Apple and Amazon reported starkly contrasting earnings— which one are you bullish on?
諾基亞2026Q2業績直播
Key Takeaways (AI-Generated)
Financial Performance
- Net sales grew 9% in Q2 with gross margin expanding 70 basis points to 46%
- Operating margin increased 70 basis points to 9% with operating profit of €434 million
- AI and cloud segment net sales more than doubled year-over-year to €446 million
- Free cash flow was negative €732 million, typical for Q2 due to employee incentive payments
Business Highlights
- AI and cloud order intake grew to €2.8 billion in Q2 2026
- Launched industry's first commercial AI RAN platform promising 100% spectral efficiency gains by 2028
- New Indian phosphide fab processing test wafers, on track for volume production by end of year
- Nearly 100% adoption of AI tools across developer base yielding significant productivity returns
Financial Guidance
- Expects sequential net sales increase of 3-7% in Q3 with operating profit broadly similar to Q2
- Anticipates meaningful improvement in Q4 due to normal seasonality and AI/cloud growth contribution
- Expects to track towards low end of free cash flow conversion assumption of 55-75%
- AI RAN platform expected to enter pilot deployments end of 2026, commercially available in 2027
Opportunities
- Growing demand for data center interconnect and scale-out fabrics from AI and cloud customers
- AI RAN platform providing software-defined radio networks with 100% spectral efficiency improvements
- Expanded partnerships with Google Cloud and trials with hyperscalers driving market expansion
- AI adoption across developer base yielding significant productivity returns and supporting efficiency targets
Risks
- Supply chain constraints across memory, printed circuit boards, and indium phosphide wafers with elongated lead times
- Order patterns in AI and cloud market can be lumpy, should not expect current intake levels every quarter
Full Transcript (AI-Generated)
Operator
Good morning, ladies and gentlemen. Welcome to Nokia's second quarter 2026 results call. I'm Devil Mulholland, Head of Invent, Nokia Investor Relations. And today with me is Justin Hotard, our President and CEO, along with Mark Overran, 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 could 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've 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 be on a constant currency basis and other financial items will be based on our comparable reporting. Please note that our Q2 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 the strategic highlights of the quarter and then market will go through our financial performance. We'll then move to Q&A. With that, let me hand over to Justin.
Justin Hotard
Thanks, David, and hello, everyone. Our second quarter showed continued progress against the strategy we set at our capital market stay. Our team is focused on maximizing our opportunity in the AI super cycle and that focus is translating into early results.
I'm pleased with the progress that Team Monoki has made in the first half of 2026. In Q2, net sales grew 9%. We expanded our gross margin by 70 basis points to 46% and our operating margin by 70 basis points to 9%.
Network infrastructure delivered strong growth led by optical and IP networks with sales from AI and cloud customers more than doubling year on year. Mobile infrastructure sales also grew and the business delivered stable profitability largely driven by product mix. Marco will take you through the details of our financial performance in his update.
In a moment, I want to take a step back and look at how our first half performance demonstrates progress against the strategy we set out in last November. As a reminder, there are these are the five priorities we've shared at our Capital Markets Day and I'm pleased by the progress we've already made across each of these areas. Let me touch on a few highlights from Q2.
AI and cloud was the strongest growth driver in the quarter. Net sales more than doubled year on year to €446,000,000 and order intake grew to €2.8 billion. While we're very pleased with the order the order growth, it's important to put that number into a bit of context.
Q2 benefited from several significant long term orders as our customers looked to secure supply in a constrained environment. To provide some reference, approximately half the order volume received in Q2 is expected to convert to revenue in the next 12 months.
As I've said before, order patterns in this market can be lumpy and we should not expect this level of intake every quarter. As importantly, the strength was broad based across optical networks and IP networks and included some of the design wins we mentioned last quarter.
This was driven by growing demand for data center interconnect and scale across fabrics from our customer base. The demand primarily shows up in our AI and cloud segment, but we're also seeing emerging signs of growth in telecom customers as they invest to support the increased data traffic driven by the AI super cycle.
During this quarter, we also secured our first multi rail IOA design when with a major customer. This was one of the new optical networking products we launched at OS OFC this past March.
Last week we launched the industry's first commercial AI RAN platform, marking A fundamental shift from a hardware defined radio network to software defined platforms. This fundamentally changes the economics of radio networks.
Our AI RAM platform gives our telco customers a path to improve network performance through software and AI innovation, rather than relying on hardware upgrades as they have traditionally. The platform would deliver more than 100% spectral efficiency gains by 2028, doubling the capacity operators can get from their existing spectrum.
The performance benefits are tangible in 5G networks and our AI RAM platform provides a software upgrade path to 6G to ensure continuity without additional hardware investment. The platform is also open, programmable and ORAN compliant.
This gives operators greater flexibility as they evolve their networks. They can choose the hardware path that works. Best for them adding AI acceleration into their existing Nokia Air scale infrastructure, deploying new AI RAN hardware or moving to cloud native AI RAN.
Ultimately, this is about delivering more performance, better returns and faster delivery of new service for our customers. We're on track to enter pilot deployments at the end of this year and expect to be commercially available in 2027.
As we've said previously, Co innovation is a powerful differentiator for Nokia. When we combine our technology leadership with the expertise and scale of our customers and partners, we accelerate innovation, bring solutions to market faster and solve increasingly complex challenges together.
We're already demonstrating early results from this approach and I will highlight four examples from Q2. First, we expanded our partnership with Google Cloud bringing Gemini powered AI agents into our autonomous networks portfolio.
Second, with Vodafone Albania, we demonstrated AI powered network slicing using agents to dynamically optimize network resources. Third, we expanded our relationship with Indesat Oridou Hutchinson in Indonesia, supporting network modernization and the roll out of 5G while providing A seamless upgrade path to AI RAN.
And 4th, we entered trials with AUS Hyperscaler for a new out of band management solution that goes inside the data center leveraging the passive optical technology that we deliver in our fixed networks business.
We're also making progress to focus Nokia where we can differentiate and create long term value. This means we are investing where we see long term demand and we believe Nokia can be a unique winner and at the same time reducing exposure to areas where we are less differentiated.
In November, we shared that our fixed wireless access customer premise equipment portfolio is not core to the future of our strategy. The sale we announced this past quarter to Inseego is an example of our disciplined approach to capital allocation and allows us to concentrate resources on higher priority opportunities. The sale is on track to close by the end of the year.
Talking about higher priority opportunities, 1 area of focused investment is scaling the capacity needed to support our optical growth ambitions, particularly around Indian phosphide semiconductor manufacturing in San Jose. Our new Indian phosphide fab is now processing test waivers as we move closer to product qualification. It remains on track for volume production by the end of the year.
In June, we announced a new commitment we are making to scale our Pennsylvania facility, increasing our advanced test and packaging capacity for optical systems in that facility by 10 times. In addition, today we announced the acquisition of a manufacturing site from NXP in Arizona. We plan to increase our Indian phosphide fab capacity.
This gives us additional capacity to support our own demand and greater optionality recognizing the supply constraints in the market today. Altogether, these investments continue to strengthen and secure US based optical manufacturing capacity for the long term.
While Marco will update you on our restructuring progress, I wanted to touch on one key area where we are making progress in driving incremental productivity. We believe that to be a relevant technology provider in the AI super cycle, we need to be a leading adopter of AI internally.
Last year, we established A-Team to deploy AI test beds across multiple functions within Nokia 1 area. Where we're seeing early traction is software development. We now have nearly 100% adoption across our developer base.
This is already yielding significant productivity returns, supporting our efficiency targets and accelerating road map deliverables. We will continue to scale this initiative across every function of the organization as our test beds yield tangible results.
We see this as essential not only to unlock sustainable returns, but also to be a better partner in support of our customers as we help them unlock the full potential of the AI super cycle.
So in closing, I want to recognize and thank Team Nokia for a strong first half of the year. We are focused on our key priorities and have begun to fundamentally change how we work. I'm pleased to see our efforts are already reflected in our results.
We're entering the second-half with good momentum and remain on track to delay. Somewhat above the midpoint of our operating profit guidance. And now I will turn the call over to Marco to dive into our financial performance.
Marco Overran
Thank you, Justin and hello from my side as well. Before looking at the quarterly performance, let me start with reporting changes we announced this morning. As we have accreed to sell or fixed wireless access business to in Siegel, we now consider the sale of Enterprise Campus Edge highly probable.
As a result, both businesses are classified as discontinued operations. We have published recast historical numbers for 2025 and quarter one 2026 to support comparability. In quarter two 2026, this reporting change reduced comparable net sales by 66 million and increased the comparable operating profit by 13 million.
It also led to minor adjustments in cost allocations between network infrastructure and mobile infrastructure with an impact of approximately 1 to 2,000,000 per quarter.
Turning to performance, net sales grew 9% in the quarter, supported mainly by network infrastructure. First, profit was 2.2 billion and gross margin increased 70 basis points to 46%. The margin expansion was driven by network infrastructure and particularly optical networks, where we continue to benefit from both strong demand and the integration of Infinera.
Operating profit was 434 million and operating margin increased 70 basis points to 9%. The quarter benefited from some software revenue recognition coming in in quarter 2 instead of quarter three, but also incurred higher stock based compensation expense which represented 150 basis points headwind to our operating margin in quarter two year on year.
And this was driven by Nokia's share price increase, an increase in the program and the issues happening earlier in this year. Financial income and expenses benefited from a positive venture fund revelation during the quarter, which supported both net profit and EPS earnings per share.
Free cash flow was -732 million. And as you know, quarter 2 is typically the weakest quarter for cash generation as employee cash incentives are paid in quarter 2. We also saw some increase in working capital during the quarter.
We ended quarter 2 with a net cash position of 2.8 billion, maintaining a strong balance sheet and significant financial flexibility.
Let me now turn to network infrastructure. Net sales grew 12% in the quarter, reflecting continued strength across the business. Optical networks grew 20% and growth was supported by continued demand from A and cloud customers, but we also saw healthy demand from telecom customers investing in transport infrastructure.
IP networks grew 16%. The strong order momentum that began in the second-half of 2025 is now translating into revenue growth. Pix Networks declined 2%. The areas where we are prioritizing investment performed well.
Optical line terminal sales grew 18%, while O&T sales declined 16% as we continue to focus on higher value parts of the portfolio. Gross margin increased 240 basis points to 42.7%. This improvement was driven by three factors.
First, we benefited from higher scale as revenue increased. Second, we continued the realized synergies from the Infiner acquisition. And 3rd, we saw more variable mix within fixed networks.
The cross margin improvement was partially offset by growth investments we are making across optical networks and IP networks as we position ourselves to capture the long term opportunity in AI infrastructure. And finally, operating margin increased 170 basis points to 8.1%.
And turning to mobile infrastructure. Net sales grew 7% in the quarter. Poor software grew 1%, radio networks 7% and technology standards increased 15% and technology standards benefited from signing a few new agreements during quarter and included some catch up revenue recognition.
Looking at the full year, we continue to expect technology standards to deliver a similar level of sales and profitability as in 2025. Gross margin was 49.3%, which was somewhat better than we expected entering the quarter and the main driver was a higher contribution from software sales as some revenue were expected in quarter 3 ended up benefiting quarter 2 gross margin.
Looking ahead, because of the earlier software revenue facing, we currently expect mobile infrastructure cross margin in quarter 3 to be closer to 44 to 46% reflecting lower software contribution before improving again in quarter four in line with normal seasonality and operating profit was stable year on year.
Looking at sales by customer segment, AN cloud was again the fastest growing segment with net sales increasing 105% year on year. Growth was broad based across both optical and IP networks. Telecom sales increased 4% while technology licensing grew 15% and we remain optimistic about the long term AI cloud opportunity and continue to see to see strong customer demand.
At the same time, our expectations for the telecom market remain mostly unchanged.
Turning to restructuring and integrating integration costs. First, we are on track to complete our 2023 to 2026 restructuring program this year. And achieve €1.2 billion in cross cost savings.
The second area is the integration of our Chinese operations into Nokia's global operating model after taking full ownership at the end of 2025. As we discussed previously, we continue to adjust our operating structure to reflect market conditions and improve competitiveness.
As a reminder, this program was expected to achieve 200 million in costumer entries with one time charges of between 350 and €400 million over a two to three-year. We now expect to recognize approximately 350 million of the planned one time charges by the end of 2026 as we accelerate the integration to complete it within two years.
And the third area is a set of new efficiency progress mainly impacting Europe. These programs are expected to lead to restructuring charges of €200 million in 2026. These actions are focused on simplifying the organization, improving productivity and ensuring resources are aligned with our strategic priorities.
Overall, we expect restructuring charges of approximately 800 million in 2026.
Then let's go to cash. With respect to cash flow, the quarter followed the normal seasonality we typically see in quarter 2. The largest impact was the payment of annual employee incentives related to 2025 performance. We also saw some working capital build up during the quarter, reflecting the continuous growth of the business.
Despite these seasonal factors, our overall cash generation profile remains unchanged. Considering some of the increased restructuring costs and as we make some investments in working capital to prepare for growth, we now expect detract towards the low end of our free cash flow conversion assumption of 55 to 75%.
And finally, turning to our outlook, there is no operational change to. Or comparable operating profit guidance. The only adjustment is the technical change resulting from the move of fixed Wise Access and Enterprise Campus Edge into disconnected operations. And we continue to track somewhat above the midpoint of our operating profit range.
Looking at quarter 3 specifically, we currently assume a sequential increase in net sales of between 3 and 7% for operating profit. We currently expect a result broadly similar to quarter 2 due to the phasing of software sales in mobile infrastructure between quarter 2 and quarter 3, followed by a meaningful improvement in quarter 4.
And this is a combination of the normal seasonality we see in our telco business and the contribution from year on year growth in AI and cloud sales. Aside from the discontinued operations adjustment, our outlook assumptions remained largely unchanged.
The demand environment remains supportive and we allocate capital where we see the strongest opportunities for long term growth while maintaining discipline on profitability and cash generation.
David Mulholland
Thank you, Justin and Marco, as usual for the Q&A session. As a courtesy to others in the queue, could you please limit yourself to one question and a brief follow up. Operator, could you please give the instructions?
Operator
Ladies and gentlemen, we will now begin the Q&A session. If you have a question and are using the Zoom app, we ask that you please use the raised hand function at the bottom of your Zoom screen or by clicking on the three dots on the black bar at the bottom of your Zoom screen.
Alternatively, if you have joined by a Zoom browser, please click the Reactions button at the bottom of your Zoom page and then select Raised Hand. If you have dialed in by phone today and wish to ask a question, please use *9 on your keypad to raise your hand and then *6 to unmute.
Once your name has been announced, you may ask your question. If you want to withdraw your question, please lower your. By using the raised hand function or *9 if you have dialed in. Now, I'll hand the call back to David Mulholland, Head of Investor Relations for the Q&A.
David Mulholland
Thank you. Thanks, Danny. We'll take our first question today from Terence Tutsui from Morgan Stanley. Terence, please go ahead.
Terence Tutsui
Yep, thank you very much. I hope you can hear me OK. I had a question around capacity and particularly around the four new DSPS planned by the end of 2027. So this is actually a big ramp up compared to the previous run rate. Can you give us some milestones to look out for and reassurance that this could be achieved? Thank you.
Justin Hotard
Sure Terence. I mean I think first of all we we talked about you know these going into customer trial in 27 and then become commercially available towards the end of 27. I think the thing I would just emphasize and remind you of on this is that Nokia and Infinera previously were each building 2 DSPS individually. So collectively a total of 4 DSPS.
One of the decisions we made and I've, I've talked about this a bit as we saw the growth opportunity emerging in, in optical was to maintain the DSP team as is versus reducing them. And the reason we did that was we felt quite strongly in spending time with our customers that we could actually deliver more differentiated products to them with four unique DSPS versus the traditional 2 that we had been delivering in each company independently.
And that laid out and supported the road map that we launched at OFC in March. And I touched on that a bit in in last quarter's call. So the view here is that we think this gives us better market coverage aligned to where the market is evolving.
Specifically given the amount of the amount of investment we're seeing across the different layers of optical fabric from the scale, the the scale across fabric to what we see in data center interconnect to metro network to, to long haul transport. So across all of that, you know, we've got, we think we have a much better portfolio in 2027 to address each of the unique, unique evolving solutions than we would have had if we'd only kept 2 versions.
Terence Tutsui
Did you have a follow up terms, a real quick follow up on the comments around the order book potentially being lumpy. Do you still expect like an upward trajectory over the longer term from these levels or be it with some, you know, bumps along the way?
Justin Hotard
Yeah, Look, I think two things about this quarter, this quarter's order book, I mean, obviously if you do the book to Bill on this, it's a significant jump up. So I think, you know, I think for me that's a that's a data point around, you know, a little bit of lumpiness.
But the other is the elongation of the orders which we've been we've been talking about expecting and we're seeing here. So I think we have to look at it in both those dimensions and the way I think about orders is I think about orders in a period of time, right?
Because it's easy to it's easy to give you a headline number and then say, well, you know, the next question is, is that over a, you know, a quarter period, a a four quarter period, an 8 quarter, 12 quarter, etcetera. And so for me, that's really where we're focused is not, you know, is not necessarily on are we getting, you know, big order, big order pops consistently, but rather are we seeing the order momentum grow as we as we look at it over a time period?
And right now, you know, what we're seeing is continued growth and continued demand in the market. And as I said in my comments, it's still largely driven by AI and cloud, particularly around scale across and data center interconnect. And then we're starting to see some, you know, some emerging growth. We saw some of it in sales this year in, in, in our telco customer base and we believe that's also tied to to AI demand.
David Mulholland
Thanks, Terence. We'll take our next question from Simon Leopold from Raymond James. Simon, please go ahead.
Simon Leopold
Simon, have you unmuted yourself? There we go. Can you hear me now, David? Yes, go ahead, Simon. OK, great, great. I didn't expect that button to pop up. Sorry. I wanted to see if you could could rank order and characterize supply chain risk. And I'm thinking about issues like memory printed circuit boards and even Indium phosphide wafers, maybe a particular focus on that, that latter one the the wafers given the factory expansion, whether or not you can get the materials and and then I've got a quick follow up after. Thank you.
Justin Hotard
Sure. Look, I, I think the most, you know, if I think about the supply chain risks or the, the, the, the time that we're spending in this, first of all, as you rightly point out, it's broad based, right? So I, I think we talk a lot about memory and memory is significant just given the, the amount of demand that is in the market.
I think this has been talked about quite a bit across, you know, multiple. Companies in, in multiple parts of this ecosystem. So there's clearly, you know, there's clearly constraints there. And then obviously the, the, the pricing, you know, the significant change in pricing driven by that shortage, which again has been talked about very broadly across the the tech ecosystem. So that's probably the one that we see as most significant.
Now. You know, we talked about this last quarter. I think I don't need to repeat what I said last quarter, but maybe briefly, you know, our focus is on securing supply, you know, simplifying our designs, looking at where we can, you know, we can reduce scope where wherever possible on our designs and of course then passing that, you know, passing that on to customers.
And I think if you look at what we said last quarter, you know, there were some companies with us last quarter, it seems like more companies have joined us in, in some of the more recent earnings calls now making that that same, you know that same comment.
The key thing for me here is, is also really talking to our customers, not the AI and cloud customers, they understand this well, but really making sure our telco, our mission critical customers understand that we have elongated lead times, which means better visibility, better planning and something that we need to team with them on. So particularly important in that regard.
And then as you as you touch on, there's a broad base across the board on the Indian phosphide question you asked Simon. The comment I'll make is, you know this, this new fab is really looking at you know is, is looking at coming online probably earliest in 29.
And if you think about our, our capacity, we've got, you know, significant jump up with San Jose coming, you know, call it 27 as it ramps volume, right, manufacturing later this year or volume manufacturing later this year to 27 it ramps. Then we, we kind of line up for a 29 ramp and an incremental capacity.
As you know, that's kind of the, the timelines that you, you have to take with these, you know, with, with these investments. And I think as, as we're looking at it, we're looking out at, you know, at, at different solutions to get Indian phosphide capacity at that time. That's obviously an industry issue, though. It's something that all of us in the industry need to enable. And it's it's something that, you know, I think collectively we need to solve, you know, even even across, you know, even across the ecosystem.
David Mulholland
Thanks, Simon. Did you have a follow up?
Simon Leopold
Yeah, I wanted to see if maybe you could offer us your view on on the scale across market and your ambitions, Nokia's ambitions for this particular application considering optical and IP routing. Thank you.
Justin Hotard
Yeah, yeah, absolutely. I mean, I think first of all, Simon, I think there's a lot of I'm going to be a little technical, but scale across is, you know, technically was, was was talking about data centers within a given campus area that were strung together as AAI factory. And one of the things I talked about last on the last call was the demand we're seeing in, in data center interconnect.
So my point in saying that is some of what we're seeing is just increased data centre interconnect. Now you can call it scale across or you know, some folks may want to, to label it one way or another. To me, they're very different. They're complementary and very important applications.
Cause one is back end connectivity, which is, you know, which is connect is providing connectivity to expand the back end for scale out, which is the scale of cost fabric. The other is data centre interconnect providing higher bandwidth between data centres over a long haul on the front end.
Both of those have a, you know, have a routing element. Obviously the data center interconnect has a as a very significant demand growth in, in routing and, and, and if you look at our opportunity and why we're talking about growth and you know in, in both IP and optical, it's because we're seeing growth in, in both of those both of those elements. So they are complementary, they are reinforcing.
Now the other thing I'll say is it's not limited to that. You know we are seeing some, you know, we are seeing some, some some traction in in back in some of the back end switching. It's on a limited basis obviously without getting into all the the market dynamics there. But all of this is you know all of this is encouraging in terms of our focus in this area and the traction we're starting to make.
David Mulholland
Thanks, Simon. We'll take our next question from Sami Sakamis from Duska Bank. Sami, please go ahead.
Sami Sakamis
Hi, my question would be on your. Supply capability in optical networks, are you fully constrained or have you been able to build any inventory during the first half of the year?
Justin Hotard
Yeah, I would say, Sammy, it's a good question. I there, there are always pockets, you know, think of think of legacy, you know, legacy products and those areas where we probably have some supply. But in general I would think of us as being constrained, right. We talk about lead times elongating, it's because we're seeing constraints and particularly on the leading edge products.
And I and by the way, I don't think we're unique in that. I think that's the you know, if you if you look at our ecosystem again, I think you see, you know, you see the constraints and, and you see that across, you know, the component suppliers, some of our peers, etcetera.
So obviously we're working aggressively on that and maximizing the, you know, the supply. But as I've said as well, if you look at our forecast, you know what, what we've included in our forecast is the demand that we have line of sight to shipping and and we recognize even that has some risk because that, you know, that's, that assumes continuity of supply, no disruptions, you know, everything goes perfectly.
So, so when we're when we're thinking about this, we're thinking about it from a constraint perspective aligned to what we have line of sight to in supply. But I absolutely if there was more supply, I think we'd probably generate more revenue.
Sami Sakamis
Did you have a follow up summary? Yeah. Regarding radio networks, just curious, do you think you are? Are currently gaining share. You had a 5% organic growth in the first half of the year. I think that's a bit more than your main European rival. Is having or is displayed timing?
Justin Hotard
Yeah, my, my view on this Sammy is it's, you know, it's timing we talked about actually Marco talked about the timing around the, the software revenue recognition we had in Q2, which is tied to our, our, our, our radio software platforms. So I would call this timing. I also think looking at market share on a quarterly basis in this industry is, is super challenging to get any kind of good signal. I think you have to look out and look at it and certainly on an annual basis.
David Mulholland
Thanks, Sammy. Thanks. Our next question from Alex Duvall from Goldman Sachs. Alex, please go ahead.
Alex Duvall
Yes, thank you very much. You talked about further progress in AI Ran. I wondered if you could talk a bit about the timeline of this benefiting Nokia in terms of revenue and competitive position and what your discussions with telco are suggesting in that area. And secondly, uh, back to the AI side, I wondered if you could give an update on switching and the progress you make there. Could you help us understand the latest thoughts on switching design insurance and when we should expect orders and revenue momentum given the progress you're delivering?
Justin Hotard
Great. Second one, first in terms of the you know the switching design wins, we talked about this a little bit last quarter. We said you know, we'd expect, we expected orders this year. We saw a lot of those orders come in, in Q2. Obviously as, as you know in the design win process, you you start small, you get traction and then you build on top of that as as you as you validate and execute for performance.
So you know, we're continuing to drive that across a number of customers. Obviously we're pleased with the progress we had in Q2. And then can you just repeat your your first question?
Alex Duvall
Yeah, absolutely, Justin. It was just. Umm, you had mentioned, uh, further progress on a Iran. I'm just curious. How you think about the customer feedback and the timelines for that impacting your revenues?
Justin Hotard
Yeah, I, I mean, look, I, I, I think basically Alex, everything is consistent with what we've said. Pilots at the end of 26 commercially available in 27. Obviously, we'd anticipate, you know more significant volume going into 28 and and that continues to be to be our expectation in in terms of AI Rin.
David Mulholland
Thanks, Alex. We'll take our next question from Ulrich Ratha from Bernstein. Ulrich, please go ahead.
Ulrich Ratha
I think we've lost Ulrich. Thank you. Are you there, Eric? Sorry, it takes some time. Yeah, takes some time for the button to appear. Yeah, apologies. So I wanted to come back to the very strong AI cloud order intake, put it into perspective already with regards to the longer the elongation of the order book as you call it. I was wondering in a in supply constrained markets, we often do see double ordering which does create a false signal for suppliers such as Nokia. How do you see this risk? Are there any specific reasons why this would be an unlikely factor for Nokia?
Justin Hotard
Yeah. Look, I think first of all, if you, if you think about the customers, the level of sophistication in the customers that are placing these orders, you have to step back and ask what the incentive is for, you know, for double ordering. I I've absolutely seen this much like you and supply constrained markets that I've worked in in the past.
And it's particularly prevalent in markets where you're focused on enterprise customers or you've got channels because the customers tend to diversify and look for allocation. But in in this environment, the thing that I would flag is, you know, for, you know, for one of these customers to come in and say I'm in a double order with you when ultimately that goes back to supply of leading edge silicon.
Manufacturing capacity on optical components that they're, they, they can actively inspect and we transparently share the progress. You know, the question for them would be what does it, you know, what does it do in terms of incentives? The other thing I would say is, you know, we're, we're obviously as we're making commitments on a longer term basis, we're, you know, we're expecting those commitments from customers as well.
Ulrich Ratha
That's helpful. If I may follow up with one clarification, what would you call a normal length of an order book? Is it, is it essentially 100% of the orders within the next 12 months? Because you you highlighted sort of the difference, you know, with half of the revenues is, is 12 months for 100% the quote UN quote normal here or not?
Justin Hotard
Yeah, Rick, that's a good question. So I think typically we have seen orders within 12 months in our customer base. Now you know, again, I there's 22 factors to this. Obviously, one is the growing demand is, is the fact that AI and cloud is a new segment for us, right. So I would say we've had less exposure to this, obviously substantially less exposure to this in the past.
And then the second thing is obviously the supply constraints. So I think both of those are factors, but if you think about our traditional business in you know, with telco customer heavily concentrated with telco customers and and then obviously some in mission critical those orders, you know, we, we, we may get a win a a contract award, but we would not, we would see orders typically within 12 months.
And that's really the shift. And that's why when I talk about the, you know, our telco customer base, one of the conversations we're having with those customers is getting more visibility going forward because they're also used to giving us, you know, fairly short term, you know, within within 12 months visibility.
And we need to be planning even further. And so this is a, this is something that we're, you know, with all of our sales teams having this conversation to make sure that we're getting better visibility, not because it implies A commitment, but because the, you know, the, the risks given the supply constraints in the industry are, you know, we don't, we don't want to miss any, you know, any of their deliveries while we continue to support them, given, you know, given their importance to us as well as customers.
David Mulholland
Thanks, Aura. We'll take our next question from Jacob Bluestein from BNP Barber. Jacob, please go ahead.
Jacob Bluestein
Great, thanks for taking the question. You're obviously ramping up in terms of AI and cloud revenues. I guess we're not yet seeing it in terms of margins. I guess my question is just when and, and I appreciate that. So obviously as you know, as these businesses scale, margins will go up and particularly on the IP side, you're just sort of starting to scale now, but it's been interesting. How long do you think it actually takes before these revenues become materially accretive?
Justin Hotard
Yeah, I, I think two things, Jacob. So one is gross margin and then the other is, is operating leverage, right. And and as as we talked about in, in Capital Markets Day, we, you know, we're, we're doing a lot of work at the at the front end. Of the three-year period to really set the company up to become more efficient, more nimble, more scalable and and and get the operating leverage as we drive growth in the business.
So that's a key focus and we talked about that by nature. That would be a little, you know, a little bit back end loaded. Now I'm, I like I said, I'm very pleased with the progress we're making. And, and, and obviously with the demand accelerating higher than what we said at Capital Markets Day, we've got optimism, optimism on progress there that, you know, will continue to will continue to improve
on the on the other side, on the gross margin side, you know, this is an area where, you know, I think, I think we're dealing with a, you know, with, with just a lot of complexity in the mix, you know, and this is a little bit of supply chain. This is also us, you know, we, we talked about the focus we're making in FN on, on, on exiting, you know, low margin business.
So some of those things are just playing through in the business and you're not quite seeing a drop to the bottom line yet. But, but obviously we're we're very clear on on what we're anticipating and you know, and based on the assumptions we shared at Capital Markets Day and the Congress that we're making ahead of those in terms of revenue growth.
Jacob Bluestein
Very clear. And if I just ask a quick follow up, just, I mean, you mentioned you've got several customers coming in on the IP side, I think you said and I'd just be interested in understanding just sort of the level of concentration of that. Customer makes, I mean, would you say you're well represented across the different hyperscaler customers? Customers or would you say it's say it's still a relatively narrow segment?
Justin Hotard
Yeah, I, I think we've talked about this a little bit before. It's, it's fairly concentrated today. But that's the way that, you know, that's the way you build, you build the, the business, right. It's and, and so I think we've got, you know, we've got very good partnerships and relationships across, you know, many of the AI and cloud players, the hyperscalers, the focus right now is, you know, is, is obviously on making sure where we do have demand that we're, you know, we're delivering it and we're continuing to innovate for those customers.
And then, you know, over time, obviously expanding that footprint.
Jacob Bluestein
No, I think it's thanks, very helpful. Thank you.
David Mulholland
We'll take our next question from Oliver Wong from Bank of America. Oliver, please go ahead.
Oliver Wong
Hey, guys. Thanks for taking my question. My first question is in terms of the 2.8 billion AI orders in the quarter, understand that a significant portion pertains to some of your significant design wins and data center switches from last quarter. So I think will be helpful is if you could maybe try to quantify or guide us a little bit on kind of, you know, how much of the of the order of the total AI orders this quarter that kind of comprised just so that we can you know, have a better sense of, you know, underlying optical related demand in the quarter. Thanks.
Justin Hotard
Yeah, I mean I think I would say it was, it was it was driven by optical and IP weighted weighted towards optical and that's probably not a surprise given you know given the momentum we're seeing right now in that market.
Oliver Wong
Got it. And a quick follow up in terms of, you know, within optical, you know, you meant, you discussed briefly about sort of scale cross versus regular DCI, was just wondering, you know, what the composition of, of demand is right now between the two.
Justin Hotard
Yeah, I don't think we're breaking that out right now. I just would highlight that I, I, I think there's a, there's a significant amount of demand in, in DCI as well as scale across. And I think that gets, I think the two kind of get either pushed together or maybe the DCI piece gets underappreciated. But that's you know, that's certainly where for us we're you know we're seeing, we're seeing traction on both.
David Mulholland
Thanks Oliver. Got it. Our next question from Richard Kramer from Retsay. Richard, please go ahead.
Richard Kramer
Thanks. Hey, Justin, my first question for you is on the AI ran transition your customer installed base runs on Nokia proprietary silicon. Do you see the industry long term shifting away from that proprietary silicon based set of solutions and what are the implications for, you know what is a €3 billion run rate of mobile R&D and mobile networks margins for that transition? Thanks.
Justin Hotard
Yeah, hey Richard. So I a couple things on this. First of all, I, I've talked about this pretty pretty openly. I, I think we're in a, we're at a point where the industry has to transition. Yeah, I think, you know, we look at what we see on AI Ran and the, the spectral efficiency, by the way, we'll have spectral efficiency on our existing hardware. We'll have some improvements in software, but they'll be, you know, an order of magnitude below what we're talking about on AI RAN.
But the second thing here is that when you look at leading edge silicon, you do the math on the cost of leading edge silicon. And then by the way, the supply constraints on leading edge silicon, in my mind, this is a very clear, you know, this is a very clear industry shift that has to happen on the baseband and and that is a shift to to general purpose silicon.
And of course, you know, we, you know, we, we're partnered with NVIDIA and launching the, the AI RAN solution. You know, there are other players out there with general purpose, you know, based solutions that, that are delivering virtualized rans, virtualized RAN stacks. So I don't think we're alone in this move
fundamentally as we think about the R&D in this space, this is the other thing I've touched on. You know, when you look at this industry, there's two, there's two fundamental challenges and, and certainly from 4G and 5G. One of them is that, you know, the, the cost of capital, the return on invested capital in, in, you know, at an operator level in aggregate hasn't, you know, hasn't delivered right.
In terms of the investment in certainly looking at 5G, but also 4G, if you look at, if you look at it from a supplier perspective, you know, a technology provider like us, it also hasn't been acceptable on our side. And so I think we also have to look at how we, you know, how we shift investment and generate a better return on invested capital.
Getting out a purpose built silicon on the baseband is a step in that direction. And that's why we've said that's the long term direction. I, I think it's incredibly compelling when you can also say to a customer, by the way, look at the, the better efficiency you can get on your, on your hardware, which means you're going to get a better return on that hardware investment.
And then the last thing we're saying is, by the way, when we deliver the hardware, that's not the best performance you're going to get. We'll continue to provide performance enhancements. As an industry, we've always added features, but the fact that we're now adding performance. Capabilities in our software stack we think is a huge advantage.
And the final point I make I'll make is as we've talked about in the software stack, this is a single software stack. So we we've got capabilities to optimize it for different hardware, including our legacy stack. And of course the NVIDIA GPUs that are now you're making, they're now coming into our portfolio on the AI RAM platform, but it's a single software stack. So we're getting a tremendous amount of leverage out of that stack. So this is right on right on that path.
Richard Kramer
OK, thanks. And then a quick follow up from Marco if I may. You know your comments about being above the midpoint of your full year profit guidance. I don't know about having flattish profits in third quarter suggest you're going to more than double profits in Q4. Can you talk through the drivers of that be it software revenue, recognition, licensing, product deliveries, cost reductions, especially given the the cash outflows for restructuring CapEx, working capital etcetera that we're seeing now and can expect in second-half? Thanks.
Marco Overran
Yeah, thank you. Yeah, I would say that if you look, the normal seasonality that the industry has specifically on a telecom customer base side is usually very Q4 delivery heavy. And that's why we've seen in the past years as well that that part of the industry usually generates the biggest profits and, and, and sales as well in quarter 4.
And now in addition that we see also increase in AAI and cloud customer base that is also impacting the seasonality of of our operations and and also profit generation. What comes to restructuring that we, we the program that we announced in 23 end of 23 that we will end in end of this year.
And we expect that we'll get those 1.2 billion accumulated, accumulated gross cost savings just like we we said as well. And and any nation that we, we expect to to actually accelerate the synergy program that we, we I mentioned earlier what comes to the, the China company that we took over 100% and and then also we had some additional voluntary based cost saving or restructuring also in Europe and those we will take this year as well.
But all together if you look our cash position, we have very strong position now. We had 2.8 billion net cash end of quarter two. We had some inventory and working capital increase in in quarter 2 to secure also deliveries going forward. And then of course, accounts receivables follow normal sales pattern as well.
But we believe also by the end of the year, we have very cute financial position and cash position. So I don't see any any issues there.
David Mulholland
Thanks, Richard. We'll take our next question from Sandeep Deshpande from JP Morgan. Sandeep, go ahead.
Sandeep Deshpande
Hi. Thanks for letting me on. I want to understand from your own intent. Yeah, and proud in the quarter we can barely. We're really struggling to hear you. Sandeep, can you hear me? Can you hear me better now? That's a little better. Yeah. So you not strong in, in, in and probably the quarter, how much? I mean last quarter you had said that the €1 billion of orders were an ongoing order intake, even though you will have lumpiness in your orders. How much of this €2.8 billion is an ongoing order intake would you characterize? And then secondly, regarding AI and cloud, how should we be looking at run rate on? Revenue in this business, uh, between optical and. And IP routing, sure.
Justin Hotard
So on the first one, I think we've broken it out for you that you know what we saw in next 12 months and and and forward. And I'm and I'm not gonna you know break it out any further in terms of or try to try to estimate that for you. But it gives that should give you a good view on what's in, you know, what's in the coming four quarters and what's beyond that.
And then in terms of the mix, I think I touched on this, I mean, you know, optical is growing a little bit faster this quarter than IP, but of course it's starting from a, you know, a healthier, just a stronger position. IP. We're just, you know, as we said, we're, we're just starting to ramp in design wins and deliver those. We talked about that last quarter.
So I'm, I'm pleased with the, the momentum. And I think you know what, if you look at it from the other side, which is 100% year over year growth, I think we're set up for a very, you know, very good, you know, continued growth forecast from the AI and cloud segment.
Sandeep Deshpande
Thank you. Sandeep, did you have a follow up? No, I'm fine. Thank you.
David Mulholland
Thanks, Sandeep. We'll take our next question from Sebastian Stubowitz from Kepler Shivra. Sebastian, please go ahead.
Sebastian Stubowitz
Yeah, hello everyone. Thanks for taking my question on AR and coming back. Have you seen this specific commercial traction over the past few months? Have you been handed any new customers trailing your solution and you after getting twice more spectral efficiency by 2028, what about the total cost of ownership of the solution? And next to the baseband, do you plan to partner with NVIDIA on GPU 4 radios or it will be mostly focused on the baseband? Thank you.
Justin Hotard
OK, so, so three questions, Let me let me hit them. First of all, I'll start actually with the the last one. So the announcement that we made last week was around AI ran for baseband and the NVIDIA GPU solution going into our Airscale platform, a future stand alone platform and also having a, a cloud ran, you know, common off the shelf server solution. So that's the, that's the, the current announcement.
In terms of the spectral efficiency in TCO, as you, as you probably know, that's a, that, that TCO ends up being a very customer specific discussion. But at the macro level, you know, a, a hardware deployment with, yeah, without, with 100% spectral efficiency improvement. I think the math, I think the math there speaks for itself in terms of the, you know, the value, the value creation potential for the operator.
And the other key thing is that the software, this is a software model. So the benefit for the operator is not just TCO, but it's also, it's also a CapEx to OpEx transition in terms of ongoing benefit without having to have hardware upgrades. So I think there's a tremendous amount of value when you look at it from a, from a life cycle standpoint.
And then in terms of the, the pilot deployments, you know, we've got, we've announced 10 public customers on track for, for later this year. There's, there's, there's many conversations going on about, about this. We expect to start the deployment the, the pilots, you know, later this year, obviously expect that we'll continue into 27 and, and, and obviously as we make progress and we should, you know, we'll should continue to share the progress publicly as we, you know, as we can on the progress we're making, the capabilities we're delivering.
But it's more than just spectral efficiency. It's also a platform that's, that's extensible. And we talked about this a little bit. It's a bit technical, but you can add, you can actually put your own applications and services in at the radio layer. And this allows some, some new capabilities which we think are going to be pretty attractive to a number of operators, things like sensing and and other applications.
David Mulholland
Thanks, Sebastian. We'll take our next question from Rob Sanders from Deutsche Bank. Rob, please go ahead.
Rob Sanders
Yeah, hi, thanks for taking my question. First question would just be about the Indian phosphide fab. Ram, do you have line of sight to hitting best in class 6 inch yields next year? Clearly Coherent is already doing pretty well. Lamenting seems a bit behind. So where do you stand on that? And the second question question would just be around a Iran. If you look at the top three US operators, how many do you think internally have already gone past the go no go decision on whether to deploy AI RAN? Thank you.
Justin Hotard
OK, got it, Rob, thanks. So I, I think obviously we have one operator today in the US I'm gonna start with the AI RAN want to come back to the new Fosify. So on AI RAN, we have one operator in the US that's got our, our, our RAN deployed at scale. That's T-Mobile. They announced that they're, you know, they're going to be our lead, our lead partner on the, on the pilot. So obviously we're working closely with them.
I would assume that that would lead us to conclude that they're probably not past the go, no go, no deployment path on the others. I, I think it's a, it's a discussion. You know that, you know that obviously you know, we'll leave for them to assess, but you know, my, my view here is that the GPU performance is competitive. Compelling and it's particularly compelling in a business case where you know spectral efficiency matters, which is going to be more dense operations, but you know that that's obviously you know, they've got Rd. maps and strategies probably better to ask them than than ask me.
And then on the, on the Indian phosphide ramp, what I would say is we've got yield targets that we've, we've focused on, but you know, both yield and, and volume targets we focused on through 2027 on the, the fab, you know, my, my view is while we're, you know, you rightly said, while the ecosystem is maturing and it's not just the two you mentioned, but also the Chinese manufacturers in this space.
I, I also believe this is a place where we're going to go through a significant amount of maturity and learning as we scale and scale yield. And, and that's what I'm focused on with the team versus a, a specific target or, or competitor reach. I think there's actually, I think this is more about us learning and scaling and and making sure we can, we can deliver on our our volume plan and obviously our cost point.
David Mulholland
Thanks, Rob. We'll take our next question from Artem Biletsky from SUV. Artem, please go ahead.
Artem Biletsky
Yes, good afternoon and thank you for taking my question relating to Ani. Could you maybe comment what type of 40 intake development you actually see? Side of AI and cloud, so name namely telcos and the mission critical. So how we we should think about the revenue growth trajectory on this front? Looking at this year and also next year, yeah, thank you.
Marco Overran
Or Tim, just like we mentioned earlier as well that we had a good order intake development and sales development in also non cloud customer base or telcos. We're investing more and this is also driving because of of their need need to invest in their network to secure that they can deliver the demand that is coming from from A and cloud and AI in general development.
And most likely this will happen broadly, more broadly going forward as well because we believe that AI demand will continue, the underlying demand will continue for a longer period of time and and without very good secure networks, it is very difficult to provide those improvements that that AI is actually providing. I don't know you have something you want to add?
Justin Hotard
Yeah, I know. I would say the only thing, the only thing I would say, Artem, is if you looked at NI specifically, the only headwind which we talked about last quarter is obviously on the on the customer premise equipment side of fixed networks where we're getting much more disciplined on margin. That creates a bit of a headwind when you look at NI as a whole. Underneath that is, is the momentum that Marco talked about in, in IP and optical and also, you know, healthy, obviously a healthy growth in, in, in optical line terminals as well, which is the network side of the of the fixed networks business.
David Mulholland
Thanks, Horton. We'll squeeze one last question in from Felix Hendrickson from Nordea. Felix, please go ahead.
Felix Hendrickson
Hi, go ahead. Felix, can you hear me now? Yes, go ahead. OK, perfect. Yeah, thanks for squeezing me in. So in the report you say that the IP networks product mix had an adverse impact on the NI gross margin. Was there something specific to the quarter or does this sort of implied that the margin profile in? Data center switching products at this scale is sort of dilutive to your. In our gross margins. Thank you.
Justin Hotard
Yeah, I think this is largely tied to the what we said at the CMD. You know, we'd see some gross margin headwinds as we ramp products in this space. And this is this is what we're seeing. You know what I'm what I'm focused on is it's, you know, the, the, the business is fundamentally accretive to gross profit and and ultimately to our operating margins.
And then as we talked about earlier, and one of the answering one of the questions, making sure we're, we're streamlining the, you know, the company and driving efficiency so that we unlock operating leverage. And that's, that's our focus. I mean, obviously we've got to show that, but but when I think about what you know, where, where Marco and I are focused, we're we're very focused on that side right now. And, and I think you'll, you'll see the margin, you'll see the margin as we mature in this space continue to improve.
David Mulholland
Thanks, Felix. Ladies and gentlemen, that concludes today's call. I would like to remind you that during the call today, we've made a number of forward-looking statements that involve risks and uncertainties. Actual results may therefore differ materially from the results currently expected.
Factors that could cause such differences can be both external as well as internal operating factors. We have identified such risks in the risk Factors section of our annual report on Form 20F, which is available on our Investor Relations website. Thank you for joining us today. This concludes today's call. Thank you everyone for joining. You may now disconnect.
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