TAIPEI -- Microsoft is selling its feature phone business to FIH Mobile, a Hong Kong-listed unit of key iPhone assembler Hon Hai Precision Industry and Helsinki-based holding company HMD global Oy for $350 million. The deal will see the return of the Nokia brand to the global mobile phone and tablet markets with the Taiwanese manufacturer licensing the brand for 10 years.
The move by Microsoft reflects the U.S. tech giant's further retrenchment from the smartphone hardware business after its bungled Nokia acquisition. For Hon Hai, or Foxconn Technology Group, the acquisition provides it with new business opportunities at a time when global demand for smartphones, particularly premium ones, is on the wane.
FIH will pay $330 million while HMD will foot the remaining. Newly established HMD is controlled jointly by its management and a private equity fund run by former Nokia executive Jean-Francois Baril. According to his LinkedIn profile, Baril is a senior adviser to Foxconn Chairman Terry Gou. The transaction is expected to close in the second half of 2016.
Nokia will be leasing its brand to HMD for 10 years. HMD said that it would spend over $500 million over the next three years to market Nokia-branded mobile phones and tablets with plans to launch Android smartphones, and FIH will serve as its manufacturing partner. The license does not include the Japanese market.
"We are looking forward to fostering a strong and long-term collaboration with HMD global and Nokia. We are impressed by the experience and expertise of the HMD management team and are committed to supporting them with our manufacturing, technology and supply chain capabilities, to capture market opportunities together in the future," FIH Chairman Vincent Tong said in a statement on Wednesday.
"Today marks the beginning of an exciting new chapter for the Nokia brand in an industry where Nokia remains a truly iconic name," said Nokia President Ramzi Haidamus in the same statement. "Working with HMD and FIH will let us participate in one of the largest consumer electronics markets in the world while staying true to our licensing business model."
As part of the deal, FIH will also acquire Microsoft's mobile phone manufacturing facility in Hanoi, Vietnam.
Microsoft has been seeing its mobile phone business slump. It sold 2.3 million Lumia smartphones and 15.7 million feature phones in the three-month period through March, compared with 8.6 million Lumia units and 24.7 non-Lumia handsets in the same period last year.
Nokia counts as a major client for FIH, which also makes phones for Chinese smartphone brands including Huawei and Xiaomi.
"Feature phones are a minor business for Microsoft, but it is not so for Foxconn," a person familiar with the deal said. "Through this deal, Foxconn is helping Microsoft get rid of something redundant for the U.S. company while improving its chances of doing more business with the U.S. tech giant and Nokia in the future."
FIH is facing tough times as the company has been hit by China's economic slowdown. The Hong Kong-listed entity warned earlier in May that first-half net profit will plunge as far as 92% to $10 million on revenue of $2.5 billion, down 35%.
Challenged by headwinds in the China market, FIH simply could not afford to lose Nokia orders and feature phones would offer a better margin than smartphones, people familiar with the situation said.