Nokia Oyj (NOK) Q4 2025 Earnings Call Transcript
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Overview
Nokia's earnings call highlights strong financial performance, strategic partnerships, and optimistic market trends, particularly in AI and cloud services. Product development is robust, with new offerings in high-demand areas like optical networks. Despite some headwinds in North America and vague management responses, the positive book-to-bill ratio and strategic investments in growth areas suggest a favorable outlook. Cost savings and operational efficiency plans further enhance financial health. The overall sentiment is positive, with potential for stock price appreciation due to strong demand and strategic positioning.
Key Financial Performance
Net Sales (Q4 2025) EUR 6.1 billion, up 3% year-over-year. Growth attributed to disciplined execution across the business.
Operating Profit (Q4 2025) EUR 1 billion. No specific year-over-year change mentioned.
Free Cash Flow (Q4 2025) EUR 0.2 billion. No specific year-over-year change mentioned.
Net Sales (Full Year 2025) EUR 19.9 billion. Slightly above the midpoint of guidance.
Operating Profit (Full Year 2025) EUR 2 billion. Slightly above the midpoint of guidance.
Free Cash Flow Conversion (Full Year 2025) 72%. Consistent with guidance.
Network Infrastructure Net Sales (Q4 2025) Grew 7%, driven by optical networks (17% growth). Solid order intake supported by AI and cloud demand.
Fixed Networks Performance (Q4 2025) Stable year-over-year. Fiber OLT business grew 16%, offset by declines in deprioritized customer premises equipment products.
Mobile Networks Net Sales (Q4 2025) Increased by 6%, driven by growth in Middle East, Africa, Japan, and Indonesia.
Cloud and Network Services Net Sales (Q4 2025) Declined by 4%, attributed to different phasing of revenue recognition.
Gross Margin (Q4 2025) 48.1%, an improvement of 90 basis points year-over-year, driven by Mobile Networks and Cloud and Network Services.
Operating Margin (Q4 2025) 17.3%, 90 basis points below the prior year due to increased investments in growth areas and the Infinera acquisition.
Nokia Technologies Net Sales (Q4 2025) Declined by 17%, attributed to lower catch-up sales compared to the previous year.
Net Cash Position (End of Q4 2025) EUR 3.4 billion.
Free Cash Flow (Q4 2025) EUR 226 million.
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Operating Highlights
800-gig ZR and ZR+ pluggable products: These products are shipping with initial units performing well in the field. Multiple design wins have been secured, and the company is ramping production to meet strong market demand.
7220 IXR-H6 switching platform and Agentic AI solution: Launched two new products in the quarter. The Agentic AI solution reduces network downtime by 96%, and the company secured a design win for the next-generation data center switching platform.
AI and cloud customers: Delivered EUR 2.4 billion in orders from AI and cloud customers in 2025, with strong demand in Optical and IP Networks. Book-to-bill ratio was above 1.
Market share expansion: Announced a market share expansion deal with Telecom Italia and contract extensions with Telefonica Germany and SoftBank.
Integration of Nokia Shanghai Bell: Completed the transaction to take full ownership, providing greater operational flexibility. Expected to deliver EUR 200 million in cost synergies over 24-36 months with integration costs of EUR 350-400 million.
Portfolio Businesses restructuring: Moved four businesses into a new unit, targeting a lower operating loss in 2026 compared to 2025.
Nokia Defense: Created a new incubation unit to focus on defense-grade solutions for Finland and NATO countries, leveraging 4G and 5G technology for military applications.
Focus on AI-native networks and 6G: Investing in long-term technology leadership, including trials and proofs-of-concept for AI-RAN in partnership with NVIDIA.
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Risk or Challenges
Market Environment: Potential top-line headwinds in Mobile Infrastructure due to prior contract losses and a stable market environment.
Operational Efficiency: Integration of Nokia Shanghai Bell expected to deliver EUR 200 million in cost synergies but will incur EUR 350-400 million in integration costs over 24-36 months.
Product Portfolio: Deprioritization of certain customer premises equipment products in Fixed Networks, which could limit growth in this segment.
Geopolitical Risks: Operational challenges in regions like India and Greater China, where net sales have declined.
Financial Performance: Decline in Nokia Technologies net sales by 17% in Q4, impacted by lower catch-up sales and a EUR 20 million impairment charge.
Investment Costs: Increased R&D and growth-related investments, including costs associated with the Infinera acquisition, impacting operating margins.
Seasonality: Q1 2026 net sales expected to decline more than normal seasonality, impacting short-term financial performance.
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Guidance & Outlook
Operating Profit Target for 2026: Nokia is targeting an operating profit in the range of EUR 2 billion to EUR 2.5 billion for 2026.
Network Infrastructure Growth Projections: Nokia expects 6% to 8% compound annual growth in network infrastructure between 2025 and 2028, with 10% to 12% growth in Optical and IP Networks. For 2026, growth rates are expected to align with these long-term targets.
Network Infrastructure Operating Margin Expansion: Nokia aims to expand Network Infrastructure operating margin to 13% to 17% by 2028, compared to 9.5% in 2025. In 2026, measured margin expansion is expected as new products ramp up and investments in long-term growth continue.
Mobile Infrastructure Financial Outlook: Nokia expects a stable market environment in 2026, with a focus on achieving at least EUR 1.5 billion in operating profit, consistent with 2025 performance.
Portfolio Businesses Future Direction: Nokia plans to conclude the future direction for its Portfolio Businesses in 2026, targeting a lower operating loss compared to the EUR 97 million loss in 2025.
Group Common Costs: Group Common costs are expected to be approximately EUR 150 million in 2026, down from EUR 190 million in 2025.
Q1 2026 Net Sales and Operating Margin: Net sales in Q1 2026 are expected to decline more than normal seasonality would imply, with operating margin slightly better than the prior year.
2026 Financial Assumptions: Nokia assumes comparable financial income and expenses of EUR 50 million to EUR 150 million, a comparable income tax rate of 26% to 27%, cash tax outflows of approximately EUR 500 million, and CapEx of EUR 900 million to EUR 1 billion. Free cash flow conversion is expected to be between 65% and 75%.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Why is the Optical Networking segment expected to grow only 10%-12% in full year '26 despite a 20% growth in the quarter?
A:The company is being balanced in its guidance, transitioning from a telco-centric base, and focusing on disciplined execution and predictability. They are optimistic about long-term opportunities in AI, Cloud, and fiber demand but are cautious due to their starting point and ongoing scaling efforts.
Q:Why is the company guiding to a sub-seasonal trend into the first quarter?
A:The sub-seasonal trend is attributed to normalization after a better-than-seasonal Q4 and the purchasing patterns of telco customers, which typically slow down at the start of the year after heavy Q4 purchases.
Q:What is the visibility in the order book for Optical or IP orders, and does the CapEx investment require additional wins with hyperscalers?
A:The company has confidence in long-term market trends supported by near-term demand. CapEx investments are based on long-term trends rather than immediate returns, and they are optimistic about the market's potential.
Q:What is the outlook for restructuring costs and cash outflows?
A:The company expects restructuring costs to continue through '26, with cash outflows heavier in '26 due to delays in European cost actions. They aim for cost savings of EUR 800 million to EUR 1.2 billion, with costs to generate these savings being about the same.
Q:What is Nokia's position in the optical space scale across projects for data center interconnect?
A:Nokia sees long-term demand in optics driven by scale across, speed transitions (e.g., 400-gig to 800-gig), and future opportunities in coherent optics. They are investing in co-developing with customers and scaling production capacity to capitalize on these opportunities.
Q:What needs to happen for IP Networks to grow beyond the 5% growth seen in '25?
A:The company needs time to ramp up, with a focus on design wins, order backlog, and leadership changes to bring deep data center experience. Growth is expected to be driven by AI, data center builds, and mission-critical vertical markets.
Q:Is the higher CapEx outlook a multiyear undertaking or a one-year initiative?
A:The higher CapEx is aligned with supporting Optical Networking growth and is seen as a multiyear undertaking to capture market opportunities and ensure manufacturing capacity.
Q:How do the Cybersecurity Act and Digital Network Act impact Nokia's business outlook?
A:Nokia is pleased with these acts, which provide clarity on replacement schedules and support for network operators. They see this as an opportunity to reshape Europe's competitiveness in technology and infrastructure, with significant implications for fiber, access, and transport networks.
Q:Are there supply-related constraints in Optical Networks?
A:Yes, supply constraints exist due to the scale of the AI infrastructure build. Nokia is investing in capacity and ecosystem support to address these constraints and sees long-term potential in the market.
Q:What is the outlook for Mobile Networks in North America, particularly with AT&T?
A:The company sees headwinds in North America due to customer losses but remains focused on delivering commitments and pursuing profitable market share. AT&T remains a strategic customer across core networks and fiber access.
Q:What is the book-to-bill ratio for Optical and IP Networks?
A:The book-to-bill ratio is positive and healthy for both Optical and IP Networks, with no blending of the figures.
Q:What is the rationale behind the EUR 2 billion to EUR 2.5 billion operating guidance range for the full year?
A:The range reflects new product launches, investments in AI & Cloud opportunities, and the transformational nature of the year. The company aims for disciplined execution and predictability while balancing different business cycles.
Q:What is the impact of rising memory prices on gross margins?
A:Memory prices are not a material portion of the company's bill of materials. They have long-term agreements in place and expect market effects to be passed through to pricing.
Q:What is the company's approach to capital allocation given its net cash position?
A:The company prioritizes R&D investments, M&A opportunities, stable and growing dividends, and share buybacks if there is excess cash.
Q:How is the company addressing capacity constraints in Optical Networks?
A:Nokia is investing in a new indium phosphide fab to support demand, with the new facility expected to come online later this year. They are vertically integrated and see value in this approach for meeting long-term market needs.
Q:What is the H1 vs. H2 margin phasing for the year?
A:Margins are expected to improve in H2 due to the ramp-up phase of new product launches in H1, which impacts gross margins.
Q:What is the company's strategy for Mobile Infrastructure market share and cost savings?
A:The company aims to improve profitability and capture market share opportunities while focusing on efficiency and operational leverage. Cost savings programs are expected to run until '26, with no additional programs planned beyond that.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the magnitude of H1 vs. H2 margin phasing, the exact impact of memory price increases, and the precise book-to-bill ratios for Optical and IP Networks. Additionally, responses on CapEx aggressiveness and potential inroads with AT&T were somewhat vague, lacking detailed data or commitments.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI EUR
AI network
Capital Markets
EUR Capital
Fixed Networks
IP Networks
Infrastructure margin
Justin
KPI
KPIs
Markets Day
Mobile Infrastructure
Networks Capital
Nokia Defense
Optical IP
RAN
Radio
ZR
accountability
creation
currency portfolio
defense
demand
design win
differentiation
direction
efficiency
environment
expansion
fiber OLT
focus
integration EUR
loss EUR
portfolio basis
priority
sale EUR
standard
term target
NOK Transcript
Nokia Oyj (NOK) Q4 2025 Earnings Call Transcript
Positive1-29
Nokia's earnings call highlights strong financial performance, strategic partnerships, and optimistic market trends, particularly in AI and cloud services. Product development is robust, with new offerings in high-demand areas like optical networks. Despite some headwinds in North America and vague management responses, the positive book-to-bill ratio and strategic investments in growth areas suggest a favorable outlook. Cost savings and operational efficiency plans further enhance financial health. The overall sentiment is positive, with potential for stock price appreciation due to strong demand and strategic positioning.
Nokia Oyj (NOK) Q3 2025 Earnings Call Transcript
Unknown10-23
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 Oyj (NOK) Q2 2025 Earnings Call Transcript
Positive7-24
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.
Nokia Oyj (NOK) Executive Briefing at OFC 2025 Conference - (Transcript)
Neutral4-2
NOK Report
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