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Price Wars Beat Up Online Retailers 网上零售商引爆价格战

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Barely a day has passed these last few weeks without a report in the Chinese media about the latest price wars between major online retailers, reflecting rampant competition that is causing companies to hemorrhage cash. Two of the biggest rivals in the never-ending wars are Dangdang (NYSE: DANG) and 360Buy, also known as Jingdong Mall, with Dangdang reportedly preparing to turn up the heat with a major new offensive. According to domestic media, Dangdang is preparing to launch a major new campaign against 360Buy, extending a current drive that already specifically undercuts prices for popular items on 360Buy by significant amounts. (English article) For its part, 360Buy is also offering a near non-stop stream of promotions that have been so popular that an unusually high volume of shoppers caused its site to crash earlier this week, forcing the company to install more servers. (Chinese article) While such a high volume of shoppers would normally be good news, the business disruption will hardly help 360Buy’s reputation. Furthermore, the new servers will only add to the company’s costs, and I suspect many of the goods that attracted such attention in the first place were being sold at a loss. If the competition remains this rampant, look for a cash-hungry 360Buy to potentially try to accelerate its stalled plan for a multibillion-dollar IPO to raise more cash (previous post), and for Dangdang, which already reported a widening loss in the second quarter, to see its losses widen even further going forward.

Bottom line: Chinese online merchants engaged in non-stop price wars are facing a cash crunch that could soon result in consolidation for the overheated sector.

Related postings 相关文章:

◙ New Regulatory, Competitive Waves Hit E-Commerce 监管和竞争冲击电子商务领域

◙ Amazon Name Shift Signals China Ramp-Up 亚马逊改名背后折射中国野心

◙ Albaba Faces New Assaults From Merchants, 360Buy 阿里巴巴受到中小商户和京东商城的双重夹攻

More Solar Gloom From Trina

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The latest signals from China’s struggling solar sector are decidedly downbeat, with Trina (NYSE: TSL) sharply lowering its previous guidance and taking a big inventory write-off. The company dropped its third-quarter shipment guidance by a hefty 25 percent, and lowered its overall gross margin forecast by more than 50 percent as the industry’s worst-ever downturn continued to take its toll. (company announcement) It also lowered its full-year output target by more than 20 percent. Interestingly, the huge margin shortfall, combined with a $19 million inventory write-down in the announcement, may actually be good news, as I suspect these two elements are directly related to the July resignation of the chairman of Trina’s audit committee, which could have hinted at a much bigger accounting scandal. (previous post) Trina’s shares fell a relatively mild 3 percent on Wall Street on Thursday, probably partly due to relief that no accounting scandal was imminent. Look for more similar write-downs by other Chinese solar players when they start to report their results later this month, beginning with Trina on November 21, followed the next day by Suntech (NYSE: STP). The news wasn’t all bad, as Trina was also guardedly optimistic about the future, saying it was seeing more signs of demand from emerging markets to offset a slump in US and Western Europe that have been the industry’s biggest markets to date. On the emerging markets front, Beijing should taking the lead to help the struggling solar sector that it has so carefully nurtured over the last 5 years, and indeed it has made a number of moves that indicate a big new wave of solar energy plant construction could soon begin in China. It should try to accelerate that pace to save its industry from further pain, which could grow worse as the US considers an anti-dumping complaint by US solar firms against their Chinese rivals. (previous post)

Bottom line: The latest guidance from Trina Solar reflects an industry still in the throes of a massive downturn, with no meaningful relief in sight.

Related postings 相关文章:

◙ Solar Fight Sees Accusations Flying 中美太阳能纠纷引发口水大战

◙ More Solar Woes With Plunging Prices

◙ Tech, Environmental Issues Cast New Clouds Over Solar Firms

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

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ZTE’s (HKEx: 763; Shenzhen: 000063) latest strategy of flooding the world with low-cost cellphones appears to be working, as the first phase of the its risky bid to become a global brand yields results. According to the latest information from IT data tracking firm IDC, ZTE zoomed past Apple (Nasdaq: AAPL) to become the world’s fourth biggest cellphone seller in the third quarter of the year, shipping more than 19 million handsets to take nearly 5 percent of the global market. (English article) ZTE has previously stated its aim of becoming one of the world’s top 3 cellphone brands, relying in part on a strategy of grabbing market share by selling low-end smarphones powered by Google’s (Nasdaq: GOOG) Android system for $100 or less for little or no profit. That strategy has showed up in ZTE’s results in the last 2 quarters, with profit dropping steadily even as cellphone revenue has soared. The strategy is a very risky one, as it’s often very difficult to raise your prices and corporate image after establishing yourself as a maker of low-cost products. Taiwan’s Acer (Taipei: 2353) learned this lesson about a decade ago, and is now learning it again. But for at least the next year or two, look for ZTE to steadily increase its global cellphone market share, even as its profits continue to erode. In a separate development along similar lines, Brazilian media are reporting that ZTE is preparing another major new initiative in contract manufacturing, opening a new factory in that country that has landed Apple itself as one of its first customers. (Chinese article) The reports are quite brief, but say that ZTE will assemble both iPads and iPhones for Apple in the city of Hortolandia, putting it in direct competition with Taiwanese OEM giant Foxconn (HKEx: 2038), which has also opened a plant in the same city. To this development I say: congratulations to ZTE for winning this prestigious business from Apple, if the reports are true. But at the same time, I suspect ZTE will be assembling the Apple products for little or no profit and most likely at a loss, meaning we could see its bottom line erode even more quickly.

Bottom line: ZTE’s latest aggressive moves to generate new business will erode its profits for the next 2 years at least, with only a 50-50 chance for long-term success.

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

◙ Ericsson, ZTE Spat May be Near Resolution 爱立信与中兴的官司尘埃落定？

◙ Low-Cost Apple iPhone to Bite ZTE, Lenovo 苹果推低端iPhone 冲击中兴和联想

China Telecom Move Signals Industry Shuffle 中国电信高层调整 预示或出现行业高层换血

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It seems to be the season for executive shuffles at the top of major state-run companies, with telecoms now looking set for major changes with a new announcement that a new CEO will take over at the top of the Hong Kong-listed China Telecom (HKEx: 728; NYSE: CHA). (Chinese article) Under the change longtime head Wang Xiaochu will stay on as chairman of China Telecom’s state-run parent, but this move looks like the first step before his eventual removal from the company to make way for new, younger leadership as the Communist Party itself is gears up to install its own new set of leaders as part of its regular  change every 10 years. China Telecom’s shift comes as rival China Mobile (HKEx: 941; NYSE: CHL) also prepares to edge out its long-serving Chairman Wang Jianzhou to make way for new leaders (previous post), and comes less than a week after a major shuffle in the banking world that saw top executives at Agricultural Bank of China (HKEx: 1288; Shanghai: 601288) and China Construction Bank (HKEx: 939; Shanghai: 601939) take on new positions in the nation’s financial regulators. (previous post) So you’re probably asking yourself, what does it all mean for the telecoms space? The answer is that we probably won’t see much change immediately, but should see both China Mobile and China Telecom become more aggressive over the longer term as their younger, new leaders try to reshape these slow-moving state-run giants into more nimble, competitive players. That new stance could also see them become more assertive in terms of global M&A, an area that China Mobile has tried before without much success, and which China Telecom and China Unicom (HKEx: 762; NYSE: CHU), the nation’s other major carrier, have yet to seriously consider. With China Telecom’s new announcement, Unicom becomes the only major telco that has yet to announce a big change at the top — an ironic twist since it is probably the company in biggest need of new leadership as it struggles for direction. (previous post) But in light of the China Telecom announcement and the broader changes taking place at state-run companies, it wouldn’t surprise me to see a similar shake-up at Unicom by the end of the year.

Bottom line: A shake-up at the top of China Telecom signals a broader industry shuffle that will see the country’s 3 major telcos become more aggressive both at home and abroad.

Related postings 相关文章:

◙ China Mobile Shuffle: Sea Change Coming? 中移动高层变动或引发重大变化？

◙ Sputtering Unicom’s Latest Excuse: Lack of Leadership

◙ Beijing’s Financial Shufflle: Bankers or Regulators? 中国金融高层“大换血”

Apple Overlooks China — Again 苹果再次撇开中国内地市场

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In what is becoming an increasingly common refrain, Apple (Nasdaq: AAPL) has once again overlooked China in the global launch for its latest smartphone, the iPhone 4S, in what looks like an expression of growing frustration with its difficult Chinese partners. The company, whose China sales have exploded on the popularity of its smartphones, tablet PCs and desktop computers, has announced a second wave of launch markets for the newest iPhone starting next week following the initial launch in the US and several other major markets last month. (company announcement) The second wave includes Hong Kong and South Korea in Asia but contains no mention of China, with Chinese media reporting a launch for the domestic market won’t occur until year-end at the earliest. (Chinese article) This latest China snub looks similar to Apple’s global launch for its iPad2 in May, when China was also absent from the original list. In that case, however, Apple quickly reconsidered and launched the iPad 2 in China just a week after the global launch. (previous post) In this case, in my view, the absence of China from the latest global iPhone launch probably reflects Apple’s growing frustration with China’s 3 telcos, most notably China Unicom (HKEx: 762; NYSE: CHU), the country’s only official iPhone supplier to date. Unicom has recently shown a tendency to botch even the simplest product launches, and is fast squandering its chances to pick up share on dominant carrier China Mobile (HKEx: 941; NYSE: CHL). For their part, China Mobile and China Telecom (HKEx: 728; NYSE: CHA), China’s third telco, have also proven difficult partners for Apple, with each repeatedly hinting they were on the verge of signing iPhone deals only to fail to announce anything. It’s still possible we could see an iPhone 4S deal in China before year-end if Unicom can reach an agreement. But based on past experience, I wouldn’t bet on seeing any official iPhone 4S tie-ups in China anytime soon.

Bottom line: Apple’s failure to include China in its latest iPhone 4S launch list reflects its difficult relationship with China’s mobile carriers, especially China Unicom.

Related postings 相关文章:

◙ China Mobile: Where’s the 3G iPhone? 中移动4G网络稳步推进 3G版iPhone或遇阻

◙ Apple Takes A Second Look at China for iPad 2 苹果重新考虑中国市场

◙ China Telecom Set for Boost With Imminent iPhone Deal 中国电信借力iPhone

Baidu Video Tries Blockbuster Licensing

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Baidu’s (Nasdaq: BIDU) online video joint venture Qiyi seems to have learned a lesson from its pirating parent, announcing a new exclusive licensing deal for the China online video rights for the popular latest installment in Paramount’s (NYSE: VIAb) “Transformers” movie franchise. (English announcement) Baidu itself has found big success in allowing the exchange of pirated material, mostly music, over its web site in recent years and continues to offer such services despite ongoing government pressure on Chinese web firms to get out of the pirating business. But in a nod to that pressure, in July it formally launched a service for legally obtained music, and announced a series of high-profile licensing deals to offer music on it from several major Hollywood record labels, though added it had no intention of closing its piracy-plagued older music site. (previous post) This new strategy from Qiyi, which already appears to offer legal copies of popular US TV series, looks relatively smart to me, drawing on exclusive rights for individual big-name movies to draw in viewers. Still, it will have to compete with the likes of online video leader Youku (NYSE: YOKU) and the video site operated by Sohu (Nasdaq: SOHU), which have also signed similar though much bigger deals with major Hollywood studios in the last few months. Its unclear if Qiyi, founded less than 2 years ago, will be able to pay the big bucks that these older, more established companies are paying for exclusive rights to big-name films, which may explain its approach of buying of single blockbuster title rather than signing broader licensing deals which are much more expensive. The company also has the advantage of tapping a huge potential audience of users from Baidu, China’s dominant search engine with nearly 80 percent of the market. That tie-up, combined with this early approach to exclusive licensing for single blockbusters, could create a potent formula for success as Qiyi looks to establish its name in the online video space.

Bottom line: Online video site Qiyi’s signing of an exclusive deal for a single Hollywood blockbuster looks like an interesting approach, which, combined with support from parent Baidu, could boost its chances for success.

Related postings 相关文章:

◙ Baidu Comes Under Government Fire 政府“修理”百度

◙ Baidu Seeks Diversification in Tudou Talks 百度求购土豆，寻求多元化

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

News Digest: November 2, 2011

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The following press releases and media reports about Chinese companies were carried on November 2. To view a full article or story, click on the link next to the headline.

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◙ China Mobile (HKEx: 941), Unicom (HKEx: 762) Lower Int’l Fees to Lure High-End Users (Chinese article)

◙ CNOOC (HKEx: 883; NYSE: CEO) Still in Talks For BP’s PAE Stake After Deadline Lapses (English article)

◙ Taobao Says China’s 2010 Online Shopping Service Market Reached RMB 2 Bln (English article)

◙ Giant Interactive (NYSE: GA) Announces Q3 Results (PRNewswire)

◙ Baidu’s (Nasdaq: BIDU) QIYI In China Online Distrib Deal for Paramount Transformers Film (PRNewswire)

Sputtering Unicom’s Latest Excuse: Lack of Leadership

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China Unicom (HKEx: 762; NYSE: CHU) is reportedly conducting a massive search for top-level managers in many provinces, once again underscoring how the company is badly in need of strong new leadership as it increasingly appears to be squandering its golden opportunity to gain market share over dominant carrier China Mobile (HKEx: 941; NYSE: CHL). According to Chinese media reports, Unicom is looking for people to head its operations in a large number of provinces, continuing a search that dates back as far as February last year. (Chinese article). It’s been nearly 3 years now since Unicom merged with rival China Netcom in a major industry restructuring, and certainly the company can be forgiven for not filling key positions for the first year or so after such a big change. But 3 years is quite a long time, and if it’s taking them this long to fill these key positions it’s no surprise that the company is making little or no progress at bolstering its position in China’s mobile market. Most will recall that Unicom was given a golden opportunity to gain share over China Mobile, which controls over two-thirds of China’s mobile market, nearly 3 years ago when it was awarded a 3G license based on the world’s best technological standard. By comparison, China Mobile received a big handicap by having to develop its 3G service using a homegrown standard with lots of problems. Despite that, Unicom’s share of the 3G market has remained stagnant since the beginning of the year, at around 30 percent. Meantime, China Mobile’s 3G share has eroded from 45 percent in April to 42 percent in September, with the country’s third-largest carrier, China Telecom (HKEx: 728; NYSE: CHA) picking up all of those loses. Unicom, which also has the enviable advantage as China’s only official seller of Apple’s (Nasdaq: AAPL) iPhones, previously blamed a lack of 3G handsets for its failure to pick up share despite its obvious technological advantages. Now it looks like it’s blaming lack of strong management at the provincial level. Either way, Unicom seems to be better at making excuses than doing good business, and I’m fast losing confidence in its ability to bolster its position under current management.

Bottom line: Unicom’s latest problems in filling top management jobs at the provincial level reflect a poorly run company that is fast squandering its golden opportunity to pick up market share from rivals.

Related postings 相关文章:

◙ Unicom’s Sputtering 3G: Blame It On the Handsets 联通幡然醒悟 借低价手机扩张3G市场

◙ China Mobile Shuffle: Sea Change Coming? 中移动高层变动或引发重大变化？

◙ China Telecom Set for Boost With Imminent iPhone Deal 中国电信借力iPhone

Sohu’s Blowout Earnings: IPO In Store for Video? 搜狐发喜报视频业务或上市

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Sohu (Nasdaq: SOHU), a perennial second-place finisher to Sina (Nasdaq: SINA) in China’s Internet portal space, has just posted quarterly earnings that look quite impressive, showing its video business is fast becoming a major industry player and its online search may finally be gaining traction after years of struggling. Of course the one potential dark cloud over all of this may be China’s looming Internet bubble, which could abruptly halt the rapid growth for both of those businesses when it comes, probably around the middle of next year by my estimation. But first the good news. Sohu reported that revenue for its video segment more than doubled for the quarter, making it China’s second largest player, behind only Youku (NYSE: YOKU). (company announcement) Like Youku, Sohu has been a leader in the video space by signing some big licensing deals to offer content from the major Hollywood studios. It also has an advantage over independent video companies like Youku and Tudou (Nasdaq: TUDO) because it operates a more diversified Internet business, allowing it to leverage video over more of its other channels. Given the business’ rapid rise, Sohu must surely be thinking of spinning off video for an IPO as soon as the business turns profitable, possibly as soon as the second half of 2012, much the way it spun off its lucrative Changyou (Nasdaq: CYOU) online game business several years ago. After years of struggling, Sohu’s online search engine Sogou also appears to have finally gained some traction, with revenue soaring 244 percent in the quarter to $18 million, to take around 2.2 percent of the market. Those numbers are clearly still quite modest, but Sohu forecast that revenue would grow another 14 percent quarter-on-quarter to around $21 million in the fourth quarter. Of course all the growth could come to a screeching halt if and when China’s Internet bubble bursts, which would put a chill on advertising revenue. Sohu itself hinted at possible early signs of such a slowdown, forecasting brand advertising revenue would see little or no growth in the fourth quarter from the third. But for now at least, the company seems to be riding high on China’s Internet boom.

Bottom line: Sohu’s latest results show strong gains for its search and especially its video business, with the latter set for a possible spin-off and IPO as early as the second half of 2012.

Related postings 相关文章:

◙ Renren Finds Video Bargain in China Web Bubble 人人网低价收购56网 凸显中国互联网困境

◙ Hulu Makes First Global Stop in Japan, China Next?

◙ Sina Taps On Back Door Into Tudou 新浪可能收购土豆

New Regulatory, Competitive Waves Hit E-Commerce 监管和竞争冲击电子商务领域

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Turbulence continues to pelt China’s e-commerce sector, with new reports showing how rampant competition is pushing up costs as an industry regulator gets looks into anti-monopoly claims against top online mall operator Taobao Mall. A new foreign media report cites the top executive at luxury e-commerce site Xiu.com saying that rents for the massive warehouses required by most online merchants have soared in the last year, as players like 360Buy and Wal-Mart-invested (NYSE: WMT) Yihaodian all vie for facilities near major cities where they can store and then ship their goods. (English article) Global e-commerce leader Amazon (Nasdaq: AMZN) has joined the fray, announcing last week that its China operation was opening a 120,000 square meter facility in the city of Kunshan, not far from Shanghai, quadrupling its warehouse space in the affluent Yangtze River Delta region. (previous post) The soaring warehouse rents are just the latest headache for the overheated e-commerce sector, where most major players are already hemorrhaging money as the industry heads for a much needed consolidation that is likely to come by the middle of next year. Meantime, domestic media report the Commerce Ministry is entering the e-commerce fray by launching an anti-monopoly investigation into Taobao Mall, Alibaba’s B2C operation, in response to merchant complaints that the online mall operator used its dominant position to unilaterally force a massive fee hike on its merchants, leading many small- and mid-sized sellers to rebel. (English article) I personally think this latest Commerce Ministry investigation is a bit misguided, as there’s plenty of competition in the e-commerce space though less so in the online mall sector. If the ministry really wants to chase someone for anti-monopoly violations, it should focus on online search leader Baidu (Nasdaq: BIDU), which controls nearly 80 percent of the market.

Bottom line: Soaring warehouse rents are the latest sign of overheating in China’s e-commerce space, which is also facing the threat of increasingly heavy-handed regulation by Beijing.

Related postings 相关文章:

◙ Amazon Name Shift Signals China Ramp-Up 亚马逊改名背后折射中国野心

◙ Albaba Faces New Assaults From Merchants, 360Buy 阿里巴巴受到中小商户和京东商城的双重夹攻

◙ China Regulors Threaten E-Commerce, Group Buying 官方监管威胁到电子商务与团购业务

Beijing’s Financial Shufflle: Bankers or Regulators? 中国金融高层“大换血”

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Beijing made a major shuffle of its top financial industry regulators over the weekend, underscoring once again why investors should think of China’s big 4 banks more as government policy lenders and not be deceived into belieiving they are real commercial banks. In a move that was rumored but finally made official on Saturday, top executives from two of the big 4 banks, Agricultural Bank of China (HKEx: 1288)(Shanghai: 601288) and China Construction Bank (HKEx: 939)(Shanghai: 601939), were named to head China’s insurance regulator and its securities regulator, respectively. (English article) The two men, Xiang Junbo and Guo Shuqing, were both chairmen of their respective banks until late last week, when they abruptly resigned just ahead of the announcement. So let’s think about this for a minute: chairmen of two of the country’s top 4 banks are now chairmen of two of the major financial regulators. In any other country, this kind of move would raise major concerns about conflicts of interest, as the big banks all deal in both insurance and securities through their various affiliates and vast webs of relationships in China’s financial world. Does this mean that if new insurance regulations are about to come out, then Agricultural Bank of China will know about them first and potentially use that information to its advantage? Or if the country decides to reform its securities policies, does that mean that China Construction Bank will be forced to more strongly enforce the new regulations than other banks because its former chairman now heads the securities regulator? The answer to all these questions is “probably yes”, and shows why the big banks are nothing more than policy tools that the government uses to train future top party and industry officials. This kind of shuffle isn’t unique to the banking industry, as the oil industry saw a similar move earlier this year (previous post) and the telecoms sector did something similar a few years back. But it does underscore why investors should be wary of these big state-run giants, and why China should seriously consider re-privatizing its big 4 banks.

Bottom line: The latest shuffle at the top of China’s big 4 banks underscores once again that these lenders are nothing more than policy instruments of Beijing and not true commercial lenders.

Related postings 相关文章:

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

◙ ICBC Discovers China’s Latest Low-Cost Export: Currency 工行将从非洲人民币结算业务中获益

◙  China’s Oil Shuffle: Not So Fast, Naysayers 石油巨头高管轮换：先别急着唱衰