Nokia Oyj Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Justin's Observations: Nokia is a global leader in connectivity with a strong technology base. He is focused on capital allocation to drive efficiency and invest in right growth segments. Q1 financial performance showed encouraging signs of market recovery with solid order growth across businesses.
• Q1 Financial Performance: Net sales declined 3% year-over-year, but network infrastructure grew 11% (optical networks 15%), cloud and network services grew 8%, and mobile networks saw sales stabilize at 2%. Operating margin in network infrastructure expanded 190 basis points and in cloud and network services expanded 930 basis points. Free cash flow was strong at over EUR 700 million, resulting in a net cash position of EUR 3 billion at the end of the quarter.
• Current Environment: Markets are relatively resilient. Tariffs could have a EUR 20 million to EUR 30 million impact to operating profit in Q2.
• Infinera Acquisition: Has value creation potential. Optical Networks grew 15% in Q1 with a book-to-bill above one. Integration is on track to achieve synergy targets.

Segment Performance

• Network Infrastructure: Net sales grew 11%. Optical networks had a particularly strong quarter with 15% growth. Fixed networks and IP networks grew 9% and 7% respectively.
• Cloud and Network Services: Net sales grew 8%, reflecting continued momentum in core networks, especially 5G core.
• Mobile Networks: Net sales grew 2%, but was impacted by a EUR 120 million one-time contract settlement. Excluding this, mobile networks gross margin would have been more aligned with the normalized range of 38%-39% seen in 2024. Operating margin was negative 8.8%.
• Nokia Technologies: Net sales declined 52%, but this was due to a challenging comparison with the prior year quarter which benefited from over EUR 400 million of catch-up net sales. The annual net sales run rate has increased to approximately EUR 1.4 billion.

Guidance

• 2025 comparable operating profit is expected to be in the range of EUR 1.9 billion to EUR 2.4 billion. However, the one-time charge in mobile networks makes achieving the top end of the range more challenging.
• Tariffs could have a EUR 20 million to EUR 30 million impact to operating profit in Q2. The supply chain teams are proactively working to mitigate exposure.
• The integration of Infinera does not meaningfully impact the operating profit range for 2025.

Risks

• Global Trade Landscape: Nokia is not immune to the evolving global trade landscape, which could impact business performance.
• Tariffs: Potential impact on operating profit, with a EUR 20 million to EUR 30 million impact expected in Q2.
• Supply Chain: Risks associated with supply chain management, especially in relation to tariffs and global manufacturing network dynamics.

Question and Answer

• Q: Alexander Duval asked about the T-Mobile contract extension duration, importance, and network infrastructure backlog: A: Justin Hotard responded that the T-Mobile RAN contract is a significant multiyear extension, and network infrastructure growth is related to the Infinera acquisition, with a book-to-bill above 1 for network infrastructure as a whole and optical networks specifically.
• Q: Daniel Djurberg inquired about the EUR 31 million loss of Infinera from 28 Feb to 31 Mar: A: Marco Wiren replied that the loss was because the acquisition closed on 28 Feb, so only March was in the quarter's books, and March actually had positive results. Infinera was loss-making in 2024 but expected to achieve synergies with Nokia.
• Q: Richard Kramer asked about what is required to win large AI data center deals: A: Justin Hotard stated it involves product portfolio, collaboration and co-development with customers, and a different cycle compared to other businesses.
• Q: Ulrich Rathe asked about tariff impact assumptions and Infinera facility capacity utilization: A: Justin Hotard mentioned focusing on cost impact, having multiple manufacturing facilities in the US, and evaluating mitigation measures.
• Q: Simon Leopold asked about contrast with previous views and surprises since joining: A: Justin Hotard answered being pleasantly surprised by the technology base and employee passion, and focusing on capital allocation to maximize value.
• Q: Artem Beletski inquired about growth outlook for network infrastructure segments: A: Justin Hotard and Marco Wiren stated optical is the biggest growth opportunity, IP networks next, and fixed networks stable.
• Q: Sami Sarkamies asked about the Amazon licensing deal: A: Marco Wiren and Justin Hotard said the deal ended litigation issues, and Nokia Technologies' net sales run rate increased to EUR 1.4 billion.
• Q: Francois-Xavier Bouvignies asked about the importance of mobile networks in capital allocation: A: Justin Hotard replied mobile networks have unique value and opportunities to capture value.
• Q: Felix Henriksson asked if US customers pulled forward demand in Q1 due to tariffs: A: Justin Hotard answered no significant impact seen in Q1, but monitoring Q2 and leveraging global manufacturing network.
• Q: Robert Sanders asked about EMS partners and B program: A: Justin Hotard said focusing on supply chain flexibility and B program's progress.
• Q: Jakob Bluestone asked about tariff cost bearer and B program details: A: Justin Hotard responded that contract details vary, and B program's situation is being followed closely.