Journalist China

Business news from China By Doug Young.
Doug Young, journalist, has lived and worked in China for 20 years, much of that as a journalist, writing about publicly listed Chinese companies.

He is based in Shanghai where, in addition to his role as editor of Young’s China Business Blog, he teaches financial journalism at Fudan University, one of China’s top journalism programs.
He contributes regularly to a wide range of publications in both China and the west, including Forbes, CNN, Seeking Alpha and Reuters, as well as Asia-based publications including the South China Morning Post, Global Times, Shanghai Daily and Shanghai Observer

Bocom Recapitalizes, Govt Pays the Bill 交行再融资或掀起新一轮银行再融资热潮

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The latest round of capital raising by major Chinese banks continues with the news that Bank of Communications (HKEx: 3328; Shanghai: 601328), the nation’s fifth biggest lender, has just recapitalized to the tune of $8.9 billion. But in a telling sign that investors have tired of this latest round of fund raising, the government has stepped in to pay most of the bill this time, setting a pattern for a growing number of bank recapitalizations likely to happen in the months ahead. In many ways, it’s only appropriate that Beijing help these banks bolster their finances, as the current weakness in their balance sheets is the direct result of their compliance with a government’s directive that saw them make record loans under a national economic stimulus package at the height of the global downturn in 2009 and 2010. In this latest development, BoCom has just raised a hefty $8.9 billion through a private placement with a group of buyers mostly linked to major state-owned entities, including the finance ministry, the national pension fund, and China’s state-owned tobacco monopoly. (English article) While ordinary shareholders won’t have to pay for this recapitalization directly, they will still pay indirectly through  the dilution of their holdings in BoCom, which will issue millions of new shares as part of this private placement. BoCom is just the latest in a string of Chinese banks and other financial institutions to raise major new capital over the last year, as most race to strengthen their overextended balance sheets after the lending binge of 2009 and 2010. Many worry the banks’ finances could come under further pressure as many of the questionable loans made during that period end up defaulting, though the government is also taking steps to try to avoid that situation by allow banks to delay collection of repayment on many of those loans. (previous post) Other banks to announce big new fund-raising plans over the last year include Minsheng Bank (HKEx: 1988; Shanghai: 600016), which just last month announced plans to raise up to $1.6 billion, as well as leading lender ICBC (HKEx: 1398; Shanghai: 601398) and China Merchants Bank (HKEx: 3968; Shanghai: 60036). (previous post) Analysts previously said that BoCom was likely to need more money, and also mentioned Agricultural Bank of China (HKEx: 1288; Shanghai: 601288) as another top bank that could need new capital in the near future. Any investors with a memory will recall that this latest round of capital raising comes just 2 years after a similar massive round that saw the nation’s major lenders raise more than $100 billion collectively to improve their weak finances. Of course if someone was giving me billions of dollars in new capital every 2 or 3 years, I could probably also run a bank that looked very profitable on paper! But unfortunately, I have no benefactor like the Chinese government or investors who like the China banking story, which is looking increasingly unattractive with the announcement of each new fund raising plan.

Bottom line: BoCom’s new fund raising plan is the latest from China’s banking sector, with more likely to come this year as Beijing shows growing willingness to pay the bill.

Related postings 相关文章:

◙ More Banking Bad News From Minsheng 民生银行融资揭示银行业困境

◙ 2012: Capitial Raising II Year For China Banks 2012：中国银行业的又一个融资年

◙ Message to Beijing: Privatize the Big 4 Banks 对中国政府说：将四大银行退市吧

McDonalds, Carrefour Latest Targets in Consumer Assault 家乐福、麦当劳被中国政府“点名

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I have to admit, I’m starting to strangely enjoy China’s latest campaign that has big state media — CCTV in particular — chasing big-name foreign companies in a bid to improve the country’s record for food safety. You may ask why I feel this way, as I also believe that these foreign companies being targeted are much more responsible in terms of food and product safety than many Chinese firms. The answer is because these foreign companies are so high-profile that they quickly capture national and global headlines, drawing attention to the issue and providing a warning for smaller Chinese companies that are engaged in much worse violations. At the same time, these big foreign companies have the resources to easily weather such negative publicity, which is usually quite short-lived as I suspect that all sides know these cases are designed more to draw attention to the issue than to actually punish the big foreign firms. The latest such high-profile attack has come this week against 2 industry titans, leading French supermarket and general merchandise seller Carrefour (Paris: CA) and fast food giant McDonalds (NYSE: MCD). (English article) According to Chinese media reports, CCTV has run a story attacking Carrefour for mislabeling ordinary chicken as a premium product at some of its stores, while McDonalds was guilty of selling chicken wings past their permitted sale period at a Beijing store. Both instances look quite trivial to me, as clearly no one’s safety was threatened by these practices. I suspect food safety officials will quickly investigate the matter and perhaps slap both Carrefour and McDonalds with small fines to show everyone that any kind of mislabeling or other misrepresentation is unacceptable. Meantime, business will quickly return to normal, as the public already considers these large multinationals much more reliable in terms of food safety than most domestic chains and local eateries. This latest attack follows a string of similar investigative reports from CCTV, including a “scandal” that erupted late last year when China’s leading TV operator revealed that Wal-Mart (NYSE: WMT) had committed the “grave offsense” of mislabeling regular pork as organic. (previous post) Likewise, KFC (NYSE: YUM) also came under attack last year for selling soy milk made from powder rather than fresh product, even though the company had never even claimed that its soy milk was fresh. In both instances, the news created a small storm for a few weeks before quickly blowing over as business returned to normal. I’m sure that investigative reporters from both CCTV and other major news outlets will continue to scour Beijing and other big cities in search of the latest minor violations by major western companies. Such attacks are likely to do little damage on such big corporations, and could even help them win points with the government and food regulators who conveniently use them as models to send a broader message to the market on the importance of food safety and intolerance for businesses that threaten public health.

Bottom line: New media attacks on McDonalds and Carrefour are part of a broader government food safety campaign, and will have little effect on these global corporate giants.

Related postings 相关文章:

◙ Wal-Mart Pork Brouhaha Spotlights Food Risk 沃尔玛“标签门”表明中国严打决心

◙ Pepsi’s New China Shot Ignores Bigger Issues 百事联手康师傅抢占中国市场

◙ Mid-Sized Players Join China Fast Food Feast 国外中小快餐企业抢滩中国市场

Baidu: Addicted to Piracy 百度：沉溺于盗版

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Baidu (Nasdaq: BIDU) may be China’s undisputed Internet search leader, but new reports circulating about an abrupt collapse of talks over a new video partnership illustrate just how dependent this company is on less-than-ethical business practices like piracy and stealth advertising for its rapid growth. Chinese media are reporting that Baidu has ended discussions that would have brought online video to its service through a new partnership with LeTV (Shenzhen: 300104) after Baidu refused to LeTV’s condition that it eliminate pirated video from its video search site results. (English article) While other major Internet sites seem to be making a real effort to eliminate pirated music, video and other copyrighted material from their sites, Baidu has made some high-profile announcements to try to convince people it is making similar moves, while quietly allowing pirating activity to continue unabated on its sites. The company announced a major new initiative last year to offer legal music over its site in a tie-up with several major record labels, only to add it had no plans to simultaneously close its older popular music sharing site where piracy is so rampant that the major global music labels filed a lawsuit against Baidu several years back. (previous post) This latest development just underscores how addicted Baidu is to piracy, one factor that has helped it to triumph in the domestic search market over global players like Google (Nasdaq: GOOG) and Yahoo (Nasdaq: YHOO), ,which actively police their sites to keep off pirated material. This addiction to piracy is just one of Baidu’s less-than-ethical practices. The other big one is its reported willingness to manipulate search results for anyone willing to pay for such services. That includes not only giving advertisers high placement in search results without telling web surfers that such high placement was paid for, but also reportedly other things like conveniently removing negative news from search results for any individual or company that is willing to pay. So why does Baidu engage in such practices when clearly they go against international standards? The answer is simple: because it can, and because such practices are one of the main drivers for the high growth rates have made Baidu stock a darling of investors. I have no doubt that Baidu will continue to engage in such practices, and a smart, well-funded competitor like Google or Tencent (HKEx: 700) should take advantage of the situation to launch a campaign to inform the public and steal some of Baidu’s traffic. But that looks unlikely to happen anytime soon, meaning Baidu will continue with its current practices for the foreseeable future until someone — be it consumers, a rival or the government — finally steps in and says “enough is enough”.

Bottom line: The break-up of talks for a online video tie-up between Baidu and LeTV underscores Baidu’s dependence on piracy as a major driver of traffic to its site.

Related postings 相关文章:

◙ After Years, Baidu Does the Right Thing 百度多年来的一个正确之举

◙ Baidu Video Tries Blockbuster Licensing

◙ Baidu Comes Under Government Fire 政府“修理”百度

Spreadtrum: Nice Story, Now Let’s See the Numbers 展讯要靠业绩取信投资者

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I’ve become something of a fan of cellphone chip designer Spreadtrum (Nasdaq: SPRD), which has convinced me it has found a nice niche as a developer of low-cost chips for cellphones in developing markets through a well-focused public relations campaign in that direction. But investors are clearly growing skeptical of that story, based on reaction to its latest announcement, and are clearly less willing to buy into the story until the company starts to show some top and bottom line impact from its efforts. In its latest announcement on its developing market aspirations, Spreadtrum announced it has partnered with India’s Micromax to develop new low-cost handsets for the Indian and other developing markets. (company announcement) This announcement follows a series of similar ones from the past year, which are part of the company’s strategy to focus on chips for the low-cost, high-performance cellphones preferred by many price-sensitive consumers in developing markets like China and India. While reaction to some of the earlier announcements was quite positive, investors have greeted this latest news with mostly indifference, bidding up Spreadtrum shares less than 1 percent after the announcement, largely in line with a small gain for the broader market. That indifference seems to reflect a longer-term trend that has seen Spreadtrum shares lose about half of their value from highs reached back in November, even as many other beaten-down China tech stocks have rallied over that period. Perhaps investors are starting to tire a bit of Spreadtrum’s hype, and are focusing more on its actual results which have yet to show too much excitement from the new initiatives. The company’s revenue grew 54 percent in its latest reporting quarter, but the figure was up only 4 percent quarter-on-quarter and, equally important, profit grew just 17 percent in the fourth-quarter from a year earlier  — hardly eye-popping figures for a company with such big plans. (results announcement) Some may recall that Spreadtrum was the target of a short-seller attack last year that questioned some of its high inventory levels. The company successfully defended itself in that instance, and actually saw its shares surge afterwards. (previous post) I’m still a believer in this company based on its strategy, but clearly others might be starting to wonder if perhaps there was some truth to the short seller report that Spreadtrum successfully dismissed by saying the growing inventory levels reflected a build-up of chips as it expanded its product offerings. Look for the stock to remain under pressure in its current range until the company can start to show some solid results from its well-articulated developing market strategy.

Bottom line: Investors are growing wary of Spreadtrum’s ongoing PR campaign about its developing market aspirations, and won’t be convinced until it starts to show some stronger results.

Related postings 相关文章:

◙ Spreadtrum, Samsung in Latest China 3G Model 展讯与三星再度联手开发中国标准3G智能手机

◙ Spreadtrum, Mediatek in Cheap Smartphone Plays

◙ Spreadtrum On Cusp of Putting Out Short-Seller Fire 展讯力抗卖空方

Tudou, Youku: Stormy Marriage Ahead 优酷土豆“联姻”：想说爱你不容易

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After an initial bout of “irrational exuberance” in response to the merger announcement between leading online video sites Youku (NYSE: YOKU) and Tudou (Nasdaq: TUDO) earlier this week, investors are waking up to the reality that this new combined company is indeed still just a small potato, and potentially a costly and turbulent one too. The latest comments from Tudou — whose investors will get a hefty 160 percent premium for their stock — are hardly reassuring, and could hint at the turmoil ahead for these 2 companies with very different corporate cultures. Investors who bid up Youku stock 27 percent the day after the initial announcement seemed to be waking up to the new reality on Wednesday, when Youku stock fell 8 percent. That said, its shares are still well ahead of their $25 price just before the merger was announced, closing on Wednesday at $28.79. This marriage will face a number of major obstacles, including a slowing ad market that could compound both companies’ drives to become profitable. But perhaps one of the biggest challenges will be combining these 2 very different corporate cultures. Whereas Youku is much more corporate in its style under the leadership of CEO Victor Koo, Tudou is much more entrepreneurial under the leadership of outspoken founder Gary Wang. The companies didn’t say how much of a role, if any, Wang will play at the new company. But I suspect he may try to stay at the company and run Tudou as his own fiefdom, which could cause problems over the longer term. His latest comments seem to point in that direction, with Wang being quoted in the Chinese media as saying there will be no layoffs at Tudou after the merger and that, in fact, all employees will even get pay raises. (Chinese article) I understand that whenever there’s a merger like this, it’s natural for employees to be worried about job security at the acquired company — in this case Tudou, whose market cap was about a quarter of Youku’s when the deal was announced. But at the end of the day, one of the main reasons for this kind of merger is exactly the kind of cost savings that both companies hope to achieve through new synergies, and one of the most important of those is by eliminating overlapping jobs. It’s bad enough that Wang is making this kind of comment, regardless of his good intentions, but looks outright irresponsible for him to declare that everyone will get pay raises as well, further boosting costs for the combined company. I suspect Wang held little or no consultations with Victor Koo before making his comments, which came in an internal e-mail, but instead took his actions unilaterally to show his new boss that he was still in control of Tudou. Look for more of this kind of turbulence in the months ahead, both in the management office and in Youku Tudou’s stock price, as this new small potato tries to integrate 2 very different cultures.

Bottom line: Comments from Tudou founder Gary Wang hint at a difficult integration with Youku, boding poorly for the new company’s performance over the next year and its stock.

Related postings 相关文章:

◙ Search Blocking Wars Expand to Video 搜索屏蔽战蔓延至在线视频业

◙ 2011: A Breakthrough Year in Copyright Protection 2011年：中国版权保护取得突破的一年

◙ Tudou-Sina Tie-Up: More to Come？ 土豆网联手新浪

China Tech Stocks: Dividend Plays? 中国科技股：发放股利

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Since everyone else is focusing on the rapidly slowing growth in the latest quarterly results from leading Internet company Tencent (HKEx: 700), I thought I’d take a look at a less explored part of the company’s newly issued report, namely a dividend that it quietly boosted 36 percent. The sharp increase, at least on a percentage basis, reflects a broader effort among overseas-listed China tech and Internet firms to try to rekindle investor interest in their shares, as many start to see a rapid slowdown in growth with the maturation of their markets. Let’s look at Tencent first, which saw its fourth-quarter profit rise a modest 15 percent, not exactly impressive for a company whose annual profit rose 56 percent in 2010 and which saw triple-digit gains in many previous years. (results announcement; English article) Meantime, the company announced it was raising its annual dividend to HK$0.75 per share from HK$0.55 the previous year, a 36 percent increase. In terms of actual yield, investors will still get a modest 0.4 percent return from the dividend based on Tencent’s latest closing price. But still, any return at all would be a plus for holders of Tencent shares last year, which fell 10 percent amid a broader cooling in sentiment towards overseas-listed China tech stocks after a meteoric rise in previous years. Tencent’s boosting of its dividend comes as a growing number of US-listed Chinese tech and Internet firms have rolled out first-ever dividends, with a diverse range of names including chip designer Spreadtrum (NYSE: SPRD), online game operator Giant Interactive (NYSE: GA) and real estate service specialists Soufun (NYSE: SFUN) and E-House (NYSE: EJ) all announcing dividends starting last year in a bid to support their sagging share prices. Most of these companies are relatively cash-rich and the awarding of dividends is partly acknowledgement that they don’t need the money for operations, since most are already profitable, and most don’t plan to make any major acquisitions in the near future. Furthermore, none have indicated whether these dividends will become a regular occurrence, and I suspect many will quietly retire the policy if and when their share prices start to rebound. Still, Tencent’s latest moves do reflect a new reality setting in for an increasing number of tech firms, namely that growth could slow significantly in the next few years, causing investors to look elsewhere for excitement in a market full of other high-growth stories. As that happens, look for some of the biggest names, especially cash-rich ones like Tencent, to quietly boost their dividends, providing a stable if not very exciting source of returns for investors who don’t mind the slower growth.

Bottom line: A growing number of overseas-listed Chinese tech and Internet firms will offer dividends to attract investors as their profit growth slows.

Related postings 相关文章:

◙ Real Estate Down, But E-House Jumps 房地产股票下跌，但易居上涨

◙ Soufun Looks For More Support With New Dividend 搜房网借新派息计划寻求支撑股价

◙ Shanda Plays Games With Big Dividend 盛大游戏寄望高额分红计划提振股价

Online Games: Where’s the Excitement? 中国网游企业增长有限

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A press release from ChinaJoy, China’s oldest online gaming show now celebrating its 10th anniversary, reminded me of how little I write about this once-exciting industry anymore, which has become mostly a bumper crop of companies with poor track records at innovation despite their huge home market. ChinaJoy announced its big anniversary with fanfare, unveiling a new logo and announcing a slate of its latest shows centered on the online game industry. (official announcement) But from where I sit, there’s very little to celebrate. The industry posted revenue of 32.4 billion yuan in 2010, about $5 billion, rising a respectable 26 percent from the year before but still sharply slower than growth rates 5 or 6 years ago when the hype was loudest. Perhaps the company that best illustrates the disappointment surrounding this sector is Shanda Interactive, which became the sector’s first player to go public with its Nasdaq IPO in 2004. The company then spun off its gaming unit into a separate company, Shanda Games (Nasdaq: GAME), and then finally itself went private earlier this year due in part to lackluster investor interest. (previous post) Since its listing, Shanda Games has failed to attract much investor interest and the stock now trades at about one-third of its IPO price in 2009. Other hopefuls from the sector included The9 (Nasdaq: NCTY), Perfect World (Nasdaq: PWRD) and Giant Interactive (NYSE: GA), which have all seen similar lackluster performance. One notable exception to this uninspired group has been NetEase (Nasdaq: NTES), one of China’s earliest Internet companies, which has actually done quite well in the space due to its strong ability to self-develop games that have found strong fan bases among domestic Chinese gamers. By comparison, Shanda and the others, despite their best efforts, have largely failed to create popular titles and instead rely on licensing games developed by foreign companies for most of their revenue. That model is not only less profitable, as profit margins are much smaller, but also dangerous as companies can quickly lose much of their revenue when a license expires if they fail to renew it. That case was illustrated 2 years ago when The9 saw its business disappear almost overnight when it lost its most popular game, World of Warcraft, after failing to renew a licensing deal with the game’s owner, US firm Activision Blizzard (Nasdaq: ATVI). The9 got a recent lift when it announced a new self-developed title and a global licensing deal, providing a boost to its stagnant shares. (previous post) But somewhat ironically, the title was developed by a US-based game developer purchased by The9, rather than the company’s own China-based design house. For all of these reasons, NetEase may remain the only interesting company in this once-promising space for the near future, though The9 could potentially also rise if its US-based design house can produce more successful titles.

Bottom line: China’s online game operators will see little or no growth in the next few years except for the handful that can develop their own successful titles rather than rely on licensing deals.

Related postings 相关文章:

◙ The9 WoWs Wall Street With New Deal

◙ Shanda Delists: Thanks for the Profits 盛大网络退市：获利可喜

◙ Shanda Plays Games With Big Dividend 盛大游戏寄望高额分红计划提振股价

 

Real Name Registration: Burden or Not for Weibo? 实名制会否成为新浪微博的负担？

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Just a day before an initial deadline requiring all microblog users to register with their real names, domestic media are reporting that leading operator Weibo, a unit of Sina (Nasdaq: SINA) has registered some 60 percent of users with their real names. (Chinese article) So the real question becomes: Will this new requirement become a major impediment to growth of this space, or were earlier fears overblown? The answer probably lies somewhere in between, following implementation of this controversial policy by Chinese regulators in an effort to curtail rumor mongoring by microbloggers who could previously say whatever they wanted online and hide behind a veil of anonymity. (previous post) The 60 percent conversion rate actually looks not bad to me, as it proves that at least 60 percent of Sina’s estimate 250 million registered users are active enough to want to keep posting their latest thoughts and other materials on Weibo. That translates to 150 million active users, which should still be an attractive audience for advertisers and others looking to leverage Weibo as Sina seeks out ways to commercialize the service. The 40 percent of users who haven’t registered with their real names translates to a sizable 100 million people, many of whom could soon lose their rights to post messages on their accounts once the deadline passes. Of this figure, a sizable number — perhaps one-third to one-half — might still remain active Weibo users, since many people simply like to read other people’s postings on Sina and rarely post items themselves. This group of readers in theory should be allowed to continue to use Weibo even if they don’t register their real names, since the real-name requirement is designed to discourage people from spreading rumors and thus shouldn’t apply to people who use Weibo in read-only mode. So if even a third of the users who haven’t registered their real names continue as “read only” users, that would give Weibo around another 30 million users, meaning that altogether it could retain up to 70 percent of its original user base before the original requirement was imposed. That’s  certainly not a bad number, and the new requirement could perhaps even attract more users as it will effectively “clean up” the quality of postings, since many people may now be more reluctant to post obscene, viscous or other offensive material for fear of being tracked down by authorities. Of course, the big risk is the potential for online uprisings and massive defections if a Weibo user gets detained or questioned by police due to something they wrote on their Weibo. But for the moment at least, the real-name system looks like its impact on Weibo could be relatively limited, and perhaps even beneficial in the long term, as Sina tries to make the unit profitable in the run-up to a like spin off and IPO as soon as the second half of next year.

Bottom line: Implementation of a real-name system is having limited impact on Weibo and other microblogs, and could even attract more users by improving the quality of postings.

Related postings 相关文章:

◙ Sina Gets Serious on Weibo 新浪开始严肃对待微博

◙ Sina Tests Weibo Demand With Paid Offering 新浪试水微博增值收费服务

◙ New Rule Hits Sina, Instant Messaging to Benefit? 微博实名重创新浪 即时信息服务有望受益

Advice to China Mobile: Stay Home 建议中国移动呆在国内

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Two news tidbits out today on China Mobile (HKEx: 941; NYSE: CHL) nicely illustrate why investors are suddenly getting excited about this company after years of shunning its stock, highlighting big potential at its home market under an incoming generation of new top executives. The news also underscores the company’s largely failed global expansion policy, and why long-serving Chairman Wang Jianzhou needs to step down and let a younger generation of new leaders take over. The first news tidbit is some simple data from a government telecoms official saying China now has just 6 million households getting their Internet service over cable TV lines (English article) — a tiny figure compared with the 130 million households that get broadband over phone lines through service offered by China Mobile’s 2 rivals, China Telecom (HKEx: 728; NYSE: CHA) and China Unicom (HKEx: 762; NYSE: CHU). That number is significant because China Mobile is currently in talks to form a partnership with a new national cable TV operator being created through consolidation of China’s hundreds of regional cable TV companies — providing a serious new wire-based broadband competitor for Unicom and China Telecom. (previous post). That initiative, combined with recent strong signals that China Mobile will boost its 3G and 4G development, have excited investors who had largely lost interest in the company and its slow-growth story, sparking a rally that has pushed the stock to levels not seen since 2009. Meantime, the second news bit comes from Chairman Wang, whose exit has been long anticipated but never seems to come, speaking on the tired subject of global expansion. Under Wang’s leadership China Mobile has made several attempts at global expansion, failing in every instance except for one that saw it take over a small Pakistani carrier on the brink of bankruptcy. Now Wang has revealed that China Mobile is bidding for a 3G license for the Pakistani unit, and will also seek other global expansion opportunities with a focus on emerging markets. (English article) Does this strategy sound familiar to anyone? If it does, then that’s because Wang has been discussing such a strategy for the last 5 years even though he has no results to show for all his talk, except for the Pakistani unit that contributes little or nothing to China Mobile’s top or bottom lines. The bottom line for China Mobile in all of this is that the company should stay focused on opportunities in its domestic market for now, where it can achieve real returns for its investors, and stop thinking about overseas opportunities that offer much less potential and are harder to execute. Put differently, Wang needs to finally step down and hand over management of the company to the new leaders waiting to take over.

Bottom line: China Mobile could reap huge returns from domestic opportunities like cable TV consolidation and 4G, and shouldn’t waste its attention on overseas opportunities.

Related postings 相关文章:

◙ China Mobile Eyes New Nat’l Cable Network 中国移动有望携手中国广播电视网络公司

◙ Telecoms Infrastructure Prepares to Open 中国电信基建市场或更开放

◙ China Mobile Tries 4G Back Door in Shenzhen 中国移动试图绕过监管机构于深圳秘密规划4G网络

China Telecom Turns Up Volume in 3G Drive 中国电信计划一鼓作气 3G市场欲再下一城

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An increasingly confident China Telecom (HKEx: 728; NYSE: CHA), armed with a newly signed deal to sell Apple’s (Nasdaq: AAPL) wildly popular iPhones in China, is making some bold predictions about its growth this year, setting the stage for what could easily shape up as a bloody war for 3G subscribers. Chinese media are quoting an executive at the smallest of the nation’s 3 mobile carriers saying the company’s 3G subscriber base could surpass that of its older 2G base by the end of this year. (Chinese article) To me that goal sounds reasonable, admirable and something China Telecom should be aiming for — until I took a look at the numbers. According to its latest data for January, the company had just over 130 million total subscribers, with about 40 million of those using 3G and the remaining 90 million on its older 2G service. So if the 2G number were to remain completely unchanged for the rest of the year, China Telecom would have to add a hefty 50 million 3G subscribers this year to meet the executive’s forecast — a 35 percent increase to its current user base. That growth rate is actually roughly comparable to what China Telecom posted last year, when it began its aggressive campaign to add 3G users. But in terms of actual user numbers, the potential addition of 50 million or more this year would mark a sharp increase from the roughly 36 million subscribers China Telecom added in 2011. China Telecom steadily picked up 3G market share from its 2 larger rivals, China Mobile (HKEx: 941; NYSE: CHL) and China Unicom (HKEx: 762; NYSE: CHU) last year by aggressively courting consumers with a wide range of handsets, price plans and a solid network based on a globally used 3G standard. During that time its share of the market grew from just 19 percent at the start of 2011 to about 28 percent by the end of the year, as it took share away from Unicom and especially China Mobile, which didn’t strongly promote its 3G network based on an untested homegrown technology with numerous problems. China Telecom is clearly looking to focus its efforts in 2012 on 3G, based on the fact that nearly all of its new subscribers in December came from 3G, and all new subscribers in January were also 3G users. The company also made national headlines last week when it officially began selling a version of the iPhone 4S for its 3G network, capping months of talks with Apple in a deal that ended Unicom’s 3-year-old monopoly on iPhone sales in China. Initial sales for the iPhone on China Telecom’s network were reasonably strong, and I expect we’ll hear more about the company’s ambitious plans for both the iPhone and its broader 3G strategy when company executives talk to the media at their press conference on March 20 to discuss 2011 results and their 2012 outlook (earnings calendar). Given its aggressive marketing, solid technology and strong range of products, I wouldn’t be surprised at all to see executives reiterate a goal of adding 50 million 3G subscribers this year, leading to profit erosion in the short term but building a stronger long-term base for the company to pose a serious 3G alternative to its 2 bigger rivals.

Bottom line: Remarks by China Telecom indicate the company plans to turn up its aggressive 3G campaign this year, challenging its 2 rivals for dominance in the space.

Related postings 相关文章:

◙ China Mobile 3G: Where Are the Subscribers? 中国移动3G：订户在哪里？

◙ China Telecoms Faces Power Struggle, Half-Baked 4G 中国电信行业遭遇政府监管权利斗争

◙ China Mobile’s TD 3G Fading Fast 中国移动3G网络前景黯淡

Price Trumps Tech For Solar 光伏投资者重技术但更重产品价格

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The days when a solar company could boost its share price by announcing its latest technological breakthrough seem firmly in the past, with the focus now squarely on sagging prices that have fallen by half or more over the last year due to huge oversupply. Industry leader Suntech (NYSE: STP) nicely illustrates this new reality with a new announcement that its latest technology has set a record for efficiency in the conversion of sunlight to electricity. Such advances are key to the long-term survival of the sector, as they will someday allow power plant operators to produce electricity more cheaply than other common methods, such as use of nuclear or fossil fuels, without the help of the government subsidies that are now required to make solar energy profitable. In a different time, perhaps a year or 2 earlier, Suntech’s announcement of its new record would have probably given the company’s stock a nice lift on Wall Street. (company announcement) According to the announcement, Suntech’s new technology, co-developed with an Australian university, can convert sunlight to electricity with a 20 percent efficiency ratio. That probably means a real conversion closer to 17-18 percent, but is still well ahead of current industry ratios of around 12-13 percent. So, how did Suntech’s shares react to the news? Investors greeted the announcement by selling Suntech shares, which sagged 4.2 percent in Monday trade on Wall Street, in step with a sector-wide downward trajectory that could soon see solar stocks revisit all-time lows reached last fall. Instead of focusing on this positive news, investors seemed to be paying more attention to comments from an executive of German solar panel maker Conergy, who warned the entire sector could see prices dropping further still as panel makers fight for the business that is still out there. (English article) Shares of all solar panel makers fell on that news, with Chinese companies the hardest hit as they not only face weak demand but also the potential loss of 2 of their largest markets — the US and European Union — which could both impose anti-dumping punitive sanctions later this year. (previous post) I’m hearing that some small consolidation deals are finally starting to take shape on the solar stage in China, which could eliminate some of the oversupply, and predict that we could finally see one or 2 sizable ones by the end of this year, especially if the current price pressure continues and either the US or Europe imposes anti-dumping tariffs. Meantime, I honestly do think the market could be overestimating the importance of these technological advances, which should are pushing the sector towards its golden moment of economic independence from government subsidies. When that happens, which could be in the next year or 2, look for the survivors of the current downturn to see a surge in business as serious construction of solar power plants begins around the world.

Bottom line: Solar cell investors are more focused on prices than technology, creating a buying opportunity for those who like the industry’s move toward freedom from government subsidies.

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