Bottom line: New comments from OnePlus are the latest sign of a shakeout set to hit China’s smartphone sector in 2016, with at least 3-4 small to mid-sized brands likely to close up shop by the end of next year.
OnePlus trims product line
The latest signs of trouble in the overheated smartphone space are coming from newcomer OnePlus, which is detailing its own missteps and predicting a much-needed industry shakeout will intensify soon. The comments from OnePlus co-founder Carl Pei are some of the most direct I’ve seen so far about the industry’s current woes, though he’s careful to avoid any implication that OnePlus itself might fall victim of the shakeout he’s predicting.
The fact of the matter is that OnePlus is exactly the kind of player that’s likely to go belly up in the looming shakedown, and Pei’s description of his current situation paints a rather bleak picture for his company. Equally intriguing is Pei’s prediction that one or more major players may also withdraw from the space in the coming consolidation. Read Full Post…
Bottom line: Uber’s 2016 China expansion plan looks aggressive but typical for the company, while Didi Kuaidi should invest its big cash pot on expansion and becoming profitable rather than unrelated services like O2O take-out dining.
Uber, Didi race towards 2016 with big investments
Private car service leaders Uber and Didi Kuaidi are both in the headlines as we race towards the end of 2015, a year that will go down as a watershed for this fast-rising sector both in China and globally. The first news comes from Uber, which is detailing an aggressive expansion plan for 2016 as China surpasses the US to become its largest global market. The second headline has Didi Kuaidi confirming a major new investment in online take-out dining site Ele.me, just days after separate reports said that e-commerce giant Alibaba(NYSE: BABA) also wants to invest in the company.
This year has certainly been a watershed for both Uber and Didi Kuadi in China, reflecting the rapid rise of their private car services that use location-based (LBS) GPS technology to challenge traditional taxi operators. Uber has said repeatedly that China is its top priority outside its home US market. Reflecting that position, Uber took the unusual step of spinning off its China unit into a separate company earlier this year, and also said it would spend $1 billion in 2015 to build up its service in the market. Read Full Post…
Bottom line: Alibaba’s spin-off of its C2C marketplace for second-hand goods could reflect a new trend for big Internet firms to separately run individual assets, while LeTV may have provided most of the money in the first funding round for its smartphone unit.
Taobao spins off Xianyu
A couple of fund-raising headlines are spotlighting emerging trends in China, including a nascent move by big companies to spin off smaller units as separately run and funded entities. That move was center stage in new reports that e-commerce juggernaut Alibaba(NYSE: BABA) is spinning off its Xianyu marketplace that specializes in sales of second-hand goods between consumers.
The second headline comes from online video high-flyer LeTV(Shenzhen: 300104), and spotlights a trend that shows rapidly cooling investor sentiment towards overheated sectors like video and smartphones. That news has LeTV declining to name any of the backers in the first funding round for its fledgling smartphone unit, hinting that no serious investors were interested in this particular opportunity that raised $530 million. Read Full Post…
Bottom line: A scandal involving inflated sales reporting by workers at SouFun could cause the company to miss 2015 revenue guidance, and reflects pressures that China Internet firms are facing due to a slowing home economy.
SouFun uncovers inflated sales by employees
Just when it was beginning to claw its way back to favor with investors, real estate services website SouFun (NYSE: SFUN) is being rocked by a scandal after an internal probe revealed that some employees were inflating their new orders. The latest reports say SouFun has verified it fired some workers after uncovering the issue, though there’s no word on the magnitude of the problem.
More broadly speaking, this kind of report highlights the stresses that SouFun and rivals like E-House (NYSE: EJ) are facing due to a sharp slowdown in China’s overheated real estate market. That slowdown has caused prices to stagnate and transaction volumes to also tumble as buyers and sellers wait to see how the market will trend. That’s critical for companies like SouFun, since they depend on transactions for a big part of their business. Read Full Post…
Bottom line: The bankruptcy of a major component supplier to ZTE and Huawei is the latest sign of stress in the overheated smartphone sector, and at least 1-2 small to mid-sized brands are likely to leave the market by mid-2016.
Smartphone price wars undermine parts maker Fosunny
Fresh new cracks are appearing in China’s smartphone making machinery, with reports that a major component supplier to Huawei and ZTE (HKEx: 763; Shenzhen: 000063) has gone bankrupt. At the same time, another report is citing bad weather for a supplier’s delivery delays that are causing Alibaba-backed (NYSE: BABA) smartphone maker Meizu to postpone the launch of a new high-end model.
The most worrisome of these 2 stories is the bankruptcy of Fosunny, a maker of metal casings used for smartphones. The company lists US wireless carrier AT&T (NYSE: T) and Europe’s Vodafone (London: VOD) among its customers on its website, but I suspect that both of those relationships come via third-parties like Huawei and ZTE that supply smartphones to those telcos. 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: Aggressive spending on O2O initiatives by China’s traditional and online retailers is likely to produce a new boom-bust cycle, and companies should consider more M&A as part of their plans.
Retailers spend millions on O2O
Online-to-offline retail services, often called O2O, have become the flavor of the day for traditional and web-based Chinese retailers over the last year, with at least 3 major new announcements coming out on the topic late last week. Two involved big internal campaigns to boost O2O services at electronics retailer Gome (HKEx: 493) and traditional supermarket chain Renrenle (Shenzhen: 002336), while a third saw e-commerce giant JD.com (Nasdaq: JD) make a major investment in traditional retailer Yonghui Superstores (Shanghai: 601933).
Those efforts come just a week after leading search engine Baidu (Nasdaq: BIDU) reported disappointing quarterly earnings due to heavy spending on O2O, and more generally as O2O has become a buzzword for nearly all of China’s major traditional and online retailers. The activity surge reflects realization that leading retailers of the future will operate a hybrid model that uses both online and offline channels to sell products and services. Read Full Post…
Bottom line: Both Autohome and especially BitAuto look like strong candidates for buyout bids, following rapid declines in both companies’ stocks due to a rapid slowdown in China’s car market.
Internet auto stocks run out of steam
We’ll begin the new week with a look at 2 of China’s leading online auto specialists, BitAuto (NYSE: BITA) and Autohome (NYSE: ATHM), whose shares have both tanked over the last 3 months in tandem with a rapid cooling of China’s car market. The trend is similar to what’s happened at online real estate service providers, whose shares have slumped for the last year due to a prolonged and much-needed correction in China’s overheated property market.
China stock watchers will know that E-House (NYSE: EJ), one of the two major US-listed real estate services firms, launched a privatization bid in June, part of a broader wave that has seen dozens of Chinese firms leave New York this year due to low valuations. (previous post) That leads to my next prediction, namely that BitAuto, Autohome or potentially both could soon become the latest companies to join the privatization queue. Read Full Post…
Bottom line: Apple could lose its crown as China’s best-selling smartphone brand by the end of the year, as it faces growing competition from domestic names looking for a bigger slice of the high-end market.
China loses crown as top iPhone market
Global smartphone pioneer Apple (Nasdaq: AAPL) has just released its latest quarterly results, which as usual contain very selective bits of information about the China market that are revealing but make it difficult to draw very strong conclusions. One emerging trend appears to have Apple coming under growing threat from Chinese brands eying the higher end of the market. That’s my quick conclusion based on Apple’s admission that China fell to second place among its global markets in its latest reporting quarter, after briefly grabbing the top spot from the US during the previous quarter.
Of course everything is relative, and Apple still looks quite strong in China with iPhone sales in its Greater China market up an impressive 87 percent in its latest reporting quarter. (English article) But that said, there’s really no reason that the US should have retaken the top spot from China during the quarter, since both countries now receive their new iPhones at roughly the same time. Read Full Post…
Bottom line: Qihoo’s new Dazen smartphones stand a low chance of success, even if they provide better quality to comparably priced rivals, due to their late entry to the overheated ultra low-end of China’s smartphone market.
Qihoo unveils Dazen smartphone
About a half year after announcing its intent to enter China’s crowded smartphone space, software security specialist Qihoo (NYSE: QIHU) has unveiled its new product under a brand name that sounds clever and catchy but is decidedly downscale. Qihoo has just announced that its new smartphones will carry the brand name of Dazen, and will sell for a bargain basement price of 899 yuan, or about $150.
The move appears to be an extension of Qihoo’s longtime strategy of selling products cheaply or even giving them away for free, and then using those products as a marketing tool for its other paid products and services. But in this case the strategy of going after the ultra low end looks a bit questionable, since that part of the market is already quite crowded and many brands are believed to be losing money. Read Full Post…
Bottom line: A record IPO by Guotai Junan and massive private fund raising by a relatively unknown website reflect the overheated state of China’s capital markets, and could reflect a cresting of the current stock market rallies.
Guotai Junan eyes mega-IPO
With China’s stock market posting 2 consecutive days of large losses, everyone is starting to guess whether the current stock market rally may have finally crested and a period of correction begun. Two of the latest fund-raising headlines show just how frothy and ambitious activity has become, led by a plan for China’s biggest IPO in 5 years from securities brokerage Guotai Junan. The other headline comes in the venture funding space, where Zhubajie, a relatively unknown company in the hot crowdsourcing sector, has just landed an impressive 2.6 billion yuan ($420 million) in new funding. Read Full Post…
