China's tech dreams may see more IP buys

SHANGHAI, Dec 7 (Reuters) - Chinese companies are poised to acquire smaller, intellectual property-rich (IP) technology firms overseas, fuelled by the country's ambitious drive to converge its television, telephone and Internet networks.

Potential deals could come from companies such as Huawei and ZTE Corp that are looking for targets with an edge in the fibre optics and network equipment markets.

An all cash bid by China's Xinmao Group to gatecrash an all-European cable industry takeover with a €1 billion ($1.3 billion) offer for Dutch firm Draka highlights how less established companies are also seeking to benefit from a boom in fibre optics.

China is expected to have up to $100 billion in investment opportunities by 2015 to fully roll out "Triple Play" — the convergence of television, Internet and telephone networks. Many Chinese companies want to build to scale ahead of this to benefit from this business opportunity.

"China is at a stage where it would like to not open its doors to a host of foreign vendors to win all the plump contracts in a new platform initiative, but instead have domestic vendors win that," said Mark Natkin, managing director of technology consulting firm Marbridge Consulting.

FiberHome Telecommunication Technologies Co Ltd and Jiangsu Zhongtian Technology could be among the other Chinese companies looking for overseas acquisitions.

PacketFront, a Swedish company that specialises in networking products and cable maker Belden Inc could potentially turn up on the radar screen of acquirers.

Cross-border Chinese deals in the high-technology sector hit a decade high of $5.8 billion last year from 91 deals, according to Thomson Reuters data. There have been some 94 deals worth $2.3 billion so far this year.

"If the domestic vendors don't have the cutting edge, or leading technology..., then a very logical approach would be to go out and try to buy foreign companies that do," Natkin said. PacketFront is not interested in mergers and acquisitions at the moment, a spokesman said. Other companies mentioned in this report either could not be reached or declined comment.

DRAKA'S ATTRACTION

Draka, which holds over 800 patents, is the biggest fibre optics player in China, according to its website. By comparison, Xinmao's listed unit, Tianjin Xinmao Science & Technology holds just one patent, according to European Union's worldwide patent database.

"Triple Play" will allow Internet, television broadcasters and telecommunication firms to enter one another's industry and provide services.

"This will drive more partnerships and acquisitions of intellectual property that can offer more complete solutions, including Chinese operators finding sources outside China," said an executive with a major Chinese telecommunications firm. The source was not authorised to speak to media on this matter.

Broadcast operators will have up to 2013 to develop their network backbone before the market is opened up to competition, technology research firm iSuppli said in a report.

Companies are also looking to add incremental technological advances through overseas acquisitions.

Earlier this year, Huawei bought U.S.-based 3Leaf's IP for $2 million. 3Leaf competes with U.S.-based Akorri and deals with virtualisation of network servers that enable it to use resources more efficiently.

"Huawei and ZTE are going to expand their IP portfolio," said JP Gan, managing director of technology venture firm, Qiming Venture Partners. "They already have a core IP portfolio to succeed in this world, so it is all incremental," he added.
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