Nokia Corp (ADR): NOK Smartphones Are Coming Back

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Just two years after Microsoft Corporation (MSFT) bought Nokia Corp (ADR)‘s (NOK) devices business, folding the iconic brand’s smartphones under its own banner, Nokia announced its back.

Nokia Corp (ADR): NOK Smartphones Are Coming Back?

In a partnership between NOK and China’s Foxconn (FXCOF), Nokia-branded mobile phones and tablets are on their way and they’ll be running Android this time — not Windows.

Nokia announced the deal on May 18; the same day Foxconn subsidiary FIH Mobile bought what’s left of Nokia’s feature phone business (including manufacturing, distribution and sales) from Microsoft for $350 million.

Nokia is granting a newly created company called HMD Global Oy the exclusive license to use the Nokia name on smartphones and tablets as well as Nokia cellular patents for the next 10 years. Tying the package together, Foxconn will be handling the manufacturing.

Nokia doesn’t own a stake in HMD, but will hold a seat on the company’s Board of Directors. HMD will pay NOK royalties for use of the Nokia name and patents, and Nokia will set brand requirements to ensure the devices bearing its name live up to consumer expectations of Nokia quality.

So, between the two deals, that’s feature phones, smartphones and tablets, all with the Nokia brand, all being made by Foxconn, and NOK getting paid for each device sold.

The final twist of the arrangements will see HMD led by a CEO who is currently head of Microsoft’s Mobile devices for Greater Asia, the Middle East and Africa along with Microsoft’s Global feature phone business.

Investor reaction hasn’t quite matched the excitement the deal’s headlines generated.

Investors Are Hesitant About the NOK Deal

Hardcore NOK fans may be excited about the prospect of finally being able to buy a Nokia-branded smartphone running Android — and industry watchers are interested in the twist to the Nokia story — but this late in the smartphone game with so many strong and established players, it’s unlikely to be a game changer.

Tablets are also far from blockbuster sellers these days, and feature phones continue to decline as smartphone functionality becomes the expectation, even in developing markets. Still, the prospect of seeing the Nokia brand return and bring in royalties (without the expense of actually developing and building its own smartphones) has been enough to nudge Nokia stock 3.3% higher since the announcement.

For Microsoft, this isn’t quite the end of its mobile ambitions — it’s still selling Lumia smartphones — but the end is in sight for this disastrous chapter in its history. When it bought NOK’s phone and tablet business for $7.2 billion in 2014, Windows Phone had a 3% market share, and while that was tiny, at the time it was also enjoying faster yearly growth than any other mobile platform.

Gartner just released numbers for Q1 2016, and despite 3.9% growth in the overall smartphone market, Windows dropped to just 0.7% of the market, joining BlackBerry Ltd (BBRY) in the sub-1 percent club.

In other words, the $350 million MSFT received for selling NOK’s phone business to Foxconn, a few million Lumia smartphones selling per quarter and a market share that’s dropped to a fraction of 1 percent is about all Microsoft has to show for its $7.2 billion and ongoing investment in the Windows mobile business.

HMD’s CEO-designate, Arto Nummela, had this to say about the agreement:

“We will be completely focused on creating a unified range of Nokia-branded mobile phones and tablets, which we know will resonate with consumers. Branding has become a critical differentiator in mobile phones, which is why our business model is centered on the unique asset of the Nokia brand and our extensive experience in sales and marketing. We will work with world class providers in manufacturing and distribution to move quickly and deliver what customers want.”

Whatever ends up coming out of this over the next 10 years, there is going to be one very happy subset of smartphone owners — the ones who waited for years for Nokia to release an Android smartphone and thought that hope was dashed forever when Microsoft took over.

Foxconn is Apple Inc.’s (AAPL) iPhone manufacturing partner, and it has a reputation for building quality products, while Nokia will have the opportunity to ensure a new lineup of feature phones, smartphones and tablets meet its design expectations.

The big winners could be Nokia investors. The company has managed to revive the Nokia consumer brand without requiring an investment in product design, manufacturing and distribution, while collecting royalties.

The potential payoff may not be as large, but if Nokia Android smartphones, tablets or feature phones turn out to be a hit, the royalty stream should help boost NOK stock without any of the associated risk that Foxconn has shouldered.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

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Brad Moon has been writing for InvestorPlace.com since 2012. He also writes about stocks for Kiplinger and has been a senior contributor focusing on consumer technology for Forbes since 2015.


Article printed from InvestorPlace Media, https://investorplace.com/2016/05/nokia-nok-smartphones-comeback/.

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