Comparable operating profit beat forecasts by a third, and sales to AI and cloud customers more than doubled. Nokia cut its free-cash-flow conversion outlook to 35% to 55% and plans to tie up about 400 million euros more in working capital.
Nokia's third quarter was the kind investors usually reward. Its stock fell to a six-month low.
Comparable operating profit rose 35% to 605 million euros, well above the 453 million euros analysts expected. Net sales rose 10% to 5.15 billion euros, or 9% at constant currency. The comparable operating margin improved to 11.7% from 9.5%.
The growth came from the part of the business tied to data centers. Network Infrastructure sales rose 15% at constant currency, with IP Networks up 43% and Optical up 18%. Sales to AI and cloud customers jumped 123%, with related orders of 1.5 billion euros in the quarter.
Nokia's U.S.-listed shares traded at about $8.08 at 1:46 p.m. Eastern, down 12.7%, on volume of more than 132 million shares, and at their lowest in about six months.
Growth that consumes cash
The problem was cash. Nokia cut its forecast for free-cash-flow conversion, the share of comparable operating profit that turns into free cash flow, to 35% to 55%, from 55% to 75%. The top of the new range is the bottom of the old one, and the midpoint fell 20 percentage points. The company said it will add about 400 million euros of working capital to secure supply for growth in 2027.
The chief executive also described the supply squeeze as a structural cost increase rather than just a shortage, and Nokia raised its expected restructuring charges to 1.1 billion euros. On a reported basis, operating profit fell 22% to 196 million euros, and gross margin narrowed to 42.2% from 44.4%.
A pulled-forward quarter
There is also a timing issue. Mobile Infrastructure sales rose 5%, but part of that came from revenue pulled forward from the fourth quarter, which flatters the third quarter at the expense of the next.
What investors are weighing
The constructive view is that Nokia is spending working capital now because orders are coming in, and AI-related orders of 1.5 billion euros in one quarter support that. Buying supply early in a tight market can protect future deliveries.
The skeptical view is that the quality of earnings deteriorated even as the quantity improved: lower cash conversion, a lower gross margin, rising structural costs and a quarter helped by pulled-forward sales.
What to watch
Whether AI and cloud orders keep pace with the working-capital build in the fourth quarter, and whether Mobile Infrastructure sales hold up after the pull-forward.