Nokia Corporation

Good morning, ladies and gentlemen. Welcome to Nokia's first quarter 2026 results call. I'm David Mulholland, head of Nokia Investor Relations. Today with me is Justin Hotard, our president and CEO, along with Marco Veran, 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 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 factor section of our annual report on Form 20F, 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 relating to our comparable reporting. Please note that our Q1 report and a 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 for the quarter. Marco will then go through the financial performance and will then move to Q&A. With that, let me hand over to Justin.

Thank you, David, and good morning, everyone. Our first quarter gave us a solid start to 2026 net sales grew 4% to four and a half billion euros with an operating margin of 6.2% and we delivered a free cash flow of 629 million euros in the quarter. gross profit was 2 billion euros and gross margin expanded 320 basis points supported in part by the absence of a one time charge and mobile infrastructure in the prior year. It also benefited from strong performance in optical networks as we began to see the synergy benefits from the Infinera acquisition. Operating profit was €281 million, with operating margin expanding 200 basis points. We saw strong momentum with AI and cloud customers. Net sales grew 49% and we received €1 billion in new orders, particularly driven by optical networks. At the group level, book to bill was above one, and in network infrastructure, it was well above one. I'm proud of Team Nokia's execution in Q1. The focus now is on delivering through the year and maximizing the growth opportunity in front of us. At our Capital Markets Day last November, we outlined our view of the AI super cycle and the market opportunity for Nokia. Since then, demand has accelerated. At the time, expectations were for the largest hyperscalers to spend around $540 billion in CapEx in 2026. Now, those expectations have increased to over $700 billion. This reflects the pace at which our customers are scaling infrastructure for AI. Today, AI-driven traffic is estimated at around 20% of total network traffic, which is roughly 80 exabytes per month, and is still primarily human to machine. As we move deeper into agentic AI adoption and ultimately physical AI adoption, machine-to-machine traffic will become the primary driver of traffic, and that will lead to a step change in network traffic. We already see this demand in AI factories, both in data center interconnect and inside the data center in routing and switching. Increasingly, this is also driving demand in transport networks across metro and long haul, and we believe this is a structural shift in the market which will sustain for multiple years. We now expect our AI and cloud addressable market to grow at a 27% CAGR between 2025 and 2028, up from the 16% we shared in November. This implies the addressable market for network infrastructure growing at a 14% CAGR compared to 9% that we shared in November. This is already benefiting Nokia in orders and in revenue. In March, we introduced several new products at OFC. These launches reflect our focus on accelerating innovation following the Infinera acquisition. The industry is scaling from hundreds to thousands of fibers between data centers. To address this demand, we introduced our next-generation hyperscale multi-rail solution, which will begin shipping later this year. It scales fiber capacity without expanding physical infrastructure, delivers an 8X increase in density, and is 25% more dense than competing products announced recently. In addition, we also shared that we're evolving how we bring optical solutions to market. Our roadmap moves to a building block architecture with four optical engines that are embedded in multiple form factors compared to the two engines per generation previously. The architecture allows us to bring 13 application optimized solutions to market. For customers, this means simplified deployment and a reduced total cost of ownership of up to 70%. These products will begin sampling in the first half of 2027 and will ship in volume in the second half. In Q1, we also saw strong growth in our IP networks pipeline as we built deeper engagements with our AI and cloud customers on switching and routing. We were awarded new design wins and continue to build a strong pipeline of further opportunities. We expect this to translate into new orders over the coming quarters. We've also increased our investment in optical networks, and our new Indian phosphide manufacturing facility in San Jose, California, is on track to begin ramping production later this year. As a result, we are increasing our growth assumptions for network infrastructure in 2026. We now expect growth between 12 to 14 percent, up from the 6 to 8 percent we communicated in January. For optical and IP networks combined, we expect growth of 18 to 20 percent, up from 10 to 12 percent. Turning now to mobile infrastructure, this new segment began operating in January, and the team is focused on aligning our roadmap to customer needs, streamlining the integrated business to improve productivity, and delivering on the KPIs we outlined at our Capital Markets Day. Core Software had another strong quarter, growing 5% and gaining market share. In the quarter, we delivered six competitive swaps. Our customers are modernizing their platforms with cloud-native solutions, adopting new security features, and driving end-to-end automation with a focus on reducing operating expenses. Radio networks also delivered on our expectations. We signed several deals in the quarter, including with Virgin Media 02. At Mobile World Congress, we introduced a new generation of radios that are AI RAN ready. Our Dock Surrey remote radio heads deliver a 30% improvement in power efficiency and up to a 25% reduction in weight. In addition, we continue to make good progress on AI RAN in partnership with NVIDIA, and we are on track to begin field trials by the end of the year. Technology standards continue to perform well across its markets. The business continues to deliver stability, and we expect largely flat net sales for the full year with improved profit generation year over year. With that, I'll hand over to Marco.

Thank you, Justin, and hello from my side as well. As Justin mentioned, we had a solid start to the year with $4.5 billion in sales. Growing 4%, we've growth in both operating segments. Cross-profit was just over 2 billion euros with a gross margin of 45.5 percent, a 320 basis points improvement on year-on-year. Operating profit was 281 million euros with an operating margin of 6.2 percent, and this is up 200 basis points compared to the previous year. Free cash flow was 629 million, and the quarter ended with a net cash of 3.8 billion. Network infrastructure sales grew 6% in quarter one. Optical networks had another strong quarter with 20% net sales growth, and this is mainly driven by AI and cloud customers. We also grew in telecom as operators invest to meet increasing demands on transport networks. IP network sales grew 3% with growth in AI and cloud, offset by softness in other customer segments during the quarter. We expect growth in IP networks to start to accelerate in quarter two, as we ramp shipments tied to new design wins with AI and cloud customers. Fixed networks declined by 13%, reflecting our portfolio strategy to focus on higher margin products. Sales of our optical line terminal products were largely stable in the quarter, And looking ahead, we expect the sales trend to improve as the year progresses. We see a supportive demand environment, especially in the U.S., with fiber deployments remaining a key investment focus for Tier 1 operators. First margin in network infrastructure was 43.4%, increasing 150 basis The increase driven by a higher cross margin in optical networks benefiting mainly from Infimera integration synergies and scale. We continue to expect some cross margin headwinds through the year as a result of product mix. Operating margin was 6.7%, a 30 basis points below the previous year, as we had a full quarter of Infinera expenses compared to one month last year. For the full year, we do expect to slightly increase the network infrastructure operating margin. However, our focus this year is on investing to capture the long-term growth opportunity in the market. In mobile infrastructure, net sales grew by 3%, core software sales grew 5%, while radio networks sales were flat. Technology standards sales grew by 10% as a result of signing several deals in consumer electronics and multimedia, which contributed catch-up sales in the quarter. Cross-margin increased by 430 basis points to 48.5%, in line with our long-term target for mobile infrastructure cross-margins. The increase was mainly related to 120 million euro contract settlement, which negatively impacted the previous year. We expect mobile infrastructure across margins in the second and third quarters to be somewhat weaker and then much stronger in quarter four. And this is consistent with the typical seasonality in the business. Operating margin was 8.9% in the quarter, an increase of 380 basis points, reflecting the settlement impact and lower operating expenses supported by the ongoing cost saving program. If we then turn to look at our sales growth by customer segment, AI and cloud grew 49%, mainly driven by optical networks. Mission-critical enterprise and defense grew 19%, and technology licensing grew 10%. These growing markets offset a 2% decline in telecom to deliver 4% growth for the group. The decline among telecom customers was partly related to some of the portfolio decisions we are taking in effects networks.