It’s only been just over a year since Microsoft (NASDAQ: MSFT ) closed its acquisition of Nokia’s (NYSE: NOK ) handset business, yet here we are, and Nokia might be experiencing a little bit of seller’s remorse. That’s right — Nokia wants to get back into the phone business.
In an interview with Germany’s Manager Magazin (via Reuters), Nokia CEO Rajeev Suri detailed the company’s plans. We’re not talking about Nokia completely going back to the way things were. To be clear, Nokia doesn’t plan on manufacturing any future phones directly, as the capital intensity of manufacturing operations was a large part of why Nokia’s handset business was such a financial drag in the first place. Only in the final years did Nokia begin outsourcing to contract manufacturers, which is the typical practice in the industry.
Instead, Nokia will partner with other companies and license its designs:
We will look for suitable partners. Microsoft makes mobile phones. We would simply design them and then make the brand name available to license.
In essence, it sounds like Nokia wants to get into making reference designs, which means it will be competing with companies like Qualcomm. Nokia is contractually prohibited from reentering the handset market until 2016, but investors can expect Nokia to jump right back in once the light turns green.
Is this a smart move?
The inevitable question is: Why would Nokia sell its handset business just to start over from scratch? Selling the handset business was a great decision in the first place. Shares skyrocketed when the deal was announced in September 2013, since the proceeds would beef up Nokia’s balance sheet and profitability would improve. The company even reinstated a dividend after suspending the payout in 2013. Finally, Nokia’s board just approved a share repurchase program for up to 365 million shares.
Nokia is also now trying to merge with networking equipment rival Alcatel-Lucent in a $16.6 billion deal that would have obvious synergies and represent a greater challenge to market leader Ericsson. That deal is still making its way through the regulatory rounds and is expected to close in mid-2016. The U.S. Department of Justice just gave its blessing, but there are still other regulatory bodies around the world that need to sign off.