Microsoft Sale of Feature Phone Business 'Highlights Failure in Mobile,' IHS Says
Microsoft’s announcement it is selling its feature phone business to Hon Hai/Foxconn subsidiary FIH Mobile and HMD global Oy (HMD) for $350 million “highlights Microsoft’s continued failure in mobile,” IHS emailed in a research note Wednesday. While Microsoft said in its Wednesday news release it would continue to develop the Windows 10 Mobile platform and support Lumia phones and phones from OEM partners such as Acer, Alcatel, HP, Trinity and Vaio, IHS called Microsoft’s smartphone future “up in the air.”
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IHS cited a lack of “competitive flagship devices for Windows 10 Mobile” while the company has been focused on “new innovative hardware designs” for Surface tablets. Microsoft won’t be more "than a bit player in the mobile phone market now,” IHS said, saying feature phones were 87 percent of Microsoft phone unit shipments in Q1. The company shipped just 2.3 million smartphones in the quarter, down 70 percent from Q1 2015, it said.
Nokia, meanwhile, granted an exclusive 10-year global license to Finland-based HMD, which it founded “to provide a focused, independent home” for Nokia-branded feature phones, smartphones and tablets. Nokia will receive royalty payments from HMD for sales of Nokia-branded mobile products, covering brand and intellectual property rights, Nokia said.
The move underscores Nokia’s “ambition to remain a consumer brand and its continued ability to re-invent its business” with a revamped phone business operating structure, IHS said. “It also completes a slick series of corporate [maneuvers] 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,” IHS said.
Feature phones never were a core part of the Microsoft business -- more of an “unwanted extra” after a reorganization last year -- and the company “likely took the first good offer to take the business off its hands,” IHS said. But Nokia has been signaling for a while its “intentions to re-enter the smartphone market,” IHS said, having launched an Android smartphone launcher app, along with the Z1 Nokia tablet. Nokia was restricted from returning to smartphones until this year due to a non-compete agreement it struck with Microsoft when it sold its devices business to Microsoft in 2013, IHS said.
Nokia re-enters the mobile phone market with lower risk by positioning HMD as the sole licensee of the Nokia brand for mobile devices, IHS said. The company can bring in revenue while outsourcing most of the risk, and it has presence on the HMD board to protect its interests further, the researcher said.
Meanwhile, the “complicated arrangement with Foxconn gives HMD the capabilities to quickly become a significant player” in both the smartphone and feature phone markets, “while it boosts Foxconn’s grip on outsourced manufacturing as well as extending its reach into supply chain and distribution," IHS said.
Under the deal, Foxconn will acquire the rest of Microsoft’s feature phone business assets, including its Hanoi manufacturing facility, plus global distribution, fulfillment and supply chain networks. Foxconn and HMD will build the Nokia-branded Android smartphones and tablets. HMD will have full operational control over sales, marketing and distribution of its Nokia-branded devices, with exclusive access to the sales and distribution network to be acquired by Foxconn from Microsoft, IHS said.