Demise of Microsoft’s mobile ambitions, return of Nokia

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May 19, 2016 (LBO) – The demise of Microsoft’s mobile phone ambitions is on the cards with the company selling its feature phone business to a Foxconn subsidiary.

Microsoft is licensing the Nokia name for handsets back to Nokia, which has set up a new company that will make feature phones, Android-based smartphones, and tablets.

In an announcement, Microsoft said it will “continue to develop Windows 10 Mobile and support Lumia phones such as the Lumia 650, Lumia 950 and Lumia 950 XL, and phones from OEM partners like Acer, Alcatel, HP, Trinity and VAIO.”

Venture Beat reported that these developments won’t reassure app developers, handset manufacturers, or consumers that Microsoft is in the smartphone game for the long haul.

During its second quarter earnings report in January, Microsoft said it sold 4.5 million Lumia devices, down from 10.5 million for the same period a year earlier. Windows Mobile was stuck at .9 percent in China, practically irrelevant.

In a separate but related transaction, Nokia entered into licensing pacts with FIH Mobile and HMD Global to put its brand once again on mobile handsets.

According to the Wall Street Journal, for Nokia, the deal is a re-entry into the handset market after the company, once the leader in mobile phones, shifted to making wireless and Internet network equipment.

The Finnish company said it hopes to capitalize on its brand name in developing countries starting with entry-level phones. It plans to offer higher-end smartphones and tablets later.

Nokia said it had granted patent and design rights to HMD Global, a newly created company based in Finland that will be in charge of global marketing through a 10-year exclusive agreement.

HMD is majority-owned by a private- equity fund managed by Jean-François Baril, a former Nokia executive. Nokia said it had signed manufacturing agreements with a subsidiary of Foxconn, the Taiwanese company and main assembler of Apple Inc.’s iPhones.

Microsoft agreed to unload its low-end phone business, acquired from Nokia, to FIH Mobile, a subsidiary of Hon Hai/Foxconn Technology Group, and HMD Global Oy for $350 million.

The deal highlights how sharply Microsoft Chief Executive Satya Nadella has shifted the company’s mobile strategy since his predecessor, Steve Ballmer, championed the Nokia deal, which closed in 2014.

Last summer, Microsoft wrote down about 80% of the $9.4 billion deal, cutting 7,800 workers, mostly in its mobile-phone business.

The software giant hasn’t given up on phones. But its latest strategy revolves around Windows 10, the most recent version of its flagship operating system that runs on various devices including smartphones, PCs, tablets, and game consoles.

Microsoft also is developing services that behave intelligently based on data gathered by smartphones and other devices. At a conference for software developers in March, the company showed how its voice-activated digital assistant, Cortana, could book a hotel room or order a pizza proactively based on a user’s personal data and preferences.

The low-end phone business that Microsoft sold on Wednesday doesn’t fit with that strategy. The entry-level phones known as feature phones lack the computing horsepower to run Windows 10. “The future [of Microsoft’s mobile business] has to lie with Windows 10,” said J.P. Gownder, a Forrester Research Inc. analyst.