Nokia will indeed be back 'making' phones – and it's far from a foolish move

Finns reaffirm arms-length hardware plans


Analysis Yes, Nokia will probably make Nokia-brand phones again. And other people will make them for Nokia. The company has just re-reaffirmed the strategy it announced at its Capital Markets Day last November - when nobody seemed to be paying close attention.

In fact Nokia said so again in April - as we reported here.

Quite why it needed to re-reaffirm its strategy is a puzzle. But not as half as much of a puzzle as why Nokia would would want to start selling commodity smartphones. It only just got out of the game in April last year. It can't be for the fun of it - because losing money isn't much fun.

Apple reaps 92 per cent of the profits (up from 89 per cent) made on smartphones in Q1 this year, according to one estimate. Even though fewer than one in five smartphones sold are made by Apple. Billions are spent by Android manufacturers marketing their loss-makers. Samsung has just recorded its seventh quarter of decline in a row, despite producing the year's best flagship. HTC lost 24p on every pound of revenue. Sony's smartphone division is dragging down the rest of the group, losing £1bn last year.

But fear not, Sony's new Mobile chief has vowed to keep on losing money

If 2014 was a "bloodbath" for the Android world, then this year is even worse. A "Bloodworld adventure park with special blood slides for the kids", perhaps?

Argus reports that demand is down 8 per cent year on year, with the Android segment particularly feeling the pinch. Perhaps it'll pick up next year, as contracts are renewed. Perhaps not. Chasing Samsung and Sony doesn't seem to be the smartest move in the world on the face of it.

But if you only go on the face of it, a few things get overlooked.

Part of the reason for re-entering the phone business is in the way Nokia intends to do it - and again, this is not a secret. Nokia is going to do it by licensing, and it has valuable IP and brand value to license. In its 14-year run as the world's No. 1 handset manufacturer, Nokia accrued an enormous amount of brand good will. This is a sunken cost.

Remember, too, that Android isn't free, even in the internet sense of the word. If you're making an Android handset you still need to pay royalties for radio and other patents. Much of that goes to a patent pool in which Nokia is one of the biggest recipients. Much of the rest goes to Microsoft, with whom Nokia retains a reciprocal IP licensing agreement. Estimates of this "tax" have been around $15. It doesn't sound like a lot - but in today's cutthroat commodity market, not having to pay $15 on a handset when your rivals do is a distinct advantage.

Nokia has a page on its corporate website practically begging you to apply to license and make a "Nokia Phone". It's over here.

Who knows? Perhaps one day we'll hail the genius of the Nokia board, for being paid £4.6bn to get someone to make its redundancies for it. ®

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