Datang Telecom May Revive Beijing Xinwei Merger

Datang Telecom May Revive Beijing Xinwei Merger

China Securities Journal Li Shaolin

Analysts believe that Chen Wei's dismissal paves the way for Xinwei's overseas listing and is also part of the restructuring of Datang Telecom Group, while the listed company Datang Telecom may revisit the old topic of acquiring Xinwei.

Beijing Xinwei Communication Technology Co., Ltd. recently announced that, for the company's long-term development, the board proposed that Chen Wei not serve as the company's president, but instead serve full-time as vice chairman. Analysts believe that Chen Wei's dismissal paves the way for Xinwei's overseas listing and is also part of the restructuring of Datang Telecom Group, while the listed company Datang Telecom (600198) may revisit the old topic of acquiring Xinwei.

Paving the Way for Overseas Listing

Beijing Xinwei and Datang Telecom are both subsidiaries of Datang Telecom Group. Xinwei developed China's first wireless communication core technology with completely independent intellectual property rights, SCDMA, which was awarded the National Science and Technology Progress First Prize. SCDMA, commonly known as "Big Lingtong," is now widely used in rural village-to-village telecommunications projects. Moreover, Datang Telecom has developed the domestic 3G standard TD-SCDMA based on SCDMA.

Chen Wei is the main inventor of SCDMA and is known as the "Father of SCDMA." He has served as president of Xinwei for 10 years. Although this is not the first time he has been dismissed, Chen Wei expressed shock at this dismissal. In an interview with the media, he stated that he was removed from the president position without any prior knowledge.

Xinwei also announced that the board decided to appoint Chen Wufu as the company's president and Lin Bo as executive deputy general manager. Chen Wufu graduated from the University of Florida and pursued a doctoral degree at the University of California, Berkeley. Xinwei's announcement stated that Chen Wufu is a very successful network communications entrepreneur and venture capitalist.

In this regard, analysts said that replacing Chen Wei, who has a technical background, with venture capitalist Chen Wufu as president of Xinwei has clearly sent a signal that Datang Telecom is paving the way for Xinwei's overseas listing.

However, there are other reasons for Chen Wei's dismissal. Xinwei's own product technology transformation and the internal restructuring of Datang Telecom Group are both forcing the "Father of SCDMA" to leave.

In fact, Chen Wei had been at Xinwei for 11 years and had been removed once before. In 1999, Datang Group used a similar surprise approach to remove Chen Wei from his position as president of Xinwei at that time. However, due to subsequent personnel turmoil and poor performance, Chen Wei was invited back to China in 2000 and resumed his role as president of Xinwei.

After this setback, Chen Wei established an even deeper foundation at Xinwei. An insider at Datang Telecom told reporters that given Chen Wei's deep roots at Xinwei, he found it hard to imagine Chen Wei being suddenly transferred.

However, the insider believed that since Xinwei is preparing for an IPO, the company's equity structure needs to be restructured, and Chen Wei's deeply entrenched position at Xinwei would actually be an obstacle to the equity restructuring. After all, Xinwei is not a private enterprise but is indirectly controlled by the State-owned Assets Supervision and Administration Commission through Datang Telecom, so Chen Wei's departure is understandable.

Related to Datang's Internal Integration

In addition, Chen Wei's departure is also closely related to Xinwei's transformation and the internal restructuring of Datang Telecom Group.

Xinwei's core technology is SCDMA, and Datang Telecom has also developed the domestic 3G standard TD-SCDMA based on SCDMA. However, the application scope of SCDMA is limited, and it is currently only used in rural village-to-village telecommunications projects.

Analysts believe that the rural village-to-village project is ultimately a government project, which provides very limited help to the company's market expansion. Xinwei also faces the issue of finding new product lines, especially as Xinwei seeks an overseas listing, making this issue particularly urgent.

According to a company insider, in recent years, Xinwei has devoted most of its efforts to a wireless data access technology called McWILL, whose corresponding competitor is WiMAX.

Xinwei hopes that the success of this technology will bring tremendous market opportunities, and it is also regarded by relevant national authorities as a pioneer in competing with WiMAX.

However, the leader of Xinwei's wireless access technology is not Chen Wei, but Yang Yigang, vice chairman of the listed company Datang Telecom. In a sense, in the eyes of Datang Telecom's leaders, the future of Xinwei is not SCDMA, and therefore it will not be Chen Wei.

In Datang Telecom's overall strategy, Xinwei has always remained on the periphery, with no connection to the listed company and no mutual support with Datang Mobile. This detached state is clearly difficult for the company's new leadership to accept.

Shi Wei estimated in his blog that "the new leader of Datang finds it difficult to manage the scientist-type Chen Wei, resulting in poor communication between the two."

Interestingly, Chen Wei stated that certain practices of Datang Telecom do not maximize the value of Xinwei, but rather exploit Xinwei.

This brings to mind the rumors of Datang Telecom acquiring Xinwei. An acquisition of Xinwei by Datang Telecom would undoubtedly improve the current main business structure, transitioning from the current microelectronics-dominated main business to a communications business, which is precisely the reform that Cao Bin, the new president of Datang Telecom, is undertaking.

However, according to informed sources, due to Chen Wei's insistence, the rumors of Datang Telecom acquiring Xinwei ultimately faded away. Chen Wei's departure will undoubtedly reduce much resistance to Datang Telecom's merger with Xinwei.

Analysts also believe that although Chen Wei's departure will have a huge negative impact on the development of SCDMA, it will not affect the domestic 3G standard TD-SCDMA, which is currently in pre-commercial trials.