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November 27, 2005

Takeover speculation surrounds China’s equipment vendors

Visits to China by the leaders of some of the West's biggest communications technology vendors has unleashed speculation that LM Ericsson Telefon AG and Siemens AG are about to launch bids for two of the players in the Chinese mobile market.

By CBR Staff Writer

Privately held Harbour Networks Ltd and Nasdaq-quoted UTStarcom Inc were both tipped as possible targets by local analysts, as top company executives attended the 3G Congress and Exhibition in Hong Kong.

With China due to issue 3G licenses early next year, it will become a major market for equipment suppliers and ownership of local companies, with strong links with the leading carriers offers distinct advantages.

Ericsson CEO Carl-Henric Svanberg was widely quoted as saying the company planned to acquire a company in China, but he declined to reveal the acquisition target, citing business secrets.

But Ase Lindskog, head of media relations at Ericsson’s Stockhold HQ, told Computer Business Review the statement was not accurate. Our CEO has never made any statement on acquiring companies in China, he said.

Christoph Caselitz, president of Siemens’ mobile networks division, told the China Daily that the company is looking for M&A opportunities. If there are good opportunities, we will definitely grab the chance, he said. Caselitz said Siemens intends to reach a number-two position in mobile networks within two to three years. He said this fiscal year, alone, Siemens will be investing triple-digit millions of euros in Asia, including funding for R&D in the field of mobile network technology.

What gives the speculation about Chinese acquisitions an interesting twist is that the investors behind Harbour Networks have signaled they are looking for an exit strategy.

The IP-based data networking equipment vendor was set up in 2000 by executives from networking equipment vendor Huawei. In March this year it completed a $37m round of private equity financing led by TVG Capital Partners, which claims to be the largest international private equity firm focused on the Asia communications sector.

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Its web site has an investor-relations section with all the familiar headings such as annual reports/SEC filings that suggest it is a public company. But any attempt to get into each section brings the message: Sorry, this section is under construction now.

Clearly Harbour has ambitions to be a Nasdaq-quoted company, and with 1,300 employees and a customer base that includes the main carriers in China, it has the scale to use an IPO as a launchpad into world markets.

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