Nokia Oyj Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Overall Performance: Solid Q3 with 9% net sales growth, all business groups growing. Order intake strong, especially in optical and IP networks driven by AI/cloud.
• Network Infrastructure: Progress in AI/cloud segment (6% of group net sales, 14% of network infrastructure, 29% of optical). Launched 800-gig ZR/ZR+ pluggables, strategic partnerships with Endscale and Super Micro, 2 new design wins for switching platform.
• Fixed Network: Launched 50 gig PON offering using Chilean chipset, enabling evolution from GPON to higher speeds, used by Frontier Communications.
• Cloud and Network Services: Strong net sales and operating profit growth, market share leader in 5G stand-alone core outside China (~70% of deployments), network penetration <30% for 5G stand-alone core.
• Mobile Networks: Market stabilization, deal with Vodafone 3 as major RAN supplier in UK with ~7,000 sites.
• Nokia Technologies: Secured new agreements, annual net sales run rate ~EUR 1.4B, strategic review of venture fund investments, scaling down passive investments, increasing targeted direct minority investments.
• Infinera Acquisition: Ahead of schedule with integration, contributed to net sales and order intake growth in Q3.

Segment Performance

• Network Infrastructure: Net sales grew 11%. Optical Networks had 19% sales growth with strong order trends (book-to-bill >1). IP Networks sales grew 4%, Fixed Networks grew 8%. Gross margin impacted by product mix, declined 190 basis points but improved from Q2.
• Cloud and Network Services: Sales grew 13%, gross margin increased 380 basis points due to improved cost of delivery and operating leverage, operating margin up 250 basis points but partially offset by higher R&D.
• Mobile Networks: Net sales grew 4% driven by Vietnam and MEA. Gross margin lower due to lower software contribution (370 basis point decline YTD).
• Nokia Technologies: Net sales grew 14%, annual net sales run rate ~EUR 1.4B, expected EUR 1.1B operating profit for the year.

Guidance

• Full year outlook on track, fourth quarter net sales expected to grow sequentially slightly above historical seasonality (22%).
• Tracking towards midpoint of operating profit outlook range (EUR 1.7B to EUR 2.2B).
• Expected EUR 450M cost savings in 2025 from cost savings program, focusing on operational leverage through productivity improvement, IT simplification, etc.

Risks

• Forward-looking statements involve risks and uncertainties, actual results may differ from expectations. Factors include external and internal operating factors, as detailed in the Risk Factors section of the annual report.

Question and Answer

Q: Relating to IP Networks and switching business progress and tracking to 2028 target?

A: Justin Hotard mentioned it's early days, pleased with wins and book-to-bill but still a small player, more work needed.

Q: Growth opportunities in AI and cloud, biggest segments?

A: Justin Hotard said hyperscalers and neo clouds are biggest opportunities now, also sovereign clouds in future.

Q: Thoughts on 6G mobility investments?

A: Justin Hotard said work on 6G technology standardization has started, investment ongoing, and focus on cloud-native core in mobile networks.

Q: Factors driving positive surprise in Q3?

A: Marco Wiren mentioned good development in Cloud and Network Services, traction in 5G stand-alone core, and cost optimization in CNS.

Q: Impact of EU pressure on Chinese vendors in mobile networks?

A: Justin Hotard said optimistic about capturing market opportunity if regulations support, and focus on operating leverage for investing in growth areas.