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Finnish vendor Nokia reported a third-quarter profit that surpassed market expectations, driven by strong demand in optical and cloud services, including sales related to AI-focused data centres following its acquisition of US optical networking firm Infinera. The company’s comparable operating profit reached 435 million euros in the quarter through September, significantly exceeding the 342 million euros analysts had forecast.
This profit beat comes despite a challenging year for Nokia, which had previously issued a profit warning in July due to factors including US tariffs, a market slowdown, and a weaker dollar. The company has also “lost ground in the North American telecoms market” after US carrier AT&T chose Nordic rival Ericsson for a $14 billion 5G contract in 2023, phasing out Nokia’s existing deal.
The AI and Cloud Catalyst
Despite these headwinds, Nokia’s quarterly group net sales rose 12% to 4.83 billion euros, above the 4.6 billion forecast, supported by strong growth in Optical Networks and cloud services. Artificial intelligence (AI) and cloud customers accounted for 6% of group net sales and 14% of network infrastructure sales, with optical networks alone seeing a 19% rise on a constant currency basis.
Nokia’s CEO, Justin Hotard, highlighted the accelerating demand, stating, “AI and data center demand continues to be robust. In fact, it continues to accelerate from our perspective”. This focus on high-growth areas like AI is part of a strategic investment, with mobile networks remaining Nokia’s core business. Looking ahead, the Finnish company anticipates annual operating profit to be between 1.7 billion and 2.2 billion euros, a slight increase from the previous range of up to 2.1 billion.
Ericsson’s Cost Discipline
Meanwhile, rival Ericsson is executing a strategy that pivots “from prioritising top-line growth to being disciplined on costs and considering non-core disposals and cash returns”. This strategic pivot is playing out better than anticipated, with Morgan Stanley raising its price target on Ericsson due to “stronger-than-expected cost efficiencies and higher profitability forecasts”. Operational improvements, including a 6% workforce reduction and better management of the geographical mix, are helping to sustain margins at historically high levels. Analysts now expect gross margins in mobile networks to reach “record levels above 50% in 2025 despite a 6–7% revenue decline”.
Ericsson’s improved expense management is forecasted to keep operating margins steady in the 12–15% range through 2026. The company, which analysts now describe as resembling a “Telco” with a focus on free cash flow, is also expected to significantly boost shareholder returns. The firm is estimated to distribute 30 billion kronor in 2026, which is around 10% of its market capitalisation, through a mix of ordinary dividends, a special dividend, and share buybacks.
A Shared Path to Value
Both Nokia and Ericsson are demonstrating a business focus on margin expansion and financial discipline. For Nokia, this involves leveraging its Infinera acquisition and capitalising on surging demand from AI and cloud customers to drive growth in optical networks. For Ericsson, the emphasis is on rigorous cost control and operational efficiency to deliver strong profitability and substantial returns to shareholders.
This dual focus on profitability and capitalising on high-growth sectors signals a maturing phase for the telecom equipment industry, where disciplined management of costs and strategic investments in future technologies are key to driving value for a technically knowledgeable and business-focused audience.
Ericsson have made the shortlist for this years World Communication Awards in several categories including the 5G Award alongside Batelc0, Jio Platforms, KT and Singtel. View all the finalists here
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