Nokia to lisence their modem technology and the first customer is STMicroelectronics

Nokia used to make their own IC’s (integrated circuits), until today that is. They’ve announced that in order to remain cost competitive a new licensing and outsourcing model will be used. In the PC industry we call this becoming a fabless company. Nokia (NYSE: NOK) will design the chips and then tell one of their 4 partners to make millions of them. Approximately 200 employees spread out over the UK and Finland will be transfered in the fourth quarter of this year. STMicroelectronics will be making Nokia’s 3G modems, they just scored a seriously large deal.

Is this a good thing or not? Hard to tell at this point, but this one line in the press release tells a revealing story:

“This licensing and multisourcing strategy will allow Nokia to broaden its pool of chipset suppliers and leverage external innovation to support its wide range of products. It will also allow Nokia to focus on its core competence in modem technology and invest in R&D areas besides radio technology, such as in software to power internet services.”

Nokia is growing up. They’re starting to notice that selling a handset isn’t about the handset anymore, it is about the complete experience surrounding it. There is only so much you can do to wow a consumer by increasing the specifications, you need to deliver a compelling user interface and integration into online services that a user may or may not currently be using.

When OPK said he wanted to make Nokia an Internet company, every Nokia employee I knew just shrugged their shoulders and said they have no idea what that meant.

The picture is starting to become a little more clear.

Update: I forgot to mention that I did see S60 being demoed on STMicroelectronics development boards at the S60 summit this year. They were showing off the Nomadik platform.