Alcatel, TCL Create Mobile Phone Joint Venture
Alcatel, France's leading telecommunications company
and the fourth largest mobile phone brand in China, has
joined with TCL, the Chinese electronics giant, to set
up a new joint venture to develop, market and distribute
mobile phones. TCL will invest 55 million euros to control
55 percent of the company, with Alcatel taking the remaining
45 percent of the company.
According to the agreement, Alcatel will have the right
to exchange its shares in the joint venture for TCL shares
after four years. Five years after the establishment of
the joint venture, TCL will have the option to exchange
its shares for the Alcatel's remaining shares in the JV.
The move gives Alcatel a way to get out of the mobile
phone market and focus on telecommunications equipment
and manufacturing. More than 600 staff from Alcatel involved
in development, sales and management will join the new
company, which will become formally established in the
third quarter of this year, pending final approval of
the boards of both companies.
TCL,
which is based in Huizhou, Guangdong is a state-owned
enterprise which has performed well in transitioning to
a competitive market-oriented company. Its main products
are home appliances and mobile phones. Its CEO, Chen Dongsheng,
has acquired a reputation as one of China's outstanding
managers, and the Chinese government has been particularly
supportive of its efforts to create an international brand.
The company is listed on the Hong Kong Stock Exchange.
This deal follows on TCL's
purchase last year of Thomson's assets in television
manufacture. The new mobile joint venture raises questions
as neither TCL or Alcatel have shown meaningful profits
in this highly competitive industry. TCL sold 9.8 million
handsets last year, and earned US$1 million. Alcatel sold
7.6 million handsets, but did not reach profitability
until the fourth quarter of 2003.
The mobile phone industry in China are now dominated
by Nokia, Motorola and the domestic Ningbo
Bird. Nokia and Motorola have been successful with
the business market, but Ningbo Bird has been successful
breaking into the volatile youth market. The company has
been particularly successful in making new models specifically
targeted at China's young urban market, which has quickly
changing tastes, and think nothing of changing their mobile
phones four times a year. In this market, customers often
make judgments about each other based on the phone model
they carry.
While China now has the world's largest number of mobile
phone subscribers with more than 250 million users, it
is getting more competitive all the time. A significant
market for used mobile phones has formed in the Chinese
countryside, with dealers buying used phones in the main
cities and taking them to the countryside for sale.
The challenge for the new TCL-Alcatel joint venture will
be clearly defining its place in this very challenging
market, and earning a profit.
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