Helsinki-listed shares of Nokia Oyj (HEL:NOKIA) declined 3.4% to €8.40 on Friday, bucking a 0.36% gain in the OMX Helsinki 25 index. The drop came despite the company beating profit estimates in its second-quarter report, as investors focused on the widening gap between a surge in artificial intelligence orders and actual revenue recognition.
Order Intake Surges, but Conversion Lags
Nokia disclosed that AI and cloud order intake reached €2.8 billion in the second quarter, compared to just €1.0 billion in the first quarter—a 2.8-fold sequential increase. However, related sales for the quarter were only €446 million, resulting in an order-to-sales ratio of 6.3 times. Management indicated that roughly half of these orders are expected to convert into revenue within the next 12 months, implying approximately €1.4 billion in future sales based on a preliminary calculation. This represents about 79% of Nokia's annualized second-quarter sales of €1.78 billion.
The conversion gap helps explain the market's muted reaction. Much of the remaining order book extends beyond the next four quarters, with Bank of America (NYSE:BAC) noting that most deliveries should land in 2027, with some reaching 2028. The bank maintained a Buy rating, stating that the order intake "significantly exceeded expectations," though third-quarter guidance appeared slightly soft.
Profit Beats, but Restructuring Weighs
On an operational basis, Nokia reported a comparable operating profit of €434 million for the second quarter, up 18% year-over-year and beating analyst consensus by approximately 14%. Quarterly net sales rose 8% to €4.82 billion. However, reported results were weaker, with Nokia posting a €50 million operating loss against a €147 million profit in the same period last year. The gap was driven by faster restructuring charges, which are expected to total about €800 million this year, with cash outflows of €700 million to €800 million.
The company raised its full-year profit outlook to a range of €2.1 billion to €2.6 billion, but the €100 million increase was attributed to discontinued operations, leaving the underlying operational outlook unchanged. Nokia expects third-quarter sales to grow 3%-7% sequentially, with comparable operating profit remaining broadly flat, followed by a meaningful fourth-quarter increase.
Supply Constraints and Margin Strength
"Demand remains strong, while supply continues to be the main industry constraint," said Chief Executive Justin Hotard. Longer-term orders help customers secure scarce capacity, he added. Despite a warning from peer Ericsson (STO:ERIC-B) about higher memory-chip costs, Nokia managed to expand its comparable gross margin by 70 basis points to 46%.
Cash remains another constraint. Nokia expects significant restructuring outflows this year, and the earnings path leans heavily on a fourth-quarter profit step-up. Risks include further component inflation, slower customer spending, and delayed capacity expansion.
Outlook and Key Dates
The next major test comes on October 22, when Nokia reports third-quarter results. Investors will closely monitor order conversion rates, any signs of supply relief, and the promised sequential sales growth. For now, the market appears to be weighing the potential of the AI-driven order book against the near-term uncertainty of when those orders will translate into bottom-line revenue.
Nokia's strategic pivot toward AI and cloud infrastructure positions it well for long-term growth, but the current disconnect between order intake and revenue recognition underscores the challenges of navigating a rapidly evolving technology landscape.
