Nokia's Revitalized China Play (Restructure & CDMA Handset Production)
Ramsey,
<< so what conclusion do you draw from the information you just posted? >>
Well, before I was able to form any conclusions, I had to get straight on the facts as regard to:
1. Nokia China Investment Co. Ltd's (Nokia China) past structure in China as it has evolved since their 1st entry in 1985 at the tale end of the 1st wave of foreign direct investment (FID) in China which resulted from the 1979 joint venture law which opened the doors to foreign investment flow, concurrently with the establishment of special economic zones (SEZs) in Shenzhen, Zhuhai, Shantou (Guandong), Xiamen (Fujian), and Hainan.
2. Nokia China's current restructuring of Chinese operations and domestic distribution as opposed to other JV's they are involved in that are not being consolidated.
3. The Chinese Licensing Environment, then and now, as it pertains to wireless handset and infrastructure, and as it pertains to domestics and foreign multinationals.
I might add that I had lost my original list of the 19 firms originally licensed for CDMA handset manufacturing in August 2001, and had difficulty finding an authoritative and complete listing of the original 19 spelling out the complete names under which the license's were issued. I actually had compiled a list of 22 (excluding the JVs that Hitachi, LGE, and Samsung entered into after the fact) so there were 3 redundancies - actually different names for the same company - before I accidently discovered an authoritative listing with a URL and eliminated the redundancies.
It became clear about 10 months ago that Nokia was seriously considering establishing a CDMA manufacturing capability in China, but it was unclear how they would overcome the obvious licensing hurdle since they had passed on 1st wave licensing any many of our colleagues postulated that they were evermore shut out as a consequence.
I conjectured at that time that they might attempt to ride the coat tails of the license issued to Putian's subsidiary Beijing Capitel Co., Ltd., since that firm is their partner in Beijing Capitel Nokia Mobile Telecommunications Co., Ltd., China, and Nokia China has several other ties to Putian (COMMIT and the new Xingwang International Industrial Park). Alternatively it was conceivably possible that they could enter into yet another China JV with another one of the original licensees, or apply for a new license, if in fact, MII and China State Development Planing Commission, opened up licensing to more than the original 19 licensees.
I currently believe that the reorganized and streamlined "Sino-foreign invested" Nokia China CLS (awaiting a proper name and all government approvals) which merges some portion of Nokia China with Capitel, Nan Xin, SAIL, and Hangxing, will be duly licensed for CDMA handset manufacturing, under its new firm name.
It is possible that the existing license granted Beijing Post & Telecom Equipment Co (CapiTel) will be transferred to the new Nokia China CLS. It is also possible that the new Nokia China CLS will be granted a new license, and if this is the case we may see other new licenses granted to other Chinese "appliance makers" in which case Sony Ericsson and others may establish JV's that enable them to manufacture and distribute CDMA handsets in China for domestic sale and for export, or alternatively they may enter into JV's or expand existing JV's with established licensees for that purpose.
Several very reputable - but not always correct - analysts including Tim Luke, Paul Sagawa, and Matt Hoffman, that have a pretty good pipe to Nokia, have given varying opinions of when Nokia China CLS will be properly licensed for CDMA handset manufacturing in China and when they will establish CDMA handset production. The recent CommsDay Asia article that states "Nokia said it expects to get formal approval from the Ministry of Information and Communication to make the handsets from next month, launching its first phones by July," is more optimistic than some conjecture I have seen. I do not consider that single article to be authoritative and I'll wait for confirmation from Nokia that they are duly licensed and wait for an official statement of when they actually plan to not only begin production, but have China produced handsets in the channels.
As for conclusions ...
... It appears to me that by merging the 4 mainland entities that Nokia China is in better shape than it has ever been, or at least been recently. I am sure that Nokia is fully prepared to invest more in the future than the USD ~$2.5 Billion it has wisely invested in China since Ollila took the helm at Nokia. Certainly there are administrative and operational expenses involved in the current streamlining designed to produce optimized operational efficiency, but it appears that the reorganization is being accomplished with minimal additional expense.
... The changes that Nokia started to make last year in its handset distribution channels by shifting the sale of some handsets away from its first-tier distributors in order to sell directly into provincial-level distributors should enable them to reach more effectively into lower-tier cities, shorten its distribution channels, and gain better market feedback.
... It appears that China Unicom is strategically fully supportive of Nokia entering into CDMA handset manufacturing in China, and is anxious to add them as a supply source.
... Contrary to popular Qualcomm boards mythology, and although Nokia will probably aim initially at the low end handset market sweet spot I am rather convinced that Nokia intends to play in every model tier with a full range of product offerings and that range will be well established by the end of 2004.
... Without a complete and cost-effective overhaul of China operations Nokia would be even more susceptible to encroachment from below and above (Motorola) than they otherwise would have been. In this highly competitive marketplace no player can rest on past accomplishments. As a Nokia (long) shareholder, scrutinizing this is closely as possible, everything appears to be playing out quite nicely so far.
I can not yet conclude that Nokia China will increase the last years USD $3.01 Billion revenue production from China this year, but I think that is a strong possibility.
I might reiterate that when I first reinstated a Nokia (long) position then increased that position substantially at what I considered to be bargain basement prices, a serious yellow flag was whether or not they could compete in the CDMA handset market place. It is premature by at least 12 months to render a value judgment on that, but I am more comfortable today than I was 12 months ago. If they manage to increase their CDMA handset unit sales market share to their 15% 2003 target and maintain overall margins for Nokia Mobile Phones, I will be more than satisfied.
BTW: Two additional references here of possible interest to China watchers ...
DigiTimes December 2002 Overview of China Mobile Phone Vendors
digitimes.com
The above appears to be a very good reference.
Clip below discusses China Putian:
China Putian Overview:
CHINA PUTIAN has established long-term friendly and cooperative relations with many world-famous manufacturers of telecommunications equipment, and carried out wide-spread technological exchanges with them.
In 1982, CHINA PUTIAN introduced from ESSEX company of US the first production line of all plastic local telephone cables. Since then, CHINA PUTIAN has introduced from a dozen of countries more than 20 production lines of telex machines, PCM optical communications equipment digital microwave equipment, machines, high-frequency switching power supply system, pagers, mobile communications equipment,SDH optical communications equipment to implement technological transformation of its factories. In 1984, CHINA PUTIAN and Bell company of Belgium set up the first electronic SPC exchanges production line in China through joint funds, and established the first joint venture-Shanghai Bell Telephone Equipment Manufacturing Company Ltd.. Later, more than 60 joint ventures were set up with world-famous telecommunications companies such as Motorola, Nokia, Ericsson, Alcatel, Panasonic, Lucent, Corning, and etc. As a result, advanced technologies and management experience have been introduced from foreign countries, bringing about social and economic benefits.
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Have a GREAT Nokia Day,
- Eric - |
