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China Stands Firm on Encryption Rules

China will not back down on a plan to force computer makers to adopt a new standard for encrypting wireless communications after Intel Corp. said it would halt sales of its Centrino chip package in the nation.

Intel, the world's biggest chipmaker, will stop sales of the wireless communication device after balking at government demands for alterations before June 1. A quarter of all laptops sold in China last year used the chip, including those made by Legend Group Ltd., the country's largest personal computer maker.

"The government's position is unequivocal,'' said Wang Xilin, deputy director of the Standardization Administration of China, a unit of the State Council, the Cabinet. "June 1 is the deadline. That's not going to change.''

Intel spent US$300 million promoting its Centrino chip package last year as the company tried to tap demand for laptops.

Intel had been unable to produce a technical solution that used the Chinese standards and worked as well as the existing product, said Chuck Mulloy, a spokesman for the Santa Clara, California-based company.

Under the new rule, overseas makers of computers and chips trying to sell devices in China that allow wireless communication must use a Chinese encryption software and make the products with designated mainland companies.

Computer purchases

"There is a likelihood consumers will delay laptop computer purchases in China because top-of-the-line technology may not be available for a while,'' said Kitty Fok, a Hong Kong-based analyst at market researcher IDC.

In China, notebook computer sales will rise by half to 2.6 million units, or US$3.5 billion, this year, according to IDC. About 26 percent of all laptop computers sold in the country last year used the Centrino chip, IDC's Fok said.

Texas Instruments Inc., the largest maker of chips for mobile phones, was also making chips that did not conform to the new Chinese standard and wanted the rules changed, said Sharon Hampton, a spokeswoman for the Dallas, Texas-based company. The rule affects imports of other devices including mobile phones, personal digital assistants, scanners and network cards.

China is also developing its own standards for video compression, digital television signals, and high-speed mobile-phone networks, as the government seeks to encourage domestic manufacturers to expand.

Halt sales

Legend's Beijing-based spokeswoman, Wang Guixin, said she had not heard of Intel's plan to halt Centrino sales, and declined to comment. Toshiba Corp., the No. 3 notebook seller in China, also would not comment, spokeswoman Midori Suzuki said.

Consumers and businesses are choosing laptops over desktop PCs, and demand for notebooks with so-called wireless-fidelity, or Wi-Fi, Internet access is rising. Laptop sales will grow 25 percent this year, compared with an estimated 6.5 percent growth in desktops, according to a January forecast by UBS.

Intel does not break out sales to China, its second-largest market. The Asia-Pacific region accounted for 40 percent of the chipmaker's fourth-quarter revenue.

Intel would still be able to sell the main processor in the package, the Pentium M, Mulloy said. The company was continuing talks with the Chinese authorities, he said.

"Intel will probably try to push harder for sale of Pentium M in China, IDC's Fok said.

(Xinhua News Agency March 15, 2004)

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