Qualcomm Inc (QCOM)

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Motorola, Qualcomm Renew Bond

http://www.redherring.com/Article.aspx?a=19716&hed=Motorola%2C+Qualcomm+Renew+Bond§or=In....

Chipmaker and handset manufacturer find each other again in stalled 3G market.
November 13, 2006

The chill is gone from the Motorola/Qualcomm relationship as the two United States-based companies said Monday that phone maker Motorola will use Qualcomm’s UMTS chipsets to improve its options and fortunes in the third generation (3G) market.

The single-chip system will help drive down costs and assist Motorola with introducing new and interesting cell phone applications in its slow global 3G market.



The two companies will collaborate on CDMA2000, a 3G mobile technology, and UMTS (universal mobile telecommunications system), a competing CDMA (code division multiple access)-related 3G technology.



“The relationship between Motorola and Qualcomm has evolved over many years and it hasn’t always been as amicable as the two companies would like it to be, but Qualcomm gives Motorola a supplier who can spread its R&D cost among multiple handset makers,” said Joe Nordgaard, director of the wireless consulting firm Spectral Advantage.


‘The relationship between Motorola and Qualcomm has evolved over many years and it hasn’t always been as amicable as the two companies would like it to be.’

-Joe Nordgaard,

Spectral Advantage






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As a customer, Motorola helped Qualcomm develop and refine its CDMA technology, but over the years there were tensions that date back as far as when Qualcomm was actually in the handset market.



But with the increasingly complex demands of the very competitive and diverse mobile market, Motorola has been casting about for more options and less expensive, more streamlined components.



Shares of Motorola rose $0.12 to $21.50 in recent trading, while Qualcomm shares climbed $0.81 to $36.05.



Freescale Freedom

To date Motorola’s primary supplier of 3G components has been Freescale Semiconductor, a Motorola spin-off. Freescale went public two years ago, and two months ago the company was bought out for $17.6 billion, or $40 per share, by a consortium led by the Blackstone Group.



The purchase has complicated matters to some extent for Motorola.



“We have been anticipating [the Qualcomm] move for some time,” Richard Windsor of Nomura Securities said in a statement. “Motorola has been faring very poorly in 3G, which combined with the privatization of Freescale has left it in a difficult position in relation to its 3G chip-sourcing strategy.”



Qualcomm’s single-chip technology helps push Motorola’s costs down, but just the option of having another large component supplier firmly on board places Motorola in a better competitive position, particularly against market leader Nokia.



More to Come
“Getting the cost of the handset down is a major obstacle, but the next one is designing phones that users actually want and with features and applications they will be willing to pay for,” said Mr. Nordgaard.



The 3G market has emerged slowly as cell phone users have not beaten down the gates for data services outside of a small handful of applications, but vendors are hoping that bringing the cost of the 3G handsets down will spur the market.



“We believe that these new chipsets have been developed with Motorola in mind and we expect that handsets should begin to ship in mid-2008,” Mr. Windsor said. “Qualcomm has already opened its chipsets for Linux, and we think that the software integration roadmap has already been finalized.”



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