China's Eastern Bets Next Decade on Getting Foreign Technology
--From AOL.-- Cooters
Hangzhou, China, Oct. 26 (Bloomberg) -- China's biggest cellular phone maker Eastern Communications Co. is betting the next 10 years of its growth on getting new technology from foreign firms such as Motorola Inc., under a government project that encourages more technology transfer.
Eastern is Motorola's partner in a project to make a new cellular phone that would let users gain access to the Internet 13 times faster than on current phones. Eastern bets that the new project will help spur its transformation from a ``me-too'' maker of cheap cellular handsets to a competitor of Nokia Oyj, Ericsson AB and Motorola in Asia's No. 1 phone market.
``This project will be the next big thing that helps us become a world-class company,'' Eastern's Chief Executive Shi Jixing said.
Eastern is a model of the Chinese government's policy of recasting state-run factories into technology industries, complete with Western-style management. And it clearly has the attention of top Chinese leaders; ``China's Pillar'' calligraphy penned by Vice Premier Wu Bangguo is on display in the lobby of the company's 22- storey Hangzhou headquarters.
Bestowing more than just flattery, the government on Aug. 22 granted Eastern one of four licenses to make cell phones that run on the new general packet radio service, or GPRS standard. Motorola, Eastern's partner since 1990, will supply the Chinese firm with chips, computer software, servers and switches to help it bring at least 25,000 GPRS handsets to market by the end of 2001.
Earnings Growth
Shi's 10-year bet sees Eastern's sales of cell phones and switches reaching 80 billion yuan ($9.7 billion) by 2010, as growing economic affluence spurs demand for phones. China's cell phone users may reach 100 million within two years, he says.
In a country where installing a telephone line takes as long as nine months, readily available mobile phones have great appeal. In March, China reported 57.1 million cell phone users, surpassing Japan as Asia's No. 1 phone market.
Domestic phone makers could grab as much as 50 percent of the cell phone market within five years, from less than 30 percent now, Shi said.
``We need to be involved in the entire process of the phone's production, from design to manufacturing to marketing,'' he said. ``This (GPRS project) will be the great leap that deepens our technology and skills transfer.'' Shi said.
The company last month released its fiscal 2000 profit forecast, predicting that sales will grow 45 percent to 10 billion yuan ($1.2 billion). In fiscal 1999, Eastern's profit rose 12.8 percent to 229.3 million yuan, or 0.40 yuan per share, while sales grew 11.1 percent to 6.3 billion yuan.
``Our assets have grown 150 times in 10 years to 3 billion yuan from 20 million yuan. We can do even better,'' he said.
Interim Upgrade
To be sure, high-speed mobile Internet access may not have mass appeal when phones such as Motorola's 6188 model cost as much as 5,000 yuan ($604) each, more than triple the price of locally made phones without such functions. That's nearly five months' of wages earned by an average Chinese bank officer last year, according to government statistics.
``Since 3G technology is unlikely to take root in China for a long time, a cheap and cheerful upgrade by the GPRS is a good interim measure,'' said Andy Perkins, who tracks phone companies at Prudential-Bache Securities Ltd. in Hong Kong. ``Eastern is likely to remain at the mass-produced end of the market.''
Eastern now makes 2 million phones a year in China and has a 6 percent share of the country's cell phone market. It has two cellular models, EC528 and EC568, that run on the European Global System for Mobile Communications standard, or GSM.
In July it started making a dual-band GSM model, EL600. By the end of this year, Eastern expects to unveil a model that runs on the Wireless Application Protocol, or WAP, which gives users access to a stripped-down version of the Internet.
``Voice telephony will make up the biggest segment in the company's products, where the prices will tend to the middle and lower niches in the range,'' Shi said. ``Of course, we will also introduce a number of high-end phones to establish our brand among the top players in the industry. ''
Eastern's Origins
Eastern started five decades ago in a lakeside city that was once the winter resort for China's emperors. It started as No. 522 Factory, an equipment maker for the country's postal and telegraph ministry. Shi, now 58, started his career as an engineer, rising through the ranks to become the factory's manager and top Communist Party commissar.
In 1990, he helped Eastern sign up with Motorola to invest in a cell phone joint venture in China. Sweden's Ericsson and Japan's NEC Corp. were earlier contenders for the partnership, as Shi recounted in his 1998 book ``How Eastern Does It.'' Shi peppers the 278-page history with references to the late Chairman Mao Zedong and revolutionary anecdotes.
Other foreign firms shunned China in the aftermath of Beijing's suppression of student demonstrators the previous year.
In 1996, Shi helped recast the factory into a publicly traded company. Eastern is now the fourth biggest stock on Shanghai's B shares index. As a sign of his devotion to the company's roots, Shi keeps the numbers ``5228'' on his cellular phone -- Eastern's latest EL600 model -- and on the license plate of his car.
``Over the past 10 years, we've learned to understand how a market works, how it's created and how to penetrate it,'' Shi said. ``The next 10 years will give us the opportunity to put what we've learned to the test.''
Oct/25/2000 23:19 ET |
