Two Tech Deals for China. One In, One Out.

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China, as I have previously reported, is making waves in the technology sector. Therefore it should come as no surprise that Chinese technology companies are hitting the headlines with major international deals. Step up Huawei (sending out) and Founder (bringing in).

Founder, China’s second-largest PC maker, has announced (as Lenovo did in 2004) that it will buy AMD chips (over rival Intel). The Washington Post reports:

    “Under an agreement signed on Thursday, Founder Technology (600601.SS) would introduce desktop computers based on the AMD64 processor in China next month”.

The report suggests that AMD competes largely on price – which is a major driver for Chinese companies whose consumers have more time than money – but this is something that only big companies, with deep pockets (or high barriers to entry) can sustain (see more on this issue here).

The strategy seems to have worked well for AMD, however, and while Intel is reported to have around 33 percent of the China market, compared to AMD’s 18 percent, this is a major change from three years ago when the figures were 90 percent and 5 percent respectively.

Did I mention things can change quickly in China?

Another recent deal relates to Huawei Technologies, China’s leading telecom equipment manufacturer, which will supply radio access equipment to Vodafone’s third generation (3G) mobile telecom network in Spain, having seen off Ericsson, the world leader (according to China.org):

    “The deal is a landmark for Huawei, which is seeking to expand in Europe, one of the most competitive mobile markets in the world. ..[and] underlines the increasing recognition Huawei is winning from major global operators”.

But that is not all…Business Week reports that Huawei will also supply Vodafone-branded “701” model, 3G handsets.

As with other Chinese firms, Huawei originally focused on less-competitive developing countries, and these deals are seen as “a major breakthrough”. Interestingly, as Business Week points out, Huawei (as well as rival ZTE, which is supplying British Telecom) seems to be focusing on market share rather than brand development, therefore avoiding some of the expensive challenges faced by Chinese brands (with their own branding) such as Lenovo and Haier.

I suspect that these deals have something to do with price. I remember speaking to a European telecom company executive who told me that they had also bought equipment from Huawei, and that in doing so they had saved around 80 percent on their procurement costs. That is an offer that is a deal that hard to beat.

Did I mention that Chinese brands have technology…and will travel?

While these deals have hit the headlines, they just the latest in a series of Chinese moves on the technology front. I reported in December last year that:

    “China became the top exporter of information and communications technology (ICT) in 2004, overtaking the US, according to the OECD. China’s ICT trade reached US$329 billion in 2004, having grown by around 38 percent a year since 1996. China’s ICT exports rose 46 percent in 2004, reaching US$180 billion.”

Now, the Engaging China blog (h/t China Law Blog) reports (quoting date from iSuppli) that China will this year overtake both South Korea and Germany to become the world’s fourth most important country for electronics design.

The sector seems to be another example of China moving up the value chain – from contract manufacturing, to international branding and sales, and now R&D.

See news sources:

(Updated 6/10/06)

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