2/20/03 WSJ article -- Nokia, Qualcomm Battle Over 3G Market-Share.
February 20, 2003
Nokia, Qualcomm Battle Over 3G Market-Share
BY DAVID PRINGLE and PUI-WING TAM
Staff Reporters of THE WALL STREET JOURNAL
Nokia Corp., the world's leading cellphone maker, and Qualcomm Inc., a maker of chips for wireless devices, play in different markets. But the two companies are treading on each other's toes in what is shaping up as one of the biggest rivalries in the wireless world.
Qualcomm is arming Nokia's Asian rivals with the electronics they need to compete with the Finnish company in the nascent market for third generation, or 3G, phones designed to play video clips and tap into the Internet, as well as make voice calls.
Samsung Electronics Co. and LG Electronics Inc. of South Korea and Sanyo Electric Co. of Japan are among those rolling out 3G phones using Qualcomm's chips. While 3G phones made up only about 8% of global sales last year, some believe they are likely to eventually account for the vast majority.
If Nokia is to increase sales in its flagship mobile-phone division much further, analysts believe it must win share from Qualcomm's customers in the 3G market. That, in turn, would limit the San Diego chip maker's own growth prospects.
The two companies are "butting heads," says Michael King, a senior analyst with technology-research firm Gartner Inc. of Stamford, Conn.
Competing on Two Fronts
Aside from Nokia, Qualcomm is one of the few companies in the cellphone industry generating enough profits to comfortably fund the hefty research-and-development effort needed to create handset technology for both the two main 3G standards: Wideband Code Division Multiple Access, known as WCDMA, and CDMA 2000. In the case of WCDMA, these phones also need to be able to run on existing networks using the Global System for Mobile Communications, or GSM, standard. Semiconductor industry executives estimate it costs as much as $400 million to develop the necessary electronics for a GSM/WCDMA phone.
Nokia, which has nearly 50% of the GSM market, says it has shipped 10,000 test units of its first GSM/WCDMA handset, which uses its own chip design. The Finnish company plans a full commercial launch of that phone in the near future. Qualcomm expects handset makers to begin shipping phones using its GSM/WCDMA chips later this year. Both companies are showing 3G phones running video clips at a trade show this week in Cannes, France.
Irwin Jacobs, chief executive officer of Qualcomm, says his company aims to capture 50% of the market for chips to control GSM/WCDMA handsets. However, he acknowledges Nokia is likely to design its own chips and will remain a competitor. "Nokia is such a major force, they could maybe withstand" the trend to buy off-the-shelf chips from external suppliers, such as Qualcomm, Mr. Jacobs says.
Kari Tuutti, a spokesman for Nokia, says his company believes developing its own handset chips helps it make innovative phones with distinctive shapes and features. Nokia regards the major cellphone makers, rather than Qualcomm, as its main competitors, Mr. Tuutti says.
In any case, analysts believe Nokia has the technology, marketing and manufacturing expertise to fend off Qualcomm's customers in the WCDMA market, which is likely to account for the majority of cellphone sales long term. But they say the U.S. company presents a formidable barrier to the Nokia's ambitions in the other standard, CDMA 2000.
The vast majority of the 33 million CDMA 2000 phones shipped last year contained Qualcomm's chips. Nokia, which uses its own CDMA 2000 chip design, had less than 5% of that market, according to investment bank Lehman Brothers Holdings Inc. Mr. Tuutti declines to comment on that figure, but he says Nokia intends to make significant market-share gains this year in CDMA 2000.
Analysts say Nokia has failed to keep up with Qualcomm's customers in rolling out CDMA 2000 models with color screens and location-finding abilities.
In addition to their race to develop the best 3G chips, the two companies are fighting a long-running propaganda war to persuade operators to adopt their preferred-network technologies. Most operators have chosen WCDMA, but "there is still an ideological divide between the two companies," says Mark Paxman, a consultant with PA Consulting Group in Cambridge, England.
Software Clashes
Nokia and Qualcomm are also beginning to clash in the cellphone software market. Qualcomm advocates operators use its Brew technology to deliver games and other services to users, while Nokia pushes the Java programming language running atop its own Series 60 handset software.
There seems little prospect of a truce. Despite its weak position in the CDMA 2000 market, Nokia has stubbornly refused to use Qualcomm's chips, continuing to pump euros into developing its own.
Don Shrock, head of Qualcomm's chipset division, says his company is intent on minimizing the Finnish company's market share. "You're either with us or you're against us," says Mr. Shrock. "We're going to keep the pressure on folks who don't use our chips."
Write to David Pringle at david.pringle@wsj.com and Pui-Wing Tam at pui-wing.tam@wsj.com
Updated February 20, 2003
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