Nokia and SANYO to COMBINE CDMA Divisions

[Barry]

Nokia and SANYO announced a preliminary agreement with intent to combine CDMA mobile phones businesses -separate from the parent companies. The relevant assets from both companies will be contributed or made available for the new entity. Final agreements are expected to be signed in the second quarter of 2006, with the new business expected to commence operations in the third quarter 2006, provided that the due diligence has been completed and all necessary regulatory approvals obtained.

It is expected that the new company will benefit by combining both parties' CDMA businesses to achieve a leading position within the global CDMA mobile phones market. Nokia brings to this resulting entity the strength of its world-renowned brand, demand supply expertise, a solid entry-level and mid-range CDMA mobile phones product portfolio and well-established relations with over 60 CDMA carrier customers around the globe. SANYO has a leadership position in mid-range and high-end CDMA handsets and maintains strong relationships with CDMA operators in Japan and North America.

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[Admin]

Nokia and Sanyo will not proceed with the joint venture for CDMA phones they announced in February. In a statement, Nokia said, “We feel it would not be in our best interests to make an agreement that proved to be less beneficial than originally anticipated. After exploring all available opportunities and making every effort to create a sustainable CDMA business.”

The vendor gave two specific reasons for canceling the JV in its public statement today. Nokia said that “the terms and conditions of the proposed partnership were not satisfactory and in the best interests of Nokia’s long-term success.” In short, it appears that Nokia’s ability to profit was outweighed by the needed commitment of resources to make the JV a success for both parties.

On the market conditions for a CDMA joint venture, Nokia stated: “In addition to an already financially prohibitive CDMA ecosystem in general, recent developments may indicate that the CDMA emerging markets business case is looking more challenging.”

The reference to the “financially prohibitive CDMA ecosystem” may be a veiled reference to Nokia’s complaint that CDMA chip vendor Qualcomm Inc. charges too much for IPR licensing of its core technology, and that CDMA-based handsets are incrementally more expensive to produce. The reference to the business case for emerging markets seems to reflect Nokia’s recognition that with low-cost handsets for developing countries already offering slim margins, an effort to produce and distribute the more expensive CDMA technology would not be worth the effort, at least in the JV format.

Nokia also said it would “ramp down” its own CDMA R&D and manufacturing by April 2007. As a result of the cancelled JV, Nokia will take a restructuring charge in the third quarter of this year of around $189 million.

[ruby]

Nokia will stop making phones using the CDMA standard then? I guess that's it for the 'newer' technology. They will however, continue to offer to sell Nokia rebranded CDMA phones produced by contract manufacturers in the North American market, where the standard is popular.

Though Nokia holds the number one spot in global handset sales, built on its strength in GSM which it helped to invent, the Finnish company has trailed in CDMA. It has tried to avoid using chips by Qualcomm Inc., but could not avoid paying significant technology licencing fees to Qualcomm which holds most patents to the CDMA technology.

Nokia will end its own CDMA research and development and manufacturing by next April and said it was considering the options for its existing CDMA infrastructure and assets, after deciding against the Sanyo venture.