Nokia's Parting Gifts for Microsoft Corporation

With the sale of its device business to Microsoft nearing completion, the Finnish tech leader is still going full-speed ahead in mobile.

Apr 6, 2014 at 11:00AM

When Nokia (NYSE:NOK) recently announced that the $7.2 billion deal to sell its devices and services unit to Microsoft (NASDAQ:MSFT) had been delayed, there wasn't panic in the streets, but it did turn a few heads. According to Nokia, the problem was gaining regulatory approval from, "certain antitrust authorities in Asia which are still conducting their reviews."

Considering the size and scope of the transaction, regulatory delays aren't overly concerning. But waiting to get rubber-stamped by Asian authorities wasn't the primary concern of Nokia and Microsoft watchers. The real question was whether the Finnish device maker's tax woes in India was the root cause of the delay, and what impact that would have on the deal going forward. But maybe Nokia CEO Risto Siilasmaa just wanted time to gift wrap the phones unit before handing over the reins to Microsoft.

Under the radar
It's no secret that growth of the mobile phone market will largely come from emerging markets. "Saturated" may be overstating the high-end, North American mobile-phone industry, but not by much. According to research from Gartner, mobile-phone sales should increase 4.9% to nearly 1.9 billion units in 2014, driven by "the lower end of the premium phone market and the higher end of the basic phone market."

Domestically, consumers are all about smartphones and measure a manufacturer's success by how it does in the states. But lost in that narrow focus are device makers like Nokia. Though it only sold eight to nine million Lumia smartphones each of the last couple of quarters, and about 30 million Lumia units in 2013, that's only a small part of the Nokia story.

With nearly 251 million mobile phones sold last year, Nokia was once again the second-most popular mobile-phone manufacturer in the world, behind Samsung. Clearly, Nokia is making a significant impact in markets outside the U.S., which coincides perfectly with Gartner's projections for the future of mobile phones.

Can I gift wrap that for you?
Tax issues aside, Nokia has a long, successful history in India. Not only is India home to one of its largest phone manufacturing facilities, Nokia phones are second only to Samsung in market share -- 15.3% to 14.7 % -- and India is expected to continue its rapid mobile phone sales growth.

Success in the fast-growing India mobile phone market is nice, but potentially even more exciting for Nokia, and soon Microsoft, is the success of its newest low-end phone targeting emerging markets. The Nokia X, running a hybrid Android OS, was rolled out in India in early March and China shortly thereafter. Though specific numbers surrounding China sales weren't announced, the Nokia X was sold out -- not just preorders, but sales -- within four minutes after becoming available to Chinese consumers. Some early reports suggested Nokia X preorders in China totaled four million units.

The Nokia X opens the door to all those Android apps users have come to know and love, but retains the look and feel of Microsoft's Phone operating system. Nokia and Microsoft have already announced plans to introduce more low-cost X phones soon, and you can bet emerging markets are the target.

More good news as Nokia prepares to turn the page on its devices and services unit was Spanish financial institution CaixaBank opting to outfit its employees with Lumia devices. The 30,000 unit order isn't huge, but the manner in which Nokia won the deal is. With Microsoft handling the bank's technical support and working in conjunction with Nokia, the three parties sealed the deal. With the prevalence of BYOD, Microsoft's support and service capabilities, combined with a strong lineup of mobile devices, could win a lot of deals going forward.

Final Foolish thoughts
Maybe it was Siilasmaa's plan all along: get Nokia's mobile phone ball rolling in India, China, and Europe before turning over the unit to Microsoft. As it stands, the timing couldn't be much better. Just last week Microsoft shared its own win in China: becoming the first outside company to ink a cloud deal in one of the world's fastest growing economies. Microsoft's plan to focus on its mobile and cloud businesses is gaining steam, and Nokia gift-wrapping its devices and services unit is an added bonus.

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Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Gartner. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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