Nokia, Sanyo to form cell phone venture
Finnish and South Korean companies to make phones for CDMA standard, dominant in United States, to take on Samsung.
The two companies said they will develop and make mobile phones for the CDMA standard, dominant in the United States and popular in parts of Latin America and Asia, including Japan, India and China.
The joint company, which is expected to start operations in the third quarter of this year, would become the world's largest CDMA mobile-phone maker alongside South Korea's Samsung Electronics by current shipment volumes.
Finland's Nokia, which is No. 3 in the CDMA market, struggled for years in CDMA as it tried to avoid using chips by Qualcomm, which holds most of the patents to the technology.
It has lost market share particularly in the United States as its chip designs were delayed by comparison, and it focused on low-end phones even though the CDMA market tends to cater to mid- to high-end users.
Sanyo's mid- to high-tier phones have sold well, particularly at Sprint Nextel, the No. 3 U.S. operator, though it has been unable to expand its presence worldwide.
"You could almost characterize it as a partnership of two weaknesses," said Nick Ingelbrecht, an Australia-based analyst at Gartner.
The two said they are discussing details of the alliance, including branding, and aim to finalize the deal in the second quarter.
Sanyo senior officer Takenori Ugari said Sanyo aimed to see profits of about 30 billion yen ($254.7 million) from the joint venture in about two years.
Timo Ihamuotila, senior vice president of Nokia's CDMA business unit, said, "With time, the product road maps will be integrated both to gain efficiency in the (research and development) side as well as to address the market with multiple technologies."
Nokia Japan President Tyler McGee said the venture would consider using Qualcomm's chips for the phones.
About 20 percent of the world's mobile phones are CDMA, and Nokia estimates that the annual global CDMA handset market is worth about $28 billion in 2006. It expects CDMA subscribers to reach 450 million in 2010 from about 300 million currently.
News of the deal, first reported by Japanese newspapers, initially sent Sanyo's shares
up 5 percent to 297 yen in early-morning trading, though the stock closed unchanged at 283 yen. Nokia's shares were up about 1.4 percent at 15.22 euros ($18.11) in Helsinki at about 12:30 a.m. PST.Nokia is trying to cut research and development costs as part of its effort to stem the decline in its profit margin from selling more low-price phones in developing markets.
"This is a cautious and shareholder-friendly way to enter the CDMA (market) in a more significant way," said Jari Honko, an analyst at Finland's EQ Bank, who has a "buy" rating on Nokia.
The deal could also help Nokia in its efforts to crack the tough Japanese market, while offering much-needed help to Sanyo, which last year embarked on a sweeping restructuring plan to reverse falling profits and halve its mounting debt.
"Sanyo is in a weak financial position, and has a dwindling amount of money and resources to put toward developing new handsets. Joining hands with a strong player like Nokia would be a positive move," UBS analyst Fumio Osanai said.
Osanai added that the partnership could help stabilize Sanyo's earnings and make it easier for the company to sell batteries, which is one of its most profitable businesses and one of its few remaining pockets of strength.
Sanyo is the world's largest maker of rechargeable batteries and supplies lithium-ion batteries to Nokia and other major mobile phone makers.
A similar venture partnership by Sony and Sweden's Ericsson has been gaining strength recently, reclaiming the No. 4 position in the global handset market on strong demand for its Walkman and camera phones.
Sanyo and Nokia said they plan to continue to develop phones for WCDMA, a competing standard used by most operators in the world, including Japan's NTT DoCoMo and Britain's Vodafone Group.
Gartner has said demand for ultracheap handsets would lead to global sales of about 810 million phones in 2005, up from 675 million in 2004.
Sanyo expects to sell 12.5 million mobile phones worldwide in the business year to March, most of those to Sprint Nextel.