Nokia Oyj (NOK.US) reported second-quarter profits that significantly exceeded market forecasts, driven by the Finnish telecommunications equipment maker's strategic push into data center hardware, which boosted sales. The company announced on Thursday that its Q2 net sales increased by 8% year-over-year to €4.8 billion, aligning with analyst expectations. Adjusted operating profit rose by 18% to €434 million (approximately $496 million), surpassing the average analyst estimate of €372.3 million.
Data shows that, at constant exchange rates, sales in the Network Infrastructure division—which includes AI data center connectivity—grew by 12% year-over-year to €2.037 billion. Within this division, Optical Networks sales increased by 20%, and IP Networks sales grew by 16%. Net sales to AI and cloud customers surged by 105%. Meanwhile, sales in the Mobile Networks division, covering traditional mobile equipment, increased by 7% to €2.68 billion.
Strategic Shift Amid the AI Infrastructure Wave
Nokia's CEO, Pekka Lundmark, is driving a diversification strategy to reduce reliance on traditional telecom network equipment and capitalize on the boom in data center construction fueled by artificial intelligence. He announced this transformation plan last year, alongside a corporate restructuring, the divestment of loss-making units, and a commitment to achieve double-digit operating profit growth in the coming years. The company's share price has risen 66% year-to-date.
In the Q2 earnings report, Lundmark stated, "In the second quarter, our order intake for AI and cloud was €2.8 billion, while sales more than doubled year-over-year. Our growth momentum is broad-based, with Optical and IP Networks securing long-term orders. We expect approximately half of these orders to convert into revenue over the next 12 months. Demand remains robust, but supply chain constraints remain a key industry-wide challenge, prompting customers to increase their long-term order commitments."
While the AI boom has opened new growth avenues, the global rush by enterprises to build new data centers and expand computing capacity has triggered shortages of key components like memory chips and driven up raw material costs. Competitor Ericsson warned last week that rising costs would hurt margins, making it more expensive to fulfill new customer orders.
Expanding Manufacturing and Cost-Cutting Initiatives
Nokia stated it has agreed to acquire a chip manufacturing campus in Chandler, Arizona, from NXP Semiconductors N.V., pending regulatory approval. The company will begin leasing part of the capacity in early 2027 and later retrofit production lines to specialize in manufacturing optical communication components for AI data center chips. Over recent years, the Finnish firm has been expanding its U.S. manufacturing footprint, focusing on high-value telecom components and semiconductor products. This strategy has helped it secure federal funding under the U.S. CHIPS Act and strengthened its supply chain resilience.
As part of a large-scale cost reduction and restructuring plan, Nokia is implementing job cuts in Europe, aiming to save up to €1.2 billion in costs this year. The company disclosed that the European restructuring will incur €200 million in charges.
Nokia is also leveraging AI to enhance equipment efficiency. Last week, the company, in collaboration with chip giant NVIDIA, unveiled a new technology that could enable wireless operators to double data transmission within the same radio spectrum. The platform, slated for launch next year, is compatible with existing 4G and 5G networks; once the next-generation 6G standard is established, equipment can be adapted via software upgrades. This means cost-conscious telecom operators can virtually upgrade their networks without replacing expensive hardware. Lundmark expressed his hope that a software subscription model would become a primary driver for the company's Radio Access Network business in the future. Last year, NVIDIA invested $1 billion in Nokia.
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