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Microsoft's sale of feature phone biz erodes smartphone commitment

Gregg Keizer | May 19, 2016
Sells the bare-bones feature phone part of the disastrous Nokia deal for US$350 million.

Microsoft today continued to undo its disastrous 2014 acquisition of Nokia's phone business, announcing that it is exiting the feature phone market, which it had once trumpeted as a critical component of its mobile strategy.

The sale of its feature phone business for $350 million prompted analysts to again question Microsoft's commitment to smartphones. "There won't be any more Lumia [smartphones]," said Jan Dawson, chief analyst at Jackdaw Research, in an email reply to Computerworld's questions today. "It does leave the door open for a new, narrower, phone strategy in the future."

In a statement Wednesday, Microsoft said it had sold its remaining Nokia assets, including its factory in Hanoi, Vietnam, to FIH Mobile Ltd., a subsidiary of Taiwanese contract manufacturer Hon Hai, better known as Foxconn, and to Finnish firm HMD Global.

The factory will go to Foxconn, as will most of the rest of its feature phone assets, including software and services, and customer and supply contracts. HMD Global will, as part of a larger deal with Nokia, acquire rights to use the Nokia brand, as well as some design rights. HMD will manufacture and sell Nokia-branded phones and tablets, all of which will be powered by Android.

In return, Microsoft will receive $350 million.

Microsoft has had to unwind the mammoth $7.9 billion acquisition of Nokia's phone business, which proved a monumental mistake on the part of former CEO Steve Ballmer.

Since Satya Nadella took charge at the Redmond, Wash. company two years ago, he has been walking back the deal.

In mid-2015, Microsoft wrote down the entire Nokia acquisition. According to filings with the U.S. Securities & Exchange Commission (SEC), the company recorded a charge of about $10 billion against earnings, an amount that included an accounting scrub of the purchase along with billions in reorganization and severance fees.

At the same time, Nadella spelled out what the repudiation of Ballmer's strategy meant for the company. "We are moving from a strategy to grow a standalone phone business to a strategy to grow and create a vibrant Windows ecosystem that includes our first-party device family," Nadella told employees in a July all-hands email. He also tapped three markets for a much reduced mobile device division: business customers, value-oriented buyers and Windows loyalists.

With the unloading of the feature phone component, the second of Nadella's sell-to segments was struck off the list.

Sales, whether of feature models or smartphones under the Lumia brand, have not only been disappointing since Microsoft struck the deal with Nokia, but have more recently gone into free fall. In Q1 of this year, Microsoft sold just 2.3 million Lumia smartphones, down 73% from the same period the year prior. The company sold 15.7 million feature phones in the first three months of this year, a 36% decline.

 

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