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Nokia Bets On Sub-Sahara Feature Phone Business With Microsoft Buyback

Nokia Bets On Sub-Sahara Feature Phone Business With Microsoft Buyback

Microsoft announced it is selling the segment of its business focused on “dumb” feature phones for $350 million, while Nokia said it’s returning to the mobile phone and tablet market under the new HMD brand, NewsFactor reported.

Although smartphones continue to displace feature phones around the world as the most popular mobile device, feature phones are still very popular in sub-Saharan Africa.

“They are an affordable option in regions where even the cheapest Android smartphones are out of reach for many consumers,” according to U.K.-based market research firm CCS Insight’s Market Forecast: Mobile Phones, NewsFactor reported.

In its April quarterly financial report, Microsoft said its mobile phone sales were weak, with a drop in Windows Phone purchases and a high inventory of unsold Lumia smartphones.

Globally, the number of smartphone owners is expected to reach 5.4 billion by 2020, compared to 3.1 billion in 2015, according to CCS Insight.

Despite this trend, a large market continues to exist for more affordable feature phones. CCS Insight predicts worldwide sales of feature phones will reach 550 million units in 2016, and drop to 240 million units by 2020. “However, this opportunity remains interesting enough for a number of phone makers to continue to deliver products, albeit with ever-declining profit margins,” CCS said.

“The feature phone unit never sat comfortably within the Microsoft organisation and CCS Insight believes Microsoft will be relieved to offload a non-strategic asset while it still has some value,” according to the analysis. “For Nokia, the agreement offers the chance to generate ongoing revenue from mobile devices without having to become involved in the manufacturing and distribution of hardware.”

Microsoft will continue to develop smartphones such as the Lumia on its own and through OEM partners. The deal is expected to close sometime in the second half of 2016. After that, HMD expects to become the sole global licensee for all devices carrying the Nokia brand.

HMD is a Helsinki-based company run by former Nokia managers, Bloomberg reported. The value of Nokia’s brand — the intangible assets behind the name rather than physical property — is probably worth $3 billion, according to Robert Haigh, director at London consultancy Brand Finance. That compares with $146 billion for Apple, $1.4 billion for HTC and $258 million for BlackBerry.

A comeback won’t be easy for Nokia in a market dominated by Apple’s iPhone and Google’s Android software. No other global handset maker has managed a successful rebirth after falling from the top. Brands buried in the mobile phone graveyard include former Nokia competitors SonyEricsson and Siemens, according to Bloomberg.

In 2015, Nokia fell off the list of the world’s 100 most valuable brands compiled by consultancy Interbrand. In 2015 the list was topped by Apple. Alphabet Inc.’s Google, developer of the Android operating system, was No. 2.  Other smartphone makers included Samsung, Sony, Huawei Technologies Co. and Lenovo Group Ltd.

The sale is the latest fallout from Microsoft’s purchase of Nokia’s phone assets two years ago, SeattleTimes reported. That deal, an effort to raise the profile of Microsoft phones in a market dominated by Apple and companies using Google’s operating system, failed to improve Microsoft’s standing in the smartphone market.

Microsoft has spent much of the past two years winding down its Nokia assets, shuttering or selling factories in Europe, South America and Asia, and taking a $7.6 billion financial hit on the value of the acquisition.

Microsoft kept parts of Nokia’s formerly massive global business of selling feature phones, or basic cellphones that can access the Web but lack the power and advanced features of smartphones.

The newly created entity, HMD Global, will sell Nokia-branded mobile phones and tablets, licensing the Nokia brand name from the Finnish company, which retained the rights to its name on some products after the Microsoft sale. HMD, owned by a private equity fund managed by an ex-Nokia manager, will be led by Arto Nummela, previously the leader of Microsoft’s mobile devices business for Asia and Africa.