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Microsoft Unloads Feature Phone Business

The unwinding of the blockbuster Nokia deal entered a new phase Wednesday as Microsoft sold its feature phone unit for $350 million to a subsidiary of Hon/Hai Foxconn Technology Group and a newly formed close partner of Nokia Corp. called HMD Global Oy.

The feature phone business was never a strategic play for Microsoft, which bought Nokia's phone business mainly for the Lumia smartphone line as part of a plan to drive adoption of Windows Phone.

Championed by former Microsoft CEO Steve Ballmer, the Lumia-Windows Phone combo never gained market traction and Microsoft ended up taking a $7.6 billion charge last July against the value of the assets it acquired when the deal closed in April 2014. Microsoft also took a restructuring charge of $750 million to $850 million and announced layoffs at the time for 7,800 employees.

Now Microsoft is selling its entry-level feature phone assets to FIH Mobile Ltd., the Foxconn subsidiary, and HMD. FIH will get Microsoft's Hanoi, Vietnam, manufacturing facility, and 4,500 employees will "have the opportunity to join" FIH or HMD, according to Microsoft's brief statement about the deal.

The sale coincides with a major Nokia announcement about a strategic return to the Nokia-branded mobile phone and tablet business. Under the deal, Nokia will grant HMD "an exclusive global license to create Nokia-branded mobile phones and tablets for the next ten years." HMD will pay royalties to Nokia for sales of those Nokia-branded mobile products. As part of that deal, Nokia said, "HMD has conditionally agreed to acquire from Microsoft the rights to use the Nokia brand on feature phones, and certain related design rights."

The CEO of HMD will be Arto Nummela, a former Nokia executive who is currently the head of Microsoft's Mobile Devices business for Greater Asia, Middle East and Africa, and of Microsoft's global Feature Phone business.

Getting out of the feature phone business doesn't tell us anything about Microsoft's intentions or core business. It's almost surprising that these business lines and facilities weren't part of the earlier cutbacks. A feature phone business has little to do with Windows or Microsoft's strategic plans.

Meanwhile, Microsoft did little in its brief statement to quell rumors that the days of new Lumia-branded smartphones running Windows may be over. In spite of Microsoft Windows and Devices Group chief Terry Myerson's leaked e-mail last month about the ongoing commitment to Windows 10 Mobile, Microsoft did not promise new Lumia devices in its statement Wednesday.

"Microsoft 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 OEM partners like Acer, Alcatel, HP, Trinity and VAIO," the company said in its statement.

That word "support" could be telling, as rumors of a pivot to a Surface Phone brand have been making the rounds for the last few months. It's also unclear how many people and assets are left on the Lumia design and engineering side after all the post-acquisition layoffs.

While the feature phone business sale is consistent strategically, the Lumia statement -- like the previous three or four public statements by Microsoft on the subject -- sheds very little light on what Microsoft is planning in mobile hardware.

Posted by Scott Bekker on May 18, 2016


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