The company’s operating profit fell by 29% year-on-year to €301 million, far below market expectations. Analysts had anticipated closer to €402 million, according to a consensus compiled by Infront.

This is one of Nokia’s highest quarterly stumbles in recent years. The telecoms equipment manufacturer now expects 2025 operating profit to land between €1.6 billion and €2.1 billion, down from the earlier projection of €1.9 billion to €2.4 billion. 

The downgrade shows a €230 million hit from adverse currency movements, mainly due to the euro gaining against the dollar (EUR/USD from 1.04 to 1.17), and an additional €50–80 million in tariff-related costs.

CEO Justin Hotard, addressing the media in a post-earnings call, said: “Considering these two headwinds, we decided it was prudent at this point to lower our comparable operating profit outlook.”

The company’s shares sank 7.6% on Wednesday, its steepest one-day drop since April, before making a 1% rebound in early trading on Thursday. The market hadn’t priced in the scale of the financial impact.

Hotard, who took the role in April after leading Intel’s AI and data centre business, has made it apparent that Nokia’s sustainability lies in what he calls “AI-powered connectivity” and mission-critical infrastructure. 

And he’s not just talking, Nokia has already ramped up its R&D investment by 6% year-on-year, now standing at €1.126 billion. Focus areas include 5G standalone core networks, edge computing, and optical systems.

A big part of Nokia’s strategic play is defence. With NATO countries agreeing in June to raise defence spending to 5% of GDP by 2035, the company sees a long runway of opportunities, especially in secure private networks and AI-enhanced tactical communications. 

“There’s a growing need for national security-grade connectivity infrastructure,” Hotard told Reuters, adding that NATO’s push opens the door for deeper collaboration in areas like cybersecurity and military-grade telecoms.

The second quarter’s financials confirmed earlier estimates: revenue inched up to €4.55 billion, but it wasn’t enough to offset losses driven by a €60 million currency revaluation and €20–30 million worth of tariff-related expenses. 

Currency sensitivity remains a major concern, Hotard estimates a 10 to 15 million euro hit for every single cent the euro gains over the dollar.

The company, however, wants to reduce complexity and redirect focus. Hotard says Nokia will simplify parts of its operations while continuing to build out its presence in both traditional telecom markets and emerging security-focused sectors.

It’s a transition for a company once known for its iconic 3310 handsets. A decade after ditching its consumer phone business, Nokia now straddles the line between legacy telecom infrastructure and frontier technology, with AI as its core growth engine. 

The firm expects to monetise AI infrastructure by 2027, suggesting it’s not merely a short-term bet, but a long-term pivot.

Despite the rocky start to the year resulting in low profit, Nokia maintains a cash cushion of €2.9 billion and is optimistic about a stronger second half, especially in Q4, which typically benefits from seasonal demand in network deployments.

Hotard is currently the executive vice president and general manager of the Data Center & AI Group at Intel.

This leadership change comes as telecom equipment makers, including Nokia, face a slowdown in 5G infrastructure sales. 

With artificial intelligence and data centre technology becoming top areas of growth, the decision taken by Nokia to appoint Justin Hotard is a well-thought focus on these emerging sectors.

Sari Baldauf, chair of Nokia’s Board, stressed Hotard’s expertise in these areas, saying, “He has a strong track record of accelerating growth in technology companies along with vast expertise in AI and data centre markets, which are critical areas for Nokia’s future growth.”

Market analysts have reacted to the development, with JPMorgan describing the leadership change as unexpected. “Given that a new CEO has already been appointed, it looks like this transition was in the works for some time. With the Datacentre and AI background of the new CEO, it is clear which areas Nokia wants to focus on,” they noted. 

Analysts at Inderes also view the move as a deliberate transition towards strengthening Nokia’s Network Infrastructure division, which is seeing increasing investments in AI-driven solutions.

Nokia has been striving to ensure its growth beyond traditional telecom equipment. Last year, the company announced a $2.3 billion acquisition of U.S.-based optical networking firm Infinera, aiming to capitalise on the rising demand for data centre infrastructure.

Even with gains of 27.85% in Nokia’s share price over the past year, the company’s stock is still lower than its peak in 2000. At the time of the announcement, Nokia’s shares rose by 1.6% to €4.70 on the Helsinki Stock Exchange, outperforming the market, which saw a 0.45% increase.

Lundmark, who took over as CEO in 2020, will remain with the company as an advisor to Hotard until the end of the year. 

Speaking on the leadership change, Baldauf explained, “The planning for this leadership transition was initiated when Pekka indicated to the Board that he would like to consider moving on from executive roles when the repositioning of the business was in a more advanced stage, and when the right successor had been identified.”

With Hotard’s appointment, Nokia seeks to increase its focus on AI and data centre infrastructure, aligning itself with the current demands of the technology sector.