Nokia, the world's No. 1 cell phone maker, got to play kingmaker last week.
The Finnish company, which has made many of the chips that go into its handsets, said it would exit the chip business. And it chose STMicroelectronics (NYSE:STM - News), Broadcom (NasdaqGS:BRCM - News) and Infineon Technologies (NYSE:IFX - News) as new suppliers for cell phone chips that include DSPs, or digital signal processors.

The moves represent a seismic shift in the cell phone chip industry, several analysts say.

"This rearranges who the big makers of DSP silicon will be," said Will Strauss, president of research firm Forward Concepts. Cell phones are the biggest market for DSPs, he says.

"STMicro and Broadcom have been relatively small players, and now they're elevated to world-class status," Strauss said.

Longtime Nokia (NYSE:NOK - News) chip supplier Texas Instruments (NYSE:TXN - News), which with Qualcomm (NasdaqGS:QCOM - News) ranks as the top cell phone chipmaker, sees its status diminished. Qualcomm, too, will likely find itself competing more with Nokia.

What Nokia does strongly affects the cell phone market. In the second quarter, Nokia shipped 100.8 million cell phones, more than triple the next three largest makers combined, says research firm IDC.

Research firm iSuppli reports total sales of the main chips in cell phones -- the chips are a type of DSP called "baseband," which enable voice communication -- of $2.8 billion in the first quarter. That doesn't include memory and other chips found in cell phones.

The impact on Texas Instruments is uncertain. TI has been Nokia's primary outside chip supplier. Nokia will continue to buy chips from TI, but last week's announcement adds the new suppliers.

Nokia made its announcements early Wednesday. Since then, Broadcom shares have risen 9.4%, despite the huge downturn on Thursday, while STMicro shares have risen 3.3%. Qualcomm shares fell 6.4%, and TI's fell 2.7%. Infineon, which last week terminated its contract with its chief financial officer, fell 3.2%.

Nokia's announcement had four basic parts.

First, it awarded a contract to STMicro to make its 3G, or third-generation, cell phone chips. It will sell to STMicro the unit within Nokia that now makes those chips. That unit also will develop new cell phone chips for Nokia.

Second, Nokia awarded a contract to Broadcom to design a new cell phone chip based on the Enhanced Data rates for GSM Evolution, or EDGE, standard. This is a 2.5G standard. Broadcom will also provide a companion power management chip.

Third, Nokia says from now on it will have more than one supplier for all key parts of its phones. Until now, it's mainly relied on its own chips and on Texas Instruments.

"TI had the pie to themselves," said American Technology Research analyst Shaw Wu. "Now Nokia has split it into many pieces."

Finally, Nokia says it will now license its chip technology to others. Qualcomm has been the biggest licenser of handset technology. There are two main technical standards in cell phones, GSM and CDMA. Most of Qualcomm's business is in CDMA, while Nokia focuses on GSM. But as wireless evolves, the boundaries between the two standards are getting fuzzier.

In the meantime, Qualcomm faces some big legal battles. On Monday, it was on the losing end when the Bush administration declined to veto a ruling by the International Trade Commission that favors Broadcom in a major patent dispute with Qualcomm.

Having to compete with Nokia on cell phone licensing could force Qualcomm to cut its licensing fees, analyst Strauss says.

The new pact is a huge opportunity for STMicro, says Tommi Uhari, a company executive vice president. It gives STMicro a foot in the door to sell other products to Nokia, he told IBD.

"We own the core, the multimedia processor," he said. "And we are now able to attach the peripherals and to build a bigger platform."

Peripherals made by STMicro include Bluetooth wireless chips and camera chips.

The accord also calls for Nokia to transfer some 200 employees to STMicro. The employees, based in Finland and the U.K., will move over to STMicro in the fourth quarter, the companies say. STMicro is based in Switzerland.

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