38: Chapter 38 Finalizing the Investment

"I believe this initiative can make it a great enterprise, but the current pace of development is still too slow."

"However, this happens to be our specialty. Transsion has market networks in Africa, ground promotion experience, and low-cost manufacturing capabilities. These capabilities are equally applicable in China and the European market." Shen Fei cited a few examples.

"Furthermore, Huawei is short on cash. The terminal business burns through billions in R&D expenses every year, and the market has already neared its peak. It urgently needs to open up new business lines, but the mobile phone market doesn't seem to be going as smoothly as usual."

"Transsion lacks technology. In Africa, we can win on cost-effectiveness and capture their hearts through some localized adaptations, but to enter the European and American markets, these technologies are not enough."

As an excellent listener, Mr. Ren nodded seriously, but his attitude remained unreadable on his face.

After Shen Fei finished introducing all the technologies and some bargaining chips, he finally spoke: "So you want to use Transsion's money to exchange for Huawei's technology."

"Not exactly." Shen Fei set down his teacup.

"I want to establish a deeply bound cooperative relationship."

"Transsion's investment in Huawei's terminal business is not a financial investment, but a strategic synergy to create a better future."

"We can share R&D achievements; for example, Huawei can normally use our self-developed systems and chips."

"We can even develop the system together. Likewise, we can purchase Huawei's communication technology and high-end technology at cost price."

Hearing Shen Fei mention the self-developed system again, Mr. Ren's eyes flickered slightly.

That loudmouth had also mentioned the matter of a self-developed system to him, but he always felt that this matter was a bit uncertain.

Especially since it was based on a time when Huawei's terminal mobile phone business had not yet taken off, considering these issues was too early, so he temporarily suppressed it.

Although this was the best time.

"Self-developed chips and systems? I have also read the summary of the Taishan Project; the ambition is not small."

"But does Transsion have the strength now?"

"Not the system yet, but the chips are completely feasible." Shen Fei admitted very frankly.

"General Manager Huang has already represented Huaxin Investment in poaching quite a few technical personnel from abroad."

"And we have sufficient testing grounds. In Africa, we can trial and error, iterate, and thereby cultivate our own technical personnel."

"Even if the chips are trash, we can still use them. Once we have polished the chips and system to maturity in the African market, Huawei can use them domestically. Relying on self-developed chips and systems, we can easily capture the domestic market."

Just as Mr. Ren was contemplating the possibility, Shen Fei brought out another important piece of forecast data.

"This is our sales forecast for Transsion for the next three years. By 2011, our annual sales in Africa will exceed 40 million units, and over 50 million units globally."

"The total sales volume over three years will be between 120 million and 220 million units."

"This volume is enough to support an operating system ecosystem and also enough to dilute the R&D costs of the chips."

"At the same time, we predict that starting from 2010, the world will enter the Smartphone era, and operating systems and chips will become the most contested strategic points."

Mr. Ren looked at those numbers and also began to think seriously.

Technology is the future; this was Huawei's internal goal. The clock on the office wall swung back and forth, and time passed second by second.

"2.2 billion US dollars, 49% of the shares, Huawei retains controlling rights."

Mr. Ren made up his mind and gave his answer.

"This can be considered our final bottom line. Originally, we were not prepared to sell, but Mr. Shen's plan is indeed very suitable. I also believe in Transsion's self-developed technology, and even more so in the future you have planned."

"If it is 49%, then I can only offer 2 billion US dollars. If it is 50%, we can provide a higher valuation."

Shen Fei also reported the corresponding conditions. "We want equal say, but we can sign a concerted action agreement. On major decisions, Transsion will support Huawei's management."

"No matter what the decision is, as long as there is no risk of bankruptcy, that is fine."

"In addition, we promise not to support or seek controlling rights through capital means."

This condition was still very suitable, which made Mr. Ren very confused. Transsion was unwilling to back down, yet didn't want controlling rights—why on earth was this?

"Forget about the decision-making power; since you spent the money, you should enjoy certain rights. I am just very curious, why do you insist on 50%?"

"Because only deep binding can truly achieve synergy."

Shen Fei stared back at Mr. Ren: "If we were just a small shareholder, Huawei's terminal team would not open up their real technology to us, and Transsion would not reveal our trump cards in self-developed chips and systems."

"Only when interests are completely aligned can we fight back-to-back and jointly change the situation of domestic technology lagging behind."

He let Mr. Ren take a moment to pause, then continued to bring out a new temptation.

It could be considered a flattering gesture.

"Mr. Ren, you know better than I do that the second half of the mobile phone industry is an ecosystem war. Apple Inc. is pushing their iOS system, Samsung is focusing on the entire industrial chain, and Google is also promoting their Android system."

"If Chinese enterprises want to break through, they must band together."

"If Transsion and Huawei join forces—you overcome the signal problems, and we solve the design architecture for the self-developed system and chips—that is a win-win."

Mr. Ren did not speak; he just stood up, walked to the window, and gently lit a cigarette.

He hadn't smoked for a long time; only in meetings with such major discussions would he occasionally smoke one.

Outside the window was the panoramic view of the technology park. As the most developed place in China, it was already filled with high-rise buildings, and it didn't seem much different from foreign countries.

The rise of this city relied on the continuous efforts of countless enterprises like Huawei and Transsion.

"The terminal business was originally a mess." Mr. Ren had his back to Shen Fei. "It used to lose money every year, and just when it was finally about to become profitable, it ran into the economic crisis."

"The team is a bit shaken now, and the mobile phone products have no competitiveness. Many people on the board of directors want to sell it off to cut losses in time."

"But you don't want to sell." Seeing Mr. Ren, who was pacing back and forth in hesitation and constantly smoking, Shen Fei continued.

"Because Mr. Ren, you also feel that consumer electronics are the future and the best carrier for communication. If you miss the mobile phone market, Huawei will miss the next 10 years."

Mr. Ren nodded unconsciously, turned around, and looked at him with complex eyes: "2.2 billion US dollars, 50% of the shares..."

"Mr. Shen, do you know what this means?"

"Transsion has to take out funds several times its own size to buy a business that is still losing money."

"I know." Shen Fei also stood up and walked to the window.

"But I know even better that if we don't buy it now, we won't be able to buy it even if we spend 40 billion in 5 years."

"The value of the terminal business is not in the experience of the financial statements, but in the minds of those engineers, and in those communication patents."

"In the Huawei brand, and the possibilities of the future."

"Investment is gambling, but I believe I can win the bet."