Bottom line: The MIIT is quite possibly weighing a merger between China Telecom and Unicom, but any final decision might take at least a year due to the regulator’s cautious and slow-moving nature.
Marriage on tap for China Telecom, Unicom?
A new research note is raising the intriguing possibility that a merger could be coming for the smaller of China’s 3 big telcos, saying China Unicom (HKEx: 763; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA) may soon be forced into marriage. The reasons for such a marriage are certainly compelling, and a recent leadership shuffle among the nation’s 3 big telcos could point to such a move.
Some might argue that such a marriage would be anti-competitive, reducing China’s mobile space from 3 carriers to just 2. But the fact of the matter is that China’s telecoms regulator has become quite frustrated with this trio, who constantly fight among each other for market share but do very little to innovate despite controlling the world’s largest mobile market. Rather than focus its efforts on reforming this laggard bunch of state-run behemoths, the regulator has taken a number of other recent steps to bring more innovative, private investment into the sector. Read Full Post…
Bottom line: Huawei’s new push into IT services could do well due to the company’s strong background in telecoms products, and could see it form a major partnership in the area with a big global player.
IT services tie-up ahead for Huawei?
Networking equipment giant Huawei is continuing its diversification, with word that it’s planning a major push into the market for information technology (IT) services that could put it into direct competition with such giants as IBM (NYSE: IBM) and Hewlett-Packard (NYSE: HPQ). But perhaps more intriguing is the possibility that Huawei could form a major partnership with one of the big foreign names, amid a rise in such pairings due to restrictions on foreign firms under China’s new national security law.
Huawei began its life as a maker of networking equipment for big telecoms carriers, but more recently has tried to diversify as the global market for those products slows. It has pushed into networking equipment for enterprises, and more recently has found growing success with smartphones. But IT services has remained a relatively small portion of the business, expected to reach $2 billion in sales this year. That would be just a tiny portion of the 288 billion yuan, or about $45 billion, that Huawei posted in revenue last year. Read Full Post…
Bottom line: The new iPhone 6S models will post lackluster sales during their first weekend in China, but could gain momentum later as the nation’s 3 mobile carriers launch aggressive promotions for their new 4G services.
High hopes for China with new iPhone launch
China has become a center of attention for Apple (Nasdaq: AAPL) these last few days, on hopes that the world’s largest smartphone market will help to power the latest iPhone to a record launch. Apple is being quite circumspect about the situation, saying only that global pre-orders for its new iPhone 6S and 6S Plus were “very strong”, ahead of their official September 25 launch date when they will become available in stores.
Analysts are saying they expect China to play an important but also muted role in the early stages for the iPhone 6S, accounting for as much as 15 percent of global sales in its first weekend. At the same time, another report is spotlighting discrepancies in iPhone 6S prices in different global markets. As usual the report shows that models in China will cost around 20 percent more than the the US, though Chinese prices will be comparable with Britain, France and Germany. Read Full Post…
Bottom line: Smaller foreign tech companies could follow Trend Micro’s lead and withdraw from China over the next few years, as they suffer sharp business downturns due to restrictions under the country’s new national security law.
Trend Micro sells China unit
This summer has been unusually quiet for big multinationals in China, following campaigns in the last 2 years targeting foreign companies for monopolistic practices and corruption, among other things. But the real turbulence this year has been happening behind the scenes, as foreign technology companies face a major business downturn following China’s recent roll-out of a strict new law designed to protect national security.
Many foreign tech firms have complained the new law is too broad and intrusive, and now security software specialist Trend Micro may have become the first major victim. That’s my interpretation, following an announcement that appears to show Trend Micro is withdrawing from the market. This particular move will see Trend Micro sell all of its China operations to AsiaInfo, a Chinese owned maker of telecoms software. Read Full Post…
Bottom line: Strong sales growth for Huawei’s Honor brand in the first half of the year reflects the company’s broader accelerating momentum, and could pose a growing challenge for domestic rival Xiaomi.
Huawei’s Honor brand grows in India, eyes US
More new data is showing the growing momentum for smartphone aspirant Huawei, with word that the company’s Honor brand surpassed its sales target in the first half of the year as it prepares to enter the US. The latest numbers continue to portray a surging Huawei, and show how the company is using its traditional strengths in product development and a newer expertise in consumer marketing to overtake big domestic rivals like Xiaomi and Lenovo (HKEx: 992) and also a host of smaller ones like Meizu and Coolpad (HKEx: 2369).
These latest numbers don’t look extremely impressive at first glance, as they show that Honor just slightly surpassed its sales target for the first half of the year. But in the current climate where many companies are missing their targets due to intense competition in China, the ability to not only meet but even slightly exceed a sales target does seem like a noteworthy accomplishment. Read Full Post…
Update: Since writing this post, China Telecom and Unicom have both announced that they will swap chairmen. Wang Xiaochu will resign from China Telecom and become head of Unicom, and Chang Xiaobing will resign from Unicom and become head of China Telecom. (Unicom announcement, China Telecom announcement)
Bottom line: A rumored shake-up in the top ranks of China’s big 3 telcos is long overdue, but will only be effective if Beijing installs experienced, marketing savvy managers rather than the usual government bureaucrats.
Leadership shuffle coming at big 3 telcos?
I was largely dismissive of the first reports to emerge last week of a brewing shake-up for the leadership at China’s big 3 telcos, saying the basis for the speculation didn’t seem too solid. But the chatter continued to gain momentum at the end of last week, leading me to change my view and predict that perhaps much-needed change is on the way and could be announced soon.
The buzz began when media first reported that the telecoms regulator had called a meeting last Friday of top leaders of China’s big 3 state-run telcos, China Mobile (HKEx: 941; NYSE: CHL), China Unicom (HKEx: 763; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA). (previous post) Now media are reporting that the Ministry of Industry and Information Technology (MIIT) has called another meeting for Monday, and some are citing unnamed sources saying that the main topic is a big leadership shuffle. Read Full Post…
Bottom line: China Mobile’s return to profit growth is slightly encouraging but may be short-lived, while the MIIT isn’t likely to make any major new moves when it meets with China’s big 3 telcos on Friday.
Growth returns to China Mobile’s profit
After seeing its profits contract for the last few quarters, leading mobile carrier China Mobile (HKEx: 941; NYSE: CHL) finally wowed investors with an unexpected return to profit growth in its latest reporting quarter. But the euphoria was short-lived for China Mobile’s stock, which rose sharply after the report came out, only to give back all the gains by the end of the trading day. That would seem to show that investors are more worried about China Mobile’s top line revenue, which contracted during the quarter despite the profit growth.
At the same time, change could be coming soon for China Mobile and its 2 big state-run peers, China Telecom (HKEx: 728; NYSE: CHA) and China Unicom (HKEx: 762; NYSE: CHU), which have all been called to a meeting with the telecoms regulator on Friday. There are plenty of things the Ministry of Industry of Information Technology (MIIT) may want to discuss with these 3 slow-moving and bureaucratic telcos, but at least one media is speculating the trio could be getting set for some top management changes. Read Full Post…
Bottom line: Unigroup’s bid for Micron may be near death due to lack of interest from Micron and growing US political opposition, though Unigroup could revive its pursuit after next year’s presidential election.
Unigroup abandons Micron bid?
The blockbuster deal that had China’s Tsinghua Unigroup mulling a bid for leading US memory chip maker Micron (Nasdaq: MU) appears to be near death, with neither side commenting on the situation more than a month after news of the courtship first broke. It’s now been 4 weeks now since we’ve heard anything on the $23 billion deal from either Micron or Unigroup, the ambitious microchip maker connected to Tsinghua University, China’s leading sciences university.
But Micron’s share price hasn’t stayed quiet during that time, and has moved steadily downward to its current level of about $17.20. That represents a drop of 14 percent from a recent high of $19.90 in late July, when investors were still hoping that Unigroup would make a bid at $21 per share. While neither side has commented on the deal lately, one powerful US senator did come out last week and express his opposition. Read Full Post…
Bottom line: Lenovo should write-off its Motorola investment as a failure, and focus its smartphone efforts on building up its own brand rather than relying on more acquired foreign names.
Lenovo in need of Motorola write-off
PC giant Lenovo (HKEx: 992) repeated a frequent pattern last year when it purchased a former global leader, Motorola, with plans to resuscitate the struggling brand to boost its own smartphone business. It repeated yet another pattern last week when it said that early efforts to revive Motorola were failing, undermining its own profits and sparking one of the worst sell-offs for its shares in recent memory.
Having learned once more the difficulties of reviving broken western brands, Lenovo should now take the bold step of considering a complete write-off of its $2.9 billion Motorola purchase, or at least relegating the brand to niche status. The setback also shows more broadly why Lenovo and other globally-minded Chinese companies need to abandon the strategy of buying struggling global brands at bargain prices, and instead should focus on developing their own names. Read Full Post…
Bottom line: Lack of buzz around Xiaomi’s launch of production in India and Lenovo’s new line of ZUK smartphones reflect fatigue that is rapidly consuming domestic Chinese brands due to rampant competition in their home market.
More fatigue signs in China smartphone market
Signs of fatigue continue to grow in China’s overheated smartphone market, where rampant competition and unending price wars these last 2 years have led to saturation and a rapid slowdown. That fatigue is visible in 2 of the latest headlines, one of which has former superstar Xiaomi failing to garner much buzz as it launches production in India to jump-start its stalling growth. The other has the struggling Lenovo (HKEx; 992) launching its own new brand of smartphones, as it also faces lackluster performance for its current lineup sold under its own name and the Motorola brand it acquired last year.
China’s smartphone market is the world’s largest, but also the most competitive due to the presence of many homegrown domestic players. That reality has forced many mid-sized and smaller names to seek tie-ups with wealthier partners, and forced everyone to look abroad for growth as profits shriveled at home. Adding to the woes, China’s smartphone market has been contracting this year, with sales falling 4.3 percent in the first quarter after several years of explosive growth. Read Full Post…
Bottom line: After a slow start, China’s VNO program is showing signs of starting to gain momentum and could start to pose a meaningful challenge to the country’s big 3 mobile carriers by the end of next year.
VNOs move slowly but steadily
China telecoms regulator has just released some new data on the country’s virtual network operator (VNO) program a year after the first service launched, aimed at providing some competition for the country’s big 3 state-run telcos. While some observers are saying they’re disappointed at the data that shows China had 8.2 million VNO subscribers at the end of last month, I would actually take a contrarian view and say I find the figures somewhat encouraging.
Frankly speaking, I wasn’t at all confident that the VNO program would attract many subscribers at all. That’s because the program relied on cooperation from China’s big 3 telcos, which were required to sell capacity on their networks to these virtual operators, who would then sell service under their own brand names. The big and obvious problem lies in conflict of interest, since the big state-run telcos would hardly want to support these private companies that could quickly become major new competitors. Read Full Post…
