MOT sees big gains in china. "The only non Chinese company allowed to manufacture handsets in China." And now MOT & QCOM can market NExtel's Direct connect with QChat in China.
BY SARAH Z. SLEEPER
INVESTOR'S BUSINESS DAILY
China's an object of global lust for many wireless businesses, and Motorola Inc. is one of its most ardent
suitors.
From now until 2006, the company says its economic impact in the country will total some $30 billion.
Motorola's Chinese initiatives come at a time when some analysts question the company's future. The
firm needs to succeed in China, they say.
"This is a big year for Motorola," said analyst Tom Carpenter of investment firm J.J.B. Hilliard, W.L.
Lyons Inc. in Louisville, Ky. "They have to execute."
Carpenter says China is one of four critical areas for Motorola. He says it also must win contracts to build
new wireless networks, improve the performance of its chip unit and sell more handsets.
Each of those areas could get a boost if Motorola succeeds in China, he says.
The company has made inroads. Just last week, a wireless network built by Motorola's Global Telecom
Solutions Sector unit for China United Communications Corp. went live. It's part of $441.8 million in
contracts that GTSS signed last year with the Chinese company, which is known as Unicom.
Expect Big Sales
China will make a "significant contribution" to Motorola's sales this year, says Gene Delaney, Motorola's
regional president for Asia Pacific.
Analyst Carpenter says Motorola could add a couple of percentage points to the 12% of sales that China
already contributes to its top line. It's Motorola's second biggest market behind the U.S.
Schaumburg, Ill.-based Motorola will have plenty of company in China: Nokia Corp., L.M. Ericsson AB
and Siemens AG.
All are enticed by the $100 billion China is seen spending on wireless gear by 2006, says Shiv Putcha, an
analyst with Boston-based market research firm Yankee Group Inc.
China's Ministry of Information Industry says the nation had 146 million wireless users at year-end. Their
number will grow to 450 million by 2010, says Putcha.
As evidence of the country's potential for Motorola, Delaney notes that the company is a key supplier for
China's two wireless carriers. Besides Unicom, last month GTSS signed two pacts to sell $95 million in
products to China's other wireless carrier, China Mobile Communications Corp. It has 77% of China's
wireless customers. Unicom has 23%.
And the Beijing Olympic Committee plans to use digital gear from Motorola for the 2008 Games, which
last year were awarded to China.
As for Motorola's economic impact, Delaney speaks of its 10-10-10 program. He says the company
already has invested $6.8 billion there. That's what it cost Morotola and its partners to build a presence
there throughout the 1990s. Motorola and partners plan to invest another $3.2 billion in China by 2006, he
says.
18 Operations
Another $10 billion is expected to come from expenditures on local goods as a result of operations there,
says Delaney.
The final $10 billion is the value of the products it will make there. The effect, he said, is to "expand,
deepen and strengthen Motorola's participation and performance in China."
Today, Motorola employs 12,000 people there at 18 sites. Motorola plans to build second-generation - 2G
and 2.5G - networks for each of the main wireless standards, including code division multiple access, or
CDMA.
The Unicom deal includes orders for 2 million CDMA handsets. "Motorola is the only foreign company
allowed to manufacture CDMA handsets in China," Delaney said.
That's good news for Motorola, says analyst Putcha. CDMA tends to be a bigger moneymaker than other
standards. "The bulk of (Motorola's) infrastructure sales come through CDMA," he said.
The question is what standards and companies will win out.
Weeding Standards
"The Chinese government may be looking to see which works best for their country, potentially with an
eye toward the long-term selection of a single standard," said Lisa Pierce, an analyst with research firm
Giga Information Group Inc.
With its track record in 2G and 2.5G, Motorola could have an edge when China soon moves to 3G
wireless, says Putcha.
Motorola would get a much-needed boost if it wins 3G contracts in China, says Carpenter. "Motorola
doesn't have a big 3G footprint" in the rest of the world.
Motorola and some rivals could gain sales when China adds two more carriers, says Brian Modoff, an
analyst with Deutsche Banc Alex. Brown in San Francisco. China last week said that was its plan.
But the Chinese government is hard to read, he says, and Motorola faces tough issues.
One challenge for Motorola, says Modoff, is that it's not the global leader in any one category. Nokia
leads in handsets and Ericsson leads in wireless network gear.
"China helps by giving them a growth market," he said.
But, he said, "Nokia is saying that China is its No. 1 target market." And Ericsson is "very
price-aggressive."
Carpenter isn't convinced China alone can spark a turnaround. "If they disappoint again this year," he
said, "some institutions that have been long-term shareholders could look for other stocks." |
