This morning Nokia announced that it’s transferring 3G chipset technology and people to STMicro. The reports are somewhat vague — perhaps deliberately so on Nokia’s part — but it sounds like they are exiting the radio modem chipset business.
From the various accounts
- Nokia is licensing its 3G technology to ST and sending it 200 of its existing workers. That sounds like an exit to me.
- Nokia wants to have dual suppliers, and not be entirely dependent on TI for 3G chips. TI stock fell on the news.
- Nokia plans to license this technology to other firms to gain additional revenues.
Once upon a time, several mobile phone companies were fully vertically integrated, providing end-to-end solutions of chips, phones and even infrastructure. Firms that notoriously used their own semiconductors were Samsung, Matsushita (Panasonic), Motorola and Nokia. (The articles also imply Ericsson but I’d never heard them mentioned). The move by Nokia — both to license out technology and procure chips from external suppliers — is a classic shift from vertical integration to open innovation, consistent with established principles of open innovation.
HSDPA is the first WCDMA technology that will actually deliver broadband speeds of 1 mbps or more, and was developed with input from Qualcomm and what it learned from developing the earlier EV-DO technology for cdma2000. I was struck by how difficult it is to make HSDPA chipsets, and thus the number of suppliers has been winnowed down tremendously from GSM.
Here are two quotes that capture this effect — classic Five Forces that I teach my strategy students. From the Dow Jones article:
Nokia on Wednesday also announced a move to license out its modem technology to chipset vendors in order to bring in additional revenue and allow new players to enter the market. The industry has traditionally had a high barrier to entry because of the complexity of the technology expertise required. Modems are the interfaces between chips and radio signals and act as the communications center of a chipset.The Financial Times article was even more specific:
The decision to broaden its range of chipset suppliers and license proprietary technology for high-speed WCDMA/HSDPA mobile phone chips will be an opportunity for chip companies such as STMicroelectronics and Broadcom to enter a new market.The FT exaggerates a little, in that so far only ST is getting a license to the coveted HSDPA technology. Still, under the rule of ”the enemy of my enemy is my friend,” Nokia has a natural ally in Broadcom, who’s been winning a series of patent fights with Qualcomm.
Currently, only Nokia, Ericsson Mobile Platforms and Qualcomm are believed to have technology to make cost-effective, WCDMA/HSDPA chips.
Is the scarcity of HSDPA vendors a transient issue tied to learning curves, or a permanent shrinking of the supply pool?On the one hand, GSM was once cutting edge and now has a wide range of suppliers. On the other hand, the x86 processor suppliers have certainly been winnowed down over the past 25 years. Adding to the uncertainty are all those WCDMA patents.