Company Reports

Nokia reported good second-quarter results as demand for artificial intelligence and cloud infrastructure led to 9% revenue and 18% operating profit growth. Despite this, shares dropped 5% following commentary about lumpy demand and continuing supply constraints.

We are transferring coverage of Nokia and Ericsson, two of the largest providers of mobile network equipment and software globally. While these firms focus on mobile connectivity, they have begun diversifying revenue streams, with Nokia in optical networking and Ericsson in cloud software.

Nokia is fundamentally a networking equipment provider, primarily serving wireless carriers and data centers. The firm operates globally but primarily competes in Western-aligned markets where government restrictions have excluded Chinese competitors. We expect minimal growth in mobile networking, given high customer bargaining power and technological threats, with demand from hyperscalers for optical networking driving most revenue growth over the next several years. The overall magnitude of growth depends largely on the success of artificial intelligence firms in monetizing their investments.

Nokia reported decent results, with net sales up 4% and gross and operating margins expanding by 320 and 200 basis points, respectively. Results were largely in line with management's expectations, but guidance for optical networking growth was stronger than the previous outlook.

Nokia’s largest businesses supply mobile and fixed-line equipment to telecom carriers worldwide, markets characterized by intense pricing pressure as rivals battle to innovate around industry-standard technologies. The firm stands to benefit from the growing demand among hyperscale cloud computing providers, but this customer base currently accounts for only around 5% of sales. We expect Nokia to generate minimal growth, forcing it to maintain strict cost controls to support profitability.

Strong demand for optical products helped Nokia deliver 3% revenue growth during the fourth quarter, excluding currency movements and acquisitions. For the year, adjusted operating profit of EUR 2 billion was in line with management's forecast but still down from EUR 2.6 billion in 2024.

Nokia delivered 9% revenue growth during the third quarter, excluding currency movements and acquisitions, a big improvement from the 2% decline during the first half of the year. Management indicated that orders, particularly optical equipment, have remained strong into the fourth quarter.

Nokia’s largest businesses supply mobile and fixed-line equipment to telecom carriers worldwide, markets characterized by intense pricing pressure as rivals battle to innovate around industry-standard technologies. The firm stands to benefit from the growing demand among hyperscale cloud computing providers, but this customer base currently accounts for only around 5% of sales. We expect Nokia to generate minimal growth, forcing it to maintain strict cost controls to support profitability.

Nokia's preannounced guidance cut on July 22 outlined the negative currency headwinds that hindered the firm's second quarter, as the US dollar has declined rapidly against the euro. The new full-year comparable operating income guidance of EUR 1.85 billion at the midpoint represents a 14% cut.

Nokia’s largest business supplies radio access network, or RAN, equipment to telecom carriers worldwide. Along with peers Ericsson and Samsung, the firm is a leader in the telecom equipment industry and should continue to benefit from the global 5G buildout. However, providing RAN equipment and services is an incredibly challenging business, in our opinion.

Nokia saw revenue decline 2% year over year, with comparable gross and operating margins down 8 percentage points and 10 percentage points, respectively. Licensing revenue was the culprit; revenue was down EUR 400 million or 52% annually. Management's caution on tariffs adds to the uncertainty.

Nokia’s largest business supplies radio access network, or RAN, equipment to telecom carriers worldwide. Along with peers Ericsson and Samsung, the firm is a leader in the telecom equipment industry and should continue to benefit from the global 5G buildout. However, providing RAN equipment and services is an incredibly challenging business, in our opinion.

The data center and communications equipment stocks we cover traded down by midsingle digits while investors pushed tower stocks higher in response to the US tariff announcement April 2. We see little risk of material tariff-related headwinds for these businesses, and therefore we maintain our fair value estimates across our coverage.

Nokia’s largest business supplies radio access network, or RAN, equipment to telecom carriers worldwide. Along with peers Ericsson and Samsung, the firm is a leader in the telecom equipment industry and should continue to benefit from the global 5G buildout. However, providing RAN equipment and services is an incredibly challenging business, in our opinion.

Nokia's fourth-quarter results surpassed our expectations, as net sales improved 9% and adjusted operating margin expanded 380 basis points year over year to the highest quarterly level since 2015. We've raised our near-term revenue forecast, particularly in Nokia's network infrastructure segment, to account for improving near-term demand. As such, we've raised our fair value estimate to EUR 5.30 from EUR 5.00. Our no-moat rating is unchanged.

Nokia’s largest business supplies radio access network, or RAN, equipment to telecom carriers worldwide. Along with peers Ericsson and Samsung, the firm is a leader in the telecom equipment industry and should continue to benefit from the global 5G buildout. However, Providing RAN equipment and services is an incredibly challenging business, in our opinion.

Nokia’s largest business supplies radio access network, or RAN, equipment to telecom carriers worldwide. Along with peers Ericsson and Samsung, the firm is a leader in the telecom equipment industry and should continue to benefit from the global 5G buildout. However, Providing RAN equipment and services is an incredibly challenging business, in our opinion.

After a fresh review of the business, we've reduced our fair value estimate for Nokia to EUR 5.00 from EUR 5.50 to account for increasing competition in the telecom equipment market.

Nokia is seeing significant improvement in business trends that give us confidence the firm is on a path back to sales growth. While a significant improvement compared to the past few quarters, however, the third-quarter sales decline was still steep. On the plus side, margins improved, and new deal signings were encouraging. We don't think the market is pricing in the improvement we expect, and we see the stock as undervalued relative to our unchanged EUR 5.50 fair value estimate.

Nokia’s biggest business supplies radio access network equipment and services to telecom carriers to build public wireless networks. Nokia has lost some market share to Ericsson in recent years, but it should still benefit from a continuing 5G upgrade cycle. It also benefits from the explicit or implicit exclusion of Huawei and ZTE equipment in many Western markets, as governments consider banning the Chinese vendors. In addition, carriers typically source from multiple vendors, so Ericsson's strength does not necessarily come at Nokia's expense.