THE SKEPTIC: Nokia's Treats

Signalling its resolve to improve gross operating margin, the Finnish handset maker that's currently calling the shots in the mobile phone industry has agreed to outsource more work to its suppliers. Around 200 Nokia staff are transferring to chip-maker STMicroelectronics which has secured a contract to supply a 3G high-speed packet access chipset to Nokia. And in increasing its reliance on second parties for the some of the vital technology that makes its phones work, Nokia has shrewdly decided to spread the risk. Texas Instruments and STMicro are no longer Nokia's preferred partners; the company has added Infineon and Broadcom to its roster for the supply of chipsets for Nokia's GSM-based and EDGE-based handsets, respectively. TI's influence is the more obviously diluted while STMicro picks up its first contract for a complete 3G chipset, making it a more serious rival in the segment to TI and Qualcomm. However, the Franco-Italian company's long-standing privileged relationship with Nokia has come to an end because the latest deal isn't exclusive. STMicro is no longer supplying Nokia with EDGE technology but will be able to sell the 3G chipsets to others. STMicro and TI may find their share of Nokia's business diluted further as the Finnish company relies increasingly on standard chipsets, rather than custom-made ones, which upstart Asian manufacturers will be itching to supply. While the long-struggling Infineon needs all the new business it can get, Broadcom may be the biggest winner and Qualcomm the chief loser from the Nokia moves. The extra business for Broadcom comes just after it has won an important victory in a patent dispute with its U.S. rival, reinforcing its credentials as a serious player in the sector. Qualcomm not only faces stiffer competition but looks increasingly out of the running as a serious player in the European market where it's about to lose out to Nokia for the mobile-TV standard that the E.U. wants for the region. As for Nokia, which has just reported a blow-out second quarter, the company looks more than ever like the sector's top dog. (Matthew Curtin has been a financial news reporter since 1990, and has written on international finance and business for Dow Jones Newswires - from South Africa, Singapore and France - since 1994. He can be reached at +331 4017 1746 or by e-mail: matthew.curtin@dowjones.com)