Speaking of money...look at our US companies, and what they have to say about China. They may have to rethink where their loyalty lies.
Motorola bets big on China's future
Foreign firms sanguine despite plane row
By Bill Clifford, CBS.MarketWatch.com
Last Update: 10:12 AM ET Apr 6, 2001
HONG KONG (CBS.MW) -- When Simon Leung sat down to dinner last Sunday with Wang Jianzhou, president of China Unicom, the mainland's No. 2 mobile phone carrier, the collision between U.S. and Chinese military planes that morning wasn't part of the table talk.
Says Leung, who heads Motorola's telecom group in Asia, "We weren't discussing business either." Maybe. And perhaps the chat with Wang touched on the finer points of New Zealand rugby, since the mighty All Blacks that afternoon had just clinched another Hong Kong Sevens Tournament.
The Schaumburg, Ill.-based communications-equipment maker (MOT: news, msgs, alerts) is already well on its way to becoming the largest foreign investor in China.
Unicom's state-owned parent, China United Communications Corp., is quite literally gearing up to invest $2.42 billion (20 billion yuan) to enlarge a tiny hodgepodge of experimental CDMA networks into a unified system with the capacity for 14 million subscribers.
By the end of April, contracts will be awarded to some of the dozen Chinese and foreign telecommunications firms in a country that will soon overtake the U.S. as the largest cellular market.
Among the foreign players that will present formal bids next week for Unicom's project, which will use code-division multiple access technology: Nortel Networks of Canada (NT: news, msgs, alerts) , Ericsson of Sweden (ERICY: news, msgs, alerts) and Samsung Electronics of South Korea (SSNGY: news, msgs, alerts) .
And Motorola is a heavyweight contender.
Doubling down
Last August, the Chinese government approved Motorola's plan to invest a whopping $1.9 billion in semiconductor manufacturing and telecommunications facilities. That more than doubles the $1.5 billion that the company has invested in China since entering the market in 1987, and the lion's share of its bet has gone toward wireless.
It's easy to understand why. China has about 85 million mobile phone subscribers already, and that base is expanding by a sizzling 60 percent a year. So in just a few years nearly a fifth of the nation's 1.3 billion people will be toting handsets.
Motorola is pretty tight with Unicom (CHU: news, msgs, alerts) and its bigger rival China Mobile (CHL: news, msgs, alerts) , both of whose shares trade in Hong Kong and New York. Unicom has already deployed a GPRS network, which is a different wireless standard than CDMA, and claims about 20 percent share of China's 85 million subscribers.
"We are largest supplier to Unicom's network today -- period. We have about a 40-percent share of the subscribers to their network," Motorola's Leung said in an interview.
"We can't predict the outcome (of the Unicom bids), but we're confident," he added. "We truly expect to be a major player in CDMA because of our relationship, our technology and our support capability."
Nightmares back home
That kind of optimism is not at all what you'd expect to find at Motorola these days -- at least not in company offices and factories outside Asia. Declining sales and profits have whacked the company's stock price, yet rising manufacturing costs and operating expenses still have to be brought under control.
Motorola's answer is a sign of the times: swinging the ax down on 22,000 jobs, which will leave its global work force at about 125,000. The layoffs aim to shrink all divisions - handset, network, chips - and will affect everyone from engineers to marketing staff.
But future growth has to come from somewhere, and that looks increasingly to be Asia -- and especially China. Costs there are lower and annual sales of $3.4 billion in 1999 amounted to 10 percent of Motorola's sales worldwide. Both figures are on the rise.
Motorola employs 10,000 workers in China, or nearly a third of its staff in the entire region. Asked what the global job cuts meant for Asia, Leung said growth is a priority. "There will be a net increase in resources. We're going to significantly increase out manufacturing capability in China soon."
Cool heads
Small wonder, then, that business is uppermost in the minds of most Motorola executives here, even as the diplomatic standoff between Beijing and Washington is in its sixth day, over the U.S. Navy surveillance plane and 24 American military crew who remain in Chinese custody on nearby Hainan Island.
U.S. automaker General Motors (GM: news, msgs, alerts) saw fit to issue a memorandum to 100 expatriate employees from GM China chairman Philip Murtaugh, cautioning them to avoid discussing the incident with strangers and to stay clear of crowds.
"Basically this is a simple precaution, to acknowledge to employees that GM is aware of the situation," said spokesman Alan Adler. GM is "concentrating on things like the Buick Sail, the first modern family small car built in China, which goes into regular production April 23rd." GM, which is the world's largest automaker, runs a $1.5 billion car factory in Shanghai and a $230 million truck plant in Shenyang.
"It's business as usual for almost everyone of us here," despite the plane incident, said Sydney Chang, chairman of the American Chamber of Commerce in Shanghai.
"In the short-term, I don't see any problem or any panicking. If this isn't resolved by May or June, though, it could affect PNTR," Chang added. Congress granted "permanent normal trading relations" status to China last year in an historic vote, as a precondition to the country's attempt to join the World Trade Organization.
But until arguments are settled at the Geneva-based WTO over subsidies China pays to its farmers, membership in the trade body has been delayed at least until later this autumn. That means Congress will have to vote to extend PNTR this summer.
A giant awakes
Motorola Chairman Christopher Galvin is a big booster of WTO membership for China, whose two-way trade with the U.S. surged to $115 billion last year, exceeding $100 billion for the first time.
Motorola China shipped $260 million of locally manufactured equipment overseas in 1999, making it the country's fourth largest exporter, according to the Ministry of Foreign Trade. Motorola China purchases roughly $1 billion, or more than 60 percent of the parts, materials and services it needs, from mainland suppliers.
In the last 6 years, Motorola has set up several Chinese joint ventures, which produce pagers, automotive electronics, smartcards, cell phones and chips. Having invested heavily in research and development in these areas, it runs 18 R&D centers in China and plans to have 25 sites next year, with more than 1,000 researchers on staff.
But the hub of Motorola China's operations is the wholly owned telecom and semiconductor manufacturing facilities at Tianjin, a major northern port city located about 76 miles (120 kilometers) from Beijing. It's where Motorola will pour hundreds of millions of those fresh investment dollars.
Technology's frontier
Leung points out that what has gone on at Tianjin complex since the early 1990s affects more than the company's bottom line. "It fundamentally changes the lives of the local Chinese. We employ a lot of people, we train them; their standard of living is good. And Motorola pays taxes (recently about $330 million a year)."
Of course, competition is the motivator. Scott Stevens, director of brand marketing for Motorola's Asia-Pacific chip business, acknowledges how bruising it has been. During the Asian economic crisis of 1997-98, "we probably got our nose bloodied a little worse than some others, betting on Asia," he said.
"But we feel now our bets paying off. We're the No. 1 foreign mobile phone company, and our intention is to be Number One in chips" - in China.
Motorola once led the entire world in mobile phone sales, until its strategy of selling cellular Cadillacs sputtered when Nokia captured the top spot by marketing inexpensive handsets. In China, however, Motorola's share of the market exceeds Nokia's 29-percent chunk by 2 or 3 percentage points.
On the semiconductor side, "We're moving from being captive market supplier of Motorola chips to Motorola phones to being chip supplier to everybody, competitors included," said Stevens.
Much of Motorola's investment is geared toward adding assembly lines and advanced chip-making equipment at the Tianjin wafer plant because electronics of all kinds - not just handsets - need ever more chips. Demand in China is growing so fast that it will be the second biggest chip consumer after the U.S. in 2010.
"First silicon," a sort of test run, should come off those lines toward the end of this year. Motorola expects to produce in volume by the first quarter of 2002.
Says Stevens, "China is where it's at -- one of the last great frontiers for a technology company."
Motorola's future is riding on it.
Bill Clifford is Asia bureau chief of CBS.MarketWatch.com. |
