Posts Tagged ‘ericsson’

Nokia gets thumbs up from China

china-mobile2Following on from the distribution of 3G licences earlier this year for China’s three mobile networks, China Mobile, China Telecom & China Unicom, along with the convoluted technology demands imposed by the regulator, signs are that Nokia will be sitting a little higher up the table at the tea party, as Chinese news portal Xinhua reports :

“China hopes Nokia will enhance cooperation with China’s information sector and play an active role in developing China’s TD-SCDMA industry, Chinese Vice Premier Zhang Dejiang said”

As we reported earlier this year, China looks to 3G networks to help stimulate economy, each of the operators is working on a different standard, China Telecom will work on the US standard CDMA 200, Unicom has gone down the W-CDMA route, whilst China Mobile (NYSE : CHL) has invested a veritable fortune in its home-grown standard TD-SCDMA.

From a political standpoint, it is pretty much a given that TD-SCDMA will not be allowed to fail, as the government is very much behind these moves. So what does this mean for equipment vendors ?

Basically, it has resulted in Western vendors like Alcatel-Lucent & Ericsson being marginalised when it comes to participation. Alcatel (NYSE : ALU) has managed to win business in 14 regions to partially satisfy China Unicoms requirements, whilst also signing $230 million worth of contracts with China Telecom.

“The drive for 3G (in China) is a very important stimulus for what I think is a very exciting market to come,” Ben Verwaayen, chief executive of Alcatel-Lucent, told reporters in Beijing yesterday. “If you look to the market and the economic crisis today, it is good to see that China is going to play a more prominent role than ever before.”

Ericsson (NYSE : ERIC) has stated that it has picked up 30% of China Unicoms 3G network requirements, leaving Chinese vendors Huawei & ZTE to fight over the spoils, with Huawei reportedly being the big winner.

So what about Nokia ?  Back in March, Nokia-Siemens Networks (NSN), a subsidiary of the Finnish mobile giant, announced the signing of framework agreements with both China Mobile and Unicom for up to US$1.1 billion in orders. NSN is one of the less recognised parts of Nokia’s business, however, it is definitely a division not to be ignored, Q1 2009 showed that NSN contributed  34% of group revenues.

Nokia has already provided major infrastructure deployments on China Mobile’s Phase II deployment of 3G network, on its testing rollout in Hainan province. Now with equipment currently being deployed across 28 major cities throughout China, Nokia Siemens Networks has provided the top performing city networks based on 3G TD-SCDMA commercial readiness, as laid down by the Chinese telecoms regulator.

“We are very confident of our 3G TD-SCDMA solution and feel proud to showcase its capabilities. Nokia Siemens Networks has provided us such tremendous on ground support, that our 2G and 3G TD-SCDMA networks are optimized and ready to handle high throughput and access rates demanded by cutting edge applications,” said Zhou Chengyang, President of Hainan MCC. “We have laid a solid foundation to launch commercial services in the Hainan province and are looking forward to working closely with Nokia Siemens Networks towards large scale and high quality TD-SCDMA services.”

So the expectation is that this suuccess will bleed over into Nokia’s main revenue driver, handsets. China Mobile is now becoming more of a commodity player with regards to handsets, as it is now looking to more rural areas for subscriber growth. My expectation is that Nokia will play a major part in this area, as discussed in a previous post, Nokia has a very strong back-catalogue of handsets to pick from & also enjoys higher margins in the low end sector than its competitors.

Having picked up on the Nokia ADR (NYSE : NOK) earlier this month & also enjoyed the $0.52 dividend yesterday, I had planned to drop 50% of my holding to place elsewhere. With this mornings news on official support for Nokia, I will now be holding a little longer term, looking for a target of $18.50 towards the end of the year.

China looks to 3G networks to help stimulate economy

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After repeated delays, China is set to award 3G licenses by beginning of 2009. China’s Minister of Industry and Information Technology (MIIT) Li Yizhong announced on December 12 that 3G network licenses will be issued by the beginning of next year and the country’s three restructured telcos are expected to invest CNY 200 billion (US$29 billion) on network upgrades to support the rollout. This is the culmination of more than 10 years development of the Chinese 3G standard TD-SCDMA & this years general restructuring of the domestic telecoms market in both fixed & mobile sectors.

The three main players in the Chinese mobile sector, China Mobile (NYSE – CHL), China Telecom (NYSE – CHA) & China Unicom (NYSE – CHU) are being awarded licences based in a Byzantine effort to keep control, whilst at the same time hedging bets on the success of particular technologies.

Beijing’s move comes as the industry completes a restructuring that the government says is intended to create “healthy competition”. China Mobile dominates the industry with a market share of more than 70 per cent. As part of the restructuring, China Mobile is taking over China Tietong, a niche player, while China Unicom is merging with China Netcom, a leading fixed-line company. China Telecom is taking over those mobile operations from Unicom that use the CDMA standard dominant in the US, while Unicom is to concentrate on the European GSM standard. The introduction of 3G is expected to spark heated competition as China Unicom and China Telecom seek to catch up with China Mobile.

As expected, China Mobile, the market leader, will receive a licence for TD-SCDMA, the country’s homegrown 3G standard. China Unicom, the second-largest player, is to receive a licence for W-CDMA, the European standard. China Telecom,  the incumbent fixed-line operator but a newcomer in mobile services, will be given a licence for CDMA 2000, the US standard. Previously, it was expected that China would issue the 3G license in the second quarter of 2009 or even later. However, to meet operators demand for the 3G licenses and to motivate China’s economy and stimulate domestic demand, the government has pulled forward the license allocation.

Apart from the time needed for restructuring of the telecom industry, it is seen by many that the delay in 3G awards is to give breathing space needed in national efforts to further develop and rollout its home-grown technology. As the largest global wireless market, with currently 630 million mobile users and 250 million Internet users, China has wanted to wean itself off western technology.

Expenditure on 3G networks is seen by the Chinese government as one of the measures to offset the slowing economic growth. The rewards in terms of intellectual property that can accrue from the success of China’s TD-SCDMA will be massive and much attention will be focused on how it stands to the rigours of full commercial operation.

 “Huawei and ZTE China’s biggest telecom hardware suppliers, stand to benefit the most from 3G investments while non-Chinese vendors face a shrinking share,” said Duncan Clark, chairman of telecoms consultancy China BDA

That said, Alcatel Lucent (NYSE – ALU) recently announced a deal with China Mobile, Motorola (NYSE – MOT) has announced a vendor contract with China Telecom & Nokia (NYSE – NOK) via its Nokia Siemens Networks JV, has already signed more than $500M of contracts this year, in addition, Nokia is committed to providing TD-SCDMA compatible handsets to China Mobile, which is a particularly lucrative piece of business.

In my view, TD-SCDMA is unproven & after tests earlier this year, handset returns were running at 12%, compared with a GSM industry standard of 2%. The fact that the two smaller players are using well developed network technology, which have a plethora of applications & services already running, means that China will get what it neeeds, equilibrium in the mobile sector. My thoughts run to shorting CHL into the first quarter & running long on both CHU & CHA.

Am looking forward to revisiting this in a few months time.

UPDATE 1 (19/12/08) : China TMT reports on the network vendors here  Chinese telecom equipment suppliers to outdo overseas companies in 3G era

As virgin territory for 3G suppliers, competition in China will be fierce. Foreign equipment suppliers are eagerly awaiting China Unicom’s WCDMA tender, in which they expect a larger market share than in China Telecom and China Mobile’s past tenders. For example, it has been reported that Ericsson is aiming to capture at least 30 percent of China Unicom’s WCDMA equipment tender, while Nokia Siemens has also set its sights high. Some industry analysts have told Interfax that price wars will be far more brutal than in China Mobile’s TD-SCDMA tenders, as the government will take a more hands-off approach

UPDATE 2 (29/12/08) : China Telecom CDMA contracts as reported by China Tech News

China Telecom’s CDMA tender result for 342 Chinese cities came out in mid-October 2008 and statistics at that time showed ZTE and Huawei gained 25% share of the tender, Alcatel-Lucent gained 19%, Motorola gained 16%, Nortel gained 14% and Samsung gained 2%.