The Nokia brand which consumers trust more so than Microsoft’s is set to return to the mobile phone market under a new management team, after Microsoft confirmed yet another bail out that will cost shareholders billions.
Microsoft has confirmed that they pulling out of the “feature” phones business months after writing off $10.2 billion on their failed Nokia deal.
The Nokia-branded handsets – which are powered by the Series 30+ operating system, making them less powerful than its Lumia Windows phones – will survive under Microsoft’s management for the time being.
The division that makes them has been acquired by HMD Global, a new private equity-backed firm, and Foxconn subsidiary FIH Mobile.
Nokia said it had signed a 10-year deal for them to continue using its name.
“Feature phones were never a core part of Microsoft’s strategic aim behind the purchase of Nokia’s devices business,” commented Ian Fogg from the IHS Technology research team.
“Following the Microsoft reorganisation last year, it was clear the feature phone business was an unwanted extra and Microsoft most likely took the first good offer to take the business off its hands” he said
“While the feature phone market is declining, shipments were still in excess of 400 million units in 2015. In Australia the feature phone business fell 65% in the first quarter of 2016 according to IDC data.
The Nokia brand is very strong in certain markets too and HMD will probably target these emerging markets.”
Microsoft is being paid US$350m for the deal, which includes the Taiwanese firm Foxconn taking ownership of a feature phone factory in Hanoi.
About 4,500 workers will switch companies as part of the arrangement, with the deal due to be completed before the end of the year.
In a separate agreement, HMD has acquired the exclusive rights to use Nokia’s name for a new range of smartphones and tablets.
Foxconn already makes a Nokia-branded tablet but had been unable to use the brand on phones.
HMD is owned by Smart Connect, a private equity firm led by Jean-Francois Baril. The executive worked at Nokia for 13 years, serving as its chief procurement officer until 2012.
“Branding has become a critical differentiator in mobile phones, which is why our business model is centred on the unique asset of the Nokia brand and our extensive experience in sales and marketing,” said HMD’s chief executive Arto Nummela.
HMD will invest more than $500 million over the next three years to market Nokia devices using investor funds and the profits from the acquired feature-phone business, Nokia said.
Nokia will get royalty payments from HMD but will not make a financial investment or hold an equity stake in the company. Nokia will also take a seat on the board of directors and “set mandatory brand requirements and performance-related provisions to ensure that all Nokia-branded products exemplify consumer expectations of Nokia devices, including quality, design and consumer-focused innovation,” Nokia said.
HMD was unavailable for comment on its plans for the U.S. market.
Last year Microsoft wrote off billions of dollars related to its Nokia acquisition, saying it’s taking an “impairment charge” of US$7.6 billion or $10.2 Billion which was close to the full amount it paid for the Nokia business.
The announcement slapped the failure sticker on their Nokia investment a move that has cost investors in Microsoft billions.
“It was a mistake to begin with,” said Jack Gold, principal analyst at J. Gold Associates. “A monumental mistake. Microsoft had no business being in the cut-throat, low-margin phone business.
