TOKYO (Reuters) - Nokia and Sanyo Electric Co. plan to form a global mobile phone joint venture, helping the world's largest phone maker boost business in its weaker markets and giving a shot in the arm to the struggling Japanese electronics maker.
The two companies said on Tuesday they will together 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 Co. Ltd. by current shipment volumes.
Nokia, which is No.3 in the CDMA market, has struggled for years in CDMA as it tried to avoid using chips by Qualcomm Inc. , 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 lower-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 Corp., the No.3 U.S. operator, although 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 for research firm Gartner.
Nokia Chief Financial Officer Rick Simonson said the firms' product portfolios and operator clientele would supplement each other well, with few overlaps seen, but that the firm would cut a couple of hundred jobs at its CDMA operations.
The venture would have 3,500 workers, mostly in Japan and the United States, he said.
"We believe one plus one is more than two," he told Reuters at the 3GSM mobile technology fair in Barcelona.
The two firms said they are discussing details of the alliance, including branding and the exact split of the ownership, aiming to finalize the deal in the second quarter. Simonson said Nokia's stake in the venture would be a minority, but declined to elaborate.
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.
"CAUTIOUS" WAY TO EXPAND
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 the annual global CDMA handset market to be worth about $28 billion in 2006. It expects CDMA subscribers to reach 450 million in 2010 from about 300 million currently.
Nokia's Simonson repeated the company's forecast of over 10 percent growth for the market mobile phone shipments in 2006, saying growth in the CDMA handset sales would be slower.
News of the deal, first reported by Japanese newspapers, initially sent Sanyo's shares up 5 percent to 297 yen in early morning trade although the stock closed unchanged at 283 yen. Nokia's shares were up about 2.4 percent at 15.37 euros in Helsinki by 1524 GMT.
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-priced phones in developing markets.
"This is a cautious and shareholder-friendly way to enter the CDMA (market) in a more significant way," said analyst Jari Honko, at Finland's eQ Bank, who has a "buy" rating on Nokia.
HELPING SANYO
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," said UBS analyst Fumio Osanai.
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.
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