Interesting discussion at Motley Fool NOK board:
"My interpretation is that Nokia wants to increase its presence in the CDMA market, and where is the best place to start? South Korea! simply because South Korea accounts for close to half of worldwide CDMA subscriber numbers. I think this is an excellent business strategy -- always move your R&D and manufacturing facilities to places where you have a fertile backyard to test your products. Intel and HP are also pursuing the same strategy, by setting up wireless R&D facilities in Finland. I don't believe this announcement has anything to do with Qualcomm, although Qualcomm benefits the most if Nokia succeeds in meeting its target for CDMA marketshare. I have also e-mailed this to IR to seek clarification. I'll post the response to this board.
While the part on starting on CDMA via South Korea definitely makes sense, I do think that the deal does have a lot to with the Qualcomm chipset issue. After all, it was only a couple of days ago that word got out regarding how Sprint and Verizon have stopped supporting Nokia's CDMA phones. Niche standard or not, getting an extra 20-25 million handsets sold (what Nokia would get if it had 30-40% of the CDMA handset market) does matter.
So why didn't Nokia just strike a direct deal with Qualcomm? At first I thought that they were just trying to save face, figuring that a direct purchasing agreement would be a PR disaster for them after all the comments they made about only using in-house chips. But that never made sense. Nokia and Qualcomm might be often be at odds, but there's no way Nokia's management would be so petty that just so they didn't have to deal with Qualcomm, they'd partner with some unknown South Korean firm.
Then a second theory came to my head. tlchiam, remember how you once gave a link to a post on the Nokia SI board where some guy theorized that Nokia might not be buying chips from Qualcomm in order to maintain a more streamlined manufacturing process for their plants by means of only using Texas Instruments' DSPs? If that guy was right, his comments could explain everything completely.
Nokia's 20% profit margins for its handset division, as well as its ability to stay free of component shortages is absolutely remarkable given the problems Motorola and Ericsson are having. I'm sure that this can't an easy task be an easy task in such a quickly growing industry, and must require that the entire operation work with the precision of a finely tuned Swiss watch. Switching from TI to Qualcomm for CDMA chips, at least at the spur of the moment, could screw all of that up. Bye bye supply chain efficiency. Bye bye 20% margins.
But Nokia still needs Qualcomm's chips to produce quality CDMA phones, and they'll need them even more as Qualcomm starts putting things such as 1xRTT and HDR support onto them in the following months. So in order to get out of this Catch-22, they did something that, in my opinion, was sheer brilliance on their part: they outsourced the manufacturing of their CDMA phones to a company that's dedicated to the task, at the same time allowing them to be made with Nokia's name on them, not to mention its trademark, world-famous handset designs and user interfaces.
People don't buy Nokia's phones for the chips inside of them. They buy them for their ease of use, their friendly interfaces, the way they look, and so on. By way of the Telson partnership, Nokia still gets to make handsets that provide all of this. Meanwhile, since Telson's only focus in the wireless handset market is to make CDMA phones that use Qualcomm's ASICs, the company can streamline all of its manufacturing/supply-chain processes towards carrying out that task. Nokia, which has proven itself to be an expert at doing this with their own handset division, can help out Telson here so that they do this in a way that optimizes the profits that both companies generate from this venture. As I said before, sheer brilliance.
Still, in the long run, to maximize its margins, Nokia's going to have to manufacture its CDMA phones on its own, even if they do have Qualcomm's ASICs in side of them. This, perhaps, can explain why Nokia executives were at Qualcomm's headquarters this past week discussing the chipset issue. It's possible that they weren't there to strike an immediate deal with Qualcomm's to use its ASICs, but to tell them in advance that they do eventually plan on switching over to using their chipsets at a specified point in the future, so that when that point in time comes, Qualcomm's ready to supply them with all the ASICs they need in a fast, efficient manner. Meanwhile, in the interim, Nokia begins adapting its manufacturing, logistics, and supply-chain processes in such a way that when the transition to Qualcomm's ASICs for CDMA phones occurs, it takes place smoothly.
All of this shows to me once again that like Jordan, Beethoven, Shakespeare, or any other great artist, the more I see Nokia's management in action, the more I have to admire it.
Regards,
Mark" |
