The Good, and Bad, of Nokia Corporation's Hardware Plans

Much of the news surrounding Finland-based Nokia of late involves either its progress in closing the $16.6 billion deal for European networking competitor Alcatel-Lucent , or the sale of its HERE mapping unit for $3 billion to a consortium of German automakers that closed Dec. 4. Both are significant events that will shape the "new" Nokia for years to come and warrant the attention.

But Alcatel-Lucent and the HERE sale weren't the only news Nokia shared recently. The new OZO virtual reality (VR) camera is ready for pre-order as of Dec. 1, and it could be a game-changer. OZO is the brainchild of Nokia's technologies unit, where its research and development and vast patent portfolio are housed, and is a testament to the division's foresight.

Nokia's technologies division also houses the folks moving its plans to re-enter the mobile-phone market. Following the introduction of the industry-changing OZO camera, the thought of a Nokia mobile phone doesn't elicit the same positive reaction, nor should it.

The goodOZO is a cutting-edge device designed for "professional creators," with features including the ability to playback and view real-time VR production, wireless functionality, and full-blown 3D audio and visual capabilities. The OZO camera is a feather in the technology division's cap, and its $60,000 price tag could help the smallish division move the needle.

Also, the timing of OZO's rollout couldn't be better, with the pending release of several consumer VR devices, which are expected to push the VR industry into hypergrowth mode. Nokia is already considering a scaled-down consumer version that could fit the budding VR market like a glove.

Financially, the technology division generated a mere $176.6 million of Nokia's $3.3 billion in revenue in the historically slow Q3 quarter, though that was a 7% improvement compared with a year ago. That said, for the first nine months of 2015, technology sales have jumped a whopping 44% to $677 million. Much of that revenue comes from Nokia's patents and licensing fees, but new devices such as OZO could help to diversify things.

Alcatel-Lucent appears to be an ideal fit, in that its networking market strength lies in the European region, which should make a nice addition to Nokia's solid footing in the U.S. and China. As with its HERE unit sale, the deal for Alcatel-Lucent also reinforces Nokia's efforts to streamline its operations, with a focus on networking, hands down its largest and most critical division.

The not so goodThere was a lot of scuttlebutt over the summer that Nokia had plans to re-enter the mobile-phone market in late 2016. The wait is thanks to the non-compete clause Nokia signed when the deal to sell its manufacturing unit to Microsoft closed. The inexplicable news of Nokia's possible return to mobile phones was met with some head-scratching, which is probably why CEO Rajeev Suri clarified why things would be different this go-round.

Unlike its mobile manufacturing past, Suri said Nokia wouldn't make the devices. Instead, its technologies unit would develop the phones and then license the manufacturing to sales partners, thereby limiting the inherent risk.

The problem is, even with Nokia's large mobile-patent portfolio, licensing the manufacturing squeezes margins, thus limiting profit potential. Now add in fast-growing, mobile-phone up-and-comers in Asia that are able to produce low-end phones for emerging markets on a shoestring budget, let alone the big boys of the smartphone world, and where does that leave Nokia?

What sets OZO apart is that it's a niche device in the fast-growing VR industry. The mobile-phone market, by contrast, is packed with competition, with more entering the fray seemingly daily. My advice to Nokia: Stick with developing new, cutting-edge products such as OZO, which actually have a chance to generate profitable sales, and forget your mobile phone ambitions.

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