NEC China Cellphones: New Lenovo Tie-Up? NEC计划重回中国手机市场 或与联想联姻

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What looks like a new wrinkle has emerged in the growing love affair between Chinese PC giant Lenovo (HKEx: 992) and Japanese electronics giant NEC (Tokyo: 6701), in what could well end up as a marriage that could serve as a template for similar Sino-Japanese tie-ups in the consumer electronics space. Media are reporting that NEC has announced it will once again enter the China cellphone market 6 years after its high-profile departure, with plans to sell a smartphone model, as well as 2 tablet PCs. (English article) Historians will recall that NEC left China back in 2006, at the time citing mismanagement for its decision to leave the world’s largest cellphone market. Of course the real issue was that its phones had become virtually invisible in the market, paralleling a trend in the rest of the world that has seen not only NEC but most Japanese brand cellphones and PCs become non-players nearly everywhere except for their highly protected home market. So what’s different now that would embolden NEC to return to China, the world’s biggest mobile market but also an incredibly competitive one where consumers are especially price sensitive and NEC has little or no brand recognition? The answer is: Lenovo. Last year the 2 companies entered into an interesting agreement that effectively saw Lenovo take over NEC’s PC operations through the establishment of a joint venture. (previous post) Lenovo followed later by saying it may move some of its production to Japan, in what looked like a bid to ease concerns from NEC’s Japanese customers who were undoubtedly worried that their computers could suffer a quality downgrade if all production was moved to China. (previous post) This kind of tie-up looked interesting as it had the potential to provide Lenovo with a quick entry to the lucrative Japan market that has been one of the toughest for foreign brands to tap due in part to local preference for domestic brands that are perceived as higher quality. It also gave Lenovo, the world’s second biggest PC maker, a new premium brand to market outside Japan through its numerous sales channels in both western and developing markets. There aren’t any details in the latest reports about NEC’s decision to re-enter China’s cellphone market, but I would be willing to bet that Lenovo, as China’s dominant PC player with about a third of the market, will be a strong partner behind the scenes, providing NEC with access to its strong sales and service networks throughout the country. Furthermore, while the Lenovo name is synonymous with good quality PCs in China, the same is hardly true for its cellphones, which have had a much more difficult time establishing a strong name in the company’s home market as it vies with better known names like HTC (Taipei: 2498), Apple (Nasdaq: AAPL) and up and comers Huawei and ZTE (HKEx: 763; Shenzhen: 000063). This NEC move back into China, if Lenovo is really involved, could provide Lenovo with an important new premium brand that doesn’t have any of the baggage associated with its own cellphones. That could pave the way for an eventual joint venture for the NEC cellphone brand similar to the 2 companies’ PC tie-up. In fact, TCL (Shenzhen: 000100; HKEx: 2618), another Chinese brand known for its cheap cellphones, made a similar shift with its purchase of the Alcatel cellphone brand name around 5 years ago, and Alcatel-branded phones now account for the lion’s share of its sales outside China. So, what exactly is the end game in this growing love affair between Lenovo and NEC? If the PC partnership proves successful in Japan and this new NEC cellphone initiative in China is also a success, I could easily see an eventual sale in the next 2-3 years that would see Lenovo acquire outright NEC’s PC and cellphone units, 2 of its main consumer electronics businesses. Such a deal could serve as a template for future tie-ups between Chinese electronics companies and their Japanese counterparts. Chinese companies could use such deals to shed their image as makers of cheap, lower-end products, while Japanese firms could shed their increasingly unprofitable and marginal electronics businesses.

Bottom line: NEC’s re-entry to the China cellphone market looks like the latest wrinkle in its growing ties with Lenovo, which could ultimately result in a longer-term marriage.

Related postings 相关文章:

◙ Lenovo Considers Japan Production 联想向日本转移制造业务为明智公关手段

◙ Lenovo Results: Honeymoon Nearing an End? 联想并购後的蜜月期何时结束？

◙ Lenovo-NEC: Let the Defections Begin 联想与NEC结盟注定失败

Google Tussles With China on Motorola 延迟批准摩托罗拉移动交易 中国政府对谷歌仍心存芥蒂

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Leaders in Beijing seem to be holding a long grudge against Google (Nasdaq: GOOG), following its high-profile withdrawal from the China market in 2010 after a dispute over self-censorship policies. That’s the only conclusion I can draw from the latest news in this stormy relationship, which has seen China emerge as the lone major country that has yet to approve Google’s pending purchase of Motorola Mobility (NYSE: MMI), the faded giant that was once the world’s second largest cellphone maker. All major governments have approved the deal announced last August, in what looks to me like an easy call for most anti-monopoly regulators as Google doesn’t make cellphones and Motorola Mobility is now just a relatively small player in the competitive space anyhow. But for some reason, China’s anti-monopoly regulator has not only failed to approve the deal more than half a year after it was first announced, but has actually said it will need extra time to make a decision. (Chinese article) Exactly why the Chinese regulator needs so much time to make what should be a relatively easy decision is hard for me to determine, which is why I can only guess that Beijing still harbors some bad feelings towards Google. Readers will recall that Google made global headlines in 2010 with its departure from China, which cast a spotlight on the self-policing that all web sites are forced to do under Chinese law to eliminate sensitive content from their sites, creating lots of negative global publicity for Beijing. Since then, China has dragged its feet in a number of decisions relating to Google. First it delayed before finally approving a renewal of the registration for Google’s China Internet domain, Google.cn; and more recently it has sparred with Google over the licensing of its mapping service in China, which is reportedly still awaiting final approval. (previous post) I previously said I thought Beijing and Google had moved past their bad feelings from the 2010 dispute, but perhaps some conflict still remains. Still, I do believe that both sides realize they need each other and can’t really afford  to fight too much, as Google’s Android is now the world’s most popular smartphone operating system and China is the world’s largest mobile market. There’s also an interesting side element to this story which may not even be Google-related, in that Motorola’s sale of its networking equipment business last year to Nokia Siemens Networks also ran into repeated unexplained delays in approval from China last year. Then the deal was suddenly approved after an unrelated patent dispute between Motorola and Huawei was settled, leading some, myself included, to suspect the 2 actions were related. (previous post) It’s hard to say if there might be a similar related element this time as none is apparent; but hopefully China has learned by now that its approval of major global M&A shouldn’t be tied to unrelated matters.

Bottom line: China’s delays in approving Google’s purchase of Motorola Mobility point to lingering distrust by Beijing towards Google.

Related postings 相关文章:

◙ Google: Getting Mapped Out of China? 谷歌地图：会退出中国市场吗？

◙ Google Map Impasse Resolved With New JV 谷歌地图风波解决

◙ Troublesome Timing As China Approves NSN-Motorola 中国监管部门批准诺基亚西门子购买摩托罗拉网络业务时机不佳

China IPO Train Hits Bump With Vancl Resignation 中国上市事件撞上凡客诚品CFO辞职

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All eyes will be on discount online retailer Vipshop later this week when it should officially become China’s first New York IPO in months, testing whether investor sentiment has improved toward this group that was rocked last year by a series of accounting scandals. But in the meantime, a potential new scandal brewing at leading online clothing retailer Vancl will hardly help the situation. Details are quite scant and the company isn’t even confirming anything, but Chinese media are citing unnamed sources saying Vancl’s chief financial officer has resigned and that the company’s planned IPO now won’t happen until 2014 at the earliest. (Chinese article) Again, there’s little or no explanation about what’s happening at this company, but the resignation of a CFO is a never a good sign, as this is obviously the top person in charge of the company’s accounting and the implication is that he left due to questions about that part of the business. The big delay for Vancl’s IPO, if true, is also quite surprising, as the company was reportedly all set to make a public offering last summer before deciding to indefinitely delay the deal after market sentiment tanked. So the fact that sources are saying that the IPO won’t happen for at least 2 years now seems to indicate that auditors may have found some serious problems in Vancl’s accounting that will require a while to fix before the company can make a new effort at an IPO. The same reports say Vancl estimates it will post a loss of 1 billion yuan, or about $160 million, for the current fiscal year ending in June, which clearly isn’t the kind of story you want to tell investors before a big IPO. Of course, the problem with all of this is that the source of the information isn’t named in the report, so it’s hard to know how much is really accurate. My guess is that the CFO resignation and large loss are true, as the e-commerce space has been suffering from rampant competition for much of the last year driving everyone deeply into the red and setting the stage for a much needed consolidation as companies run out of money. In fact, Vancl was just one of many e-commerce firms to reportedly lay off employees last year, cutting about 5 percent of its workforce to conserve cash. (previous post) It’s unclear if Vancl is facing an internal accounting scandal, but, as I said above, the fact it’s delaying its IPO by 2 years when it’s clearly in need of cash certainly seems to indicate something is happening. With investors unlikely to provide any new funds until the e-commerce landscape starts to settle down, look for more layoffs at Vancl in the year ahead, and for the company to possibly even become insolvent or get acquired. In the meantime, this development could weigh on Vipshop’s upcoming IPO, causing investors to avoid this important first new offering for a China-based web firm in half a year.

Bottom line: The reported departure of Vancl’s CFO and delay of its IPO point to accounting issues at the company, which could prolong investor concerns about Chinese accounting practices.

Related postings 相关文章:

◙ Vancl: Sales Soar, But Where’s the IPO?

◙ Qihoo, Vancl Fend Off New Attacks 奇虎、凡客和人人承受压力

◙ China Internet Bubble Sees Vancl Dressing Down 中国互联网泡沫见证凡客裁员

News Digest: March 20, 2012 报摘： 2012年3月20日

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The following press releases and media reports about Chinese companies were carried on March 20. To view a full article or story, click on the link next to the headline.

══════════════════════════════════════════════════════

◙ Google’s (Nasdaq: GOOG) Motorola Mobility (NYSE: MMI) Buy Still Awaits China Approval (Chinese article)

◙ China Increases Fuel Prices for Second Time in Two Months After Crude Gain (English article)

◙ NEC (HKEx: 6701) Releases Smartphone, Tablets in China (English article)

◙ Vancl CFO Resigns, IPO Shelved for at Least 2 Years – Source (Chinese article)

◙ LDK Solar (NYSE: LDK) Revises Q4 Guidance, Announces Q4 Reporting Date, 2012 Outlook (PRNewswire)

◙ Latest calendar for Q4 earnings reports (Earnings calendar)

Alibaba vs eBay: Chapter 2 Begins 阿里巴巴和eBay狭路又相逢

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After engaging in a bloody war in the online auctions space 7 years ago that ironically resulted in no winners, leading e-commerce firms Alibaba and eBay (Nasdaq: EBAY) may be gearing up for a second round in this entertaining conflict in the lucrative electronic payments area. That’s the way it looks following the latest disclosure that PayPal, eBay’s highly successful e-payments service, intends to enter China’s fast-growing domestic electronic payments market. (English article) In fact, PayPal already processes electronic payments between China and other countries, and indicated as early as last fall that it was seriously considering a bid to enter China’s domestic market that would allow it to process payments between Chinese buyers and sellers. That market is currently off limits to foreign-invested companies, but the country is now accepting applications and many it expect it to issue its first licenses to the group later this year, following the licensing of domestic players last year. A top PayPal executive has said he is cautiously optimistic his company will be one of the first foreign recipients of a new license. Anyone who follows the market knows that PayPal’s entry to the market would put it in direct competition with Alibaba’s AliPay, which has grown rapidly to become one of its most valuable assets and is now a leading player in the space. China Internet historians will recall that another Alibaba service, its Taobao online auctions marketplace, fought a fierce battle with eBay’s EachNet starting around 2005. That battle saw Taobao institute a strict no-fee policy that helped it rapidly steal share from EachNet, which at the time was the country’s dominant provider of online auction services, also known as consumer-to-consumer or C2C. EBay eventually conceded the battle, leaving the market to Alibaba which heavily trumpeted its victory in this battle. Ironically, Alibaba would go on to discover it had won the battle only to lose the war, as it could never find a way to earn very much money from its online auction business, which is now one of its smaller assets. After that battle, eBay and Alibaba actually had a brief friendly period where they joined forces, only to see eBay break off that relationship last year. (previous post) Unlike online auctions, which no longer generate much excitement among investors, e-payment services seem to be a safer long-term bet, as they can be used by anyone doing business on the Internet and generate steady revenue for providers in the form of transaction payments. AliPay clearly has an advantage in this market due to its longer operating history. But that said, PayPal has been active for years in the cross-border market between China and the rest of the world, and has the resources to wage a serious new war if it gets a license. Look for this newest battle to be quite colorful and interesting, with eBay quite possibly winning the second round of this ongoing rivalry with Alibaba.

Bottom line: A new war could shape up between Alibaba and eBay later this year in electronic payments, putting pressure on Alilbaba’s lucrative AliPay service.

Related postings 相关文章:

◙ Alibaba, eBay Lovefest Over as eBay Rethinks China 阿里巴巴和eBay的蜜月期结束

◙ E-Payments: Lots of Noise But Little Space

◙ Alibaba in Alipay Deal: Jack Ma Wins Again 支付宝股权纷争尘埃落定 马云公关赚钱两不误

China Oil Majors Step Into Troubled Waters 中海油卷入南中国海争端

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The latest controversy involving oil exploration giant CNOOC (HKEx: 883; NYSE: CEO) is once again shining a spotlight on why these Chinese government-controlled oil majors remain a risky bet not only due to exposure to volatile oil markets, but also because of their role as policy tools of Beijing. CNOOC and peers Sinopec (HKEx: 386; Shanghai: 600028; NYSE: SNP) and PetroChina (HKEx: 857; Shanghai: 601857; NYSE: PTR) are accustomed to having to heed Beijing orders to invest in more expensive unconventional fossil fuels like shale oil (previous post), which already carry risks due to their higher development costs. Now it seems these 3 are also becoming policy tools of Beijing in its determination to exert its rights to disputed waters in the South China Sea also claimed by Vietnam. Foreign media are reporting that Vietnam’s foreign ministry has said that CNOOC’s recent moves to develop oil resources in some of those waters violate its territory, and has asked China to cease those activities. (English article) Diplomatically speaking, this kind of move represents a dangerous escalation of this  territorial dispute by bringing in a commercial element. From CNOOC’s perspective, this development is also quite troubling as the company is being clearly used as a tool of Beijing to undertake a project that most purely commercial companies would never even consider due to the very real prospects for military conflict. If CNOOC really goes ahead and starts to explore for oil in this area, there’s the very real prospect that it could see its ships and other exploration equipment come under attack from Vietnam, potentially resulting in major losses and turning up the heat in this ongoing territorial conflict. Almost equally bad would be the possibility that CNOOC actually finds oil, which would automatically raise the stakes in this conflict due to the discovery of a valuable new resource in the area. I don’t hold strong views on this particular conflict, which is really a diplomatic matter for China and Vietnam to resolve. But for China to bring one of its major publicly-traded companies into the middle of the conflict is highly irresponsible, as it creates a huge new risk for CNOOC shareholders that no truly commercial company would ever want to take. Then again, shareholders in any of China’s 3 oil majors should be accustomed to shouldering this kind of risk as all are frequently ordered by Beijing to invest in areas with questionable chances of success. But it’s one thing to force a company to develop a difficult new resource, and quite another to ask it to put itself in the middle of a political spat that could easily result in military conflict, endangering not only property but also human lives. If Beijing continues in this direction, investors could be well advised to sell CNOOC and PetroChina shares, as both could easily end up suffering major damage as they become pawns in Beijing’s territorial disputes with its neighbors.

Bottom line: Beijing’s use of CNOOC to exert territorial claims over disputed waters with Vietnam is a highly irresponsible move that puts both the company and its shareholders at unnecessary risk.

Related postings 相关文章:

◙ Stumbling CNOOC Replaces Chief Executive 中海油换将李凡荣接棒CEO

◙ Alternate Fossil Fuels: China’s Newest White Elephant 过度追求替代性化石燃料或给中国留下大量沉重“鸡肋”

 

◙ 2012: The Year of China Resource M&A? 2012：中国企业的资源并购年？

SMIC: Still Tethered to the State 中芯国际：仍然依赖国家

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China’s largest chip maker SMIC (HKEx: 981; NYSE: SMI) seems firmly dependent on support from the Chinese government despite its best efforts to show it can compete in the lucrative but also highly competitive market for these high-tech products that lie at the heart of most electronic gadgets. The latest evidence of SMIC’s inability to stand on its own comes in the company’s latest announcement that it has secured a $600 million loan to help it upgrade its state-of-the-art factory in Beijing. (company announcement) Within the announcement, SMIC’s CEO Tzu-Yin Chiu points out that the participation of commercial banks in the loan validates the company’s strong prospects, implying that commercial banks would only lend money to a company with strong future potential. But a closer look at the list of banks participating in the loan reveals that it’s all Chinese policy banks and state-run commercial lenders, all of which take their orders from the government. The list includes policy banks China Development Bank and Export Import Bank of China, and commercial lenders China Construction Bank (HKEx: 939; Shanghai: 601939), Bank of Beijing and Bank of Shanghai. No one should be surprised that SMIC’s 2 biggest bases are in Shanghai and Beijing, which explains why 2 of the top regional banks in these cities were among the commercial lenders on the deal, no doubt instructed by local government officials to participate. I’m not saying that there’s anything inherently wrong with accepting money from government-controlled banks, but it’s certainly not very strong evidence to convince investors of your strong long-term prospects. Indeed, investors seemed unimpressed and and perhaps even worried by the loan announcement, with the company’s New York-traded shares falling nearly 5 percent after the news came out. SMIC’s Hong Kong-listed shares have languished since last summer, when an internal management battle broke out after its chairman suddenly died and its well-respected CEO was forced to resign. (previous post) A period of instability followed before the instigator of the internal battle himself was pushed out and Tzu was brought in as new CEO to return some stability. SMIC’s shares fell from as high as HK$0.90 before the battle, when the previous CEO was showing clear signs of turning around the underperforming company, to their current position where they are now stuck in the HK$0.40 to HK$0.50 range. This latest loan announcement just underscores that any progress made under the previous CEO has been dismantled as the highly cyclical global chip sector heads for its next downturn, and any return to profits for this once-promising but consistently troubled company probably won’t come until late next year at the earliest.

Bottom line: SMIC’s continued dependence on state support for its financing reflects a company stuck firmly in the red, with no near-term prospects for return to profitability.

Related postings 相关文章:

◙ SMIC Puts Turmoil Behind It — Again 中芯国际又走出内讧

◙ Chip Merger Near, More Consolidation Ahead? 华虹NEC和宏力半导体合并预示未来或有更多整合

◙ SMIC: Under Fire From All Directions 中芯国际亏损显示其内外交困

News Digest: March 17-19, 2012 报摘： 2012年3月17-19日

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The following press releases and media reports about Chinese companies were carried on March 17-19. To view a full article or story, click on the link next to the headline.

══════════════════════════════════════════════════════

◙ EBay’s (Nasdaq: EBAY) PayPal Aims to Challenge Alibaba With China Payments (English article)

◙ Sina (Nasdaq: SINA) Microblogging Users Ignore Real-Name Requirement (English article)

◙ UBS, StanChart Buy China Cinda Stake Ahead of IPO (English article)

◙ Vietnam Says CNOOC’s (HKEx: 883) South China Sea Bids Violate Territory (English article)

◙ SMIC (HKEx: 981; NYSE: SMI) Secures US$600 Million Syndicated Loan (HKEx announcement)

◙ Latest calendar for Q4 earnings reports (Earnings calendar)

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