I’ll start off today with 2 earnings stories from companies moving in opposite directions: one from Apple (Nasdaq: AAPL), whose China sales have exploded on the back of its hugely popular iPhones, and the other from online search leader Baidu (Nasdaq: BIDU), whose rapid growth is showing signs of having peaked. Let’s look at Apple first as that’s the story that has the world buzzing the most, with the company reporting quarterly earnings that beat Wall Street forecasts and dispelled doubts that its popular iPhones and iPad tablet PCs were losing their appeal. (English article; Chinese article) China was the story within the story this time, with the Greater China region accounting for a whopping $7.9 billion of Apple’s sales for the quarter, or a fifth of its $39.2 billion in revenue. That huge figure came largely on the back of a 4-fold surge in iPhone sales. While the latest China numbers were huge, there’s every indication that they will continue to grow in the current quarter thanks to a new partnership with China Telecom (HKEx: 728; NYSE: CHA), the most aggressive of China’s 3 telcos, which began selling the iPhone in early March, or right at the end of the first quarter. (previous post) Apple had previously only sold iPhones in China through Unicom (HKEx: 762; NYSE: CHU), China’s second largest mobile carrier. Additional upside could come from settlement of an ongoing trademark dispute over the iPad name, which recently prompted Apple to delay selling the newest iPad model in China. (previous post) I would expect that dispute to be settled as soon as the end of the current quarter, paving the way for sale of the latest iPad in China as early as July or August. Meantime, Baidu has also just announced results that have failed to impress investors, who have bid down the company’s stock by around 10 percent in after-hours trading. Some are blaming the share sell-off on Baidu’s second-quarter outlook that was below market forecasts, but from my perspective the entire report looks relatively uninspired. (company announcement) The company said its profit and revenue both grew about 75 percent in the quarter from the previous year — figures that would look great for any other company besides Baidu. The profit growth is roughly comparable to a 77 percent profit jump in the previous quarter, although revenue growth slowed from the previous quarter’s 82.5 percent gain. Also slightly worrisome was one of the first negative growth figures I’ve seen from this company in its core advertising business, with Baidu reporting that revenue per online marketing customer fell 7.6 percent in the first quarter of this year versus fourth quarter levels. All of this indicates that an advertising slowdown that I’ve been predicting for the last 8 or 9 months is finally arriving, and that Baidu’s growth has peaked and will soon start to slow considerably.

Bottom line: Apple’s explosive China growth could accelerate on the back of a recent new iPhone deal and resolution of a trademark dispute, while Baidu’s growth appears to have peaked.

Related postings 相关文章:

◙ Apple Pressures Beijing With iPad Snub 苹果在华不售新iPad向中国政府施压

◙ Baidu Diversification Sputters With E-Commerce Flop 乐酷天将关停 百度电商战略再折戟

◙ Apple Bytes: Labor, a State Visit and Baidu 库克中国行猜想：他在下一盘很大的棋

Internet giant Tencent (HKEx: 700) might want to take a look at online search leader Baidu (Nasdaq: BIDU), as the former defends itself in a lawsuit accusing it of using its hugely popular QQ instant messaging platform to dominate other areas of the Internet. Just days after the opening of a trial in a Guangdong court accusing Tencent of abusing its QQ monopoly status, word has emerged that Baidu will close its latest e-commerce site, called Lekutian, less than 2 years after launching the service with Japanese e-commerce leader Rakuten (Tokyo: 4755). For anyone who has failed to miss the connection, my point is this: having monopoly status in one area of the Internet doesn’t necessarily guarantee success in other areas — a reality that Baidu illustrates after numerous failed initiatives outside its core search business. Let’s take a look at the facts first. Rakuten has said it will shutter Lekutian due to stiff competition in China’s overcrowded e-commerce space (English article), and a visit to the site reveals the closure will come this Friday. Confirmation of the closure comes after rumors had swirled for the last month over the future of the site, which Baidu and Rakuten launched with fanfare in 2010 just as more established e-commerce players like 360Buy and Dangdang (NYSE: DANG) were starting to raise hundreds of millions of dollars in new funds for aggressive expansions. Just 2 weeks ago, domestic media reported that Lekutian was making large layoffs and preparing for a major directional shift that would see it focus on its Japanese roots to offer more Japanese products. (previous post) The company denied the layoff reports though it did openly talk about the shift to a more Japanese flavor. Clearly Rakuten was having second thoughts about the shift even then, and has decided to shutter the business altogether, in what looks like a wise move to me that will inevitably see Baidu take yet another charge, probably in the tens of millions of dollars, when it announces its second quarter results in July. I say “another” charge, as this failure is hardly new for Baidu, which has yet to find success outside its core search business despite numerous attempts. Its first major e-commerce initiative, a service called You’a, never gained any traction and was later quietly folded into other services after the Lekutian venture was announced. Last year Baidu also quietly shuttered its Twitter-like microblogging service, which again failed to compete with rivals, including Sina’s (Nasdaq: SINA) wildly popular Weibo. (previous post) Baidu’s main overseas investment, a Japanese search site, has also been largely a flop, failing to gain much traction in that competitive market. All of these flops for a company with near-monopoly status in China’s lucrative online search market are all the more interesting in light of the Tencent trial, which began last week as the result of a lawsuit filed by Internet security software specialist Qihoo 360. (previous post) Qihoo alleged that Tencent used QQ’s near monopoly status in instant messaging to dominate other areas, such as the online game space. I would tend to agree with Qihoo’s argument that companies that dominate one space like Tencent do have an unfair advantage when developing related spaces, and should be legally restricted from using that advantage to stifle competition. At the same time, Baidu, which controls more than 70 percent of the online search market, the legal definition of a monopoly, certainly shows that just having domination in one area doesn’t guarantee success in others. I attribute Baidu’s lack of ability to parlay its search dominance into other areas to a general inability to execute new business plans, even though it clearly has many advantages over its rivals. At the end of the day, its inability to develop new businesses does work to Baidu’s advantage in one sense, since Qihoo and any other rivals will never accuse it of using its near monopoly status in search to unfairly dominate other areas of the Internet. But at the same time, its repeated failures to diversify also leave Baidu highly vulnerable to lawsuits from the anti-monopoly regulator itself, which has voiced dissatisfaction in the past and could easily take legal action to bring more competition to China’s online search market this year or next.

Bottom line: Baidu’s latest e-commerce failure reflects an inability to parlay its online search dominance into new areas, as it remains open to anti-trust action due to its monopoly in search.

Related postings 相关文章:

◙ Tencent in Monopoly Spotlight; Baidu Next? 腾讯被诉垄断 下一个是百度吗？

◙ Baidu’s Strong Growth Underwhelms 百度业绩持续强劲增长将投资者期望抬升过高

◙ Baidu Dreams of Brazil 百度试水巴西