Nokia announced a deal which will “see the Nokia brand return to the mobile phone and tablet markets on a global basis”, as Microsoft simultaneously announced a deal to offload the feature phone business it acquired from the Finnish company.
Through a “strategic agreement covering branding rights and intellectual property licensing”, a newly-formed company called HMD Global (based in Finland) will have exclusive rights to offer phones and tablets under the Nokia brand, in return for royalty payments.
With Nokia’s feature phone business having been sold to Microsoft, the US giant also has a role in the HMD story. A deal has been agreed for HMD to acquire rights to use the Nokia brand and certain design rights from Microsoft, which is expected to close this year.
And in order for Microsoft to essentially exit this market completely, FIH Mobile, a Foxconn subsidiary, is also set to take on some assets from Microsoft.
In total, these two transactions are worth $350 million to the computing giant.
Squaring the circle, HMD and Nokia Technologies have inked a deal with FIH to “establish a collaboration framework to support the building of a global business for Nokia-branded mobile phones and tablets”.
The deals “will give HMD full operational control of sales, marketing and distribution of Nokia-branded mobile phones and tablets, with exclusive access to the pre-eminent global sales and distribution network to be acquired from Microsoft by FIH, access to FIH’s world-leading device manufacturing, supply chain and engineering capabilities, and to its growing suite of proprietary mobile technologies and components”, a statement said.
In its role as sole licensee for the Nokia brand in the phone and tablet space, HMD intends to invest more than $500 million over the next three years to support the global marketing of Nokia-branded mobile phones and tablets, funded via investors and profit from the acquired business.
And HMD is not just looking at feature phones: it will also offer Android-powered smartphones, “uniting one of the world’s iconic mobile brands with the leading mobile operating system and app development community”.
Nokia clarified that it will not be investing in HMD, but that it will take a seat on the board and set mandatory brand and performance requirements, “to ensure that all Nokia-branded products exemplify consumer expectations of Nokia devices”.
HMD will be led by Arto Nummela as CEO, who is currently head of Microsoft Mobile Devices in greater Asia, Middle East and Africa, and former Microsoft, Nokia and HTC exec Florian Seiche as president.
Microsoft’s mobile failure
Analysts at IHS were quick to highlight Microsoft’s likely doomed future in this space. “Realistically Microsoft can hope to be no more than a bit player in the mobile phone market now: feature phones comprised 87 per cent of [its] phone unit shipments in the first quarter of 2016,” the research firm wrote. “Microsoft shipped just 2.3 million smartphones, down 70 per cent from the first quarter of 2015.”
IHS said the deals highlight “the extent of Nokia’s ambition to remain a consumer brand and its continued ability to re-invent its business with a modern mobile phone business operating structure. It also completes a slick series of corporate manoeuvres to off-load a mature mobile phone business in need of restructuring, using proceeds to buy out Siemens from the NSN joint venture, while allowing room for this 2016 return to the smartphone market.”
The analyst firm noted that Nokia has been signalling for a while its intentions to re-enter the smartphone market. It launched an Android smartphone launcher app, and the Z1 Nokia tablet, but was restricted from returning to smartphones until this year due to a non-compete agreement it struck with Microsoft when it sold its devices business to Microsoft in 2013.
“Nokia’s goal with a return to the handset business is through a substantially less capital intensive and lower risk fashion than how it previously structured its handsets business. By positioning HMD as the sole licensee of the Nokia brand for mobile devices, Nokia is able to achieve this return, but able to outsource most of the risk. Having one licensee means Nokia’s brand is less likely to be abused, while Nokia does have a presence on the board of HMD too which will help protect Nokia’s interest further.”