Title

Presentation

Nokia Oyj misses on earnings expectations. Reported EPS is $0.03 EPS, expectations were $0.05.

David Mulholland: Good morning, ladies and gentlemen. Welcome to Nokia’s First Quarter 2025 Results Call. I’m David Mulholland, Head of Nokia Investor Relations. And 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, transactions 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 Factors section of our annual report on Form 20-F, which is available on our Investor Relations website.

Within today’s presentation, references to growth rates will be mostly on a constant currency and portfolio basis, and this is basically to take into account both acquisitions that we’ve done and looked at on a like-for-like basis, if they’ve been present in both periods along with any disposals, where we refer to margins, it will be based on 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 a reconciliation between the two. In terms of the agenda for today’s call, Justin will go through some of the key messages from the quarter, and then Marco will go through the financial performance before we move to Q&A.

With that, let me hand over to Justin.

Justin Hotard: Thank you, David, and let me also welcome you to our conference call today. I’m honored to have been given the opportunity to lead Nokia. Nokia is a true global leader in connectivity with a strong heritage in technology. While I will share my initial observations with you today, please bear in mind it has only been three weeks since I started. I look forward to sharing more with you in the coming months and ultimately presenting our complete value creation vision for Nokia at a Capital Markets Day that we will hold in November. I also look forward to meeting with many of our shareholders and analysts in the coming months as I ramp up. We’ve already had some great engagements with some of our customers, employees, and other key stakeholders.

I’m impressed by our core technology base and the strength of our portfolio, including in RAN and core as well as across IP optical and fiber networking technologies. We have a very strong base of products and services and I think that is well recognized by our customers. It is also clear from my initial customer conversations that we are a critical trusted partner for their mobile and fixed infrastructure. In addition, we have significant potential to expand our presence in hyperscale, enterprise, and defense markets. In the time I’ve spent with our employees, I’ve been impressed with our innovative spirit, energy, and drive to unlock Nokia’s full potential. Going forward, I will be focusing on our approach to capital allocation. I will ensure that we continue to both drive for efficiency and invest sufficiently in the right growth segments to deliver long-term value.

I see opportunities across our portfolio to accelerate the transformation that is already underway. Turning to our Q1 financial performance. We continue to see encouraging signs of market recovery with solid order growth across the businesses. In the first quarter, our net sales declined 3% year-over-year. However, when you adjust for the over EUR 400 million of catch-up net sales in Nokia Technologies net sales grew 7%. Specifically, we grew 11% in network infrastructure with all units growing and particularly had strong growth in optical networks at 15%. Cloud and Network Services grew 8% with strong demand for 5G core and had significant wins at AT&T, Boost Mobile, Ooredoo Qatar and Telefonica. Mobile Networks continued to see sales stabilize growing 2% in the quarter.

I’m pleased to share that today we’ve also announced an extension of our RAN agreement with T-Mobile U.S. Our profitability in the quarter was impacted by the catch-up net sales in Nokia Technologies in the prior year along with the one time contract settlement in mobile networks of EUR 120 million. Operating margin in network infrastructure expanded 190 basis points and cloud and network services expanded 930 basis points. Our free cash flow performance in the quarter was also strong at over EUR 700 million, resulting in a net cash position of EUR 3 billion at the end of the quarter. Let me now touch on the current environment. While we are not immune to the evolving global trade landscape, my initial customer feedback indicates that our markets should prove to be relatively resilient.

Considering this, we continue to expect strong growth in network infrastructure, growth in cloud and network services, and largely stable net sales in mobile networks. We are actively monitoring the situation and staying closely engaged with our customers. With the visibility we have today, we expect tariffs could have a EUR 20 million to EUR 30 million impact to our operating profit in Q2. Our supply chain teams are proactively working to further mitigate the exposure, leveraging our global manufacturing network. Therefore, our guidance remains unchanged. It should be noted, however, that considering the unexpected charge that impacted mobile networks in the quarter, achieving the top end of the operating profit range will now be more challenging.

For clarity, considering the volatility of the situation, we have not taken an assumption related to tariffs in our second half of 2025 and the integration of Infinera does not meaningfully impact the range. The final topic I want to touch on this morning is the Infinera acquisition. Based on my initial assessment, I’m convinced of its value creation potential and confident we will achieve the expected synergies. As a quick reminder, this acquisition brings a number of significant benefits. It gives us the scale to accelerate our product road maps and to drive more innovation. It also increases our access to hyperscale customers, which are a key growth driver in both cloud and AI data center investments. Finally, it’s a complementary acquisition in terms of the customer geographic and technology profile.

The Q1 performance illustrated a number of these points clearly with strong momentum in the business. Optical Networks grew 15% in the quarter, as I mentioned, and with a book-to-bill above one. As a part of the integration, we’ve already made many portfolio decisions and communicated them to customers. Their feedback continues to be positive, and we are on track to achieve the synergy targets. While this progress is encouraging, there is still a lot of work ahead of us. With that, let me hand over to Marco to go through the financials in more detail.

Marco Wiren: Thanks, Justin, and hello from my side as well. I will start by discussing our overall group performance. Q1 net sales declined 3% on a constant currency and portfolio basis. As Justin explained, we saw strong growth in both network infrastructure and cloud and network services, while mobile networks also grew somewhat. These were offset by a challenging comparison in Nokia Technologies as the year ago quarter benefited from over EUR 400 million of catch-up net sales related to licensing deals signed in the quarter. Our gross margin decreased by 820 basis points to 42.3%, and this was mainly as a result of the lower Nokia Technologies net sales. And it was also impacted by the one-off settlement charge in mobile networks.

This, in addition to higher OpEx and a currency-related loss in Nokia Venture funds led to a 3.6% operating margin in Q1. Pleasingly, we generated over EUR 700 million of free cash flow in the quarter and ended the quarter with a EUR 3 billion of net cash, which I will go into more detail on shortly. Now turning to financial performance for business group. First, network infrastructure. They delivered a strong 11% growth. This reflected growth across each of the business units as optical networks had a particularly strong quarter growing 15%, fixed networks and IP networks grew 9% and 7%, respectively. Gross margin was relatively stable, while operating margin expanded 190 basis points year-on-year to 7.8%. And this is mainly the result of the higher net sales offsetting increased investments into growth opportunities.

The stabilization in mobile networks continued in Q1 with the net sales growing 2%. The net sales in North America grew at a double-digit pace as there were low levels of investment activity in the year ago quarter. India also returned to growth within the APAC region, while EMEA sales declined. Gross margin declined 10 percentage points to 30.9%, reflecting the one-off contract settlement, which had a net impact of EUR 120 million. If you exclude this, mobile networks gross margin would have been more aligned with the normalized gross margin range of 38% to 39%, we had seen during ’24. Operating margin was negative 8.8%, mainly the result of the lower gross margin. Turning to Cloud and Network Services. The net sales grew by 8% in the quarter, reflecting continued momentum in core networks and mainly in 5G core.

From a regional perspective, CNS saw broad-based growth with strength in India. The higher level of net sales drove strong expansion in both gross and operating margin given the business a strong start to the year. And turning now to Nokia Technologies. Net sales declined 52%, but this was entirely due to a challenging comparison in the year ago quarter, which benefited from over EUR 400 million of catch-up net sales. This was somewhat offset by the deals signed over the past 12 months, and catch-up net sales booked in the quarter related to agreements signed in quarter one. Nokia Technologies continue to execute and sign a deal with Amazon in addition to other smaller deals. The annual net sales run rate has now increased to approximately EUR 1.4 billion despite a headwind from recent currency movements.

Let’s now look at the net sales per region and a few things to point out here. First, you can see that North America was once again one of the biggest contributors to the net sales growth. And we saw strong growth across each of the Networks business groups with particular strength in network infrastructure and mobile networks. India returned to growth mainly driven by network infrastructure and especially by fixed networks where we benefited from a strong fixed wireless access demand. India also grew in mobile networks and cloud and network services. Europe saw a sizable decline, but this was mostly driven by Nokia Technologies as all its net sales are booked in this region. Excluding this, net sales in Europe would have declined 7%. A couple of words about our cash performance.

In quarter one, we generated over EUR 700 million in free cash flow, and as we saw sizable inflows related to net working capital. And this came mainly from the seasonal decline in receivables we typically see in Q1. We ended the quarter with EUR 3 billion in net cash. As you can see on the slide, the decline in net cash mainly reflected the acquisition of Infinera with cash outflow in the quarter. And this consisted of cash proceeds related to Infinera equity, the convertibles, as well as the share buybacks we did to offset the dilution from the Nokia shares issued as part of the deal. As a reminder, when modeling quarter two cash, this is when you see the outflows related to our ’24 performance-related employee variable pay. Finally, moving to our 2025 outlook, which remains unchanged.

We continue to expect our ’25 comparable operating profit to be in the range of EUR 1.9 billion to EUR 2.4 billion. However, given the unexpected charge that impacted mobile networks, it will be more challenging to achieve the top end of this range. We continue to expect free cash flow conversion to be 50% to 80% of comparable operating profit. And with that, let me hand it over to David for Q&A.

David Mulholland: Thank you, Justin and Marco, for your comments. As usual for the Q&A session as a courtesy to others in the queue, could you please limit yourself to one question and a brief follow-up. Sashank [ph], could you please give the instructions?

Operator: We will now begin the question-and-answer session. [Operator Instructions]. I’ll hand back the call to Mr. David Mulholland.

David Mulholland: Thanks, Ashu. We’ll take the first question from Alexander Duval from Goldman Sachs. Alex, please go ahead.

Alexander Duval: Yes, many thanks for the question. You mentioned the team of USA a contract extension. I wondered if you could give some color on duration and how important this is and what it implies the Nokia product positioning. And then perhaps as a quick follow-up, you highlighted a growing backlog in the Network Infrastructure segment. Clearly, again on certain macro and be helpful to get a sense of what the key factors have been in this regard and how you see this going forward?

Justin Hotard: Yes, absolutely, Alex, said a couple of things. I’ll start with T-Mobile. First of all, we have a broad and deep partnership across the group company with T-Mobile in the U.S. And while we aren’t sharing a lot of details on the contract that we can share is it’s a significant multiyear extension in our RAN contract. We think that this is a great opportunity for us to partnership to shape the next chapter of mobile connectivity in the U.S. with T-Mobile, who’s clearly an innovative leader in this space. And we’re optimistic that this will continue to drive growth for us with T-Mobile. Regarding network infrastructure, your second question, I think this is obviously very consistent with the rationale that we’ve shared on the Infinera acquisition and the comments that I made.

This is about giving us incremental access in the U.S. which is a high-growth geography, and of course, with hyperscale customers who are driving much of the AI and data center build. And the way I think about the market in AI, particularly with optical is, if you look at the build-out of data center, what’s happening with AI is it’s driving, as we all know, significant new data center build, but it’s also driving new connectivity demands between data centers. both whether it’s for training or inference or some of the convergence we’re seeing with AI reasoning models. So this is a favorable trend for us. It’s also notable that we’re starting to see optical come into the data center, and you’re seeing that and if you listen — as you listen and look to some of the industry spend.

The other key thing I’ll highlight is when you think about networking as a whole, and now I’m talking about our optical and IP Networks business, you think about networking and AI, it’s actually the second largest bucket of technology spend behind GPUs. And this probably doesn’t get emphasized enough. But from our perspective, this is why we felt that Infinera was so strategic. And the net of all of that is, if you look at our growth in the quarter, what was as encouraging was the point that I touched on that our book-to-bill was above 1, both for NI as a whole and for optical networks.

David Mulholland: Thanks, Alex. We’ll take our next question from Daniel Djurberg from Handelsbanken. Daniel, please go ahead.

Daniel Djurberg: Thanks very much and good morning gentlemen and welcome aboard, Justin. A question first detail on Infinera. It was reported from 28th of February to 31st of March, and did a loss of EUR 31 million. That surprised me a bit, at least given that I thought March was holding on to roughly 60% of revenues in the quarter. and should be supported to margins. So my question is, did you do any kitchen sinking in this EUR 31 million loss? Or should we have this level in our estimates going forward higher or even lower, I should say.

Marco Wiren: Yes. Thank you, Daniel. This is Marco. I will take this one. And as we have now trying to give you as good picture of the run rate basis, and that’s why we have basically given this Infinera figures in our report also in a pro forma basis so you can compare how would that look like if we would have half that already from first of January ’24, in all comparisons as well. So that loss that you’re referring to is quarter 1. We closed the deal in 28th of February. So we actually booked only March month in our books. And in March, actually, they had a positive results. And I would say that if you look how Infinera was performing in 2024, including the stock-based compensation in their operating profit level. then actually see that they were a loss-making last year.

And this was something that we explained as well when we acquired that there’s a scale issue with Infinera. And together with Nokia and our optical, we get totally different scale, and that’s why we are quite confident about the synergies of EUR 200 million that we have explained as well that we will target to receive here in three years’ time. And we believe that we will definitely see acceleration in 2025 as well in Infinera’s performance and our optical. But as we mentioned also that Infinera itself, it’s not the needle mover for our operating profit in 2025.

David Mulholland: Thank you, Daniel. Did you have a quick follow-up?

Daniel Djurberg: The mobile networks on the — can you hear me?

Marco Wiren: Yes.

Justin Hotard: Yes, go ahead.

Daniel Djurberg: Perfect. Yes. A short follow-up on mobile networks. Can you give some light on the quite dramatic onetime contract settlement of the EUR 120 million in the quarter, should we correlate this with the news of T-Mobile U.S. extension? Or — and also, can this happen again, how — where it should we be as shareholders here?

Justin Hotard: Yes. Thank you, Daniel, and it’s nice to meet you as well. Let me unpack this a little bit. So first of all, we’re not disclosing the customer related to this. This was a customer-specific project that was from 2019. And I think it’s probably — you’re aware, we had a significant amount of work and significant amount of investment we’ve made to stabilize and bring back the competitiveness of our portfolio really over the last four to five years. So this actually goes back and predates that. The surprise here was that as this has been going on and we’ve been working on remediating this issue, the discussions were ongoing, but we did not have full visibility to the total cost. And this was a gap in terms of our assessment of the cost and as we spent time with the customer, the cost became clear to remediate the issue.

And therefore, we made the decision to take a charge. In fact, this was something, as I looked at it, I felt it was important to do a couple of things. One was take a charge that fully addresses the situation. As importantly, if not more importantly, number two, was make sure we’re doing what the customer needs so that with this specific project, we’re addressing their needs fully to their satisfaction, given the issue. And then number three, obviously, put this into our comparable operating profit because it’s not a — while it’s a onetime issue, it’s not something that’s nonoperating. And so that was important for me in terms of the principles. In addition, I’ll make a couple of other comments. Again, this was a customer-specific project.

We don’t see risk with other customers. Obviously, as I’ve come in and I made this decision, one of the key questions I have for the MN team is making sure we have learnings from this and we improve visibility. But at this time, we don’t foresee any other issues like this. And of course, this goes back to a project that again was during a time where we know we had some portfolio issues that we subsequently addressed. So I’m confident that this is a onetime issue specific to this project. However, obviously, there’s things that I will be looking at for how we continue to improve our operational visibility as I come in and continue to spend time with the team.

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

Richard Kramer: Thanks very much. Justin, we heard for many years from Basel and then Pekka and others about long-promised hyperscaler deals. What do you, from your perspective, think is required to win these large AI sort of data center deals? Is it money in terms of incremental R&D and product investment, is it time to test new products like your switching products? What’s the unlock for those deals? Thanks.

Justin Hotard: Thank you, Richard. First of all, I think there’s a couple of things. One is our portfolio, particularly in IP networks and to a large extent, optical networks has really been oriented towards the telecommunication service providers. I think there’s a couple of things that have happened. If you — and certainly, if you look at it versus, let’s say, legacy enterprise IP networks. One is the scale and the bandwidth that customers are demanding in hyperscale, largely driven not only by AI, but also by cloud has started to come into a more consistent technology stack with our traditional telecommunications solutions. The second thing there is the reliability and the performance, which is just much higher. And so I think the cloud and AI build with our hyperscale customers.

They’re now expecting and demanding the same kinds of capabilities. I think this has opened up opportunities that make us more relevant. I think further, candidly is we’re now investing much more aggressively in this opportunity. And that’s witnessed by the Infinera acquisition and Optical. I do think you — in your question, you touched on something that’s insightful and important, which is the cycle with these customers is different. It’s a different cycle. It requires some collaboration and co-development upfront, and it takes time to see the revenue, the revenue come in and grow. And so while it is a more transactional business on specific orders, getting designed in, getting support takes time. And I think that’s obviously going back to Infinera.

That’s one of the things that was attractive about Infinera was their work and their development of some of these customers and the investments they made on the optical side. I do think there’s a lot of learnings and leverage there as we look at the IP networks.

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

Richard Kramer: Marco, with the Amazon licensing deal as a positive example, will Nokia be increasing with the long-standing sort of EUR 100 million of non-smartphone IP sales guidance in technologies? Thanks.

Marco Wiren: Yes. Thank you. I think in December ’23, we mentioned that we had that EUR 150 million level of non-smartphone licensing deals. And we haven’t updated that figures since then, but most likely at the Capital Markets Day later this year, we’ll give you more flavor on that as well. We’re quite happy to see how this other segments have been increasing and developing. And this latest deal is one of those proof points as well. And we are quite happy.

David Mulholland: Thanks, Richard. The next question is from Ulrich Rathe from Bernstein. Ulrich, please go ahead.

Ulrich Rathe: Yes, thank you. I wanted to ask on the sort of bit of color on the EUR 20 million to EUR 30 million tariff impact whether the underlying assumptions, what are the puts and takes. Can you flex the or reassign the capacity you have in the Infinera facilities. What is the demand situation for the relatively limited contract manufacturing base that is actually located within the U.S. I mean I suppose everyone was doing similar things is currently sort of trying to talk to those people. Could you just unravel that a little bit in terms of where the limits are and what you’re doing, what you can do and really what do you have assumed there was EUR 20 million to EUR 30 million?

Justin Hotard: Yes, absolutely. I think let me just maybe touch on a couple of things to make sure we’re breaking out our assumptions. So our focus in the EUR 20 million to EUR 30 million is really around the cost impact, not assumed anything in pricing in this assessment. So it’s just on our own costs. So that’s the first point. The second point is, this is based on what we’ve seen today or what our current perspective is on the situation. That’s why we’re so focused on Q2 because obviously, this is a very dynamic situation. My message to the team and Marco’s as well as let’s make sure we focus on what we can control. And so we’re really looking at the impact based on a short-term impact given that the supply chain, the manufacturing network we have.

Obviously, we’re looking at things we can do to mitigate it, both in the short term and strategically. One thing I will just also note is we actually have five manufacturing facilities in the U.S. today, Two that are coming with Infinera with the acquisition and two others — or three others preexisting. So the key thing for us is making sure we’re mitigating the impact short term so we can provide supply continuity to our customers. And obviously, one of the reasons we’ve not provided visibility in the second half is given the dynamic situation, we’re unclear on exactly what the situation will be going into the second half. But there’s a set of mitigations that we’re evaluating and pursuing that’s beyond just the second quarter and we’re evaluating longer-term strategic options as well.

I will tell you, I was planning on that anyway as we think about some of the options for the business as I come in and assess the business. That’s something I would look at naturally.

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

Ulrich Rathe: Yes, that’s very helpful. And my follow-up would be on the divisional guidance, not guidance, how would you call it divisional indications that you gave in the fourth quarter? Now you haven’t repeated them. Does it mean you have changed your views on the divisions at this point already? Or is this still in place? Or can you give us additional color on these divisional items that you talked about in the fourth quarter? Thank you.

Marco Wiren: Yes. Thank you. And we continue to reiterate what we said in the fourth quarter as well that we believe that in network infrastructure, we see strong growth in 2025. And then, of course, we are investing also additional EUR 100 million for the IP side to capture those opportunities in hyperscaler and data center segments. When it comes to mobile networks, we see a stable development even if we had this headwind in AT&T, as you remember, and then on Cloud and Network Services, we see a good growth momentum, specifically on the core side. And what comes to Nokia Technologies, we are giving approximately EUR 1.1 billion operating profit assumption.

David Mulholland: Thanks, Ulrich. And we’ll take our next question from Simon Leopold from Raymond James. Simon, please go ahead.

Simon Leopold: Thank you very much, David, and Justin. Welcome to Nokia. Justin, I wanted to see what you thought would be maybe any contrast between your views and your predecessors views? And I guess, within this context, what surprised you most since joining Nokia? Then I’ve got a quick follow-up.

Justin Hotard: Thanks, Simon. Good to speak with you again. I think a couple of things, I touched on some of these observations in my commentary, but I was pleasantly surprised by the technology base. And we’ve talked a lot about the product technology, the product portfolio that we have. I also was able to spend a day at Nokia Bell Labs during the Centennial celebration and tour some of the labs. And it was actually very impressed with some of the longer-term technology that we have under research there as well and the potential for that. And just seeing this across obviously, a few different companies and knowing the broader landscape like I do, I just — I was pleasantly surprised with the progress that we’ve made around commercialization.

I think that goes back to some of the principles of Nokia Bell Labs and their heritage. The other thing is, I’ve been very impressed with employee base, and I touched on this in my comments, but maybe just to underscore it. I think the passion that the employees have the team’s mindset around really taking advantage of some of these opportunities and the openness and learning mindset they have around continuing to evolve the business. So I think for me, that’s probably key things I’d say in terms of highlights. As I think about, again, I touched a little bit on some comments, maybe just to underscore it a little bit, Simon, as I think about opportunities for me, there’s always been two focuses. And if you go, certainly go back to some of the companies I’ve worked for before, one of the things is around driving efficiencies, driving efficiencies in areas that are not core to our growth.

In the areas that are core of growth, they’re going to R&D investment and go-to-market investment, whether it’s organic, which is obviously always the preference or inorganic where we have opportunities to make smart acquisitions that we can synergize both in terms of cost structure and revenue. But I think the other thing I look at quite a bit is where are the opportunities for us to drive meaningful scale value in the company. This is a $20 billion company. And so therefore, as we look at growth segments and we look at investments we need to make, we’re going to look at things that really move the needle and drive material growth. And obviously, with the profit profile we have, and I mean, if you look at our current guidance, we need things over time, they’re going to be additive to the overall product such that we drive meaningful cash flow for the business.

And so those two things are really where I think as I come in, I think that’s where you’re going to probably see a little bit of focus for me is making sure we have the discipline to say, hey, this may be an exciting opportunity, but it’s not going to be material enough to impact our business. These may be things that we could actually spend a little bit more on. And I think that’s another thing that we see quite a bit with technology companies that win, they spend enough to win. So are there places where we can spend more in these areas to really differentiate ourselves or get an advantage vis-à-vis our competitors and provide value to our customers that’s unique.

Simon Leopold: Yes. I wanted to see if we could double-click on the traction with the hyperscale cloud customers. Since you include that within your enterprise numbers. I believe that with the Infinera acquisition, it would roughly double the past run rate. So I want to check on where you stand in this business and the trajectory, particularly interested in whether you’re gaining traction in switching use cases yet or the timing of that particular traction? Thank you.

Justin Hotard: Yes. I think a couple of things, I’ll just touch on, Simon. I think first of all, obviously, we reported in an enterprise bucket. It’s very clear to me coming in that hyperscale enterprise are two different markets, right? And so just to make sure that we’re, I’m articulating that clearly to you hyperscale for me is a hyperscale and AI data center, in particular, are a key focus for us. Obviously, when you talk about some of the growth that we had, we talked about it quite a bit in the context of the optical networking business and our portfolio that we acquired through Infinera. I think these are clearly where we’re seeing the most growth today. I do believe there is opportunity and some early activity in IP networks.

And as I touched on earlier in an answer to the earlier question, I do think there’s a bit of a longer cycle that we need to expect in terms of IP networks and seeing that revenue grow vis-à-vis the customers in this space, those investments have happened already in optical and particularly with some of the things that attracted us to Infinera. And one other comment I’ll make is in the fourth quarter earnings call, Pekka and Marco talked about the investment of EUR 100 million per year to drive an incremental EUR 1 billion in sales in ’28, specifically around this networking opportunity. And I think as I look at the portfolio, one of my questions, obviously, is how big is that opportunity for us? How much more can we do there? And candidly, do we have the right technology stack to maximize value to customers.

And I think there’s positive indications, but obviously, I’ll be looking at what we may need to evolve or do incrementally to accelerate that growth.

David Mulholland: Thanks, Simon. And we’ll take our next question from Artem Beletski from SEB. Artem, please go ahead.

Artem Beletski: Yes, hi. Thank you for taking my questions. So I would like to ask about NI and the outlook for this year. So you are still anticipating strong growth this year. Could you maybe provide some further color on how do you see the progress by subdivisions. So what we have seen in Q1 is really optical networks showing the best growth on an organic basis. How do you use the year for different areas here?

Justin Hotard: Maybe I’ll start and let Marco add some comments. But I think from my perspective, I think if you look at the businesses, and I’ve been talking around this to just make it very explicit in the different questions, I think we see the biggest opportunity for growth this year in optical. I believe IP as the — IP networks is the next largest opportunity for us. I think for IP, I’m as focused on seeing traction and momentum with hyperscalers in terms of orders as well as revenue in the year, but I do think it’s the next piece. And then fixed networks is a more predictable, stable growing business, right? We are continuing to see demand for fiber. We talked a little bit about fixed wireless access as well as something that contributed to our growth in the first quarter.

But this is an area where I think we also need to realize that that business is not growing at the pace of optical or IP given from an end market perspective. And so from a TAM — as we think about TAM and how we’re addressing it, I think it’s optical IP fixed networks. Marco, anything you would add to?

Marco Wiren: Yes, I think just to build on what you said, when it comes to optical and Infinera, we were quite pleased to see as well that in quarter one, optical order intake Infinera side was very good and very strong on the hyperscaler side actually better than what we expected as well. And when it comes to fixed networks, this year, we will definitely see India coming back again, and you saw already in quarter one and the fixed minus growth of 9%, partly driven by fixed wise access in India and that we will see that will continue as well. And of course, we continue to pursue those hyperscale earned CSP opportunities in IP side as we go and invest more, specifically on the IP and data center side.

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

Artem Beletski: Yes, I had. So as a quick follow-up is actually relating to mobile networks. And one metric, what you have been providing more recently is net footprint gains, and I think the late commentary at Mobile World Congress was plus 30,000 compared to the situation at the year end of 2023. Are you willing to provide some update on this front, especially given T-Mobile renewal?

Marco Wiren: Yes. Thank you. What we have now said is that what we see for this year growth wise, and we said that mobile networks is stabilizing. Otherwise, we haven’t given any more indication on mobile networks. And we will have a Capital Markets Day later this year, and we will give you more understanding of the mobile networks business as a whole, and I hope that you will get more food for thought from that event as well.

Artem Beletski: Okay. [Indiscernible]. Thank you.

David Mulholland: Thanks, Artem. We’ll take the next question from Sami Sarkamies from Danske Bank. Sami, please go ahead.

Sami Sarkamies: Hi, I’d like to get a bit more color on enterprise sales, which were the bright spot in the report with 27% organic growth. Can you be a bit more specific on what drove the growth in terms of product areas or regions? And do you expect to maintain this momentum in the coming quarters as well?

Justin Hotard: Yes, Sami, so enterprise sales, as I just touched on in a previous question, in our definition, has included hyperscale, which is really what the growth driver was. And again, this was really driven by optical and more acutely by Infinera, right? And again, this is right back to the core thesis of what we talked about. The other point geographically is that, this was largely in the U.S. So as you think about this, a lot of the growth and really validating your early thesis on Infinera came in that segment.

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

Sami Sarkamies: Yes. Maybe related to the Amazon video idealizing deal. Can you explain why it didn’t contain any catch-up elements even though they’ve been violating Nokia IPR for a number of years and is the implication that we’ll not be seeing those in the future deals either?

Marco Wiren: Yes. As you know, Sami, usually, these deals are confidential and when it comes to terms and conditions. So we cannot go into details of those. We can just say that we are happy to see that we amicably signed a deal. And this also ended all litigation issues that we had with Amazon. And we said that in quarter one, we had some catch-up payments related to this agreement, but we cannot give any more details on that. Justin, do you want to add anything?

Justin Hotard: Yes, so just two things. I think one is we’re pleased overall with tax net sales run rate. So Nokia Technologies has now increased to EUR 1.4 billion in terms of the net sales run rate. This is in line with our EUR 1.4 billion to EUR 1.5 billion guide. I think that’s a good thing. And then just back to Amazon. This is a very important customer, very important hyperscale customer for us across our, certainly, our NI business as well. And then they’re also an important partner for us in terms of our cloud and network services business as well as a public cloud where we’re running certain platforms and services, and there’s been announcements around that publicly. So I think for me, I really look at this as a sort of a 360 relationship. And obviously, this is one element. And it’s important to recognize that there’s other value that other value in the partnership beyond just a tech licensing agreement.

David Mulholland: Thanks, Sami. We’ll take our next question from Francois Bouvignies from UBS. Francois, please go ahead.

Francois-Xavier Bouvignies: Thank you very much. My first question would be on the very high level. I mean Justin, you talk about capital allocation as your main priority and focusing on growth. Now Nokia before you joined was already focusing a lot on network infrastructure. And obviously, what you reported today is still fairly growth sector. On top of that, you have your background, like coming from these hyperscalers side of things, mostly in the truck infrastructure. So how does it fit your capital allocation priority with your mobile network assets in a way that you focus on growth, but it’s an ex-growth market effectively when you look at the rand forecast. So it seems difficult to get a lot of growth out of this market, but maybe I’m wrong, maybe you can highlight some you can get.

So how important mobile network is for you in your capital allocation strategy? And in a broader question, like — is it something in your discussion review of the business. Mobile network is also part of your discussion? Or is it how important this is for Nokia for the group?

Justin Hotard: Thank you, Francois. So a couple of comments. I think there were a couple of questions embedded in there, so I’m going to answer sort of two questions, if I can. So one is on capital allocation. I think first of all, this is one of the most important parts of a CEO’s role is capital allocation. And when I think about capital allocation, I think about it in terms of how we allocate capital for R&D, capital for go-to-market and also our intellectual capital. I think that’s just as important, right, is how we apply our talent and cultivate and develop our talent. My focus is always going to be around investing resources that maximize value. And there’s always going to be — there’s also different stages in businesses where R&D intensity is higher versus lower and the cycles that we go through.

And I think if you look at our businesses, and this is where I’ll get to the answer your question on MN. I think in my early observations on the businesses, these are very different businesses. And the way I think about it is if you look at NI, NI is a business that is on a pretty aggressive cycle of investment right now because of the AI and hyperscale build. But also that if you look at the product cycles traditionally in networking and optical, they’ve moved at a faster pace. And there’s a lot of work we can do through solutions and through continued R&D and then close collaboration with our customers around that investment, particularly, I believe in hyperscale, there’s more opportunity to do some of that and around AI cloud. If I look at MN, and I think it’s also important, if you look at MN, the way I’m starting to think about the business I think MN is — RAN is one part of the business.

But what makes us unique is that we are really one of two European — sorry, two European players and two Western players that have a full portfolio in this space. We have a robust RAN portfolio. We have a robust core portfolio, which is a critical part of the mobile network solution for our customers. And we have a robust IP portfolio in this space as well. And so when I look at that holistically, and that’s the way I would think about it. I think there are significant areas for us to drive value capture. I’m very encouraged by the growth we’re seeing in core and the work that the cloud and network services team is doing, and when I look at the RAN business, I think the other thing I’ve observed is this is obviously a heavily project-based business because of the way these deals are sold and committed and then deployed, but it’s also a scale business.

And so that’s a different — the scale business on the RAN side is a little bit different than what we see on NI. So again, I’ve got some early thoughts. I’m sharing a little bit with you transparently in terms of how I’m thinking about the businesses. But as I spend more time with our customers, obviously, with our employees, digging in more deeply into the technology stack, spending time, obviously, with our shareholders. I’ll continue to refine my view of where do I think the optimal value capture opportunities are. And it’s probably important to note as well, I didn’t touch on it. But we’ve talked about some interesting emerging opportunities in enterprise and defense around RAN. And I am encouraged by what I think will be some favorable trends in RAN around defense.

As I’m encouraged long-term that AI will drive new investment, new services, new value opportunities in the broader RAN marketplace. So both for defense and I think through traditional telecommunication services. As you think about things in AI, like augmented reality, virtual reality, autonomous vehicles, robotics, all of them are going to need wireless communications. And that wireless communications will need to be performant. It will need to be reliable. It will need to be secure. Those are things that are going to require investment. And so I think while the business cycles are a little bit different, I do think there’s a lot of value to be captured over time in the mobile networks business.

David Mulholland: Thanks, Francois. Did you have a quick follow-up? I think we’ll move to our next question from Felix Henriksson from Nordea. Felix, please go ahead.

Felix Henriksson: Hi, thanks for taking my questions. I wanted to ask if you witnessed any sort of a demand pull forward in MN or NI from your U.S. customers during the first quarter in anticipation to the tariffs?

Justin Hotard: Yes. I think, Felix, we did not see anything that we would classify as a material impact in Q1. Obviously, we’re spending a lot of time in looking at this for Q2. Today, we don’t see a material shift in demand in Q2, but this is something, as I mentioned in my comment, we’re spending time with our customers, both at my level and obviously, our broader teams levels to understand and assess and be very responsive around that need and that’s something that we’re also considering in terms of our — leveraging our global manufacturing network.

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

Felix Henriksson: Yes. A quick follow-up relating to hyperscaler spend. Obviously, you called out strong growth in that part of the business within enterprise. But I wanted to ask in light of this sort of talk about some of the hyperscalers such as Microsoft and Amazon freezing data center leasing talks, if you had observed any sort of hesitancy in customer spend in this segment in your sales pipeline? Thank you.

Justin Hotard: Yes, I think as we talked about, we’re pleased with both the revenue performance in optical, which is our — where we have the highest exposure to hyperscaler today and the order growth, which had a book-to-bill above 1. So strong growth with strong order growth. A couple of comments I’ll make on this is I think, first of all and for those of you that know the hyperscale market, you know this. One is pausing leasing talks doesn’t necessarily indicate a change to their CapEx plans because hyperscalers are — have multiple investment options with data centers which include through co-location facilities as well as their own builds. The other thing I would say is we should probably anticipate, if we go back and look at history, we should probably anticipate some of the similar trends that we saw in cloud in the past, playing through in AI.

And specifically, what I mean that is where we saw massive capital build, we also saw short-term periods of digestion around technology transitions. And of course, if you think about the GPU market today, we’re in a period of technology transition. So none of this surprises me — and again, if I look back to our portfolio where we have been getting the most investment in traction with hyperscale customers. I think our order book and our pipeline appear to indicate that there’s not a long-term shift to the investment thesis that this market segment has.

David Mulholland: Thanks, Felix. And we’ll take our next question from Rob Sanders from Deutsche Bank. Rob, please go ahead.

Robert Sanders: Yes, hi. I just had a question about your EMS partners. I’m interested just to sort of understand how quickly they could redomicile their production from Mexico to Southeast Asia to back to Mexico, maybe into the U.S.A., if there’s enough labor? And do you have — assuming that plays out that tariffs do happen, do you have the ability to pass on higher costs under the contracts you have with your customers? Thank you.

Justin Hotard: Yes. What I’ll say on this is that, again, this is a dynamic situation. It’s something we’re monitoring closely. Our focus is on what we can control. And obviously, we’re evaluating all mitigation options, the key thing I’ll emphasize in our global manufacturing network is I think we’ve been pretty flexible and pretty agile on this in the past. And certainly, if you look back at the supply chain shortages that happened during COVID and spending time with the team. I think one of the things that was clear was that we had some real strength in those areas. But obviously, this is something we’re going to continue to work on. And then as we see the situation play out, we’ll provide updates and clarity on the actions we’re taking.

Robert Sanders: Got it. And just as a follow-up, could you just update on the B program? Obviously, a lot of expected next year. How is — there has been some pushout in the last sort of few quarters. So where are we in terms of seeing the big uptick in orders? Is that in the first half of next year? Or is it sooner? Thanks.

Justin Hotard: Yes. I think we — this is something we’re obviously following closely. I think we’ve been clear that it’s not something we expected impact from this year. I don’t think our view has changed on that. And obviously, we think that fiber will continue to be, it’s a compelling technology. We think it will continue to be a driver. As I mentioned, as I looked at the growth segments within NI, I think fiber continues to probably be the slowest grower of the two just because it’s a more stable market, but we are anticipating growth — continued growth in the business, albeit not at the certainly from a TAM perspective, not the same potential that we see with optical and IP networking.

David Mulholland: Thanks, Rob. We’ll take our last question today from Jakob Bluestone from BNP Paribas. Jakob, please go ahead.

Jakob Bluestone: Great, thanks for taking the question. Very quick question. Just to clarify a little bit how your contracts work when it comes to tariffs. Is it you that carries the cost of any potential tariffs? Or is that automatically passed on to customers? I presume from your guidance, it’s the former, but if you can just clarify who’s contractually actually carrying the cost?

Justin Hotard: Yes. I think the key thing here is we have contracts across very many different businesses and different contracts and different businesses, as I touched on some of the dynamics between our businesses. And obviously, the businesses have varying exposure to tariffs as well. So I think there’s probably not one simple answer. But again, as I mentioned, we’re looking at every alternative around how we mitigate the impact of tariffs.

Jakob Bluestone: Understood. A very quick follow-up as well. Just on the keyless [ph] contract, if you can just give any color on when does it kick in and are there any things that we should be aware of in terms of how it might sort of if it’s lower margin, higher margin initially, just so we can think about any modeling around that, just given the size? Thank you.

Justin Hotard: Yes, I appreciate that. Obviously, I think we’ve shared some — an overview of the T-Mobile deal. It’s a significant multi-year extension. For me, it’s also a signal of the important partnership that we have with T-Mobile U.S. and their commitment to continuing to being a leader in innovation in the market, but there’s nothing else we’ll say about the details of the contract.

David Mulholland: Thanks, Jakob, and thank you everyone, for joining the call today, and both Justin and Marco for their comments. Ladies and gentlemen, this concludes today’s call. I would like to remind you that during the call today, we have made a number of forward-looking statements that involve risks and uncertainties. Actual results may therefore differ materially from the results currently expected. Factors that could cause such differences can be both external 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 for joining us today.

Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect your lines. Goodbye.