Nokia to Stop Making Its Own CDMA Cell Phones

ESPOO, Finland – Nokia (NOK), the world's largest mobile-phone maker, said it would stop making phones using the CDMA standard and had scrapped plans to produce them with Japan's Sanyo Electric Co. (SANYY).

The Finnish company said on Thursday it would pull out of CDMA (Code Division Multiple Access) phone manufacturing, which it sees as a shrinking market in the longer term.

It will continue to offer Nokia-branded CDMA handsets, made by contract manufacturers, in North America where the standard is popular.

CDMA is the less popular wireless telephony technology, used by 25 to 30 percent of mobile subscribers, and competes with the GSM standard used by about 70 percent of the world's 2 billion mobile phone users.

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. (QCOM), but could not avoid paying significant technology licensing fees to the U.S.-based firm, which holds most patents to the CDMA technology.

The two have a bitter history over technology-licensing and patent-infringement cases and Qualcomm laid down new terms for the Sanyo-Nokia venture that were unacceptable to Nokia.

"The terms imposed on the proposed new Nokia-Sanyo company would have limited our freedom," Kai Oistamo, head of Nokia's Mobile Phones business unit, told Reuters in a interview.

San Diego, California-based Qualcomm was not immediately available to comment.

The Nokia/Sanyo venture, announced in February, had been intended to develop and make mobile phones using CDMA, which dominates in the United States and is popular in parts of Latin America and Asia, including Japan, India and China.

"It's a purely pragmatic business decision and we part as friends," Oistamo said.

"Together, Sanyo and Nokia together would have been close to the No. 1 CDMA handset manufacturer. Assuming good growth we would have had a viable position. But prospects in CDMA are declining," Oistamo said.

Samsung Electronics Co. Ltd. is the leading CDMA handset manufacturer by number of handsets sold.

The number of GSM customers is growing faster because the standard's handsets are cheaper than CDMA models. The cheapest GSM phones cost as little as $30 before local taxes.

COMPANY RESTRUCTURING CHARGE

Nokia said it will take a 150 million euro ($190 million) charge in its third-quarter accounts for restructuring its CDMA operations expects the changes to boost its operating margins.

It will end its own CDMA research and manufacturing by next April and is reviewing the options for its CDMA infrastructure and assets, after deciding against the Sanyo venture.

Shares in Nokia were up 0.2 percent at 15.94 euros by 1218 GMT, outperforming a 0.1 percent rise in the Eurotech index

Oistamo said the firm would stick to its goal of grabbing 40 percent of the global handset market over the long term, up from more than 35 percent at the moment.

"We are not revising our long-term market share target. The ambition level is exactly the same," he said.

Analyst Jari Honko, from eQ Bank in Helsinki, said Nokia and Sanyo had appeared to be a good fit in the CDMA market.

"Things have gone completely upside down now, and it looks like Nokia's strategy for technology will completely change."

Honko said the decision showed the thinking of Olli-Pekka Kallasvuo, who became Nokia chief executive three weeks ago, and also pointed to a deal announced on Monday for Nokia and Siemens AG (SI) to combine their telecom network operations.

"Kallasvuo is taking very strong actions ... He is now heading very aggressively in restructuring the company. It is very pragmatic thinking ... and they are now implementing that."

Sanyo Vice President Koichi Maeda said his group would have to rethink after the Nokia joint venture fell through.

"Mobile phones is one of our core businesses and a pillar of our earnings structure," he told a news conference in the western Japanese city of Osaka, the electronics firm's base. "We now must go back to the drawing board and decide on our strategy for the future."

Koichi Hariya, senior analyst at Mizuho Securities, said the decision was a setback, but did not mark the end of Sanyo's efforts to revive its earnings.

"Sanyo's mobile business is by no means in critical condition. If Sanyo can find another partner that would produce benefits it may take that route, but like this venture it may find that it is not worth it."