Hey, Nokia Isn’t Just a Company That Used to Make Phones
Nokia once sold more cell phones than anyone else in the world. That didn’t last. In 2014, Microsoft agreed to buy Nokia’s mobile phone business and by the end of the year had stopped using the Nokia brand. For everyday gadget buyers, that meant the end of Nokia. But Nokia lives on.
Since the sale of the best-known part of the company, the Nokia Group has focused on selling high-end networking gear and software to telecommunications companies and internet service providers. That doesn’t sound as sexy as making phones, but it’s a line of business that helped Nokia net over $14 billion last year.
Now, after all that, Nokia can’t seem to resist inching back into the consumer electronics market again.
This week the company announced that it will acquire the French electronics outfit Withings, which makes a wide range of smart home and wearable products, such as web-connected scales, high-tech thermometers and the Activité smart watch. To be sure, the deal isn’t all that big a deal in terms of Nokia’s overall business. The company is reportedly buying Withings for $191 million, a pittance compared to Nokia’s recent $16.6 billion acquisition of networking company Alcatel-Lucent.
So why invest in consumer electronics at all when Nokia is betting so heavily on its network infrastructure business? Well, the first thing you need to understand is that Nokia is more of a holding company, like Google’s parent company Alphabet, and it has been for quite some time—like, a long, long time.
Toilet Paper to Tires
The company that eventually became Nokia was founded in southern Finland as a pulp mill company in 1865. Over the decades it expanded into then-emerging industries such as electrical power generation and manufacturing telephones. In the 1960s, Nokia was a conglomerate selling everything from toilet paper to car tires. But by the late 1980s, it had spun-off almost everything except its telecommunications businesses. Along with Motorola, Nokia helped pioneer the mobile industry in the 1980s and `90s, and by 1998 Nokia was the largest mobile phone maker in the world.
But it lost that title in 2012 to Samsung. And its fortunes in mobile just kept sliding. Although Nokia created one of the first smart phones, the Nokia 9000 Communicator in 1996, Apple and Google were the ones that ultimately convinced the masses they needed the mobile internet. Getting out of the commodity smartphone trade and concentrating on the potentially more lucrative business of equipping the companies responsible for connecting those phones to the internet seemed like a shrewd move. In 2013, the last year that Nokia made mobile phones before selling the division to Microsoft, the company netted $14.3 billion, a 17 percent decrease from 2012. Last year, the company made nearly as much money without selling phones at all.
So why would it need Withings? Why get back into a market where it just got burned? The thing is, the company’s Nokia Technology division, which is separate from the Nokia Networking subsidiary, has been dabbling in other markets all along. In 2014, the division announced an Android tablet called the N1, which was only sold in China. Nokia Technology also makes the $50,000 OZO virtual reality camera for broadcasters and other content producers—not exactly a consumer device, but not straight infrastructure either. With Withings, Nokia is now branching into personal health technologies, which many believe could be the next big consumer market.
But that market hasn’t really arrived yet. The “Internet of Things” has been a tough sell so far. And Nokia will face enormous competition, including the very same companies that bested it in the smart phone market. It’s better to think of Withings and the OZO camera along the same lines as Alphabet’s “other bets” category: a series of investments in what could be the next big thing, just as electricity and phones once proved to be. In that sense, Nokia today is what it’s always been: a company with an eye on what’s next.
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