The dissolution of the Nokia Corp./Sanyo Electronics Co. Ltd. CDMA joint venture may leave a void in the United States for CDMA handsets, estimated by analysts at about 7 million units per year, despite Nokia assurances that its alternative strategy for the prized U.S. market includes reliance on original design manufacturers.
Nokia has yet to announce the specifics of its plans for CDMA in the United States, however, lending an element of uncertainty to discussions on the potential reshaping of the U.S. market.
The JV’s implosion in the view of some analysts has offered opportunities for gains in U.S. CDMA market share by LG Electronics Co. Ltd., Nokia’s likely ODM partner, Pantech Group, and, possibly, Samsung Electronics Co. Ltd.. In each case, the introduction of a Motorola Inc. Razr handset by CDMA operator Verizon Wireless stole unit shipments and market share from the leading competitors.
While Nokia is forming and executing a new U.S. CDMA strategy, a strong marketing push by Kyocera Wireless Corp. in the next three quarters could steal away Nokia’s stock keeping unit (a designation that represents a specific model) at Sprint Nextel Corp. and Verizon Wireless, which might be receptive to Kyocera, according to Strategy Analytics’ Chris Ambrosio.
LG stands to gain in entry-tier models at Sprint Nextel—if it can overcome Kyocera’s competition—as LG’s presence at the industry’s No.3 operator recently has grown, Ambrosio said.
But, according to Strategy Analytics’ Neil Mawston, LG has reached a glass ceiling with its existing CDMA distribution network. LG must offer converged devices and improve its position at Sprint Nextel, Mawston said. Samsung, relieved of the JV’s competitive pressures, still must address entry-level phones in its CDMA portfolio, as Samsung currently concentrates on the high-end market.
Ironically, rounding out Strategy Analytics’ take on the issue, Nokia had been gaining ground in North America in recent quarters, gaining 5-percent market share and selling 1 million more CDMA phones in the low- and mid-tier in the first quarter, compared to the year-ago quarter.
Current Analysis’ Avi Greengart issued his firm’s take on the dissolved JV. “Nokia hopes to minimize CDMA investment while treading water in the strategically important U.S. market … while it waits for a new, non-Qualcomm technology to replace CDMA,” he wrote. “It could be a long wait … re-badged Pantech phones cannot truly reflect Nokia’s brand promise and are sure to be hammered by competitors.”
Meanwhile, Greengart suggested that because the majority of U.S. subscribers are on CDMA networks and Nokia’s “owners”—i.e., shareholders—”live on Wall Street,” exiting a market where there’s enormous potential is a mistake. Nokia’s enterprise mobility strategy in the U.S., moreover, is “severely wounded, if not completely dead.”
Greengart said Nokia’s decision has a significant Qualcomm angle. As he wrote in his report, “Nokia needs to hire some new IP lawyers with absolutely no wireless background—or baggage—and let them approach Qualcomm and its licensing terms with fresh eyes. Nobody else in the industry interprets Qualcomm’s licensing terms the way that Nokia does.”
Qualcomm received a good deal of attention as news spread that the JV would be dissolved. For one thing, the JV would have formed the world’s largest single CDMA handset vendor and undoubtedly strengthened Qualcomm’s hand in the CDMA chip market. Because Qualcomm and Nokia are locked into a protracted negotiation over cross-licensing—a current agreement expires in April 2007—and have both lodged lawsuits against each other involving intellectual property rights on both the CDMA and GSM sides of the wireless market, it’s natural to assume as many have that the JV and the ongoing IPR spats are linked. Nokia and Qualcomm have both side-stepped the issue of linkage, while stressing the fundamental strengths of their ongoing businesses.
Though news of the JV’s dissolution temporarily rocked Qualcomm’s stock price, the CDMA chip maker’s chief executive officer, Paul Jacobs, insisted to the press that Nokia’s decision had more to do with its inability to profit in CDMA markets than with a pessimistic view of the health of those markets. (For the record, Nokia’s statement said that, in addition to slim margins, a “financially prohibitive CDMA ecosystem”—possible code for Qualcomm’s licensing terms—and recent developments in the business case for CDMA in emerging markets had led it to dissolve the JV.)
Jacobs also said that he saw no connection between the dissolved JV and Nokia and Qualcomm’s long-running squabbles and legal thrust-and-parry. Yet Jacobs did brandish the possibility, however remote, that if the European Commission investigates Nokia and other parties’ claims that Qualcomm’s licensing practices are unfair and grants an injunction hindering Qualcomm’s chip business, he might be prepared to split his company into two businesses—one devoted to selling chips, the other to licensing IPR—to avoid an interruption to his business while EC injunctions are dealt with.
In an interview last week, Cristiano Amon, a Qualcomm vice president for product management, reiterated that his firm sees plenty of growth potential in the U.S. market, that competitors would take up any slack left by Nokia’s change of heart, that growth in entry-level handset sales in India was robust and aided by sub-$50 CDMA handsets—never mind flat growth in China and other CDMA markets documented by Strategy Analytics—and that the sheer volume of CDMA subscribers (312 million worldwide and 112 million in the U.S.) bodes well for the market.
The CDMA Development Group, not surprisingly, echoed these views. As for China, according to James Person, the CDG’s point man on Asia, it too will come along.
“The only slowing market internationally that I can think of is China,” Person said. “That’s a case of continued delay in awarding 3G licenses. We do believe those licenses will be awarded by early 2007, because the Summer Olympics will be held in Beijing in 2008 and Beijing definitely wants to look good with 3G before that happens.”
