WCA May 2010

Motorola had been considering selling or spinning off its mobile handset business for some time, but falling sales forestalled any action. The separation decision comes as the higher-profile handset unit has revived with the success of its Droid smartphone, which benefited from a strong push by Verizon Wireless. The unit’s chief executive Sanjay Jha said in January that he expected it to return to profitability by the fourth quarter, putting it on a sounder footing for the spinoff. But, as noted by Roger Cheng in the Wall Street Journal (12 th February), “The unit remains under pressure as it changes its focus to a more profitable segment of the cellphone market but still faces competitive pressure from the likes of Apple’s iPhone.” Under the division plan, the two companies would each account for roughly half of Motorola’s current sales, which totalled $22 billion last year. Reflecting a cautious strategy of diversification, China owns $9.6 billion worth of stock in American companies A 5 th February filing by China Investment Corp (CIC) with the US Securities and Exchange Commission provides a clue to Beijing’s thinking in the matter of investments in the United States. The filing clearly signals the $300 billion fund’s intention to move away from concentration in Treasury bonds and other US government-oriented debt securities toward diversification into stock in some of the biggest American corporations, including leading banks. Given that China commands more than $2 trillion in foreign currency holdings, it is a significant trend shift. Most of the US holdings are small. Even so, at the end of last year CIC owned stakes totalling $9.6 billion in some prominent American companies. These include Motorola (Schaumberg, Illinois), the manufacturer of wireless infrastructure equipment and phone handsets. The detailed list of holdings would come as no surprise to anyone who was listening when Prime Minister Wen Jiabao, among other Chinese officials, voiced their fears of how China’s substantial position in US Treasuries could be hurt by inflation or by mounting American debt. In addition to risk reduction through diversification, China’s new strategy can be seen as gaining it a say in companies able to provide a wide range of commodities. The CIC, formed only in 2007 but already one of the world’s largest sovereign funds, very likely is exercising extreme care with its American selections, after some painful early experiences. It acquired a $3 billion non-voting stake in the US private equity firm Blackstone, and paid another $5 billion for a 9.9% stake in the investment bank Morgan Stanley, only to see shares of both companies plummet in 2008. But the fund retained its confidence in Morgan Stanley; and, having added to that stake last June, now holds $1.7 billion worth of Morgan Stanley shares. US companies are not alone in offering investment ❖ opportunities for China’s rapidly accumulating wealth. CIC holdings include a $1 million stake in Research in Motion, the Canadian maker of BlackBerry mobile phones. The fund has also been buying small stakes in Australia’s biggest banks and last autumn paid $646 million for a holding in Noble Group, a diversified commodities company based in Hong Kong with global operations in industries including iron ore mining. Finance

Dorothy Fabian – Features Editor

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Wire & Cable ASIA – May/June 2010