Thursday, November 21, 2013

Handset Unit Nearly Sold, Nokia Now Looks to an Uncertain Future

The approval represents one of the final steps before Microsoft takes control of the struggling cellphone division, which is expected early next year. But it also leaves many questions about what is in store for Nokia, a Finnish company that still lies at the heart of Europe’s technology industry.

“It’s been a very challenging period,” Risto Siilasmaa, Nokia’s chairman and interim chief executive, said in a recent interview. “When I became chairman, I didn’t think this was going to be a possibility. There have been a lot of emotions.”

The handset unit — which sold 64.6 million phones in the third quarter of 2013 — is still one of the world’s largest. But it has increasingly lost out to rivals like Samsung and Apple that now dominate the lucrative smartphone market.

After pioneering mobile phone technology throughout the 1990s, Nokia became the world’s largest handset maker with a market value of around $250 billion. It had nearly a 40 percent share of the global smartphone market as late as 2009, according to Gartner, the research company.

But Nokia’s market share has quickly dwindled to less than 4 percent of global smartphone sales, and Samsung is the world’s largest phone maker. The company’s market value stands at roughly $30 billion, or just 12 percent of its record high.

“It’s a sad moment, but we have to look forward,” said Michael Halbherr, who leads Here, Nokia’s mapping business, which will remain part of the company. “The type of culture we had at Nokia created success, but it didn’t do enough to succeed in the smartphone era.”

Despite the company’s recent lackluster performance in the cellphone market, Nokia still has a few tricks up its sleeve as it contemplates the future. Senior executives at the company are completing a strategy, due early next year, that is expected to focus on Nokia’s remaining businesses and be supported, at least in part, by the cash from the handset sale.

The plans are likely to include a networking unit that competes with companies like Ericsson of Sweden and Huawei of China to build high-speed mobile data infrastructure for large carriers, including Verizon Wireless and Vodafone. While the business began as a joint venture with Siemens, Nokia bought the 50 percent that it did not already own for $2.2 billion earlier this year.

The company has also held on to its mapping division, whose technology is in about 80 percent of the automotive navigation systems worldwide. It also controls an intellectual property portfolio that could either be licensed to other companies or used to build new products.

“We are in a unique situation,” Henry Tirri, Nokia’s chief technology officer, said in an interview. “Before, we only thought about fitting our technology into mobile devices because that was our main business. Now, we have kept our technological assets and can use them where we see opportunities.”

Analysts warn, however, that creating a viable business from the three separate divisions, which are run independently, could prove a challenge.

Nokia’s networking division, for example, will generate over 90 percent of the company’s revenue after the handset sale is completed. With little overlap with the company’s mapping unit, some investors have called on the firm to sell, or spin off, the smaller unit so that it can prioritize its core networking operations.

“These are very different business,” said Sylvain Fabre, a Gartner telecoms analyst in London. “It’s hard to see how they could create connections between them.”

Other shareholders have demanded that Nokia return some of the almost 8 billion euros, or $10.8 billion, in cash that Nokia will have after it completes the sale of its handset division.

This article has been revised to reflect the following correction:

Correction: November 20, 2013

An earlier version of this article incorrectly described the responsibilities of Nokia’s chief technology officer. He does not manage the company’s intellectual property.

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