Nokia (NOK) Q3 2026 earnings review
Nokia's AI sales grow fast, but it lowers its cash target
Nokia's sales to AI and cloud customers now carry the company, while telecom operators spend nothing extra. Sales rose 9% at constant currency, and profit excluding one-offs climbed far faster as costs fell as a share of sales. Chief executive Justin Hotard expects optical and IP sales to grow 25% to 30% next year. By our math, his fourth-quarter plan has growth slowing to the low single digits.
| Sales | EUR 5.15 billion +9% from a year ago at constant currency, +10% reported |
|---|---|
| Operating profit, excluding one-offs | EUR 605 million +35% from a year ago; margin 11.7%, up 2.2 points |
| Sales to AI & Cloud customers | EUR 631 million +123% at constant currency; 12% of sales, from 6% |
| Share of profit expected to turn into cash this year | Cut to 35-55% 55-75% in July |
⚖️ Verdict: 🟢 Bullish
The story got better because last quarter's orders have turned into sales and Hotard put a number on next year. The bad news: Nokia now expects 20 percentage points less of its profit to turn into cash, because it is funding inventory and restructuring. Beating its own third-quarter profit plan says that plan was cautious, not that the year got safer.
The question now is whether the order book turns into cash. Either the inventory build unwinds as supply arrives, or supply limits keep cash below profit for longer. Fourth-quarter free cash flow, due in January, will tell.
🐂 Bull Case
AI & Cloud Customers Now Bring an Eighth of Sales
Nokia sorts its customers into four groups. The one it calls AI & Cloud, the data-centre operators and cloud providers that buy its optical and IP networking gear, is now the only group growing quickly, and chief executive Justin Hotard wants it to carry the company.
- Sales to AI & Cloud customers: EUR 631 million, up 123% at constant currency
- Share of group sales: 12%, from 6% a year ago, by our math
- New orders from these customers: EUR 1.5 billion, up 118% from a year ago
- Orders per euro of sales: 2.4, after 6.3 in the second quarter, by our math
This matters because telecom operators, still the largest buyers, bought no more than a year ago, so almost all of Nokia's growth came from one customer group. Hotard says the backlog "positions us for future growth" and expects the optical and IP businesses "to grow between 25% and 30% in 2027". Orders still ran well ahead of sales, even though intake fell from the second quarter's level, as he had warned in July it would.
What to watch: AI & Cloud sales in the fourth quarter, due on 28 January. A figure above this quarter's would show the summer's orders turning into deliveries rather than waiting on supply.
IP Networks Grows 43% on Hyperscaler Design Wins
IP Networks sells the routers and data-centre switches that move traffic between computers. For most of last year it grew slowly while Optical Networks grew fast, so Nokia spent on new products for cloud customers. This quarter the spending paid: IP sales rose 43% at constant currency, on top of 18% at Optical, which "also grew with Telecommunication Providers".
Nokia reported "2 hyperscaler design wins including next-gen DC gateway". Shipments of its 800G pluggables, the optical modules that slot into switches, rose 2.4 times from the second quarter. Fixed Networks, the home-broadband unit, shrank 22% because Nokia is dropping low-margin products "as we continue to prioritize higher-margin offerings".
What to watch: whether combined optical and IP growth for 2026 lands above the earlier 18% to 20% plan, as Nokia now says it will. Delivering that would make the faster rate Hotard has set for 2027 the base case rather than a stretch.
Nokia's Costs Fall as a Share of Sales
Nokia's operating margin excluding one-offs rose to 11.7% from 9.5%, and the gain came from costs rather than pricing. Gross margin, what is left after the cost of making the products, slipped 0.2 points, so the whole improvement came from spending below that line.
- Research and development: 21.5% of sales, down 1.9 points from a year ago
- Selling and administration: 11.2% of sales, down 1.3 points
- Other operating items: a 0.8-point drag, because last year's quarter carried a hedging gain
- Network Infrastructure: operating costs down 3.9 points of segment sales, lifting its margin to 10.0%
Operating profit excluding one-offs reached EUR 605 million, when in July Nokia had said the third quarter would look broadly like the second's EUR 434 million. Part of the gap is timing, because Radio Networks booked revenue early, but research spending was flat in euros while sales rose 10%, and that part is real leverage.
What to watch: fourth-quarter operating margin excluding one-offs, which by our math must reach about 16% for the year to finish above the middle of Nokia's range. A reading there would show the cost base holding through the biggest quarter.
🐻 Bear Case
Nokia Cuts Its Cash Target for the Year
Hotard said that "operating leverage is becoming more visible", and on the profit line it is. On the cash line it is not: free cash flow was negative for a second quarter, and net cash has fallen to EUR 2.6 billion from EUR 3.4 billion at the start of the year. The group now expects a far smaller share of profit to turn into cash.
- Free cash flow: negative EUR 99 million, against positive EUR 429 million a year ago
- Share of operating profit expected to become cash this year: 35% to 55%, from 55% to 75% in July
- Extra working capital this year: EUR 400 million, "to secure supply and support the growth opportunity in 2027"
- Restructuring cash outflows for 2026: EUR 800 to 900 million, from EUR 700 to 800 million; charges rise to EUR 1.1 billion
- Fourth-quarter free cash flow needed to reach the new range: about EUR 1.0 to 1.5 billion by our math, against EUR 226 million a year ago
This matters because in July the company was already steering to the low end of the old range, and now even that end is gone. The money is going into inventory bought ahead of demand and into receivables, which Nokia is partly selling to banks, so it comes back only if the orders ship and customers pay. Restructuring charges of EUR 357 million, eight times last year's, sit outside the profit the outlook is built on, but the cash leaves all the same.
What to watch: fourth-quarter free cash flow, due on 28 January. By our math it must exceed EUR 1 billion for the year to stay inside the new range, more than four times what the fourth quarter produced last year.
Some Fourth-Quarter Sales Arrived Early
Nokia's fourth quarter is always its biggest, and this year the group needs it to deliver a profit above the middle of its EUR 2.1 to 2.6 billion range. The third quarter made that easier, but partly by moving sales forward: Radio Networks grew 10% "in part due to" an "acceleration of revenue from Q4 into Q3", and Technology Standards, the patent-licensing unit, "included a typical benefit from catch-up net sales".
- Fourth-quarter sales the plan implies: about EUR 6.3 billion at the middle, by our math
- Growth that implies: roughly 1% to 4% from a year ago, after 10% this quarter; the year-ago base still includes businesses now being sold
- Fourth-quarter operating profit the plan implies: at least EUR 1.0 billion by our math, against EUR 1.06 billion a year ago
- Network Infrastructure growth needed in the fourth quarter: roughly 14% to 21% by our math, after 11% so far this year
This matters because the full-year profit range did not move even though the quarter beat the company's own plan by about EUR 170 million. Either the fourth quarter has lost what the third gained, or Nokia is holding room in reserve, and the flat telecom spending argues for the first reading.
What to watch: fourth-quarter sales growth from a year ago, due on 28 January. A figure below the low single digits the plan implies would show the third quarter borrowed more than Nokia has said.
New AI Products Lower Network Infrastructure Margin
Network Infrastructure is the segment that sells optical and IP gear, and its gross margin fell 1.5 points to 41.2%, because of product mix and "a ramp-up of new products for AI & Cloud customers in IP Networks". New products cost more to build until volumes rise, so the fastest-growing customers are, for now, the least profitable to serve.
Group gross margin excluding one-offs held at 44.6% only because Mobile Infrastructure, helped by patent income, made up the difference. The reported gross margin fell 2.2 points, since Nokia booked EUR 120 million of restructuring in cost of sales. The segment expects a recovery in the fourth quarter "supported by scale benefits and pricing discipline", and that quarter is the first test of the claim.
What to watch: Network Infrastructure gross margin in the fourth quarter. A return toward last year's 42.7% would show the new products starting to carry their own cost once volumes rise.
Risks this quarter didn't answer
Five standing concerns got no new numbers in this report, and each has a reading that would move it.
- Supply: the slides say the second San Jose chip plant moves to round-the-clock operation by the end of October, but Nokia gives no figure for how much of the order book supply still holds back; fourth-quarter optical growth will show it.
- Customer concentration: no customer count or top-customer share for AI & Cloud, now the second-largest customer group; any disclosure would move the case.
- Currency: the outlook still assumes EUR:USD at 1.14, and about 55% of sales are in dollars, so a weaker dollar takes profit straight from the range.
- AI-RAN: Nokia completed "the world’s first AI-RAN call in a live operator network" with T-Mobile and Nvidia, but commercial sales start in 2027, so the mobile unit's profit still rests on today's products in a market that is not growing.
- Margin target: the 13% operating margin target for 2026 set under the previous chief executive went unmentioned again; by our math this year's plan implies about 11%.
👓 Other Themes
Two Unit Sales Close, Infinera Savings Arrive Early
Nokia closed the sale of its fixed wireless access unit to Inseego in early October, taking an 11% stake in the buyer, and agreed to sell Enterprise Campus Edge to Aurelius, closing in the first half of 2027. Hotard said the Infinera integration will finish this year, "one year ahead of plan with EUR 200 million of net synergies". The board set the quarterly dividend at EUR 0.03, after EUR 0.04.
Telecom Operators Spend Nothing Extra
Telecommunication providers, the operators of mobile and fixed networks, bought exactly as much from Nokia as a year ago at constant currency, and they still make up 71% of sales. Mobile Infrastructure sales in the Americas fell 13% at constant currency, while Europe and Asia grew, so the operator market is flat overall and shrinking in Nokia's largest region.
💲 Other KPIs
The stock of parts and finished products rose for a fourth straight quarter, up 21% from a year ago against sales up 10%. Relative to a quarter's sales, the pile is now larger than at any point in the past year. Nokia says it is buying ahead to secure supply for 2027 deliveries, which is what is holding cash back.
Cash that customers have paid for equipment and service not yet delivered barely moved, up 0.8% from a year ago while sales grew 10%, and it fell from EUR 1,971 million in June. For a company reporting a doubling of orders, prepayments are not where the order book shows up; it sits in receivables and inventory instead.
Up 4.7% from a year ago, mostly because Nokia issued 166 million shares to Nvidia last November. The increase is slowing from the second quarter's pace, and Nokia bought back no shares while selling EUR 62 million of treasury shares in September, so profit per share grows more slowly than profit.
🔮 Guidance
Unchanged. The plan still calls for EUR 2.1 to 2.6 billion, and Nokia now says the year will land above the middle of the range, firmer than July's "somewhat above". By our math that leaves at least EUR 1.0 billion for the fourth quarter, about the same as a year ago. On the sales the plan implies, that is an operating margin near 16%. The range has stood since January apart from a technical EUR 0.1 billion lift in July.
New. Nokia expects fourth-quarter sales 20% to 24% above the third quarter. By our math that points to about EUR 6.3 billion at the middle. Against last year's fourth quarter that is growth of about 3%, on a base that still includes the businesses being sold, so the like-for-like rate is a little higher. Growth would slow from 10% this quarter, the first slowdown in three quarters.
Unchanged in substance. Nokia again describes the fourth quarter as a step up from the third, now "a typically strong q-o-q increase in operating profit in Q4", after calling it a meaningful improvement in July. By our math the full-year range needs at least EUR 1.0 billion from the quarter, below the roughly EUR 1.2 billion that July's plan implied, because the third quarter delivered more than the plan assumed.
Unchanged. The plan still has Network Infrastructure growing 12% to 14% this year at constant currency. Sales are up 11% over nine months. So by our math the fourth quarter needs roughly 14% to 21%, depending on the year-ago base. That compares with 15% this quarter, and the company says the combined optical and IP units will now grow faster than its earlier plan, which is where the extra growth has to come from.
Raised. Nokia now expects its optical and IP units together to grow "somewhat above" the 18% to 20% it set in April. By our math the pair grew 29% this quarter at constant currency, so the raise mostly recognises what has already happened. Hotard's 25% to 30% target for 2027 then asks the pair to speed up again rather than settle back.
New. Hotard expects "our combined Optical and IP Networks businesses to grow between 25% and 30% in 2027". That is the first figure Nokia has given for next year, and it is more than double the yearly pace the company set for the pair at its investor day last November. The order book is the support, since intake from AI and cloud customers has run above sales for three quarters. Nokia has not said what the target assumes for supply.
Raised. Nokia now expects EUR 300 to 400 million of net financial income this year, up from July's range. The reason is "Strong income from Nokia's venture fund investments", a gain on paper from revaluing its fund holdings that may not repeat. Nine months have already produced EUR 298 million, so the fourth quarter needs almost nothing. This line sits below operating profit, so it lifts earnings per share but not the range the outlook is built on.
Lowered slightly. Nokia now expects a tax rate of about 26%, the bottom of its earlier range, still "sensitive to geographic mix". By our math the nine-month rate excluding one-offs was already 26%, so the new figure describes what has happened rather than a change in plan.
Unchanged at EUR 500 million. Nine months have used EUR 298 million, so by our math the fourth quarter would carry about EUR 200 million if the figure holds. That is triple this quarter's cash tax bill and one more call on fourth-quarter cash.
Lowered. The range drops by EUR 50 million at each end, the second cut this year, because some cash payments for the optical plants move into 2027 and real estate plans changed. Nokia says its "optical manufacturing expansion plans remain on-track". Nine months have used EUR 476 million, so by our math the fourth quarter carries about EUR 325 million, the heaviest quarter of the year.
Cut. Nokia now expects 35% to 55% of operating profit to turn into cash this year. In July the range sat 20 points higher, and the company was already steering to its low end. The reasons are EUR 400 million of extra working capital and a larger restructuring bill. Nine months have produced a cash outflow, so by our math the fourth quarter must bring in EUR 1.0 to 1.5 billion.
Raised. Charges for 2026 rise to EUR 1.1 billion from EUR 800 million in July, the third increase this year. Nokia says it has "increased the scale of some of its restructuring programs" in order to "increase operating leverage in the business going forward". Nine months have booked EUR 903 million, so by our math the fourth quarter carries about EUR 200 million. These charges sit outside the operating profit the outlook is built on.
Raised. Cash going out for restructuring this year is now EUR 800 to 900 million, up at both ends. In April the figure was EUR 450 million, so the bill has nearly doubled within the year. This quarter used about EUR 290 million. The outflow is the main reason the cash target fell, and it runs ahead of the savings it buys.
❓ Key Questions
How much fourth-quarter revenue moved into the third quarter?
Nokia said Radio Networks grew partly because revenue moved from the fourth quarter into the third, but gave no amount. The size decides whether the fourth-quarter sales plan, which by our math implies low-single-digit growth, is cautious or already stretched.
How concentrated are Nokia's AI & Cloud customers?
Hotard called the customer base fairly concentrated in July, and the group now supplies most of Nokia's growth. A customer count or top-customer share would show how much of the EUR 1.5 billion of new orders depends on one buyer's plans.
What backlog supports 25% to 30% growth in 2027?
The 2027 target for optical and IP is the first number Nokia has given for next year. The total backlog, its split between optical and IP, and how much supply the target assumes would let readers test it.
Which working-capital items reverse in the fourth quarter?
By our math the new cash range needs EUR 1.0 to 1.5 billion of free cash flow in the fourth quarter. Nokia should say how much of the inventory and receivables build it expects to unwind, and how much restructuring cash is still to come.
Is the 13% operating margin target for 2026 withdrawn?
Nokia set a 13% comparable operating margin target for 2026 under its previous chief executive and has not mentioned it since. By our math this year's plan implies about 11%, so the company should say whether the target was replaced at last November's investor day.