Mainland telecommunications equipment supplier UTStarcom will pay US$100 million for assets belonging to United States computer-network equipment maker 3Com, in a move aimed at expanding its business overseas. Under the deal UTStarcom will pay cash to acquire selected assets of 3Com's CommWorks, including equipment, contracts, agreements, licences and leases. CommWorks provides carrier-focused voice and data products. The deal is expected to close within two to four months. The Nasdaq-listed wireless and wireline access equipment supplier hopes the acquisition will reduce its dependence on the China market. 'Acquiring the Commworks assets will allow UTStarcom to add to its base of tier-one customers and accelerate its geographic diversification outside of China,' president and chief executive Hong Lu said. He said the CommWorks client list will give UTStarcom access to blue-chip customers around the world. UTStarcom earns about 84 per cent of its revenue from selling network equipment and handsets to run citywide mobile phone services - known as xiaolingtong, or 'Little Smart' - on the mainland. The company faces major risks in China because fixed-line carriers are expected to sharply cut investment in xiaolingtong services once the Ministry of Information Industry awards them third-generation mobile licences. Approval is expected to take place next year. UTStarcom hopes to lower China's contribution to sales to 75 per cent by the end of this year and 50 per cent by 2006. It expects sales of about US$1.33 billion this year, with all but US$300 million coming from customers in China, according to a Bloomberg report. 'We have virtually no presence whatsoever in the US,' the report quoted chief financial officer Michael Sophie as saying. UTStarcom expects the CommWorks assets to bring in US$25 million to US$30 million in revenue each quarter this year after the completion of the deal. The revenue contribution from the assets would increase to between US$30 million and US$35 million a quarter next year. However, the deal would generate between US$20 million and US$30 million of intangible assets that UTStarcom must amortise over four years. The acquisition would also incur a one-time charge of an estimated US$8 million to US$12 million.
