Bill Zhang

Friday, October 28, 2005

Flextronics stock price down nearly 25% this week

Flextronics fell $2.90, to close at $9.20, after saying Tuesday it expects to post a third-quarter net profit of between 15 cents and 17 cents a share. Excluding one-time items, the company forecast a profit of 18 cents to 20 cents a share, on revenue in a range of $4 billion to $4.2 billion.

However, analysts had forecast Flextronics to earn 25 cents a share, on $4.56 billion in revenue.

On a conference call with industry analysts, Chief Executive Michael Marks said Flextronics continues to be impacted by the divestitures of its semiconductor and network services businesses as well as the loss of European cellphone customers Alcatel and Siemens AG over the last year.

The company also makes computing and other electronic products for larger technology firms such as Hewlett-Packard Co. and Sony Ericsson. Marks said those companies were the only Flextronics customers to contribute more than 10% to the company's revenue during the quarter.

Credit Suisse First Boston analyst Michael Walker lowered his rating on Flextronics to neutral from outperform, citing the company's cellphone business issues as a main reason for his downgrade.

Walker said cellphones were Flextronics' "bread and butter and the fastest growing outsourcing end market, (and) the company's biggest problem. "Flextronics is telling us that its design effort has failed to keep the company from falling behind, if not losing share to, Asian (manufacturers)."

With $15.6 billion in revenue over the past year, Flextronics is the largest of the so-called electronics contract manufacturers. Its main competitors include Solectron

SLR3.53, -0.05, -1.4%) , with $10.4 billion in sales over the same period; Jabil Circuit (JBL:Jabil Circuit Inc JBL29.08, -0.58, -2.0%) and Celestica Inc.

But all the main companies in the sector have seen their profits shrink, or grow at very low rates due to factors such as competition from Asia and low margins.

In addition to its weak third-quarter forecast, Flextronics reported a second-quarter loss of $2.4 million, to break even on a per-share basis, on $3.9 billion in revenue, compared to a profit of $98.5 million, or 16 cents a share, on revenue of $4.14 billion during the same period a year ago.

Excluding one-time items, the electronics contract manufacturer would have earned $101.3 million, or 17 cents a share. However the results fell short of the estimates of analysts surveyed by Thomson First Call, who forecast a profit of 19 cents a share on $4.1 billion in revenue.

The one-time items included $50.3 million in pre-tax restructuring charges, $33.5 million in charges related to closing and consolidating manufacturing facilities, and $14.6 million in amortization expenses.

Flextronics said it recorded a pretax gain of $70.7 million related to the sale of its semiconductor and network services divisions. The company sold its semiconductor business to AMIS Holdings, the parent company of AMI Semiconductor, and merged its network services division with Telavie, a company owned by private equity firm Altor 2003 Fund.

China Luring Foreign Scholars to Make Its Universities Great

From NY times


When Andrew Chi-chih Yao, a Princeton professor who is recognized as one of the United States' top computer scientists, was approached by Qinghua University in Beijing last year to lead an advanced computer studies program, he did not hesitate.

It did not matter that he would be leaving one of America's top universities for one little known outside China. Or that after his birth in Shanghai, he was raised in Taiwan and spent his entire academic career in the United States. He felt he could contribute to his fast-rising homeland.

"Patriotism does have something to do with it, because I just cannot imagine going anywhere else, even if the conditions were equal," said Dr. Yao, who is 58.

China wants to transform its top universities into the world's best within a decade, and it is spending billions of dollars to woo big-name scholars like Dr. Yao and build first-class research laboratories. The effort is China's latest bid to raise its profile as a great power.

China has already pulled off one of the most remarkable expansions of education in modern times, increasing the number of undergraduates and people who hold doctoral degrees fivefold in 10 years.

"First-class universities increasingly reflect a nation's overall power," Wu Bangguo, China's secondranking leader, said recently in a speech here marking the 100th anniversary of Fudan, the country's first modern university.

The model is simple: recruit top foreign-trained Chinese and Chinese-American specialists, set them up in well-equipped labs, surround them with the brightest students and give them tremendous leeway. In a minority of cases, they receive American-style pay; in others, they are lured by the cost of living, generous housing and the laboratories. How many have come is unclear.

China is focusing on science and technology, areas that reflect the country's development needs but also reflect the preferences of an authoritarian system that restricts speech. The liberal arts often involve critical thinking about politics, economics and history, and China's government, which strictly limits public debate, has placed relatively little emphasis on achieving international status in those subjects.

In fact, Chinese say - most often euphemistically and indirectly - that those very restrictions on academic debate could hamper efforts to create world-class universities.

"Right now, I don't think any university in China has an atmosphere comparable to the older Western universities - Harvard or Oxford - in terms of freedom of expression," said Lin Jianhua, Beijing University's executive vice president. "We are trying to give the students a better environment, but in order to do these things we need time. Not 10 years, but maybe one or two generations."

Nonetheless, the new confidence about entering the world's educational elite is heard among politicians and university administrators, students and professors.

"Maybe in 20 years M.I.T. will be studying Qinghua's example," says Rao Zihe, director of the Institute of Biophysics at Qinghua University, an institution renowned for its sciences and regarded by many as China's finest university. "How long it will take to catch up can't be predicted, but in some respects we are already better than the Harvards today."

In only a generation, China has sharply increased the proportion of its college-age population in higher education, to roughly 20 percent now from 1.4 percent in 1978. In engineering alone, China is producing 442,000 new undergraduates a year, along with 48,000 graduates with masters' degrees and 8,000 Ph.D's.

But only Beijing University and a few other institutions have been internationally recognized as superior. Since 1998, when Jiang Zemin, then China's leader, officially began the effort to transform Chinese universities, state financing for higher education has more than doubled, reaching $10.4 billion in 2003, the last year for which an official figure is available.

Xu Tian, a leading geneticist who was trained at Yale and still teaches there, runs a laboratory at Fudan University that performs innovative work on the transposition of genes. On Aug. 12 his breakthrough research was featured on the cover of the prestigious journal Cell, a first for a Chinese scientist.

Beijing University drew on the talents of Tian Gang, a leading mathematician from M.I.T., in setting up an international research center for advanced mathematics, among other high-level research centers. Officials at Beijing University estimate that as much as 40 percent of its faculty was trained overseas, most often in the United States.

The president of Yale University, Richard C. Levin, interviewed in Shanghai, where he was the featured guest at Fudan's centennial celebration in late September, also had high praise for China's students.
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Graphic China's Boom in Higher Education
China's Boom in Higher Education

"China has 20 percent of the world's population, and it is safe to say it has more than 20 percent of the world's best students," he said. "They have the raw talent."

But Mr. Levin also noted that China's low labor costs simplified the effort to upgrade. He said he had been astounded by the new laboratories at Jiaotong University in Shanghai, which he said could be built in China for $50 a square foot, compared with $500 a square foot at Yale.

Some critics say that the country is trying to achieve excellence in too many areas at once and that the plans of the 30 or so universities selected for heavy state investment duplicate efforts, sacrificing excellence. Even Mr. Levin tempered his enthusiasm with a warning that the "top schools have expanded much too fast and are diluting quality."

In many cases, though, the toughest criticism comes from people who have worked in the system.

"It is important for different universities to have different qualities, just like a symphony," said Yang Fujia, a nuclear physicist and former president of Fudan. "But all Chinese universities want to be comprehensive. Everybody wants to be the piano, having a medical school and lots of graduate students."

Mr. Yang, who leads a small experimental university in Ningbo, also criticized the lack of autonomy given to many Chinese researchers.

"At Princeton one mathematician spent nine years without publishing a paper, and then solved a problem that had been around for 360 years," Mr. Yang said, a reference to Andrew J. Wiles and his solution to Fermat's last theorem in the early 1990's. "No one minded that, because they appreciate the dedication to hard work there. We don't have that spirit yet in China."

Similarly, Ge Jianxiong, a distinguished historical geographer at Fudan, said Chinese culture often demands speedy results, which could undermine research. "In China projects are always short-term, say three years," he said. "Then they want you to produce a book, a voluminous book. In real research you've got to give people the freedom to produce good results, and not just the results they want."

Mr. Ge added that education suffered here because "it has always been regarded as a tool of politics."

Dr. Yao said he had expected to concentrate on creating a world-class Ph.D. program but had found surprising weaknesses in undergraduate training and had decided to teach at that level. "You can't just say I'll only do the cutting-edge stuff," he said. "You've got to teach the basics really well first."

But the biggest weakness, many Chinese academics indicated, is the lack of academic freedom. Mr. Yang, the former president of Fudan University, warned that if the right atmosphere was not cultivated, great thinkers from overseas might come to China for a year or two, only to leave frustrated.

Gong Ke, a vice president of Qinghua University, said universities had "the duty to guarantee academic freedom."

"We have professors who teach here, foreigners, who teach very differently from the Chinese government's point of view," he added. "Some of them really criticize the economic policy of China."

Li Ao, a writer in Taiwan, visited Beijing University in September and gave a speech calling for greater academic freedom and independence from the government. The next day, after reportedly coming under heavy official pressure, he delivered a far tamer version elsewhere. .

The Chinese government also censors university online bulletin boards and discussion groups, and recently prevented students at Zhongshan University in Guangzhou from conversing freely with visiting elected officials from Hong Kong.

Students here are not encouraged to challenge authority or received wisdom. For some, that helps explain why China has never won a Nobel Prize. What is needed most now, some of China's best scholars say, are bold, original thinkers.

"The greatest thing we've done in the last 20 years is lift 200 million people out of poverty," said Dr. Xu. "What China has not realized yet, though, if it truly wants to go to the next level, is to understand that numbers are not enough.

"We need a new revolution to get us away from a culture that prizes becoming government officials. We must learn to reward real innovation, independent thought and genuine scholarly work."

Thursday, October 27, 2005

CNPC completes acquisi-tion of PetroKazakhstan

China National Petroleum Corporation (CNPC) announced Thursday morning it has successfully acquired Canada-based PetroKazakhstan Inc. (PK) through its wholly-owned subsidiary CNPCI.

Wednesday morning, Canadian time, the China's largest oil producer saw its planned acquisition of PK through CNPCI was granted "unconditional" final order by the Queen's Bench Court, Calgary, Canada.

CNPC's bid for PK is 55 US dollars per share, totaling 4.18 billion US dollars, the largest overseas takeover transaction ever made by a Chinese company.

Lukoil of Russia, one of CNPC's major rival in the deal made noappeal, indicating the completion of all legal procedures of the transaction.

To date, the transaction has been completed, announced CNPC.

At local time Wednesday afternoon, Chinese Premier Wen Jiabao met Kazakhstan Prime Minister Danial Akhmetov in Moscow, when attending the Shanghai Cooperation Organization Summit.

Both Premier and the prime minister expressed their strong support for the mutual-benefit cooperation between CNPC and KazMunaiGaz over PK after the completion of the acquisition.

Kazakh Prime Minister promised to help to resolve all remained problems of PK in Kazakhstan together with CNPC after the deal is closed.

Early in the shareholders meeting of PK held last Tuesday, 99.04 percent of all the voting shares were affirmative for the acquisition.

According to relevant transaction procedures, the outcome of the shareholders meeting needs to be sanctioned by the Canadian court.

However, in the court hearing of last Tuesday, the lawyer of Lukoil claimed that the company has the first right of refusal to buy a 50 percent stake in Turgai Petroleum, a joint venture between PK and Lukoil. In this connection, the Court postponed its ruling to Wednesday.

CNPC and PK concluded the negotiation on August 21 over the transaction with the signing of the"Arrangement Agreement".

According to CNPC, after two months of heavy workload, all formal approvals and legal procedures have been obtained and completed. At present, CNPC staff is working with PK and the hand-over of business is under way. Operation of PK is maintained as usual, and employees are unaffected.

PK Inc is an international energy company registered in Canada,with all of its assets, such as oilfields and refineries, in the Republic of Kazakhstan. PK's total annual production capacity of crude oil exceeds seven million tons.

Since its first presence in Kazakhstan in 1997, CNPC has developed good relationship with local government by strictly following local laws and regulations as well as international bestpractices of the industry.

Upon acquisition, in the spirit of win-win and mutual benefit, CNPC will choose to cooperate with KazMunaiGaz, the state oil company of Kazakhstan to operate and manage the PK project, said CNPC.

The two parties signed a memorandum of understanding on Oct. 15,according to which KazMunaiGas will obtain a certain amount of PK shares enough to have strategic control over the development of the country's mineral resources, together with the equal right forjoint management over Shymkent refinery and its products.

PK owns 12 oil fields, and exploration licenses in 6 blocks in Kazakhstan, with great exploration potential.

CNPC said it is confident that taking advantage of CNPC's strength in capital, technology and management, as well as CNPC's valuable experience in Kazakhstan, the production capacity of PK will be increased, and thus provides the Sino-Kazakhstan oil pipeline expected to be completed at the end of this year with a reliable supply.

The increase of investment in Kazakhstan and the acceleration of PK's development will help to ensure the stable supply of oil products of the country and boost local economy, said the company.

Wednesday, October 26, 2005

Google adds to China team

Google increased its focus on China by hiring a sales veteran to lead the US Internet search powerhouse's marketing strategy in that country, the AFP reported, citing the company's statement.

Johnny Chou will "establish and lead Google's sales and business development operations in Greater China," the Silicon Valley company said in a written release.

Chou was hired away from UT Starcom, where he was president of that company's China operations for nine years, according to Google.

"The leadership and experience that Johnny Chou brings to Google will be an invaluable asset to Google's plans for developing its business operations in China," said Omid Kordestani, senior vice president of Google's Worldwide Sales and Field Operations.

"Johnny Chou has a proven track record of leading businesses to success in the complex Chinese market and will accelerate our efforts to establish Google's operations in China."

Chou will work with Lee Kaifu, a former Microsoft executive wooed away from the US software giant earlier this year to establish and oversee a Google research center in China, according to Google.

Lee took up his post in China after Microsoft lost a court battle in the United States seeking to block the move.

Lee, a former vice president with Microsoft, was given the green light in September by a judge who said Lee could give Google non-technical advice on doing business in China.

Microsoft had argued Lee was violating confidentiality and non-competition clauses in his employee contract and could damage the company by giving Google access to its corporate secrets.

The judge barred Lee, a computer scientist known for pioneering work in the areas of speech recognition and artificial intelligence, from carrying out work related to computer searches, speech, or languages.

He was also ordered not to disclose any trade secrets he gleaned from Microsoft.

A civil trial that promises to have Google and Microsoft slugging it out in court over Lee is pending.

After arriving in China, Lee said his immediate aim was to recruit 50 college graduates this year, and hire engineers from within the industry.

Lee has been tasked with setting up the US Internet search giant's development centre in China. A decision is expected to be made soon on whether to locate it in Beijing or Shanghai, he said.

Lee and Chou will jointly oversee overall operations at Google's center in China, according to the company.

Chou will lead Google's sales and business development activities while Lee will spearhead Google's public affairs and the creation of the company's research and development center, the company said.

Google has heralded the creation of the centre as a sign of its strong commitment to cultivating Chinese talent as well as its intent to form alliances with universities and institutes.
"The opening of an R and D center in China will strengthen Google's efforts in delivering the best search experience to our users and partners worldwide," Alan Eustace, vice president of engineering at Google, said earlier this year.