Nokia Q1 Earnings Call Highlights

Nokia NYSE: NOK reported what President and CEO Justin Hotard called “a solid start to 2026,” posting first-quarter net sales of EUR 4.5 billion, up 4%, with a comparable operating margin of 6.2% and free cash flow of EUR 629 million. Gross margin expanded 320 basis points to 45.5%, supported by stronger Optical Networks performance and the absence of a prior-year one-time charge in Mobile Networks, management said.

Hotard said momentum with AI and cloud customers continued to build, with net sales in that segment up 49% and EUR 1 billion in new orders, “particularly driven by Optical Networks.” Group book-to-bill was above one, and Network Infrastructure book-to-bill was “well above one,” he added.

AI and cloud demand reshapes Nokia’s growth assumptions

Hotard reiterated the company’s view that the industry is in an “AI super-cycle,” and said demand has accelerated since Nokia’s Capital Markets Day in November. He noted that expectations for 2026 hyperscaler capital expenditures have risen to “over $700 billion” from roughly $540 billion previously, reflecting the pace at which customers are scaling AI infrastructure.

Hotard said AI-driven traffic is estimated at around 20% of total network traffic—about 80 exabytes per month—and is “still primarily human to machine.” As agentic AI and physical AI adoption expands, he said machine-to-machine traffic could become the primary driver, leading to a step change in network traffic.

Against that backdrop, Nokia increased its expectations for its AI and cloud addressable market growth to a 27% CAGR between 2025 and 2028, up from 16% previously. Hotard said that implies Network Infrastructure’s addressable market growing at a 14% CAGR versus 9% previously.

Network Infrastructure growth outlook raised; optical and IP in focus

Management raised assumptions for Network Infrastructure growth in 2026 to 12%–14%, up from 6%–8% previously communicated in January. For Optical and IP Networks combined, Nokia now expects 18%–20% growth, up from 10%–12%.

In response to analyst questions, Hotard said the guidance increase reflects “a little bit more confidence on supply” for optical components and systems—highlighting the importance of optical subsystems, DSPs and pluggables—alongside continued strong demand and “traction we’re starting to see in IP networking.” He described IP as having been “a little bit lumpy,” but said Nokia is seeing more visibility for the year.

On current optical demand, Hotard told Jefferies’ Janardan Menon that the company’s near-term momentum is being fulfilled largely through “our 800G pluggable and then the associated line systems and the platforms that we have available in shipping today.” He said the roadmap Nokia introduced at OFC is oriented “largely” toward 2027 and was designed “with a real focus on AI and cloud customers” and in collaboration with some of them.

Hotard also said Nokia is seeing “elongation in orders in terms of a desire for a longer-term commitment,” which he characterized as normal given expanding demand and lead times. Later, he clarified that orders reported include “firm purchase orders with delivery dates,” even though the company also has multi-year frame agreements across its business.

Pressed on lead times, Hotard said a way to think about broader optical lead times “today” is around 12–18 months, while adding there are exceptions by product. He also noted that others in the ecosystem have discussed being “sold out over multiple years,” which he said is “a pretty good indication” of where Nokia sees optical demand. He said IP lead times are “a little bit shorter,” though parts of the supply chain remain constrained.

Nokia highlighted product development at OFC, including a next-generation multi-rail in-line amplifier expected to begin shipping later this year. Hotard said it is designed to scale fiber capacity without expanding physical infrastructure, with an “8X increase in density” and “25% more dense than competing products announced recently.” He also described a shift to a building-block architecture with four optical engines embedded across multiple form factors, enabling 13 application-optimized solutions. Those products are expected to begin sampling in the first half of 2027 and ship in volume in the second half, he said.

Quarterly segment performance: optical strength, fixed declines

Chief Financial Officer Marco Wirén said Network Infrastructure sales grew 6% in the quarter. Optical Networks net sales rose 20%, “mainly driven by AI and cloud customers,” and also grew in telecom as operators invest to meet rising transport network demand. IP Networks sales increased 3%, with AI and cloud growth offset by softness in other segments; Wirén said Nokia expects IP growth to “start to accelerate in quarter two” as it ramps shipments tied to new design wins with AI and cloud customers.

Fixed Networks declined 13%, which Wirén said reflects Nokia’s portfolio strategy to focus on higher-margin products. Sales of Optical Line Terminal products were “largely stable,” and he said Nokia expects the sales trend to improve as 2026 progresses, citing a supportive U.S. demand environment where fiber deployment remains a key investment focus for tier-one operators. Hotard added that Nokia expects continued headwinds in consumer premises equipment as it becomes “more disciplined” and focuses on areas “where it’s valued,” describing the effort as an “intentional transition” toward a more sustainable profit profile.

Network Infrastructure gross margin was 43.4%, up 150 basis points, driven by a higher gross margin in Optical Networks and supported “mainly from Infinera integration synergies and scale,” Wirén said. He cautioned that Nokia expects some gross margin headwinds through the year due to product mix. Network Infrastructure operating margin was 6.7%, down 30 basis points year-over-year because Nokia had a full quarter of Infinera expenses compared with one month last year.

Mobile Networks and Nokia Technologies: margin seasonality, stable licensing outlook

In Mobile Networks, net sales grew 3%, with Core Software up 5% and Radio Networks flat, according to Wirén. Technology standards sales increased 10% due to the signing of several consumer electronics and multimedia deals that contributed catch-up sales. Mobile Networks gross margin rose 430 basis points to 48.5%, which Wirén said was mainly related to a EUR 120 million contract settlement that had negatively impacted the prior year. He said gross margins in the second and third quarters are expected to be “somewhat weaker” before turning “much stronger in quarter four,” consistent with typical seasonality.

Hotard said the new Mobile Networks segment began operating in January, with efforts focused on aligning the roadmap to customer needs, streamlining the integrated business, and delivering on KPIs outlined at Capital Markets Day. He said the company delivered six competitive swaps in Core Software during the quarter and introduced a new generation of radios at Mobile World Congress that are “AI RAN ready.” Hotard said Nokia is making progress on AI RAN with NVIDIA and expects to begin field trials by the end of the year.

On Nokia Technologies, Hotard said the business continues to “deliver stability,” and management expects largely flat net sales for the full year with improved profit generation year-over-year.

Cash flow, balance sheet, and guidance framework

Wirén said free cash flow of EUR 629 million reflected “the typical working capital unwind in the first quarter” due to receivables built at the end of 2025 from strong fourth-quarter seasonality. The quarter ended with net cash of EUR 3.8 billion. He noted that the second quarter is typically seasonally low for cash due to employee incentive payments.

At the group level, Nokia’s 2026 financial outlook remained unchanged, Wirén said, and the company is “tracking somewhat above the midpoint” of its comparable operating profit range of EUR 2.0 billion to EUR 2.5 billion. For the second quarter, Nokia assumes a 5%–9% sequential increase in net sales and expects Q2 operating profit to account for 12%–16% of the full-year total.

Asked about profitability and investment levels tied to optical growth, Wirén said Nokia still believes in its aim for double-digit operating margins in optical following the Infinera acquisition and said the company is “on track or actually ahead” of synergy capture targets. Management said investments span R&D, sales and marketing, and production, with additional focus on scaling manufacturing and maturing the optical supply chain as industry volumes step up.

About Nokia NYSE: NOK

Nokia Corporation, headquartered in Espoo, Finland, is a global telecommunications and technology company with roots dating back to 1865. Over its long history the company moved from forestry and cable operations into electronics and telecommunications, becoming widely known in the 1990s and 2000s for its mobile phones. In recent years Nokia refocused its business toward network infrastructure, software and technology licensing, and research and development, following the divestiture of its handset manufacturing business and the acquisition of Alcatel‑Lucent in 2016, which brought Bell Labs into its portfolio.

Today Nokia's core activities center on designing, building and supporting communications networks and related software.

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