Nokia’s health tech business is in trouble — more than the company will publicly admit.
Last week, the Finnish telecoms launched a “strategic review” into the health division, stressing that no firm decision about its future had been made. But, in a company memo seen by The Verge along with screenshots of the internal work chat, Nokia’s chief strategy officer Kathrin Buvac told employees that “our digital health business has struggled to scale and meet its growth expectations.”
“Rather than only falling in love with our technology, we must be honest with ourselves,” writes Buvac. “Currently, we don’t see a path for [the digital health business] to become a meaningful part of a company as large as Nokia.”
The memo does not say definitively that Nokia is shutting down its digital health business, but it is unquestionably preparing the ground. Buvac even signs off the memo with the adage: “Failing fast isn’t failure, it is accelerated learning.” Nokia declined to comment on the note and would neither confirm nor deny its authenticity, but a spokesperson told The Verge: “We now need to see how the strategic review progresses — there is no preordained outcome.”
But the signs are not good. Nokia first jumped into the digital health industry in 2016 with its $190 million purchase of French startup Withings. After the purchase, Nokia adopted and rebranded a selection of Withing’s products, including the Steel and Steel HR smartwatches. The devices were praised by customers and reviewers for their elegant and stylish design, although some found their tracking functions inconsistent.
But the division had trouble, too, including a redesign of the Withings smartphone app which users panned as buggy and prone to crashing. More significantly, Nokia said last October in its quarterly financial report that it was writing down €141 million ($164 million) on the purchase of Withings, meaning it had overvalued the startup significantly. At the same time, the company announced it was stopping development of its $45,000 virtual reality camera and cutting hundreds of jobs.
Nokia still maintains a thriving telecoms and patent business worth roughly €23 billion a year. But since the company’s exit from the mobile phone market, it’s had a hard time finding a new consumer electronics foothold. (Nokia’s mobile brand lives on and is doing quite well, but the phones we call Nokia’s are definitely not.)
As Buvac states in the memo, Nokia’s ambition is now to become “a business-to-business and licensing company.” It will continue to explore new sectors by incubating startups internally, she writes, and its foray into digital health has given the company a “new perspective on the sector” as well as “opened conversations with companies and influencers.” But this has not been enough to turn a profit.
You can read the full memo below:
I wanted to take a moment to comment on today’s announcement that we have initiated a strategic review of our Digital Health business.
I know that for some of you this will come as a surprise, and you may also be wondering what this means for our strategy.
Why are we doing this?
We have a number of incubation businesses across Nokia which we run as internal start-ups. Solve a problem, place a bet, build a product, insert yourself into the market, gauge your progress, learn from your mistakes, decide next steps. Our Digital Health business is one of those bets we have made, and certainly we have had some early success since we integrated Withings into Nokia. The Steel HR watch is a fantastic piece of technology and the reception of Nokia Sleep at this year’s Consumer Electronics Show was very encouraging. However, rather than only falling in love with our technology, we must be honest with ourselves. In its entirety, our Digital Health business has struggled to scale and meet its growth expectations. Currently, we don’t see a path for it to become a meaningful part of a company as large as Nokia. Thus, we are conducting a strategic review to determine the best next steps for the business. Once we know more about possible future steps, we will inform impacted employees, as well as engage employee representatives in line with local legal requirements and practice, where needed.
What does this mean for Nokia?
Following the strategic choice we have made will allow us to focus and transform Nokia to be a business-to-business and licensing company in Telecoms and Industrial Automation. We will continue to have opportunities to address the IoT opportunity in Digital Health with private connectivity solutions, platforms and software, just no longer from a consumer product perspective.
That being said, we will continue to have a play in the consumer world with brand licensing, and our brand will continue to be present with the smartly crafted deal we have with HMD Global. We are pleased with their success in their first year of operation, where they have grown their revenue nicely and firmly established themselves as a serious player in feature phones and smartphones; Nokia branded mobile phones have leapt ahead of several other brands in only one year. This progress, along with the recent success of Networks and its end-to-end portfolio, has vaulted our brand from 335 to 188, making Nokia a top 200 global brand again ahead of many other renowned companies (source: Brand Finance 2018 ranking).
For our strategy more broadly, we remain committed to incubating select new businesses. They are vital sources of innovation, they present opportunities to pivot Nokia and they keep us agile in a challenging and fast-moving market. Let’s not forget the early success of a number of incubation projects: SDN and SD-WAN (Nuage), Managed Services for IoT (WING) and Nokia Digital Automation Cloud (NDAC) are good examples here.
Digital Health has given us a perspective on a new sector. It has opened conversations with companies and influencers outside our core business. We have learned from this, and with a sharper focus are using that knowledge to our advantage, just as 5G and IoT opportunities are accelerating.
As I commented in our internal story today, “Failing fast isn’t failure, it is accelerated learning.”
At Nokia, we dare.
Warm personal regards,