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…
Bottom line: Huawei’s strong revenue and profit growth for 2017 are coming largely on the back of its home China market, which should continue to boost the company as Beijing aggressively pushes upcoming 5G services.
Huawei finds land of plenty in hometown market
Telecoms giant Huaweiis in the headlines as the new week begins, with word that the company has rekindled its profit growth in its latest reporting year. Unlike other companies, Huawei isn’t publicly traded and thus isn’t required to release any financials, which always means we need to take their numbers with a slight grain of salt. But generally speaking the company does seem to be trying to report meaningful figures, at least based on past years when the results weren’t all that flattering.
This time around the results look good, at least the final ones for revenue and profit growth. But a closer look shows something that many of us know, namely that the company is heavily dependent on its home market for that relatively strong showing. Some of that is probably deserved, as Huawei has emerged as a maker of quality products for both its core networking equipment and also its newer smartphones, which count myself as one of their fans and owners. Read Full Post…
Bottom line: Hong Kong-listed “Red chip” stocks like Lenovo and China Telecom could eventually make secondary listings in China under a new CDR program, but will be forced to wait behind higher-profile Internet names like Alibaba.
‘Red chips’ eye China listings under CDR program
With all of the major IPOs for the week now in the history books, as most of the world takes a vacation for Good Friday, I thought I’d close out the week here in China with yet another angle on the China Depositary Receipt (CDR) program that is creating lots of buzz. Regular readers will know this is a reference to China’s planned take on the popular American Depositary Receipt (ADR) program that lets companies with a primary listing in one market make secondary listings in another one.
Lots has been written these last couple of weeks about how the CDR program could let U.S.- and Hong Kong-listed tech giants like Alibaba(NYSE: BABA) and Tencent(HKEx: 700) make new secondary listings in China, which they couldn’t do before. But today we’re getting the first few peeps about similar homecomings from top executives of a group of Hong Kong-listed companies known as “red chips”, which are major Chinese firms that are currently barred from listing at home. Read Full Post…
Bottom line: Apple’s Tim Cook and other big global CEOs active in China will need to walk a fine line to avoid being forced to take sides in ongoing US-China trade frictions.
Apple CEO Cook talks US-China tensions on latest China trip
Apple(Nasdaq: AAPL) CEO Tim Cook was in China once again this past weekend, in what seems to be becoming his second home. This time around Cook was one of the few corporate chiefs attending the China Development Forum, a major annual conference sponsored by China’s State Council. The event is mostly peopled by academics and government officials, and thus Cook’s attendance is both a feather in Beijing’s cap and also something of a nod to Cook’s own status as a global high-tech titan as he tries to stay in the nation’s good graces.
His major proclamations at the event weren’t all that earth-shattering. But he inevitably felt compelled to comment on the Donald Trump administration’s announcement last week of new punitive tariffs on China for unfair trade practices. He didn’t venture too far into the matter, and mostly urged both sides to stay calm in the face of rising trade tensions between the world’s two largest economies. Read Full Post…
Bottom line: iQiyi and Bilibili should price near the top of their higher IPO price ranges, as each benefits from strong investor sentiment fueled by their unique offerings and a potential new plan to concurrently list their shares in China.
iQiyi, Bilibili capitlize on strong positions in video
Anyone who was worried that a regulatory crackdown on fintechs late last year might dampen broader enthusiasm for Chinese stocks can relax. That’s my key takeaway from the latest headlines, which show that two non-fintech Internet firms are experiencing stronger-than-expected demand for their upcoming listings in New York.
Leading that charge is Baidu-backed (Nasdaq: BIDU) online video site iQiyi, which has sharply jacked up the fund-raising target for its proposed New York listing by a massive 80 percent, in what could well be the biggest such listing by a Chinese firm this year. At the same time, the smaller but similarly high-profile Bilibili has jacked up its own fund-raising target by a hefty 50 percent. Read Full Post…
