Nokia taps ST, Broadcom for phone chip work

August 8, 2007 – Cell phone maker Nokia says it will outsource development of its 3G chips to STMicroelectronics and has extended its partnership with Broadcom to include the supplier’s EDGE chips — deals that could dent business outlooks for Texas Instruments and Qualcomm.

Under the new deal, ST will design and manufacture 3G chipsets based on Nokia’s modem technologies, energy management and RF (radio frequency) technology, and the two are negotiating the possible transfer of part of Nokia’s IC operations to ST, including about 200 Nokia employees in Finland and the UK. The new structure has already borne its first fruit, with Nokia giving a design win for ST’s 3G high-speed packet access chipset supporting high data rates.

Nokia says it will still develop its modem technology, including protocol software and related digital design for WCDMA/GSM, which will be licensed to chipset manufacturers with product sent back to Nokia and into the open market.

“Nokia’s strategy will be to collaborate with its semiconductor partners for full chipset solutions,” said Niklas Savander, EVP of technology platforms at Nokia, in a statement. “We have worked with STMicroelectronics for many years and the company is a perfect partner for this expanded collaboration.”

In a separate announcement, Nokia said it will use Broadcom’s single-chip cellular baseband processor and companion power management unit for use in select future EDGE mobile phones. The processor, based on 65nm process technologies, offers “an advanced feature-set at low power, small size, and low system cost,” according to Nokia.

An exec told Reuters that the move “frees R&D resources for other areas [...] like Internet, services, [and] user interfaces.” The paper also cited an ST exec saying that the new chip would be on the market by early 2010, adding that Nokia is ST’s biggest customer representing 20% of sales in 1H07.

Analysts were quick to pull apart the news for pros and cons not only for Nokia and ST but also market competitors. Some speculated that Nokia’s move to license the technology to the open market will widen the playing field for some phone makers who wouldn’t otherwise be able to develop or gain access to the technology.

Also, Texas Instruments, which has supplied the 3G and EDGE chips for Nokia, may be on the outs or at the least now face mounting margin pressure, according to some analysts. “We think it will damage Texas Instrument’s very healthy gross margins, as it now faces competition in all technologies that it supplies to Nokia,” said Nomura Securities analyst Richard Windsor, quoted by Reuters. Others, though, are still bullish that TI will continue to ride the wave if Nokia grows market share. 3G leading supplier Qualcomm may also feel the pinch and have to be more competitive on pricing, Windsor noted.

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