Bottom line: Washington and Beijing risk seriously hindering global trade and M&A in high-tech products in the name of national security, and should be more transparent when blocking deals and trade over such concerns.
National security vetoes look increasingly protectionist
The national security debate was in 2 major headlines last week, as word emerged that Washington might consider blocking proposed major acquisitions of US companies by Chinese construction equipment giant Zoomlion (HKEx: 1157; Shenzhen: 000157) and memory chip maker Tsinghua Unisplendour. While neither deal has been vetoed yet, the talk comes less than a year after several Washington politicians expressed reservations that ultimately killed another deal by a Chinese company to purchase leading US memory chip maker Micron (Nasdaq: MU).
With the US entering an election year, the likelihood of more deals being killed for similar reasons could grow due to opposition from politicians seeking to curry favor from voters. The growing noise from Washington comes against a backdrop of similar moves by Beijing, which last year rolled out a new national security law that foreign technology firms said was overly invasive and discriminates against them. Read Full Post…
Bottom line: VMWare’s new China joint venture is the latest such tie-up for a major western tech firm to ease Beijing’s national security concerns, and could prompt the US to implement tougher restrictions on technology transfers to China.
VMWare in China cloud joint venture
EMC (NYSE: EMC) and its acquirer Dell are jumping on a high-tech train that goes directly to Beijing, with word that EMC-controlled VMWare (NYSE: VMW) has become the latest IT firm to set up a joint venture with a Chinese partner. The trio of high-tech giants join a growing number of other leading US tech firms to form similar ventures, with Hewlett Packard (NYSE: HPQ), IBM (NYSE: IBM) and Cisco (Nasdaq: CSCO) all forming similar tie-ups over the past year.
The rush to form such alliances comes as China rolls out a new national security law that could otherwise limit the big multinationals’ ability to sell their products and services to the Chinese government and big state-owned enterprises. But at the same time, a new New York Times report is pointing out that many of the Chinese firms in these new tie-ups also have links to China’s defense establishment, potentially setting the stage for a showdown between Washington and Beijing over national security. Read Full Post…
The following press releases and media reports about Chinese companies were carried on October 17-19. To view a full article or story, click on the link next to the headline.
══════════════════════════════════════════════
Alibaba (NYSE: BABA) Offers $4.6 Bln for Rest of Youku (NYSE: YOKU) Video Site (English article)
Rare Store Sales Data Highlights Wal-Mart’s (NYSE: WMT) China Challenge (English article)
BrightFood to Buy 50 Pct of New Zealand Meat Processor for $200 Mln (English article)
Marvell (Nasdaq: MRVL) Cuts 800 Jobs in China, Workers Stage Protest (Chinese article)
IBM (NYSE: IBM) Gives Beijing Access to Software Code (English article)
Bottom line: Lenovo and Tsinghua Unigroup may be considering rival bids for EMC following a $67 billion offer from Dell, but will ultimately abandon any such plans due to high price and political sensitivities.
Unigroup, Lenovo eying rival bids for EMC?
As the blockbuster deal that would see faded PC giant Dell buy leading memory products maker EMC (NYSE: EMC) for $67 billion buzzes through the high-tech headlines, I thought I would look at 2 leading Chinese candidates whose names were noticeably absent on the list of companies that might make rival bids for EMC. China tech watchers will know I’m referring to local PC giant Lenovo (HKEx: 992), which has never seen an acquisition opportunity it didn’t like, and the more recently acquisitive Tsinghua Unigroup.
Both of these names could be interested in EMC for similar reasons, and each could theoretically make rival bid for the US company. Dell’s newly announced purchase of EMC would be one of the biggest-ever sales in the high-tech world, but also includes a 60 day period where others could make counter offers. Other names mentioned that could make such bids include the likes of IBM (NYSE: IBM), Cisco (Nasdaq: CSCO) and Hewlett-Packard (NYSE: HPQ), though sources say the chances of such a bid are slim. Read Full Post…
Bottom line: Cisco’s new joint venture will mostly resell its networking equipment into China, and is unlikely to ease Beijing’s worries that its products could be used by Washington for cyber spying.
Cisco calls on China with new JV
Networking equipment giant Cisco (NYSE: CSCO) has become the latest global tech firm to capitulate to China’s national security paranoia, announcing the formation of a new joint venture with a local partner. The tie-up with Inspur Group is just the latest in a recent string of new China-based partnerships involving big western tech firms. Those companies, whose ranks also include IBM (NYSE: IBM) and Hewlett-Packard (NYSE: HPQ), fear that without such well-connected local partners, they could get locked out of the lucrative IT services market under tough restrictions imposed by a new Chinese national security law.
Announcement of the new joint venture with Inspur marks a major shift for Cisco, which up until now has preferred to do its business in China by itself rather than with a local partner. Cisco’s earlier go-it-alone posture has already come with a high cost it in a country where Beijing prefers to see big foreign tech names transfer technology to local partners. Thus this latest partnership should perhaps help to ease some of that pressure, even though it could ultimately put some of Cisco’s intellectual property at risk. Read Full Post…
Bottom line: Huawei’s new push into IT services could do well due to the company’s strong background in telecoms products, and could see it form a major partnership in the area with a big global player.
IT services tie-up ahead for Huawei?
Networking equipment giant Huawei is continuing its diversification, with word that it’s planning a major push into the market for information technology (IT) services that could put it into direct competition with such giants as IBM (NYSE: IBM) and Hewlett-Packard (NYSE: HPQ). But perhaps more intriguing is the possibility that Huawei could form a major partnership with one of the big foreign names, amid a rise in such pairings due to restrictions on foreign firms under China’s new national security law.
Huawei began its life as a maker of networking equipment for big telecoms carriers, but more recently has tried to diversify as the global market for those products slows. It has pushed into networking equipment for enterprises, and more recently has found growing success with smartphones. But IT services has remained a relatively small portion of the business, expected to reach $2 billion in sales this year. That would be just a tiny portion of the 288 billion yuan, or about $45 billion, that Huawei posted in revenue last year. Read Full Post…
Bottom line: The latest downbeat remarks from Unigroup’s chairman after a visit to the US indicate the company has given up on its bid to buy Micron, though it could potentially relaunch the effort after next year’s presidential elections.
Unigroup’s Micron bid looks dead
I wrote several weeks ago that a bid by China’s Unigroup to buy US memory chip giant Micron Technology (Nasdaq: MU) had become the victim of politics, and now it appears the deal is finally dead. Or at least it’s on life support, with little hope of resuscitation. That’s my interpretation, following the latest reports that say Unigroup’s chairman has given remarks that look quite pessimistic after returning to China from a last-ditch US visit to try to save the deal.
This deal looked quite interesting when it was first reported back in July, and would have been worth some $23 billion, marking the biggest-ever acquisition of a US company by a Chinese counterpart. But political sensitivities quickly surfaced due to Micron’s status as the biggest US maker of memory chips used in most electronic devices and also in the defense industry. Read Full Post…
Bottom line: Smaller foreign tech companies could follow Trend Micro’s lead and withdraw from China over the next few years, as they suffer sharp business downturns due to restrictions under the country’s new national security law.
Trend Micro sells China unit
This summer has been unusually quiet for big multinationals in China, following campaigns in the last 2 years targeting foreign companies for monopolistic practices and corruption, among other things. But the real turbulence this year has been happening behind the scenes, as foreign technology companies face a major business downturn following China’s recent roll-out of a strict new law designed to protect national security.
Many foreign tech firms have complained the new law is too broad and intrusive, and now security software specialist Trend Micro may have become the first major victim. That’s my interpretation, following an announcement that appears to show Trend Micro is withdrawing from the market. This particular move will see Trend Micro sell all of its China operations to AsiaInfo, a Chinese owned maker of telecoms software. Read Full Post…
Bottom line: Lenovo’s attempt to make Motorola the flagship for its smartphone business looks set to fizzle, in a major setback for the company’s drive into mobile devices.
Moto sales on downward slide
I’ve predicted gloom and doom before for PC giant Lenovo (HKEx: 992), China’s first truly global high-tech brand, and each time the company has proven me wrong. But Lenovo’s latest quarterly financial report really does look like cause for concern once more, showing results that can only be described as terrible. Anchoring the misery was a huge sales plunge for its recently acquired Motorola brand, which was meant to become a cornerstone for Lenovo’s emerging smartphone business.
In some ways this particular cycle looks like deja vu, since Lenovo followed a similar pattern when it burst onto the global stage a decade ago with its landmark purchase of IBM’s (NYSE: IBM) PC business. That acquisition also later created major headaches for Lenovo, and resulted in a massive restructuring that ultimately laid the groundwork for the company to become the world’s leading PC brand. Read Full Post…
Bottom line: The purchase of Micron by Tsinghua Unigroup offers a good chance for Sino-US confidence building if Washington signals it will fairly consider such a deal and Unigroup demonstrates its actions are commercially driven.
Micron sale offers chance to boost Sino-US trust
A potential mega-deal that would see China’s Tsinghua Unigroup buy leading US memory chip maker Micron Technology (Nasdaq: MU) could become a major trust-building exercise between China and Washington if handled properly, but could also quickly end in an angry war of words if the opposite occurs. Both sides need to take important steps to ensure fair trade in the case, which is sensitive because it involves the acquisition of a US high-tech leader by a company with close ties to China’s top science university.
For its part, Unigroup could take steps to show its independence from Tsinghua University, and more broadly to show that it is a commercially-focused business that doesn’t make decisions based on government orders or support. For its part, Washington could signal it is willing to consider a deal that appears to pose no threat to national security, even though it would see a major technology company taken over by a Chinese peer. Read Full Post…
Bottom line: US national security regulators are likely to approve the potential purchase of Micron by China’s Tsinghua Unigroup, to demonstrate their commitment to fair trade and avoid politicizing cross-border high-tech M&A.
Micron sale likely to get US approval
In the days after reports emerged that China’s Tsinghua Unigroup was planning a bid for US memory chip giant Micron (NYSE: MU), media have been buzzing with speculation over whether Washington might veto a deal on national security grounds. I can understand the logic from both views, and some say recent US allegations of frequent hacking attacks from China could add to arguments for a veto of the deal.
But as a longtime watcher of this kind of transaction, I expect that Washington will ultimately approve the purchase to demonstrate its commitment to fair trade. Such a move would also send a strong signal to Beijing, which is showing growing signs of limiting sales by foreign technology companies in China with its recent introduction of a sweeping new national security law. Read Full Post…
