Nokia Presses CDMA Handset Manufacturing in China

The rush of western mobile phone manufacturers to China continues, and this
time it’s the Finns.

Nokia is the latest to devote considerable resources to
the Chinese market. The company said it will merge four existing joint
ventures in China, while spurring production of handsets based on the CDMA standard.

Nokia is chasing after Motorola , which leads the race for
shares of the rapidly growing mobile handset production market in China.
Qualcomm also recently said it will expand its presence
in China. Nokia said the CDMA handsets it makes in China will be based on
its own chipsets, rather than licensing competitive chipsets from Qualcomm.

Analysts say it is possible in the future that Nokia could get a license
to make CDMA handsets in China without local joint venture partners. One
source said the Chinese market is adding five million handset subscribers
per month. However, it is the GSM standard which has primarily taken hold to
date, and Nokia’s push into CDMA in China is a secondary market.

China Unicom , the second largest mobile phone operator
in China, said the company signed up 7 million CDMA users in 2002, and
expects to add another 13 million in 2003. Lehman Brothers has said there
will be 15 million CDMA phones sold in China this year. Nokia said the
lion’s share of its handset production in China will be targeted at the
explosive growth in the Chinese mobile phone market.

It is still unclear how the market for third generation mobile phone
technology will rollout in China, as the country considers multiple future
standards, including the successor to GSM , known as WCDMA , or Qualcomm’s
CDMA2000 standard, while also considering the local Chinese alternative
standard known as TD-SCDMA.

Nokia’s Chinese announcement comes as the company is rolling out five new
CDMA handsets in its focus on its global CDMA market share, and its weak
sales performance in the U.S. CDMA market.

As part of Nokia’s consolidation of several joint ventures in China, it will
control 60 percent ownership of a new company, which will be based in
Beijing. Nokia said the company will be “one of the largest foreign invested
enterprises, as well as the largest manufacturer and exporter in the mobile
telecommunications industry in China.” The deal will be reviewed by Chinese
regulatory authorities.

Nokia has recently made it clear that it wants to achieve 15 percent market
share of the CDMA market in 2003 en route to more than 25 percent in the
future.

Nokia had sales of more than $3 billion in China in 2002, and its latest
push are also designed to challenge both Motorola and Qualcomm in the
lucrative Chinese mobile handset manufacturing market.

Analysts aren’t expecting Nokia to shift to new handset volumes before the
fourth quarter of this year, and that it won’t be until 2004 before
meaningful financial results are realized.

Nokia’s partners in the new combined phone and network company are Beijing
Capitel Co., Ltd., Dongguan Nan Xin Industrial Development Co., Ltd.,
Shanghai Alliance Investment Ltd. (SAIL), and Beijing Hangxing Machinery
Manufacturing Corporation. While based in Beijing, the company will have
branch offices in Dongguan and Suzhou.

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