So What Could Foxconn Do with Nokia Brand if Microsoft Sells Remaining 8 Years of that Licence

I don’t like to speculate on all rumors floating around about tech topics but this one is worth discussing. What might Foxconn gain out of the Nokia brand? A fresh rumor out of China over the weekend says that Microsoft will shut down the ex-Nokia handset business, fire half of the remaining staff, fold the rest to the Surface project and to sell the Nokia brand to Foxconn for the remainder of the 8 years Microsoft still has the licence to the brand.

The Microsoft Windows based Lumia project is dead. We know this, its been obvious for years. I was the first analysts to proclaim the Nokia Microsoft ‘partnership’ would be such a failure it would result in Nokia selling its handset business (and I speculated, that the most likely buyer was Microsoft). I said this on the day the partnership was announced when many US based tech analysts thought Nokia on Windows would become larger than Apple haha, and have more than 20% market share by 2015. Yeah. Try 2%. So I called all the turns of the sad saga, from the collapse of Nokia smartphone sales and obviously its profits; to the point that Windows OS itself also died, very suddenly in the summer of 2011 (it was actually viable prior to that, Microsoft has had as many as 7 of the Top 10 largest smartphone manufacturers supporting its OS. I called the exact timing of when the OS died on smartphones, after which all the remaining partners except Nokia fled the system. That was yes June 2011 and not related to Nokia. It was another of Steve Ballmer’s boneheaded corporate moves.)

So I said it was not Nokia which was the fault in the failure of Lumia. It was Microsoft. Therefore, even selling the handset business to Microsoft would not help - in fact it would hurt. All this happened yes exactly as I said it would. And I said last summer, when idiot Stephen Elop was fired from Microsoft (worst CEO in corporate history for the 3 year duration he had at Nokia, not just worst CEO of the year or of the mobile industry, he was literally worst CEO of any industry in the history of formal global business corporations - and I was the first to call for him to be fired) - the new exec in charge of the rump of the old Nokia handset business now part of Microsoft Mobile, will have from 12 to 24 months to try to revive and turn around the loss-making Lumia unit. And that effort will fail. As we’ve seen in the past year, its just one disaster after the next. This is Windows market share in smartphones for the past ten years:

Microsoft Windows Smartphone OS Market Share over the Past 10 Years
2006: 12%
2007: 12% (iPhone launched)
2008: 11%
2009: 9%
2010: 5%
2011: 3% (Nokia joins Windows ecosystem)
2012: 3%
2013: 3%
2014: 3% (Nokia sells handset business to Microsoft)
2015: 2%
2016: 1% (optimistic estimate, may end up below 0.5%)
Source: TomiAhonen Consulting May 2016
The above may be freely shared

That is a dead dog. So yes, its obvious Microsoft new CEO Satya Nadella, who was not part of the silly plan by Microsoft to buy Nokia’s handset business (that would be their moron-in-chief Steve Ballmer). Microsoft wrote off the whole purchase and even after that write-off more layoffs followed. I warned that this business will never be revived and even more layoffs were coming, and that the whole Lumia ex-Nokia handset business project on Windows by Microsoft will be ended, and the time frame is between summer 2016 and summer 2017. We are just entering that time frame.

RUMOR FROM CHINA

So there is a rumor on the VTech website (its in Chinese but Google Translate will do a reasonable translation) that Microsoft will sell the licence of the Nokia handset brand to Foxconn up to the end of 2024 which is how long Microsoft owns that right. The website doesn’t name sources but it also says the Microsoft Mobile unit will be ended. The dumbphone side that sold Nokia brand featurephones (like the Asha series known to many readers) will be shut down. The smartphone Lumia business will be ended, merged into the Surface business. About half of remaining ex-Nokia employees would be fired.

If this rumor turns out to be true, then it also makes sense that about the only thing Foxconn would want is the Nokia brand. It has no use for the ex-Nokia handset factories - Foxconn is the world’s second largest handset manufacturer today, and it has now excess capacity in its factories as Apple iPhone sales have stopped growing. Foxconn would not want to buy very expensive, senior, very highly paid marketing, R&D and sales staff either. It hires very very VERY low cost Chinese labor and if Foxconn needed to expand any parts of its organization, it would hire freshly graduated Chinese engineers and MBAs at a tiny fraction of the salary of those ex-Nokia current Microsoft employees, stationed in expensive countries with laws making it hard to even fire them...

Personally I think that actually the sales staff of the Nokia featurephone business - who are likely to be all fired - would be a valuable asset for someone like Foxconn for it to fully capitalize on the opportunity of the Nokia brand, but I think they probably won’t want that expense. But lets look at this from Foxconn’s angle. Why? Would they want this? And why the hell not.

Foxconn is operating at a tiny tiny sliver of profit margin on a high-volume low margin contract manufacturing business. It physically manufactures more than 1 in 10 handsets sold in the world, and physically manufactures the highly desirable Apple iPhone, a smartphone that has powered Apple to world-record profits. What Foxconn would love is to have just one tenth of Apple’s share, selling its own Foxconn brand (or licenced Nokia brand) smartphones with just half of Apple’s profits - and make a KILLING as a hugely profitable company. By that alone, Foxconn total profits would more than double. And the company total business profitability would roughly speaking double. Just by having a tiny slice of what Apple does, but at half the profit that Apple gets.

Does this require advanced R&D. No. Foxconn has been co-designing iPhones and supplied lots of design ideas and suggestions to Apple including prototypes of various models to expand the product line (these were created at Foxconn as sales/marketing vehicles, obviously they want Apple to increase its order of total handsets made by Foxconn). We have heard rumors in the past of lower-cost ‘nano’ type iPhone models which eventually resulted in the iPhone 5C and now the 5 SE. There also were other rumors of for example a QWERTY-slider variant for the iPhone. This doesn’t require a design genius to generate ‘typical’ variants to an existing phone line. It mostly requires insights into what is technically possible with current components and manufacturing. What Foxconn could easily do, in its sleep today, is to create a ‘competitive’ flagship in a Samsung Galaxy class to run on Android and to be about as good as anything from HTC. A competitive mid-range smartphone on Android, just by taking an ‘average of specs’ approach, could be close to best-of-breed, easily on par or exceeding what say a Xiaomi or Oppo or Coolpad can sell today. What Foxconn would want, is primarily a highly popular highly-selling model rather than the award-winning best-of-breed. So a competitor far more to the iPhone 5SE and priced say around 300 dollars, rather than doing a new flagship for the Nokia brand. And then go a bit dow-stream from that with a pair of cheaper Android mid-price smartphones in say 200 dollar and 150 dollar range.

A Foxconn smartphone on the Nokia brand very likely won’t come with Carl Zeiss optics or other such tech specs we have grown accustomed with Nokia but it would be competitive as a ‘generic specs’ Android on whatever price point. So the 300 dollar Nokia Android premium Foxconn product could have say a phablet screen and 16mp camera, 4G and dual SIM with microSD slot. It might very well include the removable/replacable battery but likely would not be waterproof. Not quite in a Sony Xperia or Samsung Galaxy S7 or iPhone 6+ class but not far. Be a bit cheaper, so on that 300 dollar smartphone spec class, the Foxconn-Nokia would be very competitive. And from Foxconn manufacturing and sourcing power, they’d be incredibly profitable for Foxconn to manufacture.

Then the issue only becomes the sales and distribution. Nokia brand has not died (even as the USA continues to be bewildered by this fact. Come visit India or Nigeria or the Philippines or Egypt and see the power of Nokia brand). The boycott by the global carriers against Microsoft was against.. Microsoft not Nokia. Anyone using Windows OS on smartphones was boycotted and all others shifted immediately away from Windows to Android. Even Nokia finally admitted this and launched 3 Android smartphones just before the unit was transferred over to Microsoft (who then - idiots as they are - shut down that rapidly-growing Android smartphone part, while insisting to keep the loss-making Lumia alive). Without the distribution channel boycott against all Windows smartphones, a Nokia brand on Android is freed from the artificial barrier to its growth.

How good could Nokia sell without this boycott? We will never know for sure but we have a good indication from Asha. The Asha series was launched and lived almost the same duration of time as the Lumia line while that was under Nokia ownership. The Asha featurephone line was a ‘premium featurephone’ as opposed to the bare-bones dumbphone side of Nokia’s non-smartphone handset business. So an Asha had a touch-screen, nice camera, full HTML browser internet, could install apps like Angry Birds (via Java) and had 3G, WiFi etc. It was to normal consumers totally equivalent to a lower-end smartphone at that time. Like most of the Lumia handsets sold. The Asha was a direct rival to Lumia. So how did they do? The Lumia series had the biggest marketing Nokia had ever had for any smartphones. That was compounded by Microsoft throwing tons and tons of money to help market the Lumia and Windows Phone. There were bundling deals like in the UK, where if you bought a flagship Lumia smartphone, you received a free Xbox 360 gaming console in the bundle. Meanwhile Asha was mostly ignored with minimal marketing support by what was still then, the world’s largest handset maker. How did Asha do? It outsold Lumia over the full period both were sold alongside each other! Yes. Nokia achieved a kind of ‘stealth market share’ of DOUBLE what Lumia did, if you just removed ‘Microsoft’ and ‘Windows’ from the Nokia brand. And Nokia did this without meaningful marketing support for Asha!

When Nokia Lumia on Windows Phone OS managed 3% market share in 2012 and 2013, the ‘effective’ market share by consumers who can’t tell what is the difference between a smartphone and an Asha - there the market share actually was 6% both years! Six percent market share today for Nokia-Lumia-Asha-Microsoft-Foxconn would be fourth largest smartphone manufacturer with sales of 86 million smartphones and even if these were sold at world average handset price, not average smartphone prices (most of Nokia’s remaining market is Emerging World and both Lumia and Asha sold in mid-price not premium price ranges) thats a 17 BILLION dollar business. Just before Elop destroyed the Nokia handset business in February 2011 the smartphone side of Nokia’s business was generating a profit margin of 12%. Even if that would be down to half today and we say its 6%, that means a Billion dollars in profits. By VERY conservative estimates, the base value of the Nokia smartphone business, if you remove Windows OS and Lumia, move Nokia smartphones to Android, would be about 86 million smartphones sold per year, generating 17 Billion dollars of revenues and 1 Billion dollars of profit. And yes, Nokia without Windows would be the fourth largest smartphone maker behind Huawei but ahead of companies like recent tech darling Xiaomi, or larger than LG, Sony, Lenovo, Blackberry, HTC, ZTE, Oppo, Vivo or Coolpad.

Note that in addition to its smartphone business, the now-Microsoft-owned Nokia dumbphone business still sells basic phones globally and that business is profitable but its shrinking fast. It has no synergies with Microsoft’s Windows based visions and those phones have such basic specs that any Windows variant is hopeless to consider. But that business sold about 70 million dumbphones last year and will sell about 50 million this year if Microsoft (or someone else) kept it still going. Microsoft doesn’t care, its profit margin is so slight, it actually ‘hurts’ the bottom line, makes the overall Microsoft business seem less profitable and as its an industry sector that will end by year 2020, Microsoft will be shutting it down in any case soon. It makes sense to make that announcement and ‘decision’ at the same time as the overall decision about the end of Lumia (and any sale of the Nokia brand to Foxconn).

WHAT COULD FOXCONN ACHIEVE?

So we saw briefly Nokia Android smartphones. They were jumping off the shelves at the stores, before Microsoft shut that business down. There were 3 Android models announced but only one was sold in significant numbers. They were designed to the low end of the Android handset wars of 2014 in the 150-200 dollar price range, well below the flagships or even mid-price smartphones. But they were on specs and performance that Windows OS, a notorious resource hog always, couldn’t support at that time. And going back, the Nokia premium proprietary OS platforms, MeeGo and its predecessor Maemo were running on Linux like Android, so they were cousins to the Android family. Android is the standard OS so anyone supplying smartphones is ‘safe’ to go with Android.

Foxconn can, as I said, rapidly create a ‘generic’ mid-range premium smartphone in the iPhone 5 SE price range with slightly better specs, to make something very compelling in any market and manufacture it to high enough quality levels that it will not seem out of line with past Nokias. It won’t have all the design aspects we loved about Nokias but its not also intended as a flagship to loyal Nokia fanboys who bought top Nokia phones. Its meant, instead. to capitalize on the strong brand of Nokia loyalty in the Emerging World markets, where smartphones still today are less than half of all phones sold, but in the next two years, the majority of phones sold will shift to smartphones. Where loyal Nokia owners will come to stores looking to buy a new Nokia and they will ask the store salesguy for something called a ‘smartphone’. And they may even be told by their relatives to not buy Windows or Lumia. So if Foxconn can offer a ‘proper’ branded Nokia running Android with good competitive specs on a 300 dollar device, its an easy sale.

Then Foxconn will release a couple of lower-cost devices on the same principles, take the average of specs expected on a 200 dollar, 150 dollar and 100 dollar Android smartphone - and release those as Foxconn-Nokias and watch the sales run in the door.

That all is a nice idea, except for distribution and sales and marketing. Foxconn doesn’t have any of that. So they would have to build that organization and competence which takes a lot of time and has huge variances globally between countries and across regions. BUT some of the sales would be done online. That is an instant (if modest) revenue stream. Then part of the sales would literally come in the door. Many carriers WANT a Nokia without Windows, and will love to have Nokia brand return. They will be sending delegations to visit Huawei and ZTE and Samsung etc in Asia, anyway, on various business trips. A visit to Foxconn’s Nokia office would become an easy side-step slight detour and extra day or two on the trip. On that trip, an order of new Nokia Android smartphones would be signed, often on exclusive deals where that one carrier becomes the launch customer of Nokia’s return via Android, into that country. Where Foxconn would not have a global sales organization, it would happily sign such exclusive deals early on, to get a foothold into those markets.

What Foxconn would need, for rapid launch, is a set of a couple of smartphones, probably those 300, 200, 150 and 100 dollar price points roughly, with very generic Android slab smartphone specs. Say the 300 dollar device as a phablet, the 200 dollar device as a 4.5 inch screen, the cheapest with small 3.5 inch screens and the cheapest without 3G and only say a 2mp main camera. Foxconn has enough generic Android smartphone specs and knowledge in-house to ship the first one or two of those four before Christmas, if the deal is signed in May. And all four to ship in large volumes by Spring of 2017. Then they’d see what else the market wants, and expand from there. By 2017 Foxconn would probably run 6-8 models of Nokia smartphones on Android, on prices ranging from say 400 dollars to 50 dollars. No real flagships but nice mid-price smartphones yes to satisfy most normal non-geeky users.

The retail distribution would be the hard part, and that would grow slowly but by Q4 of 2017 this Nokia brand by Foxconn should be at a 3% market share and Nokia would return to the Top 10. If Foxconn kept expanding its product line and sales distribution and marketing, it could get to something around 5% by the end of 2018. Thats a Top 5 smartphone manufacturer of the scale of Xiaomi or Lenovo (with Motorola). If we say the average price of these Foxconn Nokias was 120 dollars then for 2019 Foxconn could be sitting on a business selling 95 million smartphones, worth 11 Billion dollars, generating it a profit of 1.1 Billion dollars and as a sideline business beyond the iPhone, Foxconn would sell roughly 1 Nokia branded Foxconn smartphone for every 2.5 iPhones it manufactures for Apple to sell.

So on the Microsoft side, Lumia is DEAD. It cannot be revived. Every single Lumia smartphone ever manufactured, was sold at a LOSS. One third of all Lumia smartphones that actually shipped out of the factories, was never even ACTIVATED. The Windows OS on smartphones is DEAD. But the problem is not ‘Nokia’ brand. It was just that Microsoft is dead in smartphones. So if Nokia were to discard the poisonous Windows and Microsoft and Lumia baggage, and relaunch as say the Nokia A Series on Android, built in the same factories as the iPhone - why not buy these new Nokia Android smartphones. Some of us would beg for the Nokia staples like Pureview cameras haha or Carl Zeiss optics and all the cool top-end tech that Nokia used to be known for. Thats not Foxconn competence. They are a contract manufacturer. If they wanted to do a ‘generic’ mid-range mid-price ‘average specs’ smartphone to run on Android - that would be a safe bet as a good seller. Combine that with the Nokia brand, in the Emerging World markets and you have good business waiting to be taken.

Eventually, as Foxconn only would own the rights to use the Nokia brand until 2024, they would pivot away, introduce the Foxconn brand alongside Nokia (or perhaps another brand) and by 2023 they’d be away from Nokia and a similar transition would be complete as IBM went with its Thinkpad personal computers to the Lenovo brand. Note Hon Hai is the parent of Foxconn so the Nokia brand might be migrated to Hon Hai.. As to what might be the value of the deal? Its not going to be much. Microsoft doesn't own the Nokia brand, Foxconn would not get exclusive rights to it, and only up to 2024. So if the deal is worth 100 million, that would be I think a good deal for Microsoft and something Foxconn could afford to swallow. Its not going to be a Billion dollars. And Microsoft would prefer a steady stream of money, they'd probably do a 1 dollar per phone deal but Foxconn probably would not want to commit to that, there might then be an overall cap. If Foxconn did get to 100 million Nokia smartphones sold say year 2021, why then pay 100 million dollars - per year - to Microsoft. They probably want a lump-sum payment now and for that to be bare-minimum because the Nokia brand is so badly damaged by Microsoft...

WHAT ABOUT NOKIA

So then it begs the question. Why not Nokia? Nokia has been pining about a return to smartphones. Microsoft knows the Lumia business is DEAD and they just want to get rid of it as fast and with any of their dignity left. If Microsoft is looking for a buyer, why not sell it back to Nokia. Yes, obviously, Nokia is not going to pay anything near the 8 Billion dollars Microsoft paid because Microsoft has destroyed 85% of what it bought already firing most of that staff etc. But come on. Microsoft wrote off the whole business in its books, so even if they were paid half a Billion dollars, it would now be an accounting ‘profit’. And firing another 5,000 people is VERY expensive. Every month they hold onto the Lumia unit, they generate more losses. Why not sell it to Nokia.

We have heard from Nokia that they want to come back to smartphones. But because of the terms of the deal from 2013 to sell the handset business to Microsoft, Nokia can’t be a full competitor itself, it can only licence its brand to third party manufacturers (like haha, Foxconn) which Nokia can do starting late this year or early next year. We have heard some rumors of a possible return of Nokia brand on Android via such an arrangement but nothing certain. Nokia has confirmed they are in such talks.

Nokia has a history of taking loss-making telecoms tech companies and turning them around to profits - look at Siemens telecoms or Motorola’s networking business. Nokia just took its latest recovery project buying Alcatel-Lucent. So this is a ‘core competence’ at Nokia, turning loss-making telecoms companies back into profits. What would be easier, than the ex-Nokia handset business? The dumbphone part IS profitable already. The smartphone part - generated the world’s second largest profits of any smartphone manufacturer this side of Apple’s iPhone the last quarter before then-CEO of Nokia Elop torpedoed his own business. The smartphone business when last run by Nokia properly, did a 12% profit margin. And the popularity and loyalty of Nokia has not ended. Nokia smartphones even under Microsoft ownership continued to offer technical excellence. The carriers love Nokia (they keep buying the networking gear from Nokia) but they will not subsidise Windows smartphones. If Nokia were to buy back the handset business and shift rapidly away from Windows to Android, its a marriage made in heaven.

Note that Microsoft still owns and operates a bunch of handset factories (dumbphones and smartphones) internationally, and a global handset sales force. That is the core of what Nokia WOULD want to recover. It is a skeleton of what it once was, but the core still remains. And Nokia knows everybody who was fired in the unending waves of layoffs caused by Elop’s reign of terror. If Nokia wanted to rehire recently-fired Nokia professionals in R&D, sales, marketing, distribution etc - they all loved their time at Nokia - and some would love to come back. Not anywhere near all, but Nokia wouldn’t need to recruit them all back. But if Nokia now took say 5,000 staff back plus the factories and the sales organization, and paid say half a Billion dollars in cash to Microsoft, Nokia would have the chance to really recover and get back to something like 4% or 5% market share by say end of 2017.

Nokia already had 3 handset designs on Android that were ‘competitive’ low-end price specs for 2014. Those should be able to be rushed back into production in six months, 9 months tops. So the first Nokia return Android smartphones could be sold even for Christmas and definitely by next Spring if Nokia instead of Foxconn was the deal now and that deal was signed in the next few weeks. Then Nokia had a series of flagship-class phones on Linux (MeeGo) which would not be a ‘difficult’ port to Android. They were the award-winning N9 and its QWERTY variant, the N900. Also Nokia had designed for MeeGo at least two more smartphones, the original Lumia 800 and a phablet device which was probably what eventually became the Lumia 1050. Now those MeeGo devices would all be obsolete today, but their FORM factor could be kept, their intenal guts ‘upgraded’ ie by CPU and memory and radio interfaces, to relatively rapidly, create a relatively competitive flagship and high-end spec smartphone set for Android, alongside those cheaper Androids. These could be annoucned at the Mobile World Congress and launched around summer or autumn of 2017. Totally new smartphones meanwhile would be rushed out of various Lumia and Nokia projects so that for 2018 Nokia could have a portfolio of more than a dozen current (new for 2018) smartphones on Android.

If the ‘real’ Nokia designed ‘real’ Nokia Android smartphones, not just as compromise updates of old models or repurposed Lumia models - and those Nokia smartphones were sold by the real Nokia sales force (of what remains now with Microsoft) - that package will get to 6% of smartphones simply because the boycott is removed. Note how evenly the Nokia sales force was able to keep a 3% market share inspite of the boycott against Windows from 2011 to 2014. And then remember the Asha angle. The real market ‘demand’ for Nokia is about 6% which is where Nokia will ‘bounce back’ almost instantly, when an Android line is sold and the boycott against Windows no longer impacts Nokia. Because Nokia has a high loyalty it will also mean at least a modest profit margin, the moment that product line is stable and the sales and marketing channel is recovered from the change-over and erosion of the recent past. Year 2018 say 6% market share for Nokia smartphones selling at an average price of 200 dollars including very exciting new flagships (brand new devices with all the Nokia goodies like Pureview, Carl Zeiss etc) and of course mid-price and entry-level price smartphones. Thats a 115 million smartphone business for 2018, generating 23 Billion dollars of revenues and at least half a Billion dollars of profits, more likely 1.1 Billion. On top of that expect still a slight part of the last dumbphone business on top of that say 20 million more units also sold at a profit. Nokia would be the fourth-largest smartphone maker chasing Huawei for number 3.

What maybe happened. If its true that there are now discussions between Foxconn and Microsoft, then we can be SURE there were at least preliminary talks also between Nokia and Microsoft. Microsoft would try to find ANY buyer and would not want to have to fire half of the staff it has. Microsoft would rather SELL the factories rather than just shut them down. Foxconn doesn’t need those factories or that staff. So there must have been talks between Microsoft and Nokia.

One possible scenario is that those negotiations ARE going on, secretly, and this Foxconn news is a leak to bring pressure on Nokia, trying to get Nokia to increase its offer. Another possibility is that there WERE talks with Nokia that broke down and Nokia has walked away from the talks. And this is Microsoft’s ‘fall-back position’. If there WERE talks already, then the occasional leaks from Nokia make sense - trying to pressure Microsoft - that if you don’t do this deal, we will launch Android phones with a partner. But also, consider the recent news in phones. Apple’s iPhone biz has stopped growing. Samsung signalled a big cut down in its sales. Nokia is no longer in the handset business, it only knew the hyper-growth stage and when the smartphone biz was still growing fast, there was a hunger to return. Now.. many signs say the golden years are gone, so why go back to handsets NOW. It may be that Nokia was interested through say November and then soured on the deal only by say February. And one more thing, Nokia has just bought a company, what was it, Withings for a bit under 200 million dollars. That could be something of the scale of what Nokia might have been offering Microsoft for the rump of what remains of its once mightly handset unit. Or 250 or 300 million, probably not much more than 500 million haha. That timing of that purchase a few weeks ago could have been the ‘end signal' to Microsoft. We decided no, we don’t have the money anymore because we bought this other company. Sorry. Bye-bye. And now Microsoft opens serious discussions with Foxconn..

Remember the WHOLE story about Foxconn came out of a Chinese news website, it has not been confirmed anywhere (yet). It is a rumor. It may turn out to be totally wrong. I personally have NO knowledge of any discussions, this whole blog is just idle speculation. But I did say this is the time when Microsoft will end its Lumia misadventure. It is the time to seek seriously ANY buyer for ANY part of the Lumia mess. For Foxconn the only part they would even WANT is the Nokia brand, nothing else.

And who else would want the old Nokia dumbphone business or the utterly DEAD business of Lumia? HP, Intel and Dell have already tried and ended their experiments smartphones. Sony, LG and Lenovo all are making losses with their smartphone business. Blackberry and HTC are essentially dead. Ericsson already left the handset business. Apple and Samsung don’t need anything from that carcass which is the ruined remains of Nokia now in some forgotten garage owned by Microsoft. The smaller Chinese brands like Xiaomi, ZTE, Oppo, Coolpad and TCL have no use for a Nokia brand and see how little rival Lenovo has been able to do with Motorola. And Motorola’s phone biz was nowhere near as disastrously unprofitable as Lumia is now. Its hard to imagine anyone else ‘wanting’ Nokia other than Foxconn (or Nokia itself). Its a buyer’s market and Foxconn is likely to get that Nokia brand for peanuts. Microsoft will incur huge costs still in shutting down the remains of the Nokia phone business. Which to me suggests, a deal between Nokia and Microsoft should be the ‘obvious’ and easy one to close. It would be in everybody’s best interest.

Comments

[tz]

There is the "Obamaphone".
This would be perfect as the "HillaryPhone"

[Abdul Muis]

@Tomi

I thought you previously said that Microsoft only own the license of Nokia brand for dumbphone/featurephone, thus nokia will enter the smartphone business this year.

[Wayne Borean]

Slightly off-topic, but this came up in my feed today - apparently the US FCC is investigating why Android software updates take so long to reach end users (if updates happen at all).

http://www.huffingtonpost.com/entry/fcc-inquiry-android-updates_us_5731fc16e4b096e9f092ac51

[Wayne Borean]

On-topic I agree with Tomi. Any business which has a loss making unit where there seems to be no way to make the unit profitable will want to sell that unit. Of course that doesn't apply when corporate pride or management pride is at stake.

There is no way that Stevr Ballmer would sell the Nokia-Lumia-Windows Phone unit. Nadella doesn't have an emotional investment in Nokia-Lumia-Windows Phone. It would make sense to get money back for the shareholders by making a sale, rather than having to pay the costs of shutting the unit down.

There are several possible deal breakers for any possible buyer:

1) Microsoft may have been holding out for a commitment to continue manufacture and sale of Lumia Windows Phone units

2) Microsoft may not be willing to sell certain parts of the business

3) Microsoft may be over-valuing the business

4) Microsoft may not be willing to part with the Nokia name

5) Microsoft may be requiring the installation of Microsoft software on phones (I'm thinking mostly of Office and Bing but it is possible Microsoft has something in-house that they were working on that we do not know about which the company would otherwise have to write off)

Currently the Nokia-Lumia-Windows business effectively has a negative worth. To make it into a profitable business changes would have to be made. Mobile is not my specialty, so I'm going to go with Tomi's suggestions that getting rid of Windows Phone would be a necessity.

But going Android might not bring enough of an advantage for Nokia as a purchaser. While it would work for Foxconn, who would likely aim at the lower to middle parts of the mobile market, Nokia had always covered the entire market range, and built some incredibly attractive high end units.

It would make sense for Nokia, if the firm was really interested in the purchase, to also have been talking to Jolla (Sailfish) with the aim of once again having a Nokia OS instead of using Android, but making the OS capable of using Android apps. Microsoft had already been working on a project to make Android (and IOS) apps run on Windows Phone. Extending it to Meego/Maeomi/Sailfish would not be trivial, but it would not be an enormous challenge either. Add in the possibility of making it Symbian app compliant (I'm not sure if there is a market for this) and it could bring in other partners such as the Japanese mobile OEMs.

This is all speculation. Nokia was an extremely popular brand at one time. Resurrection of the brand could make good business sense, under the right circumstances. It would be far more valuable to Nokia than to Foxconn, but the devil is in the details.

Don't forget that Ballmer still owns a lot of Microsoft stock, as does his buddy BillG. Any deal that makes him look bad might get panned by certain large shareholders.

Any deal which weakens Microsoft's already weak position in mobile might also get panned. Microsoft is dealing with market share erosion, the very thing that Bill Gates feared when Microsoft was using the anti-competitive tactics which lead up to the consent agreement (the information including full sets of Microsoft internal emails is online in several places, if anyone wants the links, ask).

Just because Microsoft is effectively dead in the mobile OS market doesn't mean that the company won't try to hold onto the small slice it has left. It wouldn't be logical, but companies aren't always logical. Nadella may not have total control, we don't know what his contract says.

[Paul]

I guess that Microsoft selling back the rest of ex-Nokia business sounds nice but I am pretty sure that Microsoft does not want to see that in a near future the Nokia and and ex-Nokia would start to do very well by selling non-Windows phones. I guess that Microsoft's goal here is to hide any trace that it has ever been in smartphone business such that nobody will remember anything in 10 years from now.

[Rambler]

Nice rambling. Only problem is Microsoft cannot sell to Foxconn the right to build a Nokia smartphone. Why? Because only Nokia can do that.

Microsoft might sell to Foxconn the right to build a Nokia featurephone. Why the hell would Foxconn want that?!

The only thing Microsoft CAN sell to Foxconn is the Lumia and/or Asha brand. Again, why would Foxconn want that?!

[Santiago]

Hi Tomi, I thought this rumour was regarding only dumbphones, as it is what MS has license for many years, but not smartphones, which license is expiring this/next year.
So, wouldn't make more sense if is Nokia who transfers that license to Foxconn once it expires this/next year to Microsoft, what in fact has also been rumored before?

[E.Casais]

This time I must disagree with Tomi on almost all important points.

1) I very much doubt that Nokia will ever return to smartphones -- a market that is saturating, the high-end in the clutches of Apple and Samsung, the mid-range a bloody battlefield, and the entry-level requiring _extremely_ fine-tuned, large scale logistics -- which withered away with the closure of the former Nokia production facilities.

Besides, with all firings, the largest part of the previous Nokia organizational knowledge around mobile phones is gone for ever.

2) I do not see much success for Foxconn licensing the Nokia brand. The Nokia N tablet barely made a ripple and disappeared without successor. Which demonstrates that brand and production facilities are useless without a very strong marketing and sales arm -- which Foxconn is sorely lacking.

A similar fate awaits hypothetical Nokia-NG smartphones.

3) The roadmap sketched by Tomi contains a contradiction: those people in emerging markets that still buy or hold onto Nokia smartphones represent the 10$ to 50$ per device market; a 150$-300$ smartphone is way too pricey for them.

If Foxconn follows the strategy proposed by Tomi, Foxconn will be unable to win over those Nokia-loyal customers, and find itself in the murderous battlefield for mid-range devices against all its other Chinese competitors.

4) There may well be another kind of player interested in the Nokia brand _and_ remaining production facilities: Indian manufacturers -- which are trying to break out, _and_ can expect some help from their government.

[Johnnie]

@Santiago: The license for using Nokia on smartphones expired at the end of 2015, last year.
Since the beginning of 2016, the Nokia brand for smartphones is back to Nokia. That's why many people preached Nokia returning to the smartphone business in 2016.

[Leroy Andersen]

A sad end for the No-Win phone.

[David]

I understand Microsoft can't use Nokia brand on smartphones (they had to remove "Nokia" label on Lumia); they can only use Nokia brand on featurephones and dumbphones, both now with collapsing sales.

So, who bought Microsoft rights on Nokia name and/or mobile division, won't can use Nokia brand for smartphones, only in featurephones and dumbphones.

The only one who now (or in a near future) can use Nokia brand in smartphones is NOKIA.

[Santiago]

@Johnnie
Yes, I stayed one year back in time! Haha
What I was really meaning is: How could MS transfer Foxconn a license for Nokia branded smartphones if its not theirs (MS) anymore?

[Tomi T Ahonen]

Hi everybody

On the licence(s). I have an understanding and recollection from contemporary reporting, that Microsoft bought the rights to Nokia phones overall for 10 years, but it was exclusive only on the dumbphone side until 2024 and only until 2016 on the smartphone side. So Nokia the brand could come back on smartphones at the end of this year, but even then Nokia was only allowed a limited return ie to licence the brand but not manufacture and sell its own smartphones for many more years, probably till 2024.

If I am correct, then Microsoft could sell on the licence to the Nokia brand which then would not be on an exclusive basis anymore, on the smartphone side - the part that would interest Foxconn - and also the dumbphone side which should not interest Foxconn at all. I would guess, judging by Microsoft 'DNA' that they keep insisting on a 'licence fee' out of every phone sold. If that was part of the package to try to sell the Nokia unit back to Nokia, Nokia would always say no to it. They want it all back at one payment and no residual licence fees ever again to Microsoft. If so, the Microsoft DNA would then prefer to go find 'anyone' else who would pay 'whatever tiniest licence' per phone - even if its 10 cents per phone - rather than abandon that part. This may have been what broke the negotiations between Nokia and Microsoft (if such negotiations ever even existed, and if they now have ended). Then if Foxconn had initially suggested they 'might' be willing to pay some licence - that would get Microsoft interested, then Foxconn would try to worm out of it, especially if Microsoft initially said they were negotiating with others too (ie Nokia) and suddenly Nokia is no longer in the picture haha...

On why Microsoft ended the Nokia branding and went only for 'Microsoft Lumia' - I believe that was just prudent strategy as Nokia was signalling it will be returning to smartphones. As Microsoft is a big global established brand and the partnership with Nokia was over, then there is no sense in continuing ANY brand-building of Nokia and as soon as possible Microsoft should shift to its 'owned' brands including Lumia. Meanwhile, NOKIA doesn't want Microsoft messing with ITS brand so Nokia has had an incentive to 'maximize' the image of its intent to return to smartphones, simply to scare Microsoft away from the Nokia brand onto the Lumia brand as soon as possible..

Now. If the contract between Nokia and Microsoft said for example, that the Nokia brand cannot be sold or licenced onwards, then this is a moot point and the rumor from China is mistaken (on that point). If the rights are only for the dumbphone part, then it really can not be worth more than a pittance, couple of dozen million dollars at best. Why would Foxconn want to ever bother to get into managing a brand, as the industry is nearing the completion of the shift to smartphones - and that is where all the profits are. They'd be really dumb to buy the rights only to the dumbphone-side of the Nokia brand.

Again, its all speculation but it may get interesting in the coming weeks and months. Lets keep an eye on the Microsoft DEAD Lumia unit and the doomed future of the smartphone side of the Windows 1x OS platform.

Tomi Ahonen :-)

[Barney]

I have to wonder:

After 5 years of Microsoft thoroughly messing up the Nokia brand and a few years more of Nokia failing to understand the smartphone revolution, does anyone really believe that the brand name can make a comeback? Even before the Microsoft deal they already were the target of some intense ridicule because their phones were so outdated.

Also, are some people really believing that they need a different, incompatible ecosystem. I think that train has left many, many years ago. This would fail right from the start because the app developers do not care - they already have enough work with two OSs that are almost mutually incompatible.
And even if Nokia could convince the carriers, it would not help. Customers are not that stupid - they either want Apple or Android, not some weird hot pick of the day that will be forgotten 6 months down the line. As long as a carrier also has Apple and Android on offer, nobody will care about a third option - just look at Microsoft's numbers. They were able to get a few measly percents of market share for all their marketing push, but now that they reduced that effort, the numbers are tumbling down the abyss, the only thing preventing them from deadlining are the hardcore fans of their OS that refuse to see the writing on the wall.

[Winter]

The strange thing is that I am seeing adds for Lumia again in the Netherlands.

https://m.belsimpel.nl/microsoft/microsoft-lumia-950-black/zakelijk-abonnement

I do not know whether this is a stock clearance sale or yet another attempt to raise WP from the dead.

[Lars]

MS has just confirmed the deal - as announced here:
http://news.microsoft.com/2016/05/18/microsoft-selling-feature-phone-business-to-fih-mobile-ltd-and-hmd-global-oy/

Oddly your comments do not mention Sharp.. if Terry can get the shareholders to approve his offer, AGM will be held here in June, that move would add an interesting angle.

Maybe we'll see some new hybrid smart-droid-flips, like this 3rd party design, making their way into global markets.. 8-)
https://twitter.com/Wireless_Watch/status/708506012395802624

Cheers!

[Jürgen]

It's official, Nokia is going to make phones again. Undoubtedly in the Nokia owned factories of high quality like Tomi has preached. Interesting thing is they actually bought the dumbphone unit back from Microsoft.

http://company.nokia.com/en/our-businesses/nokia-technologies/hello-again

[cornelius]

And the rumors that Microsoft will kill Lumia are getting stronger.
http://www.theverge.com/2016/5/18/11699766/microsoft-lumia-phone-brand
How about a nice funeral ceremony for Lumia?

[Abdul Muis]

I still don't 100% understand the nokia-foxcon-microsoft deal.

Is it a 3-way deal. microsoft sell to foxcon the nokia brand, so that foxcon can license from nokia the smartphone manufacturing capacity?

[E.Casais]

@Jürgen

Nokia is not going to produce phones again -- it will just license brands and IPR. That's it.

My contention was that Nokia will not try to re-enter the market of mobile handsets -- because of the cut-throat competition, and the irremediable loss of once world-top competencies during the Elop reign.

HMD will take the commercial risks (sales), Foxconn/FIH the industrial ones (design and manufacturing). Nokia does not take any risk:

"Nokia will provide HMD with branding rights and cellular standard essential patent licenses in return for royalty payments, but will not be making a financial investment or holding equity in HMD. Nokia Technologies will take a seat on the Board of Directors of HMD 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."

Besides, Nokia will not own any factory whatsoever -- the former Nokia Vietnam plant is taken over by Foxconn.

The risks of Foxconn and HMD are cushioned in so far as they continue to produce and sell the appreciated Nokia feature phones -- a declining, but profitable business.

I expect the HMD/FIH setup to become some kind of large-scale Jolla business -- nothing that will upturn the mobile device market.