Nokia Looks Big in Japan

The Sanyo deal could bolster CDMA king Qualcomm.
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Nokia (NOK) - Get Report has found a new way to conquer America and get a handhold in Japan.

The Finnish cell phone giant said Tuesday that it will form a joint venture with Japan's

Sanyo

to make third-generation, or 3G, handsets starting in the third quarter of this year.

The deal will help Nokia deliver on its promise to gain market share in the U.S., particularly since Sanyo offers strength in the increasingly popular code division multiple access, or CDMA, technology. Even bigger perhaps is that through Sanyo, Nokia will finally crack the Japanese phone market.

While the joint venture makes sense strategically, some observers were quick to note that the combination could prove to be a very lucrative development for CDMA chip supplier

Qualcomm

(QCOM) - Get Report

.

For eight years, Nokia has managed to stay atop the worldwide mobile phone industry despite a disappointing performance in the U.S. and Japan. These are two markets where CDMA has been strong.

"Looks like they are addressing the weakest spot in the company," says Ovum analyst Roger Entner.

It's not clear which company will run the business, but analysts say there are some potential clashes ahead. For one, Nokia is not known for flexibility. It stubbornly tried to bypass Qualcomm as a CDMA chip supplier in earlier versions of the technology, and apparently ran out of options as 3G technology like CDMA 2000 or EV-DO chips were needed for new phones, say industry watchers.

Also, Sanyo is big on accommodating the telcos on handset designs, basically building phones to the carriers' specifications. Nokia comes at it from the other direction, designing its own phones without catering much to phone companies.

"Compromises don't often work," says Ovum's Entner. "I think Nokia realizes it needs to be accommodating," he says. "But it's only a matter of time until the JV gets dissolved."

Sanyo is a favorite phone supplier to

Sprint

(S) - Get Report

, and analysts say the joint venture will help Nokia offer EV-DO phones to

Verizon Wireless

, which is co-owned by

Verizon

(VZ) - Get Report

and

Vodafone

(VOD) - Get Report

. There are about 80 million CDMA users in the U.S.

The deal is expected to be final next quarter and joint production could begin in fall. The venture is likely to be headquartered in San Diego with additional operations in Osaka and Tottori, Japan.

The business will have about 3,500 employees and Nokia is expected to cut 250 workers as part of the combination, says American Technology Research analyst Albert Lin in a note Tuesday.

Nokia shares rose 52 cents to $18.47, and Qualcomm jumped $1.50 to $47.45 in midday trading Tuesday.