China's Neusoft eyes acquisitions

By Kirby Chien

TOKYO (Reuters) - China's largest software outsourcing firm, Neusoft Corp (600718.SS), said on Wednesday it was looking to acquire several small-to medium-sized companies in Japan or Europe to beef up its fastest growing unit.

Liu Jiren, the founder and chairman, told the Reuters Global Technology, Media and Telecoms Summit in a telephone interview that an acquisition would help sustain the 40-50 percent growth in Neusoft's embedded software division.

Overall, Liu said the company was sticking with its 30 percent growth target.

Outsourcing contributes about 70 percent of Neusoft's business, but the unit which designs software for television sets, autos and games consoles is growing faster.

"We are in talks with several companies. This year we may make a deal," he said. "We are trying to invest more outside of China, especially in Japan and Europe."

The company is looking at software design firms that employ between 100-300 staff, and would be willing to pay over $30 million for the right firm.

China's software outsourcing industry, which relies on business from multinationals such as International Business Machines (IBM.N) and Microsoft Corp (MSFT.O), is expected by analysts to expand 40-45 percent annually for the foreseeable future, but is a decade behind India's giants such as Tata (TCS.BO) and Infosys (INFY.BO).

Neusoft is not in direct competition with the Indian firms, which are focused on the offshore outsourcing business in the financial sector, said Liu.

Neusoft is looking at China's vast manufacturing sector for future growth.

"It is a huge market," he said.

R&D PUSH

China's software outsourcing industry reached $612 million in revenue in the fourth quarter of last year, expanding 44 percent from a year earlier, according to research firm Analysys International.

Neusoft dominates the domestic market with a 9.9 percent share, says Analysys, doubling that of its closest rival, hiSoft Technology International Ltd.

Neusoft plans increase its research and development budget by up to a third. Last year's budget was 800 million yuan ($114 million).

"We need to continue developing new services and products for our customers," said the former professor of computer science at Northeast University (NEU), the company's namesake and still one of the largest shareholders.