Huawei Technologies Co, China's biggest phone-network equipment maker, is considering selling a majority stake in a handset unit that may be worth at least US$4 billion, two people familiar with the plan said.
The closely held company sent out invitations in the past month to private-equity firms, including Bain Capital LLC, Blackstone Group LP, TPG Inc, Kohlberg Kravis Roberts & Co, Warburg Pincus LLC and Carlyle Group, the people said, asking not to be identified because the matter is confidential. Bidders have until Monday to submit a non-binding offer, they said.
A sale would help Huawei raise funds to invest in its main operations of making routers and other network gear for China Mobile Ltd and other carriers and exit a slowing market dominated by Nokia Oyj and Samsung Electronics Co. Investors in the Shenzhen-based company's unit would get access to a business that researcher BDA China Ltd estimates doubled revenue to US$2.6 billion last year.
"Huawei makes cheap phones for emerging markets, with low-cost manufacturing in China behind that, which could make the unit attractive for investors," said Duncan Clark, managing director of Beijing-based BDA. "Handsets are a lower margin, highly competitive business, and not Huawei's strong point."
Huawei plans to sell at least 49 percent of the handset business, which also makes modems and wireless Internet cards, although the size of the stake would depend on the proposals submitted, the people said. The company doesn't plan to invite strategic investors to make a bid to avoid competition in the industry, they said.
The Chinese equipment maker hired Morgan Stanley as its financial adviser in "exploring opportunities" for private equity firms to invest in its handset unit, Huawei said in an e-mailed statement.
Huawei's unit, which makes customized phones for clients, including England-based Vodafone Group Plc, may generate US$380 million in profit on US$3.5 billion of revenue in 2008, the people said, citing information sent to potential bidders.
While analysts don't publish reports on Huawei, Frederick Wong at BNP Paribas SA in Hong Kong said investors may refer to Foxconn International Holdings Ltd, a contract handset maker for clients, including Nokia, to assess the unit's valuation.
Hong Kong-listed Foxconn trades at 10.6 times estimated 2008 earnings, according to data compiled by Bloomberg News. Based on Foxconn's multiple, Huawei's unit would be valued at US$4 billion.
Smaller phone makers are facing increasing competition from Nokia and Samsung, forcing China's Lenovo Group Ltd to sell its handset unit for US$100 million in February.
Nokia sold more phones in the first quarter than its three closest rivals combined, said researcher IDC. The Espoo, Finland-based company boosted its share of the global market to 39.6 percent from 35.7 percent a year earlier, the Massachusetts-based research company said.
Samsung's share rose to 15.9 percent in the first quarter from 13.6 percent, while Motorola Inc's almost halved to 9.4 percent, IDC said.
(Shanghai Daily June 20, 2008)
