(NOK) Nokia To Install Qualcom Chipset

The leading mobile phone maker in the world, Nokia Corp. (NOK) is all set to build their first Windows Phone 7-based smartphones using Qualcomm Inc’s (QCOM) chipset. Nokia, in order to increase their chipset supplier base, is also in talks with ST-Ericsson, which is a joint venture between Ericsson and STMicroelectronics (STM).

Qualcomm is the leading chipset developer in the world. Its next-generation Snapdragon processors supported by Krait architecture are generally used in Android-powered 3G smartphones. The new multicore processor provides speed up to 2.5GHz per core coupled with lower power consumption and better video streaming facilities. It is also believed that Verizon Wireless’ (VZ) CDMA-based iPhones will also support Qualcomm’s processors.

Earlier this year, Nokia teamed up with Microsoft Corp. (MSFT) to install Windows Phone 7 software into their mobile phones in order to counter stiff competition from Google Inc’s (GOOG) Android-based smartphones and Apple Inc’s (AAPL) iPhones.

According to the 5-year agreement, Microsoft will pay around $1 million to Nokia including an upfront payment and Nokia, in turn, will use its expertise in hardware design and language support to enhance the Windows Phone 7 platform in areas like imaging. Microsoft will also get a royalty of roughly $15 per handset from Nokia, once it starts to roll out the new Windows mobile phones in early 2012.

Last month Nokia reported an impressive first quarter 2011 results. Quarterly net revenue was approximately $14,214 million, up 9% year over year and also above the Zacks Consensus Estimate of $13,751 million. Quarterly net income was approximately $470 million or 13 cents per share compared with $477 million or 13 cents per share in the prior-year quarter. The first quarter of 2011 adjusted (excluding special items) EPS of 17 cents per share was significantly above the Zacks Consensus Estimate of 13 cents per share.

We, thus, maintain our long-term Neutral recommendation for Nokia. Currently, Nokia has a Zacks#3 Rank, implying a short-term Hold rating on the stock.

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