Why Is Nokia Making This Investment?

After Nokia (NYSE:NOK) reported its seventh straight drop in quarterly revenue last week, the struggling Finnish cellphone manufacturer decided to push forward with its mobile investment strategy.

The struggling Finnish cellphone maker announced Tuesday that it plans to invest $250 million in its venture-capital division, with the intention of funding mobile communication companies in the United States, Europe, and Asia in order to access new technologies that can improve its phones. In particular, Nokia Growth Partners, as the division is known, will use the capital to focus on China, the world’s largest smartphone market by volume.

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Nokia banked its future profitability on its line of Lumia smartphones, which run on Microsoft’s (NYSE:MSFT) Windows Phone 8. The device sold 4.4 million units worldwide in the last quarter, and the company secured a deal with China Mobile (NYSE:CHL) back in December, making Nokia’s smartphones available to the wireless provider’s 700 million customers. However, with the tough competition from Apple’s (NASDAQ:AAPL) iPhone and smartphones powered by Google’s (NASDAQ:GOOG) Android, Nokia is looking to spur demand for the Lumia in markets across the world…

But China has drawn Nokia’s primary focus, and that of Apple as well. The iPhone maker has predicted that its sales will see the biggest growth in that country in the next few years. For Nokia, that presents a problem. The company traditionally “counted developing markets as a key factor in its baseline ‘dumbphone‘ success,” reported SlashGear. Now, the popularity of Android-powered devices and the iPhone has caused Nokia’s legacy business to shrink faster than expected. China has become a country for Nokia to launch its best efforts to compete with the largest and most popular manufactures. That is what prompted Nokia’s new investment fund.

The venture capital unit has been in operation since 2005, and owns a small mobile industry portfolio that includes semiconductors, embedded software, and services. Nokia invested $250 million in the third fund the manufacturer has set up. Most recently, Nokia Growth Partners invested $8 million in the Swedish video streaming service Voddler and $10.7 million in Luminate, a California-based company that makes interactive imaging software.

Nokia sees the division as a means to expand its business. “Over the past decade, Nokia has developed an innovative venturing strategy,” Timo Ihamuotila, the company’s Executive Vice President and Chief Financial Officer, said in a statement. “Our ongoing commitment to Nokia Growth Partners reinforces Nokia’s support for a vibrant mobile ecosystem and our determination to collaborate with industry innovators to build great mobile products.”

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