Optical/IP Networks

Ericsson Invests $1B in China

Ericsson AB (Nasdaq: ERICY) is to invest $1 billion in China over the next five years in an effort to secure more than a third of that country’s 3G wireless infrastructure business.

The Swedish vendor today outlined its plans to grab a slice of the lucrative Chinese 3G market. The country has approximately 363 million mobile subscribers, which is only a 28 percent penetration rate compared to the total population. 3G licences are expected to be awarded in the first half of next year, a move that has generated huge interest from network equipment vendors (see Vendors Chase Chinese Riches and Global Vendors to Rule China?).

Ericsson is eager to play a major role in such activity. Speaking at the company’s Strategy & Technology Summit in Shanghai, Ericsson’s president of Greater China, Mats Olsson, announced plans for a $1 billion investment in the country between 2006 and 2010.

“The investment will focus on further expanding our manufacturing capabilities, the continuously rapid establishment of R&D centers, and also significant expansion of our service capacity and capabilities. In addition to this, there will be significant local purchasing for the global market.”

Olsson believes the Chinese 3G market will be worth “10 to 12 billion dollars,” and the vendor is keen to secure a 35 percent marketshare. This would give Ericsson a potential return on investment of up to $4.25 billion.

“Our ambition is to maintain a level of around 35 percent market share across 3G, and I think we are very well positioned for that. We have obvious critical mass, more mass than anyone else in wideband-CDMA. We will continue the R&D efforts, we have a strong local presence, and we are deeply embedded in the local telecoms industry.”

Ericsson is likely to face serious competition in its quest. As well as local players Huawei Technologies Co. Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), the likes of Alcatel (NYSE: ALA; Paris: CGEP:PA), Nokia Corp. (NYSE: NOK), Nortel Networks Ltd. (NYSE/Toronto: NT), Lucent Technologies Inc. (NYSE: LU), Motorola Inc. (NYSE: MOT), and Siemens AG (NYSE: SI; Frankfurt: SIE) are also gearing up for battle.

“In China there are probably eight vendors with an ambition to play a role in 3G,” admits Olsson.

— Justin Springham, Senior Editor, Europe, Unstrung

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