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China’s Huawei, one of the world’s largest smartphone providers
Latest news about Huawei Technologies Co, Chinese IT and telecommunications company

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

News Digest: March 29, 2012 报摘： 2012年3月29日

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The following press releases and media reports about Chinese companies were carried on March 29. To view a full article or story, click on the link next to the headline.

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◙ Apple (Nasdaq: AAPL) to Make Baidu (Nasdaq: BIDU) China Default Search Engine – Reports (English article)

◙ ZTE (HKEx: 763) Announces 2011 Annual Results (HKEx announcement)

◙ Youku (NYSE: YOKU), Buick (NYSE: GM) Debut “Micro Movie” Series from Major Directors (PRNewswire)

◙ Huawei Sales Rose 11.7 Percent in 2011 – Executive (Chinese article)

◙ CNOOC (HKEx: 883) Announces Record High 2011 Profit (PRNewswire)

News Digest: March 28, 2012 报摘： 2012年3月28日

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The following press releases and media reports about Chinese companies were carried on March 28. To view a full article or story, click on the link next to the headline.

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◙ China Life (HKEx: 2628) Plans to Complete $6 Billion Sub-debt Sale in 2012 (English article)

◙ Apple (Nasdaq: APPL) CEO in China Mission to Clear Up Problems (English article)

◙ Geely (HKEx: 175) Targets to Become China’s Largest Exporter of Cars (English article)

◙ Huawei Willing to Reveal Source Code to Enter Australia Network Bidding (Chinese article)

◙ Baidu (Nasdaq: BIDU) Merges YouA into Leho (English article)

◙ Latest calendar for Q4 earnings reports (Earnings calendar)

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.

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◙ 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)

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

Patent Filing: Beijing’s Latest Directive 专利申请：政府最新指导

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It seems Beijing has decided China’s companies need to innovate more and has instructed them to do so, resulting in a flood of new patents for Chinese companies and other entities that I suspect are worth little more than the paper they’re printed on. That’s my major conclusion for why the nation’s regional governments and companies are suddenly flooding the media with reports showing off how many new patents they’ve received, as all vie to comply with Beijing’s silly innovation directive. According to new statistics from the World Intellectual Property Organization, patent applications rose 10 percent globally last year, but China’s rise was 3 times that much at 33 percent. (English article) Chinese telecoms giant ZTE (HKEx: 763; Shenzhen: 000063) pushed aside Japan’s Panasonic (Tokyo: 6752) to take the crown for the individual company with the most patent applications, filing for a hefty 2,826 patents versus 2,463 for Panasonic. ZTE’s crosstown rival Huawei also was busy at the patent office, filing 1,831 applications to finish third among individual companies. ZTE even put out a press release to publicize its accomplishment, adding that more than 60 percent of its filings were related to 3G, 4G, the Internet of things and cloud computing, all areas of the future. (company announcement) Meantime, one Chinese media report saw authorities from Jiangsu province  congratulating themselves for seeing nearly 200,000 patents granted in their territory last year, with more than 348,000 applications filed — the biggest total for any individual province. (English article) I don’t want to be too cynical here, but am I the only one who sees all these numbers and self congratulation as a bit too loud and aimed at capturing the attention of Beijing central planners who have ordered this ongoing campaign to innovate more? I think it would be far more interesting to see how useful any of these patents are, rather than just looking at the number of actual patents, although obviously patent usefulness is far more difficult to quantify than simple figures. I do find it a bit ironic that ZTE, despite saying how hard it is working to develop new technologies like 3G, 4G and cloud computing, seems to be focusing the majority of its effort these days on becoming a top global name in low cost smartphones. Maybe they should be talking about how many patents they’ve received on that front, which could be far more important to their future than more abstract things like cloud computing and the Internet of things, which are most likely still a long way from becoming profitable business lines.

Bottom line: Beijing’s directive for more innovation is causing Chinese companies and government officials to pay too much attention to patents instead of real innovation.

Related postings 相关文章:

◙ Unicom Trials 4G, ZTE Dusts Off Old Numbers 中国联通试验4G技术 中兴通讯旧账重提

◙ Huawei, ZTE In Latest PR Offensive With US Spending Spree 华为、中兴签订美国大单恐醉翁之意不在酒

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

News Digest: March 2, 2012 报摘： 2012年3月2日

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

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◙ Piper Jaffray (NYSE: PJC) Plans to Stay Independent After China Buyout Report (English article)

◙ Hong Kong’s First Major IPO of 2012 Falls on Debut (English article)

◙ Huawei Reaps Profits As Private Equity Investments Start to Go Public (Chinese article)

◙ WorldPay to Become the Largest China UnionPay Online Acquirer Outside of China (Businesswire)

◙ Tencent (HKEx: 700) Acquires European Gaming News Firm ZAM Network (English article)

◙ Latest calendar for Q4 earnings reports (Earnings calendar)

News Digest: February 29, 2012 报摘： 2012年2月29日

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The following press releases and media reports about Chinese companies were carried on February 29. To view a full article or story, click on the link next to the headline.

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◙ Sina (Nasdaq: SINA) Microblog to Start Monetizing in Q2 2012 (English article)

◙ BYD (HKEx: 1211) Announces Preliminary 2011 Results (HKEx announcement)

◙ Interstate Hotels Announces Deal for First Franchised DoubleTree by Hilton in China (Businesswire)

◙ VanceInfo (NYSE: VIT) Announces Q4 and Full Year 2011 Results (PRNewswire)

◙ Huawei Says 2011 Revenue Rose 11 Pct to $32 Bln (Chinese article)

◙ Latest calendar for Q4 earnings reports (Earnings calendar)

Huawei Prepares for Change of Guard 任正非或准备告别华为

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Chinese telecoms star Huawei seems to be in a state of constant change these days in its bid to shed its image as a stodgy government-controlled company, with new comments from Ren Zhengfei indicating its media-shy founder may be preparing to step down soon. Ren’s departure, if it really happens, could remove one of the biggest PR obstacles for Huawei in its drive for global respect, since many of the questions about the company’s government and military ties stem from his past as an army engineer and a stealthy demeanor that has seen him grant only a handful of interviews in Huawei’s history. According to reports in the Chinese media, Ren has said that if Huawei employees believe he is unneeded and voice a desire for him to go, then he thinks that would be a good thing. (Chinese article) The wording of the remarks is a bit awkward, but the meaning behind Ren’s words certainly seems to imply that he may soon step down and let a new generation of younger, more PR-savvy professionals, including a growing  number of foreigners, take over at the helm of the company as it looks for more breakthroughs in lucrative western markets, especially the US, where it has yet to score a major sale amid suspicions about the company’s government ties. These latest comments would follow similar words from Ren last year, and could presage his actual resignation by the middle of the year. Such a move would be just the latest change at Huawei, which is not only bringing in a new generation of leaders but is also making a major push into the less sensitive smartphone space. (previous post) Huawei has been on a longer term quest for acceptance by western governments for much of the last year, setting up a number of locally-based advisory boards in overseas markets and hiring well-connected local advisers to help it convince foreign governments that it’s not just a spying arm of Beijing. As a long-time follower of Huawei, I personally do think that Ren’s departure would remove a major obstacle to the acceptance of this company by foreigners, as his background from the People’s Liberation Army is clearly one of the company’s biggest image problems, and his background as an engineer and bureaucrat aren’t really the kind of face that a major company like Huawei should present to the world as its leader. Of course Ren’s departure won’t solve Huawei’s credibility issues immediately, but it should certainly help over the longer term. Accordingly, I’ll repeat my previous assertion that the current PR offensive could finally bear fruit as early as next year, when it could finally score its first major US deal after the country’s presidential election this fall.

Bottom line: The likely departure of Huawei’s enigmatic founder Ren Zhengfei this year will remove a major obstacle for the company in its quest for global credibility.

Related postings 相关文章:

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

◙ Huawei Puts Brakes on India Drive 华为印度建厂计划推迟

◙ US China Bashing Hits New High With Telecoms Probe 华为中兴应巧选时机应对调查