The Financial Times is reporting that Finnish mobile-phone giant Nokia (NYS: NOK) will sell its luxury cell phone subsidiary Vertu -- yet another move in the company's fight against Apple (NAS: AAPL) and Google (NAS: GOOG) for a place in the smartphone market. Will it make a difference?
Get me tickets to The Lion King, and make it snappy
Vertu was created by Nokia in 1998 to tap into a niche market for luxury mobile devices. The phones are handmade, are typically constructed with precious metals, and can cost more than $314,000 apiece. They can be found in more than 60 countries, and have the most dedicated following in Asia, the Middle East, and Russia.
The phones themselves are technologically modest, but buyers benefit from a "concierge service," a button on the side that rings up a team of assistants who can make restaurant bookings, get theater tickets, fire the butler, etc.
Lifestyles of the rich and famous, revisited
Vertu's annual revenue is estimated to be between $268 million and $402 million, though an exact value for the company is yet to be determined. Goldman Sachs will oversee the sale, and the Financial Times is reporting that "there had been interest from private equity groups."
For the majority of us, who have to fire our own butlers and book our own tables, the thought of a cell phone with a six-figure price tag and a team of assistants standing by may at first sound absurd. But we're operating in a two-speed economy now: one for the rich and one for the not-so-rich . With the luxury market booming, it's not out of the question that Nokia could get a good price for Vertu.
Another shrewd move by those clever Finns
Nokia is struggling to make its presence known in the smartphone market, and it's facing a steep uphill climb. Its partnership with Microsoft (NAS: MSFT) , and the recent launch of their first joint-venture smartphone, is a good first step.
Not to mention, both Nokia and Microsoft are behemoths. Thanks to low-cost feature phones, Nokia still ships more mobile phones than any other manufacturer in the world, and has enough money on the balance sheet to ride out this relaunch of its smartphone business (so long as it doesn't go on for too long). Microsoft is, well, Microsoft -- a giant revenue-generating machine that has slowed down a little in recent years but is still a bulldozer in its market space. Never count out the 800-pound gorillas in any fight.
Aside from the money Nokia receives from the sale, it gives the company more focus on its core task. Each baggage-shedding move like this makes Nokia slimmer, trimmer, and better able to make a run at Apple and Google. Running a luxury phone division can be a distraction when Nokia is in the midst of abandoning a phone platform in a bid to make itself relevant in the smartphone market, which will define the next decade of growth in the mobile market.
Nokia's fighting for its very life, and the time for distractions is over.
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At the time thisarticle was published Fool contributorJohn Grgurichwould love to hang out with some reindeer in Finland, but he owns no shares of any of the companies mentioned above. The Motley Fool owns shares of Microsoft, Apple, and Google.Motley Fool newsletter serviceshave recommended buying shares of Google, The Goldman Sachs Group, Microsoft, and Apple; and creating a bull call spread position in Microsoft and Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has a scintillatingdisclosure policy.
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