CELLPHONES: Xiaomi’s Growth Sputters

Bottom line: Xiaomi’s rapidly falling sales growth is the result of many factors that reflect its youth and inexperience, and the company should pause and return to its early strategy or risk seeing its slowdown accelerate.

Xiaomi sales growth slows further

Media are swarming to the latest sales figures from sputtering smartphone sensation Xiaomi, which has just announced first-half data that looks mediocre to downright bad, depending on how you look at it. The company is trying to put a positive spin on the data, saying its first-half sales rose 33 percent from a year earlier. But one media report points out the latest 6-month sales were actually down from the second half of 2014, marking the first-ever sequential decline for this rapidly sputtering smartphone superstar.

This latest data shouldn’t come as a huge surprise, but instead marks a continuation of a steady stream of signals that point to a rapid reversal of fortune for Xioami. I’ve previously said the company and its charismatic CEO Lei Jun are at least partly to blame for the negative publicity they are now receiving, since they built up huge expectations over the last 2 years through a non-stop series of lofty announcements and other high-profile publicity stunts. Continue reading

IPOs: New China Board Nets iQiyi, Ant Financial; Buyout Shares Sag

Bottom line: Shanghai will bid aggressively for Chinese tech firms to list on a new Nasdaq-style board planned for the city, while shares of companies privatizing from New York will continue to sag in sync with China’s stock market sell-off.

Soccer club eyes IPO on new Shanghai board

A new Shanghai-based Chinese board that aims to compete with Wall Street for new high-tech listings is moving closer to reality, with reports that Baidu’s (Nasdaq: BIDU) iQiyi online video service and Alibaba’s (NYSE: BABA) affiliated Ant Financial unit will be among the exchange’s inaugural listing candidates. A separate report also says that another Alibaba-affiliated company, soccer team Evergrande Taobao, will also list on the board, which is being referred to right now as the new strategic industries board.

Meantime in New York, the current week looks set to end with just a single privatization announcement for a US-listed Chinese firm, a sharp slowdown from the 20 earlier offers in the month of June. In this case the abrupt slowdown is at least partly due to the plunge in China’s stock markets this week, and we’re unlikely to see any more offers until the situation stabilizes. Continue reading

INTERNET: Xiaomi Boosts Xunlei Ties, Buyout Offer Coming?

Bottom line: Xunlei’s growing ties with Xiaomi could presage a buyout bid for the former by the latter, as Xiaomi seeks partners and acquisitions to help it realize its goal of building an ecosystem of Internet services and related devices.

Xiaomi, Xunlei launch Xingyu

A year-old alliance between smartphone sensation Xiaomi and online video operator Xunlei (Nasdaq: XNET) has entered a new phase, with news that the pair have formed a content distribution service. That plan, which will see the pair launch a new brand called Xingyu, is part of Xiaomi’s efforts to create an ecosystem of Internet-based services like online video for its smartphones and other devices like smart TVs and set-top boxes.

This latest move isn’t a big surprise, and comes after Xiaomi purchased 30 percent of Xunlei almost exactly a year ago at the time of Xunlei’s New York IPO that met with a cool reception. Xunlei’s shares have been quite volatile since then, losing almost half their value before rebounding over the last few months to return to their IPO level. But a recent wave of buy-out offers for many US-listed Chinese companies, combined with this growing alliance, is raising the interesting possibility that Xiaomi might soon lead a bid to privatize Xunlei or perhaps buy the company outright. Continue reading

News Digest: July 3, 2015

The following press releases and media reports about Chinese companies were carried on July 3. To view a full article or story, click on the link next to the headline.
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  • iQiyi, Ant Financial Picked to Make First IPOs on New Strategic Industries Board (Chinese article)
  • Alibaba (NYSE: BABA) Said in Talks for More Seattle-Area Office Space (English article)
  • Xiaomi Sold 34.7 Mln Smartphones In H1 2015, Up 33 Pct Year-On-Year (English article)
  • China Unicom (HKEx: 763) Makes 4G Service Available to MVNOs (Chinese article)
  • Qunar (Nasdaq: QUNR) Receives Final Judgment in Its Dispute With eLong (GlobeNewswire)

INTERNET: Didi Kuadi Eyes US, Uber Eyes China Spin-Off

Bottom line: Didi Kuaidi is likely to launch service in the US next year, while Uber’s decision to spin off its China operations shows its commitment to the market, as the rivalry between the pair intensifies.

Didi Kuaidi eyes US

A major global rivalry is shaping up between US hired car services pioneer Uber and its Chinese alter ego Didi Kuaidi, which both have extremely strong backing and are attracting billions of dollars in new funding. Just days after Didi Kuaidi was reportedly on the cusp of raising up to $2 billion in new money, media are now reporting the Chinese company has quietly begun hiring in the US for a move onto Uber’s home turf.

At the same time, Uber’s aggressive CEO Travis Kalanick has been quoted saying he’s planning to spin off his China business into a separate company. That move would be unique for Uber in its global strategy so far, and is aimed at better challenging Didi Kuaidi on its home turf. Uber also hopes the plan will allow it to respond more rapidly in a market that’s both extremely lucrative but also quite unique and challenging. Continue reading

CELLPHONES: Xiaomi Calls on Brazil, Hires from DST

Bottom line: Xiaomi’s hiring of a new CFO and entry to Brazil are its latest steps in a gradual transformation to a more western-style global company, in preparation for an IPO that is at least 2 years away.

Xiaomi to launch next week in Brazil

Stumbling smartphone sensation Xiaomi is back to doing what it knows best, namely making headlines with the latest moves in its global expansion and by hiring executives from other high-profile companies. In this case the smartphone high-flyer has just announced its formal plan to enter Brazil, putting it squarely in 3 of the 5 BRICS countries after India and China. The other move looks a bit scripted, and will see a top China executive from Russian high-tech investor Digital Sky Technologies (DST) join Xiaomi as CFO.

The latter piece of news looks slightly strange because DST is one of Xiaomi’s investors, and it would be unusual to do something hostile like stealing a top executive from one of your big backers. Instead, this looks more like a planned move that is relatively common in this kind of situation, which sees big investors supply executives to the companies they back in preparation for eventual IPOs. Continue reading

INTERNET: Baidu Still Recovering From Putian Spat

Bottom line: Resolution of Baidu’s dispute with a one of its top clients, combined with declining profits, reflects a new reality that is seeing its pricing power erode as it faces growing competition from both search and non-search service providers.

Exec confirms Baidu settles Putian dispute

A new report is confirming that leading search engine Baidu (Nasdaq: BIDU) has quietly settled a dispute with one of its major advertisers, which shaved nearly 15 percent off the company’s stock at the time. But the dispute is clearly have some lasting damage on Baidu’s share price, reflecting the reality that new challenges from rival search engines and also from non-search services like Tencent’s (HKEx: 700) WeChat may be undercutting Baidu’s ability to command huge premiums for its advertising services.

Adding to Baidu’s misery is the recent plummet in China’s stock markets, which has fueled a concurrent drop in overseas-listed Chinese tech stocks like Baidu. That sell-off saw Baidu’s shares dip more than 5 percent in the last 3 trading days of last week. That fall shaved off nearly $4 billion from its market value, as its shares reapproached levels last seen during the stand-off with the Putian Healthcare Industry Chamber of Commerce that broke out in late March. Continue reading

News Digest: July 2, 2015

The following press releases and media reports about Chinese companies were carried on July 2. To view a full article or story, click on the link next to the headline.
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  • Didi Kuaidi Gets Set to Enter US, Challenge Uber – Source (Chinese article)
  • Former DST China Partner Shou Zi Chew Joins Xiaomi as CFO (English article)
  • China’s Gamers Aren’t Buying Many Consoles (English article)
  • TCL (Shenzhen: 000100) Prepares 795 Mln Yuan Share Buy-Back Program (Chinese article)
  • Qihoo (NYSE: QIHU) 360 Security Surpasses 200 Mln Int’l Users Milestone (PRNewswire)

NEW ENERGY: Yingli Crowd Funds, Tencent Tries Polysilicon

Bottom line: Yingli’s use of crowd-funding to finance a small project and the bargain sale price of a small polysilicon maker reflect continuing struggles at second-tier solar companies and the need for more consolidation.

Desperate Yingli tries crowd funding

Two solar energy stories are showing how overcapacity continues to haunt the sector 2 years after it began to emerge from a major downturn. The first involves a desperate-looking fund-raising plan from the struggling Yingli (NYSE: YGE), which is trying to use crowd funding to pay for a new solar plant. The other news involves another slightly bizarre investment in the space, with Internet titan Tencent (HKEx: 700) and real estate giant Evergrande (HKEx: 3333) paying a bargain price for Mascotte (HKEx: 136), a money-losing Taiwanese maker of polysilicon, the main ingredient used to make solar panels. Continue reading

INTERNET: Alibaba Fixates on India With E-Payment Investment

Bottom line: Alibaba’s boosting of its stake in a leading Indian e-payments firm is part of a broader strategy that aims to replicate its China success in India through a series of acquisitions, and looks relatively well conceived.

Alibaba eyes new India investment

Just a week after abruptly pulling out of a major US investment, e-commerce giant Alibaba (NYSE: BABA) is increasingly focusing on India as the first major stop on its global expansion, with word that it’s in talks for a major new investment in a local e-payments firm. The new investment in Paytm, which would be worth about $600 million, is just the latest in a growing string of similar Indian acquisitions for Alibaba as it tries to replicate its success in China in overseas markets.

From a strategic perspective, India looks like a smart bet for Alibaba. The Indian market shares many characteristics with China, including the lack of a mature western-style retail industry from the pre-Internet era. As a result, a far bigger percentage of people in these markets are more likely to shop online. What’s more, the Indian retail market is relatively less competitive than western markets, and is experiencing rapid growth. Continue reading

FINANCE: Alibaba Banks, JD Credit Scores As Old Lenders Watch

Bottom line: China needs to let traditional banks behave more independently and encourage them to take risks, or risk seeing them overtaken by private, entrepreneurial financial companies.

Alibaba bank goes online

China’s 2 leading e-commerce companies were in the headlines last week with major new moves in the financial services sector, continuing a trend that has seen private firms pose the first serious challenge in decades to China’s banking establishment. One move saw Alibaba (NYSE: BABA) launch its online bank, MYbank, as part of a Beijing pilot program to allow private companies into the sector. The other saw JD.com (Nasdaq: JD) form a credit scoring joint venture, aiming to tap its huge volumes of transaction data to help rate the creditworthiness of individuals. Continue reading