Bottom line: Lack of buzz around Xiaomi’s launch of production in India and Lenovo’s new line of ZUK smartphones reflect fatigue that is rapidly consuming domestic Chinese brands due to rampant competition in their home market.
More fatigue signs in China smartphone market
Signs of fatigue continue to grow in China’s overheated smartphone market, where rampant competition and unending price wars these last 2 years have led to saturation and a rapid slowdown. That fatigue is visible in 2 of the latest headlines, one of which has former superstar Xiaomi failing to garner much buzz as it launches production in India to jump-start its stalling growth. The other has the struggling Lenovo (HKEx; 992) launching its own new brand of smartphones, as it also faces lackluster performance for its current lineup sold under its own name and the Motorola brand it acquired last year.
China’s smartphone market is the world’s largest, but also the most competitive due to the presence of many homegrown domestic players. That reality has forced many mid-sized and smaller names to seek tie-ups with wealthier partners, and forced everyone to look abroad for growth as profits shriveled at home. Adding to the woes, China’s smartphone market has been contracting this year, with sales falling 4.3 percent in the first quarter after several years of explosive growth. Read Full Post…
The following press releases and media reports about Chinese companies were carried on August 14. To view a full article or story, click on the link next to the headline.
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Lenovo (HKEx: 992) faces Motorola Hangover, Cuts 3,200 Jobs as Sales Slide (English article)
Xiaomi Announces New Products, Including MIUI 7 Operating System (Chinese article)
Amazon (Nasdaq: AMZN) China to Accelerate Local Investment – President (Chinese article)
Bottom line: Alibaba and Tencent are starting to look similar in terms of size and tapering growth, and are unlikely to excite investors again until they can reignite growth to above the 30 percent level.
Growth sluggish at Alibaba, Tencent
Near simultaneous releases of the latest earnings reports from Tencent (HKEx: 700) and Alibaba (NYSE: BABA) are providing a good opportunity to compare China’s 2 largest Internet companies, and also how they’re doing at the moment and what their prospects look like. The pair are surprisingly similar in terms of size, but their characters and core strengths and quite different, reflecting the personalities of their founders.
Tencent’s focus on games and social networking reflects the wonky, somewhat nerdy nature of its founder Pony Ma, who feels far more comfortable networking with other geeky people and communicating online than speaking at big investor forums. Alibaba founder Jack Ma is much more of a salesman, which explains why his company has emerged as China’s leading e-commerce company. Read Full Post…
Bottom line: After a slow start, China’s VNO program is showing signs of starting to gain momentum and could start to pose a meaningful challenge to the country’s big 3 mobile carriers by the end of next year.
VNOs move slowly but steadily
China telecoms regulator has just released some new data on the country’s virtual network operator (VNO) program a year after the first service launched, aimed at providing some competition for the country’s big 3 state-run telcos. While some observers are saying they’re disappointed at the data that shows China had 8.2 million VNO subscribers at the end of last month, I would actually take a contrarian view and say I find the figures somewhat encouraging.
Frankly speaking, I wasn’t at all confident that the VNO program would attract many subscribers at all. That’s because the program relied on cooperation from China’s big 3 telcos, which were required to sell capacity on their networks to these virtual operators, who would then sell service under their own brand names. The big and obvious problem lies in conflict of interest, since the big state-run telcos would hardly want to support these private companies that could quickly become major new competitors. Read Full Post…
Bottom line: Youku Tudou’s new name and campaign to create more exclusive content look like good strategic moves, but it really needs to sell itself to a larger benefactor to ensure its longer-term future.
Youku Tudou to change name, develop content ecosystem
Youku Tudou (NYSE: YOKU) was once China’s top online video site when it was formed 3 years ago through the merger of the country’s 2 leading players. But those glory days are firmly in the past now, as the company has been overtaken by more aggressive names like LeTV (Shenzhen: 300104) and iQiyi, the service backed by cash-rich online search giant Baidu (Nasdaq: BIDU).
Now media are reporting that Youku Tudou is rolling out a major overhaul that will include a new name for the company, as well as a massive spending campaign to build up an ecosystem for creating its own video content. The campaign certainly seems interesting and long overdue. But I’ve argued for a while now and still believe that what Youku Tudou really needs is to consider selling itself to a stronger Internet partner, rather than trying to continue as an independent company. Read Full Post…
The following press releases and media reports about Chinese companies were carried on August 13. To view a full article or story, click on the link next to the headline.
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Alibaba Group (NYSE: BABA) Announces June Quarter 2015 Results (Businesswire)
Bottom line: Tencent should limit itself to only reporting rivals or former employees for illegal behavior in major cases of criminal behavior, or risk being labeled a tattle-tale and undermining its own image.
Tencent: a vindictive whistleblower?
Media are flocking to the latest China Internet scandal that has seen software security specialist Qihoo 360 (NYSE: QIHU) accused of hosting pornography on its cloud service. But this time it’s not so much the act of hosting pornography that’s drawing attention, since this kind of problem is relatively routine on China’s unruly Internet scene.
Instead what’s drawing the attention is the source of the accusations that led to the scandal. In this case the pornography was uncovered in an investigative TV report, after central broadcaster CCTV was tipped off by Internet giant Tencent (HKEx: 700). China Internet watchers will recall that Tencent has a long-running feud with Qihoo 360 dating back to a clash 5 years ago. Observers will also recall that Tencent was in similar headlines last month when it leveled corruption allegations at a former executive who defected to e-commerce giant Alibaba (NYSE: BABA). Read Full Post…
Bottom line: Phoenix Satellite and its new media arm will continue to sputter due to China’s slowing economy and a lackluster move into mobile advertising, and founder Liu Changle should consider selling the company.
Slow move to mobile saps Phoenix New Media
Things aren’t looking too good these days for Hong Kong-based Phoenix Satellite (HKEx: 2008), a former rising star in China’s tightly controlled media market that has stumbled badly due to its inability to adapt to a changing industry landscape. Phoenix warned of a major profit decline last month due to a soft TV ad market (previous post), and now its younger Phoenix New Media (NYSE: FENG) unit is also showing signs of distress due to a heavy reliance on portal advertising delivered over traditional desktop computers.
The new quarterly earnings report from Phoenix New Media does contain one bright spot, namely a 124 percent increase in revenue from advertising services offered over smartphones and other mobile devices. (company announcement) But that part of the business is still quite small, with the result that Phoenix New Media reported overall advertising revenue growth of just 7.2 percent, and overall revenue growth of 2.9 percent during the second quarter of this year. Read Full Post…
I had to smile to myself when I read a report this week on a mini-scandal at a local H&M clothing store, involving an overeager security guard who pulled open a fitting room curtain without checking first to see if anyone was inside. The guard quickly discovered there was a woman trying on clothes in the small space, prompting the woman to complain about the intrusion.
The woman’s age in this case was quite revealing. At just 22 years old, she was clearly quite a bit younger than many Chinese who grew up with an entirely different concept of privacy. That was what prompted my smile, since people from that older generation probably would have considered the guard’s behavior quite ordinary and hardly cause for complaint. Read Full Post…
The following press releases and media reports about Chinese companies were carried on August 12. To view a full article or story, click on the link next to the headline.
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Xiaomi Kicks Off India Production for Strengthened Redmi 2 Edition (Chinese article)
China Jails Former Bright Food Chief For 18 years For Embezzling $30 Mln (English article)
Tencent (HKEx: 700) Reports 360 (NYSE: QIHU) Cloud Service for Pornography (Chinese article)
ChemChina, Camfin to Launch Tender Offer for Rest of Pirelli (Milan: PECI) (English article)
Phoenix New Media (NYSE: FENG) Reports Q2 Unaudited Financial Results (PRNewswire)
Bottom line: Alibaba’s new tie-up with Suning looks logical on the surface but is likely to run into problems due to overlap in the 2 partners’ businesses, which could lead to conflicts and an ultimate dissolution of the partnership.
Alibaba, Suning in massive new tie-up
I’m officially labeling today as “O2O Day” in China, as a recent wave of online-to-offline (O2O) tie-ups reaches a crescendo with news of a $4.6 billion investment by e-commerce giant Alibaba (HKEx: BABA) in traditional electronics retailer Suning (Shenzhen: 002024). Media aren’t really commenting on the size of the deal that will give Alibaba a 20 percent stake of Suning, but to my knowledge it’s the largest such deal in China Internet history and also quite possibly the largest ever by a Chinese tech company.
All that said, I’ll be quite blunt and add my view that I don’t completely understand the logic behind this particular deal and thus wouldn’t expect it to yield very strong returns. On the surface it looks like a classic O2O deal, combining Alibaba’s strength in online retailing with Suning’s in traditional retailing. But a closer look show this deal could be set for a bumpy ride for a number of factors, which I’ll discuss shortly. Read Full Post…
