A recent flurry of deals shows the cell phone microchip market may be about to shrink as some small players take a step toward the big leagues and others get squeezed out.

Nokia said recently it would buy phone chips from STMicroelectronics, Broadcom Corp. and Infineon, potentially decreasing the clout of market leaders Qualcomm Inc. and Texas Instruments Inc., Nokia's long-time supplier.

Investors saw the deals as key wins for Broadcom and STMicro as business from the leading mobile phone maker could promise a big enough hike in sales volume to help them shoulder the cost of competing in the cash-intensive chip industry.

Underscoring the need for market scale, LSI Corp said on Monday it would pull out of wireless chips, citing a need for another big handset client besides its main customer, Samsung Electronics Co., and sell that unit to Infineon. There are about 20 makers of baseband chips, the main chip in cell phones.

Some analysts see the openness of cell phone makers to new suppliers as a boon for more small players, with Marvell Technology, MediaTek In2454.TW> and Spreadtrum Communications Inc. potentially standing to win new contracts in future.

But that may mean even bigger hurdles for weaker suppliers. The new deals mean that handset makers will push harder for lower prices and Qualcomm Inc. and TI will have an even bigger incentive to boast about their technology advantages.

More and more of this baseband market is becoming a high-stakes game, with a high ante to even sit at the table, said iSuppli analyst Francis Sideco. If (Broadcom and STMicro) start getting a lot of ammunition, it makes it even more challenging for the other guys.

David Wu of Global Crown Capital estimated that a 10 to 15 percent share of the market would be necessary for survival in the mobile phone chip market.

This business of selling to the cell phone companies is getting very expensive, and fewer companies can economically justify the investment, said Wu.

Last year TI and Qualcomm each had about 20 percent of the mobile phone chip market, according to iSuppli. With roughly 9 percent share, Freescale Semiconductor was next, but it is expected to lose market share as its main client, Motorola Inc., has also added TI and Qualcomm as suppliers.

This means Broadcom, which had a 1.4 percent market share in 2006, and STMicro, with an almost 6 percent share, have a lot to do before reaching Wu's estimated range, let alone catching up with TI and Qualcomm.

They've (gotten) over the biggest hurdle, to have a tier one company to sign up for them ... Their biggest challenge is executing, said Sideco, adding that the new challengers would likely compete on customer service and pricing.

NEED FOR CONSOLIDATION

But now that they are going to be pitted more directly against the biggest players, it would also make sense for Broadcom and STMicro to buy smaller rivals that have strong technology but are too small a market presence to go it alone.

There'll be either people dropping out or selling, in the overcrowded market Sideco said. As a result, for Broadcom and STMicro, it's probably a good idea for them to look at smaller companies that might have some niche technologies.

The specter of consolidation or failure could also be a self-fulfilling prophesy as handset makers need to worry about betting on suppliers that are in danger of pulling out of the market or finding a buyer that wants to exit wireless.

That's a big concern, said Sideco, who stopped short of predicting what the next acquisition targets could be.

Recent chip deals include private equity investments in Freescale and NXP, the chip unit of Philips.

Marvell, which bought the mobile chip unit of Intel Corp., ranked tenth with a 2 percent market share in the first quarter of this year, according to iSuppli.

But several analysts named Marvell as a competitor to be reckoned with as it supplies chips for the popular Blackberry wireless email devices from Research In Motion.

As the demand grows for smartphones, which sport computer-like features, Marvell's history with RIM could help it win new chip clients, Needham & Co. analyst Edwin Mok said.

While Nokia has said it was happy with its current plans for a supplier base of six chip vendors, Mok said it could eventually choose new suppliers for different regions.

It's conceivable that Nokia at some point down the road could use a MediaTek or a Spreadtrum, if it wants to cut costs further by signing up suppliers in Asia, Needham's Mok said. Mok's firm helped with the Nasdaq debut in June of China's Spreadtrum but Mok said he owns no shares in the company.

Electronics Qualcomm Intel Chip