Earnings Call Transcript - NOK Q1 2025

David Mulholland, Head of Investor Relations

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, President and CEO

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 on 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 the 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 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, CFO

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 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 giving 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 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, Head of Investor Relations

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, could you please give the instructions?

Operator, Operator

We will now begin the question-and-answer session. I'll hand the call back to Mr. David Mulholland.

David Mulholland, Head of Investor Relations

Thanks, Ashu. We'll take the first question from Alexander Duval from Goldman Sachs. Alex, please go ahead.

Alexander Duval, Analyst

Yes, many thanks for the question. You mentioned the T-Mobile U.S. contract extension. I wondered if you could give some color on duration and how important this is and what it implies about 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 it's helpful to get a sense of what the key factors have been in this regard and how you see this going forward?

Justin Hotard, President and CEO

Yes, absolutely, Alex. 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. While we aren't sharing a lot of details on the contract, what I can share is it's a significant multiyear extension in our RAN contract. We think that this is a great opportunity for us to partner to shape the next chapter of mobile connectivity in the U.S. with T-Mobile, who is clearly an innovative leader in this space. 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 that if you look at the build-out of data centers, what's happening with AI is it's driving significant new data center builds, but it's also driving new connectivity demands between data centers, both for training and 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 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, Head of Investor Relations

Thanks, Alex. We'll take our next question from Daniel Djurberg from Handelsbanken. Daniel, please go ahead.

Daniel Djurberg, Analyst

Thanks very much and good morning gentlemen, and welcome aboard, Justin. A question first detail on Infinera. It was reported from the 28th of February to 31st of March, and it 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, CFO

Yes. Thank you, Daniel. This is Marco. I will take this one. As we have now tried to give you as good a picture of the run rate basis, and that's why we have basically given these Infinera figures in our report also in a pro forma basis so you can compare how would that look like if we would have had that already from the first of January '24 in all comparisons as well. So that loss that you're referring to is quarter 1. We closed the deal on the 28th of February. So we actually booked only March month in our books. In March, actually, they had a positive result. I would say that if you look how Infinera was performing in 2024, including the stock-based compensation in their operating profit level, then you would actually see that they were a loss-making last year. This was something we explained as well when we acquired that there's a scale issue with Infinera. Together with Nokia and our optical, we achieve a totally different scale, and that's why we are quite confident about the synergies of EUR 200 million that we have explained that we will target to receive here in three years' time. We believe that we will definitely see acceleration in 2025 in Infinera's performance and our optical. But as we mentioned also that Infinera itself is not the needle mover for our operating profit in 2025.

David Mulholland, Head of Investor Relations

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

Daniel Djurberg, Analyst

The mobile networks, can you hear me?

Marco Wiren, CFO

Yes.

Justin Hotard, President and CEO

Yes, go ahead.

Daniel Djurberg, Analyst

Perfect. Yes. I have a quick follow-up regarding mobile networks. Can you clarify the significant one-time contract settlement of EUR 120 million this quarter? Should we connect this to the recent extension with T-Mobile U.S.? Additionally, is there a possibility of this happening again, and what should shareholders expect?

Justin Hotard, President and CEO

Thank you, Daniel, it's a pleasure to meet you. Let me explain this in a bit more detail. Firstly, we are not disclosing the specific customer involved in this matter. The project in question is from 2019 and was tailored to a specific customer. As you may know, we have invested significantly in stabilizing and enhancing our portfolio over the past four to five years, and this situation actually predates those efforts. The unexpected element was that while we were addressing the issue, the discussions were continuing, but we didn't have complete clarity on the total costs involved. This was an oversight on our part regarding the cost assessment as we engaged with the customer. As we gained a better understanding of the expenses required to rectify the situation, we decided to record a charge. I felt it was crucial to take a charge that would fully address the circumstances. Additionally, it was essential for us to meet the customer's needs thoroughly in response to this specific project. Lastly, it's important to recognize that this affects our comparable operating profit; while it is a one-time issue, it is not non-operational. This was vital for me in terms of our guiding principles. Furthermore, this was indeed a customer-specific project, and we do not anticipate risks with other customers. As I assess this decision, I am keen to ensure that we learn from this experience and enhance our visibility moving forward. At this moment, I do not expect similar issues to arise. This project dates back to a time when we were aware of certain challenges within our portfolio that we have since rectified. I am confident this is an isolated incident related to this project; nonetheless, I will continue to focus on improving our operational visibility.

David Mulholland, Head of Investor Relations

Thanks, Daniel. We'll take our next question from Richard Kramer from Arete. Richard, please go ahead.

Richard Kramer, Analyst

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, President and CEO

Thank you, Richard. First of all, I believe there are a few key points to consider. Our portfolio, especially in IP networks and, to a significant degree, optical networks, has been primarily focused on telecommunication service providers. Several developments have occurred. When comparing it to traditional enterprise IP networks, one major factor is the scale and bandwidth that customers require in hyperscale environments, which is largely driven by AI and cloud demands. This is increasingly aligning with our conventional telecommunications solutions. Another important aspect is the enhanced reliability and performance. Hyperscale customers are now expecting the same capabilities from cloud and AI technologies. This shift has created new opportunities for us. Additionally, we are now investing more energetically in this area, as evidenced by the Infinera acquisition and our focus on optical technology. You touched on an insightful point regarding the customer cycle being different; it necessitates collaboration and co-development from the start, and it takes time to realize revenue growth. Infinera's strong relationship with these customers and their investments in optical technology were significant factors in our interest in them. There are valuable insights and advantages to gain as we advance in IP networks.

David Mulholland, Head of Investor Relations

Did you have a quick follow-up, Richard?

Richard Kramer, Analyst

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, CFO

Yes. Thank you. I think in December '23, we mentioned that we had that EUR 150 million level of non-smartphone licensing deals. We haven't updated that figure 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. This latest deal is one of those proof points as well.

David Mulholland, Head of Investor Relations

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

Ulrich Rathe, Analyst

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 you have assumed there was EUR 20 million to EUR 30 million?

Justin Hotard, President and CEO

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. So we're really looking at the impact based on a short-term impact given 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 to provide supply continuity to our customers. 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 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, Head of Investor Relations

Did you have a follow-up Ulrich?

Ulrich Rathe, Analyst

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, CFO

Yes. Thank you. 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. Of course, we are investing also an 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 an approximate EUR 1.1 billion operating profit assumption.

David Mulholland, Head of Investor Relations

Thanks, Ulrich. And we'll take our next question from Simon Leopold from Raymond James. Simon, please go ahead.

Simon Leopold, Analyst

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, President and CEO

Thank you, Simon. It's great to connect with you again. I mentioned some insights in my earlier comments, but I was pleasantly surprised by our technology foundation. We’ve discussed our product technology and portfolio extensively. I had the opportunity to spend a day at Nokia Bell Labs during their Centennial celebration and tour some of the labs. I was really impressed with the long-term technology we are researching there and its potential. Having seen this across various companies and with my understanding of the broader landscape, I was pleasantly surprised by the progress we've made in commercialization, which reflects the principles and heritage of Nokia Bell Labs. Additionally, I am very impressed with our employees, and I highlighted this in my previous remarks, but I want to emphasize it. The passion our employees have and their mindset towards seizing opportunities, along with their openness to learn and adapt, is noteworthy. These are the key highlights for me. As I reflect on opportunities, I’ve consistently focused on two areas throughout my career. One key focus has been driving efficiencies in non-core growth areas. For core growth areas, investments will be directed toward R&D and go-to-market efforts, whether through organic growth, which is always preferable, or strategic acquisitions that create synergies in both cost and revenue. I also examine where we can drive substantial scale value within the company. As a $20 billion organization, we aim to identify investments that significantly impact growth. Our profit profile and current guidance necessitate initiatives that enhance our overall product offerings to ensure robust cash flow. Therefore, I will concentrate on ensuring we maintain discipline in recognizing which opportunities may be exciting but lack the material impact on our business. We must also consider whether there are areas where we could invest more effectively. Successful technology companies tend to allocate enough resources to excel. Thus, I will look for ways to differentiate ourselves, gain a competitive edge, and deliver unique value to our customers.

Simon Leopold, Analyst

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, President and CEO

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. Just to make sure I'm articulating that clearly to you, hyperscale for me is a hyperscale and AI data center, in particular, is 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 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. 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, particularly with some of the things that attracted us to Infinera. 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. 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? I think there are positive indications, but obviously, I'll be looking at what we may need to evolve or do incrementally to accelerate that growth.

David Mulholland, Head of Investor Relations

Thanks, Simon. And we'll take our next question from Artem Beletski from SEB. Artem, please go ahead.

Artem Beletski, Analyst

Yes, hi. Thank you for taking my questions. So I would like to ask about NI and the outlook for this year. You are still anticipating strong growth this year. Could you maybe provide some further color on how 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 view the year for different areas here?

Justin Hotard, President and CEO

Maybe I'll start and let Marco add some comments. But I think from my perspective, 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 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. Then fixed networks is a more predictable, stable growing business, right? We continue 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. However, we need to realize that that business is not growing at the pace of optical or IP given from an end market perspective. So from a TAM perspective, we believe it's optical, IP, then fixed networks. Marco, anything you would add to?

Marco Wiren, CFO

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 on the Infinera side was very good and very strong on the hyperscaler side, actually better than what we expected as well. 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 wireless access in India and that we will see that continue as well. We continue to pursue those hyperscale and CSP opportunities in IP side as we go and invest more, specifically on the IP and data center side.

David Mulholland, Head of Investor Relations

Did you have a quick follow-up, Artem?

Artem Beletski, Analyst

Yes, I had. So as a quick follow-up, it's actually related to mobile networks. One metric 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 the T-Mobile renewal?

Marco Wiren, CFO

Yes. Thank you. What we have now said is that what we see for this year's growth wise, we mentioned that mobile networks is stabilizing. Otherwise, we haven't given any more indication on mobile networks. 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.

David Mulholland, Head of Investor Relations

Thanks, Artem. We'll take the next question from Sami Sarkamies from Danske Bank. Sami, please go ahead.

Sami Sarkamies, Analyst

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, President and CEO

Yes, Sami, the 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. This was really driven by optical and more acutely by Infinera. This is in line with our EUR 1.4 billion to EUR 1.5 billion guidance. I think that's a good thing. And just back to Amazon, this is a very important customer, a very important hyperscale customer for us across our NI business. 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. Obviously, this is one element. It's important to recognize that there's other value that other value in the partnership beyond just a tech licensing agreement.

David Mulholland, Head of Investor Relations

Thanks, Sami. We'll take our next question from Francois Bouvignies from UBS. Francois, please go ahead.

Francois-Xavier Bouvignies, Analyst

Thank you very much. My first question would be on a 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 a 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 RAN forecast? 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 is mobile network to you in your capital allocation strategy?

Justin Hotard, President and CEO

Thank you, Francois. I have a couple of comments. There seem to be a couple of questions in your remarks, so I will address them. First, regarding capital allocation, I believe this is one of the most crucial responsibilities of a CEO. When considering capital allocation, I focus on how we distribute funds for research and development, our go-to-market strategies, and our intellectual resources. Effectively utilizing our talent is equally important. My priority is always to invest in ways that maximize value. Different stages in business cycles will see varying levels of R&D intensity. If we analyze our businesses, particularly in the context of MN, we see significant differences. For NI, we are currently in a strong investment phase due to the advancements in AI and hyperscale development. Networking and optical product cycles have traditionally been faster, allowing for enhanced solutions through continued R&D and close partnerships with our customers, especially in the hyperscale sector and AI cloud. Regarding MN, while RAN is a component, our uniqueness lies in being one of just two European and Western players offering a comprehensive portfolio in this area. We possess a solid RAN portfolio alongside a robust core portfolio, which is essential for our customers' mobile network solutions. Viewing this holistically, we have ample opportunities to create value. I am optimistic about the growth in our core sector and see several significant growth opportunities ahead. Additionally, I am concentrating on fulfilling customer needs. I believe AI will lead to new investments, services, and value opportunities in the broader RAN market for both defense and traditional telecommunications. To thrive, wireless communications must be efficient, reliable, and secure, all of which will necessitate investment. Even though the business cycles may differ, I am confident there is substantial value to be realized in the mobile networks sector over time.

David Mulholland, Head of Investor Relations

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

Felix Henriksson, Analyst

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, President and CEO

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 our broader team's levels to understand and assess and be very responsive around that need and that's something that we're considering in terms of leveraging our global manufacturing network.

Felix Henriksson, Analyst

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, President and CEO

Yes, we are pleased with the revenue performance in optical, where we have our highest exposure to hyperscale at the moment, as well as the order growth, which exceeded a book-to-bill ratio of 1. There is strong growth alongside strong order growth. I want to note that in the hyperscale market, a pause in leasing discussions does not necessarily reflect a change in their capital expenditure plans, as hyperscalers have various investment avenues available, including co-location facilities and their own builds. Additionally, we should expect trends similar to those we observed in the cloud market to emerge in AI. Specifically, after significant capital expansion, there are often short-term periods of adjustment during technology transitions. Currently, we are experiencing a technology transition in the GPU market, and none of this is surprising. Looking at our portfolio, there has been considerable investment and traction with hyperscale customers, and our order book and pipeline suggest that there is no long-term shift in the investment outlook for this market segment.

David Mulholland, Head of Investor Relations

Thanks, Felix. And we'll take our next question from Rob Sanders from Deutsche Bank. Rob, please go ahead.

Robert Sanders, Analyst

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 or back to Mexico, maybe into the U.S., if there's enough labor. 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, President and CEO

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. 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 agile on this in the past. If you look back at the supply chain shortages that happened during COVID and spending time with the team. One of the things that was clear was that we had some real strength in those areas. Obviously, we will continue to work on this. As we see the situation play out, we'll provide updates and clarity on the actions we're taking.

Robert Sanders, Analyst

Got it. As a follow-up, could you provide an update on the B program? There's a lot expected for next year. Has there been any delay in the last few quarters? Where do we stand in terms of seeing a significant increase in orders? Will that happen in the first half of next year, or is it expected sooner? Thanks.

Justin Hotard, President and CEO

Yes. We have been clear that it's not something we expected impact from this year. I don't think our view has changed on that. We think that fiber technology will continue to be a compelling driver. As I mentioned, as I looked at the growth segments within NI, I think fiber continues to be the slowest grower of the two, just because it's a more stable market, but we are anticipating continued growth in the business, albeit not at the same potential that we see with optical and IP networking.

David Mulholland, Head of Investor Relations

Thanks, Rob. We'll take our last question today from Jakob Bluestone from BNP Paribas. Jakob, please go ahead.

Jakob Bluestone, Analyst

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, President and CEO

Yes. The key thing here is we have contracts across many different businesses and different contracts and different businesses. As I touched on, some of the dynamics between our businesses, obviously, the businesses have varying exposure to tariffs as well. So 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, Analyst

Understood. A very quick follow-up as well. Just on the T-Mobile contract, if you can give any color on when does it kick in and are there any considerations that we should be aware of in terms of how it might be lower margin or higher margin initially? That could help us think about any modeling around that, just given the size?

Justin Hotard, President and CEO

Yes, I appreciate that. We've shared an overview of the T-Mobile deal. It's a significant multi-year extension. For me, this is also a signal of the important partnership that we have with T-Mobile U.S. and their commitment to continuing to be a leader in innovation in the market, but there is nothing else we'll say about the details of the contract.

David Mulholland, Head of Investor Relations

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, Operator

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