Qualcomm to Sell Its Phone-Making Business to Japanese Firm Kyocera

Qualcomm Inc., whose stock has skyrocketed this year on the growth of its wireless-phone technology, said Wednesday that it agreed to sell its consumer-phone production business to Kyocera Corp. of Japan for an undisclosed price.

By shedding the handset business, Qualcomm is hoping to bolster its profit by concentrating on licensing fees and the manufacture of phone chips and related equipment based on its technology, called CDMA, that go into other companies’ phones.

But judging by the drop in Qualcomm’s stock price, there appeared to be some investor disappointment that Qualcomm signed a pact with Kyocera instead of with the industry leader in wireless phones, Nokia of Finland.

The announcement came after the close of U.S. financial markets on Wednesday. Earlier, Qualcomm’s stock--which has soared nineteenfold in the past 12 months--fell back $11.44 a share to close at $485.44 on the Nasdaq Stock Market after briefly touching $522 early in the session.

Much of that drop probably reflected mere profit-taking by investors, said David Heger, an analyst at A.G. Edwards & Sons Inc. in St. Louis. But, he said, a further decline in after-hours trading--in which Qualcomm slipped by as much as $7 more a share, probably included selling by investors who had expected Nokia to ink the deal.

Kyocera’s American depositary receipts--the version of its stock listed on U.S. markets--surged $15.19 to close at $166.38 apiece in New York Stock Exchange composite trading.

Qualcomm, which is based in San Diego, had said in September that it planned to sell its consumer-phone line to focus on CDMA, or code-division multiple access. The CDMA technology is increasingly being used by other phone manufacturers, thus providing Qualcomm with a rising stream of licensing royalties.

In addition, Qualcomm’s phone-production business had been losing money and has trailed in U.S. market share to Nokia and the other industry leaders, Motorola Inc. and Sweden’s Ericsson.

Kyocera though, makes and sells wireless phones in Japan and South Korea but has just entered the U.S. market.

Nokia was thought to be attractive to Qualcomm in good part because Nokia’s market leadership would mean a major boost in Qualcomm’s sales of additional CDMA equipment that’s lodged inside the phones.

Yet the deal with Kyocera will help Kyocera’s CDMA phone business grow sharply in North America and elsewhere in the world as well, Qualcomm founder and Chairman Irwin M. Jacobs told a news conference in San Diego.

The deal means Kyocera “will be a powerful new force in the wireless industry,” and thus “further increase the demand for CDMA,” he said, noting that Kyocera’s new CDMA-based phones are expected to be “available shortly” in the U.S. Kyocera also “has a presence in markets were Qualcomm was weak,” Jacobs said.

Kyocera will not only buy Qualcomm’s phone-making business, but also will buy most of its CDMA chipsets and software from Qualcomm for five years. Kyocera also will lease some of Qualcomm’s production facilities in San Diego.

Qualcomm’s fortunes improved dramatically this year after the company settled a long-running patent dispute over its technology with Ericsson.

That in effect cleared the way for Qualcomm’s CDMA to become the likely standard for the next generation of wireless phones.

That means Qualcomm stands to benefit handsomely from not only supplying chipsets for the phones, but also from collecting sharply higher royalties from other manufacturers using its CDMA technology.

Qualcomm’s consumer-products unit, composed mostly of its wireless phone business, accounted for 38% of Qualcomm’s $3.9 billion in revenue for its fiscal year ended Sept. 26, but it also generated a $40-million pretax loss for the year.

Qualcomm said it will take a one-time pretax charge of about $30 million against its fiscal first-quarter earnings to account for the sale.

Heger of A.G. Edwards said he was not among those expecting Nokia to buy Qualcomm’s phone business, mainly because Nokia already has a “well-established manufacturing operation” in the U.S., and because it “didn’t make sense for Nokia to buy the Qualcomm facility in San Diego.”

In addition, Nokia has been working to develop its own CDMA technology.

And because “Qualcomm all along said it wanted to lock in a multiyear agreement for the buyer to keep buying Qualcomm chips, Nokia . . . probably wouldn’t have been agreeable to that requirement,” he said.