Why Nokia would have a hard road getting back into smartphones

A surprising media report Monday says that Nokia, after selling off its once-dominant cell phone business to Microsoft in 2013, has plans to once again brave the brutal waters of the smartphone industry.

Well, sort of. Nokia wouldn’t manufacture and market the phones, just design and license them — and the Nokia brand name — to other companies, a report from Re/code says, citing two people briefed on Nokia’s plans.

The report says the smartphone effort is happening in the smallest of Nokia’s three divisions, Nokia Technologies (the others being the telecom equipment and mapping businesses). The Technologies division’s main job has traditionally been licensing the 10,000 patents that Nokia still holds.

This division has already designed and licensed an Android tablet called the N1, which Nokia announced last year. Nokia is licensing this slate to a manufacturer that will sell it under the Nokia brand in China. This approach may become the template for future Nokia-designed devices, the report suggests.

While Nokia may dive back into the smartphone business, in its fashion, it would be a surprising, and challenging, move.

Two VentureBeat sources with long-time dealings with Nokia point out there are plenty of reasons to be skeptical of plans for such a move. The barriers to entry are high.

The Nokia brand name is valuable, but under the terms of the Microsoft deal, Nokia is barred from licensing it to third parties until the second half of 2016. And that’s the least of the problems.

Another problem is the brain drain that happened with the sale of the handset division to Microsoft. Many of the engineers and designers who once worked on Nokia smartphones moved to Redmond to work with the Microsoft people, and then they either moved over to Microsoft or left entirely. Our sources say virtually nobody’s left at Nokia who could do the work of building competitive phones.

Nokia has been staffing up, as Re/code says. Last year it brought in Dolby Labs executive Ramzi Haidamus as its president, and just last week it hired Cicso executive Guido Jouret on as its chief technology officer. But those are executives, not creatives. And world-class creative people — designers and engineers — are what Nokia would need to make any money in smartphones.

Our sources point out that Nokia has no real smartphone operating system of its own to work with. So Nokia would need to build or buy its own, or it would become one of the legions of Android phone makers already in the game. If the N1 is indeed the template, Nokia will try to design Android phones.

If Nokia intends to make its money from licensing, the designs must be something special. Can Nokia design smartphones that stand out in a world where companies like Apple, Samsung, Xiaomi, and OnePlus are already making great phones — and are far more experienced and established?

And finally, one of our sources believes the Nokia Technologies group would need a strong leader “to fight off the shareholders and naysayers.” The source argues that it was those doubters and bean counters that originally derailed Nokia’s legitimate chance at smartphone market dominance years before the fire sale to Microsoft.

After adding up all these obstacles, our sources think it’s just too much.