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Changhong Seeks New Profit Avenues

Changhong, one of China's leading TV makers, intends to diversify into computers, communications and consumer electronics (3C), as profit margins in the TV manufacturing industry narrow.

However, analysts are skeptical the company can reach the same heights in these new areas as it did with TV manufacturing.

The Mianyang, Sichuan Province-based company announced on Monday the launch of two new companies - Sichuan Changhong Information Technology Co Ltd and Guohong Communications and Digital Group Co Ltd. The former, 99.5-per-cent-invested in by Changhong with a registered capital of 18 million yuan (US$2.17 million), will further promote Changhong's co-operation with China Telecom in sectors including visual communications and IPTV. The remaining 0.5 percent was contributed by the new company's core management team.

The latter firm will mainly develop computer and communications products. It was 45-per-cent-invested in by Changhong with a registered capital of 200 million yuan (US$24.15 million). Changhong's subsidiary in South China's Guangdong Province took 25 percent of the new company with the rest going to another Changhong subsidiary in East China's Jiangsu Province.

The new firms will help Changhong restructure itself towards 3C industries and are expected to become new avenues of profit for the parent firm, Changhong said in a statement.

"After restructuring into 3C industries, we will try to become profitable again this year," Changhong's President Zhao Yong was quoted by the China Business News as saying.

Earlier this month, the company announced a total loss of 3.7 billion yuan (US$446.8 million) for 2004.

The company was not immediately available for comment.

"3C industries offer Changhong strong growth potential," said Zhang Bing, an analyst with CITIC Securities. "But it remains uncertain whether the company can be successful."

Chen Yuanwang, a home appliance analyst with China Securities, concurred.

"This is the only way for Changhong," Chen said. "But the best times have gone," as most of the core technologies are now owned by foreign competitors.

Changhong's only hope lies in its mass production capacity and broad sales network, Chen said.

(China Daily March 31, 2005)

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