TELECOMS: China Mobile 4G Users Decline for First-Time

Bottom line: China Mobile’s first-ever drop in 4G subscribers in April owes to the company’s early arrival to the space, and reflects the broader market’s maturation that is also adding similar pressures to Unicom and China Telecom.

China Mobile 4G users takes first-ever dip

Much ado is being made about new data from the three big telcos that includes a first-ever drop in 4G subscribers for industry heavyweight China Mobile (HKEx: 941; NYSE: CHL). This particular first seems to have been a long time coming, and really shouldn’t surprise anyone too much. The fact of the matter is that China’s mobile market has been nearing saturation for a while, and the nation’s big 3 telcos have been increasingly stealing customers from each other for the last two or three years as the number of unserved users dwindles.

The bigger question raised by this data is what the slowdown could mean over the longer term, when China Mobile and smaller peers Unicom (HKEx: 762; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA) might see slow or negative growth in subscriber terms. The answer to that question is that this trio will be able to feast on their protected home market for many years to come, though they may be forced to innovate a bit more in order to get a tapped-out audience to keep paying more for services. Read Full Post…

INTERNET: Baidu’s AI Drive Hits Speed Bump with COO Departure

Bottom line:  The departure of Lu Qi from Baidu could deal a setback to some of the company’s less advanced and more ambitious efforts in artificial intelligence.

Baidu’s AI drive takes detour

Just a year after being named as the man who would lead search leader Baidu (Nasdaq: BIDU) into a future filled with artificial intelligence (AI), Lu Qi has abruptly abandoned his post as the company’s COO. Investors were clearly spooked by the move, dumping Baidu’s stock on Friday to the tune of a nearly 10 percent drop, the kind of one-day decline not seen since the company became embroiled in an advertising scandal two years ago.

Put simply, this particular departure seems to throw Baidu’s entire AI future into a bit of doubt. But then again, this kind of move seems to be quite par for the course for Baidu founder Robin Li, who has become famous for his “flavor of the day” approach  that sees him delve whole-heartedly into new businesses one day, only to jettison them a year or two later. Read Full Post…

PCs: Lenovo Blasted as Traitor for Supporting US Standard

Bottom line: A brouhaha involving Lenovo’s branding as unpatriotic for not supporting homegrown technology is likely to blow over quickly, and spotlights China’s continued reliance on foreign technology.

Lenovo branded as traitor

In a story that looks like a something from the McCarthy era, embattled PC maker Lenovo (HKEx: 992) has landed at the center of a controversy that’s seeing it branded by some as a traitor for choosing foreign technology over a homegrown Chinese alternative. This kind of thing isn’t at all that uncommon in China, where politics, business and everyday life mix freely.

We’ve seen a few examples of such mixing over the last few months, all involving western companies that were forced to repent after making the egregious error of listing places like Hong Kong and Taiwan as separate “countries” from China on their marketing materials. Such missteps ended up causing outrage by some nationalists on the web, prompting sleepy regulators to step up and demand such places be labeled as part of China. I’m not a big fan of Donald Trump, though I did find his branding of this kind of thing as “Orwellian nonsense” as both humorous and also a nice gentle rebuke to China. Read Full Post…

CHIPS: Beijing Approves Microchip Deal, Boding Well for Qualcomm-NXP

Bottom line: China’s approval of a small US chip merger shows Beijing is actively reviewing such deals again after a brief pause to show its displeasure over US trade tensions, and bodes well for eventual approval of Qualcomm’s purchase of NXP.

China resumes consideration of global mergers

Trade tensions between Washington and Beijing have thrown a number of major companies into turmoil, as the two sides spar over the former’s attempts to form a new, more balanced bilateral relationship. Telecoms equipment maker ZTE (HKEx: 763;  Shenzhen: 000063) has stolen a lot of the limelight in that regard, as the company’s earlier case involving illegal sales of US products to Iran gets sucked into the fray.

But lower-key on the ladder has been a form of passive aggressive behavior coming from Beijing, which had quietly halted reviews of major global M&A, most notably in the high-tech microchip space.  That behavior was costing time and frustration for several companies with pending deals, including Qualcomm’s (Nasdaq: QCOM) pending mega-purchase of Europe’s NXP (Nasdaq: NXPI). Read Full Post…

SMARTPHONES: Struggling Coolpad Sees Money Bags in Xiaomi

Bottom line: Xiaomi is likely to quietly settle a copyright infringement lawsuit against it by Coolpad, which is opportunistically looking for some hush money before Xiaomi’s IPO and can’t afford a long drawn-out court battle.

Coolpad sues Xiaomi as latter’s IPO draws near

In a move that smells of desperation, down-and-out smartphone maker Coolpad (HKEx: 2369) has filed a lawsuit against the up-and-coming Xiaomi. Anyone with half a brain will know the timing of this lawsuit looks quite suspicious, since Xiaomi is getting ready to make what could be this year’s biggest IPO in the next month or so, likely to raise up to $20 billion.

It’s quite difficult to know if this particular lawsuit has any merit, though we do know that Coolpad was an early hot player in the smartphone space and thus may legitimately hold some intellectual property similar to things that Xiaomi is now using. But the fact of the matter is that Coolpad can hardly afford to wage a long and potentially costly legal battle. Instead, it is probably hoping for a quick settlement to give it some much-needed cash to continue funding its money-losing daily operations. Read Full Post…

PCs: Lenovo Kicked Out of Hang Seng Index

Bottom line: Lenovo’s ejection from the Hang Seng Index caps its long fall from grace over the last four years, and leaves the company in an increasingly deep hole that may be hard to emerge from.

Lenovo ejected from Hang Seng Index

Capping its long fall from grace, PC giant Lenovo (HKEx: 992) has been officially booted from the Hang Seng Index, in a move that looks highly symbolic but also has some very real ramifications for this former high-flyer. It’s probably too early to relegate Lenovo to the history books, but we can certainly say the company is down for the count with this latest blow.

As someone who has followed Lenovo for most of its life as a listed company, I can provide my own view that the company is certainly facing a life-or-death moment in its lifetime that dates back more than three decades, making it one of China’s oldest tech names. I have called repeatedly for the departure of CEO Yang Yuanqing and introduction of some newer, younger blood to the company’s top ranks. But it doesn’t seem that Yang’s boss, Lenovo founder Liu Chuanzhi, cares too much what I think, as he has repeatedly stuck with this right-hand man throughout the company’s decline. Read Full Post…

IPOs: Xiaomi Growth Charms, Losses Alarm

Bottom line: Xiaomi is hoping to attract investors to its IPO through its recent strong revenue growth, but it could still be years before it becomes profitable due to heavy reliance on low-end, low-margin products.

Xiaomi growth banks on cheap products

Everyone is fawning over the newly released IPO prospectus from Xiaomi, the smartphone maker that is aiming to make what’s likely to be the biggest listing of all time by a company from its class. Most eyes seem to be focused on the company’s top line, headlined by revenue that grew 67.5 percent last year. But from my perspective, the picture isn’t all that attractive due to the company’s huge loss, along with data that show it is clearly stuck at the lower end of the global smartphone market in terms of brand positioning.

None of that is necessarily that bad, since Xiaomi, whose upcoming Hong Kong IPO is likely to be one of this year’s largest, is clearly in an early stage of its development. Most major brands today didn’t start out as premium names. Classic cases in that category are the Japanese and Korean electronics makers, most of which started off as makers of low-end but relatively reliable cheap products that made the “made in Japan” label at one time the equivalent of the “made in China” label now. Read Full Post…

IPOs: China Biotechs Abandon New York for Hong Kong

Bottom line: Two biotech firms’ abandonment of New York IPOs for Hong Kong is part of a broader trend to make Hong Kong and China more competitive for high-growth startups, and could ultimately boost valuations in all three markets.

Pharma startups abandon New York for HK

We’ll take a break from all the trade war talk as we close out the week and instead turn to another major development taking place in Hong Kong, where the local stock exchange has just rolled out some reforms with major implications for high-growth startups. Those reforms have reportedly netted a couple of biotech firms that were originally planning to list in New York, reflecting a potential new rivalry between these two markets.

Before the reforms, Hong Kong’s stock exchange was quite traditional and also strict about a few things, including dual-class partnership structures and profitability. The former British colony refused to allow dual-class partnerships that gave disproportionate power to holders of a special class of preferential shares. At the same time, it also had strict rules saying all companies must show three consecutive years of profitability before listing. Read Full Post…

TELECOMS: First ZTE, Now Huawei Comes Under US Scrutiny

Bottom line: A US investigation of Huawei into possible illegal sales of US-made equipment to Iran is old news, and may be getting dredged up now to give Washington leverage in its ongoing trade frictions with China.

Huawei under microscope for potential illegal sales to Iran

Some might argue that US sanctions against telecoms equipment maker ZTE (HKEx: 763; Shenzhen: 000063) are just the prelude to a much bigger story that could now be sharping up, with word that ZTE’s much larger rival Huawei is being probed in a similar case. The subject at the heart of this matter involves sales of American-made equipment to Iran, which would have violated earlier US sanctions against such sales to pressure Iran to curtail its nuclear program.

In fact, I’m quite surprised that this probe against Huawei is coming back into the headlines just now. Media reported on this potential probe as early as 2013, at the same time reports first emerged about a similar probe into ZTE. Additional reports appeared about a year ago saying an unnamed company was being investigated for violations similar to ZTE, with strong hints that the company was Huawei. (previous post) Read Full Post…

TELECOMS: ZTE Slapped with US Sanctions — Again

Bottom line: Washington’s new ban on ZTE from buying US-made components is not as political as China is portraying it, and is likely to be resolved within a few weeks after ZTE takes remedial actions related to its violation of an earlier agreement.

Washington cuts off ZTE from US suppliers

An ongoing tiff between Washington and ZTE (HKEx: 763; Shenzhen: 000063) is in the headlines yet again, with word that the US has banned all American companies from selling to the Chinese smartphone and telecoms equipment maker for seven years. This particular story is filled with political overtones due to the anti-China stance of Donald Trump, who has accused Beijing of unfair trade practices. But it’s also a tale that stretches back for at least six years, which means this story began well before the current US administration.

The latest headlines are quite straightforward, and have Washington banning the sale of US-made telecoms equipment to ZTE for violating an earlier agreement reached last year. (English article) The source of this conflict dates back to 2012, when Washington first began probing ZTE for selling American-made equipment to Iran in violation of US sanctions that at that time were designed to punish the country for its nuclear program. Read Full Post…

SMARTPHONES: Foxconn Rises on Apple, Huawei and Xiaomi

Bottom line: Foxconn’s taking of the smartphone manufacturing crown from Samsung reflects the resurgence of Apple and rises of Huawei and Xiaomi, and could ultimately force other brands to use such third-party producers.

OEMs rise on smartphone manufacturing list

Today we’ll take a step back from the usual name-brand smartphone rankings to look at a new report that shows that Taiwan’s Foxconn (HKEx: 2038) is emerging as one of those “industry leaders you never heard of”, quietly supporting some of the fastest-growing names. That’s the big takeaway from the latest figures from data tracking firm IDC, which show that Foxconn officially passed global titan Samsung (Seoul: 005930) in last year’s final quarter to become the world’s biggest smartphone manufacturer.

Most industry insiders already know Foxconn and its parent, Hon Hai, because of their longtime relationship as a key producer of iPhones for Apple (Nasdaq: AAPL). But the Taiwan company also counts Xiaomi as a major client, as that company experiences a resurgence in its fortunes after a couple of years in the dark. Foxconn also makes phones for Huawei, which is also doing quite well on the global smartphone scene at the moment. Read Full Post…