The Espoo, Finland-based firm said Tuesday that it would use the capital to invest in the development of 5G smartphones, which it hopes to sell in the U.S. in partnership with local carriers. The cash will also be used to help HMD expand in markets like Brazil, Africa and India and move beyond hardware into other areas like software and services.
HMD has held the rights to design and market Nokia phones since a joint deal with Foxconn to buy the Finnish telecoms giant's mobile unit from Microsoft in 2016. Foxconn manufactures the handsets while Nokia gets royalty payments for each phone HMD sells. HMD sold 70 million phones last year and claims to have sold over 240 million to date.
Microsoft's initial Nokia acquisition in 2014 was notoriously ill-fated due to the failure of its Windows phones. HMD has looked to turn the business' fortunes around by launching new versions of nostalgic Nokia handsets like the 8110 "banana phone" and 2720 flip phone, as well as premium Nokia-branded smartphones that run on Google's Android mobile operating system.
"We believe this clear focus on a premium and well-differentiated smartphone experience is something that sets us apart," HMD CEO Florian Seiche told CNBC in an interview. "Clearly our partners ... have confirmed their point of view as well and are giving us strong endorsement to accelerate our growth in the coming years."
Seiche added the company was still heavily investing in feature phones — also known as "dumbphones" in contrast with smartphones — but said it has seen a shift from feature phones to smartphones in markets such as Africa. The company touts its smartphones as a more affordable alternative to those of bigger players like Samsung and Apple, and has partnered directly with Google to give users regular security updates on Android.
HMD told CNBC that it made 1.7 billion euros ($2 billion) in net revenue last year, down almost 30% from 2.4 billion euros in 2018, which it said was due to reducing its presence in markets that required further investment. The company's losses mounted in 2019, rising more than 50% to 295 million euros.
The coronavirus crisis has deeply impacted the smartphone market, with market research firm IDC expecting smartphone shipments to decline 11.9% year-on-year to 1.2 billion. HMD has switched focus to online sales during the Covid-19 pandemic and Seiche said this allowed it to return to profitability in June.
"This has certainly been a challenging environment, however what we can say is we are also seeing some key shifts in the market that we believe have been really accelerated because of Covid ... the biggest being the shift to online purchasing," Seiche said. "That is not a temporary thing but that is going to stay."
It's the second time in HMD's history that the start-up has raised money from outside investors. The first was in 2018, when the business was valued privately at more than $1 billion, giving it so-called unicorn status.
HMD declined to disclose its new valuation in this investment, which it said was the first closing of a bigger funding round. The company is majority-owned by Smart Connect, a private equity fund managed by former Nokia executive Jean-Francois Baril.