Looking in the rearview mirror gives a false impression. The TTM P/E is 95 because Nokia is in an investment phase; NI’s R&D investments have been increased by 44% in two years, the Infinera integration brought one-time costs, and restructuring is weighing on the bottom line. A ROIC of 2.7% reflects a five-year average that includes the poor performance of mobile networks, contributed to by the loss of AT&T and Verizon as RAN customers. It describes more of what Nokia was in recent years than the direction in which the business is now evolving.
In Q1, Nokia received one billion euros in AI and cloud orders, which is 67% higher than last year’s average level. The San José plant, to be commissioned at the end of this year, will increase InP capacity 20-25 times, which could have a significant impact on optical sales. According to Hotard, IP networks are also set to receive significant orders starting from this quarter following their design wins. Growth is also on the horizon: the combined growth of IP networks and Optical networks is 18-20% this year—and this is without any help from the new San José plant, which represents a massive capacity leap starting next year. At the same time, the growth rate of Nokia’s relevant market (TAM) for AI and cloud customers was recently updated to 27%, meaning demand will double in three years.
So, orders are coming in nicely, but it’s not yet showing much in sales because, according to Hotard, the lead time from order to delivery is 12-18 months in optical networks, and slightly less in IP networks. In other words, this year’s strongly growing AI and cloud orders will generally not be reflected in sales before next year. It should also be noted that in terms of margin, we are talking about quite a good business: the 2028 target for NI was set at 13-17%, where there may be upward pressure due to strengthened demand.
No retrospective key figure can describe the transformation of Nokia happening before our eyes, which in this investment phase is not yet reflected positively in Nokia’s realized figures other than at the order book level.