Nokia looking to sell Luxury Subsidiary, Vertu?

| December 8, 2011 | 58 Replies

 

What now? I thought this division was doing well?

Reuters is saying that Nokia are looking to sell its super luxury subsidiary, Vertu, as it focuses on its smartphone efforts.

“Finnish handset manufacturer overhauls its business in an effort to compete with other smartphone makers”

Goldman Sachs is apparently going to oversee the sale, though talks are in the early stages. The luxury, extreme premium phones is supposed to have an anual revenue estimated to around 200m to 300m euros. What about profit?

Private equity groups have shown interest according to supposedly someone knowledgable in that business, adding that they are likely to attract further attention from luxury goods brands due to potential of cross selling.

Gucci Phone? Not too odd, Armani and Prada have been there and done that. I’d sooner prefer seeing it with them than perhaps, heaven forbid, HTC, Samsung or Apple. :(

I suppose focusing on efforts is what we’ve always wanted to see from Nokia. Less handsets, few better high quality ones. I didn’t expect a whole subsidiary to go though as I thought they quite independent and doing well. Perhaps they know a lot more that we don’t.

Source: Reuters

Thanks Joni for the tip!

 

 

Category: Nokia

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  • incognito

    Next step: sell the smartphone division to Microsoft. Everything is adding up to that. Kind of a controlled fire-sale…

    • dr_zorg

      I’m afraid it may look like it within a year’s time.

  • Cod3rror

    Nokia will make a come back… at Microsoft, ahahahahha.

    • Shriek

      Hey look who’s back

    • FireDragon

      Just like you always come back to Nokia? :)

  • BellGo

    A lot of Nokia seems to be disappearing lately…

  • N00-00

    Manpower stripping : DONE.
    Asset stripping : In process (Factories and now Vertu).

    What’s next??? Splitting the company(to separate out NSN)???

    • keizka

      They go apple way, with designing the phones in house, then contracting the manufacturing outside the company.

      Heaven forbid, though.

    • dr_zorg

      Logical next step. Everything besides the smartphone division is a liability to Elop, who wants to strip Nokia of its achievements and whore it out to his boss.

      • migo

        And, you’re back to your trolling.

  • pchees

    I think its just getting rid of non-core businesses. vertue is a distraction. Even though its profitable its still very small compared to the main business.

    Nokia has to concentrate on its bread and butter and get that working again.

  • kan

    Vertu was profitable and a nice niche side business. Vertu was the avenue into the pockets of the wealthy. It did not distract the management. Nokia could have used it to push smratphones to the wealthy. A nice well designed phone running WP or Meego?

    It does seem that Nokia is being stripped of everything that helped make it original and innovative. It’s becoming a box shifter. Samsung with bada and HTC with sense realise that if you do not own your own software or services you really are being squeezed by MS from above and the ODm manufacturers from below.

    • dr_zorg

      “Vertu was profitable and a nice niche side business. Vertu was the avenue into the pockets of the wealthy. It did not distract the management.”

      Good point. Vertu was a subsidiary that was entirely independent decision-wise from the main company. They did their thing and made a handsome profit and Nokia are fools to sell it.

      It might be good for the Vertu brand though, the current Nokia are unable to get anything right. They get rid of their valuable assets like they weren’t in the red just two quarters ago.

      • kan

        The guy running Vertu is ex Mckinsey. Also Vertu chief designer is Frank Nuovo who was the chief designer at Nokia but left to concentrate on Vertu. You might say they look ugly but the rich can’t buy enough of them.

        • Viipottaja

          Well, based on the revenue they probably sell about 50,000 phones/year at best.. tiny trickle in the big picture – but who knows what the profits are like.

          The “problem” with Vertu for Nokia is that it at least to me did not seem to add much value to the Nokia brand – not sure how many people associate Vertu with Nokia. Perhaps some do.

          What would be more interesting if Nokia revitalized its “in house” premium products like the 8XXX series used to be.

          • dr_zorg

            Tiny trickle? Those phones sell for a few thousand euro/pounds/dollars each.

            Even if we take a rather low price of 5000 as the base figure, multiply it by 50000 units and you will get 250 million revenue.

            That’s not a trickle by any stretch of the imagination.

            In reality those phones sell for much higher, due to personal customization etc orders.

            The value to the Nokia brand was counted in real euro/pounds/dollars that Vertu was bringing in every year.

            This is why selling it is sheer madness. But with Elop at the helm, the whole company is one madhouse, so it’s expected.

            • Viipottaja

              I was referring to the volume of about 50,000 phones being tiny compared to the 450 million + phones Nokia produces every year. About 0.01%

              Yes, the revenue generation is a bit more significant – it was estimated by FT to be in the 200-300m range which would be about 0.5% to 0.7% of Nokia’s annual revenue (2010). Bringing revenue is of course important but not what I meant by adding to the _brand_ recognition and value.

              Have not seen any estimates of how much profit Vertu is making. Would be interesting to know.

              • dr_zorg

                Everything in the luxury market is highly profitable. Money is not an object to the buyers, and this alone guarantees profits.

                • Viipottaja

                  Err.. No. Not everything in the luxury market is profitable. There a PLENTY of luxury brands that have made losses or have gone bankrupt.

                  And just to be clear: this is not to say that Vertu is not profitable. It may well be.
                  IF Nokia is to sell it, let’s hope it is so that they get a good price for it.

                  • dr_zorg

                    Plenty? Name a few. One or two examples won’t do, make a list of it.

                    The only times a luxury brand failed was due to no demand.

                    If a luxury item is in demand – it is profitable. Always. No exceptions.

                    Vertu phones are in high demand among the rich so-called elite across the globe. I suppose you won’t be disputing that?

                    • Viipottaja

                      Heh, obviously demand has something to do with it. :D
                      No, not saying Vertu has not been in demand – where did you get the idea I was?

                      Not going to start putting a huge list together for you of luxury brands that have made losses at some point or gone bankrupt. A few brands that spring to mind though are Escada, Christian Lacroix, Versace, Jaguar, Maybach, Lotus, Hublot.

                    • dr_zorg

                      That’s exactly it. All of your examples, except for Versace (there is a different, tragic story there) deal with lack of demand – in other words the items produced are either considered cliche (Maybach), watered down bastardized brands (Jaguar, Lotus) or are not up to the standards expected.

                      Versace is an exception because it was based on the talent of its founder and his immediate family had no energy/talent to continue his work properly.

                      But in any case, a luxury item is called that because it is rare and in high demand. Once the demand ceases, it ceases to be a luxury item. This is why it is perfectly correct to say “everything in the luxury market makes a profit”. Because it does :)

                    • Viipottaja

                      Oukei… an interesting definition of luxury products you have there. :D :D

                    • dr_zorg

                      It’s a correct one. Luxurious != luxury. They are quite different meanings. But that’s semantics, see. Most people identify the two as one and the same, hence the misunderstanding. I am using the economical definition of the word, as opposed to the colloquial, since we are dealing in financial theme here.

                    • Viipottaja

                      So, do I get you right:

                      Anything high quality, low supply but not in high demand = not luxury (I guess e.g. big expensive houses in many places right now; many sailing boat brands the same etc.; nothing to do with the economic situation, just the fact the demand for them is low righ now means they are not luxury).

                      Anything high quality, low supply but (still) in high demand = luxury.

                      Infallible definition I guess. As I said: oukei, if that’s how you want to define it..

                      :D

                    • dr_zorg

                      You seem to doubt the veracity of my statement.

                      Then read this:

                      http://en.wikipedia.org/wiki/Luxury_good#Economics

                      It’s an identical definition.

                    • Viipottaja

                      Heh, no its not. Note the reference to income level and income elasticity of demand? Quite different from your definition of “rare, high quality and in high demand = luxury good”. In other words, the Wiki definition (which I agree with) means that even if the demand for the luxury good drops (due to e.g. economic times like those of today) it remains a luxury good.

                      “In economics, a luxury good is a good for which demand increases more than proportionally as income rises, and is a contrast to a “necessity good”, for which demand is not related to income.”

                    • dr_zorg

                      True, I didn’t read that paragraph thoroughly, it’s not identical. However, that’s not the only way to define it in economics. Generally, I still remain of the first opinion :)

                      But anyway, that’s beside the point.

                      A luxury good, whichever way you define it, (!) which is in high demand (!) as the Vertu is, will generate profit.

                      This, at least, I think we can agree on :)

                    • kan

                      Its about the income and substiution effects that determines what type of good it is. Then we get on to veblan and giffen goods.

                    • Viipottaja

                      Yup, agree on that (unless of course the company is horribly badly managed which could at least in theory happen and probably has happened sometime in the history :)).

          • dr_zorg

            Not to mention that certain editions cost upwards of 100-200 thousand. For example, the Vertu Cobra price tag was $310,000

          • kan

            Is making profits adding value?

            Vertu brand could have been better exploited – it still can in the right hands. The right place is still Nokia.

            Imagine if Nokia shipped a Vertu phone with Meego. If Meego is going to remain a niche player then what better way for it to remain niche by shipping it on Vertu handsets which are very profitable.

            But that would mean Meego still being developed at Nokia but Elop cannot have situation – destroy all possible competitors internally.

            • kan

              MeeGo and Qt 1,800 employ 1800 staff.

              http://www.theregister.co.uk/2011/02/04/nokia_r_and_d_efficiency_not/

              Assume $100k plus on costs for each member of staff thats about $180m.

              If you could increase Vertu sales – good potential to do that then the profits from there could potentially be used to develop Meego.

              Look in the great scheme of things the effort on developing Meego was not going to kill Nokia it was killed because there cannot be any competition to WP internally.

            • dr_zorg

              Nokia is a doomed sacrificial lamb, no doubt about it. They’ll ride on Nokia’s success and infrastructure as far as it takes them (5% market share at most, my prediction). By then Nokia will be in dire straits and will need to either ditch MS and take up Android or Maemo or file bankruptcy. Unless Elop dismembers the company before that.

              • Viipottaja

                Just for clarity: your prediction of max 5% market share is for all phones or just smartphones? And by when do you think it will fall to that level?

                • dr_zorg

                  5% market share of smartphones, naturally, carrying WP as an operating system.

                  The total Nokia share might be well over 10-15% if you add Symbian into the pot.

                  And I expect this to happen in no less than a year. We’ll see.

                  • Viipottaja

                    Ok, thanks. Nokia getting 5% of global smartphone market share for its WP phones by end of 2012 would actually not be such a bad result, IMO.

                    • dr_zorg

                      Not a bad result for WP. But a bad result for Nokia as a company. They need profits, and heavy profits at that. 5% of the market isn’t going to do squat, unfortunately.

                    • Viipottaja

                      Well, obviously it depends on what the 5% actually consists off. If it just 710s and lower, the profit may not be very high. If it has a good share of 800s and 900s it should generate some decent profit as well. Anyway, let’s wait and see what the 2012 results are. :)

  • stylinred

    makes sense to sell when its up than trying to pawn it off when its in the dumps

  • dfs

    next step: nokia is sold to microsoft.

  • Sun Down

    What. The. Fucking. Fuck?! Are you fucking kidding me?! Fuck the fuck?! I mean, I can stand ditching Symbian for WP7 as the main OS but VERTU?!!! This is bullshit this is… This is bullshit.

  • RVM

    This is sad news, especially if Vertu is profitable :(

    • dr_zorg

      Anything in the luxury market is extremely profitable. The customers expect the best, but they also shell out a premium.

  • kan

    from asymco – read it and weep

    Microsoft’s new “strategic partnership” with Nokia is not its first. For a decade the software company has courted and consummated relationships with a variety of companies in mobile and telecom. Here are the ones I can remember:
    LG. In February 2009 Microsoft Corp. signed a multiyear agreement for Windows Mobile to be included on devices from LG Electronics Inc. LG would use Windows Mobile as its “primary platform” for smartphones and produce about 50 models running the software.

    What happened? LG made a few Windows Mobile devices but with WinMo uncompetitive, they abandoned the platform and moved to Android losing years of market presence and all their profits.
    Motorola. In September 2003, Motorola and Microsoft announced an alliance. “Starting with the introduction of the new Motorola MPx200 mobile phone with Microsoft Windows Mobile software, the companies will collaborate on a series of Smartphone and Pocket PC wireless devices designed to create a virtual “remote control” for the Web-centric, work-centric, always-on-the-go mobile professional.” In addition, the alliance includes cooperation on joint marketing and wireless developer programs.

    What happened? Motorola launched a series of Windows Mobile phones culminating in the Motorola Q “Blackberry killer”. As Motorola hit the rocks in profitability new management reached for the Android liferaft. The company now relies exclusively on the Droid franchise.
    Palm. In September 2005 Palm and Microsoft announced a strategic alliance to “accelerate the Smartphone market segment with a new device for mobile professionals and businesses. Palm has licensed the Microsoft Windows Mobile operating system for an expanded line of Treo Smartphones, the first of which will be available on Verizon Wireless’ national wireless broadband network.”

    What happened? Palm shipped a few Windows Mobile, famously dismissing Apple’s potential entry as something “PC guys” could never achieve. A new CEO, a private placement and an acquisition later the company is a division of HP making its own operating system.
    Nortel. When Steve Ballmer was famously laughing at the iPhone and saying that he likes the Windows Mobile strategy “a lot” he was sitting next to the then-CEO of Nortel (Mike Zafirovski formerly of Motorola) with whom the company had just closed a strategic deal. ”an alliance between Microsoft and Nortel announced in July 2006 … includes three new joint solutions to dramatically improve business communications by breaking down the barriers between voice, e-mail, instant messaging, multimedia conferencing and other forms of communication”.

    What happened? Nortel declared bankruptcy two years later.
    Verizon. In January 2009 “Verizon Wireless has selected Microsoft Corp. to provide portal, local and Internet search as well as mobile advertising services to customers on its devices. The five-year agreement will go into effect in the first half of 2009 when Microsoft Live Search is targeted to be available on new Verizon Wireless feature phones and smartphones.” The deal would ensure Bing distribution to all of Verizon’s smartphone customers.

    What happened? Bing did ship on some devices but in October 2009 Droid came to Verizon.
    Ericsson. In September 2000, “Ericsson and Microsoft Corp. today launched Ericsson Microsoft Mobile Venture AB. This previously announced joint company will drive the mobile Internet by developing and marketing mobile e-mail solutions for operators. The first solutions are expected to be on the market by the end of the year. The company is part of a broader strategic alliance between Ericsson and Microsoft”

    What happened? Ericsson divested itself of the mobile division forming a joint venture which would go on and make more strategic alliances with Microsoft over Windows Mobile culminating in a loss of profits and eventual flight to Android.
    Sendo. In February 2001, Microsoft announced a partnership, in which Microsoft bought $12m of Sendo shares and a seat on the board. Sendo was to be Microsoft’s “go to market partner” for the Stinger smartphone platform that would become Smartphone 2002.

    What happened? Sendo after litigating IP issues with Microsoft went bankrupt in 2005.

    And finally,
    Nokia. No, not this OS deal, but in August 2009 ”The worldwide leader in software and the world’s largest smartphone manufacturer have entered into an alliance that is set to deliver a groundbreaking, enterprise-grade solution for mobile productivity. Today, Microsoft Business Division President Stephen Elop and Nokia’s Executive Vice President for Devices Kai Öistämö announced the agreement, outlining a shared vision for the future of mobile productivity. This is the first time that either company has embarked on an alliance of this scope and nature.”

    The plan was to bring “Microsoft Office Mobile and Microsoft business communications, collaboration and device management software to Nokia’s Symbian devices.”

    What happened? One and a half years later the same Stephen Elop announced that Symbian will be deprecated.

    • dr_zorg

      Nice summary there. WP fanboys and paid shills will of course say that all of this is a lie. Or even if it’s true, that Microsoft has turned a new leaf and won’t hurt anyone again. Yadda yadda.

    • dr_zorg

      On a related note, I see a pattern here. Microsoft is consistently trying to eliminate its rivals or piggyback on their success, whichever works out easier.

      The success part never seems to work out, MS products being always underwhelming and lacking spirit and finesse. After destroying another “partner”, Microsoft is always at square one with their products. Either they can’t find decent designers, which seems like an absurd idea, or then they see the development of the mobile market as a serious threat to the PC industry and do this on purpose.

      Regardless, Nokia has made their biggest (and possibly final) mistake in hooking up with this beast.

    • BellGo

      Sad but true. +1

    • larryg968

      Kan, this is a pretty good read. Tomi writes some good stuff.

      He paints a pretty depressing picture but the logic is quite sound

      http://communities-dominate.blogs.com/brands/2011/07/first-look-into-microsoft-nokia-smartphones-in-2012-and-2013-expect-climb-back-to-barely-20m-in-unit.html

      • kan

        Larry if you want to read some eye watering numbers then read Tomi latest post as of today – it’s horrific.

        This is what Elop achieved. He took 7% unit sales growth per quarter (compounded it would be 23% over three quarters) – and instead he gives us a loss of 52% in unit sales. He took a growth in ASP of 14% per quarter (compounded would be 48% over three quarters) and instead gives us a decline of 14%. He took quarterly sales revenues of 4.3 Billion Euros (6 Billion US dollars) and instead he now gives us sales revenues of 1.8 Billion Euros for Q4 (2.5 Billion US dollars) so he has already cost Nokia 3.5 Billion dollars of revenues per quarter! (yeah, Mr Most-Incompetent-CEO-Ever is costing Nokia now 28 Billion dollars of revenues per year!)

        And the biggest crime is profits. He exchanged a growing reliable profits unit which earned 548 million Euros (767 million US dollars) of profits per quarter ie 2.2 Billion Euros of profits per year (3.1 Billion US dollars of profits) and replaces it with … a LOSS of 130 million Euro (182 million US dollars). That is of course an annual level of a loss of 520 million Euros or 730 million US dollars. The total transition means he’s personally caused damage to Nokia shareowners worth 2.9 Billion dollars bottom-line profit already! (just in smartphones, I am not even talking of the other damage in other units).

        Share price
        feb 9th $11.73
        Today $5.06

        • larryg968

          I read that one too, i spent about an hour reading his blog today

          I particularly liked his analysis and what nokia would have to do to gain a 20% mkt share. Nokia would have to grow twice as fast as android and apple, haha.

          We all kno that with the momentum of android that is highly unlikely. Im slightly more optimistic though but im not a pundit as he is. I have no facts so i’d assume he is more right than i am.

          In any event, 8% mkt share is abysmal

        • dr_zorg

          If that prognosis of his is correct then it’s a total catastrophe. Sinking like a rock. Faster than I even expected it to.

    • Cod3rror

      Great article.

    • migo

      Conveniently ignoring the ones that have gone well. Like HTC, but of course that wouldn’t make good linkbait. HTC went from a company making phones for other brands to becoming one of the leaders in the smartphone space, thanks to Windows Mobile. Since moving to Android they’ve lost their position to Samsung, while the only phones in their lineup that are really getting any interest are the Radar and Titan. Not to mention that they’re facing some serious IP litigation from Apple and IPCom on the Android side, something Microsoft protects them from with Windows Phone.

      You’re also ignoring the other mistakes Ericsson made – merging with Sony, which delayed the P800 just like Nokia’s deal with Intel for MeeGo shoved the N9 way back.

      Motorola didn’t get rescued by going to Android, they were losing money and considering suing other Android manufacturers for IP infringement until Google swooped in and bought them up. They had to threaten the Android ecosystem to get out of the hole they were in.

      The Verizon bit doesn’t even make any sense, as Google responded by blocking Bing for use on the Android handsets if they wanted to use the Android Market.

      • dr_zorg

        HTC became hugely successful only when they dumped MS and that bloat of an OS called.WinMo and switched to Android. If you intend to argue, at least learn the facts so you don’t look like a total fool.

        • migo

          Nope, they were hugely successful before that, just the standards of hugely successful changed once iOS hit.

          Android is no less bloated than Windows Mobile. It’s similar in more ways than it’s different.

          Take your own advice.

  • lisa

    i have tears in my eyes as i read this, seems like d trojan horse sticker is gradually becoming true, first it was closing down factories, then firing workers, and then the NFC guys leaving and now nokia wants to sell vertu. Elop should just announce d microsoft acquisition of nokia after all selling the companies he run is what he is good at.

    • karam

      it is all about the three pillars. its the new company strategy, anything that does not fit in them is unnecessary distraction. next, they will sell their NSN assets to some Chinese company.
      few things I learned in english class, efficiency is a myth.