Intel/Nokia Deal Gets Mixed Reactions
Responses to last week's news that Nokia Corp. (NYSE: NOK) will partner with Intel Corp. (Nasdaq: INTC) on HSDPA modules have ranged from "this changes everything" to "Intel is in retreat."
Briefly, Nokia said on Thursday that it will supply an HSDPA (high-speed downlink packet access) module that Intel will include as part of its next-generation Centrino Duo platform. (See Nokia, Intel Bring 3G to Notebooks.) HSDPA, which is often referred to as "3.5G," runs over cellular networks and offers connection speeds around three times faster than 3G, while providing a much wider coverage area than WiFi.
"This collaboration is good news for notebook users," said Heikki Tenhunen, head of Nokia's connectivity module division, "as cellular technology offers superior connectivity and mobility for notebook and other portable device users."
Investors viewed the news as a body blow to embedded laptop card makers Sierra Wireless Inc. (Nasdaq: SWIR; Toronto: SW) and Novatel Wireless Inc. (Nasdaq: NVTL). Shares in Novatel dropped 19 percent on Thursday, and Sierra Wireless fell 8 percent.
"The Nokia/Intel partnership... will not only accelerate the market for cellular connectivity in notebooks," ABI Research senior analyst Philip Solis said in a statement. "Intel is also taking a first step towards the eventual inclusion of WiMax wireless broadband in portable computers. The eventual goal is to offer multiple connectivity options."
The ultimate effect may be less earth-shaking. In fact, the HSDPA hook-up could be viewed as something of a retreat for Intel, since it first announced a partnership with Nokia more than a year ago to collaborate on building technologies, and a market, for mobile WiMax, attempting to prove that the wireless broadband technology can thrive amid 3G and so-called "4G" cellular networks. Long touted by Nokia, HSDPA can be seen by comparison as an interim technology on the path to full WiMax capability.
At the Intel Developers' Forum in San Francisco, where the HSDPA module was announced, David "Dadi" Perlmutter, senior vice president and general manager of Intel's mobility group, acknowledged that "the jewel of the crown for wireless connectivity is WiMax." Intel hopes to deliver an integrated WiFi/WiMax chip by 2008.
For its part, Sierra Wireless is now focused on moving to "HSUPA," or high-speed uplink packet access, which will push uplink speeds to the 1-Mbit/s threshold, according to Larry Zibrik, Sierra Wireless's director of product management for embedded modules. Laptops with the Nokia/Intel module will not hit the market for another nine months or so, he notes. "By that time we'll have moved on to the next step in the technology."
That could be viewed as spin from an executive who has just watched his firm lose 8 percent of its market cap. Some gimlet-eyed analysts are skeptical too, however: "The earliest that Nokia could impact either [Sierra Wireless's or Novatel's] results would be in late 2007," writes CIBC World Markets analyst Ittai Kidron in a research note. "And even at that point, we believe Sierra and Novatel will be a step ahead with established relationships and solutions, putting Nokia in a catch-up mode to both companies."
What's more, Nokia's track record in making embedded or insertable devices has not been stellar: "Whether Nokia remains in the module business is debatable," writes Research Capital analyst Nick Agostino. "The company had entered the PC card business on two separate occasions and elected to exit the market."
A close listen to the remarks of Intel's Perlmutter reveals that the semiconductor giant's own goals for the module are more modest than they might appear at first glance. Questioned by the audience, Perlmutter said that the company predicts the rate of takeup for the module by OEM and ODM partners -- i.e., the fraction of manufacturers that will actually include the module in their finished products -- to reach only 10 percent by 2008. That's hardly a world-changer.
Also lost in the clamor over the Nokia/Intel partnership was the fact that, in February 2005, Nokia reached an agreement with another company to provide an HSDPA infrastructure solution. That partner was Sierra Wireless. (See Nokia, Sierra Team on HSDPA.)
— Richard Martin, Senior Editor, Unstrung