Good morning, ladies and gentlemen, and welcome to Nokia's second quarter 2022 results call. I'm David Mulholland, Head of Investor Relations, Nokia, and today with me is Pekka Lundmark, our President and CEO, along with Marco Wirén, 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 felt 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 factor 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 report, back to our IFRS financials. Please note that our Q2 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, and Marco will then go into a bit more detail of some of the key factors impacting our financial performance and how we see the outlook for 2022. With that, let me hand over to Pekka.
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 in Nokia Technologies. 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 that as you may remember, we highlighted in Q2 2021.
If you exclude last year's software deal on Nokia Technologies from our results, operating margin would have improved by 330 basis points from 5.6 to 8.9 in Q2. This does demonstrate the strength of the improvement in our product businesses. Our good Q2 performance was achieved while we continued to invest in R&D. On this chart on the screen, you can see that there has been a 13% increase in R&D expenditure since Q3 2020. 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. 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 declines 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 deal in the previous year, operating margin did increase 70 basis points year-on-year.
You can see from the chart, the progress we continue to make on a twelve-month rolling basis, twelve-month rolling gross margin on the screen. Also pleasingly, our ReefShark penetration increased again and is now at 91%, and we are clearly on 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. Topline 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. 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 Raghav just over a month ago, where he highlighted some of the longer-term initiatives we have in the business to move towards a more recurring SaaS-based revenue stream. 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 injunctions granted against Oppo.
We will robustly defend the value of our patent portfolio, but we'll do so fairly. I'm pleased to say the court also recognized we had complied with all negotiation obligations as a standard essential patent holder. In the quarter in Nokia Technologies, we also delivered some new catch-up sales related to new patent license agreements in the automotive and consumer electronics markets. Overall, as it also says on the slide, we do expect to return to the previously communicated annual run rate of EUR 1.4-1.5 billion, with the assumption that the two ongoing contract renewals are concluded. On the customer segments, and of course, enterprise, which we have highlighted as a separate segment, I was really pleased to see that enterprise return to growth this quarter, delivering an 8% increase year-on-year.
This business, of course, like the other businesses, were also impacted by some supply chain challenges. 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 doubled 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. Overall, good progress in the enterprise segment. 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. 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. 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, industrial operation typically increases, which could be good to investments. So far, we have not seen any major changes in our demand outlook. Customer demand and order intake remains strong, and we continue to be more supply than demand limited.
As you can see on the charts, the global penetration rates for both fiber and 5G, excluding China, remain low. For 5G sites globally, it's around 15%, and even in some of the more developed markets, less than 25%. You also see the homes connected and homes passed as percentage of total homes in different parts of the world on the charts. 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 US 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 towards more supplier-specific challenges that were constraining our business. Today, that largely remains the case, but we do see signs of the remaining challenges starting to ease in the second half of 2022 and into the first half of 2023. 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. 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.
With that, over to you, Marco, and then, after that, I look forward to the Q&A.
Thank you, Pekka, and good morning from my side as well. If we now look a little bit deeper at our financial results and starting with the regional performance. At the group level, in reported currencies, the growth was 11%. Of course, FX had a strong impact here, and 3% on a constant currency basis. Also here on the chart and on the report, you can see that we now provide the regional performance excluding submarine networks. 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 our regions. We also have submarines separately, so you can see that there.
If we start with looking at North America, we saw 19% year-over-year growth, which reflected the 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. When it comes to Europe, you can see a decline. Remember the large portion of this was related to the fact that we include all of our Nokia Technologies business in this region. Because the decision to exit Russia that will impact or impacted also Europe. Russia impact was about EUR 100 million year-over-year impact. Lastly, as you see, submarines had a very good growth, 27% year-over-year. Next, moving over to operating profit development.
Once again, we saw a good improvements in Mobile Networks and Network Infrastructure businesses, where both operating profit and margin expanded. Impressively, the improvement in Mobile Networks came despite the one-off software deal that helped quarter two 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. 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.
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 look to 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 flagged already in quarter one. We also managed to increase inventories in the quarter in the middle of the ongoing component situation. These were somewhat offset by lower receivables, partially due to higher sale of receivables in the quarter. We also saw about EUR 200 million outflow related to payment of our quarterly dividend and the repurchase of shares.
These all led to a net cash position of EUR 4.5 billion at the end of the quarter. Shifting over to our addressable market, we have provided our usual quarterly upgrade here. While there were some movements between businesses, we continue to expect our targeted addressable market to grow at 4% at constant currencies in 2022. Our estimate for Mobile Networks has increased from 4% to 5%, and this is driven mainly by increased expectations for both North America and Europe. When it comes to Network Infrastructure, we estimate the market 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've made to the market to better reflect the areas we are prioritizing. If we now look at our outlook for 2022, the demand environment remains strong, but uncertainties are now around technology 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. Reflecting our current assumed EUR-USD rate of 1.04, our net sales outlook is now EUR 23.5 billion-EUR 24.7 billion. We are currently tracking towards the higher end of this range.
Our comparable operating margin guidance remains as earlier between 11%-13.5%. Here we are currently tracking towards the midpoint of this range as we manage the ongoing inflation, currency headwinds, which I will explain in the next slide. Let's go there. This year has seen significant currency volatility with the US dollar strengthening around 10%. 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 US dollar. In quarter two, we had about 55% of net sales in USD compared to 50% of the cost, which is reinforcing my point that we are largely naturally hedged.
As a rule of thumb, a 10% strengthening of the USD would see an approximately 5% benefit to our net sales. From operating margin perspective before hedging, it would be slightly positive. We have the hedging program with a 12-month horizon to dampen the impact of currency fluctuations in our financial results. 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 at the net sales with operating profit unchanged, this will result in a negative impact to our operating margin in the short term. 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.
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. Despite these issues, we are still tracking towards the midpoint of our operating margin range, which emphasizes also the progress we've been making in the business. With that, I hand back to David for Q&A.
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 diaries. 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 ninth of September, but the event will also be webcast for those who are unable to join us in person. 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?
Thank you. We will now begin the question-and-answer session. If you're also viewing the webcast, please remember to mute the audio on your computer before asking your question as there is a 30-second delay. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up the handset before pressing the keys. To withdraw your question, please press star then two. I will now hand the call back to Mr. David Mulholland.
Thank you, Darcy. We'll take our first question today from Aleksander Peterc from Société Générale. Alex, please go ahead.
Yes, good morning, and thank you for the question. Congratulations for today's solid results despite the headwinds that we see everywhere. Now, my first question would be on your ability to offset the ongoing inflationary cost pressures to improve pricing. Are there any meaningful differences in this respect among your divisions? Is the frequency of new product releases similar across divisions? Do your longer duration contracts have any inflation-related repricing clauses? That would be my first question. Then a 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 need to increase the buffer or lower it in the remainder of the year given what's going on in the supply chain? Thanks a lot.
Okay. 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, taking into account all the cost information and the cost development estimates that we have available. I guess good news is that, while doing that, we continue to have strong order intake. This is definitely good news.
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 on average longer than in other businesses. It is usually very hard to go back to an existing contract and start changing prices after the fact. We have to remember that this industry has been, for a long time, kind of taught into a mode where prices go down every year. Now this is quite a big educational effort from us all to change that because we are now in an inflationary environment. This is clearly the reason why we said already.
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. 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%-13.5% range.
What comes to the inventory levels and where we wanna be, as you've seen, we've been working to build inventories to just have more safety stocks than normal. The reason for this has been that it has been difficult to understand exact lead times. They've been quite volatile. That's why it's good to have some buffers. In quarter two, for example, we increased inventories by EUR 240 million. 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.
Thank you, Alex. We'll take our next question from Andrew Gardiner from Citi. Andrew, please go ahead.
Good morning, David. Good morning, guys. Thank you for taking the question. Just another one to follow up on Alex's point on margins. You know, 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 on half, say 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?
you know, are you just being prudent in terms of the current environment?
Yeah, I can start. First of all, we have been executing extremely well. If you see the first half year, we have had 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. What comes to the operating margin, I would highlight at least two main reasons why we are guiding towards the midpoint. One is the inflation that we have indicated earlier as well, and also the fact that we actually have our annual salary adjustment will come now from July and onwards. Additionally, we have our hedging program that I mentioned also in the presentation.
Sorry, just to add one thing that is also important is since you asked specifically about Mobile Networks. We had a pretty strong mix in H1, and you saw the comments on North America. This mix is expected to be less favorable in the second half of the year. Again, all this has been incorporated into the forecast of being closer to the midpoint of the range.
Thanks very much.
Did you have a follow-up, Andrew?
To find the hedging impact.
Yeah, what I mean by the hedge impact is that we hedge our operating profit in absolute terms. 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. This is just a timing issue, so it is step-by-step going in because we have a rolling twelve months hedging program just to dampen the big swings that we see in currency fluctuations.
Thank you, Andrew. We'll take our next question from Alexander Duval from Goldman Sachs. Alex, please go ahead.
Yes. Hi there. Many thanks indeed for the question. We've seen one of your peers talk about a solid 5G backdrop, this year, adopting raised TAM. 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 telco customers being somewhat less macro sensitive. You've talked today about confidence that you're not gonna have a big impact, near term from macro. It'd be great to get a bit of context on your view into next year. Many thanks.
Okay. Thanks, Alex. That's obviously an enormously important question. Again, none of us have a crystal ball on this one. When we look at what we are seeing today and hearing from our customers, the plans for 2023 seem to be pretty strong. We have to remember that there are countries and regions which haven't even really started in 5G yet. Obviously India is one of the most important one here. Latin America, the same thing. It's only starting now. 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, not cyclical trend should continue to be there for quite some time.
Did you have a follow-up, Alex?
Just very briefly on one of the earlier questions, talking about the supply chain easing in the second half. Some investors have been asking about press reports talking about chip makers 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. Maybe. Thanks.
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. 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.
For the other parts, it still remains to be seen.
Thank you, Alex. We'll take our next question from Sandeep Deshpande from J.P. Morgan. Sandeep, please go ahead.
Hi.
Sandeep?
Hi. Hi. Can you hear me? Hello?
Yes. Go ahead, Sandeep.
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 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 the shipment catch up to allow you to take share, which will allow you into the following years to go on to be a share taker in the market? I have one quick follow-up on that.
Yeah. Thank you, Sandeep. The statement that we made at the Capital Markets 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 EUR 80 million one-off software deal in the comparison quarter, the growth would actually have been stronger. 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.
Just build on what Pekka said, Sandeep. Also, if you look at the quarter two mobile network sales, we had a very good development on the RAN side, the equipment side, and we deliberately actually have been taking down deployment services in certain geographies and certain customers where we don't believe that we are profitable enough. This has also impacted the mix.
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. On 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. We are moving priority in services to higher margin support and customer care services from deploy, which is de facto low margin installation work.
Thank you.
Do you have a follow-up, Sandeep?
Just one follow up on that, when we look at the market, I mean, you know, when investors, all of them talk about, you know, are we at peak 5G? You've 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?
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 2023, and then for obvious reasons, they will probably start to see some normalization in 2024. In addition to that, there is then the enterprise side, the enterprise digitalization side, which is only now picking up. It is, I mean, there are multiple factors playing into this equation.
Thank you, Sandeep. We'll take our next question from François-Xavier Bouvignies from UBS. François, please go ahead.
Thank you very much. I was just wondering what is your sales growth excluding technology in 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.
Yeah, I can start. What 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 EUR 100 million impact from Russia, exiting Russia. That's impacting. What comes to 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 to 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 PNL, in our profit line. It takes some time before that starts to come through.
You have a follow-up, François?
Yeah. 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 gonna be a 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.
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 the installations start in urban areas. You build first the urban coverage, and then at the same time, when you start adding capacity in the urban, in more rural coverage, and this goes gradually. Of course there is a lot of areas in the world, rural areas where it will take a long time before there will be coverage. It will never go to 100%. 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.
Thank you, François. We'll take our next question from Peter Nielsen from ABG. Peter, please go ahead.
Thanks very much. I'd like to return to North America for me, please. Can we take your comments, previous comments about growth going forward, to imply that the issues which hampered your sales in North America 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, et cetera? But there should be no structural factors hampering your sales in North America, going forward, if I understand your comments correctly. My quick follow-up would just be, like you mentioned, accelerated growth in enterprises in the second half. Can we also assume that the investments in enterprises will also accelerate going forward?
Perhaps the non-profit contribution in the near term will be more negative? Thank you.
At least when it comes to North America, I can confirm that what we are hearing from customers now is that we are now fully competitive when it comes to technology. Of course, there is always new deals to be made on a continuous basis. Of course our goal is now that we would at least grow with the market. In any business, of course, we want to. If we have lost market share in the market, our goal would be to win it back. 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.
On the enterprise side, yes, we do see enterprise investment accelerating. As a whole, the service provider market has always been and will be a low-growth market. The enterprise market, in many cases, grows double-digit. As we have said many times, only a small part of the enterprise or industrial digitalization potential has been captured yet. This is something that we expect to be a mega trend in the world that is driving that part of the market throughout this decade, actually. That's why, while enterprise is now roughly 7% of our sales, our goal absolutely is to make that relative share growing forward so that we would get it into double-digit in the coming years.
Thank you, Peter. We'll take our next question from Richard Kramer from Arete. Richard, please go ahead.
All right, 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 and 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.
Yeah, thank you. It's Oppo and Vivo, just like we've been saying as well. We have in several countries litigation with them. I suppose you saw also the latest outcome from Germany that it seems that at least the German court was very positive how we have been handling these negotiations. We just want to emphasize once again that we wanna protect the value of our patent portfolio before specific timing. We are very confident that we have a very good patent portfolio as well.
Did you have a follow-up, Richard?
Yes, please. 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 2023. 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 GHz you know level on the radio side? Thanks.
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. When it comes to specific customers and the market shares or win backs, as I said, on a general level, of course, our goal is to maximize our market share. If we have lost market share somewhere, our goal is to win it back.
If those things would happen, that's something that I do not want to speculate on.
Thank you, Richard. We'll take our next question from Artem Beletski, from SEB. Artem, please go ahead.
Yes. Hi, and thank you for taking my 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? I guess, like, Fixed Networks is particularly the part that has been showing good development. Maybe my quick follow-up is relating to supply chain related revenue impact. Could 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?
For network infrastructure, we do see the underlying strong trends to continue. You saw on that slide one KPI, which is the homes passed and homes connected. 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. Typically the access markets take off first. That we have seen both for base stations and fixed broadband access. The natural assumption would be that then next we would see an acceleration in IP and optical.
The good thing is that we have a pretty strong technology position here. Of course, if you ask that, how long will the double-digit growth continue? It's impossible to say. The comparables are of course getting tougher. If you take fixed access or fixed broadband, it grew 35% last year, 29% in Q1, and 22% in Q2. Yes, comparables are getting tough. 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. That is one of the strongholds that we have in that business.
Again, even on this access network level, there is a lot of work to do that remains. That's why we are really proud of what NI has achieved in the last couple of years. There is every reason to be optimistic about the future as well.
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. We see a lot of good opportunities for us as a market leader to capture a good share here as well.
Thank you, Artem Beletski. We'll take our next question from Simon Leopold from Raymond James. Simon, please go ahead.
Thank you very much. I just wanna get a really easy clarification, then my question. On the clarification, I just wanna 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 wanna get a better understanding of your goals and opportunities for non-telco revenue, as we look out into the future, whether it's coming from routing, private wireless, what kind of verticals, government versus hyperscale. If we could unpack what's driving that. I did hear earlier the 7% base and the goal for double digits. I wanna get a better understanding of what drives it, where does it come from? Thank you.
Yeah, I can start. When it comes to the guidance on the top line, this is purely adjustment to the current FX rates that we have. We keep the guidance as we had earlier. The only thing that we now narrow down a little bit, we say that on the upper end of that interval, 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. Just like Pekka mentioned earlier, we believe that within this market, enterprise sector has definitely much higher growth outlooks than CSP market.
We believe that big part of that growth that we see in the coming years is coming from the enterprise sector and web scalers.
Just to build on that, I mean, in addition to. I mean, when we talk about non-telco, it's important to qualify what that means because there are several different types of business opportunities. Obviously, in that 18% which is non-telco for us, yes, we have the submarine networks. For web scalers, for example, we have the licensing business. But the real enterprise business case is clearly enterprise network infrastructure, optical and routing for enterprise. Then the other business case is web scalers, which is a fast-growing market.
When you look at market growth estimates while again while telco growth is slow, when you look at what web scalers are estimated to invest in connectivity and in networking, it's really growing fast. From that point of view, the breakthrough that we made into the Microsoft switching is really an important one. We have similar attempts going on the optical side with some of the web scalers as well. Of course, there is this big opportunity of private wireless, campus wireless networks that we are getting into. 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.
There's a lot going on there as well. Of course, government's own networks. The U.S. government is investing a lot. We have started a special unit for that. A lot of opportunities there as well. This is quite broad when we talk about enterprise or non-telco. It's really broad-based, and we are moving on several fronts there.
Thank you, Simon. We'll take our next question from Sami Sarkamies from Danske Bank. Sami, please go ahead.
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?
Yeah. Thank you. The assumption that we have in the outlook is that these two deals that we are in litigation right now will be solved. This is baked in our outlook as well.
As a follow-up, could you please disclose the IPR catch-up payments you recorded in the second quarter and a year ago?
They were about the same level this quarter as last year.
Which was?
We haven't actually disclosed the number itself. The reason is that, if there's one specific deal that we signed, we're not allowed to disclose any details of those deals. You could calculate backwards also in that case what is the value of the deal. Unfortunately, we are not in a position to be able to do that.
Okay. Thank you.
Thank you, Simon. We'll take our next question from Paul Silverstein from Cowen. Paul, please go ahead.
I appreciate y'all squeezing me in. Pekka Lundmark and Marco Wirén, I appreciate your comments about the ongoing strength of demand. Concerns about macro, my specific question is, can you give any insight on linearity in terms of orders? Have you seen consistent strength in your order book throughout the quarter, through the end of the quarter and into the begimning of this quarter?
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 we don't have a crystal ball. All we can comment is what we are seeing from our customers and on the kind of aggregate level, there is no change. There have 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.
At this time, these have been more exceptions than rules. In the big picture, we have not seen, at this time, any meaningful change.
For my follow-up, I have a similar question. I have a similar question regarding supply chain improvement and inflation. Relative to your comments, are you just allowing for an impact from inflation, allowing 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, or are you actually seeing data points that indicate coming improvement in the second half?
Now the line was breaking up, so I'm not sure if I-
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?
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. 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. That's why we've been able to maintain a pretty solid profitability despite inflation. 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.
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. 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. 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.
Thank you, Paul. We'll take our last question from Felix Henriksson from Nordea. Felix, please go ahead.
Hi. Thanks for taking my question. Just, given that your RAN share penetration growth is still only 1% in Mobile Networks and you're set to achieve your 100% target by year-end, how should we think about the gross margin upside in Mobile Networks heading towards year-end and into 2023 as the inflationary headwinds are mounting? How should we think about the different components? Thanks.
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, and so on. There's a lot to do in addition to working on the supply chain cost.
Did you have a very quick follow-up, Felix?
No, that's all for me. Thanks.
That was our last question for today. Thank you, 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 in Form 20-F, which is available on our investor relations website. Thank you for listening.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.