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01/10 19:48
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Nokia's earnings call summary and Q&A session highlight several positive aspects: strong performance in Europe, optimistic guidance for Network Infrastructure, and strategic organizational changes. However, some uncertainties remain, such as wide guidance range and underperformance in the Optical business. Overall, the sentiment is positive, with potential growth drivers like hyperscaler demand and restructuring efforts. This leads to a prediction of a positive stock price movement in the short term, despite some concerns and lack of specific guidance in certain areas.
Net Sales Quarter 2 net sales were at EUR 4.55 billion, a 1% decline on a constant currency and portfolio basis. The decline was attributed to currency fluctuations and a decrease in Mobile Networks sales.
Gross Margin Gross margin was stable year-over-year at 44.7%. Mobile Networks and Network Infrastructure gross margins were broadly stable, while Cloud and Network Services delivered an improvement of 520 basis points due to top-line growth.
Operating Margin Operating margin declined to 6.6% due to the negative currency impact on venture funds and the impact of tariffs, which were within the EUR 20 million to EUR 30 million range expected.
Free Cash Flow Generated EUR 88 million of free cash flow in the quarter, ending with EUR 2.9 billion of net cash. This was achieved through strong receivables collection and well-managed working capital.
Network Infrastructure Growth Network Infrastructure delivered 8% growth, with Fixed Networks growing 17%, Optical Networks 6%, and IP Networks 3%. Optical Networks' growth was hampered by supply chain constraints, which are expected to improve in the second half.
Mobile Networks Sales Net sales in Mobile Networks declined by 13% due to EUR 150 million in accelerated revenue recognition from a contract settlement in the prior year. Regional trends were mixed, with growth in Europe but a pause in rollouts in India.
Cloud and Network Services Net sales grew by 14%, driven by strong expansion in Core Networks and growth in North America and Asia Pacific. Gross and operating margins improved by 520 and 850 basis points, respectively.
Nokia Technologies Net sales increased by 3% on a constant currency basis, with progress in automotive, consumer electronics, IoT, and multimedia sectors. The net sales run rate remains approximately EUR 1.4 billion.
Optical Networking: Nokia is seeing success in optical networking, with strong commercial momentum and a book-to-bill ratio well above 1. The Infinera acquisition has been positively received, and synergies are on track.
5G Core Deployments: Strong quarter with new 5G core wins and deployments across India, Europe, and the Middle East.
Private 5G Networks: Partnership with Verizon in the U.K. to provide private 5G networks across multiple Thames Freeport sites.
Hyperscaler Market: Hyperscalers accounted for 5% of net sales in Q2, with significant growth opportunities in Network Infrastructure.
AI Infrastructure: Nokia is investing in AI infrastructure and participating in EU consortiums for AI gigafactories.
Regional Growth: Growth in Europe across all businesses, while North America saw mixed trends and India experienced a pause in Mobile Networks rollouts.
Currency Impact: EUR 230 million headwind to operating profit outlook for 2025 due to currency fluctuations, particularly the weaker U.S. dollar.
Tariff Impact: EUR 50 million to EUR 80 million impact expected for 2025 tied to preexisting customer orders.
Unified Corporate Functions: Nokia is unifying corporate functions to simplify operations and improve productivity.
Defense Sector Expansion: Nokia is optimistic about 3GPP technology for the defense sector and has partnered with blackned and delivered Banshee Radio units to the U.S. Marine Corps.
Capital Markets Day: Nokia plans to discuss its strategy and value creation story at the Capital Markets Day in New York on November 19.
Currency Fluctuations: The weaker U.S. dollar has posed a significant operational headwind, impacting profitability. A EUR 230 million headwind to operating profit outlook for 2025 is expected due to currency movements, with EUR 90 million tied to noncash currency impact in the venture fund portfolio.
Tariff Situation: Tariffs are expected to impact operating profit by EUR 50 million to EUR 80 million for the full year 2025, tied to fulfillment of preexisting customer orders.
Supply Chain Constraints: Optical Networks' growth was hampered by modest supply chain constraints, which could have grown over 10% without these issues. These constraints are expected to improve in the second half.
Mobile Networks Decline: Net sales in Mobile Networks declined by 13% in Q2, driven by a EUR 150 million accelerated revenue recognition in the prior year and a pause in rollouts in India. Gross margin is expected to face unfavorable product mix shifts in Q3.
Geopolitical and Regional Challenges: Greater China continued to decline as expected based on current market trends. India sales were flat due to a pause in Mobile Networks investments.
Integration Costs and Operating Expenses: Higher operating expenses associated with the Infinera acquisition and increased investments into growth opportunities have been dilutive to operating margins.
Venture Fund Exposure: Noncash currency exposure from venture fund investments has created a EUR 90 million impact for the full year, which is not hedged and adds to financial volatility.
Future Revenue Expectations: For the full year 2025, Nokia has revised its operating profit outlook to a range of EUR 1.6 billion to EUR 2.1 billion, down from the previous range of EUR 1.9 billion to EUR 2.4 billion. This revision is attributed to currency fluctuations and tariff impacts.
Currency Impact: Currency fluctuations, particularly the strengthening of the euro against the U.S. dollar, are expected to pose a EUR 230 million headwind to operating profit for 2025. This includes a EUR 90 million noncash impact from currency valuation in the venture fund portfolio.
Tariff Impact: Tariffs are expected to impact full-year operating profit by EUR 50 million to EUR 80 million, tied to the fulfillment of preexisting customer orders.
Network Infrastructure Growth: Strong growth is expected in Network Infrastructure, particularly in Optical Networks and Fixed Networks. Hyperscalers are a significant growth driver, accounting for 5% of net sales in Q2 2025.
Cloud and Network Services Growth: Continued growth is anticipated in Cloud and Network Services, driven by 5G core deployments and partnerships, including private 5G networks with Verizon in the U.K.
Mobile Networks Outlook: Net sales in Mobile Networks are expected to remain largely stable for the full year 2025, with gross margins in the normalized range of 37% to 38%.
AI and Fiber Investments: Nokia is investing in AI infrastructure and fiber networks, with strong growth expected in Fixed Networks driven by Tier 1 CSPs' appetite for fiber.
Free Cash Flow Conversion: Guidance for free cash flow conversion remains unchanged at 50% to 80% of comparable operating profit for 2025.
The selected topic was not discussed during the call.
The earnings call presents a mixed outlook. While there is strong growth in network infrastructure and cloud services, the revised operating profit outlook and currency impacts present challenges. The Q&A reveals management's focus on innovation and cost control, but also highlights uncertainties in Q4 deliveries and minimal exposure to the Chinese market. Overall, the balance of positive growth areas against financial and market uncertainties leads to a neutral sentiment.
Nokia's earnings call summary and Q&A session highlight several positive aspects: strong performance in Europe, optimistic guidance for Network Infrastructure, and strategic organizational changes. However, some uncertainties remain, such as wide guidance range and underperformance in the Optical business. Overall, the sentiment is positive, with potential growth drivers like hyperscaler demand and restructuring efforts. This leads to a prediction of a positive stock price movement in the short term, despite some concerns and lack of specific guidance in certain areas.
Basic Financial Performance: 3 - Positive cash flow and net cash position, but mixed sales performance. Product Development and Business Update: 3 - Growth in certain areas, but declines in others; positive order backlog. Market Strategy: 3 - Positive momentum in orders and strategic focus on datacenters. Expenses and Financial Health: 3 - Cost savings on track but not maximized. Shareholder Return Plan: 3 - No specific updates. Q&A Insights: Analysts' sentiment neutral with concerns about profitability in India and AT&T contract impact. Overall sentiment remains neutral with no strong positive or negative catalysts.
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