Pact Makes 'Friends' of Antagonists Nokia, Qualcomm
By Peter Benesh IBD 11 July 2001
Bloody as their wounds are, the warriors of the wireless industry soldier on.
They can't afford to lose ground in the struggle to revolutionize global communications. The war is over 3G -the third generation and next wave of wireless technology. After a long standoff, two antagonists this month forged what analysts call an inevitable. alliance. Nokia Corp. and Qualcomm Inc. signed a mutual assistance treaty. Both say it's a win-win pact. It ends a Cold War, analysts say. And it prevents a hot war, wrote Michael Ching, a Merrill Lynch & Co. analyst, in a report he titled "Nokia now a Friend, not a Foe."
Both companies saved themselves huge legal bills, Ching says. San Diego-based Qualcomm owns many patents for 3G. Backers of 3G say it will put the speed and power of the Internet in your hand. Some analysts say 3G won't happen soon, if at all. An interim technology, 2.5G, or GPRS, is about to hit the market. And Nokia has patents in
2.5G technology.
The Qualcomm-Nokia deal, forged by patent lawyers, gives Nokia the right to Qualcomm's 3G technology, both for handsets and network gear, at royalty rates that satisfy both companies. It gives Qualcomm rights to Nokia's 2.5G technology for free. The two leaders downplay reports of tension. "If technology and end-user benefits merge and come out right, that speaks for itself," said Soren Petersen, head of the Nokia
unit that uses Qualcomm's technology.
The deal removes any doubts about Qualcomm's claim to patent rights in 3G technology, says Lou Lupin, Qualcomm's general counsel. "Some analysts looked at Nokia as the acid test for industry acceptance of Qualcomm's position," he said. Both companies concede that their talks were long and hard. Nokia delayed accepting Qualcomm's patent claims as long as possible, says Mike Walkley, an analyst with Dain Rauscher Wessels in Minneapolis. The reason? To save money. "It was something that had to happen," he said. Nokia wants to make money building 3G systems, "but Nokia had never signed contracts with Qualcomm for infrastructure. Nokia knew they had to make payments to Qualcomm, but they delayed as long as they could."
Nokia had to change its thinking, says Dan Steinbock, author of "The Nokia Revolution," a history of the company. " A year or two ago, Nokia came to terms with the fact that Qualcomm technology win drive the 3G era," he said. "Now it's coming to terms with the fact that it has to buy the capabilities that would take too long to build. "There is a payoff for Nokia, he says. "Nokia now can move faster into infrastructure. What it loses in expenditures, it gains in flexibility and speed," he said. Europe will be the first test of 3G, Walkley says. Without a Qualcomm deal, Nokia risked falling behind there to Sweden's L.M. Ericsson AB.
"Nokia needed this locked down because it's going head to head with Ericsson," Walkley said. "It's a two-way race. Ericsson's share is 35% of the 3G infrastructure market in Europe. Nokia has about 30%. Nokia has emerged from the pack, ahead of Motorola and Nortel Networks." .Nokia needed the deal so it could start to ship 3G equipment, says Nat Cohn, an analyst with Goldman Sachs Group in New York. Now relations between Nokia and Qualcomm should improve, he says, based on precedent. "Motorola signed with Qualcomm several years ago," Cohn said. "Their relationship, too, was tense, but they now have a good working relationship."
The pact shows that Nokia is ready to launch 3G in Europe, wrote Ching of Merrill Lynch. "We believe that this agreement suggests that the world's largest cellular handset manufacturer sees (3G) as imminent. More information could come out when Nokia releases second-quarter earnings, slated for July 19. Qualcomm could reap a bonus from the Nokia pact, says Tim Luke, an analyst with Lehman Bros. In New York. In a report, he says it could prod similar agreements with Alcatel Alsthom SA and Siemens AG. "These two large equipment vendors have yet to expand their current licensing deals with Qualcomm Luke wrote. |
