Nokia Slims Down, Sells Modem Business

Nokia (s nok) today announced plans to sell its wireless modem business to Renesas Electronics for approximately $200 million. Assets included in the transfer — planned for the fourth quarter of 2010 pending any regulatory approvals — are 1,100 Nokia R&D resources in four countries; certain wireless radio patents; and Nokia’s wireless modem technologies for GSM, HSPA and LTE networks. Nokia positions the sale as an alliance, in which the companies will jointly research future radio technologies.

Renesas Electronics itself is a relatively new entity, formed only two months ago through the merger of NEC Electronics and Renesas Technology, creating the world’s largest supplier of microcontrollers. If indeed this deal is an alliance for Nokia, it marks the third such business friendship in under a year — the Finnish phone-maker announced partnerships with both Microsoft (s msft) and Intel (s intc) in 2009 to help stave off competitor such as Apple (s aapl) and Google (s goog) in the hotly contested smartphone market.

While I believe that Nokia has to slim down its product offerings and figure out a solid smartphone strategy, this deal caught me off-guard. Nokia’s core competency is arguably hardware, and yet the company is selling off hardware technologies that are integral to how future hardware communicates with wireless networks. The only compelling reason I can think of is that Nokia isn’t earning much from royalties on the patents and technologies that Renesas is buying. Making the situation even more interesting is the lawsuit Nokia launched last year, claiming that Apple’s iPhone line (s aapl) infringes upon Nokia’s WLAN, GSM and UMTS patents.

On a positive note, deals such as this do help Nokia slim down so it can focus internally on developing a stronger smartphone platform that will help to bring back fleeing developers and increase device sales. With worldwide sales of 110 million handsets in the first quarter of 2010, Nokia is still the top phone seller, but even in Finland they must be reading the news of 160,000 Android handset activations daily — an annual run rate of 58 million units and growing.

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