Nokia's Smartphones Are Coming Back. Will They Stay This Time?

Phones are becoming as routine as home appliances — that's Nokia's opening to return. But to stay, it will have to do more.

"Hello, my name is Arto Nummela, and I'm the CEO of HMD Global. I'm delighted to bring you a new chapter for Nokia phones."

At 5:20pm on December 1, my phone rang right on schedule. Thick Nordic-accented English, wording a touch too formal — Nummela (roughly, Noo-meh-la) sounded exactly like what you would expect from a Finnish Nokia executive.

Nummela joined Nokia in 1994, and from 2013 ran marketing and sales across the Middle East, India, and Africa. He then moved to Microsoft along with Nokia's phone business, handling the same regions and the same work, until HMD was founded six months ago.

In my experience, if this interview had happened a year ago, we would have been sitting in a hotel conference room with five or six other people around us: a PR manager from headquarters, PR and business staff for the China market, an interpreter, and people from the PR agency.

Now it is much simpler. On the other end of the line were only Nummela, two other HMD executives, and the head of PR. The call didn't run through any elaborate conferencing system either — it came straight to my phone.

Nummela said HMD is a startup backed by individual investors — neither Nokia nor FIH Mobile has invested in it directly. The company, whose slogan is "The New Home of Nokia Phones," has just 500 employees.

All through December 1, Nummela made one call after another to media outlets around the world, laying out his plan to bring Nokia-branded smartphones back to market. The date was chosen because that day Nokia formally handed HMD Global exclusive rights to the Nokia name on phones and tablets, for a term of ten years.

In the first half of next year, Nokia smartphones led by HMD and running Android will reach shelves in nearly every market except Japan and the United States.

The Nokia name is finally fighting its way back into the fiercely competitive smartphone market.

Nokia is one of the few tech companies to have come back from the brink. Only Steve Jobs's return to Apple rivals its legend of reversal:

In the early 1990s, Nokia ran more than a dozen unrelated businesses at once — rubber boots, televisions, PCs, mobile phones — and led in none of them. Its most stable source of profit was exporting cables to the Soviet Union.

Then the Soviet Union collapsed, Finland fell into economic crisis, and Nokia ran into serious financial trouble. Under the pressure, the CEO who had led Nokia for more than a decade hanged himself, and his successor was soon fired by the board. In 1992, a young executive with a finance background took over, bet the whole company on mobile phones, and cut every other business. Four years later Nokia was the leader in that fiercely competitive market, and it stayed there for thirteen years.

Nokia today faces no crisis that severe, but it is no longer the most important company in Europe: it works on telecom networks, smartwatches, and virtual reality, and leads in none of them.

An old company nobody gets excited about any more, picking a direction and betting everything on it — that sounds like a good story.

But the story Nummela brought wasn't that one.

HMD's plan: line up a few partners and restart Nokia phones on a modest budget

HMD's partners are Nokia, FIH Mobile, and Google. Roughly, the division of labor looks like this:

• HMD: design, marketing, and sales;
• Nokia: brand licensing;
• FIH Mobile: engineering and manufacturing;
• Google: operating system and software support.

Nokia first talked about returning to the smartphone market two years ago. Even then it said it would not design or build phones itself, but would license the name to a third party.

In this partnership, what Nokia contributes really is just the letters "NOKIA."

That is also all that is left of Nokia's phone business. When Nokia sold that business to Microsoft in 2013, the people who did phone design, R&D, marketing, and sales either quit or went to Microsoft. The one phone-related unit left at Nokia was HERE maps — and that was sold to a group of European carmakers last year.

Most of the people who went to Microsoft didn't stay there either. Microsoft CEO Steve Ballmer clashed with Bill Gates and the board over the acquisition and retired early. His successor, Satya Nadella, launched several rounds of layoffs and restructuring. Of the more than 20,000 Nokia employees who joined Microsoft, 4,500 were left in the end, most of them working on feature phones.

Some of them have now come back around to work on the new Nokia phones — but not by returning to Nokia.

In May this year, Microsoft sold its feature-phone business and its last remaining Nokia phone factory, in Vietnam, to FIH Mobile and HMD Global for $350 million. FIH Mobile put up $330 million of that; HMD paid only $20 million.

Nummela explained that FIH Mobile took on the engineering and manufacturing staff involved, along with the Vietnam factory. From then on, engineering and manufacturing for Nokia phones went entirely to FIH Mobile.

In the making of the new Nokia phones, HMD's job is to coordinate its partners' resources, design the product, and sell it.

HMD has already started hiring a design team in London, where Nokia's old phone design team was based. Nummela said this round of hiring was the easiest of his career, but he would not say which designers had joined, and HMD's published list of executives includes no design appointment.

The most important piece is clearly sales. Nummela spent his last years at Nokia and Microsoft running marketing and sales. In HMD's press releases, every regional market head had done the same job at Nokia.

HMD has no plan to hire a large software team either. Given Google's and FIH Mobile's involvement, it isn't hard to guess what the new Nokia phones will look like.

Low-to-mid price, Android, a few Nokia touches — but the software is basically stock Google

FIH Mobile builds phones for many companies, including the iPhone and, in the past, some Nokia models. But back then, when Nokia handed a phone to FIH Mobile to build, Nokia did more than design the shell and pick the chip.

FIH Mobile's takeover of Nokia's old engineering team means it will have a large say in the hardware design of future Nokia phones. The finished product may still carry Nokia design touches, but it is essentially a white-label phone.

Google's involvement means HMD won't deeply customize the software either.

In the interview, Nummela said Google was "super eager" about this, and that the details of the two companies' cooperation would be announced with the product.

Any company can use Android without a strategic partnership with Google. In 2014, before Nokia's phone business folded into Microsoft, it even released the Android-based X series, in which every Google service had been swapped for a Microsoft one.

That is not a partnership Google would consider today.

Today Google is willing to work with a phone maker on one condition: that it helps spread Google's own stock version of Android. After Symbian, BlackBerry, and Windows Phone failed one after another, Google has tightened its grip on Android, pushing manufacturers to follow its design standards as closely as possible.

Google had already tried teaming up with smaller manufacturers on Android One, cheap phones with the stock Android experience, meant to hold off Chinese brands in India. Those phones weren't competitive.

The only reason Google would back Nokia now is that this company is willing to help Google spread stock Android, rather than build its own version the way Samsung, Xiaomi, and Huawei do.

Which also means you won't see a heavily customized Android that could only be Nokia's.

Nokia's opening: phones are becoming as routine as home appliances

If Nokia had launched an Android phone like this in 2011, it would not have gone well.

Back then Android's basic functions were still incomplete, and Google had no consistent design language of its own. The biggest Android phone makers all ran their own heavily customized interfaces.

Hardware was still breaking new ground too — retina-resolution screens, processor performance, shape, size, and thickness were all changing fast.

A phone brand that couldn't get both software and hardware right had little hope.

But over the past three years Google has refined its design language, Material Design, generation by generation, published human-interface guidelines the way Apple does, and added more and more services built on artificial intelligence.

Outside China, where Google services are hard to reach, a phone maker that changes the system usually just makes the product worse.

Hardware is the same story — when did you last see a phone that looked genuinely new?

Smartphones are becoming more and more like home appliances. They still get upgraded, but each upgrade changes the experience less; mostly it just gives phone makers a reason to talk you into a new one. Even Apple has now given up its every-other-year design refresh.

At a moment like this, brand and sales channels matter more. Xiaomi losing ground to OPPO and vivo is a good example.

Nokia is still a name everyone has heard of, and once it returns it will be the only European brand European carriers can pick. And as smartphone adoption in rich countries tops out, the markets still growing are India, the Middle East, South America and other emerging regions — which happen to be exactly where Nokia faded most slowly.

A cheap, usable Android phone with a bit of Nokia in it: that is the product HMD will use to fight for those markets.

In the end, this is about taking business from Samsung

In 2014, Samsung's smartphone sales fell for the first time and its profits collapsed. It looked like the next Nokia.

Independent analyst Horace Dediu drew this chart of phone sales at the end of that year.

Samsung's biggest problem isn't Apple; it is that low- and mid-range Android phones keep getting better. As technical progress slows, whether you buy a 5,000-yuan Samsung Galaxy S5 or a Xiaomi, OPPO, or vivo phone for 2,000-odd yuan, the experience in most apps is barely different.

Apple built a different experience on iOS, which is its own. Samsung has no such thing, and finds it harder and harder to persuade users to pay two or three times as much for a phone that feels much the same. Samsung has low- and mid-range lines too, but to protect its margins it has to keep them clearly behind the Galaxy S series.

On top of that, like the Nokia that insisted on running a different operating system, Samsung today is chasing software differentiation.

After Google launched its own Pixel phones to compete with Samsung, Samsung announced plans to develop artificial intelligence of its own. Judging by its history in software and services, the likely result is spending more money to make the product worse. It has also recently put more money into Tizen, its own operating system.

But just as Nokia back then would not bow and follow Google whatever happened, Samsung finds it hard to give up software, services, and margins. Samsung is competing against other Android makers while carrying a heavy load.

All the predicted problems came true in China: Samsung dropped out of the country's top five last year.

Globally, though, Samsung is still the biggest. Only this year did the combined sales of China's three largest phone makers barely catch up with it. If not for the Note 7, their combined profits would still be a fraction of Samsung's.

Prediction and reality part ways because Chinese companies have failed to break into markets abroad; they have taken share from Samsung only at home. Part of that is brand perception; part is patents; part is Google's quiet influence, since it does not want phone makers deeply customizing the system and planning to make money on software; and part is protectionism — India and Brazil both tax electronics heavily if they aren't made locally.

Slow doesn't mean never. Huawei in Europe, OPPO in Southeast Asia, and Lenovo and Xiaomi in India are all starting to eat into Samsung's market too.

This is the opening for Nokia phones. Manufacturing rests on FIH Mobile, and the software comes straight from Google. All of HMD is still smaller than Xiaomi's internet team, so it can carry far less history than Samsung.

No longer trying to relive its glory, no longer chasing high margins, no longer dreaming of controlling software, hardware, and manufacturing at once — in a market where innovation has stalled, Nokia may actually be able to make money on its name.

For Nokia phones to stay, HMD has to rebuild the brand, and that is not just advertising

Restarting Nokia phones leaves HMD some very basic things to settle. Will FIH Mobile have too much say over the phone, for instance? FIH Mobile has put in more money than anyone else.

Or the conflict between Google and carrier sales channels. Carriers all want to stuff in as many of their own services as they can, to earn something beyond the handset sale and the phone bill — which is why Google could never win carrier support when it sold Nexus phones.

But the more important thing is probably the brand itself.

Chinese companies have put their phones under fading European names several times before — TCL-Alcatel, BenQ-Siemens — and none of it ended well.

One reason is that those names had few users left by the time they were licensed to Chinese companies. But Nokia has been out of consumers' sight for a fair while too.

From 2011 to now, searches for the word "Nokia" have fallen by more than 80 percent on both Baidu and Google.

The Nokia brand once ranked in the top five of Interbrand's global brand value list; by 2015 it had dropped out of the top 100.

Brand is what HMD talks about most with the press, and it is the selling point most likely to draw consumers in. In the interview, the word "NOKIA" came up more than twice as often as "HMD."

People in the industry remember a brand longer than consumers do. Consumers mostly still know Nokia, but alongside reliable and unbreakable, the word attached to it now may be dated.

Rebuilding the Nokia brand is something HMD has no choice about. That is probably also the main reason Nokia did not simply let FIH Mobile stamp its name on whatever it built.

Two years ago Nokia released an Android tablet that it left entirely to FIH Mobile to design and build. The result was a cheap iPad mini knockoff.

A few more products like that, and it is easy to imagine the Nokia name having no value left at all.

In the 1990s Nokia built a global phone brand almost from nothing, and its advertising budget was smaller than its main rivals'.

With no ad budget at the start, Nokia put its limited money into a handful of business publications, to make sure decision-makers at the carriers would see it. With no money for the business section of The Wall Street Journal, it bought space in the stock-market pages, where consumer electronics rarely appeared, and stood out because of it.

The famous Nokia ringtone began as music for an ad, adapted from a classical guitar piece written in 1902. At a time when every ad used fast pop music, it sounded different, and the tune became the default ringtone on every Nokia phone. The whole thing was pushed through, start to finish, by an executive then in charge of manufacturing.

The classic line "Connecting People" came from a young researcher three years into the job.

Because Nokia's own brand was not yet strong, it dropped the product-line names every other manufacturer used at the time and promoted only "NOKIA."

For product recognition, Nokia was the first phone company to push bright colors, arriving just as phones stopped being purely business tools. The person behind it had previously done research in communications technology.

None of this came from a consulting firm's advice or an ad agency's plan; much of it wasn't even the idea of the department responsible.

Beyond focus, early Nokia was a company that could draw creativity out of its employees.

By 2013, Nokia plainly no longer had it. The ads still looked good, but they were only good-looking walks through the feature list, with none of the early sense of mission about connecting technology and people.

HMD has revenue today from Nokia feature phones — profitable, but shrinking 15 percent a year, so it won't hold the company up for long. It has promised $500 million in marketing spending over the next three years. Samsung's marketing and advertising bill for 2013 alone came to $14 billion.

Most of HMD's executives come from the old Nokia, and more of them ran sales. If they can adjust to going from a company of 100,000 people to a team of 500, they can get the new Nokia phones onto carrier shelves sooner.

But if HMD cannot rebuild the Nokia brand on limited money, the brand will find it hard to stay in the end.

Cover image credits: Nokia XL, Nokia Lumia 930