Saturday, May 8, 2010

India Situation and Beijing Investment

The perceived benefits of the investment/involvement of Beijing E-Town International Investment and Development Co., a company formed by the local government in Beijing is now weighed down by the company's strategy in India.

While UT CEO Peter Blackmore mentioned on the call that they are pushing hard to nail down the significant BSNL Phase III contract, the security issues in India have delayed this contract for a couple of quarters now.

The security issue in India is mostly directed at Huawei (see article).

"However, the Indian security agencies - IB and RAW - are convinced that Huawei is part of Chinese spy network. They have cited its links with PLA as evidence against it.

However, the bigger embarrassment for the Chinese officials may be the issue of corrupt practices that Huawei officials are allegedly involved in India. Corruption is a serious issue in China and officials involved in corruption are executed."

Blackmore has mentioned on the call that the company understands the seriousness of this issue in India. With analysts/investors, he mentioned potentially partnering with a local Indian company down the road but now is going back to India this month. At this stage, the longterm potential benefits of the Beijing investment group is having a short term negative impact on the company via the BSNL phase III contract being delayed.

The net effect is obviously negative as nothing was clarified. The overall 6-7% market drop this week, very low Q1 bookings, still high opex on top of the unresolved Beijing investment/BSNL phase III contract lead to a further 23% decline this week and an overall 30+% decline in just the last two weeks.

With all the uncertainties/negatives mentioned above, most institutional investors stayed on the sidelines after the quarterly update. However, it has now become a compelling buy again for traders and those that want to play either a (market) bounce or short term resolution of the above items or longer term accumulation.