updated 6/22/2006 11:53:16 AM ET 2006-06-22T15:53:16

Sanyo and Nokia said Thursday they have scrapped their planned cell-phone joint venture, just four months after they announced a deal they had trumpeted as a step in growing globally in a competitive technology.

After negotiations, the Finnish manufacturer Nokia Corp. and Sanyo Electric Co. of Japan decided it would be better to pursue other options, the companies said in a joint statement.

In February, Sanyo and Nokia announced they would set up a joint venture to develop and make advanced cell phones, reflecting their global ambitions.

Both sides had said they expected to sign a deal in the second quarter of this year, and the new business would start in the third quarter.

But on Thursday, they said they will announce future plans separately for their handset businesses.

“We feel it would not be in our best interests to make an agreement that proved to be less beneficial than originally anticipated,” said Kai Oistamo, Nokia’s executive vice president of mobile phones. “After exploring all available opportunities and making every effort to create a sustainable CDMA business, this is our only viable option.”

The planned joint venture, which was to employ 3,500 people, was supposed to strengthen the companies’ global position in mobile phones that use CDMA technology, rivaling leader Samsung Electronics Co. of South Korea. Together, Nokia and Sanyo would have controlled a combined 20 percent of the world market in CDMA, which stands for “code division multiple access.”

CDMA has been successful in Japan, the U.S., Brazil, India and China, but Europe has been dominated by a different technology called GSM, or “global system for mobile communication.”

“Due to recent decent in developments in emerging CDMA markets, an already fragmented and challenging CDMA market is shrinking and becoming even more difficult,” Nokia spokeswoman Arja Suominen said in Helsinki.

Nokia has been strong in GSM but weak in CDMA. The company said it was scaling back its CDMA business and will take a 150 million euro ($190 million) restructuring charge in the third quarter.

Nokia will still offer CDMA phones in key markets like the U.S., Suominen said, adding that Nokia and Sanyo had decided on the move mutually and “part as friends.”

Sanyo, meanwhile, has been struggling to turn its business around, cutting jobs and dropping some products, and the partnership with Nokia had been one bit of bright news in its flagging fortunes.

Nokia, which has been working to boost profitability in recent months as growing sales of low-priced handsets depress revenue, had said it saw the Sanyo partnership as an opportunity to gain a better foothold in the Japanese market.

Sanyo said Thursday’s announcement won’t affect its forecast to swing back into the black for the fiscal year ending March 2007, with net income at 20 billion yen ($174 million).

Sanyo’s losses for the fiscal year through March totaled 205.7 billion yen ($1.8 billion), worse than the loss of 171.5 billion yen the previous year.

Sanyo has been battling falling prices for consumer electronics amid an influx of cheaper products from Asian rivals. An earthquake also damaged a Sanyo chip-making plant in 2004, forcing the company to reverse its profit forecast to a loss.

Since then, Sanyo has undergone extensive restructuring, including job cuts, reducing factory space and dropping some businesses, but sales have been plunging in digital cameras, phones, TVs and semiconductors.

Nokia surprised markets with a strong first-quarter report of double-digit percentage growth in net profit and sales, and said its global share of mobile-phone sales increased to 35 percent from 32 percent the previous quarter. It reported net profit for the quarter through March of 1.05 billion euros ($1.3 billion), up 21 percent from the same period in 2005.

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