Qualcomm Deal Could Hurt Nokia's Current Suppliers
NEW YORK -(Dow Jones)- The agreement by Qualcomm and Nokia to end their long-running patent dispute likely means trouble for Nokia's current chip suppliers.
The settlement is fueling speculation that Nokia and Qualcomm, long locked in a legal feud over past licensing agreements, will lead to further collaboration between the two companies and could pull market share from one of Nokia's largest chip suppliers, Texas Instruments, and others itching to provide chips to the mobile-phone giant.
"While not explicitly stated, we think this sets the stage for Nokia to source Qualcomm for chipsets," Citigroup analyst Glen Yeung said in a client note.
The settlement comes as Nokia is trying to diversify its supplier base, a move already expected to hurt Texas Instruments. According to analysts, TI currently manufactures nearly all of Nokia's chipsets, based on licenses Nokia owns on Qualcomm patents.
Shares of TI were recently down 4% to $24.03. Qualcomm, which also raised its 2008 outlook Thursday, was up 19% recently, to $53.28, while Nokia gained 2.8% to $27.45.
Mike McConnell of Pacific Crest said that for TI, this means more competition for Nokia supply share "with the most credible wireless competitor in the marketplace."
"You are potentially letting in the supplier with the best 3G roadmap in the industry," McConnell said.
No one from Texas Instruments was immediately available for comment.
Broadcom and STMicroelectronics - which have made inroads with Nokia for chipset supply agreements but currently don't supply chipsets to the mobile phone giant - also would face greater future competition as well.
Broadcom is currently embroiled in litigation concerning patented technology with Qualcomm. Investors reacted to the settlement by selling Broadcom, on concern that the pact with Nokia could aid Qualcomm in its other patent fights.
Shares of Broadcom recently dropped 11% to $23.45. STMicro stock is down 2.8% to $11.02.
Qualcomm is a leader in 3G wireless technology, and the settlement covers next-generation technology as well. President Steve Altman said the agreement acknowledges the value of its next-generation intellectual property and removes a significant impediment. "Both companies will look for a number of opportunities to work together," he said.
Qualcomm Chief Executive Paul Jacobs said a theme during the negotiations was collaboration, and his goal was for the two executive teams to meet together soon.
The agreement, announced Thursday by Qualcomm and Nokia, settles all litigation between the companies, grants Nokia a license for use of all of Qualcomm's patents in Nokia's mobile devices and allows Qualcomm to integrate Nokia's technology.
Still, any loss of Nokia market share by TI or others isn't expected to come soon. No supply agreements were announced with the settlement, and analysts say it would take Qualcomm between one and two years to ramp up manufacturing to provide Nokia with chipsets.
Robert W. Baird analyst Tristan Gerra said the settlement is good news for the industry in general.
"It's a net positive for the industry because it basically removes business obstacles between the number one supplier of chips in the wireless industry which is Qualcomm and the number one mobile handset maker," Gerra said.
"It means there are going to be less efforts for mobile phone makers to diversify away and get around Qualcomm patents," he said.
-By Jerry A. DiColo, Dow Jones Newswires; 201-938-2007; jerry.dicolo@dowjones.com
(END) Dow Jones Newswires
Posted to the site on 24th July 2008