Nokia Plays It Smart With Major Mobile Devices Brand Deal

Nokia upturned the mobile handset market Wednesday morning by announcing a major licensing deal that will see the Nokia brand used on a range of feature phones, smartphones and tablets that will be sold by HMD, a newly founded company based in Finland. (See Nokia Signs Brand Licensing Deal With HMD.)

The Finnish telecom giant quit the handset business in 2014 after completing the sale of its devices business to Microsoft Corp. (Nasdaq: MSFT), but its Technologies unit has continued to pursue technology licensing opportunities in this market.

Now the company is back in the handset game, though it's worth stressing that it has not returned to the mobile phone manufacturing market: Its strategy is more subtle than that and allows Nokia to generate revenues from the sale of mobile phones without once again becoming a device hardware firm.

The founding of, and deal with, HMD appears to have been facilitated by complicated four-way arrangements involving the two Finnish companies as well as Microsoft and Taiwan's Foxconn Electronics Inc. .

A subsidiary of Foxconn called FIH has today agreed to pay $350 million for the feature phone business assets that Microsoft bought from Nokia Corp. (NYSE: NOK) in 2014. HMD, meanwhile, is acquiring rights to use the Nokia brand from both Nokia and Microsoft as well as licensing patents from Nokia.

As a result of these transactions, which are expected to close in the second half of this year, about 4,500 Microsoft employees will be transferred to either Foxconn or HMD.

Thanks to agreements between Foxconn and HMD, the FIH business will essentially make the devices that HMD then markets under the Nokia brand. HMD has already promised to invest more than $500 million over the next three years on marketing efforts and says it will develop "a full range of Nokia-branded feature phones, smartphones and tablets."

According to a spokesperson for Nokia, HMD's investors include a private equity fund called Smart Connect LP, as well as top executives involved in the business: However, HMD is not backed by investments from Foxconn, Microsoft or Nokia.

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While Nokia is not an investor in HMD, Smart Connect LP is managed by Jean-Francois Baril, who was a senior vice president at the Finnish company between 1999 and 2012. Nokia's Techologies unit, which will receive royalties from the deal with HMD, will also have a seat on the new company's five-member board.

Moreover, top executives at HMD previously worked at both Nokia and Microsoft. Arto Nummela, HMD's CEO, formerly held senior positions within Nokia and is currently the head of Microsoft's mobile devices business for Greater Asia, the Middle East and Africa, as well as being in charge of the global feature phones business. He is to quit those positions once the deal between Microsoft and HMD has gone through.

HMD President Florian Seiche is currently the senior vice president for Europe sales and marketing at Microsoft Mobile and used to have leadership roles within Nokia.

Bengt Nordström, the CEO of Swedish consulting and analyst firm Northstream, says he is not surprised by the latest news. "When Nokia sold its devices business to Microsoft their DNA was still in devices and I always said it would be hard for them to refrain from coming back," he tells Light Reading.

"This move is quite understandable because ultimately there is no growth in the telecom equipment sector -- that can be seen from the last results announcement," adds Nordström.

Following its takeover of Alcatel-Lucent at the start of the year, Nokia last week reported a 9% fall in revenues for the first three months of the year, compared with combined company revenues in the year-earlier period. (See Wireless Weakness Dents Nokia Sales, Outlook.)

The Technologies unit that will benefit from today's announcement accounted for just 3.5% of the €5.6 billion ($6.3 billion) that Nokia generated in overall sales.

The move by Nokia is being seen as positive by investors as the Finnish vendor's share price is up by 2% on the Helsinki exchange.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

iainmorris 5/19/2016 | 12:13:09 PM
Re: Confusing! In a sense they are, even if it is only from a licensing perspective. There is a lot that Nokia could potentially gain from this and they avoid the risks that manufacturing would entail (see Ray's more in-depth follow-up for more on that -- http://www.lightreading.com/mobile/devices-smartphones/nokia-makes-elegant-return-to-handset-market-says-device-industry-expert/d/d-id/723491?).
Mitch Wagner 5/19/2016 | 11:01:09 AM
Re: Confusing! Ah. Bengt Nordström's statement in the article, about Nokia coming back to the handset business, confused me then!
TV Monitor 5/18/2016 | 3:48:59 PM
Nokia's motivation Nokia shares same problem as Ericsson in that they have no consumer side devices to support the standards they are pushing. They have the carrier side, but nothing on the consumer side. Ericsson stressed this problem when it was making its case for the NX standard in Korea after Ericsson was dropped as the technology partner of the Pyeongchang 5G network project, the world's first operational real 5G network set to enter testing by next summer with custom made 5G Galaxy phones.

Samsung has a major advantage over Nokia and Ericsson in pushing its own standards over rival's, because it covers both carrier side and consumer side of equipment equation, and Nokia desperately wanted to change this situation.
[email protected] 5/18/2016 | 2:58:48 PM
Re: Confusing! Nokia always kept the patents with a view to 'monetizing' - it ha said this all along and now ity's doing it big time.

MSFT gets rid of its feature phone line but keeps smartphones.

Foxconn gets closer to becoming a handset  maker but it's still one step removed from being a full device company... 

The very big winner or loser here is the private equity backed company in the middle, HMD. It has the hard task of building market share.

There is a follow-up article coming here on LR that goes into more depth, based on the views of the smartest handset analyst out there, Ben Wood of CCS Insight.

This is a very interesting model - a real 'ecosystem' play.

bosco_pcs 5/18/2016 | 1:56:29 PM
Re: Confusing! It seems to me this is more about Microsoft but Nokia sort of got some free extra if my scenario plays out...

Nokia sold the handset division to Microsoft for $7B but probably the whole thing is non transferable if the property got re-sold subsequently. But this is what is happening. Microsoft is throwing in the towel and decided not sink more capital in it considering the market is so crowded with so many deep pocket companies. Perhaps the Nokia name still has some value and who knows if the Finnish government has a hand in this considering Nokia is still the jewel of the nation. So such a convoluted deal. 

Incidentally, Foxconn also has a deal with Blackberry but not sure it includes the latter's Priv. Blackberry CEO Chen is said its handset is no sacred cow so Foxconn may end up being more than just an EMS
iainmorris 5/18/2016 | 12:57:43 PM
Re: Confusing! It would be inaccurate to say Nokia is getting back into the handset manufacturing business, but I think we've made it clear that's not happening (I don't think that was ever in question). 
Mitch Wagner 5/18/2016 | 12:38:13 PM
Confusing! Is it accurate to say tht Nokia is getting back into the handset business? It looks to me like a straight-up licensing deal – FIH makes the phones, HMD markets them, and Nokia's only contribution is to pocket licensing fees from the two companies' regularly. 

Is this Foxconn's first time making its own products, as opposed to manufacturing for other people?
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