Chunghwa Looks beyond Taiwan

• By Zacks Equity Research
• On 2:22 pm EDT, Thursday September 24, 2009

Taiwan’s largest integrated telecom operator Chunghwa Telecom Co. Ltd. (NYSE: CHT - News) recently adopted a series of measures to expand its presence outside the country. The Taiwanese telecom market is quickly approaching maturity and has become extremely competitive following telecom regulatory changes. 

The market size is comparably smaller than other regional country markets, with approximately 23 million potential customers. Therefore, geographical expansion is critical for Chunghwa’s operations to retain a leading edge.

The company formed a joint venture with Singapore Telecommunications Ltd. to build ST-2 telecommunications satellite network. Mitsubishi Electric Corp. and Integral Systems Inc. (NasdaqGS: ISYS - News) will install satellite ground system for the ST-2 program.

Chunghwa signed a memorandum of understanding with China Telecom Corp. Ltd. (NYSE: CHA - News) to set up a joint venture to develop information and communications technologies in China.

As part of its next-generation network implementation program, the company is deploying Cisco System Inc.’s (NasdaqGS: CSCO - News) optical network solution to expand coverage from 6 to 12 cities in different countries of Asia, Europe and the U.S. Successful deployment of an all IP-based converged network will generate considerable international revenue (currently just 4% of total sales) as many Taiwanese firms have regional branches in several foreign countries.

Chunghwa has also entered into a joint venture with Viettel Corp to provide Internet Data Center services in Vietnam.

So-net Entertainment Corp of Japan formed an operational venture with Chunghwa to expand its Internet services. The company will acquire 30% stake of So-net for total consideration of Japanese Yen 170 million.

Chunghwa, China Unicom Ltd. (NYSE: CHU - News) and Japan’s KDDI Corp. have decided to jointly build an undersea cable network called APCN3 for a total consideration of $ 500 million.

Along with these initiatives, Chunghwa has taken lot of other measures to improve sales. The company has started selling Apple Inc.’s (NasdaqGS: AAPL - News) 3G iPhone in Taiwan and entered an agreement with Warner Music Taiwan to pursue opportunities in the digital music market.

Going forward, we expect fierce competition as Chinese giant China Mobile Ltd. (NYSE: CHL - News) has acquired a 12% stake in Chunghwa’s prime rival Far EasTone Telecommunications. In view of these competitive pressures, we believe geographical expansion and product innovation initiatives were crucial steps taken by Chunghwa’s management.

CHUNGHWA TELECOM COLTD (CHT): Read the Full Research Report

CHINA TELECOM CORP LTD (CHA): Read the Full Research Report

CISCO SYSTEMS INC (CSCO): Read the Full Research Report

CHINA UNICOM HONG KONG LTD ADS E (CHU): Read the Full Research Report

APPLE INC (AAPL): Read the Full Research Report

CHINA MOBILE HONG KONG LIMIT (CHL): Read the Full Research Report

Zacks Investment Research

Buzz up!