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Giant Alliance: Intel, Nokia Try Again

Intel and Nokia hope their third time is the charm. After two aborted attempts over the past few years to collaborate on wireless devices, the world's largest computer chipmaker and the No. 1 maker of mobile phones are at it again. This time, Nokia ( (NOK)) and Intel ( (INTC)) said they're embarking on a long-term partnership to create mobile products that combine high-performance computing with high-speed wireless communication. As part of the alliance, Nokia will buy Intel chips while Intel licenses Nokia's mobile-phone radio technology. The two also plan to collaborate on the software to be used in the devices, including the Intel-backed Moblin operating system and Nokia's Maemo operating system. Both use versions of Linux, whose source code is shared freely among developers. "Nokia and Intel share a similar technology vision," said Anand Chandrasekher, senior vice-president and general manager of Intel's Ultra Mobility Group. In a June 23 press conference announcing the deal, the companies said little about the kinds of devices they're planning. But if it pays off, the alliance could broadly reshape the computing and communications industries. Nokia has been trying to expand beyond its core mobile-phone business into other types of handheld computers such as netbooks, while Intel for the past decade has been looking to challenge chipmakers Qualcomm ( (QCOM)) and Texas Instruments ( (TXN)) in the fast-growing market for advanced mobile devices. Potential losers include Microsoft ( (MSFT)), which has trying to lure Nokia to its Windows Mobile platform, and Nvidia ( (NVDA)), which has been challenging Intel and others with its own cellular-phone chip package. Creating a New "Class of Device?" While slim on details, Nokia and Intel hinted that they may attempt to create entirely new categories of devices. In a press release, Intel and Nokia said the mobile products will move "beyond" existing wireless computing devices, including smartphones, netbooks, and notebook PCs. Intel has been trying to create a new class of pocket-sized products it calls mobile Internet devices, or MIDs. Nokia has offered what it calls an "Internet tablet" for several years but has not gained much traction with the device. The two could potentially cooperate on other gadgets, including wireless e-readers similar to Amazon's ( (AMZN)) Kindle. "This collaboration will likely lead to a class of device…that recognizes the context of its user's environment and bends to its user's needs," Kevin Burden, a practice director at consultant , wrote in a research note. Intel has been trying to emulate its competitors by offering complete packages of processors and such related products as flash memory and modems that handset makers can more easily integrate with their devices, thereby getting finished products to market more quickly. As part of that effort, the Santa Clara (Calif.) chipmaker has been working to improve the performance of its low-cost, wireless-friendly Atom processor while lowering its overall energy consumption. The alliance with Nokia gives Intel yet another platform in which Atom could be used. "The big takeaway for Intel is, they've got another radio and communications standard they can use with the Atom," Gartner ( (IT)) analyst Leslie Fiering says. "It could increase its attractiveness in communications devices." Rivals Dismiss Any Talk of a Threat Nokia said it will maintain its existing relationship with Qualcomm and other makers of the chips in its cell phones. Analysts noted, however, that the competition would give Nokia leverage in ongoing negotiations with Qualcomm—and others—about the price it pays to use its chips and technology portfolio. "Over time, if Atom proved spectacularly successful for them, it could start to cannibalize [offerings from Nokia's longtime suppliers such as Qualcomm and Texas Instruments]," says Fiering. Representatives of Qualcomm and Texas Instruments said they're not worried. "We always expected that Intel would enter this market," says Qualcomm Senior Vice-President Bill Davidson. "There's plenty of room for competition. It's a massive market." TI spokeswoman Amy Drozd said, "We feel very good about the position we have in the market today." Indeed, Nokia and Intel haven't played well together in the past. With great fanfare in late 2006, Intel said it would license Nokia's 3G modem technology for use in Centrino notebook computers. It quietly backed out of the deal months later. Nokia announced it would collaborate with Intel on the next-generation WiMAX broadband technology and even offered a WiMAX-enabled Internet tablet. Executives at the Finnish phone maker have since become big backers of the competing Long-Term Evolution next-generation wireless technology. Times have changed, Kai Öistämö, who runs Nokia's devices group, said during the press conference. "If you go back eight, nine years, at that time people intellectually agreed that was really not the right timing for that," he said. "Now mobile and computing industries are coming together. This is the right time." Competition also makes the timing right. Qualcomm and other rivals have been trying to break Intel's hold on the PC market. And PC makers, including and Asus, are readying smartphones designed to break Nokia's dominance, which already is being challenged by the likes of Apple ( (AAPL)) and Research In Motion ( (RIMM)).
Edwards is a reporter for Bloomberg News and Bloomberg Businessweek in San Francisco.
Kharif is a reporter for Bloomberg News and Bloomberg Businessweek in Portland, Ore.

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