Nokia's FY25 Earnings Outlook and Strategic Resilience Amid Tariff and Currency Headwinds

Nokia, once a titan of the mobile phone era, is now navigating a complex web of macroeconomic and geopolitical challenges in 2025. With a revised earnings outlook, strategic acquisitions, and a renewed focus on R&D, the Finnish telecom giant is testing the mettle of its long-term investment thesis. This article examines Nokia's FY25 financial performance, its resilience in the face of currency and tariff pressures, and the strategic moves that could define its trajectory in the coming years.

A Mixed Start to FY25: Headwinds and Gains

Nokia's Q1 2025 results revealed a net sales decline of 3% year-on-year, driven by currency headwinds and a weak dollar. However, the Network Infrastructure segment—bolstered by the Infinera acquisition—posted 11% growth, underscoring the potential of optical networking in an AI- and cloud-driven world. The Mobile Networks segment, while growing 2%, was hit by a one-time contract settlement charge of EUR 120 million. Meanwhile, Cloud and Network Services delivered 8% growth, buoyed by demand for 5G Core solutions.

Despite these pockets of strength, operating margins contracted sharply, from 13.5% in Q1 2024 to 3.6% in Q1 2025. A 820-basis-point drop in gross margin and increased R&D and operating expenses painted a picture of a company investing heavily in long-term growth at the expense of short-term profitability. Q2 preliminary results showed improvement, with EUR 300 million in comparable operating profit, but the full-year outlook was revised downward to EUR 1.6 billion–2.1 billion, reflecting a EUR 230 million drag from USD weakness and EUR 50 million–80 million from tariffs.

Strategic Resilience: Diversification, R&D, and Flexibility

Nokia's ability to adapt to macroeconomic pressures hinges on three pillars: diversification of revenue streams, aggressive R&D investment, and operational flexibility.

1. Diversified Revenue Streams: Unlike peers such as Ericsson and Huawei, Nokia's business model spans Network Infrastructure, Cloud and Network Services, and Optical Networks. This hybrid approach reduces reliance on any single market or technology. For example, the Infinera acquisition has positioned Nokia to capitalize on hyperscaler demand for high-speed optical networks, a sector expected to grow as AI and cloud computing intensify.

2. R&D as a Growth Engine: Nokia's R&D spend in FY24 reached EUR 4.88 billion—a 4.26% increase from 2023—and remains a priority in FY25. The company is channeling resources into 5G, Open RAN, and advanced optical technologies, areas critical to the next phase of telecom evolution. Its recent design wins with AT&T, Boost Mobile, and Telefonica highlight the payoff of these investments.

3. Operational Flexibility: Nokia's conservative debt-to-equity ratio of 0.24 and a net cash position of EUR 1.79 billion provide a buffer against volatility. The company is also leveraging global manufacturing flexibility to mitigate the impact of tariffs, a strategy expected to reduce their negative effect in the second half of 2025.

Macro Risks and Mitigation

Currency and tariff pressures remain significant headwinds. A weaker USD (Nokia now assumes a EUR:USD rate of 1.17 for the remainder of 2025) and evolving global tariffs could cost the company up to EUR 310 million annually. However, Nokia's strategic realignments—such as shifting manufacturing to lower-cost regions—aim to offset these costs. Additionally, its focus on high-margin services (e.g., 5G Core and private wireless) could improve profitability over time.

The company's long-term plans, including a capital markets day in November 2025 and a revised margin target of 13% by 2026 (down from 14%), suggest management is balancing short-term challenges with long-term ambition.

Investment Implications: A Cautious Bull Case

For long-term investors, Nokia's stock presents a paradox: a company with strong fundamentals and a clear strategic direction, yet one that's grappling with macroeconomic headwinds. The key question is whether its R&D-driven innovation and diversification can outpace the drag from tariffs and currency fluctuations.

Strengths:
- Growth in High-Potential Markets: Optical networking and 5G Core are expanding rapidly, with Nokia well-positioned to capture market share.
- Financial Resilience: A net cash position and low debt provide flexibility to navigate volatility.
- Dividend and Buybacks: A EUR 150 million share buyback program and a dividend proposal for FY24 (first payment in May 2025) offer near-term shareholder returns.

Risks:
- Currency Exposure: A stronger euro could further erode margins, particularly in dollar-denominated contracts.
- Tariff Uncertainty: Geopolitical tensions could lead to new tariffs, complicating cost structures.
- Execution Risks: Integrating Infinera and realigning R&D operations could strain resources if not managed effectively.

Conclusion: A Bet on the Future of Connectivity

Nokia's FY25 outlook is a mixed bag: near-term headwinds are undeniable, but its long-term strategy is compelling. For investors with a multi-year horizon, the company's focus on next-gen technologies, operational discipline, and financial resilience could justify the risks. However, patience is key. The company's success will depend on its ability to execute its Infinera integration, navigate macroeconomic turbulence, and capitalize on the AI and cloud-driven demand for high-speed infrastructure.

If Nokia can maintain its R&D edge and adapt to shifting global dynamics, it may yet prove that its story is far from over—and that the next chapter in telecom innovation will be written with its name in it.

Investment Takeaway: Consider a cautious allocation to Nokia for long-term growth in next-gen telecom, but monitor macroeconomic risks and execution progress closely.