Nokia will once again become a global brand for mobile phones, smartphones and tablets following a new strategic agreement announced by the Finnish firm.
Nokia Technologies has granted the newly founded company HMD global Oy (HMD) - also based in Finland - an exclusive global license to create Nokia-branded devices for the next ten years. Under the agreement, Nokia will receive royalty payments from HMD for sales of Nokia-branded mobile products, covering both brand and intellectual property rights.
To complete its portfolio of Nokia branding rights, HMD has struck a provisional agreement with Microsoft, expected to close in H2 2016, to acquire the rights to use the Nokia brand on feature phones. Microsoft acquired Nokia’s devices and services business back in 2014, and looks set to leave this market with a separate deal to offload some assets onto Foxconn subsidiary FIH Mobile. These two agreements will bring in a total of $350 million for Microsoft.
FIH has also agreed to a provisional deal with HMD and Nokia to “establish a collaboration framework to support the building of a global business for Nokia-branded mobile phones and tablets”.
The deals with Microsoft and FIH “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.”
Together these agreements would make HMD the sole global licensee for all types of Nokia-branded mobile phones and tablets. The company intends to invest over USD 500 million over the next three years to support the global marketing of Nokia-branded mobile phones and tablets, funded via its investors and profits from the acquired feature phone business.
With Nokia-branded feature phones a massively popular device choice in many emerging markets, HMD will continue to market them as part of an integrated portfolio. However, the firm’s portfolio will focus on new smartphones and tablets powered by Google’s Android OS.
HMD has not been set up as a Nokia subsidiary, but an “independent home for a full range of Nokia [devices]”. Nokia will not invest in the firm but will stipulate performance conditions from a seat on the board “to ensure that all Nokia-branded products exemplify consumer expectations of Nokia devices”.
HMD’s CEO will be Arto Nummela, who is currently the head of Microsoft's Mobile Devices business for Greater Asia, Middle East and Africa, as well as Microsoft's global Feature Phones business. The role of president will be filled by Florian Seiche, who is currently Senior Vice President for Europe Sales and Marketing at Microsoft Mobile, and previously held key roles at Nokia, HTC and other global brands.
Analyst firm IHS noted that the deals essentially remove Microsoft from the mobile device market, saying: “Realistically Microsoft can hope to be no more than a bit player in the mobile phone market now: feature phones comprised 87% of [its] phone unit shipments in the first quarter of 2016. Microsoft shipped just 2.3 million smartphones, down 70% from the first quarter of 2015.”
The analyst added that the deals demonstrate “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.”
“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.”