Good morning, ladies and gentlemen. Welcome to Nokia's First Quarter 202 Results Call. I'm David Mulholland, Head of Nokia Investor Relations, and today with me is Pekka Lundmark, our President and CEO; along with Marco Wirén, our CFO. Before we get started, a quick disclaimer.

During this call, 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.

Within today's presentation, references to growth rates will mostly be on a constant currency basis and margins will be based on our comparable reporting. Please note that our Q1 report and this presentation are published on our website on both reported and comparable results and reconciliation between the two are included.

In terms of the agenda for today, Pekka will give a quick overview of our financial and strategic progress in the quarter; and Marco will then go into a bit more detail of some of the key factors impacting our financial performance along with our outlook for 2022. With that, let me hand over to Pekka..

Thank you, David, and hello everyone and thank you very much for joining the call today. Before we start on the actual Q1 performance, let me say a few words about the events that have shocked us all in Q1, namely the Russian invasion of Ukraine. Nokia has strongly condemned the innovation from the start.

Our priority has been and continues to be the safety and well-being of our employees.

We are supporting our colleagues in Ukraine and providing all available help depending on people's individual needs and circumstances and I'm proud and impressed by how our team members have continued efforts in Ukraine to maintain our customers' networks in the country.

It has been clear for us since the early days of the invasion that continuing our presence in Russia would not be possible. We announced on April 12th that we will exit the Russian market. We will do this in a responsible way and aim to provide the necessary support to maintain our customers' networks as we exit.

Western governments have highlighted the humanitarian implications for ordinary Russian sea food, medicine and critical infrastructure providers like us simply walk away. We will work closely with our customers on a smooth and orderly transition hence to complete the exit as quickly as possible but also responsibly.

So with that let's move on now to our Q1 result. First of all, I'm really pleased with Q1. It was a strong start to the year. Looking at the screen here, we had 1% top line growth in constant currency. This was 5% in reported currencies. We could actually have grown faster because we have a very strong order backlog.

Supply chain continued to constrain our growth notably in mobile networks and then within network infrastructure business inside the optical networks business.

What was particularly pleasing in this quarter was the strong gross margin 40.7%, which is 250 basis points up and this was particularly driven by mobile networks and cloud and network services.

So this is really demonstrating that we continue to benefit from our improved product and cost competitiveness that we have achieved through the added R&D investment. The operating margin in the quarter was 10.9%. It was stable. Improvements in gross margin were offset by increased investment in R&D, which we are continuing.

But then in addition to that when you compare this quarter to the corresponding quarter a year ago, we had a little bit lower other operating income because there were positive one-offs last year. And then there were timing effects in the technologies business, which we will zoom deeper later on this call.

So then with the help of this chart, I will kind of comment both the top line and margin development. The gray bars that you see here indicate in each quarter, the year-on-year growth in comparable currencies. And after the pretty challenging Q4 as you remember, it is now very good that we have returned to growth.

And then, obviously, the margin development has been strong. The blue line here indicates the rolling 12-month comparable operating margin. We are now on the same level as at the end of last year 12.5%. And obviously here you see the significant improvement that we've been able to deliver since 2020.

So now I will say a few words on each business group and I will start with mobile networks. As already highlighted we had a top-line issue in this business. We have strong order backlog, but because of continued supply chain challenges we had 4% decline in the top-line in comparable currencies. On the semiconductor side, the situation continues tight.

There are some areas of improvement here and there, but in the big picture the situation continues tight. In addition to that in the short-term we are now facing some supplier-specific challenges. And then obviously there is the situation in Shanghai region at the moment in China, which is COVID-related that Marco will comment a little bit more.

So these were some of the things affecting the top-line despite the fact that we have really, really strong order book and we expect to return to growth in this business this year. Profitability development. Given the somewhat challenged top-line the profitability development was really, really pleasing.

7.5% operating margin great expansion in gross margin, 410 basis points improvement in comparable operating margin over last year. And what is behind this? It is really first of all the R&D investment that we have made. Here you see on a 12-month rolling basis, the R&D investment in mobile networks.

If I go back here to the third quarter 2020 we were around €1.8 billion. Now we are at €2.1 billion so we have added about €300 million annual R&D investment into this business which is about 16%.

So this is significant and we have done exactly what we said in 2020 that we will invest whatever it takes to repeat the success that we have had in 4G also in 5G. So this R&D investment has helped us to deliver this which is the gross margin trend. We are now -- this is also 12-month rolling.

We are now at 39%, 12-month rolling at the end of the first quarter. And very clearly the R&D investment and this gross margin development they go hand-in-hand. But there is another thing also behind the gross margin and it is the mix development that we have been driving inside the services part of the mobile networks business.

We are transitioning from low-margin deploy services towards a higher share of higher margin, technical support and maintenance services. This is a strategic shift that we are driving in the service part of the mobile networks business.

And that is the other reason in addition to the product competitiveness itself and the R&D investment that we have made that is driving the gross margin. Then over to the next business which is network infrastructure. I would say, again, fantastic quarter from a top-line point of view 9% growth in constant currency.

But zooming into this business a little bit more 29% growth in fixed networks on top of the already over 30% growth last year. And then submarine networks also very strong growth 25%.

There was one business inside NI with weak top-line and that was the optical business and that was exactly the business that was hit by some specific supply chain challenges. Also there we have good product competitiveness strong order book. So we expect to recover also in this business later in the year.

The overall operating margin for the NI business was 9.9%. It fell 90 basis points year-over-year largely due to the absence of positive other operating income in the prior year and also to some extent increased R&D investments.

Talking very briefly about the technology development and you remember that we launched the FP5 new generation of routing silicon last year, it's really promising. We are now in the first customer trials. We are seeing strong interest in the 800 gigabit ethernet support, full backward compatibility and support for current features and services.

One very important detail, while we initially committed to 4.8 terabits per second throughput in the chip what we are now seeing in the field trials is that the chip is actually performing even better and we are reaching up to six terabits per second throughput which is 25% more than we had initially estimated and this is continuing to increase the value proposition to our customers of the FP5 chipset.

Our other silicon platforms in addition to FP5 what you see here equivalent for the fixed networks and PSC five for optical networking also continue to give a strong differentiation helping us to gain share.

And just as one practical example of the strength of the portfolio the Microsoft deal that we announced in April it chose, the strength of our data center switching solutions and it is a good step in entering relationships with webscalers. Then on to Cloud and Network Services, also here a strong quarter 5% top line growth.

We are rebalancing our investments towards higher growth areas and that is clearly showing results. We are now seeing it in the top line development. We had strong growth in one of the focus areas of CNS which is core networks. CSPs are now transitioning towards 5G core and that is really driving the CNS business in Nokia.

Another driver is private wireless and the campus wireless deployments that we are in at the moment. Also, here we had strong gross margin expansion 520 basis points benefiting from both top line growth and the operational improvements we continue to make. And all this then resulted in a pretty good 570 basis points expansion on the operating margin.

On this chart, you see a 12-month rolling operating margin for Cloud and Network Services. And while there was weakness in late 2020 early 2021, partly because of some provisions that we took related to certain projects even excluding those effects you can see that how much the rebalancing is starting to benefit our profitability.

And as I said, we are also investing in this business, we are investing a lot.

And one of the key investment areas is campus wireless where we are adding R&D investment, which is one of the reasons why I want to caution you now that and repeat what we have said earlier that our assumption for the profitability of this business for this – for the full year 2022 is comparable operating margin between 4% and 7%.

And then the fourth of our businesses, which is Nokia Technologies here you see the quarterly top line in Nokia Technologies. And yes there was a 17% decline year-over-year in Q1. This was primarily a timing issue. We had two contracts that expired last year that are currently in litigation and in renewal discussions obviously with these customers.

So that affected the top line in the quarter. Another factor was that there is another customer whose license has expired, but they have exited the smartphone market. So obviously that will not continue. But we continue to be confident in the strength of our portfolio.

We still expect to be able to deliver to stable operating profit year-over-year in this business assuming that these two negotiations that I mentioned are concluded. And I also want to be very clear on one thing in terms of our approach in this business.

Our priority since we do believe in the competitiveness of our portfolio that it means that our priority will remain protecting the value of our portfolio instead of achieving resolution by a specific deadline.

So let's now move on to Enterprise next, but before I do that I want to take a step back and explain the breadth of what we are doing in Enterprise. As you remember, Enterprise for us is not a business group. Whatever we sell to this customer segment we report in the respective business group depending on the solution that we are talking about.

But we do have a dedicated sales organization for Enterprise and that sales organization is organized along four major opportunities. And the first one is, webscalers. Primarily our IP routing and optical products for large webscale companies and of course, the Microsoft data center switching deal is a good example of this.

Then the second segment we are focusing on, is various verticals delivered by our Network Infrastructure business. Typically, IP networks, optical networks, broadband, fixed broadband connectivity to enterprise sites. In addition to that, this vertical is focusing on government as a customer group.

We actually expect that government spending and government agency spending is going to increase going forward and that opens up interesting opportunities for this vertical. And then the other side of all of this is then the private wireless networks that we have talked a lot about.

And there it's important to see that there are two fundamentally different cases. One is wide area networks, which typically are networks for public safety, transport and utility applications. The logic in this business, how you build sell and build these networks is quite similar to how we are selling mobile networks today.

But the difference is of course, that then the customer is not a service provider. It is something else. It could be a utility or it could be a safety authority. But then there is from wide area networks a very different case.

And this is one of our most important strategic growth opportunities and that is the millions and millions of industrial campuses that there are in this world, who are all seeking ways to improve their productivity through digitalization.

And that's where our campus wireless strategy including edge computing platforms for campus wireless, 5G wireless access through our NDAC solution et cetera, et cetera comes in.

So I just wanted to -- because enterprise it's a very wide concept I want to highlight that these are the four innovative opportunities that we are focusing on in this business. It is fair to say that our top line did not meet expectations in Q1, 7% drop in Q1 was affected by supply chain challenges and some other conversion delays.

The positive side of this is that as we already said at the end of last year after Q4, we have a great order intake and a great order backlog. And the good thing is that the strong order intake continued in Q1. We continue to grow double digit in orders. So what we're actually doing now is we are growing an order backlog.

And then the next challenge and the goal obviously that we then have for the remaining quarters for this year is to make sure that we start converting that order backlog at a faster pace and that is definitely our goal. We continue to grow our customer base and build what we believe will be a sustainably growing business in the midterm.

And if you recall the previous slide on the campus wireless opportunity, I was talking about here is -- and not only campus but also private wireless in general including wide area also we continued our good pace of growth in those segments. We increased with 30 new customers from 420 to 450 during the quarter.

So we continue to focus in the Enterprise segment. Our goal continues to be that in the coming years the relative share of enterprise of our all sales will grow meaning that it will grow faster than the service provider side of the business. So ladies and gentlemen, with that, I would like to hand over to Marco..

Thank you, Pekka and hello from my side as well. I will give a little bit more flavor on the financials. And starting with the top line development as Pekka mentioned, we had 1% growth on constant currency basis.

And if you look at the different geographies what has happened, starting with Asia Pacific you can see the 15% growth there and this was growth in all business groups. While North America that was driven by network infrastructure. And if you look at the Europe, growth 2% we actually had a very good growth in mobile networks.

But also in Europe, we actually record the revenues from technologies. And as you saw -- Pekka showed as well that we have a decline of 17% and this is actually offsetting the good growth that we had in mobile networks, but also optical and IP had some decline in Europe. Then if we look at the red ones, starting with Latin America.

And actually in Latin America, all business groups, but also the business division within network infrastructure optical, IP, and FN, fixed networks they all grew in Latin America.

The only one that didn't was submarine, submarine business that is more project-based business and they do certain projects going from region-to-region and that's where we saw the decline in Latin America. And then lastly I just want to highlight India as you see minus 24% and the reason here is more timing issue.

As you all know the rollout of 5G will happen later this year. And then going over to operating margin development and I would say that we had a good development in Q1. I'm very pleased to see the mobile networks operating margin expansion of 410 basis points. We had a very strong gross margin development while we also invested in R&D at the same time.

The next area network infrastructure with a small operating profit growth, while operating margin had a decline of 90 basis points just like Pekka mentioned and this is where we invest in R&D as well but also the absence of the one-off in other operating income last year. CNS, 570 basis point expansion in the operating margin is a great achievement.

And it's good to see that also here we had a very good year improvement and this was expansion on gross margins. Then we have two areas where we saw the offset of these good developments and technologies is one of those. And of course there is more delays in the revenues and because of those litigations and negotiations that we had with two customers.

And the other one is the group common. Last year, we had in our venture funds €90 million income and this year in quarter 1 we have €40 million. So, this is the big impact here.

And then if you look at our cash performance, we had a good performance in quarter one, we generated €326 million free cash flow and this is mainly coming from a strong adjusted profits, but also you can see a positive impact from our net working capital.

And here of course in quarter four when we have a higher sales, part of that is collected in Q1 so that's why the trade receivables had declined in Q1 and gave a positive impact of €350 million.

Offsetting that was that we actually increased our inventories about €200 million and this is just like we mentioned earlier we want to build some buffers considering the supply chain constrained situation where we are.

And also in Q1 we initiated the share buyback program and so far in Q1 we actually purchased about 10.5 million shares and that's about 50 million impact in Q1.

Just looking forward when it comes to Q2, keep in mind that in Q2 cash flow will be impacted by the outflows related to employee variable pay and that's why the quarter two cash flow will be different.

Then if we go to market outlook and how the market has been changed we've done two main changes here and this is affecting that the market is now growing about 4% instead of 3% and the two adjustments that we've made here is actually in the first we see a better market in North America especially in mobile networks area.

And this is slightly offset by other adjustment we made and that's the situation in Russia-Ukraine. And the outcome of these two adjustment is that mobile networks market is now expected to increase by 4% instead of 3%, while the CNS market is expected to grow 4% instead of 5%.

And here you can see in the CNS area that the Russia-Ukraine is impacting slightly. But our ambition remains to grow faster than the market. And then just looking to outlook and our guidance a little bit more detail.

First of all, I want to emphasize that demand environment continues to be very strong while the supply chain and inflation challenges remain as well. We are confident that we can deliver our chosen turning outlook.

So like Pekka also referred to COVID situation in China that could pose some short-term challenges considering the lockdowns we've seen there but we do not expect that to impact out full year. Overall, our outlook is unchanged. And the only change that we've done is adjusting the top line guidance because of the FX movements during the quarter.

So, it's a € 300 million adjustment. So now, the top line is expected to be between €22.9 billion to €24.1 billion while the operating margin and cash flow are the same.

And then, just to give you a reminder of our guidance and how we have built it up if we start from 2021 operating margin, which ended up at 12.5% and we had about 150 basis points of one-offs in that. So the comparable starting point is actually 11%.

But we expect that the sales growth and the operational improvements that we are working on will actually offset the inflation and supply chain challenges that we see and also our investments in R&D. So with that, I thank you for my part and turn you back to David. .

Thank you, Marco and thank you, Pekka as well for the presentations. Before we move to the Q&A session, I just wanted to give you all another date for your dairies. I'm pleased to announce that on the 16th of June, we'll be holding our next progress update presentation, this time focusing on our cloud and network services business.

Details of that will be sent out shortly. With that, let's move to the Q&A. As a courtesy to others in the queue, please limit yourself to one question and a brief follow-up.

With that Rachel, could you please give the instructions for the Q&A?.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] I'll now hand over to Mr. David Mulholland. .

Thank you, Rachel. We'll take our first question from Alex Duval from Goldman Sachs. Alex, please go ahead..

Yes. Many thanks for the question and congratulations on the strong results. Firstly, just on gross margins in mobile, you saw very robust profitability there on the gross margin level, allowing you to deliver strong profits despite some of the suppliers you referenced.

I wondered if you could talk a little bit more about the key drivers of the strength there. To what degree are we thinking about things like product quality advances or cost structure? And can you contextualize a bit how important the restock story is in mobile as part of that? Many thanks..

Well, absolutely, as we have said many times the ReefShark story is absolutely essential in this. Now the share was 82% in Q1 and we are on track towards 100% by the end of this year. But I would like to highlight is actually during the presentation as well.

In addition to that the other side of the story is the structural development we have inside the services part of the Mobile Networks business where we are transitioning from lower-margin deployed services towards higher-margin care and maintenance services using maximally the new technologies artificial intelligence automatic fault detection automated network optimization and so on.

This is the other part of the -- also I would call a technology story in addition to ReefShark..

Thank you, Alex.

Did you have a brief follow-up?.

Just very briefly, you obviously had a strong beat on EBIT in the quarter. But if I look at the sort of full year uplift in terms of what you're implying on a sort of fiscal year basis, you implicitly haven't sort of raised the other quarters. I just wondered if you could give any sort of context around that.

Obviously, you realize you're early in the year but any thoughts there would be helpful..

We don't really have any new thoughts on that. Of course, we never guided for an individual quarter. So we are looking at full year guidance which we are keeping unchanged. This was a good start to the year, but as I said, the supply chain tightness continues and so on. We have to also be careful and understand that the work needs to continue.

We have not changed our full year outlook..

Thank you, Alex. We'll take our next question from Francois Bouvignies from UBS. Francois, please go ahead..

Hi, thank you very much. So two quick ones. The first one maybe is to zoom on the mobile network. So when you look at the performance in Q1, the revenue was down 4% at constant currency. And you actually increased your TAM market to 4% for the full year, if I'm not mistaken.

So my question is it would imply a significant acceleration going forward from the level of Q1.

So can you help us understand the visibility that you have on this acceleration? And maybe as Q1 was particularly impacted by supply, how confident are you – you will get the supply to catch up with the TAM growth for the full year if that makes sense? And then I will have a quick follow-up. .

Yes, thank you. And if I start when it comes to the mobile networks growth for this year. We are quite confident that we will have a growth this year for the mobile networks. Of course, there's always timing issues and phasing issues in different customers and geographies as well.

But we see a very robust and good market that is supporting us and also we believe that the competitiveness that we have been working on quite heavily in the past 18 months is supporting us in this. And since 2020 negotiations, we actually haven't lost any more footprint. We actually have gained.

And just like I showed that in Europe we had a very good growth and this is thanks to those gains that we have had in Europe also when suppliers had been chasing their vendor base..

Thank you.

Francois, do you have any follow-up?.

Yes I mean it's just the capacity side. I mean you have a good visibility on your capacity for – because there's been a constraint.

So is that improved to support the growth going forward?.

Yes I would say that we have capacity and factory capacity if you mean that. Our sub-suppliers, they are not constrained in the capacity itself so there we have much more flexibility than compared to for example semiconductor supply situation. .

Thank you, Francois. And we'll take our next question from Simon Leopold from Raymond James. Simon, please go ahead..

Thank you very much. Last quarter you identified some hurdles limiting your ability to raise prices. I'd like to see if we could revisit this topic to gain maybe a better understanding of where you might see pockets of opportunities maybe digging into some of the particular segments like routing as an example.

And if you're not able to raise prices but you are maintaining this operating margin outlook, I'd like to better understand what you're doing to offset the inflation for input costs if it's not about price increases? Thank you..

Well, obviously in that full year outlook we have taken into account everything we know and understand and assume on both the input cost, development and then the actual technology competitiveness and product cost development.

And it's always kind of a product of this to the product technology development continues and every new technology generation that we bring to the market structurally lowers the cost of the network. So that is one thing.

But then of course as we all know, there is strong inflationary pressure in the world at the moment and we are seeing increases in input costs.

And of course in new deals that we are pricing, in every single new deal we embed all the information that we have on the technology competitiveness, input cost and then in that particular customer situation, our relative competitiveness vis-a-vis competition.

And it's -- all this needs to be factored in into pricing in our business because this is in most segments, especially mobile networks business which does not have a very well established in a way global market price. Every single deal is usually separately price negotiated.

And I can assure you that in all new deals that we are making we are putting in all the input cost increases that we have seen. And of course, this goes I believe the whole industry that everybody has an interest and an intention to pass on as much of the input cost increases on to customer prices as possible.

And again, in this 11% to 13.5% comparable margin, forecast that we have for this year we have taken into account everything we know about this..

Do you have a follow-up Simon?.

Thank you for that. And in markets like routing where you are the dominant player essentially my impression is you're matching the price offers or the price increases that others in a sector like fixed access where you are a dominant player in many markets.

Essentially, what you have said and I want to confirm this, if you set price on new deals based on the higher input costs, but you're not retroactively raising price on existing contracts. That's the key point. I just want to confirm. .

Typically, it's -- and I guess this is easy to understand that it's much easier to raise prices in new contracts than in existing contracts. Of course, we have an interest in all our customer discussions to make sure that we defend our margins. And it's actually quite straightforward.

The stronger your technology competitiveness is the stronger pricing power you have and we have seen strong technology competitiveness.

In routing, obviously, it's now further strengthened through FP5 and also in fixed access, especially on the optical line terminal side first in PON then GPON and now quickly transitioning to 10 gigabit symmetrical XGS PON and even gradually to 25G PON that is a segment where we have pretty strong competitive -- technology competitiveness, market position and hence also pricing power..

Thank you, Simon. And we'll take our next question from Alexander Peterc from Societe Generale. Alex, please go ahead..

Good morning, and thank you for the question.

Could you perhaps give us a bit of a quantification of the headwinds that you experienced in Q1? What was the euro amount of sales you missed as a result of constraints? And do you expect to catch up in future periods for the sales or are they simply lost? And also the shortages affect mobile networks as well as network infrastructure divisions in equal proportions?.

We are not quantifying that impact. We did highlight that it was meaningful. And we can confirm that the 1% top line growth would have been higher without this constraint.

But again, on a full year basis, we are confident that we are able to deliver including the semiconductor situation which continues tight at the moment, but there are signs that at least give us reason to hope that the situation would improve in the second half of the year.

But then again, as Marco highlighted, right now or actually since the end of March, there have been lock-downs in the Shanghai region. We do have contract manufacturing there. Now they are receiving gradually permissions to start opening up again. I mean, these are some of the short-term risk factors.

But again, we do not expect this to affect our full year performance..

Do you have a quick follow-up Alex?.

Yeah. Just a quick follow-up. Interested on the mobile network services where you noted the shift to more high-value added contracts and technologies ordered with less network rollout.

Is this a structural shift there? And we should expect this positive development going forward, or is it just a Q1 event?.

It's not a Q1 event only. This is a structural shift that we are actually actively driving..

Thank you, Alex. And we'll take our next question from Andrew Gardiner from Citi. Andrew, please go ahead..

Thank you, David. Good morning guys. Just a quick -- if I could start with a follow-up actually to the point you were just making with Alex there.

On the services side at a time when the industry is deploying 5G, how are you able to move away from deployment services without actually negatively impacting your Networks business, or I suppose put another way, is it a case of just layering on additional higher margin services on top of the existing deployment business, and therefore, the mix is changing in that way?.

I would say that we are -- it's actually both. But when we are driving this shift, obviously, it is then seen in how we tactically approach deals and how we price the different parts of the contracts.

And of course, we have an interest to optimize the margin structures of our contracts and we are just simply seeing that in some cases having less appetite in the deal-making for deployed services, especially if the margins are extremely low is a good decision.

But again, every customer situation is different and there are differences in as to how connected in the deal the deploy services, future care services and then the physical network itself, how tightly connected those different elements of the deal are and that then of course affects the pricing tactics of each deal..

Do you have a follow-up Andrew?.

Yes. So if I could ask my final question now is on the technology side. I'm just interested in sort of what's changed in the last 2.5 months or so since you gave us the initial guidance where you didn't really reference any of the license expiries or negotiations or litigation.

I presume that at that stage of the year you obviously already knew about what was happening. So, why the change in language around the outlook at this point? And I suppose also oftentimes when we get these negotiations, I think you in the past and other companies have decided to just exclude that piece of IPR from your guidance.

Are you not compromising your negotiating position by sort of having an inherent assumption in that moment?.

Thank you. And I believe that we mentioned also in the fall that we had a litigation with OPPO and we have publicly talked about that. So that's been in the cart all the time. And it's always difficult to know exactly what is the timing of these negotiations and when we come to a conclusion and signing of the deal.

And -- but all of this has been in our guidance build up as well. And of course, we believe that we can sign those agreements during this year. But I have to be very clear here that we are not in any way risking our quality of the deals by getting some specific timeline here.

But we believe that our portfolio is very robust and our technologies are very good. So we have a high belief in those. And actually nothing else has changed here. It's just that the timing it takes longer time. And this is quite normal business for technologies. This is what they are doing actually continuously.

We have different deals coming to end and we always renew those. And negotiations take different timeframes. .

And again, maybe just to confirm what we said earlier since you used the word guidance, so we have not changed our full year outlook in terms of the group profitability. So it remains the same despite the situation in tech having had a weaker Q1..

And it's better to defend the value of the portfolio that we have instead of trying to get a signature as fast as possible..

Thank you, Andrew. We'll take the next question from Ben Harwood from New Street Research. Ben, please go ahead..

Thanks for taking the question. Just on the enterprise market and what you called out today is private wireless. So we just want to know how competitive dynamics is shaping up in the market going forward. You've obviously got a strong position today, but you have IT companies like Cisco and Dell and also hyperscalers or anything in the market.

So how do you see that evolving? And how do you think you can compete with a go-to-market strategy there?.

Thank you. That's a highly relevant and topical question, because there has been a lot of announcements on the private wireless side at the moment. We believe we are the market leader and this has been confirmed by third-party research houses as well. So that is the starting position.

We are increasing our investment, both on the R&D side and on the go-to-market side. And unlike in mobile networks or in wide area private networks for utilities for example, this is a segment where distribution channels and various types of partnerships are really the name of the game.

And in addition to us selling directly to end users, we often partner. Sometimes we partner with service providers, we can partner with an IT distribution company or we could even partner through selling technology platforms to some of the other players in the industry.

And we are really deploying multiple different business models and different channels to this.

And I do not want to mention any or highlight specifically any of the names that you mentioned, but we should assume that in some of these announcements that have been out there of companies that are typically not mobile network players when they announce a wireless, campus wireless or private wireless, they often assume that they will have technology partnerships in their final delivery..

Did you have a quick follow-up, Ben?.

No. That’s great. Thank you, Pekka. Thank you, David..

Thanks Ben. We'll take the next question from Sami Sarkamies from Danske Bank. Sami, please go ahead..

Hi. You mentioned that there is another IP licensing agreement in addition to OPPO that has expired at the end of last year.

Are you expecting a return to the earlier 1.4 billion to 1.5 billion run rate, if you're able to renew those agreements at previous rates or does that require improved rates or new licensing customers?.

Thank for the question. We believe that we are returning back to 1.4 billion, 1.5 billion run rate and this is in our guidance as well. Remember that, we also had one customer that exited the device side, but we've been quite successful in automotive.

Also, if you look at consumer electronics side and also we are working on IoT side to get new customers, to see what opportunities we have going forward. And we have guided on the technology side that that would be stable year-on-year. And we believe that that's going to be the case this year as well..

Did you have a brief follow-up, Sami?.

Any color on how those discussions are progressing? I guess there is litigation with OPPO, but what about the other party..

Yes, unfortunately, I don't want to go into the ongoing negotiations and exactly how they're proceeding. And we are negotiating with these bodies. And whenever we have new information, we will give that to you and keep you updated on these issues as well..

Thank you, Sami. And we will take our next question from Sandeep Deshpande from JPMorgan. Sandeep, please go ahead.

Sandeep, are you there?.

Yeah, hi. Sorry.

Can you hear me?.

Yes. Go ahead, Sandeep..

My question is -- two quick questions. Firstly on the enterprise market. I mean you just mentioned in the earlier question that you've got -- you are market leader you're announcing a lot of deals, but your enterprise revenues are still down year-on-year. Maybe we can have a further understanding into that enterprise revenues.

The second question is on the gross margin in mobile networks clearly incredibly strong. You're already at 82% restock.

So is there further upside in that gross margin given how far you've now gone in terms of changing the product within the changing the chips within the -- within the base stations? So I'm trying to understand further flex on the gross margin. Thank you..

Okay. Thank you Sandeep. Enterprise first, I mean, now I'm repeating myself. But, of course, minus 7% top line in the quarter does not even close meet our targets. But again this is more an order backlog conversion issue. We do have the orders we have a very strong order book. And also in Q1 orders continued to grow double digit.

Of course private wireless is only one part as I explained and we have the NI verticals and including governments and then we have webscalers as well. And there is always some lumpiness in some of these deals. But the overall development in terms of orders and market position continues to look promising.

So we are not giving up a bit on our target that we would make the enterprise segment grow faster than the service provider segment. Then the mobile network gross margin, obviously, ReefShark is one key driver there. There is still works to do there. But, of course, now once we -- I mean this ReefShark percentage will very soon lose its relevance.

And once it loses its relevance, we will also of course stop reporting it. Then the development will continue there will be new generations of silicon that are in the pipeline, continuously new generations of software. And, of course, our goal is to continue to develop our technology positions so as to maximize the gross margin.

This is one of the drivers of the gross margin of course. Then the other one is, which we already discussed is the service part of the business where we are driving the business towards higher share of higher margin services.

And then of course one thing, which is also important the gross margin is volume because of the leverage that you are getting on your fixed production overhead. So the more volume we are able to get that also then supports gross margin going forward..

Thank you Sandeep. We'll take our next question from Paul Silverstein from Cowen. Paul, please go ahead..

Thank you. I appreciate it. I want to ask you about network infrastructure. And while it sure doesn't sound like there's any reason for concern, understandably there are a lot of investors who appear to be concerned about macro deterioration translating into softer IT spend, which in turn translates into lower comp service provider CapEx.

Are you seeing any signs of softening whatsoever?.

I missed the first part of the question, but did I understand correctly that it was about the general -- the development of the general economy and how that would potentially affect our markets? Was that the question?.

That is the question whether you're seeing any signs…?.

Yeah. I mean, what we are seeing today continues to be strong. Strong orders also in Q1, a strong funnel of new opportunities. There are, of course, two sides into this.

There is the general technology cycle and there are reasons to believe that that continues to be a strong cycle in terms of digitalization, mobile broadband, fixed broadband, et cetera, et cetera. But then, of course, the other side is the general economy and the macroeconomic development.

And, okay, you don't have a crystal ball, we don't have a crystal ball. I don’t know if Marco, Marco has one, but I certainly don't. And we all know that should there be any significant hit to the overall economy. That could affect service provider investment plans and that could have a negative effect on us.

But it's impossible to speculate on something that you do not know. All we are seeing today continues to be strong. Anything you would like to….

No, I think, you covered it well..

Do you have a quick follow-up, Paul?.

Yeah. I trust you're limited on what you can say about the Microsoft announcement from last week, but it will be great to get any additional color. If not specific to Microsoft, you've made it clear that webscale is a big push cloud in general. You showed the logos Apple, Google, Microsoft.

Any color you can give in terms of where you are penetrating that opportunity more broadly and deeply?.

Obviously the webscalers are a very large market and the Microsoft deal is one important deal. We are also working with other webscalers. These are often deals that take a long time to conclude. And you often need to engage in very detailed technical R&D level discussions that do take time. So, we do not want to get ahead of ourselves on this.

But this deal with Microsoft is a strong testimony to the competitiveness of our portfolio. But again, these deals at the moment they are lumpy and they do take time. But this is definitely a segment that we want to build more traction on going forward. .

Thank you, Paul. We'll take our next question from Sebastian Sztabowicz from Kepler Cheuvreux. Sebastian, please go ahead..

Yes, hi everyone and thanks for taking the question. On the cycle we are now almost four years into this 5G cycle. How do you see the investment building up from 2023? Do you see there's some room to see further expansion into investment next year or we are reaching close to the peak of the cycle? And a follow-up would be on the enterprise business.

Could you provide a little bit more color on the split of business between the four big blocks that you mentioned webscaler, NI verticals, private wireless and company wireless and so on? And where do you see the strongest growth opportunity within these four blocks for the coming years? Thank you..

I mean we've been talking a lot about campus wireless. So strategically that is an extremely important segment. And the -- in a way I guess it is a good thing about that segment is that, it will consist of a large number of smaller deals.

So it will be easier to forecast and plan for -- from both from a financial forecasting and supply chain point of view. This is quite different from the lumpiness of large webscale deals where the Microsoft deal is one example. Currently, still campus wireless is quite a small business but it is growing extremely fast.

Wide area networks is an established business. There is -- continues to be growth opportunities. But the NI verticals that we called it, that is a meaningful part of the overall 7% of the group last year enterprise business. So that continues to generate opportunities as well.

But if you want me personally to highlight in relative terms where the strongest growth opportunity is, I would still mention campus wireless. Then the 5G cycle question, well you asked about '23. We continue to be of the opinion that in the absence of something in the macro environment that would take everyone with a big surprise.

We continue to have a strong view on the market. We have seen what most service providers have said about their 2023 CapEx plans and they do look pretty strong in different parts of the world. Of course, the US operators are a little bit more ahead in that cycle compared to some other markets.

Japan, Korea and US started first and now Europe, Southeast Asia. Now India is starting and then Latin America are following. So, we continue to have an optimistic view on the 5G cycle. And then of course on top of everything comes the enterprise and the campus wireless opportunity which is small today but is expected to grow fast. .

Thank you, Sebastien. We'll take our next question from Didier Scemama from Bank of America. Didier, please go ahead..

Yeah, thanks for taking my question. Most of my questions have been asked. I just want to maybe have a second go at the Microsoft question earlier. Can you just give us a sense because I mean switching is not your strength historically, it's more routing optical etcetera? And also switching at a hyperscaler is all the more impressive.

But I wanted to understand, are you selling a chassis with the chipset on board and your operating system? Can you just give us a sense of the wins? Just trying to understand how significant that is?.

Yes. So the -- if I start from the operating system it's based on the open source sonic initiative that we've been working on with together with Microsoft. It is chassis based. It is supporting the move towards high-density 400-gigabit Ethernet applications in Microsoft's Tier II network. This switch product, it's not FP5 based.

It's based on merchant silicon. And it is going to deliver multiple applications. In addition to the 400-gigabit interconnectivity in the Tier II network architecture it will deliver some fixed form factor applications for data centers top of rack leaf-spine and super-spine applications and so on that will evolve overtime.

So we see this as a strategic breakthrough. But as I already said earlier, we also need to be careful that we don't get ahead of ourselves, because switching with webscalers is a new segment for us. And we all know who we are up against there. And it is a highly competitive market..

Thank you. We'll take our last question from Peter Kurt Nielsen from ABG. Peter, please go ahead..

Thanks very much David. And thank you for the opportunity. Just turning to mobile network space, North America is -- sales declining in North America this quarter, which I guess is a bit weaker than anticipated three months ago.

Could you elaborate a little bit please on, what is driving the lower sales in North America, while we haven't had the full reset by the end of last year? And how you view the north -- or how we should view the North American market going for the remainder of the year and the coming quarters, please given that the market is growing quite strongly.

And then, can I just David my follow-up, please? Am I to understand you correctly that, you still expect to grow in line with the mobile networks addressable market for this year, despite the sort of flattish Q1? Thank you..

Yeah. When it comes to North America market, in general we definitely see that the market is supporting. There might be some phasing issues depending, which customer is investing in which time and that affects a little bit our sales development there as well.

And we believe that, as I said earlier, that North American market is very supportive, so there's, big CapEx plans. And with our competitive position as well we believe that we see growth opportunities in North America..

Thank you, Peter. Thank you both Marco and Pekka. And ladies and gentlemen, this concludes today's call. I would like to remind you that during the call today we have made a number of forward-looking statements that involve risks and uncertainties. Actual results may therefore differ materially from the results currently expected.

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. With that, thank you all for joining us..