Nokia’s Q2 optical results remain a bright spot amidst North American market slowdown

July 20, 2023

Nokia reported an uptick in its Optical Networks division for the second quarter, a time when it is seeing slower sales in the North American market.

Optical Networks’ net sales grew 16% on a constant currency basis, showing continued strong momentum and customer engagement with our PSE-V solutions. The company attributed the growth to the Indian market. The company reported optical sales of 492 euros ($547.3 million).

“In Optical, we continue to believe we are gaining market share,” said Pekka Lundmark, CEO of Nokia. “And with the customer traction of both PSC 5 and now lately with PSC 6, we are very optimistic about the potential to continue to grow in this business.”

While the optical gains were compelling, Nokia’s Network Infrastructure business struggled during the second quarter. The company reported that the Network Infrastructure business declined by 6% as macro uncertainty impacted the industry, particularly in IP Networks.

“Network Infrastructure net sales declined 8% on a reported basis and 6% on a constant currency basis in the second quarter,” Lundmark said. “The business is currently experiencing some short-term challenges related to a return to more normal lead times, as well as macroeconomic uncertainty. While this impacts visibility, Network Infrastructure continues to develop opportunities to gain market share across the portfolio.”

IP division struggles, opportunities

IP Networks struggled in the second quarter as net sales declined 11% to 618 euros ($687 million). Nokia said the decline reflects weakness in North America’s service provider market as customers continue to evaluate their spending, as well as a slight decrease in Asia Pacific.

Alternatively, the company said all other regions with robust European performance saw growth.

Another critical area of growth was the Enterprise and web-scale markets, where customer sales grew at a double-digit rate year-on-year.

“In IP Networks, while the uncertainty in CSP is impacting demand currently, we have been making great progress in expanding into enterprise and web-scale, which has increased from 13% to now over 20% of IP net sales,” Lundmark said. “We believe we are in a strong position to make further progress into web-scale into 2024.”

He added that “this diversification should help improve the structural growth opportunities for our IP Networks business, given the enterprise and webscale TAM is expected to grow at around 6% CAGR compared to the 1% growth for CSP customers.”

Fixed networks headwinds

Fixed Networks, which provide broadband access and improved wireless equipment, saw weakness in the second quarter. The company said that the main culprit was fixed wireless and ONT inventory issues.

“In Fixed Networks, we are seeing two primary effects,” Lundmark said. “We are facing some headwinds like our fixed wireless access business which remains sensitive to a small number of customers. Secondly, we see some inventory digestion primarily of consumer premise ONT devices.”

Despite these challenges, Lundmark said he was encouraged by the fiber broadband opportunity.

“Looking at fiber penetration, you will see that there is still a substantial amount of fiber that needs to be deployed worldwide,” he said. “Once that fiber is laid, investments will continue for that same fiber for many years to continually drive higher capacity on these lines.”

He added that new government funding like BEAD and ReConnect in North America would spur more providers to build new fiber broadband networks.

“In North America, when the new funding becomes available for all of the broadband programs, there will be even more competition between operators who are scrambling to offer new services as quickly as possible once the funding gradually gets available,” Lundmark said. 

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About the Author

Sean Buckley

Sean is responsible for establishing and executing the editorial strategies of Lightwave and Broadband Technology Report across their websites, email newsletters, events, and other information products.

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