China's Lenovo hedges bets against WAPI

Lenovo Group Ltd., China's largest PC maker, is hedging its bets against the implementation of a homegrown WLAN (wireless LAN) standard at the heart of a trade dispute between the U.S. and China.

The Chinese government has implemented a mandatory standard for WLAN equipment sold in China that is very similar to the 802.11 wireless networking standard developed by the Institute of Electrical and Electronics Engineers Inc. (IEEE). However, the Chinese standard uses a different security protocol, called WAPI (WLAN Authentication and Privacy Infrastructure), that is not compatible with the security protocol used with 802.11.

All WLAN equipment sold in China after June 1 must comply with the Chinese standard. U.S. industry groups and U.S. government officials have objected to the implementation of WAPI because of a provision that requires foreign vendors to license the technology and share technology with Chinese vendors. Several companies, including Intel Corp. and Texas Instruments Inc., have said they have no plans to offer products that support WAPI.

While China's government has given no public signs of yielding on the implementation of WAPI, Lenovo -- formerly known as Legend Group Ltd. -- has been working closely with Intel to develop a prototype laptop computer, called Vela. Vela is based on the next generation of Intel's 802.11-based Centrino platform, code named Sonoma. Lenovo has also announced plans to offer products that support WAPI.

Set for introduction during the second half of this year, Sonoma consists of Intel's next-generation Pentium M processor, called Dothan; an updated PC chipset, code named Alviso; and Intel's next-generation 802.11 WLAN chipset, code named Calexico 2. Calexico 2 offers several improvements over Intel's current WLAN chipsets, including lower power consumption, an improved software interface and support for the 802.11a, 802.11b and 802.11g wireless networking standards.

The Vela prototype was demonstrated by Anand Chandrasekher, the vice president and general manager of Intel's Mobile Platform Group, at the Intel Developer Forum in San Francisco in February and again in Taipei last week.

A Lenovo source in Beijing said the company has not yet made a decision on whether the Vela prototype will be produced in volume or when production might begin. That leaves open the possibility that Lenovo could give the green light for volume production of the Vela prototype if the dispute over WAPI is resolved and China permits the sale of 802.11 WLAN equipment in China, according to the source.

There's also the possibility that Vela production could go ahead for sales in markets overseas. Lenovo, which does the bulk of its sales in China, offers three Centrino-based notebook models in Europe, according to the company's Web site.

While Lenovo's Vela prototype is based on 802.11 technology, the company has also developed products that support WAPI, said Angela Lee, a spokeswoman for Lenovo in Hong Kong, noting that the company is one of more than 20 Chinese companies that have been granted the rights to license WAPI by the Chinese government.

Lenovo has developed several working prototypes of WAPI-based products, Lee said, adding that further details of the specific products that have been developed were not immediately available.

The trade dispute over WAPI is expected to be a focus of discussions between U.S. and Chinese officials at trade talks set to take place later today in Washington D.C. Chinese Vice Premier Wu Yi is leading a delegation to those talks that will meet with U.S. Secretary of Commerce Donald Evans, U.S. Trade Representative Robert Zoellick and others.

Dorothy Lai, a semiconductor analyst at Gartner Inc. in Hong Kong, said Chinese officials at the talks may offer to push back the June 1 deadline for WAPI compliance in return for the U.S. softening its opposition to a Chinese policy that offers a rebate of the majority of the value-added tax (VAT) that China levies on domestically produced semiconductors. No VAT rebate is offered for chips that are produced overseas and sold in China.

"They need to make some concession on June. Then they will be able to avoid eliminating the whole VAT rebate for local production (of semiconductors) but can make it smaller," Lai said.

(Henry Lee, at China Computerworld in Beijing, contributed to this story.)