China's TCL, Alcatel to jointly design, make cell phones

Alcatel SA is to exchange its mobile phone handset operations for a minority stake in a joint venture with TCL Communication Technology Holdings Ltd., the companies announced Monday. The move will allow TCL to expand outside its native China and Alcatel to off-load a loss-making division.

The joint venture will absorb Alcatel's loss-making cellular handset business, including 600 research, development, sales and marketing staff, under the terms of the preliminary deal signed by the companies. In addition to the handset business, Alcatel, in Paris, will also provide an unspecified cash payment to take the total value of its contribution to €45 million (US$53.2 million), for which it will get a 45 percent share in the venture. TCL, one of China's top two cellular handset manufacturers, will contribute €55 million in cash and take a majority 55 percent stake.

The companies expect to finalize the deal during the third quarter, they said in a joint statement. It will be subject to shareholder and regulator approval.

"For TCL the deal gives them access to sales and distribution overseas, research and development and design skills that they don't have in house," said Ted Dean, an analyst with BDA China Ltd. in Beijing, who ranks TCL as one of China's top two handset makers alongside Ningbao Bird Co. Ltd. "It's going to speed their growth overseas."

"Consolidation in the handset market is something we've been expecting to see. There is no question that there are too many players, in China but also globally, especially now Chinese handset makers have global aspirations," he said.

TCL's aspirations have been the subject of rumors for some time, and Monday's announcement is one of the clearest signs yet that China's technology companies aren't afraid of competing with established Western corporations in their home markets. Dean said it would be a mistake to write off TCL's ambitions as solely at the low-end of the handset market too.

"It's always a mistake to assume Chinese vendors will only do well at the low end," Dean said. "Companies that made that assumption have done so at their own peril and many of them aren't around any more."

The new company, which has yet to be named, will sell telephones under the Alcatel brand name.

For Alcatel the deal represents an attempt to start generating cash from its unprofitable handset business, said Regine Coqueran, a spokeswoman for the company in Paris. Retaining a stake in the handset operations means it can still offer its customers an end-to-end solution, from equipment used to operate a cellular network down to the handsets, she said.

She wouldn't provide any details of Alcatel's handset revenue or shipment volumes but said the mobile handset business contributes less than 5 percent to the company's total revenue.

The deal is the latest in a line of tie-ups between Chinese and foreign companies, although most others haven't been quite as far reaching.

Last week South Korea's Samsung Electronics Co. Ltd. announced plans to form a joint venture with Eastern Communications Co. Ltd. to develop WCDMA (Wideband Code Division Multiple Access) technology and equipment for the Chinese market. In March this year Germany's Siemens AG said it was teaming up with Huawei Technologies Co. Ltd. to form a joint venture to pursue research and development, production, marketing and support of third-generation TD-SCDMA (Time Division-Synchronous Code Division Multiple Access) mobile technology products.

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