NEC Invests in Operators

On the very same day that NTT DoCoMo Inc. (NYSE: DCM) wrote down its holding in Hutchison 3G UK Ltd. (see DoCoMo Takes a $4.7B Hit), NEC Corp. (Nasdaq: NIPNY) announced it is buying a 5 percent stake in fellow 3G hopeful Hutchison 3G HK Holdings in Hong Kong (see NEC Invests in Hutchison).

NEC is also taking a 5 percent stake in Hutchison Telephone Co.(HTCL), another part of the Hutchison Whampoa Ltd. (Hong Kong: 0013) empire. The combined expenditure on these two stakes is US$73.1 million.

The move, which is separate and unrelated to DoCoMo's announcement, is ostensibly to "create a strong strategic partnership" with Whampoa. Referring to the coincidence that its investment was announced as DoCoMo took a writedown, NEC spokeswoman Akiko Shikimori says “You could call it bad timing.” Shikimori goes on to stress that NEC is a “very different company” from DoCoMo and wants to take advantage of Hutchison’s “very strong operational know-how.”

Which means? “NEC wants to strengthen its relationship only on the supplier side,” she says. Ah, right. NEC wants to sell much more kit to Hutchison. Fair enough.

Although it's impossible to tell this from the press release, NEC is buying newly issued stock from both companies, representing a 5 percent investment in each. By doing this, DoCoMo’s stake is diluted from 25.37 percent to approximately 24 percent in each company, says Shikimori, though she would not elaborate on how much each tranche cost.

One mystery from the official announcement is NEC's overly bold claim that it is "already the supplier of… more than one million 3G devices for Hutchison 3G operations." As none of Hutchison's 3G companies are in commercial operation, and the U.K. greenfield carrier just took delivery of 1,000 devices today from NEC, a 1 million figure seems, well, fanciful to say the least.

The truth is that NEC is getting ahead of itself, but glad to make it sound as if it's delivering the goods right now. "Hutchison is launching 3G in eight countries, so gradually NEC will supply a million,” says the hopeful Shikimori. Goodness, imagine what figures Nokia Corp. (NYSE: NOK) could drum up if it took the same approach!

Apart from cozying up to an upcoming big spender in the wireless market, what else could NEC be thinking of with this investment? Well, a short-term investment it ain't. "All telecom stocks are now at their most fragile, and we can’t see prices going up in the short term. It may be viewed as a strategic investment,” says IDC senior analyst Mitchito Kimura.

— Paul Kallender, special to Unstrung
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