Chinese mobile giant emerges - Company Business and Marketing

CommunicationsWeek International, August 13, 2001 by Mike Newlands

An alliance between China's electrics giant, Haier Group, of Qingdao; CUP Telecom Holdings of Hong Kong and Sendo plc of Birmingham could become the greatest threat yet to the mobile handset dominance in China of Motorola, Ericsson, Nokia and Siemens.

The new alliance, which was finalized last month, has been given a further boost through strategic investments by Microsoft Corp. Some commentators believe Redmond, Washington company will use Haier's handsets to introduce its Stinger smart phone operating system into what is poised to become the world's largest mobile phone market this year, surpassing the United States. Consultants BDA China, of Beijing, forecast 236 million mobile subscribers in China by 2004, of which 69 million will be mobile Internet users. And it might not only be in China that the impact of the alliance is felt.

Haier, China's top appliance maker and best known domestic brand name, racked up sales of nearly S5 billion last year. The company reports that it has 53,000 sales outlets in over 160 countries, 15,000 of which are in China.

"Haier is by far the most reputable brand in China for the quality and after-sale services of its products, and it has an extensive distribution channel that none of other [mobile handset] players have," said Jim Lin analyst at Digital Practice, in Beijing.

But not all commentators see such an alliance, even including the clout of Microsoft, as a sure bet in the Chinese market. "The three way group of Sendo, Haier and Microsoft does look attractive on paper. But they will be up against it to make an impact in China," said Dan Margo of the China-Britain Business Council. "Chinese consumers are becoming increasingly brand-conscious and see the latest phones as a lifestyle more than anything else. The big four brands are associated with this lifestyle, hence the problems...with a new brand muscling in on the scene."

Haier has dabbled in mobile handset production before: in 1999 it went into a limited trial production in its home province of Shandong. But its intentions to become a serious player in the market were made dear last year when it formed a mobile phone manufacturing joint venture with Hong Kong-based CCT Telecom, one of the world's largest cordless phone makers.

The partnership culminated last month in a deal that will enable Haier to fund its expansion. Haier and CCT announced a major restructuring of their joint venture--to be renamed Haier-CCT Holdings--in which Haier will become the largest shareholder of Hong Kong-listed CUP Multimedia, taking 42.8% of the company, with CUP Telecom seeing its stake reduced from 61.3% to 38.2%. CUP Telecom spokeswoman Susana (Than said: "The new listing status gives Haier-CCT an independent financing capability, and that will facilitate the further growth of its mobile phone business and allow funding of new production facilities."

Digital Practice's Lin outlined the importance of that funding: "By listing in Hong Kong, [Haier-CCT] will have access to funding for expansion, while all the other local mobile handset manufactures are facing [a] lack of capital to implement their expansion strategies."

CUP owns a 34% stake in U.K. mobile handset innovator Sendo Holdings plc, and as part of the joint-venture agreement, Haier-CCT became the sole manufacturer of Sendo handsets. Haier was also allowed to sell Sendo handsets in China under its own brand name. But more significantly, last month, Sendo announced it was strengthening its ties with Microsoft, with the U.S. software giant taking a strategic stake in Sendo. Although the size of the investment was not divulged, it was a further sign of commitment to Sendo, which has developed a prototype handset running on Microsoft's Stinger mobile platform for 2.5G and 3G phones.

Another leg up for Stinger

At the unveiling of their new Z100 phone, Sendo chief executive Hugh Brogan said: "We needed a 'smart phone' platform that could provide a competitive edge and also allow us to enter the market quickly. The Stinger platform enabled us to focus our resources on our expertise in handset design, allowing us to develop the Z100 in a relatively short time".

Ben Waldman, vice president of the mobile devices division at Microsoft, said: "Together with Sendo, we've done what people said couldn't be done--deliver the mobile Internet in a small and light device. Using Microsoft's smart phone platform, Sendo has delivered the first color...[mobile] phone that gives users access to e-mail, contacts and meaningful Internet content."

Microsoft and Haier are already collaborating on a separate three-year initiative dubbed "E-family", which aims to link all electric and electronic household appliances together in a single local area network system.

The crucial question now is whether Haier-CCT will be the manufacturer of Sendo's new range of general packet radio system (GPRS) Stinger phones and sell them under its own brand name on the local market--a strategy that sources at the company do not deny outright.