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Huawei puts terminal unit sale on hold

By Li Weitao (China Daily)
Updated: 2008-10-10 09:48

Huawei Technologies, China's largest telecom equipment maker, yesterday said it had suspended the auction of a stake in its terminal unit to foreign buyout companies, citing the ongoing global financial crisis.

"Despite investors' strong interest, we believe it is the best choice to halt the sale as the global financial market continues to deteriorate," the privately held company said.

Huawei's terminal division recorded $2.2 billion in sales revenue last year. Insiders said Huawei had been expected to sell a controlling stake, which could be worth about $2 billion.

The Shenzhen-headquartered company in mid-May formally invited potential buyers to make bids to introduce strategic investment. Huawei's terminal unit includes mobile phones, data cards for notebook PCs and ADSL modems.

US private equity groups Bain Capital and Silver Lake have been negotiating with Huawei over the deal and had been expecting to finalize it in November, insiders said.

However, the two US companies hoped to cut the value of the deal, citing the economic crisis that has dealt a blow to most US financial institutions, but Huawei rejected this, insiders said.

Huawei's terminal unit has maintained a fat and steady profit margin as it has been customizing mobile phones for telephone operators such as Vodafone.

Unlike Huawei, most Chinese handset makers have been focusing on an increasingly overcrowded domestic retail market that can only offer razor-thin profit margins.

Huawei's terminal division is expected to book $3.5 billion in revenue with a net profit of about $400 million this year, earlier media reports said, citing a report by Morgan Stanley, which Huawei hired to advise on the auction of its terminal unit.

Last year, the division accounted for 17.5 percent of Huawei's total global sales of $12.56 billion.

"The terminal unit has been our fastest-growing business. It has been always our strategic priority and a major revenue driver. We are confident about its prospects," a Huawei spokesman said, adding that halting the auction would not affect Huawei's cash flow and operations.

The spokesman said Huawei's terminal unit recorded a compound annual growth rate of 70 percent although it was a latecomer to the mobile phone business, and by September the company had sold 150 million units of terminals worldwide.

If the market condition improves, Huawei may restart the auction, the spokesman said, declining to give a timetable.

Wang Guoping, an analyst with China Galaxy Securities, said the credit crisis would force many foreign investors to scale down their acquisition activities in China.

"Given the current problems, it's a wise decision for Huawei to shelve the auction," he said.

The credit crisis will impact on the global telecom market as spending on telecom equipment is expected to drop, the analyst said.

"But (China's) Huawei and ZTE Corp might have a better chance in competition as they have been selling cost-effective telecom gear. In a difficult time, there is no reason to buy expensive equipment from Western suppliers, especially for operators outside China."