Motorola Inc.’s announcement that its overall sales in China slowed during the first quarter doesn’t indicate this market is in any trouble, say analysts.
China is still seen as one of the largest markets for telecom equipment and service providers with its large pent-up demand for telecommunications and a gross domestic product growth rate that is twice the United States’. But analysts have been concerned that China may devalue its own currency in light of the economic problems its neighboring countries are experiencing, sending business there into a tailspin.
“There’s no concern in the near-term,” said David Roddy, chief telecom economist with Deloitte & Touche Consulting Group Inc. in Washington, D.C. “Analysts have now concluded that Chinese currency is less risky within the Asia-Pacific region.”
Business for the wireless industry’s major vendors appears to be prosperous. Northern Telecom Ltd., Motorola, L.M. Ericsson and Nokia Corp. all have announced in recent months several multimillion dollar contracts to supply equipment in China. Last week, Motorola announced a $42-million contract to supply Global System for Mobile communications equipment to China Unicom and a $10-million contract with Yunnan Posts and Telecommunications Administration for paging equipment. Nokia Telecommunications signed an agreement last week with the Post and Telecommunications Administration Bureau of NingXia Hui Autonomous Region to supply GSM equipment.
However, Motorola says some Chinese carriers require financing to build out their systems, and the government is placing restrictions for funding in the short-run. Credit is tight for new deals. While the majority of Motorola’s contracts so far have not required vendor financing, monetary aid is becoming increasingly necessary due to economic conditions in Asia, said spokeswoman Sue Frederick.
Motorola, which says 50 percent of its business in Asia lies in China, sees this as a short-term phenomenon, not affecting growth in the future. Roddy said the government’s action is not a red flag.
“There is nothing wrong with China getting its financial house in order,” said Roddy. “Everyone dealing with these countries always has to worry about the banking system and the political system. Some of these new changes in China include tightening up the financial picture a little bit so there are fewer bad loans. That’s good news in the long-term for outside investors.”
While Motorola also experienced slower pager sales in China, analysts and Motorola still are as bullish as before about the growth of the paging market in the country. The Strategis Group’s recent study on the Asia-Pacific paging market indicated that China continues to be the “primary engine of growth” for the Asia-Pacific’s paging industry, with 121 million users-71 percent of the total subscribers in the region.
Michael Krier, senior consultant with the Strategis Group, said Motorola traditionally has held a huge chunk of China’s paging market and is beginning to see its market share slip as cheaper pagers enter the market.
“Motorola’s biggest problem is paging in China,” said Raj Srikanth, telecom equipment analyst with Schroder Wertheim & Co. in New York. “Generic pagers have shown up in the market, and they’re selling for a lot cheaper.”
