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Message to 360Buy: Make Up Your Mind! 京东商城IPO“暗战”

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Leading e-commerce site 360Buy is increasingly looking like a schizophrenic company in terms of its IPO plans, a troublesome development that may reflect a growing rift between its charismatic chief executive and some of its deep-pocketed investors who last year gave it a record $1 billion-plus in new capital. Founder Liu Qiangdong has been quite adamant that an IPO is off the table until next year at the earliest, as he works to build his company into one that would be truly attractive to investors by bringing in seasoned top-level managers and earning profits — 2 things it currently lacks. But then other reports keep popping up saying the company, which also goes by the name Jingdong Mall, is quickly moving towards an IPO to raise billions of dollars, including some high-profile reports last year to that effect. (previous post) Now, just days after the company’s latest denial of any imminent IPO, media are once again reporting that 360Buy is hiring investment banks to underwrite its offering, in the latest sign of dysfunction behind the scenes. (Chinese article) The latest reports seem to have some credibility, as they contain some financial figures that 360Buy reportedly gave to investment banks as it shops for underwriters, including its revenue and profit margins, as well as its net loss and estimates of when it will become profitable. Those results reportedly showed the company’s transaction volume reached $3.4 billion, falling well short of a previous target of $4.3 billion amid stiff competition in China’s overheated e-commerce sector. The reports contain some other figures, but what’s more interesting to me is the infighting that appears to be going on behind the scenes as reflected by the conflicting IPO messages. My interpretation is that Liu wants to take a cautious approach by waiting until his company either turns profitable or sees profits in close range before making the offering. That seems smart, considering that investors have been punishing shares of money-losing Internet companies that have made public offerings over the last 2 years. In the most recent of those, shares of discount online retailer Vipshop (NYSE: VIPS) plunged 15 percent last week when it became China’s first web firm to make an IPO in more than half a year amid weak market sentiment. (previous post) Its shares have fallen further since then, and are now 30 percent below their IPO price. While Liu wants to take the prudent approach, I suspect that investors who made the massive investment last year, including Russia’s Digital Sky Entertainment, are getting worried about the company’s future as China’s e-commerce market gears up for a major correction, and are pushing for an IPO much sooner to recoup some of their money. If this is the case, look for a tug-of-war to continue into the months ahead, potentially forcing 360Buy into a premature IPO that could meet with weak investor demand and a poor trading debut if it happens this year.

Bottom line: Conflicting signs from 360Buy indicate a growing difference of views between its top manager and major investors over the timing of an IPO.

Related postings 相关文章:

◙ E-Commerce: 360Buy Awaits IPO Window, Amazon Expands 京东IPO融资心切 亚马逊物流扩张加剧竞争

◙ China IPO Winter Goes On as Vipshop Flops 唯品会大跌，中国IPO冬季持续

◙ 360Buy IPO: Let the Delays Begin 京东商城放缓IPO进程

ZTE Results: Waiting for Returns 中兴坚持低成本手机策略 亟需尽早盈利

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I’m feeling slightly artistic this morning, hence my choice of headline for this posting which is a reference to the famous Samuel Beckett play “Waiting for Godot,” about 2 people excitedly waiting for a person who will probably never appear. The same story could be true for ZTE (HKEx: 763;  Shenzhen: 000063), whose just-released results showed plunging profits and rapidly rising costs as the company takes a risky bet on the low-cost smartphone market that may bring in lots of new revenue but never pay any returns in the form of new profits. (results announcement; English article) Let’s take a closer look at the earnings, which show the company’s profit plunged nearly 50 percent from a year earlier in the fourth quarter, accelerating from a 40 percent decline in the previous quarter as profits for the year fell 37 percent. A closer look at the company’s income statement shows that costs rose sharply, with R&D and marketing expenses up 20 percent and 25 percent, respectively. Furthermore, the company’s annual profit would have tumbled even more if not for a big jump in one-time investment gains. ZTE has been quite direct about its desire to become a top-five cellphone maker in the next 2-3 years, and has embarked on a focused strategy to achieve that goal by rolling out a new line of lower cost smartphones priced very aggressively. That goal is certainly commendable and I applaud the company for staying focused on its aim despite the profit erosion that is clearly a cause of concern for investors. The company’s Hong Kong-listed shares are down 45 percent over the last 52 weeks, and have lost around 20 percent of their value so far this year, even as the broader market has rallied about 15 percent. The cellphone gamble is at once both a smart move and a very risky one. On the one hand, ZTE realizes its need to diversify beyond its core networking equipment business, which has run into numerous roadblocks in the last few years from western markets concerned about security issues. Cellphones are much less controversial and have steadier sales, and ZTE is drawing on its expertise as a low-cost manufacturer to focus on the lower end of the booming market for smartphones that can take advantage of high-speed 3G and 4G wireless networks. The only problem is that ZTE is hardly the only company to notice the trend, and is joining a very crowded market that includes heavyweights like Apple (Nasdaq: AAPL), Samsung (Seoul: 005930) and Nokia (Helsinki: NOK1V), not to mention hometown rival Huawei Technologies, which is making a similar aggressive smartphone play. At the end of the day there’s no reason a few companies can’t succeed in the low-cost smartphone market, and ZTE could certainly be one of those. But unless it can start to show some profits by the second half of this year from its cellphone gamble, look for trouble  ahead for this company and continuing downward pressure on its stock.

Bottom line: ZTE’s latest results reflect its ongoing push into low-cost cellphones, but it needs to show returns by the second half of this year or risk losing investor confidence.

Related postings 相关文章:

◙ Baidu, ZTE Earnings: More of the Same 百度和中兴财报：看上去没变化

◙ Huawei and ZTE: Swapping Networking for Cellphones? 华为和中兴：转型进军手机市场？

◙ ZTE Faces More Profit Erosion With Latest Low-Cost Moves 中兴通讯以低价机抢占市场恐损及获利

Nokia Bets on China Telecom 诺基亚联手中国电信

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The arrival of spring in China is bringing in a sudden surge of tech and telecoms VIPs, no doubt salivating over a market with more than a billion mobile subscribers and 500 million Internet users and growing. First came Apple (Nasdaq: AAPL) CEO Tim Cook, whose visit has included courtesy calls on the nation’s 3 telcos as well as his most recent visit with vice premier Li Keqiang, tipped to become the country’s new premier next year. Now he’s being followed by Nokia (Helsinki: NOK1V) CEO Stephen Elop, who has attended a high profile Beijing event to announce the launch of company’s first smartphone in China using Microsoft’s (Nasdaq: MSFT) latest Windows mobile operating system. (English article; Chinese article) But wait — there’s more. Apparently none other than Facebook founder and chief executive Mark Zuckerberg has also been sighted in China, visiting my own city of Shanghai just a month before the company prepares to make its multibillion-dollar IPO. I already talked about Cook’s visit yesterday (previous post), so will focus this time mostly on Elop and Nokia, which used to dominate the China cellphone market but has seen its share drop sharply in the last 2 years, mirroring a global trend. Elop is hoping to reverse the slide by retiring Nokia’s old operating system and betting on Windows new mobile OS.  I found it both interesting and intriguing that Nokia has chosen the smallest of China’s 3 mobile carriers, China Telecom (HKEx: 728; NYSE: CHA), as partner for the launch of its first Windows-based smartphone in China, rolling out a Lumina model that will run on the carrier’s 3G network based on a technology called CDMA EVDO. The gamble on China Telecom looks like a smart move to me, as this telco is clearly the more aggressive and better organized of China’s 2 major carriers that use global technology in their 3G networks. The other company, China Unicom (HKEx: 762; NYSE: CHU), has been plagued by operational and management issues; and China’s third major telco, China Mobile (HKEx: 941; NYSE: CHL) uses a homegrown technology that most major developers have shunned so far. By signing up with China Telecom as its first partner, Nokia can be assured the carrier will give its phones special attention, unlike Apple’s iPhone, which is now offered by both China Telecom and Unicom. China Telecom has said it hopes to add 50 million or more 3G users to its network this year (previous post) as it aggressively chases the market in its drive to steal share from its other 2 rivals. Obviously Lumina phones will account for only a small portion of that, assuming that Chinese consumers like them. Still, that could translate to 3-5 million handset sales if the models prove popular. Meantime, here’s just a quick take on Zuckerman, who was seen shopping with his girlfried in Shanghai’s trendy Tianzfang district. (Englilsh article) The reports say Zuckerberg said he was on vacation, and I believe that’s probably true, since he was in Shanghai and not Beijing and he has much bigger issues at the moment with his company’s upcoming IPO. But he clearly still has his eye on the China market, and I wouldn’t be surprised to see him make another more formal China visit sometime later this year after the IPO.

Bottom line: Nokia’s pairing with China Telecom for its first Windows smartphone launch in China looks like a smart move, with sales of up to 5 million units possible this year.

Related postings 相关文章:

◙ Nokia Looks For Fresh China Start With New Country Chief 诺基亚中国区新官欲扭颓势

◙ 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

◙ Nokia Facing China Backlash After Years of Dominance 诺基亚手机在华“失宠”

China Life Joins Financial Begging Line 中国人寿加入融资潮 暗含行业危机

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The smoldering crisis quietly seeping through China’s financial services sector has infected the nation’s largest insurer, China Life (HKEx: 2628; Shanghai: 601628), which has announced plans to raise about $6 billion this year through the issue of subordinated debt, becoming the latest player to turn to financial markets to raise billions of dollars in new cash as provisions for shaky investments. (English article) The entry of China Life into the beggar’s cue is quite significant, as up until now the latest cash-raising frenzy has been confined mostly to big state-controlled banks that made questionable loans under a Beijing-ordered lending spree to stimulate the economy at the height of the global financial crisis. China Life’s biggest rival, Ping An Insurance (HKEx: 2318; Shanghai: 601318), also previously went to financial markets not once but twice last year, announcing plans to raise a total of more than $6 billion as well. (previous post) But unlike Ping An, which is considered a relatively aggressive investor, China Life is known for its conservative investment policies. As such, the fact that its investments are also running into trouble could be an early warning sign that the problems in China’s financial system run much deeper than industry and government officials realize or are admitting. Beijing has already made several moves to ease the burden on Chinese banks, including a potential plan to let them delay collecting repayment on many of the problematic infrastructure loans they made to local governments that may now be in danger of default. (previous post) China Life announced its fund-raising plan after reporting its quarterly profit slumped 86 percent in last year’s fourth quarter, its worst-ever decline. A 22 percent slump in China’s stock market last year certainly contributed to China Life’s woes, as the company invests up to 10 percent of its money in stocks. But I suspect that such a big profit decline, combined with big fund-raising plans, indicate that stocks alone weren’t responsible for the big downturn, and that many of China Life’s other investments also may be running into problems. The company joins a growing list of major financial institutions that have announced multibillion-dollar capital raising plans in the last half year, including Ping An, Bank of Communications (HKEx: 3328; Shanghai: 601328), China Merchants Bank (HKEx: 3968; Shanghai: 600036) and ICBC (HKEx: 1398; Shanghai: 601398). Minsheng Bank (HKEx: 1988; Shanghai: 600016), one of the nation’s most entrepreneurial lenders, announced its own intent to raise funds last month, and earlier this week gave final details for the $1.4 billion planned Hong Kong share sale. (English article) Look for more fund-raising plans this year, accompanied by significant asset write-downs at both the insurers and banks as the defaults start to swell. From an investor standpoint, unless you have a strong stomach I would say that stocks for these and other major financial institutions look like volatile bets for at least the next 1-2 years.

Bottom line: China Life’s new $6 billion capital raising plan indicates China’s building banking crisis may be worse than most people realize.

Related postings 相关文章:

◙ AgBank Results: First Look at Banking Winter 中国农业银行财报：银行业的冬天

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

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

 

Apple CEO Cook Stirs Up Guessing Firestorm 苹果CEO库克低调访华意欲何为？

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I’ve been quite amused by the flood of articles coming out these last few days guessing at the mission behind the low-key visit to China by Tim Cook, who replaced Steve Jobs as Apple’s (Nasdaq: AAPL) CEO shortly before Jobs’ death last year. The trip is Cook’s first to China since he took the helm at the  world’s biggest technology company, and follows another low-profile visit last year when he was still chief operating officer and was spotted at the offices of China Mobile (HKEx: 941; NYSE: CHL). (previous post) So what exactly is Cook up to this time around? Different media are all playing the guessing game to try and figure it out. The few certain facts include his visit to a Beijing Apple store, where Cook was spotted and photographed, as well visits to China’s 3 wireless carriers, China Mobile, China Unicom (HKEx: 762; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA). Cook is also paying a visit on Beijing’s mayor, but that’s where the certainty ends. Reuters, my former employer, is saying that Cook is on a mission to try to sort through some of Apple’s recent headaches in China, including labor issues at some of its manufacturing partner and an ongoing trademark dispute over the iPad name. (English article) Bloomberg, meanwhile, is putting a more positive spin on its guess, focusing on Apple’s plans to invest further in China, its second largest market. Bloomberg’s report points out that Apple currently has a relatively modest 5 retail stores in China — far less than it was aiming for by this time in an earlier interview. (English article) Meantime, the Chinese tech website operated by NetEase (Nasdaq: NTES) is covering all the bases, leading off with an investment story and Cook’s many meetings, while also giving smaller play to the trademark dispute. (Chinese article) The rival tech news website operated by Sina (Nasdaq: SINA) also has all the bases covered, though it has kicked off its Cook-fest with speculation that the trademark dispute is the main focus of his trip. Since everyone else is weighing in with their guesses, I don’t mind also getting in my own view, which is that Cook is here to focus on big picture issues such as expansion of the company’s store and distribution networks. That means the smaller things, like the trademark dispute and image problems due to labor issues, are probably very low on his agenda, and are being left for the company’s public relations department to handle. One topic that nobody has mentioned, which should be near the top of Cook’s agenda, is Apple’s desire to sign a deal with China Mobile, the country’s largest mobile carrier with two-thirds of the market and the only one of China’s 3 telcos without a formal iPhone deal. Such a deal has been elusive so far since China Mobile’s 3G network uses a homegrown technology, meaning Apple would have to develop a new  iPhone model just for China Mobile. Still, China Mobile’s 650 million subscribers must look very attractive to Apple and should be worth the investment. And with the retirement last week of China Mobile’s long-serving Chairman Wang Jianzhou (previous post), who was unable to reach an iPhone deal in earlier talks, perhaps Apple and China Mobile could finally reach a deal with the company’s newer, more aggressive leadership.

Bottom line: Apple CEO Tim Cook’s visit to China is focused on big picture issues, including the sealing of an elusive iPhone tie-up with leading mobile carrier China Mobile.

Related postings 相关文章:

◙ China Mobile Nears iPhone Deal, Continues 4G Press 中移动iPhone协议近尾声 加紧4G攻势

◙ Apple’s COO Comes Calling on China Mobile 苹果首席运营官造访中移动

◙ China Telecom iPhone Debut Looks Strong 中国电信iPhone初次发售，势头强劲

Geely Joins Chery on the Export Road 吉利加入奇瑞的出口车行列

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Faced with a slowing home market and stiff competition from foreign-backed rivals, China’s big domestic auto brands are increasingly looking to developing markets to revive their flagging sales, with Geely (HKEx: 175) the latest to jump on the export bandwagon. A company executive says Geely, which made headlines a couple of years ago with its purchase of Volvo, aims to overtake domestic rival Chery in the next 2 years to become China’s leading car exporter. (English article) Geely is joining Chery in the drive to overseas markets as growth in China’s domestic auto market, the world’s largest, has slowed dramatically over the last year after Beijing retired many buying incentives designed to boost domestic consumption during the global financial crisis. As the market has slowed, China’s “big 3” domestic nameplates, Geely, Chery and BYD (HKEx: 1211), all of which specialize in lower end cars, have lost steady share to other domestic rivals with big-name foreign joint venture partners. Those rivals are turning up the heat even more with a recent series of new initiatives to enter the lower end of the market, which traditionally was dominated by the domestic brands. (previous post) Under its aggressive export expansion plan, Geely will open factories this year in Belarus and Uruguay, adjacent to 2 of the world’s 5 BRICS countries, namely Russia and Brazil. Chery, which has opened one plant in Venezuela and is building another in Brazil, was China’s export leader last year with some 160,000 cars shipped abroad, and has seen strong overseas sales in the first 2 months of this year as well. From my perspective, this overseas strategy looks like a smart move as China is arguably one of the world’s most advanced countries in terms of designing and building reasonably high-quality cars costing less than $10,000 each — a combination preferred by many developing market white collar urbanites who often can’t afford the pricier models offered by big-name foreign companies like GM (NYSE: GM) and Volkswagen (Frankfurt: VOWG). GM has recently discovered the lower end of the market can be quite lucrative, developing its Chevy Sail specifically for China 2 years ago. Since its release, the Sail has become one of the nation’s best selling models, providing further headaches for the domestic nameplates. If they are smart, which appears to be the case, Chery, Geely, BYD and other export-minded domestic automakers will accelerate their overseas plans, as they should have a 2-3 year head start over the big foreign names. If they hesitate, they could easily run into the same foreign competitors in overseas markets that are already rapidly eroding their profits at home.

Bottom line: Geely’s acceleration of its export drive looks like a smart move, allowing it to leverage its expertise in low-end cars to quickly grow in other developing markets.

Related postings 相关文章:

◙ Nissan, VW Jump on China Brand Bandwagon 日产和大众进军中国低端车市场

◙ Jaguar-Chery: Veto Ahead 奇瑞联手捷豹路虎建合资厂料难获批

◙ Car Sales: Domestics Down, But Not Out 汽车销量：国产车下降，接近拐点

Investors to AsiaInfo: Let’s See Some Numbers 投资者对亚信创联并购案减失耐心

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There are several interesting items out there today on US-listed Chinese firms, led by a resounding investor yawn at news that telecoms software maker and acquisition target AsiaInfo-Linkage (Nasdaq: ASIA) is seeking more offers after a major Chinese investor made a surprise bid for the company last month. In separate but other noteworthy news, we’re getting some more financials that don’t look pretty from car rental specialist China Auto, which has filed to make a New York IPO, and are hearing about an ambitious global expansion plan from e-commerce giant 360Buy, which hopes to someday make a New York IPO to raise more than $1 billion. Let’s start with AsiaInfo-Linkage, which put out a statement on Monday saying it was seeking additional buyers after receiving an offer in February from an investment arm of China’s giant CITIC Group. (company announcement) AsiaInfo’s shares rallied after it announced the initial CITIC bid, and rose again after media reported that private equity firms including KKR and TPG had expressed interest in making competing offers. (previous post) But this latest announcement failed to excite anyone, with AsiaInfo’s shares actually dropping slightly in Monday trade even as the broader Nasdaq rallied nearly 2 percent, indicating investors may be growing impatient with all the talk and want to see some actual numbers. CITIC’s original offer price was never officially disclosed, so it’s not at all clear how much it bid and all we really know is that some media reports have said new bids could value the company at $1 billion or more, which is where the company’s current market capitalization now stands. Look for the stock to come under some pressure if no new concrete details come out soon. Moving on to other matters,  media are citing an executive from 360Buy, which also goes by the name Jingdong Mall, saying the company will set up several international sites this year to let overseas buyers purchase items on its site. This latest development, combined with similar recent announcements of major new hiring, reflect the fact that 360Buy has too much cash, after receiving over $1 billion last year in a record-high capital raising round for a privately held Internet company. The company is clearly coming under pressure from its new investors to use some of that cash to create an exciting story for a planned New York IPO, which could come this year or next. But its rapid growth is a bit worrisome, as such quick expansions frequently run into managerial and technical problems and end up creating more losses than new growth. Lastly there’s China Auto, which filed for a New York IPO early this year but has gone silent since then. Now Chinese media are reporting the company has made another IPO filing, in which it disclosed it has lost money over the last 3 years amid a rapid expansion and needs the money from an IPO to repay debt. (Chinese article) This is the first time we’ve gotten such detailed financials, and the money-losing element doesn’t bode well for the offering, following the disastrous launch last week of China’s first New York IPO this year for Vipshop (NYSE: VIPS). (previous post)

Bottom line: Investors are growing impatient with takeover target AsiaInfo-Linkage, and will put the stock under pressure until it reveals more details about potential buyout offers.

Related postings 相关文章:

◙ China Auto Wins 2012 Race For 1st US IPO 神州租车抢先成首个赴美IPO的中国企业

◙ China IPO Winter Goes On as Vipshop Flops 唯品会大跌，中国IPO冬季持续

◙ Debut Offshore IPO Looks Weak, But Not So Bad 阳光油砂上市首日表现差强人意

China Eastern’s Budget Play: Turbulence Ahead 东方航空成立廉价航空公司：将面临动荡

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I don’t usually write about China’s airlines as I don’t think the industry is very exciting as a growth story; but as a Shanghai resident I just had to comment on the big new announcement by my hometown carrier China Eastern (HKEx: 670; Shanghai: 600115; NYSE: CEA), which is forming a budget airline joint venture with Australia’s Quantas (Sydney: QAN). To put it bluntly, I would warn investors that this new venture is destined for major turbulence, if it ever even gets off the ground. Under the tie-up, the 2 sides will form a new airline under Quantas’ JetStar low-cost brand to be based in Hong Kong. (English article) The venture will start off small, with just 3 airplanes, and plans to expand that to 18 over the next 3 years. I don’t like to say bad things about my hometown airline, but frankly speaking China Eastern is the worst managed of China’s major 3 airlines, with frequent unexplained delays and so-so service, and most people I know will take any other carrier whenever they can. The airlines tried to improve its situation in 2008 when it tried to sell 24 percent of itself to Singapore Airlines (Singapore: SIA), one of Asia’s best-run airlines. But that investment was ultimatelyl blocked by Air China (HKEx: 753; Shanghai: 601111), one of China’s other big three airlines which was also a major stakeholder in China Eastern. Frankly speaking, I think that Air China deliberately sabotaged the deal to make sure China Eastern remained a weak player in the industry. I also think the system of cross-stakeholding that allowed Air China to veto the deal will be a major obstacle to China Eastern’s future development, and could easily see Air China trying to meddle in this new Quantas joint venture if it is even slightly successful — a prospect that seems highly unlikely. China Eastern executives said one of the reasons for forming a low-cost carrier was that they noticed that the company’s business- and first-class cabins often had many empty seats, which they interpreted to mean that passengers were more interested in saving money than paying for premium service. But if the airline had bothered to survey passengers who frequently fly in business and first class, it probably would have quickly learned that such travelers avoid flying on China Eastern because they don’t want to pay more only to receive its poor service and frequent delays. Strong management is key to running any successful airlines, and even more important at a budget carrier where efficient cost controls are the only way a company can earn money. Given China Eastern’s already poor management record, I would seriously doubt its ability to effectively run an efficient budget airlines, and would expect even the most cost-sensitive consumers to ultimately become fed up with its new low-cost airline and look for other options.

Bottom line: A new budget carrier from China Eastern and Quantas is destined for major operational problems, and is more than 50 percent likely to fail within its first 5 years.

Related postings 相关文章:

◙ Hainan Airlines Hits Free Market Turbulence 海南航空：自由市场是福还是祸？

◙ HNA: China’s Next Big Global Investor? 海航集团：中国下一个大型全球投资者？

◙ Hilton, Starwood Roll Out Welcome Mat for Chinese 喜达屋、希尔顿迎合中国消费者

Huawei, ZTE Suffer More Setbacks 华为、中兴料将在西方市场遭遇更多挫折

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China’s export superstars Huawei and ZTE (HKEx: 763; Shenzhen: 000063) continue to face new obstacles in their quest for global legitimacy, with the former receiving a major setback in Australia as the latter comes under fire for dealings in the problematic Iranian market. Those developments reflect the uphill battle that both companies face in the eyes of western leaders, many of whom believe the these 2 telecoms equipment giants are little more than spying arms of Beijing. In the latest of a steady stream of setbacks for Huawei, Australia has officially disqualified the company from bidding for contracts to build a new $38 billion high-speed broadband network over security concerns. (English article) A frustrated Huawei disclosed the rejection, but top-level Australian officials, when questioned on the matter, were quite direct about their security concerns surrounding construction of a new National Broadband Network that aims to connect more than 90 percent of the country’s homes and offices with fiber optic cable by 2020. Australia’s Attorney-General Nicola Roxon said outright that the decision was consistent with the country’s national security policy, and Prime Minister Julia Gillard, when questioned by reporters at an unrelated event, called the decision a “prudent” one. This latest rejection comes just five months after Huawei was disqualified from another bid to help upgrade emergency telecoms networks in the US. (previous post) In that case no reason was given, but the clear implication was that security concerns were a major factor. If I were advising Huawei, I would tell it to steer clear of bids for this kind of government-backed network construction in sensitive western markets like Australia and the US, as conservative politicians will inevitably politicize the issue, scaring away even open-minded leaders who might otherwise be willing to offer Huawei and ZTE some contracts. Instead, I would advise them to focus on bids to help build networks for private telcos, as the government has much less control over such initiatives that tend to be less sensitive and more commercial. Of course, even private sector bids can be difficult, as ZTE learned about a year ago when its bid was rejected to help build new 4G wireless networks for Sprint (NYSE: S), the third-biggest US wireless carrier. (previous post) In a separate but similar new development for ZTE, that company has come under new fire after western media reported it sold a powerful surveillance system to Iran, which has been subject to numerous sanctions from the US and Europe where leaders suspect its atomic energy program is really designed to create nuclear weapons. (English article) Huawei was subject to similar criticism last year, prompting it to say it would curtail its activities in Iran, and now ZTE has responded to this latest report with similar comments. Both companies need to seriously consider hiring more public relations and strategy specialists to avoid these kinds of issues, as such consultants probably would have advised them to avoid both the US and Australian network-building bids, and also to suspend their Iranian activities and put out statements on the matter on their own initiative before being “caught” and forced to sound defensive. Huawei has made moves in that direction by hiring well connected former government and corporate officials to speak on its behalf in markets like the US, Australia and Britain. In fact, one such official, Australia’s former foreign minster Alexander Downer, who now serves on the board of Huawei’s Australia unit, spoke out after the latest rejection, calling his country’s security concerns “absurd.” Persistence and more sophisticated PR may ultimately work for both companies over the longer term. But in the meantime look for both Huawei and ZTE to face repeated rebuffs in their attempts to sell telecoms equipment in the US, Australia and even Europe — where they have posted a few successes — over at least the next couple of years.

Bottom line: The latest setbacks for Huawei and ZTE reflect high skepticism towards the pair in many western markets, with the distrust likely to halt any major new deals for the next 2 years.

Related postings 相关文章:

◙ Huawei Undermines US Push With Foolish Request 华为讨要说法很不明智唯有阻碍进军美国市场

◙ Huawei, ZTE Ratchet Up Western PR Offensives 华为和中兴加紧西方公关战

◙ ZTE Runs Out of Wind in Bid for Sprint Contract — Uh, did anyone NOT see this coming?

 

News Digest: March 27, 2012 报摘： 2012年3月27日

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The following press releases and media reports about Chinese companies were carried on March 27. To view a full article or story, click on the link next to the headline.

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

◙ Australia Bans China’s Huawei From Working on Internet Network Amid Security Worries (English article)

◙ AsiaInfo-Linkage (Nasdaq: ASIA) Committee to Consider More “Going Private” Proposals (PRNewswire)

◙ Qantas (Sydney: QAN), China Eastern (HKEx: 670) to Set Up HK Budget Airline (English article)

◙ China Auto Accelerates IPO Plan Amid Spending Boom, Annual Losses (Chinese article)

◙ Minsheng (HKEx: 1988) Said to Price Shares at HK$6.79 Each in Offering (English article)

◙ Latest calendar for Q4 earnings reports (Earnings calendar)

Spring Returns to Camelot 柯莱特将卷土重来

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China’s banking sector may be heading into winter (previous post), but software outsourcing specialist Camelot Information Systems (NYSE: CIS) seems to think a spending downturn by the sector that hammered its stock last year may be in the past — an assessment I only half believe. Regardless of the real situation, investors clearly liked the message from Camelot in its latest earnings report, bidding up its shares as much as 24 percent after it posted its results on Friday, though the stock finally closed up a more modest 8 percent. (company announcement) They were also encouraged by the company’s announcement that it will set up a special unit just to develop software systems for financial services clients, which are clearly emerging as one of its main customer groups. (company announcement) I’ve had a look at the results announcement, and the numbers from the fourth quarter certainly aren’t very exciting, with the company slipping into the red in terms of net profit as its revenue fell slightly for the period. But investors were clearly much more excited about the company’s 2012 guidance, which included a return to revenue growth in the first quarter and a shrinking of the company’s losses. Perhaps even more surprising, though, Camelot also gave full-year guidance predicting revenue and adjusted net income, which was always positive, would grow by a healthy 17 percent this year. The fact that the company is setting up a separate unit for its financial services business and also giving full-year guidance indicate to me that Camelot has recently signed some major long-term contracts with some of its clients, giving it the confidence that this part of the business will be stable and even post some nice growth in the year ahead. That contrasts sharply with last year, when sputtering business from its financial clients caused Camelot’s performance to sputter as well, taking a toll on its shares. (previous post) Even with the Friday rally, Camelot shares, which closed on Friday at $3.32, are still at a tiny fraction of the $20 range where they traded just a year ago, reflecting the tough road ahead for this company. The company is particularly exposed  to the China market, which accounts for much of its business, compared with rivals like HiSoft (Nasdaq: HSFT) and VanceInfo (NYSE: VIT), which get a big portion of their business from overseas markets. That diversity has helped HiSoft shares weather volatility in China more effectively over the last year, and VanceInfo has fared better than Camelot as well. So the question becomes: Is Camelot now poised for a comeback with this latest upbeat report? I would say the chances might be fair, perhaps 50-50, as clearly the company has some long-term contracts in its pocket and its revenues are small enough that its main financial clients may be reluctant to break those contracts even if their industry goes through a big downturn. But if the downturn is worse than expected — a strong possibility — I wouldn’t be surprised to see some downward revisions to Camelot’s 2012 guidance as the year goes on. On the whole, I would guess it’s chances of meeting its 2012 guidance are perhaps around 50 percent.

Bottom line: Camelot Information’s upbeat outlook for 2012 could offer an interesting buying opportunity for investors, but downward revisions to its guidance remain a strong possibility.

Related postings 相关文章:

◙ AgBank Results: First Look at Banking Winter 中国农业银行财报：银行业的冬天

◙ Bank Woes Breed Trouble in Camelot

◙ Investors in New Love Affair With IT Outsourcers 中国IT外包公司营收增长令投资者振奋