Nokia (NOK) Q2 2022 Earnings Call Transcript

Nokia (NOK -0.81%)
Q2 2022 Earnings Call
Jul 21, 2022, 4:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

David Mulholland

Good morning, ladies and gentlemen, and welcome to Nokia's second quarter 2022 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 Wiren, our CFO. You will notice that we switched to an audio-only webcast this quarter.

We will continue to use video for events where we see it adding value such as our business group progress updates. For our quarterly updates, considering we're now on the road meeting many of you in person, we thought it more efficient to return to audio-only. 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 rate will mostly be on a constant currency basis. And on margins, it will be on our comparable reporting. You can find reconciliation tables in our Q2 reports, back to our IFRS financials. Please note that our future report and this presentation are published on our website, and both the reconciliation is in there.

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

Pekka Lundmark -- President and Chief Executive Officer

Thank you, David, and good morning to everybody. I'm pleased to say that we continue to execute well in Q2. As you can see on this slide, net sales grew 3% in constant currency. This was in spite of continuing supply chain challenges and timing issues in two contract renewals Nokia Technologies.

The gross margin was 40.6% and operating margin, 12.2%, reflecting good progress in both Mobile Networks and Network Infrastructure. The margins declined slightly year on year due to the contract renewal timing in Technologies and that one-off software deal in Mobile Networks, as you may remember, that we highlighted in Q2 2021. If you exclude last year's software deal and Nokia Technologies from our results, operating margin would have improved by 330 basis points from 5.6 to 8.9 in Q2. And this does demonstrate the strength of the improvement in our product businesses.

Our good Q2 performance was achieved while we continue to invest in R&D. On this picture, you can see also -- on this chart on the screen, you can see that there has been a 13% increase in R&D expenditure since Q3 2020. And this has been funded through our improved gross margins and focus on efficiency in SG&A. We will continue this focus to further strengthen our technology leadership.

And then I'll say a few words on the performance across our business groups. First, Mobile Networks, where I was pleased to see a return to growth with a 1% increase year on year in constant currency. In spite of COVID-19-related lockdowns in the Shanghai region, supply chain challenges and a tough comparison caused by a one-off software deal in Q2 2021. We saw good growth in North America, Middle East, and Africa, and Latin America, which counter-declined in some other regions, including the impact of our exit from Russia.

Overall, this gives us confidence to grow net sales in 2022 at constant currency. While gross margin declined slightly year on year due to the one-off software dealing the previous year, operating margin did increase 70 basis points year on year. And you can see from the chart the progress we continue to make on a 12-month rolling basis, 12-month rolling gross margin on the screen. Also, pleasingly, our ReefShark penetration increased again and is now at 91%.

And we are clearly on the track to the target of reaching 100% by the end of this year. Network Infrastructure continued its positive trend with all four divisions showing growth. As you can see, fixed networks and Submarine networks had again a very strong quarter with both delivering double-digit growth. Top-line performance flowed through to both gross margin and operating margin in NI, which increased by 10 and 240 basis points, respectively.

There were some supplier-specific shortages impacting optical networks in the quarter, which are expected to improve in the second half. But overall Network Infrastructure had another really excellent quarter. Cloud and network services net sales were stable in the quarter. For the first half of the year, we saw growth of 3% and good progress in both gross margin and operating margin.

Clearly, second quarter was a bit weaker. First quarter was strong. And overall, the first half of the year demonstrated good development in CNS. The work to rebalance the portfolio continues, and you hopefully heard the presentation from Rogoff just over a month ago where he highlighted some of the longer-term initiatives we have in the business to move toward a more securing SaaS-based revenue stream.

The Nokia Technologies, as mentioned, there, we were once again impacted by the ongoing litigation surrounding the Oppo and Vivo renewals. In Q2, three of Nokia's patents were upheld by a German regional court with injunction granted against Oppo. We will robustly defend the value of our patent portfolio, but we'll do so fairly. And I am pleased to say the court also recognized.

We had complied complied with all negotiation obligation as standard essential patent holder. In the quarter, Nokia Technologies. We also delivered some new catch-up sales related to new patent license agreements in the automotive and consumer electronics markets. And, overall, as it also says on the slide, we do expect to return to the previously communicated annual run rate of 1.4 billion to 1.5 billion, with the assumption that the two ongoing contract renewals are concluded.

Then on the customer segments, and, of course, enterprise, which we have highlighted as a separate segment, I was really pleased to see that enterprise returned to growth this quarter, delivering an 8% increase year on year. And this business, of course, like the other businesses, were also impacted by some supply chain challenges. But this was, despite those challenges, we grew 8%. In enterprise, our order intake remains strong and we expect to see accelerated growth in the second half of the year.

As you remember, we have double down on our investments in private wireless since the start of this year to strengthen our leadership, and that is showing results. We added 35 new customers in private wireless during the second quarter. And as you can see on the slide, we now have 485 customers in this space. So, overall, good progress in the Enterprise segment.

And then, finally, I'll say a few words about the challenges in our wider operating environment next before handing over to Marco. Of course, the macroeconomic uncertainty is something we all need to pay attention to. So, let me make a few points to clarify the current impacts as we see them. First of all.

Even though our business is not immune to macro trends, we continue to see strong investment trends in connectivity, particularly into 5G and fiber deployments. And those investments are very important for many of our customers to cope with increasing data consumption and the need to increase productivity, which networks enable. Actually in worse economic times, the need to increase productivity in industrial operations, so we typically increase this, which could be good investments. So, far, we have not seen any major changes in our demand outlook.

Customer demand and order intake remain strong. And we continue to be more supply than demand-limited. As you can see on the charts, the the global penetration rates for both fiber and 5G, excluding China, remained low. For 5G sites globally, it's around 15%.

And even in some of the more developed markets, less than 25%. And you also see the homes connected and homes passed as a percentage of total homes in different parts of the world on the charts. But the macro trends could impact the pace at which our customers invest. There can, for example, be some challenges in emerging markets where currency movements could impact the affordability of our products that are effectively priced in U.S.

dollars or euros. More specifically, on supply chains, as you know, this has been a really challenging situation globally. And we have been dealing with it in a number of ways since the pandemic hit. Towards the end of last year -- or, actually, throughout last year, we were facing constraints across a lot of suppliers in the business.

In Q1, we said that the situation was changing a bit toward more supplier-specific challenges that were constraining our business. Today, that logically remains the case, but we do see signs of the remaining challenges starting to ease in the second half of '22 and into the first half of '23. Last quarter, we also highlighted that we could potentially be impacted by COVID-19-related lockdowns in Q2, which was the case in the Shanghai region. But we did manage the situation quite well.

And we have more or less recovered from that situation, which affected the supply chain in April and May. So, with that, over to you, Marco. And then after that, I look forward to the Q&A.

Marco Wiren -- Chief Financial Officer

Thank you, Pekka, and good morning from my side as well. If we now look a little bit deeper, our financial results, and starting with the regional performance, at the group level in reported currencies, the growth was 11%. And, of course, FX had a strong impact here, and 3% on a constant currency basis. And also here, on the chart and on the report, you can see that we now provide the regional performance, excluding Submarine networks.

And this is due to the fact that the nature of the business and the volatility that it has between different regions, we feel that it's better to show the actual demand trends we see across all regions. And we also have Submarine separately as you can see right there. And if we start looking at the North America, we saw 19% year-on-year growth, which reflected a double-digit growth in Network Infrastructure, where both fixed networks and IP networks had double-digit growth. Also, Mobile Networks had a double-digit growth in North America.

Then when it comes to Europe, you can see a decline. But remember, the large portion of this was related to the fact that we included all of our Nokia Technologies business in this region. And because the decision to exit Russia that will impact -- impacted also Europe. And Russia impact was about 100 million year-on-year impact.

And lastly, as you see, Submarines had a very good growth, 27% year on year. So, next, moving over to our operating profit development. Once again, we saw a good improvements in Mobile Networks and Network Infrastructure businesses, where both operating profit and margin expanded. And impressively, the improvement in Mobile Networks came despite the one-off software deal that helped at Quarter 2 in 2021.

However, these were largely masked by the fact that Nokia Technologies had a litigation with these two customers and had also impact our operating profit. Group Common also benefited from a positive currency revaluation related to our venture funds. And as Pekka mentioned, if we exclude the one-off software deal from Q2 last year and technologies as well this year and last year, the remaining business operating margin would have improved from 5.6% to 8.9%, which is quite impressive. And looking briefly at our cash flow performance in the quarter.

The free cash flow was negative in the quarter and this was mainly due to change in net working capital, which offset our adjusted profits. If you looked at the slide, you can see that we have broken out the components of the change in net working capital, which mainly related to liabilities and, more notably, the payment of our 2021-related employee variable pay, which we reflect already in Quarter 1. We also managed to increase inventories in the quarter in the middle of our ongoing component situation, and these were somewhat offset by lower receivables, partially due to higher sale of receivables in the quarter. We also saw about 200 million euro outflow related to payment of our quarterly dividend and the repurchase of shares.

So these all led to a net cash position of 4.5 billion at the end of the quarter. Shifting over to our addressable market, we have provided our usual quarterly update here. While there were some movements between BGs, we continue to expect our targeted addressable market to grow at 4% at constant currencies in 2022. Our estimate for Mobile Networks TAM increased from 4% to 5% and these are driven mainly by increased expectations for both North America and Europe.

What comes to Network Infrastructure, we estimate the market to increase from 3% to 5%, and this is largely reflected the strong demand we have seen in fixed networks, mainly related to upcoming broadband initiatives and fixed wireless access. When it comes to cloud and network services, growth declined somewhat due to some adjustments we made to the market to better reflect the areas we are prioritizing. And if we now look our outlook for 2022, the demand environment remains strong, but uncertainties are now around technologies contract renewals or the timing of that, potential additional COVID-19 lockdowns in China, and of course, the supply chain situation. Our full year net sales guidance remains unchanged in constant currencies and reflecting our current assumed euro-USD rate of 1.04, our net sales outlook is now 23.5 billion to 24.7 billion, and we are currently tracking toward the higher end of this range.

And our comparable operating margin guidance remains as earlier between 11% to 13.5%. And here, we are currently tracking toward the midpoint of this range as we manage the ongoing inflation, currency headwinds, which I will explain on the next slide. So, let's go there. So, this year has seen significant currency volatility with the U.S.

dollar strengthening around 10%. So, we want to help you to understand our currency exposures here as well. Operationally, as you can see on the slide as well, we are relatively well balanced between net sales and cost exposures in different currencies. The largest currency exposure we have is U.S.

dollar. And in Quarter 2, we had about 55% of net sales in USD compared to 50% to the cost, which is reinforcing my point that we are largely naturally hedged. And as a rule of thumb, a 10% strengthening of the USD would see an approximately 5% benefit to our net sales. And from operating margin perspective, before hedging, it would be slightly positive.

But we have the hedging program with a 12-month horizon to dampen the impact of currency fluctuations in our financial results. And this means, in the current financial year, our operating profit in absolute terms is largely unaffected by changes in the USD. Given the immediate benefit we see the net sales with operating profit unchanged, this will result in a negative impact to our operating margin in the short term. And then just to summarize, that we had a strong start to 2022, and we are well on track to deliver on our full year targets.

And, clearly, compared to what we have expected at the start of the year, we are facing issues we didn't expect from a geopolitical standpoint, and inflation has continued to gather pace as well. But despite these issues, we are still tracking toward the midpoint of our operating margin range, which emphasize also the progress we've been making in the business. So with that, I hand back to David for Q&A.

David Mulholland

Thank you, Marco. And thank you, Pekka, as well for the comments you made. Before we move to the Q&A session, I just wanted to give you another date for your dairies. We are planning to hold our next progress update, which will focus on our group technology strategy with our Chief Strategy and Technology Officer, Nishant Batra, along with our Nokia Technologies business with its president, Jenni Lukander.

The event will shift to being in-person in New York on Friday, the 9th of September, but the event will also be webcast for those who are unable to join us in person. So, with that, let's start the Q&A. As a courtesy to others in the queue, could you please limit yourself to one question and a brief follow-up. Darcy, could you please give the instructions?

Questions & Answers:

Operator

[Operator instructions] I'll now hand the call back to Mr. David Mulholland.

David Mulholland

Thank you, Darcy. We'll take our first question today from Alex Peterc from Societe Generale. Alex, please go ahead.

Alex Peterc -- Societe Generale -- Analyst

Yes, good morning and thank you for the question. Congratulations for very solid results by the headwinds that we see everywhere. Now, my first question would be on your ability to offset ongoing inflationary cost pressures to improve pricing. Are there any meaningful differences in this respect among your divisions? And is the frequency of new product releases similar across divisions? And do your longer duration contracts have any inflation-related repricing process? That will be my first question.

And the brief follow-up would be just if you could give us a trend on your levels of inventory. Are you now happy with where you are or do you increase -- need to increase the buffer or lower in the remainder of the year given what's going on in the supply chain? Thanks a lot.

Pekka Lundmark -- President and Chief Executive Officer

OK, thank you. If I take the first one, and Marco takes the second one. First of all, as we all understand, there is a big difference between existing contracts and new contracts when you deal with inflation. We are, of course, in all our new contracts in all our businesses, when we are making offers and signing deals, we are taking into account all the cost information and the cost development estimates that we have available.

And I guess good news is that we continue to -- while doing that, we continue to have strong order intake. So, this is definitely good news. Then, the other side of the coin is that depending on the business. And I guess when you asked about the differences between businesses Mobile Networks would be the one where the contracts would be in average longer than in other businesses.

So, it is usually very hard to go back to an existing contract and start changing the prices after the fact. We have to remember that this industry has been for a long time kind of thought into a mode where prices go down every year. And now, this is quite a big educational effort from us all to change that, because we are now in an inflationary environment. So, this is clearly the reason why we said already at the end of last year that even though we expect the underlying improvements in our profitability and our competitiveness to continue this year, the inflation does dampen some of the profit improvement potential during this year.

And this all has been, of course, included and incorporated in our guidance, including what we said today that we are expecting to land somewhere around the midpoint of the 11% to 13.5% range.

Marco Wiren -- Chief Financial Officer

And when it comes to the inventory levels and where we want to be, as you've seen, we've been working to build inventories to just have more safety stocks than normal. And the reason for business being that it has been difficult to understand exact lead times. They've been quite volatile. And that's why it's good to have some buffers.

In Quarter 2, for example, we increased inventories by 240 million. And we believe that until the supply chain has returned to more normal and we can trust on the lead times that we get from our suppliers, we prefer to have at least the level we have today and have a little bit buffer.

David Mulholland

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

Andrew Gardiner -- Citi -- Analyst

Good morning, David. Good morning, guys. Thank you for taking the question. Just another one to follow-up on Alex's point on margins.

If I think through the progression through the year based on the guidance you're giving, and if you know we assume technologies is in there for the full year in terms of a full complement of licensees, are you effectively implying mobile declines half and half. So, from the 9.5% you've just done for the first half of the year somewhere into the mid-8% range. Network Infrastructure declined a bit as well. Now, I hear what you're saying in terms of supply chain constraints and inflation and FX.

I was just wondering whether you know is there anything specific that you're already seeing in second half costs that is going to drive that? Or, you know, are you just being prudent in terms of the current environment?

Marco Wiren -- Chief Financial Officer

Yeah, I can start. And, first of all, we have been executing extremely well and if you see the first half year, we have a supply chain situation which has been quite challenging. We see that it should improve in the second half. But it's more supply specific issues that we still see than a broad-based issue for the whole industry.

And what comes to the operating margin, I would highlight at least two main reasons why we are guiding toward the midpoint. And one is the inflation that we have implicated early as well, and also the fact that we actually have our annual salary adjustment will come now from July and onwards. And, additionally, we have our hedging program that I mentioned also in the presentation.

Pekka Lundmark -- President and Chief Executive Officer

And, maybe, Marco, just to add -- sorry, just to add one thing that is also important, since you asked specifically about Mobile Networks. We had a pretty strong mix in H1. And you saw the comments in North America. So, this mix is expected to be less favorable in the second half of the year.

And, again, all this has been incorporated into the forecast of being closer to the midpoint of the range.

Andrew Gardiner -- Citi -- Analyst

Thanks very much.

David Mulholland

Did you have a follow-up, Andrew?

Andrew Gardiner -- Citi -- Analyst

Define the hedging impact.

Marco Wiren -- Chief Financial Officer

Yeah. What I mean by the hedging impact is that we hedge our operating profit in absolute terms. And when we've seen now, for example, very strong USD growth, we will get higher sales, but we will keep the operating profit at the same level. And that will have a negative impact on the operating margin.

But this is just a timing issue, so it is step-by-step going in because we have a rolling 12-month hedging program just to dampen the big swings that we see in currency fluctuations.

David Mulholland

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

Alex Duval -- Goldman Sachs -- Analyst

Yes. Hi there. Many thanks indeed to the question. We've seen one of your peers talk about the solid 5G backdrop this year, adopting rates.

Marco, you've talked about a good situation there as well. I just wondered if you could give us some color on the sustainability of the RAN market into next year. Obviously, one tends to think about target customers being somewhat less macro-sensitive. And you've talked today about confidence that you're not going to have a big impact near term from macro.

But it would be great to get a bit of context on your view into next year? Many thanks.

Pekka Lundmark -- President and Chief Executive Officer

OK. Thanks, Alex, that's obviously an enormously important question. And, again, none of us have a crystal ball on this one. But when we look at what we are seeing today, what we are seeing today and hearing from our customers, the plans for '23 seem to be pretty strong.

And we have to remember that, there are countries and regions which haven't even really started in 5G yet. And, obviously, India is one of the most important one here. Latin America, the same thing. It's only starting now.

So, that's why we do believe that we are still early in the 5G cycle. As you saw on the slide, the penetration of 5G sites is only 15% outside of China in the world. Again, this does not mean that we would be immune to any macroeconomic cycles. Of course, they do play a role, but all we can comment is what we are seeing today.

And then we are arguing that the underlying kind of almost secular, noncyclical trends should continue to be there for quite some time.

David Mulholland

Did you have a follow-up, Alex?

Alex Duval -- Goldman Sachs -- Analyst

Just very briefly on one of the earlier questions talking about the supply chain using in the second half. Some investors have been asking about press reports talking about chipmakers taking up prices in some areas, including in communication chips in coming quarters. Just wondered if you can comment at all on that and how you factor that into your statement of supply chain easing in the next couple of quarters. Many thanks.

Pekka Lundmark -- President and Chief Executive Officer

I mean supply chain easing comment was more on the availability side. We all know that semiconductor inflation has been strong. We've been able to deal with it reasonably well, as you can see in the numbers. And then, of course, as I said, everything, we are now seeing from our suppliers, we are taking into account in the new offers that we make.

Then the billion-dollar question is that, if the economy weakens, we are now seeing that demand on some consumer equipment is going down. How much of the relevant semiconductor capacity and the foundry capacity, substrate capacity will that release on the market and how will that be reflected on pricing. That remains to be seen. We have seen already that memory prices have come down.

But then for the other parts, it still remains to be seen.

David Mulholland

Thank you, Alex. We'll take our next question from Sandeep Deshpande from J.P. Morgan. Sandeep, please go ahead.

Sandeep Deshpande -- J.P. Morgan -- Analyst

Hi.

David Mulholland

Sandeep?

Sandeep Deshpande -- J.P. Morgan -- Analyst

Hi. Can you hear me? Hello?

David Mulholland

Yes. Go ahead, Sandeep.

Sandeep Deshpande -- J.P. Morgan -- Analyst

Yeah, hi. My question is, you know when you look at your growth in Mobile Networks in Q1 and Q2, it has been below market growth. Do you think that that growth will accelerate now into the second half and you will begin to take share? Because it looks like you have lost share in the market maybe because you could not ship. So, now will that shipments catch up to allow you to take share which will allow you into the following year to go on to be a share-taker in the market? And I have one quick follow-up on that.

Pekka Lundmark -- President and Chief Executive Officer

Yeah. Thank you, Sandeep. The statement that we made at the capital market day already more than a year ago is still valid that we did admit then that we had lost market share in the early stages of 5G. That is now changing.

We have caught up on technology. Now in this quarter, as you saw, we have returned to growth. And especially if you were to exclude that 80 million one-off software deal in the comparison quarter, the growth would actually have been stronger. And we do expect this trend to continue, a positive trend in terms of top line and market share, to continue in the second half of the year.

Marco Wiren -- Chief Financial Officer

And just to build on what Pekka said, Sandeep. Also, if you look the Quarter 2 Mobile Networks sales, we had a very good development on the RAN side, the equipment side. And we deliberately actually have been taking down, deploy services in certain geographies and certain customers where we don't believe that we are enough -- profitable enough. So, this is also impacting the mix.

Pekka Lundmark -- President and Chief Executive Officer

This is, Sandeep, a very important point that Marco is raising. The equipment and software growth is much higher actually than the top line headline figure on Mobile Networks. And on to the services side, Marco mentioned deploy services, there we are getting kind of becoming more and more selective when it comes to the types of deals that we make, and we are moving priority in services to higher-margin support and customer care services from deploy, which is the fact of low-margin installation work.

Sandeep Deshpande -- J.P. Morgan -- Analyst

Thank you. Just one follow-up on that one, when we look at the market, I mean, you know when investors, all of them talk about you know are we at peak 5G. And you presented some data on how many base stations have been installed in terms of, you know, how many need to be installed. Is that the case in North America as well, where 5G rollout started before other parts of your market?

Pekka Lundmark -- President and Chief Executive Officer

North America is obviously ahead of some other markets, and I refer to India, which has not even started yet. I mean, you have seen -- everybody has seen North American operators' comments on their CapEx. It continues strong in '23. And then, for obvious reasons, they would probably start to see some normalization in '24.

But then, of course, in addition to that, there is then the Enterprise side, the Enterprise Digitalization side, which is only now picking up. So, it's -- I mean, there's multiple factors playing into this equation.

David Mulholland

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

Francois Bouvignies -- UBS -- Analyst

Thank you very much. I was just wondering what is your sales growth excluding technology and Russia in Europe, just to have a feel of where you are in terms of growth rate and market share given maybe there is some swap out with Huawei. That's my first question.

Marco Wiren -- Chief Financial Officer

Yeah, I can start. When it comes to Europe, just like I mentioned in the presentation as well that, we have -- remember that on those figures, we have technology -- the whole technology sales, and then we had about 100 million impact from Russia, exiting Russia. So, that's impacting. When it comes to the otherwise Europe, I would say that we have been quite successful in those cases where our customers have been replacing the supplier base, and we won about half of those cases.

Just remember here as well that in the beginning of that contract, we do the swaps and that's when we don't see that big impact in our P&L in our profit line. It takes some time before that starts to come through.

David Mulholland

Do you have a follow-up, Francois?

Francois Bouvignies -- UBS -- Analyst

Yeah, a quick follow-up is on the 5G site penetration of what you disclosed 15% excluding China. I was just wondering how you think about this percentage penetration 5G, given maybe the lack of penetration, maybe more use for urban areas. I mean do you expect this penetration to be like 100%, or it's going to be lower focusing on urban in the first stage and maybe more rural but in the longer term? Just trying to feel about how should we think about the site penetration level in the near future.

Pekka Lundmark -- President and Chief Executive Officer

That's, of course, a very good question, but also very difficult to give a detailed answer. The way it, of course, goes is that, that the installation start in urban areas, you build first urban coverage. And then at the same time, when you start adding capacity in the [Technical difficulty] rural -- more rural coverage and this goes gradually. But of course, there is a lot of areas in the world, rural areas, where it will take a long, long time before there will be coverage.

So, it will never go to 100%. But the pace of this with which this will happen, of course, would require a longer and more detailed conversation than what is possible at this time.

David Mulholland

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

Peter Nielsen -- ABG Sundal Collier -- Analyst

Thanks very much. I'd like to return to North America if I may, please. Can we take your comments -- previous comments about growth going forward? To imply that the issues which hampered your sales in North America at the latter part of last year and again in Q1 are now behind you completely, and we are sort of looking at more growth in line with the market sort of based on market dynamics and competition, etc. But there should be no structural factors hampering your sales in North America going forward, if I understand your comments correctly.

And my quick follow-up would just be, Pekka, you mentioned accelerated growth in Enterprises in the second half. Can we also assume that the investments in Enterprises will also accelerate going forward and perhaps the profit contribution in the near term will be more negative sort of in the near term? Thank you.

Pekka Lundmark -- President and Chief Executive Officer

At least when it comes to North America, I can confirm that what we are hearing from customers now is that, that we are now fully competitive when it comes to technology. Then, of course, there is always new deals to be made on a continuous basis. And of course, our goal is now that we would at least grow with the market. And in any business, of course, we want to -- we have lost market share in the market, our goal would be to win it back.

So, that's at least the fundamental basis for competitiveness, which is technology is there which gives us good possibilities to then fight even harder on the market. Then on the Enterprise side, yes, we do see Enterprise investment accelerating. As a whole, the service provider market is -- has always been and will be a low-growth market. But the Enterprise market, in many cases, grows double-digit.

And as we have said many times, only a small part of the Enterprise or Industrial Digitalization potential has been captured yet. And this is something that we expect to be a megatrend in the world that is driving that part of the market throughout this decade actually. And that's why, well, Enterprise is now 7% roughly of our sales. Our goal absolutely is to make that relative share growth going forward so that we would get it into double digit in the coming years.

David Mulholland

Thank you, Peter. We'll take our next question from Richard Kramer from Arete. Richard, please go ahead.

Richard Kramer -- Arete Research -- Analyst

Thanks very much. I'd like to ask this very specifically because I'm just trying to understand the shortfall in Technologies. Are you currently in dispute with any other large licensees beyond Oppo/Vivo that might be impacting the Technologies business? And do you anticipate any potential license renewals between now and the end of the year having an impact on those numbers? Because they obviously have a huge impact on profitability. Thanks.

Marco Wiren -- Chief Financial Officer

Yeah, thank you. And it's Oppo and Vivo, just like we've been saying as well. So, we have -- in several countries, we have a litigation with them. And I suppose you saw the latest outcome from Germany that it seems that at least in German Court was very positive how we have been handling these negotiations.

And we just want to emphasize once again that we want to protect the value of our patent portfolio before specific timing, and we are very confident that we have a very good patent portfolio as well.

David Mulholland

Did you have a follow-up, Richard?

Richard Kramer -- Arete Research -- Analyst

Just a quick follow up -- yes, please. And just a quick follow-up on this, on Sandeep's question about the U.S. and whether it might have a peak in capex in '23. Can you lay out whether you're still expecting that you can win back market share at Verizon since that's obviously has been a 10% plus customer of Nokia in the past.

And can you talk a little bit about the competitiveness of your products at the 3.5-gig level on the radio side? Thanks.

Pekka Lundmark -- President and Chief Executive Officer

We believe that we have a fully competitive product on 3.5 and in 5G overall. I mean, just as one example, if you look at the recent Ookla measurements in North America and how they are rating the different carriers and our largest -- or one of the large customers that we have, T-Mobile, and the performance of their network where a significant part of that network is the competitiveness. This is true to both 3.5 and then the other frequencies as well. Then when it comes to specific customers and the market shares of win backs, as I said on a general level, of course, our goal is to maximize our market share.

And if we have lost market share somewhere, our goal is to win it back. But if those things would happen, that's something that I do not want to speculate on.

David Mulholland

Thank you, Richard. We'll take our next question from Artem Beletski from SEB. Artem, please go ahead.

Artem Beletski -- Skandinaviska Enskilda Banken -- Analyst

Yes, hi. Thank you for taking the question. I would like to ask about the Network Infrastructure growth that continues to surprise us positively, and whether you see that this type of double-digit development could be sustained going forward? Or would there come some type of capacity limitations to you? And I guess like Fixed Network is particularly the part that has been showing good development. And maybe my quick follow-up is relating to supply chain related revenue impact, would you provide some type of indication how big this impact has been in first half of this year? Just to get a clue how big acceleration we could see going forward if situation normalizes.

Pekka Lundmark -- President and Chief Executive Officer

For Network Infrastructure, we do see the underlying strong trends to continue. And you saw on that slide one KPI, which is the homes passed and homes connected. But the interesting thing for NI is that, now when we are building home broadband and building 5G base stations, that is driving the backhauling market. It's driving the IP routing market, and it's starting to drive the optical, regional and then optical backbone market as well.

And typically, the access markets take a first that we have seen both for base stations and fixed broadband access. And then the natural assumption would be that then next, we would see an acceleration in IP and optical. And the good thing is that we have a pretty strong technology position here. Of course, then, if you ask that how long will the double-digit growth continues -- it's impossible to say the comparables are, of course, getting tougher if you take fixed access or fixed broadband, grew 35% last year, 29% in Q1, and 22% in Q2.

So, yes, comparables are getting tough. But we have good market share. The market share has grown in GPON or XGS-PON optical line terminals, we have more than 50% market share. And that is one of the strongholds that we have in that business.

And again, even on this access network level, there is a lot of work to do that remains. So, that's why we are really proud of what NI has achieved in the last couple of years. And there is every reason to be optimistic about the future as well.

Marco Wiren -- Chief Financial Officer

And just building on what Pekka said, if you look at the U.S. government and also European Union are heavily focusing on this area when it comes to connectivity. And we see a lot of good opportunities for us as a market leader and you know to capture good share here as well.

David Mulholland

Thank you, Artem. We'll take our next question from Simon Leopold from Raymond James. Simon, please go ahead.

Simon Leopold -- Raymond James -- Analyst

Thank you very much. I just want to get a really easy clarification than my question. On the clarification, I just want to verify that the rationale for the higher revenue outlook for the full year is fully reflective of currency and not other factors. And in terms of my question, I want to get a better understanding of your goals and opportunities for nontelco revenue.

As we look out into the future, whether it's coming from routing, private wireless, what kind of verticals, government versus hyperscale, we could unpack what's driving that. I did hear earlier, the 7% base and the goal for double digits. I want to get a better understanding of what drives it, where does it come from. Thank you.

Marco Wiren -- Chief Financial Officer

Yeah, I can start, and when it comes to the guidance on the top line, this is purely adjustment to the current FX rates that we have. So, we keep the guidance as we had earlier. The only thing that we now narrowed down a little bit, we say that on the upper end of that interval. So, we give a little bit more understanding where we are in that guidance.

What comes to the ambitions to grow beyond operators today, we have about 18% sales outside of CSPs. And just like Pekka mentioned earlier, we believe that within this market, Enterprise sector has definitely much higher growth outlook than CSP market. And we believe that big part of that growth that we see in the coming years is coming from the Enterprise sector and webscalers.

Pekka Lundmark -- President and Chief Executive Officer

Just to build on that, I mean, one, in addition to -- I mean, when we talk about nontelco, it's important to qualify what that means because there are several different types of or quite different types of business opportunities. Obviously, in that 18%, which is nontelco, for us, yes, we have the Submarine Networks or webscalers for example, we have the licensing business. But the real enterprise, one business case is clearly Enterprise, Network Infrastructure, optical, and routing for Enterprise. Then the other business case is webscalers, which is a fast growing market when you look at the market growth estimates while again, while telco growth is slow.

When you look at what webscalers are estimated to invest in connectivity and in networking, it's really growing fast. And from that point of view, the breakthrough that we made into the Microsoft switching is really an important one. And we have similar attempts going on, on the optical side with some of the webscalers as well. And then, of course, there is this big opportunity of private wireless campus wireless networks that we are getting into.

Then another opportunity is authority networks, which are getting modernized and new generations with additional security for authorities and public services, such as police, fire brigades, ambulance, and so on and so on. There's a lot of going on there as well. And then, of course, government's own networks, U.S. government is investing a lot.

We have started a special unit for that. A lot of opportunities there as well. So, this is quite -- when we talk about Enterprise or nontelco, it's really broad-based. And we are moving on several fronts there.

David Mulholland

Thank you, Simon. We'll take our next question from Sami Sarkamies from Danske Bank. Sami, please go ahead.

Sami Sarkamies -- Danske Bank -- Analyst

Good afternoon. Thanks for being very clear with the guidance. I would still like to check one more thing. When you say that you're expecting to be around the midpoint of the guidance range in terms of EBIT margin, do you think you will be able to reach the midpoint even if the pending IPR renewals don't happen this year?

Marco Wiren -- Chief Financial Officer

Yeah, thank you. The assumption that we have in the outlook is that these two deals that we are in the litigation right now will be solved. So, this is baked in, in our outlook as well.

Sami Sarkamies -- Danske Bank -- Analyst

OK. And as a follow-up, could you please disclose the IPR catch-up payments you recorded now in the second quarter and a year ago?

Pekka Lundmark -- President and Chief Executive Officer

And they were about the same level this quarter than last year.

Sami Sarkamies -- Danske Bank -- Analyst

Which was?

Marco Wiren -- Chief Financial Officer

We haven't actually disclosed the number itself. And the reason is that, if there's one specific deal that we signed, we're not allowed to disclose any details of those deals, and you could calculate backwards also in that case what is the value of the deal. And unfortunately, we are not in a position to be able to do that.

Sami Sarkamies -- Danske Bank -- Analyst

OK, thank you.

David Mulholland

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

Paul Silverstein -- Cowen and Company -- Analyst

I appreciate you all squeezing me in. Pekka and Marco, I appreciate your comments about the ongoing strength of demand, but concerns about macro. My specific question is, can you give any insight on linearity in certain quarters? Have you seen consistent strength in your order book throughout the quarter, through the end of the quarter, and into the beginning of this quarter?

Pekka Lundmark -- President and Chief Executive Officer

Yeah. We have not seen any major changes. Our order intake and the number of new opportunities that we have in the pipeline has remained strong. Again, I'm not implying that we would be immune to anything that happens in the macro.

We are all seeing the worrying development in macro. But all we can -- we don't have a crystal ball. All we can comment is what we are seeing from our customers. And there is no -- on the kind of aggregate level, there is no change.

There has been cases, especially in emerging markets where there have been countries hit by weak currencies and/or high inflation where capex plans have been indicated to be lower. But at this time, these have been more exceptions than rules. In the big picture, we have not seen at this time any meaningful change.

Paul Silverstein -- Cowen and Company -- Analyst

So my follow-up, I have a similar question regarding supply chain improvement and inflation. Relative to your comments, are you just allowing for -- an impact assuming accounting for the obvious or have you actually seen inflation already just start to have an impact on your cost structure? And same thing with your comments about supply chain improvement, is that based on hope? Are you actually seeing points that is coming, improvement in the second half?

Pekka Lundmark -- President and Chief Executive Officer

Now, the line was breaking up, so I'm not sure if I --

David Mulholland

He was asking on have we seen concrete evidence of the impact of inflation on our business. And what -- do we have something concrete on the supply chain improvement in the second half?

Pekka Lundmark -- President and Chief Executive Officer

I mean -- well, absolutely, we are seeing inflation in our business. The semiconductor prices have gone up. There is inflation in pretty much everything that you touch in the world at the moment. And all of that has, of course, been incorporated in the guidance that we have given.

We've been able to mitigate some of that with the technology improvement with productivity improvement and so on. And that's why we've been able to maintain a pretty solid profitability despite the inflation. And then when it comes to new deals, as I explained earlier, of course, in all new deals that we make, we take into account all cost information that we are seeing and what we are expecting to see in the coming years. Then specifically on semiconductors, the concrete evidence that you asked for.

I mean, this is very tactical. We are in day-to-day discussions with all key suppliers and little and little -- little by little, there are more cases where we see more components becoming available. And this is what we are expecting to see in the second half of the year. Then, just to complete the answer on the cost of semiconductors, as I said earlier, we have seen that memory prices have turned.

They have actually dropped, but this is not yet true to the broader component supplier base.

David Mulholland

Thank you, Paul. We'll take our last question from Felix Henriksson from Nordea. Felix, please go ahead.

Felix Henriksson -- Nordea -- Analyst

Hi, thanks for taking my question. Just given that your restruct penetration rose to only the one Mobile Networks and you're say to achieve your 100% target by the year end. How should we think about the gross margin upside in Mobile Networks heading toward the year end and into the 2023 as the inflationary headwinds are mounting how should we think about the different components? Thanks.

Pekka Lundmark -- President and Chief Executive Officer

We are, of course, not giving any specific gross margin guidance. I mean, this is -- always like in any business, this is a game that you need -- that you want to play between volume and margin so that you optimize the outcome for your shareholders. And that's what we are doing. Top line is important.

Margin is important. We are working with our suppliers to deal with the inflation. We are, of course, negotiating best possible prices in the deals, and as I said, optimizing volume and margin so that we get the best possible outcome. I'm not really sure if I'm able to get into any more details than this.

It depends a lot on the overall semiconductor, cost development, overall inflationary development. Regardless of all that, we still have potential to improve our technology position, our internal efficiency, our R&D productivity, and so on. So, there's a lot to do in addition to working on the supply chain cost.

David Mulholland

Did you have a very quick follow-up, Felix?

Felix Henriksson -- Nordea -- Analyst

No, that's all from me. Thanks.

David Mulholland

That was our last question for today. Thank you for -- everyone for your questions. Thank you, Pekka and Marco, for your answers. Ladies and gentlemen, this does conclude 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.

Thank you for listening.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

David Mulholland

Pekka Lundmark -- President and Chief Executive Officer

Marco Wiren -- Chief Financial Officer

Alex Peterc -- Societe Generale -- Analyst

Andrew Gardiner -- Citi -- Analyst

Alex Duval -- Goldman Sachs -- Analyst

Sandeep Deshpande -- J.P. Morgan -- Analyst

Francois Bouvignies -- UBS -- Analyst

Peter Nielsen -- ABG Sundal Collier -- Analyst

Richard Kramer -- Arete Research -- Analyst

Artem Beletski -- Skandinaviska Enskilda Banken -- Analyst

Simon Leopold -- Raymond James -- Analyst

Sami Sarkamies -- Danske Bank -- Analyst

Paul Silverstein -- Cowen and Company -- Analyst

Felix Henriksson -- Nordea -- Analyst

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