Nokia's Reinvention: How the Tech Giant Survived and Adapted to AI
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| Nokia's Reinvention: How the Tech Giant Survived and Adapted to AI |
Nokia's name once dominated the mobile phone industry, commanding over 40 percent global market share in the early 2000s. Yet when smartphones emerged and Nokia failed to adapt quickly enough, the Finnish company faced what seemed like an irreversible decline. Most observers expected Nokia to join the long list of tech giants that couldn't survive disruption. Instead, Nokia executed one of the most remarkable corporate transformations in modern business history, reinventing itself as a leader in AI-driven network infrastructure. In November 2025, Nokia announced a bold new strategy positioning itself to capture value from the AI supercycle, targeting annual operating profit between €2.7 billion and €3.2 billion by 2028 while leading the transformation toward AI-native networks and 6G connectivity.
From Smartphone Failure to Strategic Pivot
Nokia's smartphone struggles are well documented. The company dismissed the iPhone's threat, clung too long to its Symbian operating system, and watched helplessly as Apple and Google's Android ecosystem captured the market. By 2013, Nokia sold its struggling mobile phone division to Microsoft for $7.2 billion, marking what many viewed as a corporate obituary.
However, Nokia's leadership recognized that exiting consumer devices didn't mean exiting technology entirely. The company retained its network equipment business, which had quietly built substantial expertise in telecommunications infrastructure. This division manufactured the radio towers, core network systems, and optical equipment that carriers worldwide depended on for mobile and fixed-line connectivity.
The pivot from devices to infrastructure represented a fundamental strategic reorientation. Rather than competing in consumer markets driven by fashion and rapid product cycles, Nokia focused on business-to-business sales of mission-critical equipment with longer replacement cycles and deeper customer relationships. The transformation required patience—network infrastructure generates lower margins than consumer devices and lacks the glamour that once made Nokia a household name.
Yet this unglamorous pivot created the foundation for Nokia's current AI-driven reinvention. The company maintained technical capabilities, customer relationships, and market position that would prove essential when artificial intelligence emerged as the defining technology of the 2020s.
The AI Supercycle and Nokia's Strategic Response
Artificial intelligence's explosive growth has created unprecedented demand for network infrastructure. Training large language models requires massive data centers connected by ultra-high-speed networks. Deploying AI applications demands low-latency connectivity that traditional networks struggle to provide. The "AI supercycle" that began accelerating in 2023 suddenly made Nokia's network expertise extraordinarily valuable.
At its Capital Markets Day in November 2025, Nokia announced a comprehensive strategy to position itself at the center of AI-driven network transformation. CEO Justin Hotard declared that Nokia changed the world once by connecting people and will again by connecting intelligence. This framing positions Nokia not as a legacy telecommunications company but as essential infrastructure for the AI era.
The strategy focuses on five strategic priorities that align Nokia's capabilities with AI-related opportunities. First, accelerating growth in AI and cloud infrastructure by providing the high-capacity networks that data centers require. Second, leading the next era of mobile connectivity through AI-native networks and 6G development. Third, growing through co-innovation with customers and partners rather than developing solutions in isolation. Fourth, streamlining operations to focus resources on highest-opportunity areas. Fifth, strengthening trust through secure, reliable connectivity that meets government and defense standards.
Nokia reorganized into two primary operating segments to execute this strategy: Network Infrastructure and Mobile Infrastructure. This simplified structure replaces a more complex organizational model, creating clearer accountability and allowing faster decision-making around AI-related opportunities.
Network Infrastructure: Powering AI Data Centers
Nokia's Network Infrastructure segment has emerged as a growth driver, overtaking Mobile Infrastructure in revenue contribution during 2025. This shift reflects surging demand for the optical and IP networking equipment that connects AI data centers and enables high-speed data transmission between computing clusters.
The segment encompasses three business units addressing different aspects of network connectivity. Optical Networks provides the high-capacity fiber optic systems that form the backbone of modern internet infrastructure. IP Networks supplies routers and switches that direct data traffic efficiently across networks. Fixed Networks delivers broadband access equipment that connects businesses and homes to high-speed internet.
Nokia's $2.3 billion acquisition of Infinera in 2025 significantly strengthened its optical networking capabilities. Infinera specialized in high-capacity data transmission technology critical for AI and cloud infrastructure. The acquisition positioned Nokia to meet explosive demand for datacenter interconnects that enable distributed AI training across multiple facilities.
In November 2025, Nokia announced its 7220 IXR-H6 family of data center switches designed specifically for AI workloads. These switches deliver exceptional throughput reaching up to 102.4 terabits per second with interface speeds at 800 gigabit Ethernet and 1.6 terabits per second. The switches comply with Ultra Ethernet Consortium specifications optimized for large-scale AI environments with up to one million processing units.
Nokia targets 6 to 8 percent net sales compound annual growth rate for Network Infrastructure during 2025-2028, with 10 to 12 percent growth specifically for combined Optical Networks and IP Networks. These projections reflect confidence that AI-related demand will sustain strong growth despite maturity in traditional telecommunications markets.
Mobile Infrastructure: AI-Native Networks and 6G
While Network Infrastructure captures current AI infrastructure demand, Nokia's Mobile Infrastructure segment positions the company for the next wave of AI transformation: bringing intelligence to mobile devices and edge computing environments. This segment consolidates Nokia's Core Networks, Radio Networks, and Technology Standards portfolios around mobile communication technologies.
The Mobile Infrastructure strategy centers on developing AI-native networks that don't just carry AI-related traffic but use AI themselves to optimize performance. Traditional networks require extensive manual configuration and monitoring. AI-native networks continuously analyze traffic patterns, predict congestion, optimize routing, and adapt to changing conditions automatically.
Nokia's partnership with NVIDIA represents a cornerstone of this AI-native network strategy. In 2025, the companies announced a $1 billion investment to integrate NVIDIA's AI-RAN technology into Nokia's radio access network portfolio. This enables development of 5G-Advanced and 6G networks that leverage AI for everything from spectrum management to predictive maintenance.
The partnership with T-Mobile U.S. to trial AI-RAN technologies in 2026 demonstrates real-world application of these concepts. Rather than theoretical research, Nokia is working with major carriers to deploy AI capabilities that improve network performance while reducing operational costs.
Nokia's 6G development efforts position the company to lead the next generation of mobile connectivity expected to launch around 2030. While 5G networks focused primarily on speed and latency improvements, 6G envisions networks as intelligent platforms that understand context, anticipate needs, and seamlessly integrate with AI applications running on devices and in the cloud.
AI-Powered Operations: Using Intelligence to Manage Networks
Beyond building networks for AI workloads, Nokia leverages artificial intelligence to transform how networks themselves operate. The company's Event-Driven Automation platform now incorporates advanced AIOps capabilities that use AI to monitor network performance, predict failures, and automatically remediate issues.
According to Nokia, these AI-powered operations capabilities contribute to a 96 percent reduction in network downtime. Rather than waiting for customers to report problems, AI systems detect anomalies, correlate disparate data sources, identify root causes, and often resolve issues before users experience any service degradation.
Three specific use cases demonstrate practical value. First, AI-powered operations with natural language processing enhance technician proficiency and automate repetitive tasks, allowing human experts to focus on complex problems. Second, AI-enabled troubleshooting correlates information across multiple systems to accelerate root cause identification. Third, AI continuously analyzes temporal patterns to enable proactive maintenance before problems impact customers.
Nokia conducted a live trial of AI-enabled automation with telecommunications provider du in 2025, demonstrating real-world application of these concepts. As networks grow more complex and AI workloads create unpredictable traffic patterns, autonomous network management becomes essential for maintaining reliability while controlling operational costs.
Defense and Government: Trusted Connectivity for Critical Applications
Nokia's reinvention includes expanding into defense-grade connectivity solutions, recognizing that government and military organizations represent significant growth opportunities. As AI becomes integral to defense and intelligence operations, secure and resilient network infrastructure gains strategic importance.
Nokia's solutions have already seen deployment in high-stakes military environments. The company's AirScale radio products and 5G Standalone Core enhanced real-time battlefield intelligence sharing during Norway's Joint Viking 2025 military exercise. The U.S. Marine Corps adopted Nokia's Banshee tactical private wireless services, demonstrating the company's ability to meet stringent defense requirements.
Nokia is establishing a new business unit focused specifically on defense-grade connectivity based on its core technologies. This unit will provide secure, resilient systems designed for government partners in the United States, Finland, and other allied countries. CEO Justin Hotard emphasized that connectivity is essential for modern defense and the company's goal is to incubate this business and give it room to innovate.
This defense focus carries both commercial and geopolitical significance. As digital infrastructure becomes increasingly central to national security, European countries and their allies seek trusted suppliers from democratic nations rather than depending on Chinese equipment manufacturers. Nokia's position as a Western provider of advanced connectivity technology creates strategic value beyond pure commercial considerations.
Financial Targets and Investment Strategy
Nokia's ambitious strategy requires substantial capital investment focused on areas with highest growth potential. The company committed $4 billion to U.S. research and development, including $3.5 billion for next-generation connectivity technologies such as AI-ready networks, 6G, and data center infrastructure. An additional $500 million supports capital expenditures in Texas, New Jersey, and Pennsylvania.
These investments contrast sharply with Nokia's challenges in the 2010s when rigid operational structure and insufficient R&D spending contributed to loss of market share in 5G equipment. Current leadership recognizes that maintaining technological competitiveness requires continuous investment even during periods when margins face pressure.
The company targets specific financial metrics by 2028 that reflect the expected payoff from AI-focused strategy. Network Infrastructure operating margin should reach 13 to 17 percent by 2028. Mobile Infrastructure gross margin targets 48 to 50 percent. Free cash flow conversion aims for 65 to 75 percent of comparable operating profit.
Nokia also announced plans to reduce Group Common and Other operating expenses from the current €350 million run rate to €150 million by 2028. This €200 million cost reduction reflects operational efficiency improvements and clearer focus after organizational simplification.
Portfolio Rationalization: Focusing on Core Strengths
As part of its strategic repositioning, Nokia identified several business units that offer growth possibilities but don't align with long-term priorities. These units transferred to a newly formed Portfolio Businesses segment where their future will be evaluated to determine optimal value creation.
Units moved to Portfolio Businesses include Fixed Wireless Access customer premises equipment, Site Implementation and Outside Plant services, Enterprise Campus Edge solutions, and Microwave Radio products. Together these businesses generated approximately €0.9 billion in net sales with an operating loss of €0.1 billion over the previous twelve months.
Nokia set 2026 as the year to determine definitive direction for these units, with options including divestiture, partnerships, or continued operation under revised models. This portfolio rationalization reflects disciplined capital allocation prioritizing areas where Nokia possesses sustainable competitive advantages and can generate attractive returns.
The willingness to exit businesses that don't fit strategic direction demonstrates organizational maturity often absent from large technology companies. Rather than clinging to legacy activities, Nokia focuses resources on AI-driven network infrastructure and mobile connectivity where it sees clearest paths to leadership positions.
Challenges and Competition
Despite strategic clarity and strong positioning for AI-driven growth, Nokia faces significant challenges executing its transformation. Competition from Chinese equipment manufacturers including Huawei and ZTE remains intense, particularly in markets where geopolitical concerns don't preclude their participation. These competitors often underprice Nokia equipment and benefit from government support that European and American companies lack.
Traditional telecom infrastructure markets continue maturing, with many developed markets seeing limited organic growth in mobile subscriptions or broadband connections. While AI creates new demand for network capacity, Nokia must execute effectively to capture disproportionate share of that demand rather than seeing it distributed across multiple equipment suppliers.
The company also navigates complex geopolitical dynamics. Deteriorating U.S.-China relations create opportunities as Western governments seek alternatives to Chinese equipment, but also risks if trade tensions escalate or if Nokia's significant Chinese market presence becomes politically problematic.
Finally, Nokia's transformation requires cultural change alongside strategic reorientation. Moving from traditional telecom equipment supplier to AI-driven infrastructure leader demands different skills, faster innovation cycles, and willingness to partner with technology companies outside Nokia's historical comfort zone.
Conclusion: From Phones to Intelligence Infrastructure
Nokia's journey from mobile phone dominance through existential crisis to AI infrastructure leadership demonstrates that corporate reinvention remains possible even after catastrophic missteps. The company that failed to anticipate the smartphone revolution has successfully positioned itself to enable the AI revolution.
The transformation required painful choices including exiting the consumer device business that once defined Nokia's identity. It demanded patience through years when network infrastructure generated steady but unspectacular results. And it ultimately required bold strategic repositioning as AI emerged as the defining technology trend of the 2020s.
Nokia's announcement in November 2025 of its AI supercycle strategy, financial targets, and organizational restructuring marks a new chapter in this ongoing transformation. CEO Justin Hotard's declaration that Nokia will again change the world by connecting intelligence reflects confidence that the company has found sustainable strategic direction aligned with profound technological shifts.
Whether Nokia achieves its ambitious targets depends on execution over the coming years. The competitive landscape remains challenging, technological change continues accelerating, and geopolitical uncertainties create both risks and opportunities. Yet Nokia's track record of survival, adaptation, and strategic repositioning suggests the company deserves consideration not as a legacy telecom player but as a potentially vital infrastructure provider for the AI era.
For business leaders navigating their own industries' disruptions, Nokia's story offers valuable lessons. Sometimes survival requires abandoning what you're known for to focus on capabilities that remain relevant. Transformation takes time and demands patience when results aren't immediately visible. And the companies that thrive through disruption are those willing to embrace uncomfortable change rather than defending comfortable but obsolete positions.