Can Qualcomm and Nokia Patch Up Their Differences?

The settlement, announced July 23, put to rest the companies' disputes over intellectual property and royalties. The ink had barely dried when Jacobs told managers they were entering a new era. "What I said to my team is, 'Nokia is a potential customer,'" Jacobs tells BusinessWeek.com. "It's a change in posture."

As part of the settlement, the companies agreed to drop all legal complaints against each other and sign a 15-year licensing deal that gives Nokia rights to a portfolio of Qualcomm patents. Nokia also will pay Qualcomm an up-front sum and ongoing royalties. Qualcomm will gain access to Nokia's patents as well.

Immediately after the resolution was announced, Nokia and Qualcomm executives focused mainly on the settlement's terms, without delving into details on potential collaboration. However, Jacobs says the two companies are in preliminary discussions in several areas. Nokia spokesperson Laurie Armstrong declined to comment.

New Possibilities

Jacobs hopes Nokia will license Qualcomm's Snapdragon processor, designed especially for superfast mobile multimedia devices, and Gobi, a chip that provides wireless connectivity for notebooks. "All these things are possibilities for us," Jacobs says. "It's going from a very large part of the market that was essentially closed to us to one that's opened up."

Another way Nokia and Qualcomm could work together, Jacobs says, is in mobile TV. Qualcomm hopes to clinch an arrangement where Nokia phones come with built-in antennas that catch mobile TV broadcasts made available to AT&T (NYSE: T) and Verizon Wireless subscribers via Qualcomm's MediaFlo network . Nokia also could license and promote Firethorn, Qualcomm's mobile payment service for phones that is slowly gaining traction. "There's a lot of opportunity," Jacobs says.

Qualcomm owns the patents on so-called CDMA (code division multiple access) used by 451 million cell phone users around the world, including those who've signed up with Sprint Nextel (NYSE: S) and Verizon Wireless, owned by Verizon Communications and Vodafone (NYSE: VOD) . New purchases of CDMA chips by Nokia could result in substantial sales gains for Qualcomm.

Will Strauss, president of chip consultancy Forward Concepts , expects global shipments of CDMA chips to accelerate in 2009, when the first Nokia phones based on Qualcomm chips could hit the market. Qualcomm gets an extra 1 percent to 2 percent per-share earnings boost from every 5 million CDMA chipsets it sells, UBS analyst Maynard Um wrote in a recent report.

A United Front

Nokia also stands to benefit from rapprochement with Qualcomm. Nokia is the world's largest cell phone maker, with 40 percent of the global market, but it's an also-ran in the U.S., where it commands a mere 15.7 percent share. Disputes with Qualcomm have contributed to Nokia's inability to make further inroads in North America. Now that Nokia can buy Qualcomm chips unhindered by legal disputes, it may be able to better compete with companies including Samsung , LG and Motorola (NYSE: MOT) .

By working together instead of against one another, Qualcomm and Nokia could create more of a united front against rivals that pose a common threat, including Research In Motion (Nasdaq: RIMM) , maker of the BlackBerry, and Apple (Nasdaq: AAPL) , which entered the mobile phone arena last year with its iPhone. "There was enough infighting in the wireless industry that was distracting to a lot of people," Jacobs says. Instead, an end to the bickering may help end the distractions, and kindle cooperation.