mobile phone business

It will still exist after Microsoft buys the company’s handset business. While Microsoft is acquiring what Nokia is best known for, the Finnish company is holding on to two if its major businesses: networking and mapping.

“There’s a lot of emotion involved in this move,” Timo Ihamuotila, Nokia’s chief financial officer, said in an interview. “Nokia has been synonymous with cellphones for the last two decades. It’s hard, but Finland will have two strong technology companies that result from this deal.”

Nokia focused on cellphones in the 1990s after facing financial difficulties. By the height of the dot-com boom at the end of the 1900s, Nokia was the world’s largest cellphone maker. It attained a market value of around $250 billion. Yet a failure to develop a smartphone good enough to rival Apple’s iPhone and popular Android-based devices from Samsung Electronics collapsed the company’s market share from around 30 percent in 2009 to less than 4 percent last year, according to the research firm Gartner. In 2013, Samsung dethroned Nokia to become the largest phone maker.

While Nokia’s mobile phone business has been dwindling, the remaining segments are not laggards. Flush with Microsoft money from selling off its core businesses, the new Nokia could be well positioned to compete. It might be invisible to consumers, but Nokia’s networking business, which includes equipment it sells to telecom operators to run their wireless networks, brings in the majority of the company’s annual revenue.

Nokia’s maps technology, another part of the company Microsoft does not want, has a valuable global database of geographical information. Called Here, it can be licensed to other companies that want to build products and services around maps.

Without having to worry about making popular software and sleek phones to compete in the brutal handset industry, the new Nokia would be freed to build a profitable company from the remaining businesses. But it is unclear how well those businesses will stand on their own. And even without a mobile unit, Nokia still has to compete in a rapidly changing mobile industry that left it behind long ago.

“It’s a very odd mix at this point,” said Jan Dawson, a telecom analyst for Ovum. “There’s no other company that combines heavy network infrastructure with what’s basically a pure data and software asset, and there’s very little synergy between the two.”

Nokia’s mobile infrastructure business, which began as a joint venture with Siemens, currently generates around 85 percent of the company’s annual $18.4 billion in revenues. Nokia acquired the 50 percent stake in Nokia Siemens Networks earlier this year for $2.2 billion.

It is expected to compete against telecom suppliers like Ericsson of Sweden and Huawei and ZTE of China to win contracts from the world’s largest cellphone operators. China Mobile and Vodafone of Britain are planning to spend billions of dollars to upgrade their mobile data networks to so-called fourth-generation technology.

By the time the next generation of wireless technology arrives and vendors are upgrading their equipment, Nokia, now a smaller company, will be in a tough spot.

It may have some success in the United States and Europe, where the governments are wary of Huawei and ZTE because of security concerns about Chinese government-sponsored spying. But it will have to invest heavily to challenge Ericsson, said Tero Kuittinen, an independent analyst for Alekstra, a company that does mobile diagnostics.

“Being a small network infrastructure company, that’s a very hard business,” Mr. Kuittinen said. “Ericsson is such a giant in this industry.”

Nokia’s mapping component, Here, provides GPS services to dashboard navigation systems in many car models. The unit, which generates around $1.3 billion in annual revenue, plans to sell GPS and entertainment services to companies that do not want to build them from scratch, according to Mr. Ihamuotila, Nokia’s chief financial officer.

Nokia maps might hold some appeal to device makers because Nokia will not be competing with them. (Microsoft said it would continue to use the Nokia brand on smartphones for about 10 years.)

But the value of Nokia’s maps may decrease now that the company no longer has a device business attached to it. As smartphones became popular, digital maps became more complex and sophisticated because people were pulling up directions from the devices they carried instead of looking up directions on a computer. As they did, the mapmakers gathered information from people’s smartphones and made the maps more accurate and more useful.

Google, a rival to Nokia’s mapping services, treats the millions of smartphones using its map software as data probes to improve the thoroughness of its database.

Nokia has also retained its research and development facilities and patent portfolio, with plans to develop new products to license, or sell technologies to other companies.

However, with so many mobile devices relying on Google’s Android software, and so many smartphones relying on parts and technologies made by Samsung, the Finnish giant will have to come up with something truly compelling to stand out in stores.

Even with the remnants of Nokia, the loss of its phone business creates a void for Finland as a whole, said Mr. Kuittinen, the Alekstra analyst. Many Finnish universities offered courses in mathematics and software engineering with Nokia in mind as a future employer.

Now, they may look to other countries, like the United States, if they want to get into the business of making mobile software, one of the most popular technology sectors for engineers.

“The industry just vanished,” Mr. Kuittinen said, “and this is not something that happens very often.”

Article source: http://www.nytimes.com/2013/09/04/technology/shedding-handsets-nokia-looks-to-the-future.html?partner=rss&emc=rss

Late Monday, Microsoft and Nokia said 32,000 Nokia employees would join Microsoft as a result of the all-cash deal, which is meant to turn the Finnish mobile phone pioneer into the engine for Microsoft’s mobile efforts.

Stephen Elop, the former Microsoft executive who was running Nokia until the deal was signed, will rejoin Microsoft after the transaction closes, setting him up as a potential successor to Steven A. Ballmer, Microsoft’s chief executive. Mr. Ballmer has said he will retire from the company within 12 months.

“This agreement is really a bold step into the future for Microsoft,” Mr. Ballmer said in a telephone interview from Finland. “We’re excited about the talent capabilities it will bring to Microsoft.”

The deal, which was first broached between Microsoft and Nokia executives in February, is the latest transformation of the 150-year-old Finnish company. Nokia began life as a conglomerate making products like rubber boots and car tires before reinventing itself in the 1980s as the world’s largest manufacturers of cellphones.

Nokia’s once mighty position in the mobile phone business has been lost, as the industry shifted to the era of the smartphone. Samsung and Apple divide nearly all of the profits in the global smartphone business now.

Nokia’s fall has been most spectacular in Asia, a region that its phones once dominated. As recently as 2010, the company had a 64 percent share of the smartphone market in China, according to Canalys, a research firm. By the first half of this year, that had plunged to 1 percent.

While Nokia phones used to be prized in Asia and other developing economies for their durability and value, the company was late to introduce innovations like touch screens. That left the high end of the market to brands like Apple and Samsung.

In the lower price ranges, smartphone makers from China have been more responsive to consumer demands, offering phones with features resembling those of their more expensive rivals at a fraction of the cost.

Risto Siilasmaa, Nokia’s interim chief executive, said on Tuesday that the sale of the handset business was the logical step in the company’s evolution but still pulled on his heartstrings.

“Selling a business is sometimes the right cause of action, but it’s emotionally complicated,” Mr. Siilasmaa said.

Consumers may be less concerned.

At a cellphone store in central London on Tuesday, Geoffrey Widdows, a 33-year-old engineer, said he had once been a devoted Nokia fan but now preferred Android phones because of the greater choice of apps available on phones from companies like Samsung and HTC.

“Everyone had a Nokia when I was growing up,” he said. “You just don’t see them around a lot anymore.”

A megadeal between Nokia and Microsoft is something that pundits and analysts have speculated about for years, after Mr. Elop joined Nokia and signed a pact with Microsoft in February 2011 to standardize the software company’s Windows Phone operating system.

The cellphone fortunes of the two companies have become closely intertwined since that agreement, but the relationship has done little to turn either company into a leader in the mobile business. Handsets running Windows Phone accounted for only 3.7 percent of smartphone shipments in the second quarter, according to the technology research firm IDC.

Nokia remains the second-largest shipper of mobile phones in the world, after Samsung, but that is largely because of lower-end feature phones, from which consumers are moving away. Nokia is no longer among the top five makers of smartphones.

A big question is whether Microsoft and Nokia will succeed as one company where they have not as close partners. Mr. Ballmer said Microsoft and Nokia had not been as agile separately as they would be jointly, citing how development could be slowed down when intellectual property rights were held by two different companies.

“There’s friction,” he said.

Mark Scott contributed reporting from London and Eric Pfanner contributed from Tokyo.

Article source: http://www.nytimes.com/2013/09/04/technology/microsoft-acquires-nokia-units-and-leader.html?partner=rss&emc=rss

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