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Monday, November 03, 2003

And It's Off to China We Go: PartXII

Today it's the French TV platform Thompson who have taken the plunge into China. (No plug intended but they made the set that's sitting in my living room). There is nothing very surprising or unexpected in this. OECD manufacturing will increasingly head for China. It is though important to note that the Chinese 'big thing' is being driven on two motors: FDI stimulated export growth raising little-by-little internal living standards, which then produces an internal market of awesome dimensions.

Thomson SA, the biggest supplier of televisions in the U.S., will merge its TV business with China's TCL International Holdings Ltd., creating the world's largest manufacturer by sales volume. Thomson, the Paris-based maker of RCA brand televisions, and Huizhou, China-based TCL will combine their television an DVD- player operations into a venture with $3.5 billion in sales, the companies said in separate statements. TCL, which leads China's TV market, will own 67 percent of TCL-Thomson Electronics, and Thomson the remaining 33 percent. Thomson Chief Executive Charles Dehelly has already announced 1,200 job cuts in the U.S. and shifted production to China, whose two dozen TV producers are increasing their share of the North American market because of lower costs. TCL's parent is planning to sell shares in China to help fund overseas expansion after profit from its mobile-phone business slumped. "The deal will help TCL's overseas expansion,'' said Lily Jap, an analyst at Nomura International (H.K.) Ltd.. "There are still many unknowns financially as Thomson's television business isn't making money. Who is going to bear Thomson's restructuring costs as they put the assets together?'' TCL's stock, which surged 29 percent last week to HK$2.925, was halted in Hong Kong. The stock has gained 23 percent this year. Thomson's shares rose 14 percent last week, closing at 18.12 euros in Paris on Friday.

China is the world's largest TV market and manufacturer, with 20 million units sold locally and 11.4 million exported in the first seven months of this year, according to the Ministry of Information Industry. TCL sold 3.7 million televisions in China during the period, compared with 3.6 million for No. 2 maker Sichuan Changhong Electric Co. Including exports, Sichuan Changhong was the bigger producer. TCL posted sales of HK$3.1 billion ($399 million) from televisions in the third quarter. About a fifth of Thomson's 10.2 billion euros revenue last year came from televisions and other video products. TCL-Thomson will have combined assets of 450 million euros and will sell as many as 18 million televisions a year, TCL said. "This strategic alliance fulfills our objective of being one of the top five players in multimedia electronics devices in the global marketplace,'' TCL Chairman Tomson Li said in a statement.

The Chinese company has been expanding in Europe. Last year, it bought assets from insolvent German TV maker Schneider Technologies AG. TCL also makes televisions for Royal Philips Electronics NV, which owns 4 percent of TCL Corp. Under the agreement, Thomson will contribute to the venture all its television factories in Mexico, Poland and Thailand; its DVD-player business; research centers; and 9,000 workers. TCL will contribute factories in China, Vietnam and Germany, as well as its sales outlets. The venture will focus on selling TCL brand televisions in Asia, Thomson brand in Europe and RCA brand in North America, TCL said. Thomson will also have the right to swap its one-third stake in TCL-Thomson for an unspecified number of TCL shares within 18 months after the venture is formed, TCL said. Thomson acquired the RCA brand when it bought Radio Corp. of America from General Electric Co. in the late 1980s. RCA, formed in 1919, introduced its first TVs in 1939 and invented the standard for color television adopted by the U.S. in 1953. "It's a trend that more TV makers will combine to form bigger groups,'' said Liu Haizhong, a spokesman for Sichuan Changhong Electric Co., a TCL rival. ``There is a huge market for televisions in China and in the world. The merger won't kill other rivals.''
Source: Bloomberg

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