Espoo, Finland-based Nokia, and Sanyo, which is based in Osaka, Japan, announced the preliminary agreement for a handset joint venture in February, touting it as the formation of a new heavyweight to rival global market leader Samsung, which has about 20% of the world market.

On the face of it, the synergies in the union were attractive. Nokia has just over 13% of the world market, with its strengths in the low-to-medium end (feature phones) and production of such devices in China, while Sanyo has just under 7%, with a lot of its share in Japan itself, resulting in a greater emphasis on high-end devices in its portfolio. The theory was that Sanyo could give Nokia the muscle it needed for a CDMA smart-phone offering for the key markets of USA, Japan, and Korea, while Nokia could help Sanyo go more mass-market. It would have also left Nokia to concentrate its R&D firepower on the GSM world, where it is responsible for a third of the world market in handsets.

Nokia’s market share in Japan is negligible, and even though Sanyo is a second-tier player there compared to market leaders Sharp, NEC, Panasonic, and Toshiba, the combined entity would have at least had a fighting chance against them, while Nokia would have strengthened Sanyo’s international market plans.

Now, however, Nokia says it will not be forming the new CDMA device company with Sanyo, and in case that made it look like a one-sided decision, the two put out a statement to the effect that Nokia and Sanyo concluded that it is more beneficial to pursue other options individually for their CDMA handset business. A spokesperson said it had been a mutual decision.

Explaining the background to the move, the Nokia source said: on the emerging market side, the outlook has grown more challenging. The allusion here is to the fact that two major CDMA operators, Reliance in India and Vivo in Brazil, have gone public with the fact that they may switch to the GSM development line (W-CDMA and HSDPA) instead of continuing along the CDMA route. Paul Jacobs, the CEO of Qualcomm, which owns all the intellectual property on CDMA, was set to visit India this week for a firefighting mission at Reliance. Australian incumbent Telstra has already said it is moving to W-CDMA for its future network development.

The CDMA world was already a good deal smaller than GSM: some 350 million subscribers compared to two billion, and primarily circumscribed to some operators in North and South America, one in Japan, half of one in China (Unicom has both technologies), and Korea, where it is currently presently end-to-end, though with rumblings of migration to GSM from some operators even there, in CDMA’s heartland.

Another issue mentioned by the spokesperson was the fragmentation of the CDMA market, with operators in the China and India requiring SIM-card-like functionality (in the CDMA world referred to as Re-Usable Identification Module, or RUIM cards) in their handsets while the big US operators such as Verizon Wireless and Sprint run networks without it.

Finally, the spokesperson said one player monopolizes the ecosystem, which means the market is less financially viable. The inference is what Qualcomm charges for its IP (which is also currently the subject of cross-litigation between the Qualcomm and Nokia) makes it hard to price competitively and at the same time make a profit. The term Nokia and Sanyo used in their public statementwas that of an already financially prohibitive CDMA ecosystem.

It is tempting to see this move by Nokia as directly related to the litigation. But voluntarily reducing its presence in the CDMA as a snub to Qualcomm in its core business would be like cutting off its nose to spite its face, and in any case, Nokia hasn’t said it’s actually getting out of CDMA.

What it has said is that it will ramp down its own R&D activities in CDMA by April 2007. The spokesperson also said Nokia will continue to use ODM partners in key markets such as the US to ensure consumers have Nokia-branded CDMA phones as an option. He declined to be drawn on whether Nokia might want to offer high-end, smart phones in this way to complement its internally developed ESeries phones in the GSM world. We’re strong in the low to middle part of the [CDMA] market, he said. We intend to have a compelling portfolio.