Word: whampoa
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Until recently, Li Ka-shing's business judgment seemed above reproach, thanks to his decades of virtually flawless maneuverings in everything from container ports to hotel management. The chairman of conglomerate Hutchison Whampoa enjoyed a reputation not unlike America's Warren Buffett?when he made a contrarian call, everyone assumed he was right and the world was wrong. But Li's latest and most controversial move yet?a mobile-telecom venture called Hutchison 3G?has some wondering whether the guy they call Superman has lost his mind...
...While almost every telecom company on the planet has postponed or shelved plans to build data-intensive, high-bandwidth mobile networks, Hutchison Whampoa is charging ahead undeterred. The company just launched pilot 3G (for third-generation) networks in England and Italy, and has aggressive plans to initiate similar services in seven other markets across the globe over the next several years. Even allies have doubts about the strategy. Hutchison's partners in the United Kingdom?Japan's NTT DoCoMo and the Netherlands' KPN Mobile?have written down the values of their portions of the business by 80% and 86%, respectively...
...short answer: because he is able to when no one else can. As the new entrant in a depressed sector and with the financial backing of a larger diversified company, Hutchison is rare among telecoms in that it is not really a telecom company at all. In Hutchison Whampoa's latest fiscal year, for example, telecommunications amounted to only 13% of total sales and 3% of earnings before interest and taxes. Hutchison Whampoa's management likes telecom's long-term prospects for fast growth and high returns, but only as a complement to more stable cash generators, such as ports...
...Unlike Vodaphone, AT&T, Verizon and others, Hutchison Whampoa was comparatively unruffled by the bursting of the telecom bubble. The company was forced to cancel a recent bond offering and its stock is down 30% since the beginning of the year, but its cash hoard gives it plenty of room to maneuver. According to Nomura's estimates, Hutchison Whampoa has $14.5 billion in cash and liquid assets on hand, more than enough to cover the additional $10.2 billion the company will need to complete its multicountry 3G buildout. "Funny how people have been slagging off conglomerates for some time," says...
...That's the point the skeptics miss: Unlike pure telecom companies, Hutchison Whampoa does not need its 3G business to be successful immediately. It can afford to subsidize Hutchison 3G heavily, for as long as management continues to believe 3G will ultimately pay off. Li, one of the richest men in the world (with an estimated net worth of $10 billion), is not one to throw good money after bad. He has frequently stated that not getting too attached to any investment is one of the greatest psychological edges he has. "He is very pragmatic and unsentimental," says Ingelbrecht...