By Jussi Rosendahl
HELSINKI (Reuters) - Nokia does not see meaningful potential for its "struggling" digital health business which includes activity trackers and smartwatches, according to an internal memo seen by Reuters on Wednesday.
The Finnish company, which is mainly focused on making telecom network equipment, earlier this month said it would start a strategic review of its small digital health venture after just two years in the business.
"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," Nokia's chief strategy officer Kathrin Buvac wrote in the letter to employees.
"Currently, we don't see a path for it to become a meaningful part of a company as large as Nokia... Failing fast isn't failure, it is accelerated learning," she added.
A Nokia spokesman declined to comment specifically on the memo, which was initially published by tech news website The Verge, but said: "We now need to see how the strategic review progresses – there is no pre-ordained outcome."
Digital health, part of Nokia Technologies unit, is one of the areas where the company had been looking for future growth opportunities amid a tough market for the network gear business.
As an initial move into the market, Nokia in 2016 bought France's Withings, which makes activity trackers and thermometers, for 170 million euros ($209 million). Last year, Nokia brought a new smartwatch to the market but also wrote down 141 million euros of goodwill on the business.
Other parts of the Technologies unit, such as patent and brand licensing for mobile phones, are not in the scope of the review.
The Technologies business also launched a virtual reality camera in 2015, but last year said it would halt the development of that product.
"Seems Withings is up for sale and the Technologies unit will move away from new ventures and focus on patent licensing," said Mikael Rautanen, an analyst at Inderes Equity Research who has a "buy" rating on the stock.
"They (digital health and VR) were both high-risk investments in future technologies, which didn't take off. So it's good if the company has the guts to back away from them," Rautanen said.
Nokia last year generated sales of 23.2 billion euros, of which 52 million euros came from digital health and digital media.
($1 = 0.8122 euros)
(Additional reporting by Tuomas Forsell; Editing by Elaine Hardcastle)