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MNB RG: What will the post-D&S-sale Nokia look like?

| October 25, 2013 | 98 Replies

Screen Shot 2013-10-25 at 16.08.28

Janne’s been looking further into the topic of a New Nokia without the Devices and Services segment. Though Nokia is known for phones, they’ve also been famous for their reinvention.

The remaining segments, NSN, Here and Advanced Technologies are still three strong pillars at Nokia. And what’s to say that once the dust settles and Nokia’s healthy again that they wouldn’t ever return to creating phones? (hence, MS NOT allowed to have the branding for smartphones, nor the ownership of patents). But would it even make sense and would it even be worth it?

Do take the time to check out Janne’s latest post. 🙂

Cheers Janne!

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What will the post-D&S-sale Nokia look like?

Let’s assume for a while that the Nokia Devices & Services unit (D&S) sale with Microsoft will meet shareholder approval on November 19th and that the necessary regulatory approval(s) will follow, say, by first quarter 2014 and the hand-over of the business follows in quick succession. Lumia and Asha ranges, the design and manufacturing, and assumedly plenty of hardware and software development related to them will move over to Microsoft. What will that remaining Nokia look like then – let’s call it the “new Nokia” as Nokia does – in early 2014 or maybe realistically, later in 2014?

So far, officially Nokia has announced that it will consist of three business areas: “NSN, a leader in network infrastructure and services; HERE, a leader in mapping and location services; and Advanced Technologies, a leader in technology development and licensing”. What follows is my summary of what I believe is known or rumored of the future of these business directions at this time.

NSN (formerly Nokia Siemens Networks, now Nokia Solutions and Networks)

Nokia has said they will continue to foster NSN, which they bought full 100% control in the summer, as an independent entity. To me this suggests that Nokia doesn’t plan to build its future around networks alone. Although buying full control of the business could lead to its significance in future strategy rising, it could also mean Nokia is keeping open an option to sell it and focus on something else. Or they could keep it separate, because they don’t want to “rock the boat” or don’t see such strong synergies between NSN and rest of the business. At one of the previous AGMs Nokia said they felt networks business is already quite separate from their other businesses and strong synergies that may have once been there no longer exist as much. Obviously with the D&S sale, this may be even more true now.

This said, NSN continues being the “new Nokia’s” cash cow. NSN is a remarkable turn-around story in recent years, from a loss-making, faith-killing enterprise into a solid, profit-making machine. It would be foolish to think NSN isn’t important to Nokia, but it remains to be seen if they want to realize that importance through bringing it closer to the core or perhaps looking to unlock its value on the open market, be it through a sale or even listing the business in a stock exchange. Finally, an interesting anecdote in NSN is the rumoured acquisition of Alcatel-Lucent, which would increase NSN’s market share significantly and help combat Ericsson and the Asian player(s). However, the deal would also come with its own baggage. Alcatel-Lucent is a loss-making business desperately in need of repairs, much of it in the strongy unionized fun-land called France.

One thing about Alcatel-Lucent, though, mainly for you American readers: No, I seriously don’t think buying Alcatel-Lucent would result in Nokia’s return to the smartphone market or be related to it. Whatever smartphones are currently sold under the Alcatel branding are actually under license by a Hong Kong Android maker and not a business Alcatel-Lucent deal would really bring into Nokia.

HERE

What’s curious about HERE – Nokia’s location business formerly known as Nokia Maps formerly known as NAVTEQ – is that so far it seems like a fairly crappy business, but now it is actually on the forefront of the entire Nokia core. It is the only tangible element that can be identified as a core product strategy for the new Nokia. Yet, as it is, it is still quite small a business and not really generating money anyway. What’s going on here (no pun intended)?

At the end of this article I offer links to a few MNB stories this past week (and two older) that provide some speculation on the activities surrounding the future of HERE. At the center of this expected future seems to Nokia’s self-stated goal of become the “where” company, to location what Google is to search. Of course, Google (and to a lesser extent Apple) is also competing strongly in this space. Nokia does have one edge, though, and that is automotive where 4 out of 5 in-dash systems are said to use Nokia’s maps. In the Microsoft D&S sale leaks, it was said Microsoft tried to acquire HERE as well, but Risto Siilasmaa was adamant it wouldn’t be sold because – as an example that was mentioned – Nokia has plans to sell their future location products to automotive makers.

Way back when Elop described Nokia’s location plans as five steps, where they were perhaps only on the second prong. And clearly it is true, that on this “early” level, Nokia’s location business isn’t that big. There isn’t that much money to be made on location today, but Nokia apparently believed this will change in the future. What makes this plausible are two concepts: the Internet of things and the Internet of roads.

Let’s discuss the latter first, the Internet of roads. In the not so distant future, all the cars in EU will be required to know their location and call emergency services in the case of a crash. In Finland this being taken further with plans (headed by former Nokia CEO and chairman Jorma Ollila no less) to base future car taxation and/or rush-hour payments on location data collected from all cars, all the time. However, taking this thinking even further: In the future cars will drive themselves. This is a big potential business, Google is already prototyping it in the U.S. And at the core is location and the location cloud, information about not only where you are, but where everyone else is. Collision avoidance, optimizing traffic and so forth. This will not only be a device business within the car, it will also potentially be a massive infrastructure business – and only very few players in the world do location well. Nokia is one of the few.

Most interesting for those interested in Nokia gadgets, though, is the potential future in Internet of things. What started as an idea of identifying every object, the concept of Internet of things has grown into almost all things connecting in the Internet and the potential that opens. Location is a very important part of the equation, because connection merged with location is a powerful tool. There has thus been speculation – and indeed some confirmation from Nokia HERE boss Michael Halbherr – that there would be future Nokia hardware products within this space. Combined with other potential cloud services, such as content services, there could be a compelling market for new kinds of products.

Here is what HERE boss Micheal Halbherr had to say about future Nokia products after the Microsoft D&S sale news: “We have sold our device business for a reason, but that doesn’t keep us out of the device business. We are not prohibited from making any communication device. We will concept and think about new forms of device. It would be wrong now to think about this from a phone perspective. With the cloud and the internet-of-things, we’re seeing a convergence of form factors where you do a few things well in a totally seamless way. We will still surprise people with leading-edge hardware.”

It has been speculated that the upcoming Nokia Guru and Nokia Treasure Tag products could be examples of future devices that “do a few things well” and that might remain at Nokia even after the D&S sale. Nokia Treasure Tag is the better understood one of the two, apparently hooking up with your phone and allowing you to locate the tag on your phone (the tag has GPS so it knows where you’ve lost it), or from the treasure tag help find your phone by calling for an audio signal from the phone. Nokia Guru is said to be a screenless music player, but the most unbelievable rumors included voice-guided navigation. Another example of a speculated future HERE device would be in-car products and in-car software. Will HTML5 be involved or Qt on automobile? And then, of course, there is all the wearable technology. Could some wearable technology development remain at Nokia?

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Related to HERE is potential to get Nokia name (or HERE branding or both) more prominently displayed in cars, which has been mentioned by Nokia as possible now that in-car systems are now more and more connected to cloud services. It has been speculated Nokia might retain content services such as Nokia music even after the D&S sale to be able to power their new location ecosystem. HERE is also expected to up their efforts to sell Nokia’s location information and navigation solutions to new customers. This was already on-going during the Windows Phone strategy, but now that Nokia is moving away from that, expect the pace to increase and the reach of HERE to widen. Nokia may also be interested in creating their own application software to new platforms to further their location and cloud services, but of course all this is still very much speculation.

Advanced Technologies

Advanced Technologies is, really, what remains of Nokia’s Future Disruptions, CTO office and Nokia Research Center after the tumult of the last few years. Nokia dubbed it “a leader in technology development and licensing”, the latter part meaning of course licensing of the vast Nokia patent portfolio to other players. Even after the D&S sale, Nokia will retain most of its patent portfolio, so it will remain a significant licensing party on the market. Some have suggested the cessation of Nokia’s own activities in the phone market, combined with its vast patent portfolio in the same market, will make Nokia one of the strongest patent trolls in the world (at least for several years) – because it no longer needs to license the patents of others back, making for a very unusual and one-sided patent circumstance.

I expect Advanced Technologies being more than a patent troll, though. No doubt various kinds of development work will remain there and results of which will be licensed to others. Nokia will undoubtedly also continue their research co-operation with academia. I expect the areas to revolve around wireless (the presence of NSN would guarantee such needs, but I’m thinking even beyond that), battery technologies and materials. One substantial area is graphene, the wonder material that is expected to rock our worlds in the future. Nokia has placed some significant bets into graphene research.

Very little is known of Advanced Technologies. When discussing future Nokia devices, Nokia’s HERE boss Michael Halbherr mentiones the Advanced Technologies and said: “Nokia is three things. The first is NSN [Nokia Solutions and Networks]. We all know the numbers, it’s profitable and it’s 100 per cent owned by Nokia. The second is our Advanced Technologies Group: it does the research and development, and it has some product capability, to some extent, to experiment. It’s an amazing generator of intellectual property – and that’s a technology-licensing business and it’s growing. Then there’s HERE. All intellectual property in all aspects of HERE is being retained.”

What is most intriguing about Advanced Technologies, though, is that now that phones are gone, will Nokia form some new coherent strategic narrative for the business unit – and will they make it public? Because when phones were the target, it made sense to do research in all these areas for future phones. But what about now? Will “the new Nokia” re-invent itself around some new strategic goal, that would play visibly on the strengths of its Advanced Technology unit? Or will they simply keep it as an independent research unit that creates product prototypes and patents and then licenses them to others – and thus of very little direct interest to consumers.

Incidentally, the only answer so far comes from another HERE boss Christof Hellmis (see how Nokia puts these HERE people in the forefront now), who was interviewed this week (my translation): “Q: …if HERE’s direction is clear, what about the whole of Nokia as a company? A: We are currently developing the new Nokia’s strategy. Once it is ready, we’ll be telling everyone what we are doing.”

Could Nokia return to phones?

Finally a word on Nokia’s potential return to phones. When the Nokia Bridge program – with initial support from Nokia – floated the dinghy of Jolla into free’er (how free remains to be seen) waters, it was speculated Nokia was actually helping to launch their own plan B. When the D&S sale was announced, it was also reported Microsoft would have ten years to use the Nokia branding in basic and Asha phones, but it is widely assumed this doesn’t apply to Lumia smartphones – they will become just Lumia or something else. Also, Nokia wouldn’t be allowed to use their own branding in smartphones until after end of 2015. So, for the next couple of years only new Nokia phones will soon be basic phones and Ashas, but after 2015 Nokia theoretically could start making their own.

Now, of course, they will sell all the factories, all the design etc. to Microsoft, but not most of the patents. Manufacturing these days is easier with the help of companies like Foxconn, not even Apple has their own factories, so that’s not really a problem, but with all the staffing (about half of Nokia) having been moved to Microsoft by then, it seems like a long stretch of road. They could of course invest or partner with someone like Jolla to get a rolling start, so if they really wanted to, nothing would stop Nokia from going into phones. I guess theoretically they might even be able to do it before 2015, if it were under some other brand – I’m voting for Mobira Cityman with a Mobira Talkman phablet.

All that said, I find a hard time seeing how returning to phones would make sense to Nokia, even if they get their house in good order between now and 2016. The smartphone as we know it is all about ecosystems now and that market seems to be splitting between three or so ecosystems. It is questionable if there is room for more, so returning to phones would probably require joining Android, which would probably make even less sense a couple of years from now than it would today, because Nokia would not have any of their current competitive edges. No, I don’t think Nokia will be returning to phones. More likely this move is more reminiscent of Nokia exiting a number of businesses in the 1990s, including televisions, rubber boots and tyres – they ain’t going back.

About the only way I could see Nokia returning to phones in the foreseeable future is, if (when?) the devices and/or disruptive future form-factors mentioned in the HERE chapter grow telephony functionality. But then we wouldn’t be talking about phones in the traditional sense of the word, but something else. Things that “do a few things well in a totally seamless way”.

Links to past relevant stories on MNB

New Nokia HERE interview – and what is Nokia Guru, really?
http://mynokiablog.com/2013/10/24/new-nokia-here-interview-and-what-is-nokia-guru-really/

Video: Nokia Music & Mix Radio In-Car System Concept
http://mynokiablog.com/2013/10/24/video-nokia-music-mix-radio-in-car-system-concept/

Will cars soon be tracked by Nokia black boxes? Jorma Ollila heads a car tracking taskforce
http://mynokiablog.com/2013/10/19/mnb-rg-will-cars-soon-be-tracked-by-nokia-black-boxes-jorma-ollila-heads-a-car-tracking-taskforce/

Nokia Multi-Faced Smart Watch Patent and Prototype Demo Appear
http://mynokiablog.com/2013/10/17/nokia-multi-faced-smart-watch-patent-and-prototype-demo-appear/

LeakyLeak: Nokia Smartwatch?
http://mynokiablog.com/2013/10/03/leakyleak-nokia-smartwatch/

How Nokia Location drives Audi
http://mynokiablog.com/2012/07/19/mnb-rg-how-nokia-location-drives-audi/

Next important dates on the Nokia watch

Nokia will announce their Q3/2013 results on October 29th, 2013. The extraordinary meeting deciding on the Microsoft D&S sale will be on November 19th, 2013.

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