Is there a future for Nokia's dumb phones under Microsoft?

Is there a future for Nokia's dumb phones under Microsoft?

Summary: Nokia's feature phones propped up revenues during its Windows Phone transition, but they take on a new meaning under Microsoft.

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Microsoft's main interest in acquiring Nokia's devices and services unit may be its Lumia smartphone business, but it's also planning to back the company's declining Asha and feature phone ranges too.

Nokia has come to dominate the Windows Phone ecosystem today, but as its ploughed time and effort into building up the sales of its Lumia devices, its once powerful mobile device business has waned.

In the second quarter of this year Nokia sold 53.7 million units of what it calls mobile phones — any non-smartphone device, typically feature phones running its Series 40 or 30 OS. The figure is down 27 percent year on year, with sales of Asha devices — its higher end featurephones, touted as starter smartphones — falling from 9.3 million units to 4.3 million over the same period.

As part of Microsoft's €5.4bn buyout of Nokia's devices and services business, announced today, Microsoft will acquire Nokia's mobile phones business unit, and will license the Nokia brand for 10 years to sell feature phones based on Nokia's Series 30 and Series 40 operating systems.

Despite their rapid decline, according to outgoing Nokia CEO Stephen Elop, Nokia's mobile phones will serve as bridge for consumers to move to Lumia.

"Microsoft can extend its service offerings to a far wider group of people around the world, while allowing Nokia's mobile phones to serve as an on-ramp to Windows Phone," Elop said at a press conference earlier today.

With a common design language across mobile and smart devices and a relatively small jump in price between the highest-end Asha and the lowest-end Lumia, Elop's vision may not seem entirely outlandish. And, with Nokia consistently talking up the smartphone-like features of the Ashas, it may be that Nokia has been laying the groundwork for a future when its Lumia smartphones can play a more significant role in developing economies.

Research firm Kantar World Panel highlighted in a report yesterday that Lumia devices have a higher appeal among first time smartphone owners than Android and iOS.  While 42 percent of all new Windows Phone buyers were first time smartphone owners, the figure for iOS and Android was 27 percent.

There may also be a more practical reason for Microsoft's continuing interest in feature phones: they may be declining, but they're still a bigger business than smartphones for Nokia. In the second quarter, total sales of mobile phones were worth €1.4bn to the company, compared to smart devices' €1.1bn.

Surface changes

Interestingly, from Nokia's side, questions over what to do with its devices and services business intensified after Microsoft launched its Surface tablets.

"The Nokia board has been evaluating and analysing all imaginable strategic alternatives since Microsoft announced a deeper focus on hardware in June 2012 by introducing the Surface tablet, heralding a tectonic shift in the broader Windows ecosystem," Risto Siilasmaa, Nokia's chairman and interim CEO, said at the conference. 

Eight months after announcing Surface, in February 2013, Ballmer approached Siilasmaa to discuss a potential acquisition.

Siilasmaa said that Nokia "had learned the best way to prosper way to prosper in device business is to be tightly aligned with the operating system, and associated ecosystem and cloud services".

Another lesson was that it was simply too expensive for Nokia to grow the third ecosystem to challenge the iOS/Android duopoly. 

"Even as people who try a Lumia and usually fall in love with the device, it does require a significant investment to drive large numbers of people to try a new experience. These investments now are significantly higher than ever before," Siilasmaa said.

"Where do those required investments come from? With all these dynamics it's evident that Nokia alone does not have the resources to fund the acceleration across mobile phones and smart devices."

Siilasmaa also acknowledged the impact on other vendors that Nokia's rise to the top of the Windows Phone ecosystem has had.

"We cannot expect other device vendors to significantly invest as Nokia has grown to dominate the Windows phone ecosystem. Microsoft does have the resources but they lack a business model that allows them to gain an improved investment from significant incremental investment. If Microsoft had to spend $20 to sell one more device, and would earn $10 on licensing fees as a result, there is no incentive to invest."

Global coverage: Nokia Interim CEO: Microsoft deal makes us stronger | Even with Nokia devices, Microsoft wants to license Windows Phone to other makers | Does its Nokia buy thwart or fuel a possible Microsoft break-up? | Microsoft shows how to flush decades of Nokia goodwill away | Microsoft gets less than $10 per Windows Phone unit | Microsoft-Nokia deal: Reaction from the Twitter trenches | Elop drops Nokia CEO role to lead devices team under Microsoft deal | Microsoft-Nokia deal: 11 quick facts | Microsoft to buy Nokia's devices, services unit for $7.2bn

Topics: The Microsoft-Nokia Deal, Microsoft, Mobility, Nokia, Smartphones

Liam Tung

About Liam Tung

Liam Tung is an Australian business technology journalist living a few too many Swedish miles north of Stockholm for his liking. He gained a bachelors degree in economics and arts (cultural studies) at Sydney's Macquarie University, but hacked (without Norse or malicious code for that matter) his way into a career as an enterprise tech, security and telecommunications journalist with ZDNet Australia. These days Liam is a full time freelance technology journalist who writes for several publications.

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29 comments
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  • Haven't laid eyes on a Nokia phone for years

    The only thing I can guess is that they still sell in 3rd world countries.

    Sounds like another HP/Palm debacle.
    terry flores
    • Global market much larger than US market

      Global pop 7.2 billion, US pop 0.3 billion. Apple is a bit player in global market and without the distribution channel struggles globally.
      greywolf7
    • They do. EXTREMELY well.

      What you call "3rd World countries" are actually a HUGE market. It is much cheaper and feasible to put mobile infrastructure in place than landlines, while adding extra functionality, and mobile phones have given access to telecommunications to billions of people in Africa, Asia, and Latin America, where they are now part of people's lives and an essential tool for many people and small businesses to earn their living. It may be easy to dismiss feature phones as too limited, but they already make a big difference in all those people's lives and they are affordable enough. (Truth be told, most smartphone users actually use a small fraction of what their phones can do, and much of what they do more often is things most current feature phones also offer, like camera and music playing.) And in countries like Brazil, India, Indonesia, Pakistan or Nigeria - all with 9- or 10-digit populations -, Nokia is still a BIG player (in many national markets, the biggest). That's many, many billions of dollars (or euros) in annual sales. I doubt that Microsoft is going to kill that hen of the golden eggs. Even Samsung never ceases to launch new models for that market; the Galaxies and Notes get all the press, but I wouldn't be surprised if Samsung earned more money from feature phones and entry-level smartphones (the division is starting to get blurred) than from their top-of-line models.
      goyta
  • Nokia has the channel MS has the muscle

    Apple is only strong in a few countries and really weak globally. Samsung is strong globally. Nokia has the global distribution channel to be a strong global player even as it remains in third place in the US. Apples stagnant form factor and unimaginative releases are a risk to iOS strength though.
    greywolf7
  • NOKIA how "Rolls royce"

    The wireless telephones of NOKIA are how "Rolls Royce" of the telephony, a great purchase of MSFT, anyone feels proud of having a NOKIA.
    luis river
  • You may like Windows Phone, but.....

    They can't compete with Android or Apple. Why would anyone want a Nokia windows phone when they can have an iPhone or a top of the line Android phone (HTC One anyone?)?

    You can chat up the global market all you want, but the fact is that Americans are buying these smartphones in droves, more and more every day. So if Nokia/MS can't compete with Apple or HTC/Samsung, they are done.

    MS should have let Nokia sink. Bad investment.
    YehudahGriffin
    • If you pin everything on the US

      You will die as a business. Apple is slowly dying because they are struggling globally, the reason: premium pricing. Nokia/MS will compete with Apple. As for Android, they have a significant global presence, reason: their cheap. However the Android market is becoming more fragmented by the day, all sorts of phone OS versions out there, all sorts of devices either run certain versions well or not so good. Android will die the death of one thousand cust, simply too many hands in the pot, too many versions, too much confusion. A Nokia/MS also will have their Samsung, HTC phones out there, so customers will have choice, therefore they can price competitively. This means a Nokia/MS is NOT Apple. They are not to only "iOS" game in town, hence their pricing will need to compete with other within their own ecosystem. But customers will have choice beyond the "one game in town", meaning its simply an improved Apple model. As far as good or bad investment. If Microsoft really wants to be competitive in the smartphone space, they needed this. As for Nokia? They could not compete globally just alone with Windows Phone. Smart move by both Company's.
      BruinB88
      • "Android will die the death of one thousand cust[sic]"

        what are you smoking, sir? All other opinion you have provided in your post may be completely discarded - i stopped reading right there.
        drwong
    • MS and Elop sunk Nokia

      MS is buying Nokia on the cheap, a good move of them if they can make a solid presence in mobile - yet to be seen.
      Nokia is 10 or 20 times cheaper now than it was 3 years ago!
      AleMartin
      • I find it quite fascinating

        The apple fanboys are extremely proud of all the companies that apple has killed. They cheer every single time apple's anti-competitive practices remove more and more consumer choice.

        So they have a bit of a dilema when it comes to Nokia because they WANT to take credit for apple killing Nokia but they ALSO want to blame Microsoft. Tough call.

        "Nokia is 10 or 20 times cheaper now than it was 3 years ago!"

        So is RIM. Want to blame Microsoft for that one too?

        The funny thing is that apple gets a ton of credit for not worrying about their old cash cows when it comes to making bold moves. Microsoft also gets lambasted for riding out their cash cows while simultaneously being slammed for releasing Windows 8 that "destroys" Windows.

        RIM decided to ride out their cash cow.

        Nokia didn't.

        Nokia's Lumia line is doing better than RIM. Clearly Nokia did the right thing.

        Kudos to Nokia and Microsoft, this is great news for everyone except apple.
        toddbottom3
        • Don't worry AleMartin

          is still under the influence, so he will write garbage. Of course he is always like that though. Sorry AleMartin, couldn't resist because reading your delusional rants all the day long about this deal put you in lower grade. I think you are writing under influence.
          Ram U
          • Do I need to count the posts from you saying something bad about MS?

            Or the ones saying something good to something not MS?
            I give to the readers a clue. Both numbers are less than 1 probably - my search wasn't exhaustive :)

            I can count the post from you complaining about someone being a badmouth or a lover, or something of the same type, without giving any useful information - again I can give the readers of this forum a clue - they are many :)

            By the way your comment is kinda rude, you can't find such kind of posts from me - we have different styles. And it's not your first time, I can count the posts like that too.

            By the way, I'm in a counting mood today :)
            AleMartin
          • LoL

            thats why I said before even opening the mouth. sorry, if it really hurts you. But anyway, it seems your mood is not in counting mode, your mood is in desperation. :D. Take it easy.
            Ram U
          • I'm not hurt

            Thanks for caring - you can be nice and polite - that's positive :)
            I'm very relaxed and cool person, I'm enough unrelated with any of the companies, I just like to comment.

            But let me not "pollute" the forum with off topic posts - that's not my style, I like to comment about facts even "under influence".
            Feel free to complain about me being an anti-anything - if you like to complain, others like to count :D
            AleMartin
          • By the way

            And going back to the topic.
            What in my original post don't you agree with and why?
            AleMartin
        • I don't even like Apple

          Nothing against Apple the company, but their products are not really my type - subjective opinion.

          I prefer windows 7any day to MacOS.

          And I agree, I was exaggerating a bit - sometimes even myself use irony and sarcasm :)... not as much as others though :P. Nokia destroyed itself - Nokia to blame.


          But if others believe Elop was a great Nokia CEO all good with me. I think he was terrible for Nokia, so bad that the only way I can see it, is if he was working for Microsoft.
          If you want the numbers (not mine - I can provide references) of the hecatomb that was Nokia from the day Elop entered I can do it. And one thing is slowing down, other is falling down at great velocity.
          AleMartin
        • Blackberry just have done worst than Nokia

          One doing something better than someone else, don't qualify him as great.

          You have the habit to justify your reasoning with mediocrity, I don't think that should be the way to go. Great ones can beat Samsung, Balckberry should try to beat Apple, Nokia should be keeping 40% smartphone share...
          AleMartin
        • "They cheer every single time apple's anti-competitive practices..."

          There are people that like to cheer more than I do :)
          Anti-competitive practices should be punished accordingly - do you want a list of those?
          AleMartin
    • thats funny cause i can say...

      why would anyone want a iphone or android when they can have a windows phone which is part of the windows 8 ecosystem which includes the windows pc, the windows laptop, the xbox and the surface.
      I dont get it why do people want apple or android.
      Ahmad Siddiqi
    • Bad Investment?

      I think it was a good move. You can never know what the real plans are. Assumptions are rarely accurate.
      samp_z