Microsoft granted Nokia a five-year extension for the vendor to continue supplying data center equipment powering Microsoft’s cloud infrastructure, building on Nokia’s ongoing success outside of its traditional telecommunications focus.

The Microsoft extension, which builds on an agreement originally struck in early 2022, includes data center switches using the Microsoft-developed Software for Open Networking in the Cloud (SONiC) platform. Those switches will come from Nokia’s 7250 IXR line supporting multi-terabit connectivity within Microsoft data centers.

Nokia released that router architecture in mid-2020. It’s designed to span top-of-rack switches, spine switches, super-spine switches, and modular chassis spine switches, and can support port speeds up to 400-gigabit Ethernet (400GE), with a claimed path to 800GE.

The expanded agreement with Microsoft will see the latest version of that equipment begin to rollout in February and will be used in more than 30 countries. This will include greenfield deployments and in support of Microsoft’s migration toward 400GE within existing data center facilities.

Nokia’s broadening data center focus The deal expansion continues Nokia’s push outside of the traditional telecom arena where it has struggled and more into the data center space.

Nokia CEO Pekka Lundmark during the vendor’s latest earnings call pegged the telecom-related total addressable market (TAM) at more than $85 billion, or more than four-times the data center TAM, but added that the latter has more growth opportunity for the vendor.

“Even though the telco TAM is expected to recover somewhat next year, we have to be realistic,” Lundmark said. “Telco TAM will never be a significant growth market so the only way to grow there will be through taking market share, which we have cost targeting, but it’s not the growth market. … Data centers will be our No. 1 growth target for the coming years. There will be others as well, but that will be the No. 1.”

That goal has seen Nokia expand into the data center space with new platform offerings. Lundmark noted that this direction opens opportunities across different markets.

“If you look at what even some of the operators like T-Mobile did in their Capital Markets Day, they are talking about an opportunity to look into GPU-as-a-service as an add-on to their business,” Lundmark said. “And then, of course, there is the significant hyperscaler opportunities and smaller data center opportunities.”

Lundmark’s T-Mobile US reference was tied to that carrier’s CEO telling investors that it could look to turn its cell site locations into edge data centers or cloud connections that can in turn better serve AI workloads.

“These kinds of AI workloads will increasingly demand that processing have happen on the device, which we’re starting to see but there are obvious limitations there, or on a cloud near the device, and that’s a business opportunity that we see in the future,” T-Mobile US CEO Mike Sievert said.

Lundmark’s “significant hyperscaler opportunities” quest could get a boost from the vendor’s pending $2.3 billion acquisition of optical networking provider Infinera.

Lundmark noted that the Infinera deal “will significantly increase our scale in North America and exposure to webscale customers,” and that it will leave Nokia “extremely well positioned for future growth and, importantly, toward new AI-driven data center opportunities.”

Can Nokia compete against Cisco, Arista in the data center? The vendor also recently launched its EventDriven Automation platform that builds on the Kubernetes ecosystem to provide an abstraction layer to help enterprises manage data center networks from different providers. It uses generative artificial intelligence (genAI) to help with that management and reduce human-caused errors, which is a common source of data center configuration mistakes.

Mike Bushong, VP of data center at Nokia, explained in an interview that the intent-based nature of the platform allows it to translate a Nokia configuration as well as translate to “let’s say, Cisco or Arista or SONiC or whatever. So it’s an intent-based platform that is multivendor.”

Nokia’s data center efforts do seem to be paying off.

Dell’Oro Group in a recent report noted Nokia was No. 3 in market share for “high-end routers” behind Huawei and Cisco. It also singled out the vendor as being the only player in that space to post a year-over-year increase in revenues for the third quarter of this year.

“The market contraction that the router vendors are undergoing is in its fifth quarter,” Dell’Oro Group VP Jimmy Yu wrote. “We anticipate that as the market stabilizes and customer inventory levels return to normal, vendors will experience higher order flows, followed by increased revenues. Nokia seems to be the first vendor to exit the correction phase, growing their high-end router revenues by nearly 10%.”

Nokia’s broadening ambitions are coming at a time of increasing questions around the vendor’s future. There had been reports that Nokia was looking to shed its telecom-focused equipment business and others about the company’s board looking to replace Lundmark.

Bushong, for his part, noted that he remains focused on driving more recognition of Nokia’s data center and networking efforts.

“The challenge is that we’re sitting on a stockpile of goodness and, frankly, getting that out so that people understand what we stand for and how we’ve done it, that’s a go-to-market challenge,” Bushong said, noting that has been complicated by Nokia’s engineering-focused history and rash of name changes tied to recent mergers and acquisitions. “What we’ve got to do is overcome some of that and then have an earnest conversation with people who are actually grappling with what to do next. When we have that conversation, I think people will be open. They want something different and, frankly, the incumbents are not delivering.”