INTERNET: Soaring Costs Sap Baidu Profit Growth

Bottom line: Baidu’s heavy spending on new businesses is rapidly eroding its profits, a strategy that looks acceptable over the short-term but should be abandoned within a year or two if it fails to produce results.

Baidu profit disappoints

I have to commend online search leader Baidu (Nasdaq: BIDU) for steadily maintaining strong revenue growth of 30 percent or more over the last few years, even as China’s overall economy has started to slow and the company faces growing challenges from new rivals. But that said, Baidu’s costs seem to be rising even faster that its revenue, which has led to anemic profit growth in its latest quarterly results.

At the end of the day, investors should be most concerned about profits at any company, since a stock price is directly tied to the bottom line. But Baidu seems to be less interested these days in profits. The company is indeed facing many challenges, both to its core search business and also as it expands into new areas, which is driving the rising costs. But it also needs to learn to bring those costs under control, to roughly in line with revenue growth, or risk facing the wrath of investors. Continue reading

MULTINATIONALS: Unigroup’s Micron Bid Offers Trust-Building Opportunity

Bottom line: The purchase of Micron by Tsinghua Unigroup offers a good chance for Sino-US confidence building if Washington signals it will fairly consider such a deal and Unigroup demonstrates its actions are commercially driven.

Micron sale offers chance to boost Sino-US trust

A potential mega-deal that would see China’s Tsinghua Unigroup buy leading US memory chip maker Micron Technology (Nasdaq: MU) could become a major trust-building exercise between China and Washington if handled properly, but could also quickly end in an angry war of words if the opposite occurs. Both sides need to take important steps to ensure fair trade in the case, which is sensitive because it involves the acquisition of a US high-tech leader by a company with close ties to China’s top science university.

For its part, Unigroup could take steps to show its independence from Tsinghua University, and more broadly to show that it is a commercially-focused business that doesn’t make decisions based on government orders or support. For its part, Washington could signal it is willing to consider a deal that appears to pose no threat to national security, even though it would see a major technology company taken over by a Chinese peer. Continue reading

News Digest: July 28, 2015

he following press releases and media reports about Chinese companies were carried on July 28. To view a full article or story, click on the link next to the headline.
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  • China Minsheng Investment to Acquire Sirius Int’l Insurance for $2.2 Bln (English article)
  • Baidu (Nasdaq: BIDU) Announces Q2 2015 Results (PRNewswire)
  • Delta Air Lines to Buy China Eastern (HKEx: 670) Stake for $450 Mln (English article)
  • Shanghai Traffic Regulator Gives Clear Road to Legality for Private Car Services (Chinese article)
  • US-Listed China Stocks in Monday Sell-Off, Changyou (Nasdaq: CYOU) Dips 11 Pct (Chinese article)

INTERNET: Xunlei Ties With Baidu, 58.com Works on ChinaHR

Bottom line: Baidu could buy a small stake in Xunlei but is unlikely to acquire the company outright as part of their new alliance, while 58.com’s plan to rebuild its newly acquired job site should have good chances of success.

58.com goes to work on ChinaHR

I’ve been predicting a marriage for a while for online video orphan Xunlei (Nasdaq: XNET), even as it remains stubbornly single despite its lack of scale to survive as an independent company. First it appeared the company might get bought by smartphone sensation Xiaomi after the pair boosted their strategic tie-up in May, but then nothing more happened. Now the gossip mills are likely to start turning again, following the latest announcement of a major partnership between Xunlei and Baidu’s (Nasdaq: BIDU) iQiyi online video service.

Meantime in another Internet news bit, the top executive at leading online classified ad site 58.com (NYSE: WUBA) is saying he will need 2 years to turn around the underperforming online job site ChinaHR, which he acquired earlier this year. His assessment comes after the site laid off nearly all of its staff as part of the deal that saw 58.com buy ChinaHR from its Irish owner. Continue reading

CELLPHONES: Huawei Surges, Lenovo Stumbles in Q2

Bottom line: Second-quarter smartphone data confirms recent trends that have shown a surge for Huawei and Apple, while Lenovo and Samsung struggle and Xiaomi also faces rapidly slowing growth.

Huawei consolidates spot as world’s No 3 smartphone maker

The latest smartphone sales figures are out, showing a recent surge for Huawei and strong but slowing growth for Xiaomi, as Chinese brands continued to take 3 of the top 5 global spots. Meantime, the same chart shows the lackluster Lenovo (HKEx: 992) continued to stumble as it failed to find an audience for its products, and global leader Samsung (Seoul: 005930) also continues to struggle.

The latest second-quarter figures from IDC come as another smaller data tracking firm IHS Technology released its own numbers showing Xiaomi continued to rule the China roost and even boosted its share of the market. Meantime, Samsung continued to slip in the world’s biggest smartphone market, falling a notch to barely stay in the top 5 brands. Continue reading

Shanghai Street View: Wealth Explosion

Wealth shops invade Shanghai
Wealth shops invade Shanghai

My first hint that something big was on the way came late last year when one of my younger friends, a 20-something and frequent job hopper, called to tell me he’d just changed jobs again. After all, this was the friend who first told me about WeChat back in 2011, the same year the service launched and well before most people had heard of the mobile messaging service that would later take China by storm.

My friend had previously worked at a wide range of jobs, from selling stored value cards to manager of a yoga studio, so I was curious to hear where he’d landed next. I was somewhat disappointed to hear he was now working for a wealth management company that his friend had recently opened, as that kind of company didn’t sound all that exciting. Never mind that he didn’t have any experience in the financial services industry. Continue reading

News Digest: July 25-27, 2015

he following press releases and media reports about Chinese companies were carried on July 25-27. To view a full article or story, click on the link next to the headline.
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  • China Brands Take 3 of Top 5 Spots For Q2 Global Smartphone Shipments – IDC (Chinese article)
  • Fosun (HKEx: 565) Offers to Buy BHF Kleinwort Benson for $545.5 Mln (English article)
  • 58.com (NYSE: WUBA) to Spend 100 Mln Yuan to Revamp ChinaHR in 2 Years (Chinese article)
  • Alibaba’s (NYSE: BABA) Tmall Promotes Same-Day Grocery Delivery in China (Businesswire)
  • Xunlei (Nasdaq: XNET) Announces Strategic Partnership With iQiyi on Project Crystal (GlobeNewswire)

INTERNET: Uber Eyes Beijing Accord, Finds Partner in Xiaomi

Bottom line: A special meeting between 8 Chinese government agencies is a positive sign for Uber and its rivals, indicating Beijing wants to forge a unified national policy to foster the development of hired car service operators.

Beijing meeting sends positive signal for Uber

The brash Uber and its rivals are seeing some encouraging signs in China, with reports that Beijing has convened a special meeting of 8 ministries to clearly define a national policy on these up-and-coming providers of hired car services. At the same time, Uber has broadened its stable of China partners by forming an alliance with homegrown smartphone sensation Xiaomi to promote their products and services in Southeast Asia. Lastly, Uber is also in a slightly troubling headline that spotlights some of risks it will face, as media in southern Guangdong province report that one of the company’s drivers may have been murdered by a customer. Continue reading

INTERNET: Microblogs Slump, Financial Services Surge in H1

Bottom line: Internet-based financial services should continue to boom over the next few years, while a rapid decline in microblogging could start to ease now that Weibo has consolidated its position as market leader.

Weibo consolidates microblogging market

China’s Internet data tracker has just released a slew of figures for the first half of the year, painting a rosy picture for companies like Alibaba (NYSE: BABA) and others that are moving aggressively into online financial services. At the other end of the spectrum, microblogging continued its rapid decline, as marginal players retreated and industry leader Weibo (Nasdaq: WB) consolidated its position.

On a broader level, I was surprised to see the growth rate in overall Internet users slow sharply in the first half of this year, even as the number of people accessing the web over their mobile phones continued to post strong growth. I also took the time to tally up the subscriber totals for China’s big 3 telcos in the first half of the year, which shows that the dominant China Mobile (HKEx: 941; NYSE: CHL) gained share on its 2 smaller rivals as it aggressively promoted its year-old 4G service. Continue reading

INTERNET: Tencent Snuffs Out Uber on WeChat

Bottom line: WeChat’s recent blockage of Uber reflects challenges the US company will face from rival car service operators and their backers in China, providing yet another obstacle as it tries to build up its local business.

Uber locked out of WeChat

A colorful war of words has broken out in China over the last week between high-flying car services provider Uber and the popular instant messaging service WeChat, providing not only some good entertainment but also valuable lessons for foreign companies doing business on the Chinese Internet. In this instance, WeChat has been blocking keyword searches on Uber, meaning users of the popular mobile messaging service can no longer access Uber’s public account or any articles with the Uber name. WeChat has given its own explanation for the blockage, blaming it on technical issues. Of course it’s probably no coincidence that WeChat’s parent Tencent (HKEx: 700) is also a major backer of rival domestic car services provider Didi Kuaidi. Continue reading

News Digest: July 24, 2015

The following press releases and media reports about Chinese companies were carried on July 24. To view a full article or story, click on the link next to the headline.
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  • Walmart (NYSE: WMT) Takes Full Ownership of Yihaodian Business in China (Businesswire)
  • China’s H1 2015 Mobile Internet User Base Hits 594 Mln (English article)
  • Tsinghua Holdings Chief Says Still in Micron (Nasdaq: MU) Talks, Hopeful on Deal (English article)
  • China Postal Savings Bank Seeks Strategic Investors in Run-Up to IPO (Chinese article)
  • Uber Partners With Xiaomi for Smartphone Sales in Singapore (English article)