Microsoft to Buy Stake in Chinese TV Maker Changhong

18 Jun 2007 • by Natalie Aster

Microsoft Corp., which is losing U.S. users for software that connects televisions to the Internet, agreed to buy a stake in China's second-biggest TV maker as part of plans to develop similar products for the Asian country, reported The Bloomberg.

Sichuan Changhong Electric Co. will sell 15 million new shares to the world's biggest software maker for 94 million yuan ($12 million), the Chinese company said today in a statement to the Shanghai Stock Exchange. The companies will jointly develop computers and TVs that connect to the Web, it said.

China may pass the U.S. this year to become the market with the most high-speed Internet connections in the world, a service that enables users to watch films and TV shows over the Web, according to researcher Point Topics Ltd. Comcast Corp. said last month it would stop using Microsoft's applications for Internet TV services in Washington State.

``The easiest way for Microsoft to grow in the Chinese market is to have a local partner,'' said Randy Zhou, an analyst with Bank of China International in Shanghai. ``Changhong is looking for new products like Internet TVs because demand for their cathode-ray tube TVs is declining.'' Zhou rates Changhong's shares ``outperform.''

Changhong's stock rose the 10 percent daily limit today to 10.92 yuan at the end of trading in Shanghai, closing at its highest since May 29. The shares have more than doubled this year, compared with a 59 percent gain in the Shanghai Stock Exchange Composite Index.

Microsoft, based in Redmond, Washington, will buy the 15 million new Changhong shares for 6.27 yuan each, the Chinese company said. The price of the 0.8 percent stake in Changhong represents a 37 percent discount to the stock's 9.93 yuan closing price when it last traded on June 14, according to data compiled by Bloomberg.

The U.S. company will provide Changhong with software technologies to help develop electronics products, Roger Chen, a Beijing-based spokesman for Microsoft, said by telephone. He declined to say what Microsoft applications Changhong may use.

Changhong will use money from the share sale to Microsoft to help buy 75 percent of Dutch company Sterope Investments BV, owner of South Korean plasma-panel maker Orion PDP Co. The Chinese company said in April it planned to raise 2.5 billion yuan for the acquisition by selling 400 million new shares to 10 institutional investors.

Microsoft agreed not to sell the Changhong shares for three years, according to today's statement.

Chinese consumers may buy more flat-panel TVs, including liquid-crystal and plasma display sets, than cathode-ray tube TVs for the first time this year, according to researcher DisplaySearch. Microsoft and Changhong formed an agreement in June 2004 to jointly develop TV set-top boxes, handheld devices and other consumer electronics.

Comcast, the biggest U.S. cable-TV provider, said it will this month switch to using software for video-on-demand services and programming guides developed by GuideWorks LLC, a venture the operator owns with Gemstar-TV Guide International Inc. The cable provider was the first company in the U.S. to use Microsoft's TV software in 2004.

Changhong said in April that its first-quarter net income rose 2.4 percent from a year earlier to 72.5 million yuan as sales increased 28 percent to 4.97 billion yuan. The company sells TVs and DVD-players outside of China using the Celestial brand name and is also a contract manufacturer of consumer electronics for other companies.

China was home to 56.3 million broadband subscribers in the first quarter, compared with 60.4 million in the U.S., according to Point Topic.