Nokia Oyj (NOKIA) Earnings Call Transcript

Hello, ladies and gentlemen. Thank you for joining us virtually today for our latest progress update with this session focused on our Network Infrastructure business. I'm David Mulholland, Head of Investor Relations, and I'm delighted to have many of the members of our Network Infrastructure leadership team on the line with me. As a reminder, we host these sessions to provide more detail and color on the journey that we're on in each of our businesses. The presentation used in the event will be available on our IR Events page on our IR website after the event today. Before we get started, a quick disclaimer. During this event, we will be making forward-looking statements regarding our future business and financial performance, and these statements are predictions that involve risks and uncertainties. Actual results may, therefore, differ materially from the results we currently expect. Factors that could cause such differences can be both external as well as internal operating factors. We have identified such risks in the Risk Factors section of our annual report on Form 20-F, which is available on our Investor Relations website. In terms of the structure for today's event, I'll shortly hand over to Federico and then the unit leaders for their presentations. Then we'll have a short Q&A session. With that, let me hand over to Federico to start the presentation session.

[Audio Gap] the 15 months since we last met have been tough for our industry. And in many ways, this is surprising. The component grants as the resulting buildup of the customer inventory we've seen as post-pandemic phenomenon, geopolitics continue to make life challenging, but that's nothing new. Higher interest rates and inflation, in many places is, and in others, have become part of the new normal. Nevertheless, these trends persist and have led to what Dell'Oro calls inventory correction. We call it drag on our business and Nokia is far from immune to these trends. But looking ahead, we remain remarkably confident in our industry and our company. As customers spend down their inventory, they naturally look to the next building cycle. As a result, as Pekka and Marco have pointed out in recent quarters, order trends have been improving in Network Infrastructure. Today, I will outline some important trends that we believe are driving the next wave of investment and explain why Network Infrastructure is perfectly placed to catch that wave. When the Network Infrastructure was formed at the beginning of 2021, we were still in the grip of the pandemic. With people from office workers to TV presenters moving to virtual work, demand for excellent home connectivity grew fast, but this did not create the wave of investment. It just accelerated a trend that was already there. Investment in networks was already being driven by the replacement of copper cabling with fiber, worldwide 5G rollouts and the growth of the cloud. And of course, it was not a matter of chance that we could take advantage of that demand. Smart investments had ensured we were in the right place at the right time. Our Quillion chipset meant, we had our 25 gig PON product very early. Of course, these days, we are demonstrated 50 and 100 gig. Our FP4 chipset has seen more than 300 deployments by the end of 2020 and was joined right on time by the next generation FP5 in 2021. We got up in our optical portfolio with PSE-5 going to market in '21. And then the launch of PSE-6s last spring gave us a technology advantage over our rivals. All of these contributed to a string of great quarters for Network Infrastructure. But as we have fought with these -- the industry-wide challenges I have identified, we've seen, for the first time, year-on-year revenue declines. Nevertheless, the fundamentals of our business remain strong. All our competitors have struggled to some extent over the last year, and we can see that Nokia has maintained, and in some cases even increased, its position. Analysts placed our share at #1 in edge routing and #2 in total routing, globally, excluding China. In XGS-PON, ONT as well as XG-FAST, we are #1 globally. In Optical Networks, we are #3 globally, and we are #2 in APAC, excluding China, and #2 in Europe. In short, we have come through the recent challenging quarters in good shape, and we are ready to take advantage of the opportunities the future holds. Now looking to the second half of the decade, several trends are shaping our markets. I would like to outline them for you briefly here before the division heads go into more detail in their upcoming presentations. The first trend is the drive for connectivity. As Sandy will explain, there is still headroom in the fiber market. Fiber now passes more than half of households worldwide, but the number connected lags behind. And even in richer nations, there are pockets of unserved and underserved communities. Meanwhile, pressure on networks is leading to upgrades for higher speeds. The second trend is increasing interest in security. When almost every device in your house can have an IP address, the number of devices that can participate in a distributed denial of service attack expands exponentially. But it's not just DDoS that is a threat. We are also looking ahead to topics such as quantum computing. The third trend is geopolitics, which touches on a range of areas including supply chain. The fourth trend is scale but with efficiency. Particularly at times of economic uncertainty and challenge, this topic is essential for our customers. And finally, the fifth trend is the widespread adoption of artificial intelligence, which has implications for our industry, of course. In responding to these trends, we ensure that everything we do -- everything is aimed at helping customers either derive value from their network investments, helping them achieve lower total cost of ownership or doing both. In short, we are in business to help our customers make money and save money. And we do that while aiming at being the most trusted partner in our market. Our first priority is to grow our customers' network and their business. This is an important distinction. Growing network is inescapable. Even companies that think they cannot invest, have to invest. That's driving continued FTTH business both to premises not yet passed by fiber, and to those pass but not yet connected. But we also must help our customers grow their business, whichever business they are in. Growth in broadband continues, as we can see from the extremely exciting announcement AT&T made yesterday, which Sandy is going to talk more about it in a moment. Broadband based on our technology leadership and our strong customer focus. But it's not just fiber rollouts that are continuing at a pace. In fixed wireless access, for example, we are making an entirely new market. CSPs have invested enormous amounts in rolling out 5G. Now we're helping them get value from those investments by using fixed wireless access to connect underserved communities. Incidentally, the ambition to connect the world is one we are proud to have, and it is becoming more realistic with government stimulus programs. We are excited that Nokia was able to take the lead in readiness for the bid program in the U.S. Sandy will talk more about all these topics in a moment. Meanwhile, our multi-access gateway, or MAG, delivers more capacity with a lower total cost of ownership. That's why it's been chosen by T-Mobile in the U.S. and du in the Middle East, but new customers include a leading Indian operator. That shows that our solutions are applicable in global market without looking at the geography -- in very different economic geographies and urbanization patterns. The home is a major bottleneck in broadband services. So our customers are expanding their in-building business with our Wi-Fi solution on our Corteca applications. Finally, our customers are able to gain more value through slicing, which we offer in fixed, of course, IP and optical networks. Enabling customers to divide up the network for enterprise, wholesalers, backhaul services and so on, is a value-added services for their subscribers, making it another way for them to grow their business. With threats from distributed denial of service attacks increasing, networks need faster and more accurate DDoS mitigation, something that Deepfield defender is fully equipped to do. In combination with the 7750 routers, Deepfield helps customer protect against attacks from both outside and inside the network. While DDoS attacks are happening right now, we tend to think of the security threat from quantum computers as a problem for later. However, bad actors using the harvest now to use later techniques are current and a real treat today. Luckily, Nokia's technology can protect today against tomorrow's dangers. This is built in, not bolt on, to both our IP networks and optical networks portfolio, making it cheaper as well as more effective, and it's unique to Nokia. We are already using this in Europe and elsewhere as a selling proposition, particularly for enterprise customers. Geopolitics is a major theme in our markets and will continue to be influential in the remainder of the decade. While government policy in some areas is certainly a factor, we also see customer demand for so-called clean networks in several geographies. It's a contributory factor in a number of our wins. For example, we've recently closed a big optical deal in Europe, partly based on Nokia's reputation for high ethical standards and behavior. At the same time, interest is growing in digital bridges. Subsea cables are generally considered very secure. However, security concerns have recently been triggered. First, subsea bridges, most notably, ironically, the Nord Stream pipeline, which isn't a telecom cable, but it got high visibility. Second, the long-running regional conflict in the Middle East has rendered this Red Sea unsafe for shipping. As a result, we see some customers wanting to use a combination of subsea and long-haul terrestrial networks to form digital bridges. This give us a wider range of routes and increase redundancy. Until recently, the efficiency battleground has been networking technology, and this very much continues. Successive silicon designs in NI have achieved greater scale and high efficiency, including in power consumption. Now however, there's a new arena for efficiency battles and that's automation. Our NSP, WaveSuite and Altiplano solutions provide automation to help customers reduce OpEx and shorten service delivery times. But there are other drivers for automations that are coming in surprising areas. One of the biggest problems our customers face is the retirement wave hitting their staff. Newly qualified engineers are ready tomorrow's technology while today's networks use today's technology. So maintaining those networks become more and more difficult. It's a problem with a novel solution in the shape of AI. Our SR Linux platforms are already allowing people to communicate with network elements in natural language, and that is helping bridge the generation gap. Of course, Nokia is not the only company that is using AI. According to McKinsey, technology based on generative AI will add more than 3 percentage points annually to global productivity growth. 2/3 of respondents to a survey by the consultancy said their company is regularly using the technology, AI. At the same time, as often happens with newly emerging technologies, there is a backlash underway. The recent stock market correction in U.S. stocks is just [indiscernible]. My team is largely unfazed by all this. Just as we don't get caught up in the hype, so we don't despair when the promised land turns out to be a little further away. Whether AI is a revolution or an evolution, it will certainly be the defining technology trend of the decade. Indeed, a new study by our colleagues at Nokia, Bell Labs, has found that AI will contribute a 1/4 of all 1 traffic by 2030. This is growing to almost 600 exabytes a month. Increasing use of artificial intelligence tools drives an increase in the need for compute, in turn creating pressure in data centers. And it is in the area of data center that is connectivity to and from the data center and connectivity inside the data center itself that we see the biggest opportunity for growth. Success in this market, of course, means succeeding with the large webscale companies who are becoming the most significant new network builders. But we also see considerable opportunity for our traditional CSP customers in selling to and partnering with webscalers, and we are actively participating with them on opportunities to do so, for example. ION in the Middle East chose to go with Nokia's interconnect solution to provide FP5 based activity services to hyperscalers. Meanwhile, Telecom Malaysia has chosen to use our optical network solutions to cope with hyperscalers' connectivity demands. These deals are good examples of how telco operators will respond to the future and of the importance of innovation and performance to our entire ecosystem. The 2 major strategic moves we announced at the end of Q2, both contribute strongly to our future ambition. The planned divestment of ASN helps to create increased focus in our 3 core businesses, while giving our Submarine Networks business a secure future. The sale of the business will decrease our revenue temporarily but will boost our margins. And that will give us more scope for investment. When it comes to our proposed acquisition of Infinera, the deal is highly complementary from a geographic viewpoint. And Infinera's customer base in the U.S. is balanced by our strength in APAC, Europe, Middle East and Africa and Latin America. The acquisition also strengthened our relations with Webscale as well as boosting our focus on the optical data center interconnect market. It is too early to discuss the future shape of the combined portfolio, but conversations my team and I have had with customers, including major hyperscalers have been really positive. They are excited about the scale and reach of the deal and what it would bring to the combined organization. James will say much more about this in his presentation. The proposed Infinera acquisition is focused on increasing scale in our optical business, but we are leveraging the full Network Infrastructure portfolio to meet the needs of the new network builders in our IP network business or solution in IP data center networking and data center fabric, combining advanced technology with customer-focused functionality. Our data center networking solution includes the 7750 service router, which we launched almost a year ago as well as the existing 7250 IXR services. The 7750 is based on FP5 chipsets to provide the industry's first 800-gig DC network solution, supporting ever-increasing data center connectivity growth. Our intra-data center switching fabric includes next-generation data center switches based on the SR Linux network operating system, providing an open, automated and reliable system. Vach will talk much more later about the IP network business, including a trailer for some upcoming developments. We have also signed deals and agreements, some public and some confidential, with customers, including Tencent Cloud, targeting enterprise customers in APAC, Equinix, which chose us for both inter data center and intra data center connectivity solution and others in several geographies. We have also won the technical phase in some important bits and landed frame contracts with customer groups, including hyperscale, webscale and enterprise customers in the research and educational network and healthcare sectors. Indeed, data center networking is one of the most important growth engines for Network Infrastructures enterprise segment. In this, as in other areas, partners play a strong role in our plans. I am delighted that [indiscernible], one of the world's largest global system integrators has adopted our data center networking portfolio to support its Fortune 1,000 customer base. We are steering this partnership through our enterprise and partner success team, which was formed just at the beginning of the year. The team is making great progress building on the double-digit CAGR delivered by Network Infrastructure and Enterprise growth in recent years. Our strategy is to focus on mission-critical networks for transportation, energy and public sectors among other market segments. We also see opportunities to partner with CSPs, tower companies, fiber companies and others to expand into the digital infrastructure and network neutral host areas. Recent analysis, assessment of 2024 in some respect make for gloomy reading. We are by no means discouraged by this. Rather, we are focused on the long term. Dell'Oro's forecast for the global optical market between '24 and '28 is 6% higher than the previous 5-year period. The analysts further states that the total router market will grow at a CAGR of 1% over the same period, while the enterprise portion is likely to grow at 2%. But what is more, in the Ethernet switching for data center market, Dell'Oro predicts a CAGR of 7% in the 5 years from '24, with modest growth in the near term, starting to accelerate in '27. It seems that the industry overall is to some extent writing off 2024, but confidence in the future is really strong. The next wave is coming, and we believe that it will arrive just as we are closing our proposed deal with Infinera, of course, subject to relevant approvals. In short, the last 15 months have been challenging, a picture that will remain valid for the rest of this year. However, our teams are focused on maintaining momentum, particularly in order intake for the rest of this year and on preparing for the future. This is a transitionary year for Network Infrastructure, one in which we are taking strategic steps to ensure that we are well placed to take advantage of the predicted upcoming investment wave. Thank you. And now I'd like to give the virtual floor to Sandy Motley, who leads our fixed network business. Sandy, over to you.

Thank you, and hello to everyone, and thank you for the opportunity to share some of the specifics of Nokia's Fixed Networks business. We're here to talk about broadband for the future now. And this really means 2 things. First, we're expanding access and bringing broadband to more people than ever before. And secondly, we're not just delivering broadband, we're also introducing a future-proof technology that will last for decades and will meet the needs of generations to come. Fixed Networks in Nokia is the undisputed leader in the fiber industry, and this leadership is a position that we've held for many years. First, our leadership is validated by industry analysts such as Dell'Oro, who has ranked us as the #1 provider in XGS-PON market for 5 consecutive years. Secondly, our extensive customer base is also a testament to our success. We serve over 400 customers globally, and that includes 50 of the world's largest cable operators. And now more than ever, we're also bringing in small AltNets and non-Tier 1 operators across many countries. And these relationships are certainly an example of the trust and the value that we bring to the market. And finally, our technology and our offerings in this segment are not only cutting edge, but they're also uniquely tailored to meet the specific needs and business cases of our customers. We provide the full portfolio of 10 gig, 25 gig, 50 gig and 100 gig GPON technologies, so we have the right solutions for our customers that drive their operational efficiency as well as their business growth. Before we dive into some of the market numbers, let's briefly cover how fiber-to-the-home market is defined some of the technologies and the investment life cycle. For fiber-to-the-home, PON is the most widely deployed technology and that is passive optical networks. More than 95% of deployments around the world use that technology. And it's a point-to-multipoint technology from the customer's central office where the fiber access node or the OLT resides and the fiber begins its journey in this network. Typically, it's a 1 to 64 split, so 64 homes can be connected to that one fiber. Then the in-home product is connected to the network, and that is a fiber modem, which is the ONT and that also provides Wi-Fi for distributing the signal throughout the home. From a life cycle perspective, fiber will last for 100 years or maybe more. Once you invest in fiber, the upgrades can become very simple. There's no equipment in the middle of the network, the equipment resides on both ends. So as the technology advances, you can upgrade the speed easily. Installing the fiber cables is the most capital-intensive phase of deployment. This requires significant upfront investment and around 90% of the total cost is in this process. These costs include fiber optic cables, labor, permits, construction equipment, et cetera. The remaining 10% of the investment is in the active equipment, the OLTs and ONTs and some smaller associated products. So when it's time for an upgrade, the fiber remains can remain untouched. Essentially, you spend a similar amount of money then about every 5 to 10 years to upgrade as the technology advances. And as the market leader in fiber, we have a huge installed base. So if you look to the right side of the slide, we have deployed approximately 12 million OLT ports in the field. And remember, each one of these ports can connect to 64 homes. We began deploying with GPON back in 2007, and now the next wave of technology is starting to gain momentum, which is noted by the pink line. Today, we have about 3 million XGS-PON ports in the field. So there's still significant potential ahead of us for upgrading the rest of the installed base. You can also see that there's a third wave that's emerging on this chart. Normally, it would have taken a bit longer to move to the next-generation technology. But because we have invested in our chipset to combine both the 10-gig and 25-gig PON solutions in that single product, we already have 25-gig PON ready ports in the field, and operators are beginning to activate this 25-gig PON service, but we're definitely in the early adoption phase. And there's one last point I'd like to highlight before we move off this chart, something that's not shown on the graph. Our installed base certainly can support much more than 12 million ports that we have shipped, and this is because our shelves and our cabinets are only about 60% full. So over time, another growth area for us is we expect operators to completely fill their cabinets and we will see card sales as a result. So there's still plenty of opportunity ahead in terms of these upgrades. So on the next slide, I'd like to talk a little bit about where we are in the market in terms of deployments and then also upgrades with those networks. So as of December 2023, 42% of the homes are yet to be passed with fiber infrastructure, and 71% of the homes have yet to be connected to that network. So this certainly highlights the significant potential for continued network investments. The chart in the middle highlights upgrade opportunities. In 2023, XGS-PON shipments represented only about 40% of Nokia's total PON shipments. So again, growing adoption and advanced technology are happening and are real. And then if we look towards the right of the chart, among our installed base, about 12% of our customers are XGS-PON ready with the infrastructure in place to support the technology and then about 32% are already transitioning to XGS-PON. So this means that almost 45% of our installed base is either transitioning or is already using XGS-PON. So clearly, this demonstrates the upgrade is a real wave is something that we're absolutely seeing and it signals to all customers that in order to remain competitive, they too will need to move to this next upgrade technology. Nokia is the only vendor that supports all PON technology options. We see that different operators have different needs, and therefore, we provide a full portfolio of solutions unlike other vendors who might push a customer to one specific technology or another. XGS-PON and 25-gig PON are available today and will satisfy the market for many years to come. But for services that require greater than 20 gigabits per second, 50 gig or even 100-gig PON will be available. We're a key contributor to the standards and focusing on 50 gig. We have already brought to the market the first true 50-gig and a 100-gig PON platform, our MF-14, and now we're trialing 50-gig PON. The commercial product will be available in the second half of 2025, where 100-gig PON is currently in the technology proof-of-concept phase. We're evaluating different approaches with Bell Labs as well as with our customers, and we expect to deploy that product around 2030. So it is important to have all of these technology options so that we could enable operators to compete better and to meet their business needs based on their own customer sets but also based on their existing networks. Two recent announcements really illustrate this well. First, it's with Google Fiber. They are deploying 10 gig and 25 gig, and they're evaluating 50 gig, while Frontier plans to also deploy 10 gig and 25 gig, but their next step will be to the 100-gig PON technology. Our leadership in fiber not only is around opportunities for connecting homes and for upgrades, but also it leads to other adjacent opportunities in adjacent markets. And first, I'll start with cable. So our fiber solutions are being deployed with cable operators and they're just beginning, to a large extent, their transitions. For example, in March, we announced with Service Electric, a leading operator in Pennsylvania, that they're using Nokia industry-leading broadband equipment to support a multi-gig service for their customers. And then more recently, Home Plus, a cable operator in Taiwan, is deploying our 25-gig PON solution, making it the fastest fiber network in that region. Next on our journey of opportunities is rural broadband and government-funded programs. And this is probably the second major opportunity that we have, and it's around rural broadband but also nontraditional operators and partly driven by government funding. The BEAD program, and I'll talk more about that in the next slide, is certainly critical for the U.S. but it's just one part of the broader rural broadband initiative. There's only about 50% of the U.S. homes are in urban areas, and then there's 50% that are a bit more challenging in order to provide the connections. And this market is evolving with different investment models emerging and smaller operators will indeed be supplying this rural service. And we see about 3,000 of those operators in the U.S. And as a result, we have intensified our focus on this segment. We certainly still support Tier 1s in a very significant way, but we also see that rural providers are important. And as a result, our primary go-to-market initiatives will be with our partners in support of this program. And our recent partnership with KGP is an example of our commitment to that and our commitment to rural operators in North America. But there are also government opportunities and programs around the world. We have been successful with alternate network providers, AltNets, for example, in Europe, but also neutral hosts around the world. And these new kinds of operators certainly challenge the established players, delivering ultrafast fiber broadband to the home. And our next journey on our fiber thread here is in-home connectivity and the opportunities that this service provides. So as operators increase their investment in multi-gig networks, it's really essential that, that capacity is available throughout the home. And that's why we've invested in Wi-Fi solutions and operator managed Wi-Fi. It enables operators to control, to optimize and to troubleshoot their networks to ensure the best user experience at the lowest cost. And of course, enterprise opportunities and enterprise solutions are also key here. The same fiber solutions used in the home can also be applied in enterprise settings based on the capabilities and the latency that exists now in these fiber networks. And this includes campuses and office buildings through something that we call optical land. This morning, we announced a partnership with Ruckus Networks, and we're offering an integrated fiber and Wi-Fi solution to deliver broadband within multiple dwelling units, offices, large venues, medical facilities and other enterprise segments. Fixed wireless access, as Federico had shared, also complements fiber in areas where fiber deployment just isn't feasible. But it also allows fiber operators to quickly provide broadband to their customers with this wireless solution as they start to build out their fiber networks because that does take time. And then, of course, mobile operators can compete with fixed wireless access using their existing mobile networks to generate new revenues from fixed broadband. And of course, Nokia can offer both fiber as well as fixed wireless access solutions, again, a complete portfolio, for our customers. And then the last segment, Jason's segment to speak to, is the development of new business models. For example, our customer fiber time in South Africa is successfully using fiber to connect townships. They're using existing solutions in combination with a unique micro payment model that's based on fiber minutes. And this was developed specifically for these kinds of informal economies and townships. And it proves that our fiber-to-the-home solutions work even in low ARPU areas. So there's many opportunities ahead for our fiber solutions, not only connectivity and not only upgrades. So let me jump and talk a little bit about the BEAD program. We've been hearing about it for over a year now, and now it's really finally becoming a reality. The program was launched in August of 2022, and the first year was really dedicated to the government and states identifying the eligible properties for this funding. And this was known as the volume 1 phase, where each state was managing that individually with the government entities. Volume 2 is the state-specific phase, and this is where the states are putting together their very specific plans with how they will administer the program and how they will allocate funds and approval of these plans has been accelerating where 39 out of the 56 states and territories have now received approval from the U.S. government to proceed. And as this approval is put in place, that starts the clock ticking where they have to have a final program in place in 1 year's time. And the most exciting development is that some of the states are actually moving into the grant window and that means that they could allow applicants to apply for this BEAD funding. And Louisiana is the first to do so. And you could see on this chart on the right, the specific schedule and expectations for Louisiana in this space. And we've already seen some potential applicants look to partner with Nokia, and we have over 150 companies that have expressed interest in working with us. So we expect to have a very busy time over the next months and years related to the BEAD program. And the last slide that I'll speak to is some recent public successes. As I've mentioned, we've got a strong customer base with a lot of references across our portfolio, whether it be fiber or access control or fixed wireless access; we have open access solutions, Wi-Fi, home controllers and now very clearly digital campuses. We've been expanding in the cable area, as I mentioned, with Home Plus and Service Electric. But also in the U.S., we have a few other programs to announce. This morning, specifically, we have an exclusive multiyear market share agreement for fiber access with AT&T. This deal covers 100% of their OLT business through 2029, including the BEAD projects that AT&T will be involved with. And it's a commitment for them to also operationalize our MF OLT platform with Altiplano. So we've locked in the entire market for several years. Another significant win for us is Google Fiber, another key reference as well. We've announced a 50-gig PON technology trial on top of our previously announced 25-gig PON deployment. In Oceana, NBN has chosen Nokia to deploy its latest MF series optical line terminals with the Altiplano access controller, and this is across their NBN network. Then in India, we have business for well over 1 million units, each of fixed wireless access and our beacons as well as 700,000 ONT units with a particular Tier 1 operator. We have 100% market share with them for fixed wireless access and for Wi-Fi 6 and about 50% of their ONT business. In Singapore, Singtel has become the first fixed broadband service provider globally to implement the international broadband forum standard for Wi-Fi management, and that's the TR-369 technology. This adoption along with our Corteca Home Controller allows them to efficiently manage multi-vendor home broadband customer solutions and accelerate their rollout of Wi-Fi 10-gig broadband services and more. Over the past year, as I've shared, we've expanded our portfolio of fiber and in-home solutions, but we've also broadened our customer base. We've added 76 new logos, 4 neutral hosts, 13 MSOs, 17 CSPs and 42 enterprise customers. So as we look ahead, the opportunities really are vast. And with our continued innovation and partnership, we certainly look to remain #1 in this segment. We're not just building networks, we are a technology leader and we are defining the access market. So with that, I will now hand it over to Vach Kompella, who leads the IP Networks business division. Thank you.

Thank you, Sandy. Hi, everyone, and thank you for attending this session. My name is Vach Kompella, I head the IP Networks division in the Network Infrastructure Business Group. I've been with the company since the start-up days in 2001 and have been leading IP networks for the past 3.5 years. Let me start by giving you a brief statement about IP Networks. Our core business is delivering IP routing and switching products to service providers and to certain enterprise verticals that require mission-critical systems. Think about it. Given our presence in all the top-tier service providers in residential and business service routers, in mobile backhaul networks and Internet exchange carriers, we have estimated that close to every packet in the world passes through a Nokia router. In 2023, we did about EUR 2.6 billion in revenue, coming off of record years in both 2021 and 2022. However, like for most in the industry, 2023 was a tough year. We see signs of improvement, which began in Q4 of 2023 as well as for year-to-date and full year of 2024 with orders and pipeline improvements. However, we believe that the real turnaround will come towards the end of 2024 and into 2025. We continue to lead the market for the fourth year in a row in edge routing. Edge routing is about 70% of the total routing business. As a quick refresher, edge routing is everything in routing except the core. In other words, it's aggregation networks, mobile backhaul networks, residential and business service networks, internet gateways and more recently, some classes of data center switches and gateways. We also maintain our #2 position in overall routing to exclude the China market. We continue to maintain our focus in providing best-in-class service provider equipment as we grow market share in the CSP business. At the same time, we want to continue to expand our coverage of the core enterprise verticals we operate in, that is utilities, transportation, government agencies and so on while growing in new verticals, and we are positioned to target multiple use cases in the webscale space starting with hyperscalers, but looking at all the companies that offer infrastructure as a service. Our portfolio of products includes systems using our proprietary network processors as well as merchant silicon from Broadcom and others. Two distinctions that we hold that have helped us to rise to this leadership position have been our innovation and our quality. Today, our routers that use Nokia's FP5 network processor deliver the lowest power per gigabit, highly sophisticated quality of service and the highest scale and performance in the class of service provider routers. We are the first to support 800-gig Ethernet in the industry and the FP5 can even support 1.6 terabits per second whenever the optics are available. On top of that, we deliver line rate security that is quantum safe. On the software front, we continue to make great progress in expanding SR Linux to support our ambitions in all domains. It is a modern and open network operating system, or NOS, that has been designed for highly automated world of the future, with near real-time streaming telemetry with APIs to access all provisioning and management functions. All the key applications are battle tested as they are derived from the rock solid work that we have done with SR OS, the NOS that we have been delivering to our customers for the past 20 years. And we have just released EDA or event-driven automation, the most flexible automation platform for the data center and beyond, preparing us for scaling DC fabrics with 0 error. EDA brings to networking, what Kubernetes brings to cloud storage and compute management. As you all know, Kubernetes is the automation engine that powers GCP, Azure, AWS and a whole host of other cloud environments. Coupled with these industry firsts is our enduring quality. For 20 years, we've been selling into the service provider space and have never caused a massive outage, for example, like the one we saw last year in Canada or in Australia and even in the U.S. earlier this year. Our routers connect the majority of large power grid systems in North America and Europe, rail signaling networks, air traffic control networks and so on. When I spoke to you last year, I emphasized that we are extremely focused on maintaining our lead in service providers while driving diversity in our customer base. On the CSP side, I said we would do at or slightly better than the market rate of growth with service providers. What is critical in this profitable but low growth area is to capitalize on slips made by competitors to gain market share. While I'm not at liberty yet to show you the customers we have won over the past 4 years, it's notable that many of these accounts were not Nokia house accounts prior to 2022. In other words, our product differentiation is amplified by either mistakes or strategic withdrawals by competitors as they try to navigate the service provider waters. Take the BNG, the broadband network gateway. This is where your residential broadband service meets the Internet. Nokia is arguably the leading vendor in this space, right, when 2 phenomena are taking place. First, government-funded broadband programs like BEAD in the U.S. And secondly, the growth of fixed wireless access as a way to monetize 5G. Here, the security and sophisticated quality of service, coupled with quantum safe network, has sealed our position. On top of that, we are the only vendor that can provide a single BNG to support both fixed access and fixed wireless access, lowering the cost of ownership dramatically. It is no wonder we are winning more broadband deals and see a bright future in the coming years or consider the Internet exchange providers who have traditionally made it their business to connect CSB networks. As the growth of subsea cable proliferates, the IXPs have found themselves in the enviable position of connecting these massive optical capacities from the landing stations to the terrestrial networks. They require a path to 800-gig Ethernet, quantum safe networks, and they would like to mitigate DDoS attacks on their networks. These are all key features of our routers and sadly lacking in competitors' products. The IXPs are a close-knit community, and when one finds good success, they share their findings. The IXP community has been largely a competitor's stronghold. But I would like to say that we have cracked that wide open. We now have 7 of the top 10 IXPs in the world, and we continue to add to our customer base. I would like to reiterate that we see our strength in the CSP space that is continuing to drive our business. We will capitalize on our product differentiators and our competitors' missteps. And we recognize that geopolitics may be in our favor in some regions and against us in others. Again, we expect to grow at or a little faster than the market while admitting that this segment is a flattish one. The second focal point for us was expanding our footprint in our traditional enterprise business, the OT, or operational technology networks. For example, the networks that utility companies build to connect their substations. I said last year that we would have a strong 10% growth in this segment. Prior to 2023, we had uneven success in utilities, transportation and government agencies. So the first order of business was to ensure that we drove our success in these areas consistently across all geographies, and I'm happy to say we are succeeding. Again, reliability is a key factor as well as diversity of interfaces that we support and longevity of products in these mission-critical but very conservative industries. On top of that, we want to expand into more verticals that appreciate the robust high-performance systems that we build. National research and education networks, or NRENs, became a target. As you can see, we're beginning to make inroads in this space. I'll comment on one of these, ESnet, the largest backbone network run by the U.S. Department of Energy, connecting all the major research facilities together. Not only did we win ESnet and replace the incumbent, we impressed them so much that they have volunteered to introduce us to other NRENs in the world. This is how we were able to get into and win CANARIE in Canada, [indiscernible] in Europe and several others. We see a huge growth opportunity in this area that we did not play in prior to 2023. 800-gig Ethernet, quantum safe networking and our reliability have been key differentiators in winning these deals. I continue to expect great things from the enterprise mission-critical verticals and look forward to continuing to post north of 10% growth as we drive new products into the market next year and expand into more verticals. Finally, our third area of diversification is in the data center world. Last year, I said we would hyper grow in this space. Many of the deals we are winning here are a confirmation to us that we know what we're doing, even as we catch up with the impressive presence that our competition has established. As of this moment, we're deep in pilot trials with 3 hyperscalers and getting good recognition for our capabilities with others. We're working on our indirect go-to-market programs. And as Federico has mentioned, we have established partnerships with Kyndryl and Lenovo and are continuing to grow our global presence through partners. Various estimates put the TAM for this market at about EUR 20 billion, and it's certainly a great opportunity for expansion for our business. But to tell you more about this exciting world of hyperscalers and data center operators, infracos and colos and enterprises that are building out their own private data centers, let me introduce you to Mike Bushong, VP of all things data center and IP networks and formerly GM for data centers at Juniper. Mike?

Thanks, Vach. Hello, everyone. My name is Mike Bushong. And as Vach mentioned, I'm a data center guy, most recently having been the GM with Juniper's data center business. I want to spend the next few minutes building on the baseline that Vach set up. Let me start with just some data center basics. Vach talked a bit about the market, the takeaway there. Big market, good growth, plenty of headroom to grow for Nokia. Now that's the starting point. The foundational question I want to answer today is pretty simple. Does Nokia have unusual permission to play in the data center market? Essentially, if we build it, will they come. Now to answer that question, I want to frame this up around changes. There's changes in the competitive arena, changes in how people evaluate and purchase networking solutions, changes in technology. And as I walk through this, keep one thing in mind, if even one of these conditions was true, that alone would be enough to create an insertion opportunity for Nokia. That all of these are happening at more or less at the same time, that's why I'm bullish about our data center prospects. Okay. So let's start with competitive perspective. To understand what's happening competitively, we got to start with customers. If you ask anyone who builds and operates a data center, what they want. They're going to say 3 things. It just works, it's easy, it's affordable. That's it. That's actually what people want. Now what does it tell us about the current state of the data center switching market that the #1 criteria for purchase is, it just works. It tells you that the current suppliers are struggling to do the basics. I want to show you a slide that one of our competitors has made famous. So this slide builds on an idea that Arista has used to litigate the case for product quality being the most important factor to consider in data center switching. This chart shows the total CVEs by major vendor. For the uninitiated, CVE is a customer vulnerability exposure. Basically, a security issue that's reported according to NIST disclosure guidelines. Now that's a government agency that's part of the U.S. Department of Commerce. Think of this chart as showing the number of customer vulnerabilities in the networking space by supplier. Now I want to be clear, CVEs are not a direct measure of the software and hardware bugs. Not every bug, for instance, is a CVE. But if you were to review the actual list of CVEs that sits behind these numbers, you'd conclude that every CVE is indeed a bug. So while it's not a perfect measure of quality, it's a reasonable proxy for what's going on in our market. Okay. So what do we notice? The incumbents, they've lost the plot. And we aren't talking about some small difference in performance. Arista has a 13x advantage over Cisco and a whopping 20x advantage over Juniper. There's no surprise they're taking share in the market that just wants things to work. So where does Nokia stack up in all this? We have our own 42x advantage over Cisco and a ridiculous 66x edge over Juniper. The punchline, and I want to be really explicit here. There's only 2 credible suppliers of quality data center solutions in the market. Now is that enough to change how people are buying? Let's take a look at market share. So what does this chart show us? Our industry's incumbents lost almost 12 points of share since 2019. This is actually remarkable. In a market where things like costs are important, remember, it makes the top 3 list of things buyers care about. There's incredible incumbent advantage because the switching cost to swap out one supplier for another typically enough to hold an account. And while it's natural to see some customer churn, what we're seeing in the data center switching space, this is like once in a generation. And that's before you consider the impacts of product life cycle. Think about this. Cisco, they're in the midst of a significant product transition, from Nexus to Catalyst, from ACI to NDFC. And as these products reach EOL, it creates a moment for customers to consider. Do I stay with my incumbent supplier? Or do I look elsewhere? Now I've been on the road visiting customers globally for all but literally 2 weeks since I joined mid-January this year. Our account teams, they walk me into all kinds of places. And yes, I've walked into Cisco shops with the account manager basically briefed me with, guys with Cisco tattoo, good luck. Shops that were 90% single vendor a few years ago are actively flipping the balance. It's like 90-10, becomes 70-30, becomes 50-50. So who's going to take advantage of that? Now since I just came over from Juniper, let me quickly cover what's going on there. The CVE chart speaks for itself. But obviously, they're working through the portfolio and channel conflict associated with the HPE acquisition. And regardless of what anyone thinks about their collective ability to execute. Having to reconcile some of that in the core of their focus markets is creating uncertainty. We're already seeing channel partners lining up because they see the same thing we do. Market share changing hands. And these conditions, they wait for no one. They're actively bringing us deals because we're a simpler data center solution with way less uncertainty. Okay. So that leaves Arista. Let's be honest, right? They're the unquestionable market leader right now. They've absolutely been on a tear with a combination of cloud titans success and incumbent fatigue, but the market fundamentally wants a strong second supplier for data center Ethernet. And look at how they've won, quality in software, the same things we do. If there's one thing the supply chain crunch did for everyone. It's put a little fear into sole-sourcing everything. Now as I mentioned earlier, changes like this in the competitive landscape are enough to create a meaningful growth vector. But all of this is happening at the same time that there's a wholesale shift in buying behavior. Look, it's impossible to ignore the fact that our industry is built on the backs of hard-working network engineers, and there was never a hotter recruitment period for network engineers in the late '90s. Those network engineers now. We're an aging lot, and as we move on from our network engineering careers, we need to develop some hypotheses about the bumper crop of next-generation networkers. Are they going to come out of university with networking degrees and vendor certifications, or are they more likely to be well versed in all things cloud and familiar with an entirely different ecosystem of tools and techniques? Importantly, as this group takes their positions in the workforce, it changes the dominant user interface for our industry. And that's going to loosen what's been an incumbent strangle hold on the workforce. And we already see it. While Cisco is dominant in the enterprise, they're decidedly less so in the hyperscalers and SaaS companies that were born in the cloud. So how do we attack if quality is the ticket to ride operations is the reason to stay. And in the management space, we've developed an operations platform that takes data center networking from configuration-oriented to model driven. It's repeatable. It's fast. It doesn't require certification to use. It's built around Kubernetes. So it's familiar to the next-gen networker. And it's multi-vendor, which gives us an insertion into non-Nokia environments. And by automating workflows, we create a bridge from legacy environments to cloud. We're more than a data center management tool where the operations boost for anyone who's tried and suffered for decades to automate. Okay. So we have changes in the vendor space and changes in the workforce, but you can't ignore the effects of technology. Look, AI is doing 2 things. It's driving a wave of architectural evolution that favors the new over the old, and it's diverting spend. So how do we participate? If you thought network reliability was important for normal applications running on standard servers, imagine shelling out billions in GPUs and then watching it all sit idle because of a bug. It just works is even more important here. And frankly, if you can't make the standard stuff work, you're not going to get permission to try with the heavy stuff. Our portfolio, it's based on Broadcom silicon. So as Ethernet picks up in these clusters, everyone is going to want a couple of different paths to get there. We're in a good spot to carve out a second supplier position. And that's before you consider our pluggable optics, which make up like half of the total deal size in these large clusters. Having a complete solution, and that includes the WAN side, by the way, that gives us some really powerful levers to pull as we compete. But I don't want people to think that AI is the only technology working its way to the data center. AI ops, Kubernetes, multi-cloud; these all have a role to play in our industry's ambition to be more automated. The operations platform I referenced earlier, that's the path. We've already integrated telemetry and workflow and the migration to multi-domain, multi-data center, multi-cloud, it's already accounted for. Now I just wrapped the technology discussion with a single sentence. Anything that resets the playing field is going to bring a lot of opportunities into play. And speaking from a little bit of experience, I'd be shocked if new considerations are going to yield old answers. Okay. So let's finish this up. Basically, should you believe everything I just said. Here's a few things to know. Vach already mentioned our traction in the hyperscalers. That's a good place to start from, especially if there's a technology wave that's rolling through. We've got wins in Tier 1 SaaS, Tier 1 Finserv, top-tier healthcare, the top colocation companies. We've seen wins in GPU as a service use cases. We're on pace to more than double our win total from last year already. And that's before you include increased go-to-market investment. We've been adding non-CSP salespeople with data center experience that should only fuel the fire. We've already mentioned our progress with Kyndryl, Lenovo, and that's in addition to other ongoing engagements in the integrator space. I talked a bit about channel earlier. We've more than doubled our data center partners this year over last in just the first half of the year. Now again, if even one of these industry changes was happening, I'd be bullish on our chances. Having all 3 happen coincidentally, candidly, we couldn't fully predict how favorable the conditions have become for us. Incumbent fatigue was already setting in, which, frankly speaking, provided enough opportunity to give us a little institutional courage. But the share loss, the product DOLs, the quality problems, the supply shock, the HPE acquisition, the massive AI opportunity; it's just been one for two. It is turn after another. There have been 2 really great times to enter the networking market before now, just before the dotcom era and at the inception of cloud. When we look back a decade from now, we'll identify this period we're in now, the pre-AI era, as the third. And while a lot of the attention will indeed be on AI, let's not forget that there's a $20 billion market that's begging for a credible second supplier. That gap is our opportunity. And if the traction over the last year is any indication, we're sitting on a winter. Vach, back to you.

Thank you, Mike, for sharing our data center vision. As you can see, we have exciting things planned for IP networks in both our traditional CSP and enterprise spaces as well as in the burgeoning new area of data centers. And now without further ado, I'll hand the baton off to James Watt, who leads the Optical Networks division. James?

Thanks, Vach. Good afternoon, everyone. My racks today will first cover our organic Optical Networks business, and then I'll comment on the planned acquisition of Infinera. Let me start with an overview of the business. Last year, we had a record performance with almost EUR 12 billion in sales and a strong operating profit. As an aside, as is typical, this is a year later than what Vach mentioned for IP. We're the global leader in terms of the breadth of portfolio we have and our global reach with that portfolio. No other vendor matches Nokia and its ability to deliver Optical Network solutions around the world. To that point, 6 of the 7 markets we serve worldwide are represented in our top 10 customers. Speaking of customers, tourism market share, we're #1 in Europe, rest of APAC and India and #2 in EMEA and Latin America. We're fast approaching 1 million coherent port ship lifetime to date and well over 1,000 customers of which almost 1/3 use our switching platforms to aggregate traffic and/or deliver services. Despite all this, 2024 will not be another record year given the industry-wide challenges that we've all seen. We are seeing increasing strength in orders and that, taken with the trends mentioned by Sandy and Vach and combined with the increased traction momentum will derive from our improved differentiation, the trend will shift as we move through '24 and '25. You heard Federico comment on many of the emerging market trends. With Optical Networks being the foundation of all communications infrastructure, those trends translate into real-world needs for and drive the evolution of Optical Networks. Our customers look to Nokia to enable scaling across the full range of their optical network applications. Starting from the customer side, first, they see the need to transform their access or edge to support the move from 10 gig to 100 gig and beyond using innovative, compact, low-cost and low-power coherent pluggables such as Nokia's 100-gig ZR to address the coming increase in residential broadband capacity mentioned earlier by Sandy. On the business services side, the continued shift to the cloud drives the need for significant capacity increases. Similarly, in the metro as well as data center interconnect, customers are seeking to employ at least 400 gig and even greater capacity if possible with the demand for data center interconnect driven by the continued growth in cloud services, whether public, private or otherwise. As that data moves into the core of their network, our customers are looking to deploy 800-gig wavelengths across multiple thousands of kilometers to achieve the lowest cost, and it goes without saying that our customers' core networks connect with the subsea cables enveloping the globe. The need for bandwidth in the parts of the optical network is further amplified by the effects of AI with optical technologies being the key way to deal with the combined needs of massive capacity, extremely low latency and minimal power per bit moved. As we look at this picture across the entire network, it becomes clear that scaling needs to occur in 2 directions. Ever greater capacities, wavelength speeds and switch capacities for metro and core networks and equally important, scaling down towards the network engine access in the form of compact solutions such as [indiscernible] and compact pluggable coherent transponders. Given those pressures, what we need to deliver is all that is required to bring cost-effective high bandwidth, high flexibility connectivity throughout our customers' optical network. And simultaneously, we need to ensure that designing, deploying, operating and optimizing the network stays tractable for the customer despite the size and scope of the resulting network. We call this scale leasing [indiscernible] these 2 seemingly conflicting objective results in a long list of topics to address. I want to cover the 3 primary topics here and make sure they're clear. One, we need the transponders to get the traffic on the network with the capacity needed. Two, the photonic line needs to get that traffic where it needs to be. And finally, the network automation required to ensure operating the resulting network is [indiscernible]. To deliver the capacity needed by our customers, we have and continued to deliver ever more advanced coherent engines, delivering both embeddable and pluggable form factors and hosted a modular platforms [indiscernible] into our customer operating environments, both telecom and data center. As a result, we have a portfolio of coherent pluggables, which our customers can also host on other platforms. And we leverage our position next to the leading IP networking team in the world to deliver industry-leading IP optical management integration. Equally important for capacity and essential to get the right bandwidth in the right places in the network is the photonic line which has and continues to be an area of strength for Nokia. Here, we deliver integrated C+ L-band systems with open control and spectrum management features of the high end, but also elements suitable for the metro access and edge. To keep operations of these networks traceable, we deliver sophisticated software systems that leverage the latest software technologies, natural language processing, machine learning and other techniques to provide extractions that endure across the life cycle, close loop automation, even if semi-automating, and multi-vendor capabilities supporting the network, service set and end customers of our customers. The majority of our investment is focused on innovating in these areas in order to create sustainable differentiation. Let's look at some examples. The PSE-6s is the most recent example of Nokia's ongoing commitment to and execution on technological innovation in coherent optics. Every DSP generation we've launched in some way brings a unique set of capabilities to our customers. We introduced the first single[indiscernible] 100-gig coherent solution in the market and follow that up with the first high-gain SD-WAN solution. Starting with our third generation of coherent solutions, we were the first to introduce a dual-line application optimized family of coherent optics with a [indiscernible] coherent line on one side, focused on maximum capacity reach and the compact coherent optics optimized for pluggability and low power. We continued to introduce such innovations as probabilistic constellation shaping and continued down this path. Our compact coherent engines combine our in-house vertically integrated silicon photonics, optical front-end with a purpose built DSP to deliver the lowest power consumption and offer the most cost-effective pluggable solutions for metro regional applications. Back to PSE-6s. With PSE-6s, we delivered the next milestone in super coherent optics, enabling scale of 1.2 terabits per second per wavelength, unmatched reach of over 2,500 kilometers at 800 gig speeds and enables significant reductions in network level power consumption. And we've been shipping PSE-6s solutions since late last year. While the product teams did a fantastic job delivering the PSE-6s only 2 years after the PSE-5s, what has been even more gratifying is to see how our customers have made use of its capabilities. The public announcements, you no doubt have seen in the recent quarters, are testimony to the performance and promise this technology holds and its ability to enable our customers to differentiate the service to others. Our first mover advantage here means we'll win more than our fair share of business in this highly competitive market. The PSE-6s has allowed us to return to our habit of setting world records with at least 4 current records around the world. These include with Orange, we set the world record for subsea transmission of 800 gigs at over 6,600 kilometers, with Zayo, again 800 gigs over close to 1,900 kilometers terrestrially. In addition, we created a world record with Turk Telekom International for 800-gig over 2,300 kilometers on a real production terrestrial network. And along with China Unicom, we announced another world record of 800 gig over 3,000 kilometers, this time using large effective area fiber. So 6s has us in the lead on the transponder front. One of our key investments on the simplification side of our strategy, are the innovations underpinning our WaveSuite solution and how they help our customers optimize their networks, scale their networks and monetize their networks. WaveSuite enables our customers to adapt the dynamic unforecasted ever-growing demands of optical networks, given the drivers we saw before with comprehensive solutions for network design operations in [indiscernible]. It's a combination of an open programmable management platform, which makes it easy to automate network operations, integrate with orchestrators operations and systems and business support systems. A set of resource control capabilities that let our customers visualize network topology, support multi-vendor network integrations and a comprehensive platform of ready-to-use applications that help our customers introduce focused solutions to optimize scale and monetize their optical transfer. To show the value of WaveSuite, we worked with a research firm Analysys Mason. They interviewed existing WaveSuite customers to find out how they performed their network management service delivery in the past, how that changed with the introduction of WaveSuite automation and the economic impacts of those changes. The results were very compelling. Economic highlights included 81% OpEx savings for service order orchestration, just over 50% OpEx savings for network management and at almost 1/3 CapEx for savings, utilizing advanced network planning capabilities. And when we put this all together, what can we do. Tier 1 CSPs continue to be a very significant portion of our sales. We've been able to help several of these customers in recent years. Some of them are new to us. Others have been with us for a decade or more. These customers form the foundation of our success in the market and respond strongly to the kind of innovative solutions we bring to market. For example, in India, our innovations have translated into more than 50% market share. At Bharti Airtel, we're partnering with them to build a multi-terabit pan-India optical network to provide massive capacity to enterprises, operators and hyperscalers using our OTN technology for efficient aggregation, switching and high resiliency. While growth in the Tier 1 CSP segment is modest, we will continue to leverage the combination of our product strengths and ability to execute anywhere to grow. In a related but different market, we partnered with carrier neutrals in order to maximize their ability to monetize their network. They are often global providers of end-to-end digital infrastructure solutions for various operators, providers and webscalers, leveraging their large fiber optic networks to provide open, transparent and neutral access to cloud and Internet services. Here, our ability to provide high capacity, low latency and high resiliency solutions on one hand, enable them to better monetize those on the other are keys to our success. Security of communications is a hot topic and an example of our capabilities in this area is on to play at the service providers in South Korea and Singapore as they leverage Nokia's quantum safe networking technology to boost cyber defense for their enterprise customers. Earlier, Federico mentioned the proliferation of submarine cables. As we saw in collaboration of [indiscernible], the international arms of Orange France, we set a world record on the [indiscernible]. As an aside, the 800 gigabit per second we achieved on that cable is 8 billion times more capacity than the first transatlantic transmission by Marconi 122 years ago. Another example is the South Pacific cable running along the West Coast of South America. We're awarded lining this cable by Mexican service providers, seventh largest mobile operator network in the world. And in fact, they purchased the very first pair, PSE-6s-based solution, in all of Latin America to provide capacity in the scale as well as lining the subsea cables, where these cables land would benefit from the explosive growth in the adjacent market by partnering with terrestrial service providers to build digital bridges to straddle between subsea cables or to bring access to webscale platforms to local residents and enterprises. Overall, capacity and integration with the broader terrestrial network are key here. All those subsea cables and digital land bridges ultimately connect to data centers for cloud services. Our cloud customers are able to deliver fast, high-quality bandwidth services based on our solutions. The solutions they deploy ultimately enable them to supply colocation, hosting and cloud services, including GPU as a service and also allow them to transport AI traffic to and from training and inferencing workloads running on their platform. Again, capacity and our ability to deliver them are key differentiators. Away from the public telecom space, we continue to grow our enterprise sales in multiple vertical segments, including energy, transportation, public sector and research networks, just to name a few. We deliver these networks both by working directly with enterprise customers, but also through system integrators distributed in channels and our service provider customers who deliver private managed networks. Recently, this has been our fastest-growing segment, and we continue to see significant growth potential here. Our ability to deliver high reliability solutions across a wide range of platform capacities and Quantum Safe network are key elements of our success. A few examples. Terralpha, a subsidiary of SNCF. With them, we deployed an optical network connecting more than 150 points of presence over 20,000 kilometers of fiber along the railway lines in France. They could offer Ethernet services, up to 400 gig. In Austria, with [indiscernible], we're lighting up Nokia's optical solutions along its high-voltage transmission lines in order to provide 10, 25-gig and 100-gig mobile and front-haul transport services. Meanwhile, Netherlands surface getting ready to connect Amsterdam and Geneva using our PSE-6s technology in order to accelerate the massive data exchange between the certain particle extender and the Dutch National Institute for Subatomic Physics. Our global reach, combined with increasingly strong portfolio, has us well positioned to capitalize on the coming sources of traffic growth. I want to now spend a few minutes reiterating thinking behind the planned acquisition of Infinera. At a top level, the key drivers are threefold: scale, footprint and technology depth. First, scale. As you will have gathered from the comments above in our organic business, the world of optical networking is technology-intensive and requires continuous investments across a wide range of technologies. With the software and silicon, we see broadly across telecom, but also in more specialized topics like silicon photonics and even more specialized materials. Well, on one hand, as we just saw, these technologies can be deployed in many markets, the investment required to keep up with the demand of our customers and to do so in a way that has leading edge despite the large competitors in the market, is still significant. And this is normally exacerbated by the ever-increasing pressures on the optical network. The scale is essential to be able to both deliver what the customers need, when they need it and be able to generate a reasonable return on the investments made. If you then take our combined scale and put that against the optical market forecast, Nokia is well positioned to participate strongly in this growing market. Second, footprint. 2 businesses highly complementary, geographic footprints, as Federico mentioned. Nokia's strength in optical has historically been in Europe, Latin America, EMEA and Asia Pacific, as you can see on this slide, roughly 70% of our sales are in these areas. The U.S., while an area of focus, was still less than 20% of sales last year. Infinera, on the other hand, has a strong position in the webscale market and the U.S. market with this region making up over 60% of its sales. The combination significantly strengthens our presence in the optical market across regions and globally and noticeably broadens our exposure to the fast-growing webscale market. And finally from my side, I'm really excited about what the combination will enable us to do for our customers. The first thing I should say -- and this is in the DNA of Nokia, as we progress through this acquisition and the integration processes, we will look after customers and ensure they see as little disruption as possible. We've done it before in optical when we brought [indiscernible] together, and we are committed to doing it again this time. The combined business will have a very special mix of capabilities to deliver the best possible outcomes for our customers. A few examples. We'll have an expanded DSP team that will really help us accelerate our product road map. Separately, we've both been able to improve our competitive position in recent years. But together, this means we'll be able to make fewer trade-offs when allocating resources across competing development efforts and deliver broader and more complete [indiscernible] to our customers. This will be supported by our fundamental research within Bell Labs, ensuring we have access to real cutting-edge innovations in the optical and material science [indiscernible]. The combined team will also have a more complete technology capability across different material sciences used in optical and allowing greater vertical integration and an increase in our capabilities and pluggables and the offering towards intra data center applications. Finally, the integration capabilities will enhance our manufacturing capabilities with Infinera's U.S.-based fabrication and packaging expertise. Taken together, scale, footprint and increased technological depth will allow the combined organization to deliver greater innovation, accelerate our product road map, deliver customers a broader and more complete offering that we can deliver globally. And to do all that, while generating a respectable financial return. And with that, I'll hand it back to you, Federico.

Thank you to Sandy, Vach, Mike and James for their presentations and their dedication to drive its success for NI. Before we turn to the Q&A, let me just conclude with some of the points we hope you can take away from today. In fixed networks, we remain the market leader, and we see great opportunities ahead with a strong demand for fiber, government funding programs ramping up and operators upgrading to XGS and 25-gig PON. In IP Networks, we have demonstrated over past 2 decades, the quality of our products in CSPs routing and our investment has continued. Indeed, we even see opportunity to gain share. We are also building on this with good momentum in enterprise and webscale, something we are particularly excited about. And just in case you missed it, there are opportunities in data center for our IP networks as well as Optical Networks business. And finally, in Optical Networks, with the acquisition of Infinera, we believe we will be in the right place at the right time to increase our scale, accelerate our product road maps and strengthen our position for future growth drivers in webscale and artificial intelligent investment. By combining all these elements together, I believe NI has the potential to deliver mid-single-digit growth and improve our operating margin to a mid- to high teens level in the long term. Thank you very much. So David, let's start the Q&A.

Thank you, Federico. Thank you to the broader team for all your presentations. We will now move to the Q&A session. As a reminder, these events are intended to be focused on our products, technology and strategy rather than a financial update. And I would ask that you focus your questions towards our Network Infrastructure business. I would also just highlight those that are joined on to the webcast, you need to join the phone line, the chorus call dial-in, if you would like to ask a question. Operator, could you please give the instructions for the Q&A session?

[Operator Instructions] I will now hand the call back to Mr. David Mulholland.

Thanks, Drew. We'll take our first question today from Jakob Bluestone from BNP.

I had two questions, please. Firstly, on Mike's presentation around data centers. You talked a lot about some of the external factors that are providing an opportunity for Nokia to take more share. I'm interested in hearing what's changing in terms of -- what's changing internally. So are you making changes to your products? And I guess as a sort of fresh pair of eyes, what do you think was holding Nokia back in the past and what's changed to enable it in terms of its products to take more share down the road? And then just secondly, maybe we can have an update on the Infinera process itself. Can you maybe give an update on the regulatory side? Anything you can share around perhaps antitrust or any other issues so far?

Federico, maybe you can start.

I will start with the second, which is easier. And then on the first, I will give my view, and then I will pass to Vach or Mike. So Infinera, we are going through the process of regulatory approvals. We are following all the steps that are needed. As we announced some months back, this is going to take somewhere between 9 to 12 months. And we expect closure by first half next year. Nothing new to report. I mean, we're going through the process without any -- nothing to report. On the data center, it's not that something has been holding us back. No. We were the new entrants 2, 3, 4 years ago, and we started to enter into the data center market base banking on quality on our technology. We started to win. But in this market, one of the important things to realize is that, especially when you are a new entrant, you have to develop from scratch and you have to develop tailored to your customers in the hyperscaler space. Now we have been gaining momentum, and we feel really confident that we have a very good product from a quality and technical viewpoint with SR Linux and the management system. But I will let Vach and Mike to elaborate a little bit more.

Thanks, Federico. Yes. Just a follow-up on what Federico said. We have been in this space. We started developing SR Linux about 5 years ago. So it's not something new in terms of the process of engaging with data center opportunities. It's just that the set of features that are required in the data center are somewhat different, and they evolve much faster. So the question of how we prepare ourselves for the data center space is really to build the right type of infrastructure, the right type of products. And I believe that SR Linux serves us in good stead because if it's much more flexible and open architecture, because of some of the recent progress we've made in data center fabrics and a much -- again, much more flexible management platform for data centers with EDA. I believe that these are all things that are helping us to gain share. The process of entering a new market also takes time because you have to not only insert yourself at the right point, as Mike was talking about, there are opportunities for insertion now, but also in terms of familiarity of customers with our products -- if you talk to service providers, they're very well versed in our product portfolio. But when you talk to enterprises on the IT side, on the data center side, not quite so familiar. So we're building more credibility in that space, engaging partners. So there's a whole process that goes on behind this. And I think we've been -- we've shared what we're doing in this space.

We'll take our next question from Simon Leopold from Raymond James.

I wanted to see if we could unpack a little bit on this concept that Federico talked about, about clean networks and sort of the geopolitical aspects. It seems as if a lot of the press coverage focuses on mobile. And given today we're focused on network infrastructure, I wanted to see if you could step back and help us understand how you're sizing these particular geopolitical opportunities for network infrastructure and where we stand today.

Okay. So we are technology people. We are not politicians. We are here to serve our customers. But I mean, reality is that customers in certain parts of the world have some restrictions to some suppliers. And that's why they create what they call clean networks. Imagine a particular customer in a region, somewhere in the Middle East that wants to do business with a hyperscaler and the hyperscaler -- well, wants to make sure that his traffic is going through a particular set of vendors or excluding a particular set of vendors, that's what we call clean networks. And that's where -- as we have the footprint we have worldwide. In many cases, what happens is that service provider is choosing Nokia in order to build a network that is then providing the service to the hyperscaler, that's what it is. And that could be optical IP mostly because of the big traffic that is carrying.

Did you have a follow-up, Simon?

This opportunity has really manifested itself and its business because you've talked about being able to outgrow markets. And I presume that these opportunities are a key element of that. And so I'm trying to get a little bit more quantification as to where this stands and how you're sizing the opportunity.

Yes. What we are seeing is that the world is evolving into traffic where data center connectivity or data center interconnect is having more and more weight. The traffic that is generated, little by little, is getting momentum and having a significant weight on the total global traffic. As I tried to explain in one of my charts to -- to reach at -- the moment in time, is going to reach something like 25% of the total traffic worldwide. Well, that is precisely what happened that if you consider that traffic and you have to build new networks to deliver that traffic and part of it is thrusted into certain suppliers that have less restrictions than others, and we have the right level of people across the world. And on that, especially in optical, I can say that we have teams in all the regions and therefore, our position in APAC and EMEA is better than my dear American competitors. We have an opportunity that is, well, quite sizable for us.

We'll take the next question from Sébastien Sztabowicz from Kepler Cheuvreux.

So regarding the strategic deal this morning with AT&T on fiber access, could you please help us understand the potential size of this project for Nokia. Is this significant expansion to your relationship with AT&T? And when do you expect the deployment to start to kick in? Is it end of this year or 2025? And the second question is on the core router market. You have been looking at this market for some time, but your market share remains at a relatively low level today. So how should we think about your positioning and the dynamic in the core router business for you?

What do you mean, low level? So I will let Sandy comment.

So on AT&T, well, basically, what we have announced is one more step in our long-term relation with AT&T. We have been providing and being sole supplier of AT&T in access for many years since the copper times and then evolving in different technologies. And from ADSL, we went to ADSL2 to ADSL+ to VDSL to vectoring, to [indiscernible], to GPON and now to XGS-PON, and we continue the trouble, the journey with AT&T with successful new technology introduction. I will let Sandy comment a little bit more. And in terms of [indiscernible], well, basically, yes, I mean, as Vach explained, 70% of the market in IP is on the edge. That's where we have most of focus. But of course, with FP5, we are better placed now to compete a little bit better in the core. But again, these things take time. So Sandy, if you want to comment on AT&T and then Vach on the core question?

Sure. So with AT&T, as Federico said, we are continuing our strong relationship with them and continuing the exclusivity that we provide to them in terms of our OLT product. So this really isn't a change. This is just a continuation through 2029. And we're thrilled to be able to announce that we're keeping the competition out of AT&T's network. And again, we continue to have the strong relationship and the strong partnership with AT&T despite some other changes that have gone on in their other networks.

Did you have anything to add on the core router piece, Vach?

Yes, sure. So with the FP4 and FP5 series of routers, we have extremely good performance, a lot of capabilities that really cater to the edge of the network. But with the higher speeds that we are now able to deliver with FP5, especially, it turns into a very meaningful core router. One of the challenges, though, is that FP5 is designed for really high performance. So deep buffers, extremely good for a well-designed core, but not everyone is looking for a high-performance core router with deep buffers. They're looking to manage their CapEx by spending a little less on the core where they just want speed and they don't worry too much about buffers. And I would say that's -- maybe it's a bit of short-term thinking in terms of let me just try and build the core without adequate buffering. But we understand that there are financial reasons why some operators will choose to cut costs on the core routers. So we have plans for a low-cost core router that will be coming out next year and will help us to address more of the core router market beyond what we can address with the FP5. So I'm looking to see a bigger uptick in our core presence.

We'll take our next question from Felix Henriksson from Nordea.

I wanted to continue on the data center and webscale topic. And here, we talked about where exactly we're standing in the investment cycle when it comes to both data center interconnect and intra data center optics. Should we already expect the acceleration in demand already in 2025? And how do you see yourself positioned to capture market share, specifically when it comes to the transition from 400 gig to 800 gig when it comes to data center optics and switches?

Start Federico and then...

Yes. I mean, I believe we can go directly to Vach and Mike. Yes, on 400-gig, 800-gig, we were the first one having a router with a pluggable 800 gig, and we are really confident that when the traffic starts to grow in the data center, we're going to be very well placed on that. But Vach and Mike, please help yourself.

Sure. I'll start. First, with the portfolio that we have, we're well positioned to start with data center gateways and data center interconnect. And we've seen quite a bit of success in this space because not only are they looking for higher capacities, but they're also looking for quantum safe networking to connect their data centers together in a secure manner, throw DDoS mitigation on top of that, and we have a great solution for the data center gateway and the data center interconnect. I think on the optics, the way the data centers sort of move is, they move their entire data center from 10 gig to 100 gig -- 400 gig. And now they're looking at that next wave, as capacities on the data center side increase, especially with AI traffic, that will be the next phase. But I believe we're getting ahead of ourselves a little bit because today, most of the large hyperscale sort of environments are going to 400 gig. And I think 800 gig is down the pipe, and we're preparing for it, but it's maybe a little early for that. And then some of the next tier infrastructure companies are looking at 100 gig -- multiple 100 gigs with the 400-gig breakouts and so on. And Mike, if you want to jump in? And then I think, James, you probably should talk on the optics themselves.

Sure. Just so Nvidia will drive the 800 gig bit with CX-8, so there's a bit of a dependency there on what's happening on the NIC side. And you'll see 800-gig adoption primarily in AI clusters initially. How far that moves down the market will depend heavily on sort of what happens with digesting 400-gig in non-hyperscale type accounts. But as Vach says, I think that there's still some time before that actually plays out. Right now, people are still working through 400 and dense 400 gig on the data center switching side, and then there's implications there on TCI.

And James, do you want to add on the optics side?

Yes. I was just going to say this -- I agree with Mike, the AI infrastructure is what's putting the most pressure on the intra DC optics. And then the second point I'd make is that's something we'll come back on when we get the Infinera deal closed.

We'll take our next question from Tim Savageaux from Northland Capital Markets.

My question is on the optics side and it kind of follows the recent comments there. If we look at some recent market developments at Lumen, for example, on building a big, maybe a very big data center network for Microsoft and others. How does Nokia assess that opportunity, especially given the Infinera deal where there's quite a substantial installed base there? And do you see other opportunities like that for optical transport between data centers, maybe not necessarily with the cloud guys themselves, but with their network partners?