Motorola and Qualcomm VS Nokia

Motorola last week announced that it will use QUALCOMM chipsets for its 3G phones, Its already using Qualcomm chipset for its CDMA portfolio both 2G and 3G but this announcement extends it to using QUALCOMM chipsets for WCDMA (European or GSM evolution to 3G) phones .This is significant development for overall 3G handset market and in particular to Nokia . This posting tries to explore the reasons and its implication of this deal.

Before going into details of this deal let me try to paint the current 3G market place broadly. Today we have basically 3 competing technologies for 3G namely CDMA 2000, UMTS and TD-SCDMA .CDMA 2000 and UMTS provide evolutionary path to their respective 2G technologies namely CDMA and GSM.,While TD-SCDMA is home grown Chinese version of 3G technology. GSM is dominant 2G technology having 80% of total 2G market place with rest of the market covered by CDMA.CDMA has dominant presence in US with 2 namely Verizon and Sprint-Nextel of top 3 biggest mobile operator using this technology and has also presence in Brazil, China and India but recently there has been news that both in Brazil and India the CDMA operators are planning to migrate to GSM .So when it comes to 3G it is oblivious that GSM operators will evolve to UMTS and CDMA operators will evolve to CDMA 2000.As discussed above UMTS is going to be dominant 3G technology and of course CDMA 2000 networks will also exists but predominantly only in US ,Which means Motorola number 2 handset vendor in the world needs to have good market share of UMTS(3G) handset even to maintain its current position .

Today 3G phone markets is dominated by Nokia because of its technology leadership in WCDMA and also its scale which translates into its ability to produce cheapest 3G phone which in turn translates into great market share and margins.Nokia uses its own radio modem chipset and Texas instruments (TI) Application processor in its 3G phones and also collaborated with TI to design one of the world’s first single chip WCDMA chipset i.e. both radio modem and application processor sits in a single silicon .Which translates to smaller and cheaper phones giving Nokia further edge against Motorola in WCDMA handset space. On the other hand Motorola nearly 2 years back spun of its Chipset business into separate company called Free Scale. This was recently bought over by private equity investors moving Freescale further way from Motorola. Motorola was cornered and had to look out for external silicon partner to have any chance to fight Nokia in 3G phone market.

Qualcomm a wireless technology provide rose to fame and made most of its money from selling its CDMA chipsets and licensing its CDMA Intellectual property Rights (IPR) .When its come to CDMA it has most dominant position both in terms of IPR and CDMA chipset market share As discussed earlier as CDMA technology market share dwindles and CDMA camps 3G technology only dominant in US, it needs to expand into GSM and UMTS space .WCDMA the radio technology used in UMTS is built on basics of CDMA technology which means some of the basic IPR of CDMA is also relevant for WCDMA and which gives a logical edge for QUALCOMM because of its strength in CDMA.Which it would like to use to generate its second wave of revenue stream .Precisely this issue has landed them in confrontation with Nokia. Nokia claims to have maximum number of essential IPR in WCDMA space and would like to get license revenue for it from Qualcomm same way as it pays to license CDMA IPR from QUALCOMM for its CDMA phones. But QUALCOMM as it tries to enter into WCDMA space with its chipsets claims that its IPR portfolio is superior to Nokia and it doesn’t have to pay anything. This conformation between Nokia and QUALCOMM has not yet concluded the result of which has profound impact on Qualcomm ability to make cost effective WCDMA chipset which has impact on its ability to take market share in UMTS handset market .

As I tried to explain earlier this agreement between Motorola and Qualcomm looks like a logical alliance to fight against a common enemy Nokia .From Nokia perspective this is the strongest challenge that they may face in its race for 3G handset market leadership positions.