China Mobile - Millicom Deal Threatens Ericsson, Nokia, Lucent, Motorola, Qualcom

Sometimes I'm amazed at how good the Wall Street Journal is. Jason Singer and Jason Dean's article (paid sub. req'd) about China Mobile's (CHL) rumored purchase of Millicom International Cellular (MICC) identifies exactly the most interesting stock-related implication of the deal:

The expected deal -- the biggest overseas acquisition by a Chinese company -- could also have a ripple effect on Chinese suppliers of telecom equipment and mobile handsets such as Huawei Technologies Co. and ZTE Corp. China Mobile is expected to upgrade the network of Millicom, which operates in 16 countries.

...China Mobile plans to leverage its access to inexpensive and plentiful engineers, designers, contractors and others needed to build new Millicom networks, or to upgrade existing networks in its far-flung locales, according to people familiar with the matter.

Chinese companies have competitive advantage building wireless networks for lower income customers, because that's their home market. If China Mobile expands successfully into other emerging markets, Huawei and ZTE, both privately owned, will likely displace the Western suppliers. So this merger is without doubt incrementally negative for the Western wireless network equipment providers.

Ericsson is most threatened, as it has the largest wireless infrastructure business of the publicly-traded companies. Lucent (LU) and Motorola (MOT) are also exposed, and to a lesser degree Nokia (NOK). Implications for chip-maker Qualcom (QCOM)? Probably also negative. Somehow I doubt that Huawei uses Qualcom chips.

This is the sort of development that won't move the stocks today or tomorrow, but has dramatic long term implications. Remember this if you're considering buying ERICY as a long term investment.