Bottom line: A brouhaha involving Lenovo’s branding as unpatriotic for not supporting homegrown technology is likely to blow over quickly, and spotlights China’s continued reliance on foreign technology.
Lenovo branded as traitor
In a story that looks like a something from the McCarthy era, embattled PC maker Lenovo (HKEx: 992) has landed at the center of a controversy that’s seeing it branded by some as a traitor for choosing foreign technology over a homegrown Chinese alternative. This kind of thing isn’t at all that uncommon in China, where politics, business and everyday life mix freely.
We’ve seen a few examples of such mixing over the last few months, all involving western companies that were forced to repent after making the egregious error of listing places like Hong Kong and Taiwan as separate “countries” from China on their marketing materials. Such missteps ended up causing outrage by some nationalists on the web, prompting sleepy regulators to step up and demand such places be labeled as part of China. I’m not a big fan of Donald Trump, though I did find his branding of this kind of thing as “Orwellian nonsense” as both humorous and also a nice gentle rebuke to China. Read Full Post…
Bottom line: China’s approval of a small US chip merger shows Beijing is actively reviewing such deals again after a brief pause to show its displeasure over US trade tensions, and bodes well for eventual approval of Qualcomm’s purchase of NXP.
China resumes consideration of global mergers
Trade tensions between Washington and Beijing have thrown a number of major companies into turmoil, as the two sides spar over the former’s attempts to form a new, more balanced bilateral relationship. Telecoms equipment maker ZTE(HKEx: 763; Shenzhen: 000063) has stolen a lot of the limelight in that regard, as the company’s earlier case involving illegal sales of US products to Iran gets sucked into the fray.
But lower-key on the ladder has been a form of passive aggressive behavior coming from Beijing, which had quietly halted reviews of major global M&A, most notably in the high-tech microchip space. That behavior was costing time and frustration for several companies with pending deals, including Qualcomm’s (Nasdaq: QCOM) pending mega-purchase of Europe’s NXP (Nasdaq: NXPI). Read Full Post…
Bottom line: Xiaomi is likely to quietly settle a copyright infringement lawsuit against it by Coolpad, which is opportunistically looking for some hush money before Xiaomi’s IPO and can’t afford a long drawn-out court battle.
Coolpad sues Xiaomi as latter’s IPO draws near
In a move that smells of desperation, down-and-out smartphone maker Coolpad (HKEx: 2369) has filed a lawsuit against the up-and-coming Xiaomi. Anyone with half a brain will know the timing of this lawsuit looks quite suspicious, since Xiaomi is getting ready to make what could be this year’s biggest IPO in the next month or so, likely to raise up to $20 billion.
It’s quite difficult to know if this particular lawsuit has any merit, though we do know that Coolpad was an early hot player in the smartphone space and thus may legitimately hold some intellectual property similar to things that Xiaomi is now using. But the fact of the matter is that Coolpad can hardly afford to wage a long and potentially costly legal battle. Instead, it is probably hoping for a quick settlement to give it some much-needed cash to continue funding its money-losing daily operations. Read Full Post…
Bottom line: Lenovo’s ejection from the Hang Seng Index caps its long fall from grace over the last four years, and leaves the company in an increasingly deep hole that may be hard to emerge from.
Lenovo ejected from Hang Seng Index
Capping its long fall from grace, PC giant Lenovo (HKEx: 992) has been officially booted from the Hang Seng Index, in a move that looks highly symbolic but also has some very real ramifications for this former high-flyer. It’s probably too early to relegate Lenovo to the history books, but we can certainly say the company is down for the count with this latest blow.
As someone who has followed Lenovo for most of its life as a listed company, I can provide my own view that the company is certainly facing a life-or-death moment in its lifetime that dates back more than three decades, making it one of China’s oldest tech names. I have called repeatedly for the departure of CEO Yang Yuanqing and introduction of some newer, younger blood to the company’s top ranks. But it doesn’t seem that Yang’s boss, Lenovo founder Liu Chuanzhi, cares too much what I think, as he has repeatedly stuck with this right-hand man throughout the company’s decline. Read Full Post…
Bottom line: Xiaomi is hoping to attract investors to its IPO through its recent strong revenue growth, but it could still be years before it becomes profitable due to heavy reliance on low-end, low-margin products.
Xiaomi growth banks on cheap products
Everyone is fawning over the newly released IPO prospectus from Xiaomi, the smartphone maker that is aiming to make what’s likely to be the biggest listing of all time by a company from its class. Most eyes seem to be focused on the company’s top line, headlined by revenue that grew 67.5 percent last year. But from my perspective, the picture isn’t all that attractive due to the company’s huge loss, along with data that show it is clearly stuck at the lower end of the global smartphone market in terms of brand positioning.
None of that is necessarily that bad, since Xiaomi, whose upcoming Hong Kong IPO is likely to be one of this year’s largest, is clearly in an early stage of its development. Most major brands today didn’t start out as premium names. Classic cases in that category are the Japanese and Korean electronics makers, most of which started off as makers of low-end but relatively reliable cheap products that made the “made in Japan” label at one time the equivalent of the “made in China” label now. Read Full Post…
Bottom line: Two biotech firms’ abandonment of New York IPOs for Hong Kong is part of a broader trend to make Hong Kong and China more competitive for high-growth startups, and could ultimately boost valuations in all three markets.
Pharma startups abandon New York for HK
We’ll take a break from all the trade war talk as we close out the week and instead turn to another major development taking place in Hong Kong, where the local stock exchange has just rolled out some reforms with major implications for high-growth startups. Those reforms have reportedly netted a couple of biotech firms that were originally planning to list in New York, reflecting a potential new rivalry between these two markets.
Before the reforms, Hong Kong’s stock exchange was quite traditional and also strict about a few things, including dual-class partnership structures and profitability. The former British colony refused to allow dual-class partnerships that gave disproportionate power to holders of a special class of preferential shares. At the same time, it also had strict rules saying all companies must show three consecutive years of profitability before listing. Read Full Post…
Bottom line: A US investigation of Huawei into possible illegal sales of US-made equipment to Iran is old news, and may be getting dredged up now to give Washington leverage in its ongoing trade frictions with China.
Huawei under microscope for potential illegal sales to Iran
Some might argue that US sanctions against telecoms equipment maker ZTE (HKEx: 763; Shenzhen: 000063) are just the prelude to a much bigger story that could now be sharping up, with word that ZTE’s much larger rival Huaweiis being probed in a similar case. The subject at the heart of this matter involves sales of American-made equipment to Iran, which would have violated earlier US sanctions against such sales to pressure Iran to curtail its nuclear program.
In fact, I’m quite surprised that this probe against Huawei is coming back into the headlines just now. Media reported on this potential probe as early as 2013, at the same time reports first emerged about a similar probe into ZTE. Additional reports appeared about a year ago saying an unnamed company was being investigated for violations similar to ZTE, with strong hints that the company was Huawei. (previous post) Read Full Post…
Bottom line: Washington’s new ban on ZTE from buying US-made components is not as political as China is portraying it, and is likely to be resolved within a few weeks after ZTE takes remedial actions related to its violation of an earlier agreement.
Washington cuts off ZTE from US suppliers
An ongoing tiff between Washington and ZTE (HKEx: 763; Shenzhen: 000063) is in the headlines yet again, with word that the US has banned all American companies from selling to the Chinese smartphone and telecoms equipment maker for seven years. This particular story is filled with political overtones due to the anti-China stance of Donald Trump, who has accused Beijing of unfair trade practices. But it’s also a tale that stretches back for at least six years, which means this story began well before the current US administration.
The latest headlines are quite straightforward, and have Washington banning the sale of US-made telecoms equipment to ZTE for violating an earlier agreement reached last year. (English article) The source of this conflict dates back to 2012, when Washington first began probing ZTE for selling American-made equipment to Iran in violation of US sanctions that at that time were designed to punish the country for its nuclear program. Read Full Post…
Bottom line: Foxconn’s taking of the smartphone manufacturing crown from Samsung reflects the resurgence of Apple and rises of Huawei and Xiaomi, and could ultimately force other brands to use such third-party producers.
OEMs rise on smartphone manufacturing list
Today we’ll take a step back from the usual name-brand smartphone rankings to look at a new report that shows that Taiwan’s Foxconn (HKEx: 2038) is emerging as one of those “industry leaders you never heard of”, quietly supporting some of the fastest-growing names. That’s the big takeaway from the latest figures from data tracking firm IDC, which show that Foxconn officially passed global titan Samsung (Seoul: 005930) in last year’s final quarter to become the world’s biggest smartphone manufacturer.
Most industry insiders already know Foxconn and its parent, Hon Hai, because of their longtime relationship as a key producer of iPhones for Apple(Nasdaq: AAPL). But the Taiwan company also counts Xiaomias a major client, as that company experiences a resurgence in its fortunes after a couple of years in the dark. Foxconn also makes phones for Huawei, which is also doing quite well on the global smartphone scene at the moment. Read Full Post…
Bottom line: Skidding sales in China’s oversaturated smartphone market are long overdue, and could claim Gionee as a first major victim by year-end.
China smartphone sales slide in Q1
The inevitable is finally happening, and China is showing signs of smartphone burnout. The latest government data is showing that first-quarter smartphone sales in China plunged 26 percent, which is one of the largest drops I can ever recall. In this case we can’t really blamed the usual seasonal effect, since this is a quarterly number that includes both January and February — the two months when Lunar New Year falls.
At the same time, separate reports are citing a top executive at second-tier smartphone maker Gionee shooting down rumors that his company may not pay some of its suppliers due to funding shortages. This comes just weeks after the company made mass layoffs at a major production facility in the southern city of Dongguan, and is one of the stronger signals of distress I’ve seen from China’s bumper crop of second-tier smartphone makers. Read Full Post…
Bottom line: Alibaba’s purchase of Ele.me and Tencent-backed Meituan’s purchase of Mobike underscore the growing rivalry between Alibaba and Tencent, as each uses its deep pockets to try and dominate money-losing emerging sectors.
Alibaba swallows Ele.me
Trade wars are making all the big headlines these days in US-China news, forcing a couple of mega-mergers that would normally be front-page news into the back pages. Each of the latest deals is quite significant for China’s Internet, as both quietly underscore the increasingly intense rivalry between titans Alibaba (NYSE: BABA) and Tencent(HKEx: 700).
The larger of the deals has Alibaba forking out more than $5 billion to buy the remaining stake of Ele.me it doesn’t already own, adding important fire power to the leading takeout dining service whose chief rival is Meituan-Dianping. In a separate but also quite large deal, Meituan, which counts Tencent as one of its largest backers, has acquired leading shared bike operator Mobike in a deal that values the latter at about $2.7 billion. Read Full Post…
