Motorola, the world's second-biggest handset maker, said it would develop advanced mobile phones using chips from Texas Instruments, the No. 1 wireless chip maker.
Motorola said it would use customized chips from TI for upcoming third-generation (3G) high-speed wireless handsets that would be available as early as 2008.
Analysts said the deal would boost revenue at TI, which already sells Motorola chips for cheaper handsets but recently blamed its poor quarterly results on weak demand for more-costly phones that use multiple TI chips.
"We view this announcement as highly significant given (Motorola's) size, market share momentum and potential TI dollar content per phone," Stifel Nicolaus analyst Cody Acree said in a note to clients.
Acree estimated that TI could sell as much as $25 worth of chips to Motorola per phone. Forward Concepts analyst Will Strauss estimated that under the new agreement, TI's revenue per phone could be at least $30 per phone.
"Each high-end phone will bring in at least three times the revenue of a low-end phone for TI," Strauss said.
Motorola said TI would also supply chips for handsets based on WiMax, an emerging high-speed wireless technology, and these handsets would also be available in 2008.
Motorola, which had mostly used chips from Freescale Semiconductor, has been adding new suppliers including Qualcomm as well as TI.
Strauss said more suppliers help to drive down costs at Motorola, which saw its profits halve in the third quarter as it was hurt by phone price discounts.
"I think it gives (Motorola) negotiating room," he said. "They can negotiate lower prices because they have more chip suppliers."
Nokia, Motorola's main handset rival, is TI's biggest cell phone chip customer. TI's second-biggest chip customer is Ericsson, Strauss said.
One analyst noted that while the Motorola deal was positive, the revenue boost would not come until 2008.