Chinese smartphone makers have surged in their home market over the last year, coming from out of the blue to challenge big global names like Apple and Samsung. But their rise could be short-lived if they fail to innovate, paralleling a similar rapid rise and fall a decade ago for names like TCL (HKEx: 2618) and Ningbo Bird that are now just footnotes in the history of China’s large but highly competitive mobile market. The rapid rise of Chinese brands over the last year has been nothing short of remarkable, as China gets set to overtake the United States as the world’s largest smartphone market. At the end of last year, the market was still dominated by foreign names, with Samsung (Seoul: 005930), Nokia (Helsinki: NOK1V) and Apple (Nasdaq: AAPL) occupying three of the top four slots to control more than half of the market collectively.
The headlines are buzzing with news bits from each of the country’s 3 major telcos, with high-speed services taking big steps forward even as US telecoms equipment powerhouse Cisco (Nasdaq: CSCO) could be bracing for a Chinese winter. In the former group of headlines, media are reporting that China Mobile (HKEx: 941; NYSE: CHL) has made a significant step into 4G with plans to expand its trial TD-LTE network into China’s interior, while China Telecom (HKEx: 728; NYSE CHA) has just won an important new license to offer TV and other video and data services over its fixed-line broadband network. Meantime, China Unicom (HKEx: 762; NYSE: CHU) is also making headlines with reports that the company is replacing Cisco-supplied equipment from some of its key network due to security concerns.
When ZTE (HKEx: 763; Shenzhen: 000063) warned 2 weeks ago that it would post a massive third-quarter loss, everyone assumed that its smartphone business was partly to blame as the company sacrificed margins in exchange for fast growth. Now it seems that even its smartphone plans were overly ambitious, with ZTE’s newly released official results showing it is likely to miss its smartphone target for the year by a big gap. Meantime, Lenovo (HKEx: 992), still basking in the glory of recently becoming the world’s biggest PC seller, is also making its own smartphone moves with news that it will start to sell its models outside China. I’ll admit I have my doubts about this new smartphone push by Lenovo, as the company has enjoyed far less success with this product in its home China market than with its core PC business.
The national security excuse has become the flavor of the day in Washington, with a wind farm funded by an affiliate of heavy machinery giant Sany (Shanghai: 600031) making headlines as the latest US-based Chinese project to be vetoed on grounds it could compromise US security. (
It wouldn’t be proper if I went for more than a day or 2 without examining the latest news bits from the embattled telecoms equipment duo of Huawei and ZTE (HKEx: 763; Shenzhen: 000063), which have suffered a non-stop stream of setbacks in the last few months. Of course most readers will know that the pair received their biggest blow just a couple of weeks ago when a US Congressional panel ruled that their networking equipment posed a national security threat and thus should be blocked from sale in the country. (
More positive signals are emerging on China’s long march to 4G, with both the telecoms regulator and embattled networking equipment provider ZTE (HKEx: 763; Shenzhen: 000063) providing the latest signs that China could award 4G licenses much sooner than many previously thought. These new signals seem to be the latest in an accelerating trend, as China’s slow-moving telecoms regulator finally responds to pressure from industry heavyweight China Mobile (HKEx: 941; NYSE: CHL) to award 4G licenses sooner rather than later. Perhaps more importantly, the regulator could finally be realizing that its constant lateness in awarding new technology licenses is putting China’s 3 telcos at a distinct disadvantage to their global rivals, forcing the trio of China Mobile, China Unicom (HKEx: 762; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA) to constantly play catch-up to their more aggressive peers around the world.
There’s bad news and good news coming from 2 Chinese sector leaders, with embattled telecoms equipment maker ZTE (HKEx: 763; Shenzhen: 000063) leading the downbeat headlines while education services specialist New Oriental (NYSE: EDU) brings some much needed relief to beaten-down US-listed Chinese stocks. The bad news for ZTE never seems to end, and now we’re starting to see the impact of all the negative developments on this former high-flyer which has just announced it will post a massive loss in the third quarter. Meantime, New Oriental has quietly issued its own announcement implying an investigation by the US securities regulator into some of its accounting practices has cleared it of any wrongdoing, in what would be welcome news for a sector of US-listed Chinese firms that has been dogged by an accounting credibility crisis for more than a year.
