Nokia Outsources Chipsets

Mobile phone maker Nokia Corp. will halt some chipset development and instead rely on technology from other chipset manufacturers, the company said Wednesday.

The change in strategy means that half of a 400-person group focused on chipset development will move to STMicroelectronics NV, one of four chip suppliers that Nokia will use for its mobile phones, said Arja Suominen, Nokia's head of communications. STMicroelectronics will supply chips for 3G (third-generation) technology.

The remaining 200 researchers will work on modem and protocol technologies as well and other services and application development, according to Suominen. Overall, the group represented a "very small" part of Nokia's overall research and development, she said. The research that group produces can then be licensed to the chipset makers, Nokia said.

The move will also let Nokia save money when buying high volumes of chipsets, Suominen said.

Nokia views its modem technology, which is the communication center of the chipset and is responsible for aspects such as call quality, as one of its high-value assets, said Niklas Savander, executive vice president for technology platforms.

"This technology has a played a very important role in our success," Savander said during a conference call with analysts and journalists.

By licensing its modem technology, Nokia hopes chipset manufacturers will avoid developing their own modem and protocol stack and instead invest in other areas, Savander said.

The amount of licensing revenue from Nokia's development deal with STMicroelectronics will depend on how successful the chip maker is at selling its chipsets to other vendors, Savander said.

Texas Instruments Inc. will continue to be the primary supplier for a range of chips used in Nokia phones, Suominen said. However, Nokia also said it has picked Broadcom Corp. to supply chips with EDGE (Enhanced Data Rates for GSM Evolution) technology. Earlier this year, Nokia picked Infineon Technologies AG as a supplier for GSM (Global System for Mobile Communications) chips.

Nokia has sourced chips from Broadcom previously, but the latest deal focuses on EDGE networks, which are expected to be "a very large piece of the overall mobile phone market," said Yossi Cohen, senior vice president and general manager of Broadcom's mobile platforms group. The deal is Broadcom's first for these specific kind of chips.

Broadcom will supply Nokia with a low-power chipset made using the 65-nanometer process, capable of handling H.264 video compression and high-speed USB (Universal Serial Bus) connections of up to 480M bps (bits per second) with PCs, Cohen said. Broadcom will also supply a separate power management chip that controls lighting and the distribution of power to different subsystems, he said.

Cohen said phones using the chips are expected in the second half of 2008, a timeframe that Nokia's Suominen, however, declined to confirm.

It's also unclear whether Nokia's chipset development changes will mean cheaper phones. The chipset is just one component in a mobile phone and among several factors that influence pricing, Suominen said.

"As you know, the competition in this market is tough, and the average selling prices [of mobile phones] in the industry have declined, so we need to take care of our competitiveness," she said.

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