Nokia Lets More Chipmakers Join In

SAN FRANCISCO -- The booming market for cell phones just became more attractive -- and more cutthroat -- for chipmakers.

Nokia's(NOK Quote - Cramer on NOK - Stock Picks) decision to shake up its chip operations, giving STMicroelectronics(STM Quote - Cramer on STM - Stock Picks) and Broadcom(BRCM Quote - Cramer on BRCM - Stock Picks) VIP status within its club of component suppliers, underscores the ample opportunities suddenly within grasp of many chip firms.

That may not be welcome news to Texas Instruments(TXN Quote - Cramer on TXN - Stock Picks) and Qualcomm(QCOM Quote - Cramer on QCOM - Stock Picks), whose long-standing dominance of the handset market is more vulnerable than ever.

But it's a sea change for the multitude of other chipmakers scrapping to increase their share in the billion-unit cell phone market.

Shares of STMicro were up 6.5%, or $1.10, at $18.06 in recent trading Wednesday, while Broadcom's stock surged 10%, or $3.33, to $36.09.

"Historically, handset OEMs [original equipment manufacturers] have selected one, maybe two suppliers as their main source for baseband chips and RF chips," says Francis Sideco, a wireless communications chip analyst with research firm isuppli.

"In the last year or so, the main handset makers have been diversifying their supplier base," he says, in order to lower their costs and lessen the risk of a component shortage in the event of a sudden surge in sales.

Wednesday's announcement by Nokia, the world's No. 1 handset maker, represents a major milestone in that trend.

Nokia has taken small steps to diversify its chip suppliers in the past, such as a previous deal enlisting STMicro to provide it with application processors for certain phones, says Sideco. But Wednesday's decision is particularly significant because it involves baseband chips, which unlike application processors, are present in every single phone.

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