Q1 2026 Nokia Oyj Earnings Call

April 23, 2026

Speaker #1: Good morning, ladies and gentlemen. Welcome to Nokia's first quarter 2026 results call. I'm David Mulholland, head of Nokia Investor Relations.

David Mulholland: Good morning, ladies and gentlemen. Welcome to Nokia's Q1 2026 Results Call. I'm David Mulholland, Head of Investor Relations, Nokia. Today with me is Justin Hotard, our President and CEO, along with Marco Wirén, our CFO. Before we get started, a quick disclaimer. During this call, we will be making forward-looking statements regarding our future business and financial performance, and these statements are predictions that involve risks and uncertainties. Actual results may therefore differ materially from the results we currently expect. Factors that could cause such differences can be both external as well as internal operating factors. We have identified such risks in the risk factor section of our annual report on Form 20-F, which is available on our investor relations website.

David Mulholland: Good morning ladies and gentlemen. Welcome to Nokia's Q1 2026 Results Call. I'm David Mulholland, Head of Investor Relations, Nokia. Today with me is Justin Hotard, our President and CEO, along with Marco Wirén, our CFO. Before we get started, a quick disclaimer.

Speaker #1: Today with me is Justin Hotard , our president and CEO , along with Marco Wiren , our CFO Before we get started , a quick disclaimer During this call , we will be making forward looking statements regarding our future business and financial performance .

David Mulholland: 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.

Speaker #1: And these statements are predictions that involve risks and uncertainties Actual results may therefore differ materially from the results we currently expect . Factors that could cause such differences can be both external as well as internal operating factors .

David Mulholland: 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 20-F, which is available on our investor relations website.

Speaker #1: 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.

Speaker #1: Within today's presentation . References to growth rates will mostly be on a constant currency and portfolio basis , and other financial be relating to our comparable reporting Please note that our Q1 report under presentation that accompanies this call are published on our website .

David Mulholland: Within today's presentation, references to growth rates will mostly be on a constant currency and portfolio basis, and other financial items will be relating to our comparable reporting. Please note that our Q1 report and the presentation that accompanies this call are published on our website. The report includes both reported and comparable financial results and reconciliation between the two. In terms of the agenda for today, Justin will go through our key messages for the quarter. Marco will then go through the financial performance and will then move to Q&A. With that, let me hand over to Justin.

Speaker #1: The report includes both reported and comparable financial results, and a reconciliation between the two. In terms of the agenda for today, Justin will go through our key messages for the quarter. Marco will then go through the financial performance, and we'll then move to Q&A.

David Mulholland: The report includes both reported and comparable financial results and reconciliation between the two. In terms of the agenda for today, Justin will go through our key messages for the quarter. Marco will then go through the financial performance and will then move to Q&A. With that, let me hand over to Justin.

Speaker #1: With that , let me hand over to Justin .

Speaker #2: Thank you , David , and good morning , everyone Our first quarter gave us a solid start to 2026 . Net sales grew 4% to €4.5 billion , with an operating margin of 6.2% .

Justin Hotard: Thank you, David, and good morning, everyone. Our Q1 gave us a solid start to 2026. Net sales grew 4% to EUR 4.5 billion with an operating margin of 6.2%, and we delivered a free cash flow of EUR 629 million in the quarter. Gross profit was EUR 2 billion and gross margin expanded 320 basis points, supported in part by the absence of a one-time charge in Mobile Infrastructure in the prior year. It also benefited from strong performance in Optical Networks as we began to see the synergy benefits from the Infinera acquisition. Operating profit was EUR 281 million, with operating margin expanding 200 basis points. We saw strong momentum with AI and cloud customers. Net sales grew 49% and we received EUR 1 billion in new orders, particularly driven by Optical Networks. At the group level, book to bill was above one, and in Network Infrastructure, it was well above one.

Justin Hotard: Thank you David, and good morning, everyone. Our Q1 gave us a solid start to 2026. Net sales grew 4% to EUR 4.5 billion with an operating margin of 6.2%, and we delivered a free cash flow of EUR 629 million in the quarter.

Speaker #2: And we delivered a free cash flow of €629 million in the quarter Gross profit was €2 billion and gross margin expanded 320 basis points , supported in part by the absence of a one time charge in mobile infrastructure in the prior year It also benefited from strong performance in optical networks as we began to see the synergy benefits from the Infinera acquisition Operating profit was €281 million , with operating margin expanded 200 basis points .

Justin Hotard: Gross profit was EUR 2 billion and gross margin expanded 320 basis points, supported in part by the absence of a one-time charge in Mobile Infrastructure in the prior year. It also benefited from strong performance in Optical Networks as we began to see the synergy benefits from the Infinera acquisition.

Justin Hotard: Operating profit was EUR 281 million, with operating margin expanding 200 basis points. We saw strong momentum with AI and cloud customers. Net sales grew 49% and we received EUR 1 billion in new orders, particularly driven by Optical Networks. At the group level, book to bill was above one, and in Network Infrastructure, it was well above one.

Speaker #2: We saw strong momentum with AI and cloud customers . Net sales grew 49% and we received €1 billion in new orders , particularly driven by optical networks at the group level .

Speaker #2: Book to Bill was above one and a network infrastructure . It was well above one . I'm proud of Team Nokia's execution in Q1 .

Justin Hotard: I'm proud of Team Nokia's execution in Q1. The focus now is on delivering through the year and maximizing the growth opportunity in front of us. At our Capital Markets Day last November, we outlined our view of the AI super cycle and the market opportunity for Nokia. Since then, demand has accelerated. At the time, expectations were for the largest hyperscalers to spend around $540 billion in CapEx in 2026. Now, those expectations have increased to over $700 billion. This reflects the pace at which our customers are scaling infrastructure for AI. Today, AI-driven traffic is estimated at around 20% of total network traffic, which is roughly 80 exabytes per month, and is still primarily human to machine.

Speaker #2: The focus now is on delivering through the year and maximizing the growth opportunity in front of us at our Capital Markets Day. Last November, we outlined our view of the AI supercycle and the market opportunity for Nokia. Since then, demand has accelerated.

Justin Hotard: Since then, demand has accelerated. At the time, expectations were for the largest hyperscalers to spend around $540 billion in CapEx in 2026. Now, those expectations have increased to over $700 billion. This reflects the pace at which our customers are scaling infrastructure for AI.

Speaker #2: At the time , expectations were for the largest hyperscalers to spend around $540 billion in CapEx in 2026 . Now , those expectations have increased to over $700 billion .

Speaker #2: This reflects the pace at which our customers are scaling infrastructure for AI today . AI driven traffic is estimated at around 20% of total network traffic , which is roughly 80 exabytes per month and is still primarily human to machine As we move deeper into Agentic AI adoption and ultimately physical AI adoption .

Justin Hotard: Today, AI-driven traffic is estimated at around 20% of total network traffic, which is roughly 80 exabytes per month, and is still primarily human to machine. As we move deeper into agentic AI adoption and ultimately physical AI adoption, machine-to-machine traffic will become the primary driver of traffic, and that will lead to a step change in network traffic.

Justin Hotard: As we move deeper into agentic AI adoption and ultimately physical AI adoption, machine-to-machine traffic will become the primary driver of traffic, and that will lead to a step change in network traffic. We already see this demand in AI factories, both in data center interconnect and inside the data center in routing and switching. Increasingly, this is also driving demand in transport networks across metro and long haul, and we believe this is a structural shift in the market which will sustain for multiple years. We now expect our AI and cloud addressable market to grow at a 27% CAGR between 2025 and 2028, up from the 16% we shared in November. This implies the addressable market for Network Infrastructure growing at a 14% CAGR compared to 9% that we shared in November. This is already benefiting Nokia in orders and in revenue.

Speaker #2: Machine to machine traffic will become the primary driver of traffic , and that will lead to a step change in network traffic . We already see this demand in AI factories , both in datacenter interconnect and inside the data center .

Justin Hotard: We already see this demand in AI factories, both in data center interconnect and inside the data center in routing and switching. Increasingly, this is also driving demand in transport networks across metro and long haul, and we believe this is a structural shift in the market which will sustain for multiple years.

Speaker #2: In routing and switching Increasingly , this is also driving demand in transport networks across metro and long haul . And we believe this is a structural shift in the market , which will sustain for multiple years We now expect our AI and cloud addressable market to grow at a 27% giga between 2025 and 2028 , up from the 16% we shared in November This implies the addressable market for network infrastructure growing at a 14% kager compared to 9% that we shared in November .

Justin Hotard: We now expect our AI and cloud addressable market to grow at a 27% CAGR between 2025 and 2028, up from the 16% we shared in November. This implies the addressable market for Network Infrastructure growing at a 14% CAGR compared to 9% that we shared in November. This is already benefiting Nokia in orders and in revenue.

Speaker #2: This has already benefited Nokia in orders and in revenue. In March, we introduced several new products at OFC. These launches reflect our focus on innovation following the Infinera acquisition.

Justin Hotard: In March, we introduced several new products at OFC. These launches reflect our focus on accelerating innovation following the Infinera acquisition. The industry is scaling from hundreds to thousands of fibers between data centers. To address this demand, we introduced our next generation hyperscale multi-rail solution, which will begin shipping later this year. It scales fiber capacity without expanding physical infrastructure, delivers an 8x increase in density, and is 25% more dense than competing products announced recently. In addition, we also shared that we're evolving how we bring optical solutions to market. Our roadmap moves to a building block architecture with four optical engines that are embedded in multiple form factors compared to the two engines per generation previously. The architecture allows us to bring 13 application-optimized solutions to market. For customers, this means simplified deployment and a reduced total cost of ownership of up to 70%.

Speaker #2: The industry is scaling from hundreds to thousands of fibers between data centers . To address this demand , we introduced our next generation hyperscale multi-rail solution , which will begin shipping later this year .

Justin Hotard: To address this demand, we introduced our next generation hyperscale multi-rail solution, which will begin shipping later this year. It scales fiber capacity without expanding physical infrastructure, delivers an 8x increase in density, and is 25% more dense than competing products announced recently.

Speaker #2: It scales fiber capacity without expanding physical infrastructure , delivers an eight x increase in density , and is 25% more dense than competing products .

Speaker #2: Announced recently In addition , we also shared that we're evolving how we bring optical solutions to market Our roadmap moves to a building block architecture with for optical engines that are embedded in multiple form factors Compared to the two engines per generation previously .

Justin Hotard: In addition, we also shared that we're evolving how we bring optical solutions to market. Our roadmap moves to a building block architecture with four optical engines that are embedded in multiple form factors compared to the two engines per generation previously. The architecture allows us to bring 13 application-optimized solutions to market. For customers, this means simplified deployment and a reduced total cost of ownership of up to 70%.

Speaker #2: The architecture allows us to bring 13 application-optimized solutions to market for customers. This means simplified deployment and a reduced total cost of ownership of up to 70%.

Speaker #2: These products will begin sampling in the first half of 2027 and will ship in volume in the second half. In Q1, we also saw strong growth in our IP networks pipeline as we built deeper engagements with our AI and cloud customers on switching and routing.

Justin Hotard: These products will begin sampling in H1 2027 and will ship in volume in H2. In Q1, we also saw strong growth in our IP Networks pipeline as we built deeper engagements with our AI and cloud customers on switching and routing. We were awarded new design wins and continue to build a strong pipeline of further opportunities. We expect this to translate into new orders over the coming quarters. We've also increased our investment in Optical Networks, and our new indium phosphide manufacturing facility in San Jose, California, is on track to begin ramping production later this year. As a result, we are increasing our growth assumptions for Network Infrastructure in 2026. We now expect growth between 12% and 14%, up from the 6% to 8% we communicated in January.

Justin Hotard: These products will begin sampling in H1 2027 and will ship in volume in H2. In Q1, we also saw strong growth in our IP Networks pipeline as we built deeper engagements with our AI and cloud customers on switching and routing. We were awarded new design wins and continue to build a strong pipeline of further opportunities. We expect this to translate into new orders over the coming quarters. We've also increased our investment in Optical Networks, and our new indium phosphide manufacturing facility in San José, California, is on track to begin ramping production later this year. As a result, we are increasing our growth assumptions for Network Infrastructure in 2026. We now expect growth between 12% and 14%, up from the 6% to 8% we communicated in January.

Speaker #2: We were awarded new design wins and continue to build a strong pipeline of further opportunities We expect this to translate into new orders over the coming quarters We've also increased our investment in optical networks and our new Indian phosphide manufacturing facility in San Jose , California is on track to begin ramping production later this year as a result , we are increasing our growth assumptions for network infrastructure in 2026 .

Speaker #2: We now expect growth between 12 to 14% , up from the 6 to 8% we communicated in January . For optical and IP networks combined , we expect growth of 18 to 20% , up from 10 to 12% .

Justin Hotard: For Optical and IP Networks combined, we expect growth of 18% to 20%, up from 10% to 12%. Turning now to Mobile Infrastructure. This new segment began operating in January, and the team is focused on aligning our roadmap to customer needs, streamlining the integrated business to improve productivity, and delivering on the KPIs we outlined at our Capital Markets Day. Core Software had another strong quarter, growing 5% and gaining market share. In the quarter, we delivered six competitive swaps. Our customers are modernizing their platforms with cloud-native solutions, adopting new security features, and driving end-to-end automation with a focus on reducing operating expenses. Radio Networks also delivered on our expectations. We signed several deals in the quarter, including with Virgin Media O2. At Mobile World Congress, we introduced a new generation of radios that are AI-RAN-ready.

Speaker #2: Turning now to Mobile Infrastructure. This new segment began operating in January, and the team is focused on aligning our roadmap to customer needs, streamlining the integrated business to improve productivity, and delivering on the KPIs.

Speaker #2: We outlined at our capital Markets Day . Core software had another strong quarter , growing 5% and gaining market share in the quarter .

Speaker #2: We delivered six competitive swaps . Our customers are modernizing their their platforms with cloud native solutions , adopting new security features and driving end to end automation with a focus on reducing operating expenses Radio networks also delivered on our expectations .

Speaker #2: We signed several deals in the quarter , including with Virgin Media , O2 at Mobile World Congress . We introduced a new generation of radios that our AI ran ready Our Duxbury remote , Radiohead's deliver a 30% improvement in power efficiency and up to a 25% reduction in weight .

Justin Hotard: Our Doksuri remote radio heads deliver a 30% improvement in power efficiency and up to a 25% reduction in weight. In addition, we continue to make good progress on AI RAN in partnership with NVIDIA, and we are on track to begin field trials by the end of the year. Technology Standards continue to perform well across its markets. The business continues to deliver stability. We expect largely flat net sales for the full year, with improved profit generation year over year. With that, I'll hand over to Marco.

Speaker #2: In addition , we continue to make good progress on AI . Ran in partnership with Nvidia , and we are on track to begin field trials by the end of the year Technology standards continue to perform well across its markets .

Speaker #2: The business continues to deliver stability, and we expect largely flat net sales for the full year, with improved profit generation year over year.

Speaker #2: With that , I'll hand over to Marco

Speaker #1: Thank you , Justin . And hello from my side as well Justin mentioned we had a solid start to the year with 4.5 billion in sales , growing 4% with growth in both operating segments .

Marco Wirén: Thank you, Justin, and hello from my side as well. As Justin mentioned, we had a solid start to the year with EUR 4.5 billion in sales, growing 4%, with growth in both operating segments. Gross profit was just over EUR 2 billion, with a gross margin of 45.5%, a 320 basis points improvement year-on-year. Operating profit was EUR 281 million, with an operating margin of 6.2%, and this is up 200 basis points compared to the previous year. Free cash flow was EUR 629 million, and the quarter ended with a net cash of EUR 3.8 billion. Network Infrastructure sales grew 6% in Q1. Optical Networks had another strong quarter with 20% net sales growth, and this was mainly driven by AI and cloud customers. We also grew in telecom as operators invest to meet increasing demands on transport networks.

Speaker #1: Gross profit was just over €2 billion with a gross margin of 45.5% . A 320 basis points improvement on year on year operating profit was €281 million , with an operating margin of 6.2% .

Speaker #1: And this is up 200 basis points compared to the previous year. Free cash flow was $629 million, and the quarter ended with a net cash of $3.8 billion.

Speaker #1: Network infrastructure sales grew 6% in quarter one . Optical networks had another strong quarter , with 20% net sales growth , and this was mainly driven by AI and cloud customers .

Speaker #1: We also grew in telecom as operators invest to meet increasing demands on transport networks. IP network sales grew 3%, with growth in AI and cloud, offset by softness in other customer segments during the quarter.

Marco Wirén: IP Networks sales grew 3%, with growth in AI and cloud offset by softness in other customer segments during the quarter. We expect growth in IP Networks to start to accelerate in Q2, as we ramp shipments tied to new design wins with AI and cloud customers. Fixed Networks declined by 13%, reflecting our portfolio strategy to focus on higher margin products. Sales of our optical line terminal products were largely stable in the quarter, and looking ahead, we expect the sales trend to improve as the year progresses. We see a supportive demand environment, especially in the US, with fiber deployments remaining a key investment focus for tier one operators. Gross margin in Network Infrastructure was 43.4%, increasing 150 basis points. The increase was driven by a higher gross margin in Optical Networks, benefiting mainly from Infinera integration synergies and scale.

Speaker #1: We expect growth in IP networks to start to accelerate in quarter two as we ramp shipments tied to new design wins . With AI and cloud customers Fixed networks declined by 13% , reflecting our portfolio strategy to focus on higher margin products Sales of our optical line terminal products were largely stable in the quarter , and looking ahead , we expect the sales trend to improve as the year progresses We see a supportive demand environment , especially in the US , with fiber deployments remaining a key investment focus for tier one operators First margin in network infrastructure was 43.4% , increasing 150 basis points .

Speaker #1: The increase was by a higher gross margin in Optical Networks, benefiting mainly from Infinera integration synergies and scale. We continue to expect some gross margin headwinds through the year.

Marco Wirén: We continue to expect some gross margin headwinds through the year as a result of product mix. Operating margin was 6.7%, at 30 basis points below the previous year, as we had a full quarter of Infinera expenses compared to one month last year. For the full year, we do expect to slightly increase the Network Infrastructure operating margin. However, our focus this year is on investing to capture the long-term growth opportunity in the market. In Mobile Infrastructure, net sales grew by 3%. Core Software sales grew 5%, while Radio Networks sales were flat. Technology Standards sales grew by 10% as a result of signing several deals in consumer electronics and multimedia, which contributed catch-up sales in the quarter. Gross margin increased by 430 basis points to 48.5%, in line with our long-term target for Mobile Infrastructure gross margins.

Speaker #1: As a result of product mix Operating margin was 6.7% , a 30 basis points below the previous year . As we had a full quarter of Infinera expenses compared to one month last year .

Speaker #1: For the full year , we do expect to slightly increase the network infrastructure operating margin . However , our focus this year is on investing to capture the long term growth opportunity in the market In mobile infrastructure , net sales grew by 3% .

Speaker #1: Core software sales grew 5% , while radio networks sales were flat Technology standards sales grew by 10% . As a result of signing several deals in consumer electronics and multimedia , which contributed catch up sales in the quarter .

Speaker #1: First , margin increased by 430 basis points to 48.5% , in line with our long term target for mobile infrastructure across margins . The increase was mainly related to €120 million contract settlement , which negatively impacted the previous year We expect mobile infrastructure across margins in the second and third quarters to be somewhat weaker , and then much stronger in quarter four .

Marco Wirén: The increase was mainly related to a EUR 120 million contract settlement, which negatively impacted the previous year. We expect Mobile Infrastructure gross margins in Q2 and Q3 to be somewhat weaker and then much stronger in Q4. This is consistent with the typical seasonality in the business. Operating margin was 8.9% in the quarter, an increase of 380 basis points, reflecting the settlement impact and lower operating expenses supported by the ongoing cost-saving program. If we then turn to look at our sales growth by customer segment, AI and cloud grew 49%, mainly driven by Optical Networks. Mission-critical enterprise and defense grew 19%, and technology licensing grew 10%. These growing markets offset a 2% decline in telecom to deliver 4% growth for the group. The decline among telecom customers was partly related to some of the portfolio decisions we are taking in Fixed Networks.

Speaker #1: And this is consistent with the typical seasonality in the business Operating margin was 8.9% in the quarter . An increase of 380 basis points , reflecting the settlement impact and lower operating expenses supported by the ongoing cost saving program If we then turn to look at our sales growth by customer segment , AI and cloud grew 49% , mainly driven by optical networks .

Speaker #1: Mission critical enterprise and defense grew 19% , and technology licensing through 10% . These growing markets offset a 2% decline in telecom to deliver 4% growth for the group The decline among telecom customers was partly related to some of the portfolio decisions we are taking in fixed networks .

Speaker #1: Overall , we continue to see the telecom market as relatively flat The quarter one was a strong quarter for free cash flow generation , which amounted to 629 million .

Marco Wirén: Overall, we continue to see the telecom market as relatively flat. The Q1 was a strong quarter for free cash flow generation, which amounted to EUR 629 million. We saw the typical working capital unwind in Q1 related to the receivables build-up at the end of 2025 from a strong Q4 sales seasonality. For your models, remember that Q2 is typically a seasonally low period for cash as we pay employee cash incentives in that quarter. Finally, to our 2026 guidance assumptions. Our group level financial outlook remains unchanged, and we are currently tracking somewhat above the midpoint of the range for comparable operating profit, which is between EUR 2 billion and 2.5 billion. Justin has already mentioned the two key assumptions for the full year that have changed.

Speaker #1: We saw the typical working capital unwind in the first quarter related to the receivables build-up at the end of '25 from a strong quarter for sales seasonality for your models.

Speaker #1: Remember that quarter two is typically a seasonally low period for cash as we pay employee cash incentives in that quarter Finally , to our 26 guidance assumptions , our group level financial outlook remains unchanged .

Speaker #1: And we are currently tracking somewhat above the midpoint of the range for comparable operating profit, which is between $2 billion and $2.5 billion.

Speaker #1: Justin has already mentioned the two key assumptions for the full year that have changed . We now target to grow faster in network infrastructure this year , with 12 to 14% growth , up from the previous assumption of 6 to 8% , and specifically in optical and IP networks .

Marco Wirén: We now target to grow faster in Network Infrastructure this year with 12% to 14% growth, up from the previous assumption of 6% to 8%. Specifically, in Optical and IP Networks, we now target 18% to 20% growth, up from the previous 10% to 12% growth. In Q2, we currently assume a 5% to 9% sequential increase in net sales. For operating profit, we expect Q2 to account for between 12% and 16% of the full year, based on the comment I already made that we are tracking somewhat above the midpoint of the full year range. This would equate to H1 being between 24% and 28% of the full year operating profit, consistent with 2025. This is mainly due to the growth-related investments we are making to support the long-term opportunities in the business.

Speaker #1: We now target 18% to 20% growth, up from the previous 10% to 12% growth, then record in quarter two. We currently assume a 5% to 9% sequential increase in net sales for operating profit.

Speaker #1: We expect Q2 to account for between 12% and 16% of the full year, based on the comment I already made that we are tracking somewhat above the midpoint of the full year range.

Speaker #1: This would equate to H1 being between 24 and 28% of the full year . Operating profit , consistent with 2025 . And this is mainly due to the growth related investments we are making to support the long term opportunities in the business .

Speaker #1: And with that , let me hand back to David for Q&A .

Marco Wirén: With that, let me hand back to David for Q&A.

Speaker #3: Thank .

Speaker #2: You , Justin and .

David Mulholland: Thank you, Justin and Marco. 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? Cherie, could you please give the instructions?

Speaker #1: Marco , as .

Speaker #3: 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 ?

Speaker #3: Sure. Could you please give the instructions?

Speaker #4: Yes , sir . Thank you . We will now begin the question and answer session . If you are also viewing the webcast , please remember to mute your audio on your computer before asking your question .

Operator 2: Yes, sir. Thank you. We will now begin the question and answer session. If you are also viewing the webcast, please remember to mute your audio on your computer before asking a question as there is a 30-second delay. To ask a question, you may press star and one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star and two. I will now hand it back to you, Mr. David Mulholland.

Operator: Yes, sir. Thank you. We will now begin the question and answer session. If you are also viewing the webcast, please remember to mute your audio on your computer before asking a question as there is a 30-second delay. To ask a question, you may press star and one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star and two. I will now hand it back to you, Mr. David Mulholland.

Speaker #4: As there is a 32nd delay to ask a question , you may press star and one on your telephone keypad . If you're using a speakerphone , please pick up your handset before pressing the keys to withdraw your question , please press star and two .

Speaker #4: I will now hand it back to you, Mr. David Mulholland.

Speaker #3: Thanks, Sheri. We'll take our first question today from Fredrik Lethal from Handelsbanken. Fredrik, please go ahead.

David Mulholland: Thanks, Cherie. We'll take our first question today from Fredrik Lithell from Handelsbanken. Fredrik, please go ahead.

Speaker #5: Thank you very much . Thank you for taking my question and congrats to a great report . I would like to step into the world of optical networks and ask you your raised assumption for the year is that based on that , you see more positively on getting better traction on on sort of production capacity throughout the year .

Fredrik Lithell: Thank you very much. Thank you for taking my question, and congrats. A great report. I would like to step into the world of Optical Networks and ask you the raised assumption for the year. Is that based on that you see more positively on getting better traction on production capacity throughout the year, so earlier than you anticipated before? Or is there something else in there that give you the opportunity to raise that guidance? Thank you.

Speaker #5: So earlier than you anticipated before , or is it something else in there that give you the opportunity to raise that guidance ? Thank you .

Speaker #2: Yeah . Thanks , Frederick . And good morning . So I think two things I would touch on . I think one is , you know , a little bit more confidence on supply .

Justin Hotard: Yeah. Thanks, Fredrik, and good morning. I think two things I would touch on. I think one is a little bit more confidence on supply, and obviously the fab is one component. There's also the other components of the optical subsystems, the DSPs. That's in pluggables. Obviously, as you think about our larger systems, there's multiple different elements to that. It's a bit more supply confidence on optical. Obviously, as we said, demand continues to be strong on optical. It's also related to some of the traction we're starting to see in IP Networks. As we've talked about in the past, the IP Networks business has been a little bit lumpy as we drive the growth, but we're starting to see more visibility for the year, and that's a part of what's driving the growth.

Speaker #2: And obviously the fab is one component . There's also , you know , the other components , you know , of the , of the optical subsystems , the DSPs , the obviously , you know , that's pluggable is obviously you think about our larger systems , there's multiple different elements to that .

Speaker #2: So it's a bit more supply confidence on optical . Obviously , as we said , demand is strong . You know , demand continues to be strong on optical .

Speaker #2: And then it's it's also related to some of the traction we're starting to see in IP networking . And as we've talked about in the past , the IP networking business has been a little bit lumpy as we drive the growth , but we're starting to see more visibility for the year .

Speaker #2: And that's that's a part of what's driving the growth .

Speaker #3: Did you have a follow up , Frederick ?

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

Speaker #5: I'm fine with that .

Fredrik Lithell: I'm fine with that.

Speaker #3: Thanks, Frederick. We'll take our next question from Janardan Menon from Jefferies. Janardan, please go ahead.

David Mulholland: Thanks, Fredrik. We'll take our next question from Janardan Menon from Jefferies. Janardan, please go ahead.

Speaker #6: Yeah . Hi . Good morning . Thanks for taking the question . Just wanted dive into the design wins and the 1 billion that you that you've reported saying most of that or the bigger portion of that is from optical .

Janardan Menon: Yeah. Hi. Good morning. Thanks for taking the question. Just want to dive into the design wins, and the $1 billion that you've reported, saying most of that, or the bigger portion of that, is from optical. Are these still on the 800G side? You had put out a very impressive portfolio of products at the 1.6T, 2.4T, 3.2T at OFC, which you said would be starting to come through by late 2027. Are you already seeing some order intake on those, or is it too early for those kind of more leading-edge products or next generation products we're seeing orders right now? I have a small follow-up.

Speaker #6: Are these are these still on the 800 gig side ? You had put out a very impressive portfolio of products at the 1.60 2.4 , 3.2 T at OFC , which you said would be starting to come through by late 2027 .

Speaker #6: So, are you already seeing some order intake on those, or is it too early for those kind of leading-edge products to be on next-generation products to be seeing orders right now?

Speaker #6: And I have a small follow.

Speaker #2: Yeah . First of all , thanks , Jonathan . So I think if you look at the , if you look at the demand that we're seeing , the demand that we're fulfilling , I should say for this year , I really see that on momentum on the back of our 800 gig pluggable .

Justin Hotard: Yeah. First of all, thanks, Janardan. I think if you look at the demand that we're seeing, the demand that we're fulfilling, I should say, for this year, I really see the momentum on the back of our 800G pluggable and then the associated line systems and the platforms that we have available in shipping today. A key thing that I maybe didn't touch on in my comments, so I'll just emphasize, is that the roadmap we launched at OFC. I touched on the fact that it's largely oriented towards 2027. A key note there is that roadmap was designed with a real focus on AI and cloud customers and designed in collaboration with some of those customers. We talk a lot about that customer collaboration. I talked about it at CMD a little bit.

Speaker #2: And then the associated line systems and the platforms that we have available and shipping today . A key thing that I maybe didn't touch on in my comments that I'll just emphasize is that the roadmap we launched at OFC , I touched on the fact that it's largely oriented towards 2027 , but a key note there is is that roadmap was designed with a real focus on AI and cloud customers and designed designed in collaboration with some of those customers .

Speaker #2: So we talk a lot about that , that customer collaboration . I talked about it at Cmdy a little bit . We talked about it quite a bit internally .

Justin Hotard: We talk about it quite a bit internally, and that's a good example. As I would just sort of give you macro broad brush orders, I think what we see in orders generally is some elongation in orders in terms of a desire for a longer-term commitment on orders. That's, of course, also something we're seeing in terms of our demand back into the supply chain, providing longer-term commitments. I think that's very normal with the kind of demand expansion we're seeing and the lead times. I think if you look at our peers or other players in our ecosystem in this space, they're all saying similar things. I would say that's very consistent for us as well.

Speaker #2: And that's a that's a good example . And then as I would just sort of give you macro broad brush orders , I think what we see in orders generally is some elongation in orders in terms of a desire for for a longer term , you know , a longer term commitment on orders .

Speaker #2: And that's of course , you know , that's also something we're seeing in terms of our demand back into the supply chain providing longer term commitments .

Speaker #2: And I think that's very normal with the kind of demand expansion we're seeing in the lead times . And I think if you look at , you know , other , you know , our peers or other players in our ecosystem in this space , they're all saying similar things .

Speaker #2: So, so I would say that that's very consistent for us as well.

Speaker #6: Understood . And I know you don't want to talk about growth in networks and , and optical separately , but it's been quite a big increase in it's quite a big increase in your guidance from 10 to 12% to 18 to 20% is most of that from optical or are you going to see a meaningful acceleration in your IP side from Q2 onwards , which could say , take you towards the double digit 10% kind of growth rates there by the end of the year ?

Janardan Menon: Understood. I know you don't want to talk about growth in networks and optical separately, but it's been quite a big increase in your guidance from 10% to 12% to 18% to 20%. Is most of that from optical or are you going to see a meaningful acceleration in your IP side from Q2 onwards, which could, say, take you towards the double-digit 10% kind of growth rates there by the end of the year?

Speaker #2: Yeah , I would , I would say that the , the optimism we have on the 18 to 20 is , is across , across both sides of the business right now

Justin Hotard: Yeah, I would say that the optimism we have on the 18% to 20% is across both sides of the business right now.

Speaker #6: Understood. Thanks. Thanks.

David Mulholland: Understood. Thanks.

Janardan Menon: Understood. Thanks.

David Mulholland: Thanks, Sharada. We'll take our next question from Artem Beletsky from SEB. Artem, please go ahead.

David Mulholland: Thanks, Janardan. We'll take our next question from Artem Beletski from SEB. Artem, please go ahead.

Speaker #3: Thanks . We'll take our next question from Artem Beletsky from CIB . Artem , please go ahead

Speaker #5: Yes . Hi . And thank you for taking my questions . I would like to ask on AI and cloud related orders . So so I think book to bill was around three in the quarter and when do you actually expect some catch up to be seen in terms of deliveries ?

Artem Beletski: Yes. Hi, and thank you for taking my questions. I would like to ask on AI and cloud-related orders. I think book-to-bill was around 3 in the quarter. When do you actually expect some catch-up to be seen in terms of deliveries? Could you maybe talk still about some potential delivery constraints, what you have in this area?

Speaker #5: And could you maybe talk still about some potential delivery constraints, constraints, what you have in this area?

Speaker #2: Yeah , I think , Artem , first of all , I'd say , you know , I'm right now I'm focused on maximizing the , you know , the opportunity that we see and , and , and I , I don't see the , I don't see the book to bill as something I need , we need to catch up to our focus right now is on just .

Justin Hotard: Yeah. I think, Artem, first of all, I'd say right now I'm focused on maximizing the opportunity that we see, and I don't see the book to bill as something we need to catch up to. Our focus right now is on just maximizing the demand. As I said as well, we are starting to see some elongation of the order cycle, which is normal in these. In terms of constraints, I won't get into too much detail, but I think generally there's a fair amount of constraint in the semiconductor ecosystem in general. We don't talk about it, but if you think about the kinds of lead times you hear across the semiconductor manufacturers, the leading players, I think that gives you a pretty good indication of what lead times are.

Speaker #2: Maximizing the demand . As I said , as well , you know , we are starting to see some elongation of the order cycle , which is normal in these .

Speaker #2: And then in terms of constraints , I mean , I won't get into too much detail , but I think it's generally it's , you know , there's a fair amount of constraint in the semiconductor ecosystem in general .

Speaker #2: You know , we don't talk about it . But if you think about , you know , the kinds of lead times you hear across the , you know , the semiconductor manufacturers , the leading players , I think that gives you a pretty good indication of , you know , what , what lead times are .

Speaker #2: And then , and then obviously in other areas at the scale that we're building Indian phosphide as an industry , obviously that's that's driving demand back into the supply chain that that we need to build capacity for .

Justin Hotard: Obviously in other areas, at the scale that we're building indium phosphide as an industry, obviously that's driving demand back into the supply chain that we need to build capacity for. We're working on that as well. That gets a little bit to the point on investment. As you think about investment, I would think about it in optical in a few ways, right? One is investing in scaling the capability and capacity. We're obviously bringing on the second fab. It's scaling production capability into the supply chain. Of course, continuing to invest in the product portfolio to make sure we're maximizing the coverage of the portfolio against the market demand that we see.

Speaker #2: And so we're working on that as well . And , and that gets a little bit to the point on investment as you think about investment , you know , I would think about it in , in optical in a few ways , right ?

Speaker #2: One is investing and scaling the capability and capacity . We're obviously bringing on the second fab , but it's scaling production capability into the supply chain .

Speaker #2: And then of course , continuing to invest in the , in the product portfolio to make sure we're maximizing the coverage of the portfolio against the market demand that we see .

Speaker #3: Thanks . Artem , did you have a quick follow up ?

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

Speaker #5: Yes , I had actually . So , so just relating to fixed network . So you do highlight some headwinds coming from consumer premise fiber business that is not seen strategic .

Artem Beletski: Yes, I had actually. Just relating to Fixed Networks, you do highlight some headwind coming from consumer premises fiber business that is not seen strategic. Is it something that should be prevailing throughout this year or how we should think about it?

Speaker #5: Is it something that should be prevailing throughout this year, or how should we think about it?

Speaker #2: Yeah , I think it's something that is going to we're going to continue to be disciplined throughout the year . And there's there's probably two things to consider here .

Justin Hotard: Yeah, I think it's something that we're going to continue to be disciplined throughout the year. There's probably two things to consider here. One is the macro market on fiber, particularly with what's happening in the US. We talked about some of this last year with the CapEx builds of the tier one and tier two operators obviously being a tailwind. We feel good about the underlying business, but we want to make sure that we're focused on the right type of business for us long term. We expect that we'll continue to have some headwind on the CPE side as we become more disciplined in that space and focus on the areas where it's valued. We also think this is a business that has good long-term prospects in data center, and we launched at OFC.

Speaker #2: One is , is the , is the , the , the macro market on fiber , particularly with what's happening in the US , we talked about some of this last year with the CapEx the , you know , the tier one and tier two operators .

Speaker #2: Obviously, beat us some tailwind. So we feel good about the underlying business, but we want to make sure that we're focused on the right type of business for us long term.

Speaker #2: And so , so , you know , we expect that we'll have continue to have some headwind on the CPU side as we become more disciplined in that space and focus on the areas where it's valued .

Speaker #2: We also think this is a business that has good long-term prospects and data center. And we launched at OFC. I didn't touch on it, but at OFC we launched out-of-band management and out-of-band management solution oriented towards data centers.

Justin Hotard: I didn't touch on it, but at OFC we launched an out-of-band management solution oriented towards data centers. We really like this business, and we realize it was a bit of a tough quarter. It's just a situation where we're going through a, what I think is a very intentional transition to making sure the business has a long-term sustainable growth profile, not just in top line, but more importantly in gross margin and operating profit.

Speaker #2: So we really like this business and and we realized it was a bit of a tough quarter . It's just a situation where we're , we're going through what I think is a , you know , a very intentional transition to , to making sure the business has a long term sustainable growth profile , not just in , in top line , but but more importantly , in gross margin and operating profit

Speaker #3: Thanks , Martin . We'll take our next question from Simon Leopold from Raymond James . Simon , please go ahead .

David Mulholland: Thanks, Artem. We'll take our next question from Simon Leopold from Raymond James. Simon, please go ahead.

Speaker #7: Thank you, David. So, the first thing I wanted to touch on was, in the past, you've floated this idea of growing the switching business by on the order of $1 billion into hyperscale opportunities.

Simon Leopold: Thank you, David. The first thing I wanted to touch on was, in the past you've floated this idea of growing the switching business by on the order of $1 billion into hyperscale opportunities. I'm wondering, given sort of the commentary today and the wins you've had, could you update us on really the current opportunities in the sales funnel and longer-term prospects for this business unit?

Speaker #7: I'm wondering, given the commentary today and the wins you've had, could you update us on the current opportunities and the sales funnel, as well as the longer-term prospects for this business unit?

Speaker #2: Yeah , I don't Simon . I'm not sure there's much more that we'll say than what we described , but maybe just to kind of break it down a little bit , you know , good design wins in Q1 .

Justin Hotard: Yeah. Simon, I'm not sure there's much more that we'll say than what we described, but maybe just to kind of break it down a little bit. Good design wins in Q1. Those don't show up meaningfully in orders. They're in pipeline, but they're not in orders in Q1. We expect to see some of that start to flow in in Q2. As you likely know these businesses are more design win driven. What I mean by that is, it's not a procurement event where you have a procurement, and then if you're awarded that, you win that procurement, then you go to the next procurement. It's more about getting designed into a specific use case and application. That means that the sales cycle is a little bit longer.

Speaker #2: Those don't show up meaningfully in orders. They're in pipeline, but they're not in orders in Q1. So we expect to see some of that start to flow in in Q2.

Speaker #2: And as as you likely know , you know , these businesses are , are more design wind driven . And what I mean by that is it's not , you know , it's not a procurement event where you kind of , you have a procurement .

Speaker #2: And then if you're awarded that , you win that procurement , then you to the next procurement . It's more about getting designed into a specific use case and application .

Speaker #2: And so , so that means that the sales cycle is a little bit longer . But encouraged by the progress that we're making here .

Justin Hotard: Encouraged by the progress that we're making here, and we'll continue to update you as we see the longer term forecast. I'm really pleased with the work that the team's doing and the progress we're making.

Speaker #2: And you know , we'll continue to update you as we , you know , as we , as we see the longer term forecast .

Speaker #2: But, but I'm really pleased with the work that the team is doing. And, and the progress we're making.

Speaker #7: And then as a quick follow up here , it does seem as if the press release cadence and the mobility business has stepped up a bit .

Simon Leopold: Just a quick follow-up here. It does seem as if the press release cadence in the mobility business has stepped up a bit, and you didn't talk that much about it today, but I just want to get a better feeling. You mentioned the field trial for the AI RAN. I'm wondering if there's any movement change in your view on how this particular business unit in mobility RAN might be trending, particularly relative to how you talked about it last quarter.

Speaker #7: And you didn't talk that much about it today, but I just want to get a better feeling. You mentioned the field trial for the AI ran.

Speaker #7: I'm wondering if there's any movement change in your view on how this particular business unit in Mobility ran might be trending, particularly relative to how you talked about it last quarter?

Speaker #2: Yeah , I think first of all , Simon , a couple of things . One is , you know , we touched on this a little bit in our , you know , in our in our , our segment performance shows it .

Justin Hotard: Yeah. I think first of all, Simon, a couple things. One is, and we touched on this a little bit. Well, our segment performance shows it, and I think we touched on it. Overall, the telecom market is flat. I think what we realized is that strategically, this is a market where we need to find new sources of value, and those can come either from enabling new services for the telcos to monetize, or a business that's less CapEx intensive. I think we fundamentally believe that the future is much more of an evolution and is software driven. We've talked about that in a number of forums. What I'm very pleased about right now is that the AI RAN trials and the engagement around a model that will fundamentally be different for the baseband because we'll start to detach software innovation.

Speaker #2: And I think we touched on it . We overall , the telecom market is flat . I think what we realize is that strategically , this is a market where , you know , we need to find new sources of value and those can come either from enabling new services for the telcos to monetize or a business that's less CapEx intensive .

Speaker #2: And I think we fundamentally believe that the future is much more of an evolution and is software driven. We've talked about that in a number of forums.

Speaker #2: What I'm what I'm very pleased about right now is that the AI ran trials and the engagement around a model that will fundamentally be different for the baseband , because we'll start to detach software innovation .

Speaker #2: And what I mean by that is not just not just features , but actual performance enhancements from the underlying hardware , just like you see model performance gets better in AI with , you know , with with GPUs , but you continue to see model performance improve even over the life of the same GPU It's one of the benefits of that architecture .

Justin Hotard: What I mean by that is not just features but actual performance enhancements from the underlying hardware. Just like you see model performance gets better in AI with GPUs, but you continue to see model performance improve even over the life of the same GPU. It's one of the benefits of that architecture. We see that same thing coming in this part of the business. I'm really pleased that we're seeing such strong interest from the industry. I think, this is a business, as I said at CMD, our focus is not on making the business necessarily a growth business because the underlying market is not growing, but to make it one that's much more profitable and delivers an attractive return on invested capital. That's our focus. I'm very pleased with the start the team has coming together in MI.

Speaker #2: You know, we see that same thing coming in this part of the business. And so I'm really pleased that we're seeing such strong interest from the industry.

Speaker #2: And , and I think , you know , this is a business as we , as I said at Cmdy , our focus is not on making the business , you know , necessarily a growth business because the underlying market is not growing , but to make it one that's much more profitable and delivers an attractive return on invested capital .

Speaker #2: And that's our focus . Very pleased with the start . The team has coming together in MI . Obviously a lot more work to do and and a big milestone later this year with Nvidia .

Justin Hotard: Obviously, a lot more work to do and a big milestone later this year with NVIDIA.

Speaker #3: Thanks , Simon . We'll take our next question from Rob Sanders at Deutsche Bank . Rob , please go ahead .

David Mulholland: Thanks, Simon. We'll take our next question from Robert Sanders at Deutsche Bank. Rob, please go ahead.

Speaker #8: Yeah . Hi . Thanks for taking my question . Maybe just a question around profitability and optical . I think originally with the Infinera deal , you were looking at double digit operating margin , but clearly you're stepping up your investment .

Robert Sanders: Yeah. Hi, thanks for taking my question. Maybe just a question around profitability and optical. I think originally with the Infinera deal, you were looking at double-digit operating margin, but clearly you're stepping up your investment. I was just wondering if you're still sort of on track to hit that target maybe by next year. The second question would just be around hiring and OpEx. Given the opportunity is clearly growing, what is your view around OpEx growth this year? Thank you.

Speaker #8: So I was just wondering if you're still sort of on track to hit that target , maybe by next year . The second question would just be the second question would just be around hiring and opex .

Speaker #8: Given the opportunity is clearly growing, what is your view around opex growth this year? Thank you.

Speaker #2: Do you want do you want to take those ?

Justin Hotard: Do you want to take this?

Speaker #3: Yeah .

Marco Wirén: Yeah. When it comes to the optical, just like when we announced the Infinera deal, we said that we aim for double-digit operating margins, and this is something we are still believing in. We've seen a very good synergy work that the teams have been doing, and we are on track or actually ahead of our targets when it comes to synergy captures. We're very pleased with that work. Also when it comes to if you look at the combination of these two companies, how well they actually complemented each other, and this has been extremely successful among our customers as well. We have had very good design wins. We were very fast to decide on the roadmap, and this is one reason why we've seen these good wins on the optical side.

Speaker #1: What comes to the optical . Just like when we announced the deal in you know , in our deal we we said that we aim for double digit operating margins .

Speaker #1: And this is something we are still believing in. We've seen a very good synergy work that the teams have been doing.

Speaker #1: And and we are on track or actually ahead of track ahead of our targets . What comes to synergy captures . So we're very pleased with with that work .

Speaker #1: And also what comes to us. If you look at the combination of these two companies, how well they actually complemented each other, and this has been extremely successful among our customers as well.

Speaker #1: So, we have had very good design wins. We were very fast to decide on the roadmap, and this is one reason why we've seen these good wins on the optical side.

Speaker #1: So there's a lot of lot of positive things that we've seen thanks to that integration . And acquisition Yeah . And what comes to opex we we just said that we capturing these opportunities in , in optical side .

Marco Wirén: There's a lot of positive things that we've seen thanks to that integration and acquisition. Yeah, when it comes to OpEx, we've just said that we invest in capturing these opportunities in optical side, and just like Justin mentioned earlier, supply is constrained, so we are investing in securing that we get the supply that is needed. We focus on that. Otherwise, we don't guide any specific OpEx numbers.

Speaker #1: And just like Justin mentioned earlier, supply is constrained. So we are investing in securing that, so we get the supply that is needed.

Speaker #1: So we focus on that . Otherwise we don't guide any specific opex numbers .

Speaker #3: Thanks , Rob . We'll take our next question from Ulrich from Bernstein . Ulrich , please go ahead .

David Mulholland: Thanks, Rob. We'll take our next question from Ulrich Rathe from Bernstein. Ulrich, please go ahead.

Speaker #9: Hey , thanks very much . I have two questions . The first one would be , so you're maintaining the group Ebit outlook with this higher growth in optical IP and you're explaining that , that you want to secure growth with with higher investments .

Ulrich Rathe: Yeah, thanks very much. I have two questions. The first one would be, so you're maintaining the group EBIT outlook with this higher growth in optical IP, and you're explaining that you want to secure growth with higher investments. Could you talk a little bit more about the mix of these costs? Is this more R&D? Is it more sales and marketing? Is it more into production? Just more color on that cost increase would be helpful. That would be my first one.

Speaker #9: Could you talk a little bit more about the mix of these costs? Is this more R&D? Is it more sales and marketing?

Speaker #9: Is it more into production ? Just more color on that cost increase would be would be helpful . That would be my first one .

Speaker #2: I think . First of all , Ulrich , I'll let Marco add if he needs to , but just to remind you , we always provide a range and we give you some direction on the range , right ?

Justin Hotard: I think first of all, Ulrich, and I'll let Marco add if he needs to, but just to remind you, we always provide a range, and we give you some direction on the range, right? We're not changing our guidance, which is the range. We said we're slightly above, we're guiding somewhat above the midpoint, right? The key thing here for us is as we look at the business, we're making investments, and you touched on a number of them. It's R&D, obviously, sales, marketing, and production. Marco just touched on some of that, right? There's CapEx with the work that we're doing around the fab, but there's also investment in OpEx in scaling capability in manufacturing. If you just think about what's happening in this part of the business, particularly around Optical.

Speaker #2: So we're not changing our guidance , which is the range , what we , you know , and we said we're we're slightly above or getting somewhat above the midpoint , right ?

Speaker #2: So the key thing here for us is, as we look at the business, we're making investments. And you touched on a number of them.

Speaker #2: It's R&D , obviously sales and marketing and production . And Marco just touched on some of that , right ? It's there's obviously , you know , there's CapEx , you know , with , with the work that we're doing around the fab , but there's also , there's also investment in opex in scaling capability and manufacturing .

Speaker #2: And , you know , if you just think about what's happening in this part of the business , particularly around optical , we're going , you know , we're also going through a massive step function and volume as an industry .

Justin Hotard: We're also going through a massive step function in volume as an industry. That means that we actually have to do work to mature the supply chain, mature the production capability as an industry, and we're not immune to that. We're investing to make sure that we're successful in that, and that we can capture the fullness of the opportunity around us.

Speaker #2: And so that means that we actually have to do we have to do work to mature the supply chain , mature the , you know , the production capability as an industry and , and we're not immune to that .

Speaker #2: So we're investing to make sure that we're successful in that . And , and then we can capture the fullness of the opportunity around us .

Speaker #1: So I think this is , this is pretty much the same , actually , if you look also the whole industry in optical side .

Marco Wirén: I think this is pretty much the same, actually, if you look also the whole industry in optical side. The whole supply chain is doing the same as well to secure that we actually can capture those demand opportunities. Still, there's more demand than supply. That's why it's important that we invest in capturing these opportunities.

Speaker #1: So the whole supply chain is doing the same as well . The secure that we , we actually can capture those demand opportunities , but still there's more demand than supply .

Speaker #1: So , so that's why it's important that we invest in capturing these opportunities

Speaker #3: Did you have a follow up for it ?

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

Speaker #9: Yeah . Quick follow up . Maybe on this guidance upgrade and for the optical growth , there still seems to be a relative dearth of customer announcements with with hyperscalers .

Ulrich Rathe: No.

Ulrich Rathe: Yeah, a quick follow-up maybe. On this guidance upgrade and of the optical growth, there still seems to be a relative dearth of customer announcements with hyperscalers. Could you talk about the reasons you talked in the past about that you don't actually care that much, you'd rather care about the business, but is there possibly a hesitation on the side of the hyperscalers to talk about Nokia, given Nokia is not a US company? Or are there any other specific reasons why you wouldn't have more meaningful announcement that tell us what you're doing with which hyperscaler and these kinds of questions? Thank you.

Speaker #9: Could you talk about the reasons you talked in the past about that actually care that much ? You'd rather care about the business , but is there possibly a hesitation on the side of the hyperscalers to talk about Nokia , given Nokia is not a US company , or are there any other specific reasons why you wouldn't have sort of more meaningful announcement that tell us , you know , what you're doing with which Hyperscaler and these kinds of questions .

Speaker #9: Thank you .

Speaker #2: Yeah , I think , Ulrich , you probably you probably have to talk to , you know , to our customer or you have to for who they are .

Justin Hotard: Yeah. I think, Ulrich, you probably have to talk to our customer or perhaps who they are, but you could ask customers about us. From my perspective, that's not my priority. My priority is making sure we're partnering with them effectively, we're delivering what they need, and we're helping them execute on their strategies. That's my focus. Obviously, we're capturing our share of the opportunity that's out there. That's where I spend my time. Obviously, I think what's a little bit different about us than some of the US players more broadly is that we also don't have a concentration dynamic because the business is more diversified, and so that may be also something. There's no indication that I get that there's any kind of geopolitical dynamic to this.

Speaker #2: But you could ask customers about about us . From my perspective , that's not the , that's not my priority . My priority is making sure we're , you know , we're partnering with them effectively .

Speaker #2: We're delivering what they need and we're helping them execute on their strategies . That's , that's my focus . And , you know , and obviously , we're , you know , we're , we're capturing our , you know , our share of the opportunity that's out there .

Speaker #2: So that's where I spend my time . You know , obviously , I think what's a little bit different about us than some of the , the US players , more broadly is that we also don't have a concentration dynamic because the business is more diversified .

Speaker #2: And so that may be also something, but there's no indication that I get that there's any kind of geopolitical dynamic to this.

Speaker #3: Thanks , Ulrich . We'll take our next question from Richard Kramer from Richard . Please go ahead .

David Mulholland: Thanks, Ulrich. We'll take our next question from Richard Kramer from Arete. Richard, please go ahead.

Speaker #10: Thanks very much . Justin , you mentioned the elongation of the order book . Can you tell us how much of that billion of new contracts orders is firm , i.e. that you have purchase orders against it versus long term sort of frame contracts just to understand the timing of realizing that that additional incremental billion of orders .

Richard Kramer: Thanks very much. Justin, you mentioned the elongation of the order book. Can you tell us how much of that EUR 1 billion of new contracts orders is firm, i.e., that you have purchase orders against it versus long-term frame contracts, just to understand the timing of realizing that additional incremental EUR 1 billion of orders?

Speaker #2: Yeah , actually , Richard , this is a this is a great question . So just to clarify , we have actually across the business , including with our telco customers , we have multi-year frame agreements .

Justin Hotard: Yeah. Actually, Richard, this is a great question. Just to clarify, we have actually across the business, including with our telco customers, we have multi-year frame agreements, and sometimes we announce some of those. The only thing you see in orders is firm purchase orders with delivery dates. What we haven't dimensionalized for you is anything above a certain lead time. One thing we are seeing is some of that elongation. I see that as a net positive because I think it's tied to the underlying demand for the products, and it helps us with predictability and capacity planning. For me, it's a positive in terms of how we're managing and scaling the business.

Speaker #2: And sometimes we announce some of those , but the only thing you see in orders is firm purchase orders with delivery dates . What we haven't dimensionalized for you is anything , you know , kind of above a certain lead time , but we are , you know , one thing we are seeing is , is , you know , is some of that elongation .

Speaker #2: But I see that as a net positive because I think it you know , it's it's it's tied to the demand , the underlying demand for the products .

Speaker #2: And it helps us with predictability and capacity planning . So for me , it's a , it's a positive in terms of how we're managing and scaling the business .

Speaker #3: Did you have a quick follow-up, Richard?

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

Speaker #10: For Marco ? Yes , yes , please . Quick one for Marco . Given the working capital build up , the employee incentives , the 750 to 850 million of pending CapEx to your 900 to 1 billion expectation restructuring and so on .

Richard Kramer: For Marco Wirén. Yes, please. Quick one for Marco Wirén. Given the working capital buildup, the employee incentives, the $750 to $850 million of pending CapEx, to your $900 to 1 billion expectation, restructuring, and so on, will year-end cash be materially lower than what we see now? It just feels like you have a lot of cash constraints or drains on the business in the next two to three quarters.

Speaker #10: Will year end cash be materially lower than what we see now ? It just feels like you have a lot of cash constraints or drains on the business in the next 2 to 3 quarters .

Speaker #1: Yeah . Thank you . Yeah . Just like you said , we had a very good cash generation quarter one and quarter two is lower , but we do generate cash continuously year by year as well .

Marco Wirén: Yeah. Thank you. Just like you said, we had a very good cash generation in Q1, and Q2 is lower. We do generate cash continuously year by year as well, and we are also securing that we have very good cash position to have the freedom to make decisions that we need to do. Of course, always allowing us to follow the capital allocation principles that we have in the company. That first priority is on R&D, and then second is to find other investments in organic that could support our growth, and then dividend. If we deem to have excess capital, then we can consider share buybacks as well. We're quite confident about our cash position.

Speaker #1: And we are Also securing that we have very good cash position to have freedom to make decisions that we need to do . Of course , always allowing us to follow the capital allocation principles that we have in the company That first priority is on R&D and and the second is to find other investments in organic that could support our growth and , and then dividend .

Speaker #1: And if we deem to have excess capital, then we can consider share buybacks as well. But we are quite confident about our cash position.

Speaker #3: Thanks, Richard. We'll take our next question from Felix Henriksen from Felix. Please go ahead.

David Mulholland: Thanks, Richard. We'll take our next question from Felix Henriksson from Nordea. Felix, please go ahead.

Speaker #11: Thanks , guys . And congrats for a strong order . Quarter . Given the unprecedented demand in AI and cloud and also the supply constraint market environment across the sector is pricing something that's contributing to your guidance , upgrading optical and IP .

Felix Henriksson: Thanks, guys, and congrats for a strong order quarter. Given the unprecedented demand in AI and cloud and also the supply-constrained market environment across the sector, is pricing something that's contributing to your guidance upgrade in optical and IP? Are you starting to see support from raising prices for that? Thanks.

Speaker #11: Are you starting to see , you know , support from from raising prices for that ? Thanks

Speaker #3: Yeah .

Justin Hotard: Yeah. Felix, thanks for that. Maybe I'll comment, and Marco, you may want to add. I think in general, what we see is, if you look at optical, structurally, you've got a cost curve that's probably coming down, which is enabling scaling. I would say, in general, it's not a contribution on pricing. It's much more unit volume. What I will say is I think we acknowledge that there are some cases where pricing is going up. Memory's been talked about quite a bit as a structural pivot. That's a place where we have some exposure across the business, and obviously we're working with customers on that because in our minds, that's something that's structural that, in some cases, we're passing on. In other cases, we're also working on things like redesigning our products, right? Again, those are focuses that we're working on mitigating.

Speaker #2: Felix , thanks for that . Maybe I'll comment . Marco , you might want to add , but I think in general , in general , what we see is if you look at optical , you've actually got a structurally you've got a cost curve that's probably coming down , which is enabling scaling .

Speaker #2: And so , so I would say in general , I , we don't see a , you know , there's not a contribution on pricing .

Speaker #2: It's much more unit volume . What I will say is I think we acknowledge that there are some cases where pricing is going up .

Speaker #2: I mean , memory has been talked about quite a bit . You know , as a as a structural pivot . And that's a place where , you know , we have some , some exposure across the business .

Speaker #2: And obviously we're working with customers on that because in our minds , that's , that's something that's structural that we're , you know , in some cases we're passing on , in other cases , we're , you know , we're also working on things like redesigning our products , right .

Speaker #2: But again , you know , those are those are focuses that we're , you know , we're working on mitigating . And then , you know , but in general , I would say , if you look at the growth , that's much more volume driven than it is price driven .

Justin Hotard: In general, I would say if you look at the growth, it's much more volume-driven than it is price-driven.

Speaker #1: And just building on that, if you think the knee launches that we introduced also in the OFC, the main focus is power of the bid.

Marco Wirén: Yeah. Just building on that, if you think the new launches that we introduced also in the OFC, the main focus is power of the bid. How can we improve the power of the bid for our customers? Because that's one of the main KPIs they have, helping them to improve their cost base.

Speaker #1: So how can we improve the power bid for customers ? Because that's one of the main KPIs they have . So helping them to improve their cost base

Speaker #3: Do you have a quick follow-up, Felix?

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

Speaker #11: Yeah , just a quick one . I'm not sure if I if I missed it already , but can you just comment on how long do you leave times between getting the order to actual revenues and optical are at the moment , just trying to get a sense of these 1 billion incremental AI and cloud orders for Q1 , whether or not those will already support 2026 or more .

Felix Henriksson: Yeah, just a quick one. I'm not sure if I missed it already, but can you just comment on how long the lead times between getting the order to actual revenues in optical are at the moment? Just trying to get a sense of these EUR 1 billion incremental AI and cloud orders for Q1, whether or not those will already support 2026 or more so for 2027. Thanks.

Speaker #11: So for 2027 . Thanks .

Speaker #2: Yeah , I don't think we gave you a specific one , Felix , but I think dimensioning probably for this for the broader demand that we see is like , you know , in this in the optical space is 12 to 18 months .

Justin Hotard: Yeah. I don't think we gave you a specific one, Felix, but I think dimensioning probably for the broader demand that we see is like in the optical space is 12 to 18 months. As you know, there's always exceptions in these things where some things might be sooner, depending on the specific product. That's probably a good way to think about the broader lead times we're seeing today.

Speaker #2: I mean , there's , there's , as you know , there's always exceptions in these things where some things might be sooner , you know , depending on the specific product .

Speaker #2: But that's probably a good, a good way to think about, about the broader lead times we're seeing today.

Speaker #3: Thanks, Felix. We'll take our next question from Sandeep Deshpande from JP Morgan. Sandeep, please go ahead.

David Mulholland: Thanks, Felix. We'll take our next question from Sandeep Deshpande from JP Morgan. Sandeep, please go ahead. Sandeep, we can't hear you.

Operator 2: Sandeep Deshpande, perhaps your line is on mute.

Operator: Sandeep Deshpande, perhaps your line is on mute.

Speaker #4: Perhaps your line is on mute.

Speaker #12: Hi . Sorry . My first question is regarding the switching business of Nokia you in the on the optical side , you probably have all the hyperscalers as customers at this point .

Sandeep Deshpande: Hi. Sorry. My first question is regarding the switching business of Nokia. On the optical side, you probably have all the hyperscalers as customers at this point. You've announced in the past few quarters wins on switches at multiple hyperscalers. Would you suggest at this point that you have fairly broad exposure in terms of at least what is the future design win activity or future shipments at all the hyperscalers, or is it still very limited to one or two hyperscalers in terms of your switching business?

Speaker #12: You've announced in the past few quarters wins on switches at multiple hyperscalers. Would you suggest at this point that you have fairly broad exposure in terms of at least what is the future design win activity, or future shipments at all?

Speaker #12: The hyperscalers? Or is it still very limited to one or two hyperscalers in terms of your switching business?

Justin Hotard: I don't know if I'll give you that much dimensioning, Sandeep, but I would say that as you look at the AI and cloud customer base, the major AI and cloud customer base, there's a set of different strategies that each one pursues. I'd say the places where we get traction is where our portfolio fits their strategy. That's probably the best way to give you the answer.

Speaker #2: I don't know if I'll give you that much dimensioning . Sandeep , but I would I would say that as you look at the AI and cloud customer base , the macro AI and cloud customer base , there's quite there's a set of different strategies that each one pursues .

Speaker #2: And I'd say the place , you know , the places where we , you know , we get traction is where our portfolio fits their strategy .

Speaker #2: It's probably the best way to give you the answer.

Speaker #3: Did you have a quick follow-up?

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

Sandeep Deshpande: Is it broader today than it was, say, a year ago, the customer base?

Speaker #12: Is it broader today than it was, say, a year ago? The customer base?

Sandeep Deshpande: Is it broader today than it was, say, a year ago, the customer base?

Speaker #2: Yeah , I think I think it's yeah , I guess I don't I don't quite measure it that way . I'm looking more at the design wins and the footprint .

Justin Hotard: Yeah. I guess I don't quite measure it that way. I'm looking more at the design wins and the footprint, and I think that's certainly broader based on what we see today than it was a year ago.

Speaker #2: And I think that's certainly broader based on what we see today than it was a year ago .

Speaker #12: Thank you . And I have a quick follow up on the the financials . I mean , well before your time . I mean , Nokia in the past , in terms of merger , M&A has in terms of integration has had problems .

Sandeep Deshpande: Thank you. I have a quick follow-up on the financials. Marco, well before your time, Nokia, in the past, in terms of merger M&A, in terms of integration, has had problems. Clearly, at this point, you have tremendous growth, so that is helping the top line very significantly. Has the company got a structured process in place such that in terms of the integration with Infinera, that this underlying doesn't have any issues going in the mid to long term? Secondly, given that there is a new fab ramping up as well later this year, are there any risks associated with that later in the year, given typically with semiconductor fab ramp-ups, they can have issues?

Speaker #12: Clearly at this point you have tremendous growth . So that is helping the top line very significantly . But has the company got a structured process in place such that in terms of the integration with Infinera , that this underlying doesn't have any issues going in the in the in the mid to long term .

Speaker #12: And then secondly , given that there is a new fab ramping up as well later this year , are there any risks associated with that later in the year given typically with semiconductor fab ramp ups , they can have issues .

Speaker #1: Yeah. First, we've looked to integration. As mentioned earlier as well, we are tracking extremely well on that compared to our own targets.

Marco Wirén: Yeah. First of all, if you look at the integration, as mentioned earlier as well, that we are tracking extremely well on that compared to our own targets and also what we guided this trade. We've been actually doing it better than we expected. The team is extremely focused on securing the integration, and speed is extremely important here. I understand your comment on the past, perhaps, but this is definitely going well, and we're extremely happy with the progress.

Speaker #1: And also what we guided to street and , and we've been actually doing it better than we expected . So the team is extremely focused on securing the integration and speed is , is extremely important here .

Speaker #1: So I understand your , your comment on , on the past perhaps , but , but this is definitely going well . And we're extremely happy with the progress you want to .

Justin Hotard: Yeah, maybe I'll just add on that. I would just say, Sandeep, two things. One is, I think if you look underneath this, even if you took the growth out, I think you'd see very solid execution on the integration. I think the team's done really well. One of the most important things in an integration that's a driver of outcome is cultural. One thing that was clear to me when I went to OFC was everybody was a member of Team Nokia. There wasn't an Infinera Nokia team, it was one team. That's hugely important for being successful. The two other comments I'll make here is, one acquisition, as you well know, does not a trend make in terms of successful execution and integration. We have more work to do before we decide we're effective at this.

Speaker #1: Yeah .

Speaker #2: Maybe I'll just add on that . I would just say . Sandeep , two things . One is I think if you look underneath this , even if you took the growth out , I think you'd see very solid execution on the on the integration .

Speaker #2: I think the team's done really well. One of the most important things in integration, that's a driver of outcome, is cultural.

Speaker #2: And you know, one thing that was clear to me when I went to OFC was I could not, you know, everybody was in Nokia.

Speaker #2: It was a it was a member of team Nokia there wasn't a infinera Nokia team . It was one team that's hugely important , right , for being successful .

Speaker #2: The two other comments I'll make here is one one acquisition . As you well know , does not a trend make in terms of successful execution and integration .

Speaker #2: So we have more work to do before we decide where we're effective at this . And and it's something that with the , the focus we put under the chief corporate Development Officer , Constantine , you know , obviously one is making sure we find the right business for our the right place for our portfolio businesses , you know , two is obviously being smart with how we think about capital allocation in terms of , of M&A , where we believe that's accretive to our strategy .

Justin Hotard: It's something that, with the focus we put under the Chief Corporate Development Officer, Konstanty, obviously one is making sure we find the right place for our portfolio businesses. Two is obviously being smart with how we think about capital allocation in terms of M&A, where we believe that's accretive to our strategy. Three is making sure we actually execute the integration. That's a place where I'm pleased with the work that he and the team are doing, obviously in close partnership with Marco, with our Chief People Officer, with all the key functions, and the business presidents. There's a journey here, and I think the net here is Infinera has been a good one. We need to get the learnings on that and then make sure we also don't forget the lessons from some of the challenges we've had in the past.

Speaker #2: And then three is making sure we actually execute the integration. So that's a place where I'm pleased with the work that he and the team are doing.

Speaker #2: Obviously , in close partnership with Marco , with our chief people officer , with , you know , with all the all the key functions and , and the , the business president's .

Speaker #2: But but there's , there's a , there's a journey here . And I think the net here is Infinera has been a good one .

Speaker #2: We need to get the learnings on that, and then make sure we also don't forget the lessons from some of the—some of the challenges we've had in the past.

Speaker #1: And then it comes to the manufacturing . Remember that indium phosphide is quite different compared to silicon manufacturing . So this is a , first of all , much lower CapEx needed , but also it's it's faster and and I think that our team is working extremely well .

Marco Wirén: With regards to the manufacturing, remember that indium phosphide is quite different compared to silicon manufacturing. This is, first of all, much lower CapEx needed. Also, it's faster, and I think that our team is working extremely well, understanding based on the learnings also from the fab one, we are transferring those into the fab two and very good learnings from fab one. I don't know, Justin, if you want to say something more.

Speaker #1: And understanding based on the learnings also from the fab one , we are transferring those into the fab two and , and very good learnings , learnings from Fab one .

Speaker #1: I don't know, just if you want to say something more.

Speaker #2: No , I would just say our guide . The only thing I would add is I think our guidance is , is risk balanced understanding , contemplating that , you know , that ramp and the reality is Fab two is a is a fraction of the ramp for 26 .

Justin Hotard: No, I would just say our guide. The only thing I would add is I think our guidance is risk balanced understanding, contemplating that ramp. The reality is fab two is a fraction of the ramp for 2026. There's much more material to longer term.

Speaker #2: It's much more material to, you know, to longer term.

Speaker #3: Thanks , Sandeep . We'll take our next question from Jakob Bluestone from BNP Paribas . Jakob , please go ahead .

David Mulholland: Thanks, Sandeep. We'll take our next question from Jakob Bluestone from BNP Paribas. Jakob, please go ahead.

Speaker #13: Thanks for taking the question. So, I had a question on the sort of margin progression as your IP revenues scale, and you've put through a sizable increase in your revenue guidance for some of the components for knee.

Jakob Bluestone: Thanks for taking the question. I had a question on the sort of margin progression as your IP revenues scale. I mean, you've put through a sizable increase in your revenue guidance for some of the components for NI, but it's a sort of more modest change in your language at a group level. If you could maybe just help us understand for IP in particular, as that business starts to accelerate, is it a bit like what we've seen on Optical, where initially it's perhaps not quite as accretive to margins, and then as that business starts to gain scale, it becomes a lot more margin accretive as well. Just if you can help us sort of understand the drivers there.

Speaker #13: But it's a sort of more modest change in your language at a group level . So if you could maybe just help us understand for IP in particular , as that business starts to accelerate , is it a bit like what we've seen on optical , where initially it's perhaps not quite as accretive to margins and then as that business starts to gain scale , it becomes a lot more margin accretive as well .

Speaker #13: So just if you can help us sort of understand the drivers there.

Speaker #2: I think the way I think about it , Jacob , is , is , you know , I think probably , probably like any business , there's a scaling effect , right ?

Justin Hotard: I think the way I think about it, Jakob, is I think probably like any business there's a scaling effect, right? I guess for me, the big focus right now is on capturing the opportunity and making sure it's accretive profit into the company. That's the priority. I don't know, Marco, if you'd add anything.

Speaker #2: I guess for me, the big focus right now is on capturing the opportunity and making sure it's accretive profit into the company.

Speaker #2: That's the priority. I don't know, Marco, if you'd add anything.

Speaker #1: No , it's always when you're starting with the new products , it takes some time to to get the profitability up . And that's why we also mentioned that we see some some impact of that in any for first off , first half of this year .

Marco Wirén: No. Always when you're starting with the new products, it takes some time to get the profitability up, and that's why we also mentioned that we see some impact of that in NI for H1 of this year. Just like Justin said, that these are definitely accretive to operating profit, and we see good opportunities there.

Speaker #1: But just like Justin said that these are definitely accretive to , to our operating profit and , and we see good opportunities there

Speaker #3: Just ask about .

Jakob Bluestone: Just to ask about your San José.

Speaker #13: Your .

Speaker #14: San Jose, San Jose.

Speaker #3: Go ahead . Jacob .

David Mulholland: Go ahead, Jakob.

Speaker #13: Oh, so I just had a quick follow-up just on the San Jose fab. Can you maybe just help us understand?

Jakob Bluestone: Oh, I just had a quick follow-up. Just on the San Jose fab, can you maybe just help us understand, I don't know if there's any way to quantify whether that will cover your internal needs from the outset or not?

Jakob Bluestone: Oh, I just had a quick follow-up. Just on the San José fab, can you maybe just help us understand, I don't know if there's any way to quantify whether that will cover your internal needs from the outset or not?

Speaker #13: I don't know if there's any way to quantify whether that will cover your internal needs from the outset or not.

Speaker #2: Yeah . I mean , I think , I think as we've we've talked about San Jose gives us support . Certainly support for the growth that we see .

Justin Hotard: Yeah, I think as we've talked about, San Jose gives us support, certainly support for the growth that we see, and expansion capacity for us as well beyond the portfolio that we have today and the volume that we see in the market. That doesn't mean that we won't look at ways to further accelerate capacity because, as we said, we think long term, this is a structural market, and we're pretty uniquely positioned as one of the few manufacturers with indium phosphide manufacturing capability at scale. We think fab two certainly gives us the runway for the near term.

Justin Hotard: Yeah, I think as we've talked about, San José gives us support, certainly support for the growth that we see, and expansion capacity for us as well beyond the portfolio that we have today and the volume that we see in the market. That doesn't mean that we won't look at ways to further accelerate capacity because, as we said, we think long term, this is a structural market, and we're pretty uniquely positioned as one of the few manufacturers with indium phosphide manufacturing capability at scale. We think fab two certainly gives us the runway for the near term.

Speaker #2: And , and , and expansion capacity for us as well . Beyond , beyond the portfolio that we have today and the volume that we see in the market .

Speaker #2: So , so , you know . That doesn't mean that we , you know , you know , we won't look at ways to accelerate , you know , further accelerate capacity because as we said , we think long term , this is a structural market and we're pretty uniquely positioned as one of the few manufacturers with indium phosphide manufacturing capability at scale .

Speaker #2: But but we think Fatou gives us certainly gives us the runway for for the near term .

Speaker #3: Thanks , Jacob . We'll take our next question from Sebastian from Kepler . Sebastian , please go ahead .

David Mulholland: Thanks, Jakob. We'll take our next question from Sébastien Sztabowicz from Kepler. Sébastien, please go ahead.

David Mulholland: Thanks, Jakob. We'll take our next question from Sébastien Sztabowicz from Kepler Cheuvreux. Sébastien, please go ahead.

Speaker #15: Yeah . Thanks for taking my question . On the main opportunity for Nokia remains . Kaito with optical line system and your pluggable optics , but I'm just curious , have you seen any specific opportunity building up around co-packaged optics or near package optics ?

Sébastien Sztabowicz: Yeah, thanks for taking my question on optics. The main opportunity for Nokia remains scaling across with optical line system and your pluggable optics. I'm just curious, have you seen any specific opportunity building up on co-packaged optics or near-packaged optics? Because the market seems to be quite bullish, or there is a lot of demand building up these days.

Speaker #15: Because the market seems to be quite bullish, or there is a lot of demand being observed. Dave

Speaker #2: Yeah , I think on that side , we've not made any announcements there . We you know , we've demonstrated NFC . We demonstrated some some technology development .

Justin Hotard: Yeah, I think on that side, we've not made any announcements there. At OFC, we demonstrated some technology development, but no announcements at this time.

Speaker #2: But no, no announcements at this time.

Speaker #15: Okay . And follow up on Infineon . The synergies . Previously you were talking about maybe generating the 200 million synergies in 2026 instead of 27 .

Sébastien Sztabowicz: Okay. A follow-up on Infinera and the synergies. Previously, you were talking about maybe generating EUR 200 million synergies in 2026 instead of 2027. Are you still on track with that? Attached to this question, given the accelerated investment, is it fair to assume still a nice improvement of margin in Optical Networks this year or not? Thank you.

Speaker #15: Are you still on track with that ? And attached to to this question , given the accelerated investment , is it fair to assume still a nice improvement of margin in optical network this year or not ?

Speaker #15: Thank you. Thank you.

Speaker #1: Yeah . Thank you . Sebastian . Yeah . The synergy , as I said earlier , we are tracking very well . And a little bit ahead of of our schedule .

Marco Wirén: Yeah, thank you, Sébastien. Yeah, the synergy, as I said earlier, we are tracking very well and a little bit ahead of our schedule. We originally said that it will take three years from the closing, and we said that we are tracking somewhat better than that. We see the impact of synergies already in our quarterly reports as well, just like in Q1, we mentioned that Infinera acquisition synergies are benefiting optical business, and we will see those throughout the year as well.

Speaker #1: We originally said that it will take three years from the closing, and we said that we are tracking somewhat better than that.

Speaker #1: And we we see the impact synergies already in our quarterly reports as well . Just like in quarter one , we we mentioned that that Infinera acquisition synergies are benefiting optical business .

Speaker #1: And we will see those throughout the year as well.

Speaker #3: Thanks , Sebastian . We'll take our next question from Oliver Wong from Bank of America . Oliver , please go ahead .

David Mulholland: Thanks, Sébastien. We'll take our next question from Oliver Wong from Bank of America. Oliver, please go ahead.

Speaker #16: Hey , guys . Thanks for taking my question . Not a question on going back to the Q1 , I orders and just your your backlog and are in general , I guess .

Oliver Wong: Hey, guys. Thanks for taking my question. Another question on going back to the Q1 AI orders and just your backlog and AI orders in general. I guess so you mentioned that the lead times in Optical, and I think IP are 12 to 18 months.

Speaker #16: So you mentioned that the lead times and optical and I think IP are 12 to 18 months currently . But you also significantly increased your growth assumptions for , for this year for optical and IP .

Oliver Wong: ... currently, but you also significantly increased your growth assumptions for this year for optics, Core, and IP. I was wondering, are these orders, even though the lead times are up to 18 months, or is much of this still quite kind of near-term loaded? And also in terms of the IP growth expected this year, I presume that most of that is from a switch. But you mentioned getting design wins and then that translating into orders starting next quarter. Are a lot of these design wins expected to translate into revenues this year? Thanks.

Speaker #16: So I was wondering , you know , are these orders , you know , even though the lead times are up to 18 months or are as much of this still quite kind of , you know , near near-term loaded and also in terms of , you know , the IP growth expected this year , I presume that most of that is from a which is this .

Speaker #16: But you mentioned kind of , you know , getting design wins and then that translating into orders starting next quarter . So , you know , or , or a lot of these design wins expected to kind of , you know , translate into revenues this year .

Speaker #16: Thanks .

Speaker #2: I think some some , I think as we touched on some of the design wins , we'll start ramping this year . And yeah , and I should clarify , we talked a little bit about optical being 12 to 18 months .

Justin Hotard: I think as we touched on, some of the design wins will start ramping this year. I should clarify, we talked a little bit about Optical being 12 to 18 months. I think you've heard other peers in the industry talk, or some of the players, actually the ecosystem peers, talk about being sold out over multiple years. I think that's probably a pretty good indication of where we see the Optical side. IP is a little bit shorter, but I would say there's parts of that supply chain that have constraints. Obviously we work closely with customers on forecasting and planning. As we said, the only thing we register are the actual purchase orders themselves. That's what you'll see translated to orders.

Speaker #2: You know , I think I think you've heard other peers in the industry talk or some of the players , I should say , ecosystem peers talk about being sold out over multiple years .

Speaker #2: I think that's probably a pretty good indication of where we see the optical side . IP is , is a little bit shorter , but I would say , you know , there's parts of that supply chain that have constraints .

Speaker #2: And so obviously we work closely with customers on forecasting and planning . And as we said , the only thing we register are the actual purchase orders themselves .

Speaker #2: That's what you'll see translated to orders.

David Mulholland: Thanks, Oliver. We'll take our last question this morning from Andreas Joelsson from DNB Carnegie. Emil, please go ahead.

Speaker #3: Thanks , Oliver . We'll take our last question this morning from M Immonen from DMV . Carnegie . Emil , please go ahead

Andreas Joelsson: Hi, David. Thanks for taking my question. I have a question about 27% growth they're saying.

Speaker #17: Hi there . Thanks for taking my question . So one question on the 27% .

David Mulholland: We can barely hear you. Your line is very hard to hear.

Speaker #3: We can barely hear you . Your line is very hard to hear

Andreas Joelsson: Can you hear me now?

Speaker #17: Can you hear me now?

David Mulholland: Yeah, that's a bit better.

Speaker #3: Yeah, that's a bit better.

Andreas Joelsson: Yeah. The growth you're seeing between 7% market growth that you're now seeing instead of 16%, could you comment on? Is that volume or is that price driven?

Speaker #17: Yeah , yeah . So the thing is , 27% market growth that are now seeing is 16% . Could you comment on is that volume or is that price driven

Justin Hotard: It's volume driven.

Speaker #2: As volume driven

Andreas Joelsson: Okay. In that case, given Fab 2 coming online now then at the end of this year, does that mean that you are building a third Fab maybe? Because I think previously you said that you were planning your current capacity to the earlier growth you were seeing in demand.

Speaker #17: Okay. In that case, given the two coming online now, then at the end of this year, does that mean that you are building a third sub?

Speaker #17: Maybe because I think previously it said that you were planning your current capacity due to the earlier growth you were seeing in demand.

Justin Hotard: Yeah. I think one thing, maybe just to clarify in case we haven't clarified in the past, Fab 2, when we shared in November, what we talked about was Fab 2 being able to be sufficient to meet the demands of the guidance we provided, and there was additional capacity on top. Obviously, we're not making any announcements about additional manufacturing capacity at this time, but that's the way I would think about it, is that in the prior guidance, there was excess capacity, and ability to build. If you kind of stitch the conversation together, I'll stitch it together for you. We're making additional investments. That probably means that part of what we're doing there is investing in ramping Fab 2 at scale.

Speaker #2: Yeah , I think one thing we've maybe just to clarify , in case we haven't clarified in the past , you know , Fab Two is when we shared in November , what we talked about was Fab two meeting some , being able to be sufficient to meet the demands of the guidance .

Speaker #2: We provided . And there was additional capacity on . Obviously , we're not making any announcements about additional capacity at this time , but but that's the way I would think about it , is that in the prior guidance , there was there was excess capacity and ability to build .

Speaker #2: I would take the investment. If you kind of stitch the conversation together, I'll stitch it together for you. You're making additional investments.

Speaker #2: That probably means that we're, you know, part of what we're doing there is investing in ramping the fab two at scale.

Justin Hotard: It's not just the Fab, it's all the components of the supply chain because that Fab produces a critical component, which is the optical component. There's also a DSP, there's other components in our pluggables, and there's also many other components in our subsystems from the ecosystem. All of that factors into this.

Speaker #2: And again , it's not just the fab , it's all the components of the supply chain because that fab produces a critical component , which is the , which is the optical component .

Speaker #2: But there's also a DSP , there's other components in , in our pluggable . And there's also many other components in our , in our subsystems , you know , from , from the ecosystem .

Speaker #2: So, all of that factors into this.

Andreas Joelsson: Great. Thanks for clarifying.

Speaker #17: Great . Thanks for clarifying

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

Speaker #3: And thank you , ladies and gentlemen , for joining us today . 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 involve risks and uncertainties .

Speaker #3: 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 #3: We have identified such risks and the risk Factors section of our Annual report on Form 20 F , which is available on our Investor Relations website .

Speaker #3: Thank you all

Operator 2: This conference has now concluded. Thank you for attending today's presentation. You may now disconnect your devices.

Operator: This conference has now concluded. Thank you for attending today's presentation. You may now disconnect your devices.

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