China Mobile Ltd. (CHL), ranking as the largest mobile carrier in the world, reported 2012 results which were in line with expectations. The result has no immediate impact on the company's Aa3 rating according to Moody's Investors Service. The rating outlook remains positive, in line with the outlook for China. China Mobile maintained a net cash position of about RMB378B (USD$60.83B) as of December 2012, with unrestricted cash balances of about RMB408B (USD$65.66B) vs. total debt of about RMB30B (USD $4.82B). CHL will be able to cover its high CapEx requirement for coordinating 4 networks, including 2G, TD-SCDMA, TD-LTE and WLAN.
Increasing CapEx, Lower Cash Flow, Same Credit Rating for 2013
For 2013, CHL plans to increase its CapEx to RMB190B (USD$30.6B), 30% of its revenue (up from 23% in 2012), to deal with growing demand for data services and strengthening its TD-LTE network. CHL's cash flow ratios may fall in 2013 due to high CapEx ratio, but its overall credit profile will remain according to Moody's.
Wireless Communication Equipment market and Wireless Ecosystem
With over $30B investment into TD-LTE from CHL, numerous companies will benefit. RBC Capital analyst Doug Freedman views this as an incremental positive for those exposed to the wireless communication equipment market and wireless ecosystem. Below is a list of companies which will benefit from growing TD-LTE investment. The list further expands our previous listing of companies involved with TD-LTE in China.
Company Name (Ticker)
Closing Price (March 15, 2013)
Altera Corp (ALTR)
16% exposure to Huawei
Texas Instruments (TXN)
Analog Devices (ADI)
Embedded and external NAND
Combos and basebands, TD-LTE coming 2014
Integrated baseband + apps processor, TD-LTE coming 2H13
Use of BAW filters for bands 38, 40, 41 on TD-LTE
Source: Google Finance and StreetInsider.com
Chips and Networks
China Mobile is getting comfortable with Qualcomm (QCOM), which has SoC that support all radios, including five modes (GSM, TD-SCDMA, UMTS, FD-LTE and TD-LTE) along with 10 to 12 bands. Qualcomm chips are projected to support a majority of China Mobile's data cards, mobile hot spot devices and customer premises equipment. On the network end, Alcatel-Lucent (ALU), with 19% growth in radio access revenue at China Mobile and gains in optical transmission, and Nokia Siemens Networks (owned by Nokia and Siemens), gaining 4% in revenue from China Mobile, are both winners from this expanding TD-LTE investment in China.
In short, with strong CapEx from China Mobile and expected 4G license from China's Ministry of Industry and Information Technology this year, China's 4G market is set to expand. By 2017, China Mobile will capture a projected 52% of China's 4G market with 228.8 million subscribers, compared to 114.4 million for China Unicom (CHU) and 96.8 million for China Telecom (CHA), according to IHS's data. 2013 is just the beginning for this 4G wave in China.
Disclosure: I am long CHL.
Additional disclosure: May initiate a long position in QCOM, ALU, BRCM