Microsoft is selling its feature phone business for $350m

Updated: Feature phone brands, software and services sold, but Microsoft said it will continue to develop Windows 10 Mobile and support Lumia devices.

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Microsoft is selling its feature phone business to Foxconn.

Image: Microsoft

Microsoft is selling its feature phone business to FIH Mobile, a subsidiary of Hon Hai/Foxconn Technology Group, and Finnish company HMD Global for $350m.

Microsoft said that as part of the deal, FIH Mobile will also acquire Microsoft Mobile Vietnam, the company's manufacturing facility in Hanoi, Vietnam. The deal is expected to close in the second half of 2016, subject to regulatory approvals and other closing conditions.

As part of the deal, Microsoft will transfer "substantially all" of its feature phone assets, including brands, software and services, care network and other assets, customer contracts, and critical supply agreements.

When the deal is completed, around 4,500 employees will transfer to "or have the opportunity to join" FIH Mobile or HMD Global, subject to compliance with local law.

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 hardware makers including Acer, Alcatel, HP, Trinity, and VAIO.

HMD Global will use the rights to use the Nokia brand for feature phones as part of its plans to launch a new range of Nokia-branded devices, which will also include Nokia-branded smartphones and tablets using the Android operating system, a remarkable turnaround considering that Nokia only sold its smartphone business to Microsoft, which wanted to boost Windows Phone, in 2014.

Microsoft made a huge bet on phones when it bought Nokia's smartphones business for $5.4bn just over two years ago. But while the deal was announced as a "win-win for employees, shareholders, and consumers" in reality it never out worked that way: last year Microsoft took a $7.6bn writedown on the acquisition (plus a $750m to $850m restructuring charge), and made thousands of redundancies.

It hasn't got better since: the company has revealed it only managed to sell 2.3 million Lumia smartphones in its third quarter.

While the smartphone business was the main focus of the Nokia acquisition, Microsoft also picked up Nokia's feature phone business. Here the strategy was to offer Microsoft services such as Bing Search, rather than Windows, but this has evidently not paid off either. These phones are basic by modern standards: the Nokia 230 runs Series 30 software, for example, and sports a two megapixel camera -- hardly state of the art.

Selling off the feature phone business tidies up Microsoft's phone strategy, but the bigger question is: where does Microsoft go next with smartphones?

While Microsoft's statement said it will "support" Lumias, that doesn't necessarily mean it will release anymore new models. Certainly there haven't been many -- if any -- big releases to keep Windows Mobile's few fans enthused. Most likely Microsoft will try to repeat the success of its Surface tablet PC and create a 'Surface phone' that can generate more enthusiasm among hardware makers and consumers -- but rumours would suggest that's unlikely to arrive this year.

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