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Technology Stocks : Newbridge Networks -- Ignore unavailable to you. Want to Upgrade?

To: pat mudge who wrote (10861)	4/17/1999 8:55:00 AM
From: Glenn McDougall	Respond to of 18016

Nortel courts China's telecom market Canadian high-tech giants still face cultural, economic barriers Bert Hill The Ottawa Citizen Nortel rolled out the red carpet yesterday for Chinese Premier Zhu Rongji in hopes of cashing in on the potential for explosive growth in Chinese telecommunications markets. With sales of $800 million annually in China already, Nortel and Newbridge Networks have strong footholds in the Chinese market and a head start on many international competitors. But there are still strong political, economic and cultural barriers to clear. Many of Nortel's employees of Chinese extraction watched the festivities at Nortel's Ottawa headquarters, laughing at jokes Mr. Zhu made in Chinese while Nortel chief executive John Roth and others looked on with quizzical smiles. A translator quoted the jet-lagged Mr. Zhu as saying he wasn't sure for a while whether he was in Nortel's Ottawa or Brampton headquarters. But looking up at four balconies filed with Nortel employees watching him, he joked that "it is really high-tech here." He praised Nortel's technology development, and Mr. Roth talked about the company's 27-year history of selling in China. The company announced $90 million in deals to expand a wireless manufacturing operation and and put digital networks into Zhejiang province. It also showed off new Nortel technology that improves the speed and quality of Internet service. If any Nortel employees were upset that the head of a government that crushed dissidents and is curtailing public access to the Internet was getting such a warm welcome, they kept it to themselves. Robert Mao, the president of Nortel China, said the issue of human rights was not raised in any discussions. "We provide the pipeline that allows others to offer services like the Internet. Human rights do not enter into any commercial contracts, only technical requirements." Still, there are difficult political and economic challenges ahead if Canadian companies are to expand their estimated five-per-cent share of China's annual $18-billion annual telecommunications investment. With less than 10 per cent of China's 1.3 billion citizens now subscribing to phone service, the potential is huge. But with the average urban Chinese residents making only about $700 U.S. annually, there is not a lot of disposable income for advanced gear. Still, a new Yankee Group study shows that China has moved past the United States as the biggest pager market in the world, with 21 million users. It expects demand for the humble device, which has the virtues of being cheap and ensuring privacy, to grow to 52 million users by the year 2003. Iain Grant of the Yankee Group said Canadian and international companies can do well if they are realistic in their expectations. He said that China will demand the manufacturing benefits of future growth stay in the country. "If companies think the China market will keep their factories humming in North America, they will be disappointed. But if they think they can enjoy streams of future dividends from China, then the answer is yes." China continues to be a difficult country to penetrate, with its reluctance to trust western corporations or western notions such as software copyright rules and open competition. It recently cracked down on joint ventures with Chinese enterprises, a device that many companies including Nortel have used to break into the China market. But China is now easing open the door slightly as the price it has to pay to get into the World Trade Organization. It has promised to break up China Telecom's monopoly on telephone service and is expected to let foreign companies own up to 35 per cent of telecommunications companies in the future -- a move that Bell Canada International, Sprint and other companies are eagerly awaiting. While Nortel got the public attention yesterday, Newbridge actually has a much bigger stake in the growth of the China market. Nortel sells about $700 million to China in a wide variety of products or about four per cent of its total sales. Newbridge makes about $150 million in deals, or eight per cent of its sales. Newbridge assistant vice-president Bill Murphy said his firm has 65 per cent of the traditional digital switching market, and is in a tight race with Lucent/Ascend and Nortel/Bay to provide new switching systems for about 30 per cent of the Chinese market. Building on relationships that Newbridge chairman Terry Matthews first developed at Mitel, Newbridge has sold equipment in 31 Chinese provinces as well as the national postal organization. This week it announced it has won a tough competition against much bigger competitors to build a new backbone network in Quangdon, the country's most populated province and richest economy. Analysts estimate the deal could be worth at least $70 million and lead to other contracts. Mr. Murphy predicted the China market will open a vast range of opportunity for Canadian firms selling everything from satellite communications to specialized voice and data software. He said the pace of change will make it impossible to turn off the tap. Where once China would send large delegations of unsophisticated bureaucrats to study Newbridge technology, Mr. Murphy said it now sends a handful of skilled engineers who increasingly want to know how to sell services to customers as well as roll out the new technology. "There is a huge wave of change going through China as the pace of growth and new investment picks up. Dealing with their technical people today is not much different now than dealing with people from Bell Atlantic (an East Coast U.S. local telephone company)."