Nokia’s CEO conjures up a positive spin on Mobile Networks division

• The Mobile Networks division, home to Nokia’s radio access network (RAN) portfolio, used to be vendor’s crown jewel
• Now the vendor’s Network Infrastructure division is the beating heart of its sales growth and prospects
• Nokia’s CEO Justin Hotard offered a defensive and positive spin on the RAN unit during the vendor’s second quarter earnings call

Nokia’s CEO Justin Hotard gave his unequivocal support to the company’s under-pressure Mobile Networks division during the vendor’s second quarter earnings call on Thursday morning, describing the shrinking business as a “unique and highly strategic asset” that had growth potential in the coming years. 

The comments came in response to a question from Rob Sanders, head of technology hardware research at Deutsche Bank, during the Q&A session of the earnings call. Sanders asked about Hotard’s view of the Mobile Networks business, and specifically asked whether the CEO was “OK” with the division being “relatively sub-scale and treading water”. He also asked how much investment the Mobile Networks division is getting, as Nokia’s focus right now appears to be to pump its R&D resources into meeting the needs of the datacentre operator sector and to grow business with the hyperscalers.

The question came as Nokia noted that, currently, 5% of its revenues come from hyperscaler customers. It also came in the wake of a profit warning issued earlier this week by Nokia, which is seeing its operating profits battered by currency exchange rate fluctuations and by tariffs.

Before we come to Hotard’s remarks, let’s take a quick look at the background to that question. Nokia’s Mobile Networks division has been grappling with multiple challenges, including the loss of two major US customers (Verizon to Samsung, AT&T to Ericsson), for years and, not for the first time, its financial performance stood out in a negative way in the second quarter earnings report. 

While Nokia’s other divisions – Network Infrastructure (optical, IP routing, fixed broadband), Cloud and Network Services (which includes mobile core platforms), and Nokia Technologies (intellectual property/patents) – all reported year on year revenue growth (when adjusted for currency exchange rate impacts and portfolio changes) for the three months April-June 2025, Mobile Networks reported a 13% year on year decline in sales to €1.73bn, while its operating profit margin dipped to 4.4% from 8.8% a year earlier. Nokia’s management was keen to point out during the earnings call that “most” of that sales decline was due to a one-time gain in the previous year’s comparative quarter, but even discounting that factor leaves Nokia with a shrinking radio access networks (RAN) business. 

As the sales mix at Nokia has shifted, so the Mobile Networks division has lost its position as the company’s major sales generator. It used to be the vendor’s major business line, but the Network Infrastructure division is now bigger and more profitable: In the second quarter, the Network Infrastructure business generated revenues of €1.9bn, up by 8% (constant currency/portfolio), and had an operating profit margin of 5.7%. 

This reflects the shifting dynamics of Nokia’s main customer segment – the telcos. As has been pointed out many times in recent years, and especially now that the main bulk of the 5G rollout in India is completed, there’s little in the way of growth to be had in the RAN sector – research house Dell’Oro Group highlighted that again this week, noting that the sector is to remain “flat” during the 2025-2029 period. By contrast, the same research firm noted that the value of the optical transport network technology sector is set to grow, by 5% per year, during the same period.   

In addition, it is the Network Infrastructure division (not Mobile Networks) that has received a great deal of strategic focus during the past 12 to 18 months, with Nokia’s previous CEO Pekka Lundmark regularly referring to it as the growth engine of the company, an engine that was bolstered by the recent $2.3bn acquisition of optical networking equipment specialist Infinera. And there was even market speculation earlier this year which suggested that a deal to sell the Mobile Networks division had been explored, but that terms could not be agreed, with market watchers identifying Samsung Networks as the most likely interested party as the South Korean giant seeks to boost its telco sector influence. 

It should also be noted that Hotard, who took over as CEO in April this year, came from Intel, where he was general manager of the chip giant’s Data Center and AI Group, and was heralded by Nokia as an executive with “vast expertise in AI and datacentre markets, which are critical areas for Nokia’s future growth”. 

All of these factors have resulted in a cloud hanging over Mobile Networks, even though, as Nokia is keen to remind the market, the division is still one of the top three leading vendors in the radio access network sector and continues to pick up business from existing and new customers.    

Given all that, how did Hotard react when asked if he is “OK” with the division being “relatively sub-scale and treading water”?

Here’s what he had to say.

“The Mobile Networks business is a unique and highly strategic asset. There are four scale players in the world – two are in the West… us and Ericsson [the other two being China’s Huawei and ZTE]. What I think is important, and I've said this consistently, is I don't think it's just about mobile networks. Every one of the scaled players, including the two competitors we have out of China, have core networks, mobile network [radio access network] assets and a robust IP portfolio. I think you have to look at the business in totality, even as you report the segments [as separate financial divisions]. That's really critical. Second, when you look at our customer base, it's very clear to me, and I hear this from our customers, that we have the opportunity to do more with them. Third, I believe the AI supercycle is going to drive a refreshed wave of investment in [mobile network infrastructure]. It's not there today, but I think we have to have a view over the longer term, whether it's [the impact on network requirements of] smart glasses, drones, autonomous vehicles. Even in the traditional mobile handset business, there's going to be a set of innovations that drive opportunity for us and opportunity for our customers.”

The CEO continued: “This is where being a thoughtful partner to our customers is going to be important in terms of capital allocation. What's happened in Network Infrastructure – and this is one of the reasons why Infinera was a very, very good acquisition for us – is the market has shifted to cloud and AI driving the investment.” Hotard noted that the increased focus on the Network Infrastructure division is being driven by the shifting demands of the customer base, where there are now specific demands related to Ethernet switching speeds and optical technology, such as pluggables for inside the datacentre. “The innovation curve has shifted. So by default, our R&D has to be invested in those areas. And if you look at the hyperscalers and public cloud, they set an expectation for security[and] for ease of use and deployment of technology and performance. So there's a number of areas where we're targeting those customers.”

And the CEO linked that customer base to the mobile business too. “If you look at the portfolio on the mobile side, many of those cloud players and those hyperscalers are partners for us on mobile… in our [mobile] core business, we've moved much more to a cloud strategy in terms of the tech stack and also in terms of where we run those platforms. And I think over time, we're going to see some of those things move into the RAN… [I see] these partners as being broad partners across our business – I think there's a significant opportunity” for the mobile business, he stated. 

But Hotard is also realistic. Answering another question about his plans for the Mobile Networks division, the CEO stated: “This has been a challenging business for us over the last few years. The market is flat… if you look at the market that's addressable to us, I'm really focused on the geographic markets where we can actually sell… we're starting to see recovered [market] share from what we had lost in terms of cell sites. From my perspective, what I'm focused on is overall revenue growth. I think right now, though, it's about making sure we preserve market share in a flat market, and then looking at where the opportunities are for us to gain share.” 

What does all of this mean for the Mobile Networks division? The key takeaway is that the news could be worse – Hotard could have been less effusive in his defence of the division, though you couldn’t expect him to be dismissive of it. But the message is also clear – the market for Network Infrastructure is growing, while the market for Mobile Networks is flat. Only a fool wouldn’t focus a company’s resources on the growth opportunity – what Hotard needs to do is make sure the Mobile Networks division doesn’t wither on the vine and become an unattractive asset for Nokia or any prospective future buyer/investor. 

- Ray Le Maistre, Editorial Director, TelecomTV