ESPOO, Finland—Nokia Corp. and Sanyo Electric Co. Ltd. announced they plan to form a joint venture to build CDMA phones. The move likely will have major repercussions for the global wireless industry, and stands as evidence that no one company—no matter how successful—can go it alone in the world’s cutthroat cell phone market.
Nokia and Sanyo gave little in the way of detail for their joint venture. The companies said they would combine their respective CDMA businesses, and that the new company would have “major operations” in San Diego, Calif., and Osaka and Tottori, Japan. The companies said “final agreements” should be signed by the second quarter, and that the new business should begin operations in the third quarter, pending regulatory approval. The companies did not say how much they would invest in the new business.
Neither Nokia nor Sanyo mentioned job cuts as part of the move—a standard byproduct in most corporate mergers. The companies also did not say what the new joint venture would be called, or whether it would keep the Nokia or Sanyo brand.
“Meeting and exceeding our customers’ expectations is the key priority that drives Nokia every day,” said Olli-Pekka Kallasvuo, the company’s president and chief operations officer. Kallasvuo is set to become Nokia’s new chief executive officer in June. “We identified this new entity as the best way to create an attractive CDMA phone portfolio for our customers with the widest possible product offering at the high-end, mid-range and entry levels. We estimate that the creation of this separate, associated company will provide Nokia with financial benefits from start. It also offers both parties timely access to R&D competencies that complement their own internal strategies.”
The companies said their new joint venture will retain the strengths of each company—Nokia’s successes in low- and mid-range phones and Sanyo’s success in high-end phones and carrier customizations.
The announcement is especially notable for Nokia, which has long struggled in the CDMA mobile phone arena. Although Nokia is the world’s largest mobile phone vendor—one out of every three phones sold bears the Nokia brand—the company has largely failed to find success in the CDMA market. Over the years the Finnish vendor has repeatedly promised to improve its CDMA position, but it still derives much of its profits from sales of GSM products.
Indeed, rumors have long swirled that Nokia would eventually offload its CDMA phone efforts to Asian original equipment manufacturers. Companies like Compal Electronics, Quanta Computer and others design and build mobile phones and then sell the phones to original equipment manufacturers like Nokia, which then add their logo to the phone and sell it to end users.
However, Nokia’s agreement with Sanyo indicates Nokia prefers to realign its CDMA phone business altogether.
Nokia’s agreement with Sanyo also signifies a major new turning point in the CDMA phone industry. According to investment-banking firm UBS, the CDMA phone market totaled about 157 million phones last year, with GSM and other technologies accounting for the remaining 632 million phone shipments. South Korean vendors Samsung Electronics Co. Ltd. and LG Electronics Co. Ltd. control the vast majority of the CDMA market. However, Nokia and Sanyo’s new joint venture will likely give Samsung and LG serious competition.
What is unclear is how Nokia and Sanyo’s joint venture will affect CDMA pioneer Qualcomm Inc. Separately, Nokia and Sanyo each paid Qualcomm CDMA licensing revenues, but together they likely will only make one payment. Qualcomm derives much of its revenues from CDMA licensees.
But perhaps most importantly, Nokia’s CDMA joint venture with Sanyo highlights the increasingly complicated nature of the worldwide mobile phone industry. Nokia spent $4.5 billion on research and development last year, and still the company found itself unable to compete in the CDMA phone market by itself. And Nokia is not the only company to retract from the phone industry—Alcatel, Siemens AG and others have withdrawn from the market. Rival Sony Ericsson Mobile Communications L.P., which was formed by Sony Corp. and L.M. Ericsson, pulled out of the CDMA market several years ago to focus on GSM.
Indeed, Nokia’s agreement with Sanyo could indicate the beginnings of a shift in the worldwide mobile phone market, where vendors compete in specific technologies, products and regions rather than on a global, industrywide basis.
The agreement could also impact U.S. distribution. Sanyo is currently offered exclusively through Sprint Nextel Corp., which in turn has had a cool relationship with Nokia—currently offering only a single low-end Nokia handset. Other CDMA-based operators—including Verizon Wireless, Alltel Corp. and U.S. Cellular Corp.—offer a broader selection of Nokia handsets, though none include high-speed CDMA2000 1x EV-DO capabilities.
With the new venture, Sanyo may be able to infiltrate the lineup of additional operators, while Nokia could find a more willing buyer in Sprint Nextel.
