Nokia Earnings Call Highlights AI Surge and Risks
Nokia ((NOK)) has held its Q2 earnings call. Read on for the main highlights of the call.
Claim 55% Off TipRanks
- Unlock powerful investing tools with TipRanks Premium to make smarter, more confident investment decisions
- Subscribe to TipRanks Smart Investor Newsletter, and discover new investing opportunities with data-backed stock picks
Nokia’s latest earnings call struck a cautiously upbeat tone, blending robust top-line growth and clear progress in high‑margin businesses with some notable cash flow and execution risks. Management highlighted double‑digit gains in Network Infrastructure, more than doubling of AI & Cloud sales, and expanding margins, yet also flagged negative free cash flow, hefty restructuring charges and supply bottlenecks as near‑term pressure points.
Revenue and Margin Expansion
Net sales rose 9% year on year in the second quarter of fiscal 2026, underscoring broad-based demand across Nokia’s portfolio despite a still-mixed carrier spending backdrop. Profitability improved as well, with gross margin up 70 basis points to 46% and operating margin also higher by 70 basis points to 9%, signaling better mix, cost control and early benefits from integration synergies.
AI & Cloud: Very Strong Growth
AI & Cloud remained the standout growth engine, with net sales jumping 105% to €446 million and order intake surging to €2.8 billion as customers locked in capacity for future AI workloads. Management cautioned that only about half of the second‑quarter AI order volume is expected to turn into revenue within 12 months, leaving some timing risk around how rapidly the backlog converts.
Network Infrastructure Momentum
Network Infrastructure delivered 12% net sales growth, powered by a 20% increase in Optical Networks and 16% in IP Networks as hyperscalers and carriers invested in bandwidth and transport capacity. Segment profitability strengthened sharply, with gross margin up 240 basis points to 42.7% and operating margin rising to 8.1%, supported by demand, pricing discipline and synergies from the Infinera integration.
Mobile Infrastructure Stability
Mobile Infrastructure provided steady support with net sales up 7%, including 7% growth in Radio Networks, 1% in Core Software and a 15% lift in Technology Standards revenue. The unit’s gross margin came in at a solid 49.3% and operating profit was broadly unchanged from a year earlier, indicating that Nokia is holding its ground in a competitive 5G radio and core market.
AI RAN and Product Innovation
Nokia unveiled what it calls the industry’s first commercial AI RAN platform, setting out a multi‑year roadmap to embed artificial intelligence more deeply into radio access networks. Pilots are targeted for the end of 2026, with commercial rollout in 2027 and a goal of delivering more than 100% spectral efficiency gains by 2028, while the company also notched its first multi‑rail ILA design win in optical.
Strategic Partnerships and Co‑innovation
The company emphasized a growing web of partnerships aimed at accelerating AI and cloud adoption, including work with Google Cloud on Gemini‑powered AI agents and with Vodafone Albania on AI‑driven network slicing. Nokia is also collaborating with Indosat and Hutchison on 5G monetization and the AI RAN path, and running trials with a U.S. hyperscaler on out‑of‑band data‑center management, broadening its ecosystem exposure.
Manufacturing and Capacity Investments
On the manufacturing front, Nokia reported progress at its San Jose indium phosphide fabrication plant, which is processing test waivers and expected to reach volume production by year‑end. It plans to boost test and packaging capacity at a Pennsylvania facility tenfold and has acquired an NXP site in Arizona to further expand indium phosphide capacity, building a base to support long‑term optical growth.
Portfolio Discipline and Cost Savings
Management underlined ongoing portfolio pruning and efficiency efforts, pointing to the sale of its fixed wireless access business to Inseego, which should close by year‑end. That divestment recast reduced comparable net sales by €66 million but lifted comparable operating profit by €13 million, while Nokia has already achieved €1.2 billion in gross cost savings and reported near‑full AI adoption among developers to drive productivity.
Negative Free Cash Flow and Working Capital Buildup
Despite solid earnings metrics, free cash flow was a negative €732 million in the quarter, which management partly attributed to seasonal employee incentive payments and higher working capital. The company now expects free cash flow conversion to come in toward the low end of its 55%–75% target range, reinforcing that cash generation, not headline profit, remains an important area for investors to monitor.
Significant Restructuring and One‑Time Charges
Nokia outlined a heavy restructuring slate for 2026, guiding to roughly €800 million of related charges as it streamlines operations and integrates acquisitions, including around €350 million tied to China integration actions. An additional €200 million of planned efficiencies in Europe is also embedded in that total, signaling both further near‑term P&L drag and longer‑term cost base reductions.
Stock‑Based Compensation Headwind
Higher stock‑based compensation expenses have emerged as a notable drag, shaving about 150 basis points off the operating margin year on year in the second quarter. Management linked this to Nokia’s higher share price, program adjustments and earlier issuance timing, implying that some of the reported margin expansion would have been even stronger absent this equity‑linked headwind.
Supply Constraints and Order Lumpiness
The call underscored persistent supply‑chain constraints, particularly around memory components and indium phosphide, which could limit the pace at which Nokia fulfills growing demand. Management also warned about elongated sales cycles and lumpy ordering patterns, especially in AI & Cloud where only around half of the large second‑quarter order intake is expected to turn into revenue within a year, adding visibility risk.
Fixed Networks Pressure
Not all parts of the portfolio are firing, with Fixed Networks posting a 2% sales decline in the quarter as operators remain selective on broadband spending. Optical & Terminal sales fell 16% as Nokia deliberately pivots away from lower‑value offerings toward higher‑margin areas, signaling a trade‑off between near‑term revenue and long‑term profitability in this segment.
Gross Margin Mix Pressure from Switching Ramp
Within IP Networks, Nokia highlighted that product mix and early‑stage switching ramp‑ups weighed on Network Infrastructure gross margin during the quarter. Management cautioned that as new switching products scale there could be some initial margin dilution before volumes and learning effects kick in, suggesting investors should brace for some variability in reported profitability.
Mobile Infrastructure Short‑Term Margin Phasing
Mobile Infrastructure margins also face timing-related swings, with the second quarter benefiting from earlier‑than‑expected software revenue recognition that will not repeat. Nokia guided that mobile infrastructure gross margin is likely to dip to around 44%–46% in the third quarter before improving again in the fourth, flagging short‑term volatility even as the underlying business remains fundamentally stable.
Indium Phosphide Capacity Timing Risk
While Nokia is ramping its San Jose fab toward volume production, the broader expansion of indium phosphide capacity is a multi‑year endeavor, with the earliest incremental capacity beyond current projects not expected until around 2029. That extended timeline introduces medium‑term supply risk for its fast‑growing optical portfolio, especially if demand continues to accelerate faster than planned.
Guidance and Outlook
Nokia left its full‑year comparable operating profit guidance operationally unchanged and said it is tracking somewhat above the midpoint, pointing to confidence in its earnings trajectory despite execution challenges. For the third quarter, it expects net sales to grow 3%–7% sequentially with operating profit broadly in line with the second quarter, while reiterating that cash conversion will likely land near the low end of its long‑term 55%–75% free cash flow conversion range.
Nokia’s earnings call painted a picture of a company benefiting from structural growth in AI, cloud and optical infrastructure, while working through cash and supply growing pains. For investors, the key takeaway is that momentum in high‑value segments and ongoing cost savings are offsetting restructuring and working capital headwinds, making execution on capacity ramps and cash discipline the critical swing factors for the stock in the coming quarters.
