Cisco to buy set-top box business in China

Cisco to buy set-top box business in China

Cisco Systems Inc said on Monday it has agreed to buy the set-top box business of Hong Kong-based DVN Holdings Ltd for as much as $44.5 million, as the world’s top TV network equipment maker continues its acquisition spree.
The move, Cisco’s first acquisition aimed at the Chinese market, also shows the company stepping up investment in a fast-growing market where it faces competition from rivals like Huawei Technologies Co Ltd. DVN sells digital broadcasting equipment and services in China.
Cisco said that China has the most cable subscribers in the world. About one third of 160 million to 170 million are using digital cable, and the government has mandated that all users shift to digital set-top boxes by 2015, it said.
“That presents for Cisco and other competitors in the market a very, very compelling market opportunity,” said Hilton Romanski, vice president of corporate development for Cisco.
Romanski said that Cisco has invested more in China than any other market outside the United States, and the latest deal will further bolster its ability to compete locally.
“What we’re trying to get access to is good local expertise that can help us think about how to make this transition, becoming an increasingly local company in China,” he said.
Cisco said it will pay $17.5 million upfront, and will pay an additional amount of up to $27 million over four years. The final amount depends on sales, although Cisco declined to specify any targets.
Cisco said it also plans to enter into an alliance with DVN to utilize its software, applications and support services.
The acquired set-top box business will become part of Cisco’s international cable business unit, while the DVN business will continue to run from China.
The deal is expected to close in the first half of 2010. Cisco said the initial payment will come from its foreign cash earned from overseas sales.
Cisco is also planning to use foreign cash to fund its planned $3 billion acquisition of Norwegian videoconferencing giant Tandberg ASA, although some Tandberg shareholders have recently balked at the offer price.
Cisco has been one of the most aggressive companies on the technology M&A front. Both its bid for Tandberg and its plan to buy wireless equipment maker Starent Networks for $2.9 billion were announced in October, and Chief Executive John Chambers has said there was more to come.
Romanski said Cisco will spend more in China.
“We’re going to continue to invest both equity as well as venture capital funding into the Chinese market … and we’ll continue to look for interesting acquisition opportunities as well,” he said.

Baosteel names new iron ore negotiator

Baosteel names new iron ore negotiator

Baosteel Group Corp, China’s biggest steelmaker, named Wang Liqun as its new chief negotiator for iron ore contract talks, an executive said, amid forecasts that prices may surge as much as 50 percent.
Wang, general manager of the raw material purchasing center at Baosteel’s Baoshan Iron &Steel Co, will replace Ding Shouhu, said the executive who declined to be identified because of company policy. Ding, a manager at the center, was the chief negotiator for the Shanghai-based steelmaker for the past two years.
The appointment, along with a new negotiator for Rio Tinto Group, the second-largest iron ore exporter, indicates that Chinese steelmakers and miners want to start afresh after failing to agree prices last year.
“Baosteel’s new negotiator faces a hard task as China has almost no bargaining power,” said Hu Kai, a Shanghai-based analyst with researcher Umetal.com.
Baoshan Steel shares dropped 0.3 percent to close at 8.68 yuan ($1.27) in Shanghai. Rio’s shares closed 0.7 percent lower at A$78.62 ($72.50) in Sydney.
Wang and Chen Ying, vice-president of Baoshan Steel, didn’t return calls seeking comment. Wang was a deputy general secretary of the China Iron and Steel Association in 2005 and 2006, according to the association’s website. The association had led the unsuccessful price talks last year.
The four-decade annual iron ore pricing system was fractured last year after Rio, BHP Billiton Ltd and Vale SA, which together account for three quarters of traded iron ore, refused to meet China’s request to cut prices by more than 33 percent during the global recession.
China is the world’s largest buyer of iron ore and last year increased imports by 42 percent to a record 628 million metric tons. Benchmark prices may surge 50 percent this year as the economy rebounds, Nomura Holdings Inc forecast on Jan 11.
London-based Rio Tinto appointed Danny Goeman as the new negotiator with Asian steelmakers, reporting to Will Malaney who was the company’s chief negotiator, a spokesman said last month.
China price
Rio needs to hear from China “as to exactly what their view is in relation to prices”, Sam Walsh, chief executive officer of the company’s iron ore unit, said on Nov 2.
China wants to set iron ore prices separately from the rest of the world to exercise its bargaining power as the largest buyer, the China Iron &Steel Association said on Oct 16. Annual contracts for China should start from Jan 1, instead of April 1, the current practice, the association had said.
Cash prices of 62 percent iron-content ore delivered to Tianjin port in China last week climbed to the highest in at least 13 months, according to the Steel Index.
Prices had jumped amid a surge in buying by Chinese mills concerned about the availability of cargoes from Australia, Goldman Sachs JBWere Pty said.

24-hour auto factories still cant meet demand

24-hour auto factories still can’t meet demand

A worker at an auto assembly line in Ningbo, Zhejiang province. [China Daily]
Nissan Motor Co’s factory in central China is making cars almost 24 hours a day, yet Pan Xiaowei still waited three months for her new Tiida compact to arrive at the dealership.
“It wasn’t like this a couple of years ago,” said Pan, 34, whose husband runs a property development company in Shandong province. “We used to buy and get a car straight away, and now you have to pre-order and wait.”
China overtook the US last year as the world’s largest automobile market with sales surging 46 percent to 13.6 million, according to the China Association of Automobile Manufacturers. Nissan, Ford Motor Co and Honda Motor Co are running their Chinese factories at full capacity, with overtime and weekend shifts, and still can’t deliver enough cars.
“Based on our current growth rate and planning assumptions, the capacity of our two facilities will not be able to accommodate the expected future demand for our products,” said Nigel Harris, general manager of Ford’s venture with Chongqing Changan Automobile Co.
About 99.7 percent of cars made in China through November last year were sold, the association said. Foreign automakers are expanding assembly lines as buyers in secondary cities beyond Beijing and Shanghai benefit from government subsidies of at least 5 billion yuan ($732.38 million), a sales tax cut and 8.9 percent economic growth.
Rural consumption
Car sales have been fueled by demand in rural areas.
“Spending power in the medium and small cities is rising, and demand there has surpassed that in bigger cities,” said Wei Tuo, a Henan province dealer for Nissan’s joint venture with Wuhan-based Dongfeng Motor Group Co. “Cars are no longer considered a luxury item but a standard consumer product.”
Wei’s company has about 40 outlets in central China selling several brands. About 55-60 percent of sales come from middle- and small-sized cities.
Nissan is the No 1 Japanese automaker in China, with last year’s sales rising 39 percent to 756,000, outselling Toyota Motor Corp and Honda, according to the three companies. Nissan’s top seller is the Teana.
Running almost 24 hours
Nissan is spending 5 billion yuan to expand its Hubei province plant to build up to 600,000 vehicles annually from the current 430,000, spokeswoman Kana Minamidate said. That central China factory makes the Tiida compact and Livina series popular in secondary markets, she said.
“The plant was originally operating with two shifts but now we have three shifts to build cars almost 24 hours a day,” Minamidate said, adding that customers still wait for deliveries.
Nissan also is spending 1 billion yuan on a light-commercial vehicle factory in the eastern city of Zhengzhou that will open this year and build up to 120,000 vehicles annually.
Changan Ford Mazda Automobile Co has plants in Chongqing and Nanjing building cars “at maximum allowable overtime and weekends”, Harris said. The company will open a $490 million factory in Chongqing in 2012 making up to 150,000 vehicles a year, boosting overall capacity to 600,000.
Near-term growth will be concentrated in eastern and central regions, and cities outside Beijing, Guangzhou, Shanghai and Shenzhen, Harris said. The venture opened more than 65 percent of its new dealerships last year in smaller cities, and that proportion is expected to reach 75 percent in the next few years.
The government unveiled stimulus packages to spur domestic consumption after GDP growth slumped for eight straight quarters and exports declined for 14 months as the global recession took hold.
Rural Chinese buying a new minivan or light truck can get a subsidy of 10 percent of the purchase price, up to 5,000 yuan. Those replacing light trucks can get another 5,000-18,000 yuan.
The government also reduced the sales tax on new vehicles with engines of 1.6 liters or smaller to 5 percent from 10 percent. It said on Dec 10 it was raising the rate to 7.5 percent.
Overcapcity
Still, automakers face possible overcapacity in China, according to Chen Bin, who oversees regulation of the country’s auto industry at the National Development and Reform Commission.
China has more than 100 automakers and they should “keep their heads cool” to prevent expanding production beyond demand, Chen said earlier.
Honda, which opened 55 dealerships mostly in small cities last year, is focusing expansion in the suburbs of major cities, said Masayuki Igarashi, general manager of its China operations office in Tokyo.
The automaker plans to increase production at its Hubei province plant to 240,000 cars this year from 200,000.

SOE watchdog pushes for value creation mindset

SOE watchdog pushes for value creation mindset

China’s large state-owned companies with high sales and substantial assets may no longer be deemed “successful” under new government performance measurements.
Huang Shuhe, vice chairman of the State-owned Assets Supervision and Administration Commission (SASAC), has announced the SASAC this year will use the economic value added (EVA) measure to assess the performance of the 129 state-owned enterprises affiliated to the central government.
Developed by the U.S.- based consultancy firm Stern Stewart &Co., the measurement tool has been applied widely among top-tier transnational firms, including Coca-Cola, Temasek, Pemex and others.
EVA refers to the residual income of firms after subtracting costs on all capital employed in the business, debt and equity, from their net operating profit after tax (NOPAT), Erik Stern, Stern Stewart president international, told Xinhua in an exclusive interview.
“It considers not only the actual cost of capital, but also its opportunity cost, in other words the expected returns that could have been achieved with the capital if it had been invested in a similar investment,” said Stern.
If a company’s NOPAT is 5 million yuan with 100 million yuan capital employed, the profitability is 5 percent. But if the average industry cost of capital ratio is 6 percent, that translates into a negative EVA of 1 million yuan, meaning the firm failed to deliver optimum value for shareholders.
ENDING EMPIRES
Experts hold that a firm’ s profitability measures only its profit-making capabilities, while EVA measures its profit-making capabilities compared with its peers, a more scientific and tougher standard.
“Previously, we viewed the large and high-profit-generating firms as good ones. The concept has changed now. Profitable enterprises don’t necessarily mean that they have created enough value for shareholders,” said Liu Nanchang, head of the Bureau of General Affairs of the SASAC.
Analysts hold that some Chinese firms think that they are “too big to fall” and prefer to “build empires.” EVA would make corporate executives more responsible for the capital they are employing, as their investments must beat the cost of capital to deliver positive EVA.
According to the new version of the central SOE performance assessment document to be rolled out soon, EVA will replace return on net assets. It will account for 40 percent of the criteria governing SOE executive performance. The remaining 60 percent will target profits and other industry-tailored metrics.

Wuliangye announces price hike

Wuliangye announces price hike

Liquor maker follows rivals with increases of up to 10.3 percent
Wuliangye Yibin Co, China’s second biggest maker of white liquor by market value, said it plans to raise its liquor prices from this Saturday, following its archrivals’ recent price increases.
The liquor maker said it would raise its ex-works price by a range of 8.5 percent to 10.3 percent.
Recently, a group of domestic liquor makers raised their product prices after Kweichou Moutai, the nation’s leading liquor maker, announced in early December it would lift its prices by 13 percent from Jan 1.
Luzhou Laojiao Group Co, Shanxi Xinghua Cun Fen Chiew (Group), Jiangsu Yanghe Distillery Co Ltd, and Chengdu Swellfun Marketing Co Ltd, then all raised their prices by 5 to 15 percent.
Analysts attributed the price hikes to rising raw material and energy costs and rising demand in the run-up to the Spring Festival, during which high-end white liquor is often used as gifts.
In addition, the central government’s recent decision to increase the consumption tax on liquor sales has squeezed liquor makers’ profit margins, laying the ground for the price rises.
“There is no better time to raise the price, as all major high-end liquor makers have raised their prices in order to scoop more profits from the sales peak during the Spring Festival,” said Qu Jia, an industry analyst with First Capital Securities.
What sets it apart from other products is that a steady price increase in high-end liquor is acceptable as consumers are extremely loyal to the brands.
Although Wuliangye said it expected the price rise to affect its business this year, analysts are optimistic about the company’s performance in 2010.
“Through this price hike, Wuliangye’s net profit in 2010 will jump 52 percent year-on-year, and in 2011 there will be further growth of 22 percent,” said Tong Xu, an analyst with Shenyin &Wanguo Securities.
Tong said he expected Wuliangye’s sales to reach 9,530 tons, 11,900 tons and 13,200 tons respectively from 2009 to 2011.
“As there is still a great shortage of premium white liquor, Wuliangye has decided to increase its first-class liquor production volume by 1,500 tons to 11,500 tons this year, and it will produce 15,000 tons in 2011,” Tong added.
Wuliangye expects a net profit of 2.72 billion yuan ($398.41 million) throughout 2009, or an above 50 percent increase year-on-year. Shares of Wuliangye edged up 0.38 percent to 31.56 yuan on Friday.

No report from Google yet: Ministry

No report from Google yet: Ministry

China’s Ministry of Commerce (MOC)spokesman Yao Jian told a regular press conference on Friday that the ministry hadn’t received any report from Google stating the company would leave China yet.
He said China would continue to provide sound investment environment for overseas investors. Overseas businesses, including Google, should also respect laws and regulations and relevant policies of their host countries.

Chinas State Grids 2009 profits down

China’s State Grids 2009 profits down

The State Grid Corporation of China, the nation’s biggest power transmission and distribution company, reported falling profits last year.
Last year’s profits shrunken to 4.52 billion yuan (665 million U.S. dollars) from 9.75 billion yuan in 2008, Liu Zhenya, general manager of the company, said at a meeting on Thursday,
The decline was within market expectation as the power consumption had suffered decline as many industrial factories temporarily halted production amid falling orders during the global economic crisis.
That subjected the company to a loss of 16.05 billion yuan during January to September.
Investment in 2009 rose 22.5 percent year on year to 305.9 billion yuan for the expansion and upgrading of power networks.
Liu estimated the company’s profits would rise to 35.05 billion yuan in 2010, given the higher electricity prices and demand recovery.
He noted the company would invest 227.4 billion yuan in 2010 on the expansion of ultra-high voltage power transmission lines, rural network and smart grids.

Googles loss could be Baidus gain

Google’s loss could be Baidu’s gain

 

Domestic search firm Baidu Inc could be the biggest beneficiary of a possible pullout from China by Internet major Google, leading industry experts said yesterday.
The NASDAQ-listed Baidu already dominates the Chinese search landscape and it has signaled its intentions to spread wings, even before Google hinted at a pullout.
The California-based Google could see an exodus of advertisers from the Chinese mainland and see them switching to Baidu, something that could strain revenues in the long run for the US firm, experts said.
“Google may get applauses from many for its stance,” said Li Zhi, an analyst with research firm Analysys International. “But its advertisers may not be convinced, even if it buries the hatchet with the government.”
She said if Google exits China, Baidu would have a near monopoly of the market in the short term.
The world’s largest search engine said on Wednesday that it may close its China business if the government does not allow it to provide uncensored results in its Chinese version website Google.cn.
The company said it is still in discussions with the government and may eventually close its Chinese offices.
“We are still waiting for the final decision from Google China,” said a top official from an advertisement company. The official, who declined to be named, said many of his clients have expressed concern on the issue and are planning not to advertise on Google.

The US company started to provide Chinese language search services in 2000. It started making significant growth only after it established a China team in 2005 and launched domestic website Google.cn.
According to Analysys International, Google’s market share in China rose from 22.8 percent in 2006 to 35.6 percent in the fourth quarter of last year, while Baidu’s share fell from nearly 70 percent to 58 percent.
Google has been planning to rejig its strategy in China after its former head Lee Kaifu quit the company in September to start his own venture.
John Liu, who succeeded Lee, said last month that it was time for Google to resume its role as a multinational firm. “We are not Google China, but Google in China,” he said, while speaking to CBN Weekly, a domestic business magazine.
Industry experts said the stringent Internet regulations could be prompting Google to think of pulling out from the country.
Lee could not be reached for comments yesterday. But he posted a message on a domestic Twitter like service saying, “a captain would never run away from his duty if he knew the ship was sinking.”

Ping An to lift bond holdings

Ping An to lift bond holdings

Ping An Insurance (Group) Co will boost its holdings of bonds such as corporate debt this year as inflation drives up yields, Chen Dexian, deputy chief investment officer of China’s second-largest insurer, said in an interview.
The Shenzhen-based company cut cash holdings to boost bonds in the second half of 2009, Chen, who manages about 560 billion yuan as chairman of Ping An Asset Management Co, said without giving details. Fixed-income investments fell to 74.7 percent as of June 30, down from 80.7 percent at the end of 2008, according to the company’s 2009 half-year report.
“We were below our bond investment benchmark in 2009 and since the slowly climbing interest rates are good for us, we’re now slowly getting neutral,” Chen said in an interview in Shanghai. “If rates reach very high levels, we may go above the benchmark.”
China’s central bank sold bills at a higher yield for the second time in a week, increasing the likelihood policymakers will raise the benchmark interest rate in the first half as consumer prices climb. The central bank on Tuesday unexpectedly raised the proportion of deposits banks must set aside as reserves to cool the world’s fastest-growing major economy as a credit boom threatens to stoke inflation and create asset bubbles.
China’s consumer prices rose 0.6 percent in November from a year earlier, the first increase in 10 months.
Rising yields will help Ping An improve returns on its new debt holdings, Chen said. The spread between so-called guaranteed enterprise bonds and government debt may decline to between 100 and 120 basis points later this year from about 140 basis points now, which remains “very attractive”, he said.
China’s benchmark stock index still has room to rise, Chen said, after the Shanghai Composite Index surged 80 percent last year as a 4 trillion yuan stimulus package helped the world’s third-largest economy recover from the global financial crisis.
“Our estimate is corporate profits will not be bad, and neither are valuation levels,” Chen said. “But it will be difficult to see gains like last year’s, and volatility in the stock index will increase.”
Ping An’s investment returns exceeded targets and were “relatively desirable” in 2009, he said without being specific.
Ping An boosted equities by 1.8 percentage points in the first half of 2009 to 9.6 percent as of June 30 as the market rallied. The ratio was “a little bit” higher at the end of last year, Chen said, adding any level between 10 percent and 15 percent is “normal”.
Profits at listed companies may rise 25 percent this year, while valuations will be about 18.5 times earnings, Chen said. The executive said he favors financial, property and medical stocks for the medium to long term, or over the next two-to-three years.

CNGG seeks more mines overseas

CNGG seeks more mines overseas

China National Gold Group Corp (CNGG), the country’s second largest gold producer, will transfer several gold mines as assets to its Canadian subsidiary Jinshan Gold Mines this year and acquire more mining assets abroad through Jinshan, the China Daily reported Thursday.
The company was in talks to buy several gold mines overseas, but declined to give details, the newspaper quoted Song Xin, vice-president of CNGG, as saying.
“Our target investment destinations include neighbors such as Russia and Mongolia, as well as North America, Australia and Africa,” said Song. “Jinshan will serve as an overseas investment platform, because as a company listed on the Toronto stock exchange, it has easier access to foreign investors and mining assets.”
CNGG prefers low risk and mature projects in terms of foreign investment. “We are only interested in operating mines, and will not get involved in grassroots risk exploration projects,” the newspaper quoted Wu Zhanming, capital operation manager at the group, as saying.
CNGG added 92.4 tons of new resources to its 1,200 tons of gold reserves in 2009, entrenching its position as the country’s largest gold reserves holder. It produced 123.19 tons of gold in 2009, up 37 percent from 2008, according to the newspaper.