June 23 (Bloomberg) -- Intel Corp., the world’s largest chipmaker, will sell processors to Nokia Oyj for mobile devices, marking the biggest breakthrough in Intel’s expansion into the phone market.

The two will develop a new wireless device and chips, Intel and Nokia said today in a statement. Intel will also get mobile- phone radio technology from Nokia and the companies will develop versions of the Linux operating system for mobile devices.

Intel, whose microprocessors run more than 80 percent of the world’s personal computers, has struggled for a decade to get a foothold in the mobile-phone chip market. The company has a unit that sells a scaled-down version of its personal-computer processor. The chip, called Atom, is designed for mobile devices that access the Web and handle basic computing functions.

“Even if they get just a piece of Nokia’s business, it’s a big deal,” said Will Strauss, a Cave Creek, Arizona-based analyst for research firm Forward Concepts. “Nokia is still the biggest cell-phone maker in the world.”

In 2006, Intel Chief Executive Officer Paul Otellini scrapped his predecessor’s $5 billion investment in chips for mobile devices, after the company failed to win enough customers from Texas Instruments Inc. and Qualcomm Inc.

Restarted Effort

Now Otellini is again pushing to get Intel’s chips into phones, a bid to lessen the company’s reliance on computers, which account for more than 90 percent of sales. A total of 1.21 billion mobile phones were sold globally last year, according to ABI Research in Oyster Bay, New York.

The two companies will develop devices that go beyond the capabilities of today’s mobile phones and portable computers, Kai Oistamo, head of Nokia’s mobile-phone unit, said on a conference call.

Oistamo and Intel’s Anand Chandrasekher, head of the unit that makes chips for handhelds devices, declined to comment on when or what kind of product Nokia may sell.

“This is a technology collaboration,” Oistamo said in a phone interview.

Intel will license mobile-phone technology from Nokia and will be able to offer that, in combination with other types of radio technology, to its customers, said Chandrasekher.

“Certainly this fills a hole,” he said. Intel supplies Wi-Fi chips for short-range wireless-Internet access and is pushing a long-range high-speed technology called WiMax.

Texas Instruments, Qualcomm

Intel rose 13 cents to $15.81 at 4 p.m. New York time in Nasdaq Stock Market trading. The stock has gained 7.8 percent this year. Nokia, based in Espoo, Finland, fell 8 cents to 10.21 euros in Helsinki trading today.

Intel Chief Financial Officer Stacy Smith said in February that the company needed to land one of the top five mobile-phone makers if it wanted to build a significant business.

Intel is challenging Texas Instruments, the largest maker of chips used to run programs in mobile phones. San Diego-based Qualcomm, meanwhile, supplies the majority of communications chips for phones. Both companies have said that Intel would struggle to break their dominance because its products use too much power.

Intel announced in February it had landed LG Electronics Inc., the world’s third-largest phone maker, as a customer. LG will use an Intel processor to make a mobile Internet device, a cross between a mobile phone and a computer.

Intel’s previous attempts to build a mobile business have foundered even when the company had announcements of interest from customers, said Jim McGregor, an analyst at Scottsdale, Arizona-based research firm In-Stat.

“They’ve been dreaming of getting a significant win at Nokia,” he said. “It’s a big announcement, they’re a key guy. The only question now is whether they will actually come out with a product.”

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

Last Updated: June 23, 2009 16:14 EDT