AI Data Center Business Becomes New Growth Engine Nokia (NOK.US) Q2 Profit Exceeds Expectations

The Zhitong Finance App learned that Nokia (NOK.US)'s second-quarter profit greatly exceeded market expectations. The Finnish communications equipment manufacturer made efforts to lay out the data center hardware business, which boosted sales growth. Nokia announced on Thursday that net sales for the second quarter increased 8% year on year to 4.8 billion euros, in line with analysts' expectations; adjusted operating profit increased 18% year over year to 434 million euros (about 496 million US dollars), and analysts' average forecast was 372.3 million euros.

According to the data, in the second quarter, sales of the network infrastructure sector, which covers the AI data center connection business, increased 12% year-on-year to 2,037 billion euros at a fixed exchange rate. Among them, sales of the optical network business increased by 20%, and sales of the IP network business increased by 16%. Net sales to AI and cloud customers increased 105%.

The mobile infrastructure segment, which covers traditional mobile device businesses, saw a 7% year-on-year increase in sales to €2,680 billion.

The wave of AI infrastructure hits Nokia continues to advance strategic transformation

Nokia CEO Justin Hortard is promoting business diversification, getting rid of reliance on traditional telecom network equipment services, and seizing the dividends of large-scale data center construction under the wave of artificial intelligence (AI). He announced this transformation plan last year, simultaneously launching an organizational restructuring plan, divesting loss-making business segments, and promising to achieve double-digit operating profit growth in the next few years. The company's stock price has risen 66% so far this year.

In the second quarter earnings report, Hortard said, “In the second quarter, our AI and cloud business orders reached 2.8 billion euros, and sales more than doubled year-on-year. The company's growth potential was fully unleashed, and both the optical network and IP network businesses received long-term orders. We expect around half of these orders will be converted into actual revenue over the next 12 months. Market demand is still strong, but supply chain shortages are still a core constraint for the entire industry, and are also driving customers to increase long-term orders.”

Although the AI boom has opened up new growth space, global companies are piling up new data centers and expanding computing power reserves, which has led to a shortage of core components such as memory chips and a continuous rise in raw material costs. Competitor Ericsson warned last week that rising costs would hurt profit margins and make it more expensive to fulfill new customer orders.

Nokia said it has agreed to acquire its chip manufacturing campus in Chandler, Arizona, from the Dutch company NXP Semiconductors, but the deal is yet to be approved by the regulatory authorities. Nokia will begin leasing part of its production capacity in early 2027, and will later transform production lines to specialize in the production of optical communication components for AI data center chips.

Over the past few years, the Finnish company has continued to expand manufacturing capacity in the US, focusing on high-value-added telecom components and semiconductor products. This strategy helped the company obtain federal funding under the US Chip Act, while also strengthening the resilience of its supply chain.

As part of a large-scale restructuring plan to reduce costs, Nokia is laying off workers in Europe to save up to 1.2 billion euros this year. The company disclosed that the European layoffs would result in restructuring costs of €200 million.

Nokia is also using AI technology to improve device efficiency. Last week, the company and chip giant Nvidia jointly unveiled a new technology that promises to double the amount of data transmitted by wireless carriers on the same radio band. The platform is scheduled to be launched next year and is compatible with existing 4G and 5G networks; after the next generation of 6G standards is implemented, devices can be upgraded to adapt to the new standards through software upgrades.

This means cost-sensitive telcos can upgrade their networks virtually without having to replace expensive hardware. Hortard said he hopes the software subscription model will become the main driving force for the company's wireless access network business in the future. Last year, Nvidia invested $1 billion in Nokia.