Microsoft Sells Off Feature Phone Business to Foxconn and HMD for $350M
Nokia, the Finnish firm that was once the world's largest seller of mobile phones, is getting back into the business in the wake of a $350 million deal involving Microsoft, HMD Global, Oy and FIH Mobile Ltd., a subsidiary of the Foxconn Technology Group, perhaps best known for its manufacturing of iPhones.
Samsung passed Nokia in the mobile phone market in 2012; one year later, Nokia sold its devices and services business to Microsoft. Today, however, Microsoft said it was shedding part of that business -- the segment focused on "dumb" feature phones -- while Nokia announced its return to the mobile phone and tablet market under the new HMD brand..
Microsoft, which will continue to develop smartphones such as the Lumia on its own and through OEM partners, said the deal should close sometime in the second half of this year. After that, HMD expects to become the sole global licensee for all devices carrying the Nokia brand.
Nokia's Return to Consumer Electronics
Arto Nummela, currently the vice president of Microsoft's mobile devices business in the Asia/Middle East/Africa region, is set to take the lead as CEO of HMD, whose founding was announced yesterday. Former HTC and Nokia executive Florian Seiche, who is now Microsoft's vice president of sales across Europe, will become HMD's president.
In its announcement today, Nokia said its branded feature phones "remain one of the most popular choices of mobile phones in many markets around the world." The company added that HMD plans to market those as part of an integrated portfolio that will also include a new range of Nokia-brand, Android-based smartphones and tablets.
"Instead of Nokia returning to manufacturing mobile phones itself, HMD plans to produce mobile phones and tablets that can leverage and grow the value of the Nokia brand in global markets," Nokia Technologies president Ramzi Haidamus said in a statement. "Working with HMD and FIH will let us participate in one of the largest consumer electronics markets in the world while staying true to our licensing business model."
Nokia, which acquired Alcatel-Lucent for $16.6 billion in 2015, had been rumored to be eyeing a return to the mobile phone market for the past year. Under the terms of its sale to Microsoft in 2013, it would be again able to use its brand name for mobile devices this year.
Shrinking, but Still Sizeable, Feature Phone Market
In its most recent quarterly financial report, released in April, Microsoft said its mobile phone sales were sluggish, with a steep decline in Windows Phone purchases as well as a relatively high inventory of unsold Lumia smartphones.
Around the globe, smartphones continue to displace feature phones as the most popular mobile communication devices. In fact, the number of smartphone owners is expected to reach 5.4 billion by 2020, compared to 3.1 billion in 2015, according to an April report from the analyst firm CCS Insight.
Despite this trend, a large -- though shrinking -- market continues to exist for non-smart, and usually more affordable, feature phones. CCS Insight predicted worldwide sales of feature phones will reach 550 million units in 2016, and will likely slip to 240 million units by 2020. "However, this opportunity remains interesting enough for a number of phone makers to continue to deliver products, albeit with ever-declining profit margins," CCS Insight noted.
In an Instant Insight comment issued today, CCS Insight called the "complex series of deals" involving Microsoft, Nokia, FIH and HMD an "elegant solution" for all the companies to further their business interests.
"The feature phone unit never sat comfortably within the Microsoft organisation and CCS Insight believes Microsoft will be relieved to offload a non-strategic asset while it still has some value," according to the analysis. "For Nokia, the agreement offers the chance to generate ongoing revenue from mobile devices without having to become involved in the manufacturing and distribution of hardware."
CCS also noted that feature phones are still popular in emerging markets like India and sub-Saharan Africa "principally because they are an affordable option in regions where even the cheapest Android smartphones are out of reach for many consumers." Feature phones also appeal to some people elsewhere who prefer more basic devices, as well as to some organizations looking for low-cost options for their employees.