The deal will allow the two companies to cut the cost of 3G development. But while both firms will certainly benefit, the advantages will be short lived as other manufacturers follow suit. Consolidation in this industry seems inevitable and companies trying to ‘go it alone’ will find the market an increasingly difficult place to survive.
Fujitsu is to join forces with Sagem to develop 3G technology.
Japanese electronics group Fujitsu has formed an alliance with French mobile phone maker Sagem to develop 3G handsets. The deal will allow the two companies to develop technologies for wideband CDMA phones.
Under the agreement, Fujitsu will develop application platforms, while Sagem will focus on developing a communications platform. Both companies will share their research resources and exchange research experts.
The announcement will not surprise many in the industry. Numerous handset makers have already joined forces as competition increases and development costs rocket. Sony and Ericsson have already combined their mobile handset businesses, while the Japanese makers NEC and Matsushita have formed a 3G development alliance. Many smaller handset manufacturers will be forced either to exit the market or link-up with rivals to remain competitive.
The joint venture is a good move for both companies. Fujitsu will gain access to Sagem’s GSM technology which is necessary for the W-CDMA 3G standard. In return, Sagem will benefit from Fujitsu’s network software and video compression expertise. The companies may even extend the deal to joint production of the actual devices.
Sagem may be the greatest beneficiary of the partnership. Asian firms will pose a major threat to European markets when 3G devices are launched. The existing technical skills of Asian players are better suited to produce the complex and computer-like handsets. They also have valuable 3G experience, since services are already operating in Japan. By allying with a Japanese firm, Sagem can reduce the threat and reap the benefits at the same time.
However, any competitive advantage from the deal could be short lived. Further industry consolidation is inevitable as weak demand, increasing competition and high 3G development costs force mobile phone makers to rethink their strategies. The race to find partners has started and with the exception of Nokia and (perhaps) Motorola, those without will be left standing alone and exposed.