Nokia Corp Q2 FY2025 Earnings Call

Good morning, ladies and gentlemen. Welcome to Nokia's Second Quarter 2025 Results Call. I'm David Mulholland, Head of 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 and financial performance, and these statements or 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 mostly be on a constant currency and portfolio basis, and other financial items will be based on our comparable reporting. Please note that our Q2 report and the presentation that accompanies this call are published on our website. The report includes both reported and comparable financial results and reconciliation between the two. In terms of the agenda for today, Justin will go through our key messages from the quarter and then Marco will go through the financial performance, and we'll then move to Q&A. With that, let me hand over to Justin.

Thanks, David, and good morning. During my first quarter as President and CEO, I've spent significant time engaging with our stakeholders, and it has left me with two conclusions. First, I have increased optimism about our future opportunity. It is clear to me that connectivity will be a critical differentiator in the AI super cycle. That is true not only for the hyperscalers where it's visible today but also for communication service providers and increasingly in areas like defense and national security. With our portfolio in mobile and fiber access, transport and data center networks, Nokia is uniquely positioned to be a leader in this market transition. We are investing to capitalize on this opportunity, and we are already starting to see success today in areas like optical networking. Second, our customers expect us to engage with them as one integrated company, as the majority of them partner with us across our portfolio. We benefit greatly from the financial accountability our business group structure gives us. However, we also need to evolve how we work so we can move faster, improve productivity, and focus on what brings value to our customers. As a result, we're unifying our corporate functions to simplify how we work and to build a more cohesive culture to help unlock operating leverage. I'm looking forward to discussing our strategy and full value creation story at our Capital Markets Day in New York on November 19. Turning to our second quarter results. Our performance was mixed. Good growth in both Network Infrastructure and Cloud and Network Services was offset by a decline in Mobile Networks, primarily related to the accelerated revenue recognition seen in the prior year quarter. Our profitability was impacted by currency fluctuations, particularly the weaker U.S. dollar, which was both an operational headwind and a headwind in our venture fund. We had a EUR 50 million noncash negative impact from our venture funds in the quarter, which included a EUR 60 million negative impact from currency. Excluding currency, our profitability in the quarter would have been in line with our expectations, and we continue to make investments in longer-term growth opportunities. The second quarter was the first full quarter since we acquired Infinera. The combined Optical Networks business has been performing well with a book-to-bill well above one, showing continued strong commercial momentum to our growth, though our growth was tempered somewhat by supply constraints, and we're on track to achieve our committed synergies from the acquisition. Looking forward, the demand environment remains broadly consistent with what we said last quarter. Customers are largely continuing with the plans they laid out at the start of the year, and there has not been any major impact from geopolitical uncertainty. As a result, for the full year, we continue to expect strong growth in Network Infrastructure, growth in Cloud and Network Services, and largely stable net sales in Mobile Networks. In Nokia Technologies, we still expect EUR 1.1 billion of operating profit. Let me share a few highlights from the quarter across our business groups. In Network Infrastructure, we continue to see a strong demand environment in Optical Networks and a positive reception to the Infinera acquisition from customers. Two deals I'd like to highlight in Optical are our first award from a hyperscaler for 800 gig ZR/ZR+ pluggables and a deal with a large U.S. communication service provider. Overall, hyperscalers are one of the biggest drivers of our order intake in the quarter and remain a significant growth opportunity for our Network Infrastructure business. Across the whole of Nokia, hyperscalers accounted for 5% of net sales in the second quarter. In IP Networks, we continued our leading position in the market, remaining number one in edge routing and number two in total routing. We continue to see a long-term opportunity in AI infrastructure and are investing to accelerate growth. Recently, we've been an active participant in consortiums that are bidding to benefit from the EU's EUR 20 billion program to build AI gigafactories in Europe. In Fixed Networks, we still expect strong growth this year, and the appetite for fiber among Tier 1 CSPs remains strong. The past 12 months have seen us strengthen our market leadership position in the operator premise equipment, OLT, and we are continuing to invest in innovation in Passive Optical Networks. Turning to Mobile Networks. At the start of the quarter, we signed an extension to our RAN agreement with T-Mobile U.S., which we announced in our Q1 earnings. We also announced 5G deals with Elisa in Finland and Optus in Australia. We continue to see good overall commercial momentum, and the competitiveness of our products is resonating with customers. We are optimistic about the potential 3GPP technology we can bring into the defense sector. In Q2, we announced a partnership with Blackned, in which Rheinmetall owns a majority stake, and we now have delivered Banshee Radio units to the U.S. Marine Corps through Nokia Federal Solutions. Finally, Cloud and Network Services had a strong quarter with new 5G core wins and deployments across India, Europe, and the Middle East. We're continuing to progress on our OpenAPI journey, with 57 partners announced for our Network as Code platform, including Telstra and the Bridge Alliance in Asia. We also announced a partnership with Verizon in the U.K. to provide private 5G networks across multiple Thames Freeport sites. Finally, let me turn to our outlook for the full year 2025. As we announced on Tuesday, we decided to take the prudent approach of lowering our full year outlook from EUR 1.9 billion to EUR 2.4 billion to a new range of EUR 1.6 billion to EUR 2.1 billion. The change has been driven by two factors that are largely outside of our control. The first impact is currency. When we first issued our guidance for 2025, the euro-dollar rate was 1.04, and it has now moved significantly to 1.17. Altogether, this currency movement is posing a EUR 230 million headwind to our operating profit outlook for 2025, of which EUR 90 million is related to the noncash currency impact in our venture fund portfolio. Marco will provide you additional detail on this in his comments. The second is the tariff situation. For the full year 2025, we now expect to see an impact of between EUR 50 million and EUR 80 million tied to fulfillment of pre-existing customer orders. The underlying performance across the business is in line with our expectations at the start of the year. Therefore, it is these two factors that lead us to change the comparable operating profit outlook. Our guidance for free cash flow conversion remains unchanged at 50% to 80% of comparable operating profit. With that, let me hand over to Marco.

Thank you, Justin, and hello from my side as well. I will start by discussing our overall growth performance. Quarter 2 net sales were at EUR 4.55 billion. That's a 1% decline on a constant currency and portfolio basis. Our gross margin was stable versus the year ago quarter 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, driven by top line growth. Operating margin declined to 6.6% as a result of the negative currency impact to our venture funds as well as the impact of tariffs, which were within the EUR 20 million to EUR 30 million range we had expected. Assuming existing tariff rates, we now expect an impact to our full year operating profit of around EUR 50 million to EUR 80 million. And we generated EUR 88 million of free cash flow in the quarter and ended the quarter with EUR 2.9 billion of net cash. Now turning to our business growth performance. Network Infrastructure delivered 8% growth, and each business unit grew, with Fixed Networks having a particularly strong quarter, growing by 17%. Optical Networks grew by 6% and IP Networks grew by 3%. Optical Networks' growth was hampered by some modest supply chain constraints and could have grown over 10%, and we expect these issues to improve in the second half. Gross margin was relatively stable, despite the 110 basis points impact from tariffs, in line with what we have expected. Operating margin declined slightly by 70 basis points year-on-year to 5.7%, and this was mainly the result of higher operating expenses associated with the Infinera acquisition as well as increased investments into growth opportunities. It is worth noting that the ex-Infinera business was dilutive to operating margin in the quarter, although the integration process continues, and we are moving quickly to deliver on our committed synergies. Net sales in Mobile Networks declined by 13% in the quarter. As mentioned, much of this decline was because of the EUR 150 million in accelerated revenue recognition from a contract settlement that benefited the year ago quarter. Regionally, we saw mixed trends in Mobile Networks. The pause in rollouts impacted India. However, we did see some growth in Europe. Mobile Networks gross margin was 41.1% in the quarter, a 70 basis points decline year-over-year as favorable product and regional mix helped to offset a difficult comparison related to the settlement that benefited the prior year. These factors led to operating profit and margin declining despite lower operating expenses. As we look to quarter 3, we expect gross margin to be below the normal run rate level as we expect an unfavorable product mix shift in the quarter. For the full year, Mobile Networks gross margin should remain in the normalized 37% to 38% range when excluding the one-time impact we saw in quarter 1. Cloud and Network Services net sales grew by 14% in the quarter, reflecting continued momentum in Core Networks. From a regional perspective, CNS saw growth driven by North America and Asia-Pacific and Japan. The higher level of net sales from strong expansion in both gross and operating margin, which improved 520 and 850 basis points, respectively. Nokia Technologies net sales increased by 3% on a constant currency basis. We signed several new agreements as we continue to make progress in our growth areas of automotive, consumer electronics, IoT, and multimedia. Our net sales run rate remains approximately at EUR 1.4 billion. Now let's look at the net sales by region. We saw a decline in North America, although this reflects mix trends. Mobile Networks declined because of the settlement in the year ago quarter, while we saw double-digit growth in both Network Infrastructure and Cloud and Network Services. Within APAC, India sales were flat, reflecting a pause in investment in Mobile Networks, which was offset by growth in Fixed Networks within Network Infrastructure as well as Cloud and Network Services. Greater China continued to decline as expected based on the current market trends. We saw strength in Europe with growth across all businesses. Now turning to our cash performance. We ended the quarter with a net cash position of EUR 2.9 billion. You can see on the slide that working capital was well managed in the quarter, as the expected payment of 2024 related incentives was largely offset by a strong collection in receivables. Free cash flow was positive EUR 88 million, leading to over EUR 800 million of free cash flow in the first half. As Justin noted, we continue to target 50% to 80% free cash flow conversion from comparable operating profit for the full year. The last topic I want to cover is our currency exposure, as I know there have been some questions following our announcement on Tuesday. First of all, we typically generate about 55% of our net sales and have 50% of our total costs in U.S. dollars, but we report in euros. We have said in the past that we have a high degree of natural hedging with our operating business protecting our operating margin, but we still have an impact on an absolute basis when you convert USD profit back to euros for reporting purposes. Then on top of that, we have a hedging program, which helps to shield us on a short-term basis. So what happens this year? When we first provided our guidance in January, the euro-U.S. rate was at 1.04. Now the currency rate is around 1.17, and our guidance assumes it remains there for the rest of the year. That is a significant USD 0.13 movement. There has also been significant strengthening in the euro against other currencies, including the Indian rupee. Assuming currency rates remain at the current level for the rest of the year, the currency movement compared to January is a 6% to 7% impact on our net sales outlook for the full year. We do have a modest imbalance between net sales and total cost in our operating operations, meaning a strengthening euro has a slight negative impact on our operating margin, which is then largely offset short term by hedging. When you combine all of these together, we see a EUR 140 million operating headwind compared to our expectations at the start of the year. And we hedge on a rolling 4-quarter basis, just that the first 2 quarters, net U.S. operational exposure is quite well hedged. And then the degree of hedging drops in the third and fourth quarter. This means that at the start of the year, we still had exposure to currency fluctuations for the second half, but at this point of the year, we are now largely operationally hedged. Finally, we have currency exposure from our venture fund investments. A lot of these assets are valued in U.S. dollars. These are illiquid investments that are only revalued when there is a capital event. However, under IFRS, we need to mark-to-market for currency each quarter, and this is creating a EUR 90 million impact currently for the full year. Considering this is both noncash and nonoperational telco businesses, we don't hedge this. Through the rest of the year, and including the venture fund impact for modeling purposes, we estimate that every USD 0.01 movement in the euro-USD rate could have about EUR 10 million to EUR 15 million impact on our operating profit in 2025.

Thank you, Justin and Marco. Before we move on to the Q&A session, I want to remind you that Nokia will hold its Capital Markets Day this year in New York on November 19. We will send out formal registration details soon, and we encourage as many of you as possible to attend. Darwin, could you please provide the instructions?

I will now hand the call back to Mr. David Mulholland.

Thanks, Darwin. We'll take our first question today from Richard Kramer from Arete.

Justin, I asked last call about what you thought was required to win large hyperscaler deals. And in your prepared remarks, you mentioned potential integration of business operations, even though a lot of those hyperscaler deals are for products that mostly sit in NI. Given the big increases we've seen from hyperscale CapEx, what do you see as the key issues for Nokia increasing materially that percentage of sales to hyperscalers that you've got now and moving towards double digits and beyond?

Yes. Richard, thank you for that. I think a couple of things. First of all, the functional changes we're making are really around functional support organizations. I think there's plenty of companies that have their operating models aligned functionally as we're doing. And again, just to reiterate, if you look at our organizations, our legal team and sustainability were actually operating this way already. Other functions were operating in a slightly different manner. So we're just driving consistency within the company. Separating that, let's talk about two things that are important for hyperscalers. One is the customer relationship and customer intimacy. This is where the BG structure and specifically the sales team we have in NI, including the team that we've integrated from Infinera, is very important. It's understanding those customers, understanding their predicting, and being able to work with them around product design, forecasting, planning, and obviously, supply chain execution and delivery as well as negotiating terms and all the things you would expect. As I think about this, for me, the biggest opportunities for us right now are, one, continuing to focus on building intimacy with those hyperscale customers through that team, and two, really the portfolio. I think if you look at just the progress that we're now disclosing in the second quarter with a book-to-bill that's above that and an award that's not in the second quarter, I think we're making good progress. We need to continue to gear our products and portfolios to exactly what those hyperscalers are looking for and then continue to work with them on a very close and intimate basis. I think we've made progress. There's still work to do. And obviously, we're coming from a position of not having as much exposure there as you rightly noted. So we're in a bit of a challenger mode, and that also requires just investment in time, as I commented on last quarter.

Okay. And just a quick follow-up. The area that we're hearing a lot about expansions from big U.S. telcos is in their fiber build programs. Is that something you see accelerating into 2026, where these large announcements made by the two largest U.S. carriers to increase fiber builds are something Nokia can directly address?

Yes. This is a place where we have a very healthy portfolio, as you rightly pointed out, Richard. I think the other comment I would make is that I'm really encouraged by the announcements. I think it's a very positive sign around the Big Beautiful Bill in the U.S. that was enacted into law earlier this month, that there's going to be continued investment. I'm also cautiously optimistic that there's going to be investment in Europe as well. For us, this presents two things: one is the opportunity for accelerating growth with our core OLT portfolio, the operator line terminals, but also the opportunity for us to really think about innovation and how we can continue to help these customers. Back to my macro comments, I think it's also worth noting that I'm hearing from customers about the opportunity to partner with them in a more complete solution area in this space. That's part of why I commented that we're investing in innovation in this area.

Thanks, Richard. We'll take our next question from Fredrik Lithell from Handelsbanken.

I have one. We saw yesterday, AT&T came with their report, and they talked about their CapEx for the coming years. We also know Trump's Big Beautiful Bill Act. It seems like operators in the U.S. are getting some tax advantages here. Can you talk a little bit about what you see there on the CSP place, if that will be a driver for you?

Yes. And I think, Fredrik, I just answered this, but absolutely, we're optimistic about this. I think anything that's enabling investment in infrastructure is a positive for us and I am really encouraged by the comments from some of our major customers in the U.S., including specifically AT&T, where we're a key supplier today. Having said that, I think that doesn't mean we can sit on our hands. We have to invest in innovation, which is why I made the comments.

Do you have a follow-up, Fredrik?

Yes, maybe a follow-up. If you could sort of expand a little bit on Europe. It looked quite healthy in the quarter. Is it really broad-based? Or could you sort of take three drivers behind the good momentum you saw in Europe?

Yes, this is Marco. We actually saw a quite broad-based development in Europe in all businesses, and it was quite healthy and welcomed as well, considering that Europe has been a little bit muted in the past. We hope that we can see more development in Europe going forward, just like Justin mentioned, that hopefully, the fiber investments in Europe will take off more, but also the whole macroeconomic environment would give some improvement here.

Thanks, Fredrik. We'll take our next question from Ulrich Rathe from Bernstein.

I wanted to ask about the guidance revision two days ago. Just to clarify, you are halfway through the year, but the range was still EUR 500 million as it was at the beginning of the year. Does this mean uncertainties have increased quite materially, doubled essentially? Or is there any other reason to keep the range? And then in this context also, why did you not just indicate the lower end of the prior range, but actually lower the midpoint of the range because the range was pretty wide, the downside sort of fits in that, and you could have just said it's now at the low end of the original range? A bit more explanation would be helpful.

Thank you, Ulrich. I have a few comments to make. Reflecting back on Q1, both Marco and I mentioned that due to one-time charges in MN and the tariffs in Q2, which unfolded as we anticipated, we believed that reaching the top end of the EUR 20 million to EUR 30 million range would be difficult. Now, with a complete year’s perspective on tariffs and a significant EUR 90 million impact from currency changes and venture funds, we felt it necessary to adjust our range downward. Despite this, we remain optimistic about operations, as we did not account for any impact from the one-time charge in mobile. This could indicate a bit of optimism beyond the currency and tariffs, which we thought was unrealistic to manage while still achieving our guidance range.

Did you have a follow-up, Ulrich?

No, just to come back to part of the question. But why is the range still EUR 500 million when you have 6 months now reported?

Yes. Maybe just another point I'll make, and I'll let Marco comment, is in the second half, if you look at our first half versus second half, particularly in Q4, other than '23 and probably '20, which experienced disruption from COVID in '23, we had a significant shift in CapEx on the Mobile Network side. We historically have been very back-end loaded, and as we talked about, we had an expectation this quarter that we'd see more demand from India and Mobile Networks that did not happen. So we feel very back-end loaded and we want to be balanced and disciplined in our forecast because so much is in the second half. Marco, anything you want to add there?

Yes. Just to add that we are still a little bit on the fly when it comes to tariffs. Now we have assumed the situation as today. But as we all know, we don't exactly know how these tariffs will land in the end. That is why we want to keep the range a little bit wider. We want flexibility there.

Thanks, Ulrich. We'll take our next question from Sami Sarkamies from Danske Bank.

Could you provide a bit of color on Network Infrastructure performance in Q2? And how do you expect things to develop during the third and fourth quarter for NI? When we look at Q2, we see a little weak growth at IP and Optical combined with gross margin weakness.

Thank you, Sami. I have a few comments to share. First, when we compare ourselves to our U.S. peers, it's important to consider that we are reporting in constant currency, while they might be benefiting from currency tailwinds. This presents a bit of a challenge for us. Additionally, we experienced a shortfall due to supply chain constraints amid rising demand. Normally, we would have anticipated double-digit growth based solely on constant currency factors, and we've managed to fulfill that demand at a more consistent historical level. Despite these challenges, we achieved a strong book-to-bill ratio, which does not include the recent award I mentioned earlier. We are optimistic about the opportunities in the second half, primarily driven by an increasing demand from hyperscale and AI data center customers.

Did you have a follow-up, Sami? Maybe a quick one. You talked about the need to have a more integrated, fast-moving leader in Nokia. Can you elaborate on this a bit further? And will you be communicating related changes in the near term?

Yes. We announced today the creation of a single functional organization. One aspect I want to highlight is our decision, based on customer feedback, to strengthen the role of the executive account manager. Currently, we have specialized sales teams in each of our businesses, but we previously did not have a dedicated function for our top accounts. We have started to develop this capability, which is crucial because our customers do not align strictly by product lines. Although the differences among our product groups are significant, it’s important to recognize that our customers are approaching their needs more holistically, considering how they engage with their own customers in an integrated way. From a technology perspective, we need to adopt an end-to-end view. Areas like security, platforms and services, AI, and automation present clear opportunities that we’ve heard about from customers, both in strategic and tactical contexts. Improving service for our customers is our top priority. Additionally, when examining our industry peers and partners, I’ve seen some of them pursue continued operational efficiencies, particularly through AI initiatives. They are emphasizing productivity and agility as their guiding principles. We believe it is essential for us to adopt a similar approach focused on functional excellence. Our leadership team has discussed this extensively and decided that this is a necessary step for the company, establishing a uniform operating model across functions and fostering a mindset of excellence to enhance agility and unlock operational efficiencies.

Just what Justin said, we believe that it's important that all the businesses will have the P&L responsibility. Our ambition is not to increase headquarters. If we want to do something, it's actually decrease the cost level of headquarters, just to be clear here as well.

Thanks, Sami. We'll take our next question from Simon Leopold from Raymond James.

Justin, you've been at the firm now for roughly 100 days and you've talked a little bit about sort of priorities, but what I'd like to get is an understanding of here is, having had this period to learn and adjust, and you've talked about some organizational shifts, how do you characterize your priorities going forward versus what you thought when you first took the job?

Thank you, Simon. I want to highlight a few key insights regarding customers, technology, and our operational and financial execution. First, from the customer perspective, there is a significant opportunity to collaborate and innovate alongside our customers. Each customer has a unique strategy and value proposition, and I have had several encouraging discussions about innovating together in ways we haven't explored before. Regarding technology, we have exceptional technology and talented individuals in our organization, especially within our engineering and R&D teams. We should focus on being more integrated members of the tech ecosystem, meaning we should partner, think externally, and collaborate more effectively with the broader tech landscape and the industries we are involved in. Lastly, on the financial and operational front, one of my main goals is not only to drive growth but also to ensure a level of predictability in that growth since we haven't been as predictable in the past as we aim to be.

Do you have a follow-up, Simon?

Yes, please. At the end of June, there were some press reports suggesting that Nokia might be taking some actions to reduce headcount and to do some cost cutting. I know it sounds like there are a little bit of reorganizational efforts on your part, but it doesn't sound like there were any major initiatives. Could you update us on really what you're thinking about in terms of any initiatives around staffing, cost structure that might be related to those press reports?

Thank you, Simon. I'd like to share a few comments. First, we announced a significant restructuring program in 2023 that we are still in the process of implementing. It's crucial to recognize this, and we've established some targets along with a range for the restructuring charges at that time. We continue to work on this program. My second point is that, given my previous experiences, I believe our future goal shouldn't be to announce another large program. Instead, we should concentrate on developing our capabilities to enhance productivity and operating leverage as a routine practice. There’s no new information to provide today regarding our restructuring program. However, I believe that best practices will involve announcing ongoing productivity enhancements, which will be reflected in our results over time rather than simply stating that improvements will happen.

No. What you said several times is continuous improvement is something that we have to have in our genes, and every part of the company has to work on that thesis. This is something that we will focus on very much and hopefully see improvements in our efficiency and productivity in the company.

Thanks, Simon. We'll take our next question from Rob Sanders at Deutsche Bank.

Justin, can you share your perspective on the Mobile Networks business? Are you comfortable with it being relatively small and maintaining the status quo, or do you aim to regain scale and market share in 6G? Another way to approach this is regarding your 5% of sales that come from hyperscalers; how much of your R&D budget will be allocated to this segment? I'm trying to understand how you plan to position the business moving forward.

Thank you. There are two questions there. First of all, this is a unique and highly strategic asset. There are four scale players in the world, two are in the West, us and Ericsson. What I think is important, I've said this consistently, is that I don't think it's just about Mobile Networks. I understand how we report, but I think you have to look at Mobility Co. Every one of the scale players, including our two competitors in China, have Core Networks, Mobile Networks assets, radios and RAN, and a robust IP portfolio. You have to look at the business in totality even as you report the segments. This is a critical point. Second, when you look at our customer base, it's clear to me, and I hear from my customers, that we have opportunities to do more with them. I believe the AI super cycle will drive a refreshed wave of investment in this space. It's not there today, but we have to be able to envision a longer-term perspective through innovation. There are innovations that will drive opportunities for us and our customers. This is where being a thoughtful partner to our customers will become increasingly important. As for capital allocation, what's happened in NI, and one reason I think Infinera was a good acquisition, is that the market has shifted to cloud and AI driving innovation in Fixed Networks. Historically, most innovation has come from the transport networks. The innovation curve has shifted. Our R&D will have to target that area, but it won't only be there. I think you look at the hyperscalers and public cloud; they set expectations for security, ease of use, technology deployment, and performance. There are areas where we target customers in NI and opportunity for advantages across our customer base on that portfolio.

Did you have a quick follow-up? Just quickly on the fixed wireless access rollout in India. How long can this last in terms of being a tailwind for your business?

Yes. Do you want to talk about this, Marco?

Yes. I would say that many operators globally are looking into opportunities to utilize fixed wireless access whenever they see that the mobile networks are not utilized fully, which is usually outside of the city centers. This is one way for them to capture more opportunities and customer base. If and when there's any fiber connection later, they have already that customer connection, and they can just swap all of that customer from fixed wireless access into fiber customer. Different operators see these opportunities coming on different timelines as well, but right now, we've seen Indian operators have been quite active and seeing this opportunity to capture the customer base. This is why we're seeing the tailwind there.

I would just add that this presents opportunities for us. First of all, broadband access, whether wireless or fiber, are growth opportunities for us. Second, there are opportunities on the operator side; OLT is one of them, as I touched on before. Also, we have innovation services and technology we can deliver at the radio layer. We're seeing that not only in India but North America as well. More potential exists. Finally, it is indeed difficult to predict where the demand will trend, as Marco correctly pointed out, there will always be a balance between how much wireless access you provide against the fiber rollout. We have the unique advantage to benefit both sides.

Thanks, Rob. We'll take our next question from Sandeep Deshpande from JPMorgan. Sandeep, we can't hear you.

Hello. Sorry. Can you hear me?

Yes, go ahead.

My question is about Network Infrastructure. In the Network Infrastructure segment, there is notable growth in the Fixed Network area, which has been discussed previously. I would like to revisit the Optical business, where you mentioned a 6% organic growth. Considering the strong demand from hyperscalers, why is this business not experiencing even stronger growth at this time? Do you need to increase your reach and customer base further? Additionally, could you provide an update on your routing and switching initiatives with hyperscalers and your efforts to expand your presence in that area?

Yes. Thanks, Sandeep. A couple of things. On Optical, again, if you look at that pre-acquisition, Nokia was not penetrated heavily in Optical within the AI and cloud space. With Infinera, we've gained some footprint there. However, we're behind our competition in terms of market share penetration. I believe we have opportunity. That's why things like what we announced with the 800 gig pluggable platforms are important because that gets us back to being competitive. You'll note that we were behind in that space. The work that David and the team have done to start to catch up there is very important, and we need to continue to drive those efforts to ensure we hit future product intercepts. As for IP and routing, we've had some traction in routing with more work still to do in that space. Switching has had less traction, but this is a place of focus for us. Historically, we haven't prioritized it. The team is looking at the potential there and we will give you a fuller view on what we believe we can do as we come to Capital Markets Day.

Thanks, Sandeep. Did you have a quick follow-up?

No, that's it.

Thanks, Sandeep. We'll take our next question from Felix Henriksson from Nordea.

It's on the Q3 outlook where you flagged somewhat stable operating margin sequentially, partly reflecting a bit weaker business mix. Is this reflective of just MN, which you highlighted? Or do you also see a bit of mix in the other segments? Do you have any visibility on mix improvement for the fourth quarter of the year?

Thank you, Felix. If you look at the normal seasonality we've seen in past years, we've had a quite strong quarter in Q4. Seasonally, we believe we see more than normal seasonality this year as well. And when you look at the second half, we believe we have stronger performance in the second half compared to the first half. If you look at past data, EUR 8 to EUR 10 has been typical seasonality between Q2 and Q3, making it common. But specifically, we want to highlight that in Mobile Networks, we expect less software compared to Q2. That will undoubtedly impact the margins as well in Q3.

Thanks, Felix. Did you have a follow-up?

Yes. Just a quick one on the cost base in technologies. It seems like your EUR 1.1 billion EBIT guidance for technologies of the year assumes a step down in OpEx for the back half of the year, assuming that your sales run rate keeps at the current level. Could you discuss why we should expect lower OpEx for technologies in the second half of the year?

Yes. The key thing is OpEx is expected to be flat. We're optimistic on what we'll do in the second half in terms of revenue.

Thanks, Felix. We'll take our next question from Sébastien Sztabowicz from Kepler Cheuvreux.

Yes, have you seen any kind of pull-in orders affecting any of your businesses over the past few months or do you think the order intake has been tracking clearly, a normal evolution? That would be the first question. The second one is linked to competition because your Nordic competitor was blaming stronger price competition in the RAN market over the past few months. Have you seen any change in pricing dynamics or competitive landscape over the past few months in Mobile Networks?

On your first question, again, adjusting for constant currency, we feel pretty good about the forecast. Nothing in terms of pull-ins. What Marco and I are considering is given some of the news particularly in the U.S., is there more opportunity, felt more relevant in the '26 and beyond. On your second question around pricing, there's nothing abnormal that we see at this point. The market regionally has very different dynamics. So, in terms of pricing dynamics or specific competitive situations, it really depends on the individual opportunity. We feel good about the market dynamics.

Thanks, Sébastien. We'll take our next question from Jakob Bluestone from BNP Paribas Exane.

Just coming back to the phasing. As you've mentioned a few times, it's a very Q4 loaded year. First of all, can you explain a little bit more why it is quite so heavily skewed into Q4? If you can also help us understand around your confidence. Is the midpoint of that guide covered out of your existing order book? Or how far away are you from that in terms of your orders?

Yes. Thank you. Seasonality in this industry is fundamentally driven by customer behavior regarding their investments in networks. Typically, towards the latter part of the year in Q4, if customers see opportunities for upgrades or additional investments within their CapEx frame, that's when they usually request us. This has been a historical pattern. Different sectors behave differently. This is true on the CSP side while hyperscalers tend to adopt more gradual investments. Only 5% of our sales comes from hyperscalers today, making us reliant on CSPs. I can mention that the order coverage varies depending on business. For project businesses, like Mobile Networks, the order book tends to be longer and more covered ahead, in contrast to Network Infrastructure, where coverage is lower. However, we don't see deviations from the normal pattern this year.

Thanks, Jakob. We'll take our next question from Emil Immonen from Carnegie.

Just a couple more. Maybe on the order book, could you go into a little detail on what the order book looks like as a whole in Network Infrastructure and how it has developed year-on-year and quarter-on-quarter?

Yes. I think just a couple of comments on this. We obviously don't break this down in detail, but overall, group book-to-bill was well above one for Optical. It would have remained well above one had we fulfilled all of the orders we would historically based on traditional conversion rates. As I touched on, the 800-gig award, that order has not been booked. We believe the funnel is quite healthy, but we have a lot of work to do to continue to grow and scale in hyperscale, as Marco highlighted, we're at 5% of overall revenue mix, so there's much more opportunity there.

Did you have a quick follow-up, Emil?

Yes. Then on Mobile Networks, I just wanted to know, how do you think about the segment regarding what is needed for a return to revenue growth?

Yes. This is a challenging business for us over the last few years. The market is flat. If you look at the market addressable to us, it's largely flat due to data consumption flattening out and subscriber growth leveling off. The end customer metrics are there. I've shared that we are starting to recover share from what we had lost in terms of cell sites. From my perspective, overall revenue growth is the goal, but right now, preserving market share in a flat market is key while looking for opportunities to gain share.

Thanks, Emil. We'll take our next question from Francois Bouvignies from UBS.

I have a quick question on the strategy just on this more integrated end-to-end maybe. When we look back at what you did in the past, Rajeev, at the time when you acquired Alcatel, the idea was to do an end-to-end. Then Pekka came in and realized maybe it wasn't a good solution, so we went back to best of breed. Now it seems you are moving back again to the integrated model. How different is it from previous work at Nokia? What would make this work this time? Is there anything you learned from the past that can help?

Thank you, Francois. A few things. I've worked in many different models and have studied this deeply. No perfect model exists. It's customer-centric, marketing-oriented, and focused on core innovation. We are not going back exactly to something that existed before. This isn't about raiding a previous model. It's about our BG accountability. The businesses have different cycles and investment areas. CNS focuses on cloud native software. This is quite different from fixed broadband, as established as OLT, as well as consumer premise equipment. Such distinction is essential. Furthermore, our customers are unified, and they engage with us holistically. We must orient toward that. I think the steps we took in the past were the right steps at the time. They delivered value. What we're doing now is being consistent across functions. The integration of MBS and a consistent operating model across functions can support stronger operating leverage. Initial feedback is positive towards this integrated approach.

Did you have a quick follow-up?

No, that's fine. I'm conscious of time.

Thank you, all. That is our last question for today. 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 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. Thank you all for joining us.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.