Nokia(NOK) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q4 2025, net sales increased by 3% to EUR 6.1 billion, with an operating profit of EUR 1 billion and free cash flow of EUR 0.2 billion [3][14] - For the full year, net sales reached EUR 19.9 billion, with an operating profit of EUR 2 billion, slightly above the midpoint of guidance [3][14] - Free cash flow conversion was 72%, consistent with guidance [3][14] - Gross margin improved by 90 basis points to 48.1%, while operating margin was 17.3%, down 90 basis points due to increased investments [14][15] Business Line Data and Key Metrics Changes - Network Infrastructure saw a 7% increase in net sales in Q4, driven by a 17% growth in optical networks [4][15] - AI and cloud customers accounted for 16% of net sales and 30% of Optical Networks in Q4 [15] - Cloud and Network Services experienced a 4% decline in Q4, but delivered 6% growth for the full year [15][16] - Mobile Networks net sales increased by 6%, driven by growth in the Middle East, Africa, Japan, and Indonesia [16] - Nokia Technologies faced a 17% decline in net sales in Q4, impacted by lower catch-up sales [17] Market Data and Key Metrics Changes - North America showed strong growth in Network Infrastructure, while Cloud and Network Services and Mobile Networks declined [18] - In APAC, Japan and Indonesia grew, but there were declines in India and Greater China [18] - Europe grew by 4%, with strength in network infrastructure, while the Middle East and Africa saw growth in both mobile networks and network infrastructure [18] Company Strategy and Development Direction - The company is focused on disciplined execution to capture growth in AI and cloud, with a simplified operating model and clearer priorities [10][11] - The acquisition of Infinera is part of the strategy to strengthen the portfolio and focus on areas with opportunities for differentiation and sustainable market leadership [3][10] - The creation of Nokia Defense aims to deliver defense-grade solutions based on Nokia's mobile and network infrastructure technologies [9] - The company is investing in optical and IP networks as primary growth engines, with a target of 6%-8% compound annual growth in network infrastructure from 2025 to 2028 [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the long-term opportunities in optical networking and AI infrastructure, despite a conservative guidance for growth [28][29] - The company anticipates a somewhat subseasonal trend in Q1 2026 due to normalization after a strong Q4 [31] - Management highlighted the importance of clarity on replacement schedules and support for network operators in light of new regulations [50][51] Other Important Information - The company closed the transaction to take full ownership of Nokia Shanghai Bell, expecting approximately EUR 200 million in run rate cost synergies [10] - The company is targeting an operating profit of EUR 2 billion to EUR 2.5 billion for 2026, with a focus on new product launches and investments in AI and cloud [11][70] Q&A Session Summary Question: On optical growth guidance - The company acknowledged the strong growth in optical networking but provided conservative guidance for 2026 due to transitioning from a telco-centric base and the need for disciplined execution [28][29] Question: CapEx visibility and order book - Management indicated that CapEx investments are aligned with long-term market trends and near-term demand, emphasizing the importance of these investments for future growth [34][35] Question: Supply-related constraints - The company recognized supply constraints in the broader ecosystem but remains focused on securing supply and managing commitments [57] Question: North America market dynamics - Management noted headwinds from customer losses in North America but highlighted positive trends in AI and cloud segments [63][64] Question: Operating guidance for 2026 - The company provided insights into the EUR 2 billion to EUR 2.5 billion guidance, emphasizing the impact of new product launches and investments in AI and cloud [72][74]