Nokia's mobile return: WLTM a partner, GSOH, must like cool handsets

After a deal with Foxconn to make a tablet, Nokia's looking for a similar partnership for smartphones.
Written by Jo Best, Contributor

Earlier today, Nokia confirmed that it is looking to reenter the mobile market.

While Nokia's short statement on the subject will doubtless generate many headlines, it's one of the least surprising pieces of news we could have expected from the company.

Here's what Nokia said: "the question comes up all the time: will Nokia return to mobile devices? The answer is: it's complicated... The right path back to mobile phones for Nokia is through a brand-licensing model. That means identifying a partner that can be responsible for all of the manufacturing, sales, marketing and customer support for a product."

Rumours of Nokia making its return to handsets began almost as soon as it sold its devices and services business to Microsoft in 2014, although under the terms of the deal, it is prevented from doing so until the end of next year.

Nokia CEO Rajeev Suri has always fairly clear about Nokia's plans to remain involved in the hardware market, repeating that the company was interested in licensing the Nokia brand to other companies to use on their kit, rather than in manufacturing hardware itself. He has also never shut the door on allowing that brand to be used for phones. At the company's Capital Markets Day last year, he told investors: "We are not looking to a direct consumer return to handsets" adding the caveat "per se".

Nokia's release of the N1 tablet last year gave a clear indication of how any mobile manufacturing partnership might work. The low-cost, decently-specced N1 was designed by Nokia and carries the Finnish company's brand, but was manufactured, sold, and supported by China-based OEM Foxconn.

It's difficult to say how successful the partnership has been, given neither Nokia nor Foxconn has published sales figures, but Nokia described the initial reception as "favourable" and it looks like sales will be extended beyond China to other Asian markets.

Regardless of the N1's popularity, the partnership with Foxconn is a relatively low-risk strategy for Nokia: it has a third party to do the messy, expensive business of selling the device, but the deal means its brand is still present in the market and, thanks to having control of hardware design, Nokia ensure that that brand is well-represented.

Carrying that strategy over to mobile devices obviously has some appeal for Nokia. "We will look for the right partner who can take on the heavy lifting and work closely with us to deliver a great product," adding: "If and when we find a world-class partner who can take on those responsibilities [such as sales and support], we would work closely with them to guide the design and technology differentiation, as we did with the Nokia N1 Android tablet. That's the only way the bar would be met for a mobile device we'd be proud to have bear the Nokia brand," Nokia's statement said today.

Last week, Microsoft announced a retreat from mobile manufacturing: having bought Nokia's devices and services arm for €5.4bn, it wrote down the entire investment, announced massive layoffs, and hinted it would adopt an iPhone model for its devices, releasing the occasional flagship rather than a whole portfolio of products.

With so many ex-Nokia workers affected by the redundancies, Nokia's Finnish homeland will soon have a great deal of unemployed mobile talent. You'd be forgiven for hoping that Nokia will return to mobile by developing a new homegrown OS, allowing its licensed handset to offer an alternative to the iOS-Android duopoly.

It's unlikely. All those pundits who wondered whether Nokia would have flourished if it had adopted another operating system than Windows Phone may soon get their chance to find out: it's likely that any device bearing the Nokia name will be Android, like the N1, with some low-key Nokia apps and software onboard.

Should it do so, it will be entering a crowded market and not necessarily a healthy one. Of every $1 made in mobile, all but eight cents of it goes to Apple - Android device manufacturers simply aren't making a great deal of money.

Nokia will be re-entering the smartphone market after a three-year gap, but many of the problems it faced when it sold up to Microsoft are still there: Android dominates market share, but those who use its OS are struggling (notably, HTC and Samsung) in a market full of all too similar devices, while anyone not using iOS or GMS Android is struggling to make any headway at all.

If Nokia uses the N1 model for handsets, it's hard to see how it will differentiate itself - there is no shortage of decent, affordable Android models available today, yet such don't-scare-the-horses handsets are those most likely to appeal to would-be licensees. The type of devices that Nokia historically excelled in - the low-end, the flagship, and in its glory days, the experimental - are too risky or too low margin for OEMs to take on. Yet, without Nokia and its buddies daring to make some of those more interesting handsets, sales are never going to take off.

After its spectacular burnout, Nokia was never going to return to mobile manufacturing as it had in the past. Licensing is an understandable strategy: while the Nokia brand won't regain its position at the cutting edge, it will at least live on.

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