier: You know, you focus on growth, but it's an extra growth market, effectively when you look at the run forecast, so it's difficult to get a lot of growth out of this market, but maybe a more, maybe you can highlight some, some you can get, so how important? [inaudible]
Francois Bouvinier: And in a broader question, is it something in your discussion with you of the business, mobile network is also part of your discussion, is it how important it is for Nokia for the group? [inaudible]
Francois Bouvinier: Thank you, Francois. So a couple of comments. I think there were a couple of questions embedded in there, so I'm going to answer two questions if I can. So one is on capital allocation. I think first of all, this is one of the most important parts of a CEO's role as capital allocation. And when I think about capital allocation...
Francois Bouvinier: I think about it in terms of how we allocate capital for R&D, capital for go-to-market, and also our intellectual capital. I think that's just as important. How we apply our talent and cultivate and develop our talent? [inaudible]
My focus is always going to be around investing resources.
Francois Bouvinier: that maximize value. And there's always going to be, there's also different stages in businesses where R&D intensity is higher versus lower and the cycles that we go through. And I think if you look at our businesses, and this is where I'll get to the answer to your question on MN,
Francois Bouvinier: I think in my early observations on the businesses, these are very different businesses. And the way I think about it is, if you look at NI, NI is a...
Francois Bouvinier: is a business that is on a pretty aggressive cycle of investment right now because of the AI and hyper-scale build, but also that if you look at the product cycles traditionally and networking and optical, they've moved at a faster pace. [inaudible]
Francois Bouvinier: and there's a lot of work we can do through solutions and through... [inaudible]
Francois Bouvinier: R&D, and then close collaboration with our customers around that investment, particularly, I believe in hyperskillers, more opportunity to do some of that, and around AI Cloud. If I look at MN,
Francois Bouvinier: And I think it's also important, if you look at MN, the way I'm starting to think about the business...
Francois Bouvinier: Eman is one part of the business, but what makes us unique is that we are really one of two
European, sorry, two European players and two. [inaudible]
Francois Bouvinier: The mobile networks solution for our customers, and we have a robust IP portfolio in this space as well. And so when I look at that holistically, and that's the way I would think about it, I think there's significant areas for us to drive value capture. I'm very encouraged by the growth we're seeing in core.
Francois Bouvinier: and the work that the cloud and network services team is doing. And when I look at the ran business, I think the other thing I've observed is this is obviously a heavily project based business. [inaudible]
Francois Bouvinier: because of the way these deals are sold and committed and then deployed, but it's also a scale business and so that's a different the scale business on the on the on the rand side is a little bit different than what we see on an eye. [inaudible]
Francois Bouvinier: So, you know, again, I've got some early thoughts I'm sharing a little bit with you transparently in terms of how I'm thinking about the businesses, but as I spend more time with our customers, obviously with our employees.
I'm digging in more deeply into the technology stack. [inaudible]
Spending time obviously with...
Francois Bouvinier: Archerolders, I'll continue to refine my view of, you know, where do I think the optical, the optimal value capture opportunities aren't it's. [inaudible]
Francois Bouvinier: It's probably important to note as well, I didn't touch on it, but we've talked about some interesting emerging opportunities in enterprise and defense around Iran, and I am encouraged by what I think will be some favorable trends in Iran around defense.
as I'm encouraged long-term that AI will drive.
New investment, new services, new value opportunities in the broader...
Francois Bouvinier: Ram Marketplace, both for defense and I think through traditional telecommunication services. This is the end of the video.
As you think about things in AI, like...
Francois Bouvinier: Augmented Reality, Virtual Reality, Autonomous Vehicles, Robotics, all of them are going to need wireless communications and that wireless communications will [inaudible]
Francois Bouvinier: You know, we'll need to be performant, we'll need to be reliable, it will need to be secure. Those are things that are going to require investment and so, you know, so I think while the business cycles are a little bit different, I do think there's a lot of value to be captured over time in the mobile network business. Thank you very much.
Thanks Francois, did you have a quick follow? [inaudible]
Francois Bouvinier: I think we'll move to our next question from Felix Henriksson from Newdea. Felix, please go ahead.
Felix Henriksen: Hi, thanks for taking my questions. I wanted to ask if you wouldn't spend any sort of a demand before in MN or N.I. from U.S. customers during the first quarter in anticipation to the tariffs.
Felix Henriksen: Felix, we did not see anything that we would classify as a material impact in Q1. Obviously, we're spending a lot of time looking at...
Felix Henriksen: at this for Q2. Today we don't see a material shift in demand in Q2, but this is something as I mentioned in my comments, we're spending time with uh...
Felix Henriksen: with our customers both at my level and obviously our broader teams levels to understand and assess and be very responsive around that need and that's something that we're also considering in terms of our leveraging our global manufacturing network. Thank you very much for your time.
Did you have a quick follow up, Felix? [inaudible]
Felix Henriksen: Yeah, quick follow up relating to hyper-scalers, spend obviously you called out strong growth.
Felix Henriksen: I wanted to ask in light of this sort of talk about some of the hyperscalers such as Microsoft and Amazon freezing data center leasing talks, if you'd observed any sort of hesitancy in customer spend in this segment in your sales pipeline. Thank you.
Felix Henriksen: I think as we talked about, we're pleased with both the revenue performance in Optical, which is where we have the highest exposure to hyper-skiller today.
Felix Henriksen: and the Order Growth, which had a book to build above one, so strong growth with the strong Order Growth.
Felix Henriksen: A couple of comments I'll make on this, first of all, and for those of you that know the hyperskill market, you know this one is pausing leasing talks. [inaudible]
Felix Henriksen: It doesn't necessarily indicate a change to their CAPEX plans because hyperscalers have multiple, you know, multiple investment options with data centers which include, you know, through, through co-location facilities as well as their own builds. The other thing I would say is,
Felix Henriksen: We should probably anticipate, if we go back and look at history, we should probably anticipate some of the similar trends that we saw in cloud in the past, playing through an AI. Specifically what I mean on that is...
Felix Henriksen: Where we saw massive capital builds, we also saw short-term periods of digestion around technology transitions and of course if you think about the GPU market today we're in a period of technology transition. [inaudible]
Felix Henriksen: So none of this surprises me, and again, if I look back to our portfolio where we have been getting the most investment interaction with hyperscale customers, I think our order book and our pipeline appear to indicate that there's not a long-term shift to the investment thesis that this market segment has. [inaudible]
Felix Henriksen: Thanks Felix, we'll take our next question from Rob Sanders from Deutsche Bank, Rob, please go ahead.
Speaker Change: from Mexico to Southeast Asia, back to Mexico, maybe into the USA if there's enough labour. And do you have, assuming that plays out that tariffs do happen, do you have the ability to pass on higher costs under the contracts you have with your customers? Thank you.
Speaker Change: Yeah, what I'll say on this is that again this is a dynamic situation it's something we're monitoring closely our focus is on what we can control. [inaudible]
and obviously we're evaluating all mitigation options. [inaudible]
Speaker Change: The key thing I'll emphasize in our global manufacturing network is I think we've been...
Pretty flexible. [inaudible]
Speaker Change: and pretty agile in this in the past. It's really if you look back at the supply chain shortages that happened during COVID and spending time with the team. [inaudible]
Speaker Change: I think one of the things that was clear was that we had some real strength in those areas. But obviously this is something we're going to continue to work on. And then as we see the situation play out, we'll provide updates and clarity on the actions we're taking. We'll provide updates and clarity on the actions we're taking.
Speaker Change: Got it, and just as a follow-up, could you just update on the B-program, obviously a lot of spend expected to next year? How is the visit, but it has been some push out in the last sort of few quarters? So where are we in terms of seeing the big uptick in orders? Is that in the first half of next year or is it sooner? Thanks.
Speaker Change: Yeah, I think we, this is something we're obviously following closely. I think we've been clear that-
Speaker Change: You know, it's not something we expected impact from this year. I don't think our view has changed on that. And obviously we think that the fiber will continue to be. [inaudible] I'm sorry, I'm sorry
Speaker Change: It's a compelling technology. We think it'll continue to be a driver. As I mentioned, as I looked at the growth segments within N.I.
Speaker Change: I think Fiverr can continue to be the slowest grower of the three, just because it's a more stable market, but we are anticipating
Speaker Change: You know, it's really from a tan perspective, not at the same potential that we see with optical and IP networking. Thank you very much for joining us today.
Speaker Change: Thanks Rob, we'll take our last question today from Jakob Bluestone, from BNP Paribah, Jakob, please go ahead.
Jacob Bluestone: Is it you that carries the cost of any potential tariffs or is that automatically passed on to customers? I presume from your guidance it's the former but if you can just clarify who's contractually actually carrying the cost. [inaudible]
Yeah, I think the key thing here is we have... [inaudible]
Jacob Bluestone: Contracts across very many different businesses and different contracts and different businesses as I touched on some of the dynamics between our businesses.
Jacob Bluestone: and obviously the businesses have varying exposure to tariffs as well, so I think there's probably not one simple answer. But again, as I mentioned, we're looking at every alternative around how we mitigate the impact of tariffs.
Jacob Bluestone: You know, if it's lower margin, higher margin, initially, just so we can think about any modeling around that.
Just given the size, thank you.
Jacob Bluestone: Yeah, I appreciate that. Obviously, I think we've shared some, you know, an overview of the T Mobile deal, it's a-
Significant multi-year extension. [inaudible]
Jacob Bluestone: For me, it's also a signal of the important partnership that we have with T Mobile US, and their commitment to continuing to being a leader in innovation in the market, but there's nothing else we'll say about the details of the contract. Thank you very much.
Speaker Change: Thanks Jacob, and thank you everyone for joining the call today and both Justin and Marco for their comments.
Speaker Change: 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.
Speaker Change: Actual results may therefore differ materially from the results currently expected. Factors that could cause such differences can be both external as well as internal operating factors. We have identified such risks in the risk factor section of our annual report on the form of 20F which is available on our investor relations website. Thank you all for joining us today. Thank you all for joining us today.
Speaker Change: Comfort is now concluded. Thank you for attending today's presentation. You may now know it's connected to your lines. Goodbye.
Speaker Change: Lach so CT 123 2 0 0 0 0 0 0 0
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Speaker Change: Edited by Edwin W. Direction by Edwin W. Music by Edwin W. Cast Music by Edwin W. Sound by Edwin W. Art by Edwin W. Music by David Mulholland Edited by David Mulholland Music by David Mulholland Screenplay by David Mulholland Documentary by David Mulholland Director of Photography David Mulholland