Warburg Pincus, a US-based private equity fund, is to acquire a stake in Beijing Tianyu, one of the nation's major mobile phone makers, in a move that marks a step up in the US group's investment in China.

The acquisition is being closely watched by both domestic and overseas investors and manufacturers in the industry, which is largely dominated by foreign brands.

A large infusion of capital could help Tianyu to compete with foreign businesses in a sector that demands huge investment in design and development.

"We initially intend to sell no more than a 10 percent stake to Warburg Pincus for around $70 million," Xiao Chaojun, manager for branding at Beijing Tianyu Communication Equipment Co, told China Daily. The exact size of the stake and the price, he added, will be confirmed by the National Development and Reform Commission.

The two companies have already signed a memorandum of understanding to forge a partnership in Beijing.

Xiao said the partnership with Warburg Pincus would be the first step in the private company's fundraising plan. It would continue to seek other investors to help strengthen its competitiveness in China's mobile phone market with an aggregate sales of 49 billion yuan in the first quarter of 2008, up 7.22 percent from the previous quarter.

Latest figures compiled by CCID, an affiliate of the China Center for Information Industry Development, showed that Beijing Tianyu's market share rose to 5 percent in the first quarter of 2008, overtaking Lenovo, at 3.9 percent, to become the leader among domestic manufacturers.

In comparison, Nokia has a stranglehold of 37.4 percent market share, followed by Samsung with a 14.1 percent share.

Last year, Beijing Tianyu Communication Equipment Co reported 17 million sets in sales, and exports accounted for 28 percent of sales.

Rong Xiuli, general manager of Tianyu, said she wants the company to take a larger slice of the market than its rival Samsung in China this year.

She said she wants the group to develop into a more potent challenger to compete with its strong foreign competitors.

Tianyu recently introduced the nation's first set of camera cell phone with 8 megapixel, called "K-touch C800".

Although the company has launched a series of high-end products, Rong said their major target customer group remains the low-end market this year.

Xiao Wang, a salesman in Kinfic Telecom, a local mobile phone chain retailer, said that Tianyu, which has less advertisement than its foreign counterparts, has become popular with middle-aged men and older customers.

Julian Cheng, a managing director of Warburg Pincus who oversees the talks with Tianyu, said Warburg is keen to explore opportunities in Chinese cell phone market, that boasts more than 584 million mobile users.

Warburg Pincus, as one of the first group of private equity funds entering China 15 years ago, has plowed an investment totaling 13 billion yuan into China, said Henry Schacht, partner of Warburg Pincus.

(China Daily June 10, 2008)