A.I. Expert at Baidu, Andrew Ng, Resigns From Chinese Search Giant – The New York Times (Mar 22, 2017)
This story is notable for two reasons. Firstly, Baidu especially and Chinese companies in general are often overlooked completely in discussions of who’s making big investments in AI and machine learning, and yet Baidu has made massive investments in this area, and recently hired former Microsoft exec Qi Lu to be its COO and to oversee its AI efforts. Secondly, despite Qi Lu’s recent arrival, the trend of former Silicon Valley execs joining big Chinese tech companies still has fewer long-term success stories than short-term fizzles, as this article points out. Both Hugo Barra and Andrew Ng’s move to Chinese companies were seen as highly symbolic, and as such it’s inevitable that their departures should be too. The big Chinese companies are doing good work, and in some cases pioneering new product and service categories, across a number of different areas, but attracting and keeping high-profile talent from the US (even those with ties to Greater China – Ng was born in the UK to parents from Hong Kong) remains tough.
via New York Times
After Google Phone Fizzles, Huawei Turns to AT&T for U.S. Expansion — The Information (Mar 21, 2017)
Based on the headline, I thought this was about Huawei finally being able to sell phones through AT&T’s postpaid business, because that’s the holy grail for Chinese manufacturers, and remains stubbornly unavailable to them at AT&T or any other major US wireless carrier. Where the Chinese vendors have had some success is in the prepaid business, and AT&T currently carries several ZTE phones on its GoPhone prepaid brand, as well as one Huawei phone in a partnership with Walmart. However, what’s actually happening here is that AT&T is certifying Huawei’s own chipset for use on its network, which is really just a possible first step to getting more Huawei phones onto AT&T store shelves. Huawei’s lack of brand awareness in the US continues to be its single biggest challenge – something that hasn’t really changed over the years. I remember having conversations about this with Huawei executives at CES at least six years ago. Until that changes, there’s very little incentive for AT&T to give over shelf space reserved for familiar brands consumers recognize to a relative unknown like Huawei.
via The Information
The whole framing of this article feels very much driven by its subject, Duan Yongping, who runs the conglomerate which owns Oppo and Vivo, two of the world’s largest smartphone brands. The idea that these brands have somehow toppled Apple in China isn’t really borne out by the facts, and it appears the (unnamed) author rather took Duan’s word for it on this and other points. Apple has absolutely seen falling sales in China, but that’s as much about a saturating market and the drop-off from the huge iPhone 6 launch as about any local competitors. It’s also fairly clear that Oppo and Vivo compete in a very different segment of the market from the iPhone, though many who buy those devices plan to buy an iPhone next, per some recent Morgan Stanley research, suggesting that these are customers which aspire to buy iPhones rather than having switched from them. There’s no doubt Oppo and Vivo have achieved impressive market share in China, and therefore also globally, but it’s far less clear that their strategy is sustainable – after all, we’ve seen other Chinese brands (notably Xiaomi) do very well in the short term and then fizzle. In China in particular, the Apple brand is highly aspirational, and that will continue to drive a lot of sales.
Two things worth noting here. Firstly, another big commitment by Apple to China, following its billion0-dollar investment in ride-sharing service Didi last year, with the total of these R&D center investments reaching about half a billion dollars in their own right. That signals again that Apple is very serious about continuing to be a big force in China, and is in fact increasing its investment there rather than backing down. That’s important, because in this piece as in other recent ones on Apple in China, the prevailing narrative is that Apple is losing ground there. At a basic level, of course, there’s truth to that over the past year, with declining iPhone sales, though the picture in PRC as opposed to the Greater China region Apple reports as a segment is a little less clear cut. The reality is that the “super-cycle” driven by the iPhone 6 launch led to unprecedented sales everywhere, but nowhere more than in China, and so the comedown has been that much bigger too. But Apple is positioned to start growing in China again in the coming year, and it will continue to be a crucial market for Apple.
Amazon Plans Air Cargo Service for Chinese Customers – WSJ (Mar 15, 2017)
There have been lots of stories about Amazon expanding in logistics over the last couple of months – see here (chartering planes), here (ocean freight), and here (an air cargo hub in the US), for example. Now it seems it’s investing in both sea and air cargo for Chinese sellers. That should allow Chinese companies to sell more easily and potentially cheaply to US buyers, but another interesting angle would be US sellers who source their goods from China – I know of several businesses which basically scan Amazon’s top seller lists for arbitrage opportunities and then have goods made in and shipped from China. So those would be other potential users of these new services. Overall, though, this is just another investment in unique logistics infrastructure and more of a competitive moat versus other retailers.
Americans Don’t Care About Nokia (or Huawei) – PCMag (Mar 7, 2017)
This is good from Sascha Segan, explaining why “Nokia” (really HMD Global) and its new 3310 are irrelevant in the US, but also in some ways more interestingly why Huawei (and other Chinese manufacturers) have long struggled here. With Nokia/HMD, it’s a long-standing lack of investment in the unique requirements of the US market including CDMA networking technology, whereas with Huawei it’s a more complex geopolitical issue involving Huawei’s networking gear. It’s easy to dismiss the US government’s objections to Huawei equipment in networks covering US network traffic as scaremongering or protectionism, but in a previous job I heard from very reliable sources about Chinese gear (not Huawei’s) in telecoms networks which had backdoors installed – these concerns can’t just be dismissed out of hand. But even beyond that, there are significant other reasons why the Chinese brands don’t succeed here, including notably the fact that those brands simply aren’t known, and in many cases the companies aren’t doing enough to change that. The one place where some of the Chinese brands do reasonably well in the US wireless market is the prepaid segment, were several have made a decent business. But that’s much less brand- and much more price-sensitive than the much larger postpaid market.
Though the NetEase tie-up is the main “new news” here, the broader story is that there are still important barriers to Google getting back into China (just as there are for Facebook), the thorniest of which is whether Google sacrifices its stance on censorship in order to re-enter the market. That was the primary reason it left back in 2010, and yet the Chinese government’s approach hasn’t really changed in the interim. Unlike Facebook, which is prevented by the government from operating in China at all, Google chose to leave China of its own volition, and the main barrier to re-entry would be deciding to go back in despite the moral quandaries inherent in such a choice. This is where Apple’s history in China is interesting – as first and foremost a hardware company, it has been able to run the core part of its business just as it does elsewhere, with any censorship applying to narrow slices of its overall business, such as individual apps in the App Store or the iBooks store as a whole. For Google and Facebook, however, access to information is their central value proposition, and so sacrificing the completeness of that offering to censorship is a much bigger concession.
via The Information
Cheaper Rivals Eat Away at Apple Sales in China – WSJ (Feb 1, 2017)
This is a story that’s been going for a while now – China’s sales in China have been down, but ironically the quarter just reported was the first in quite a while in which its revenues in China itself were actually flat, per Tim Cook’s remarks on the earnings call yesterday. In other words, in China (as opposed to the Greater China region) Apple grew in constant currency by 6% year on year, its best performance in a year. However, as with other smartphone markets around the world, as the Chinese market continues to grow, more new users will choose cheaper Android phones than iPhones as their first phones, and those who prioritize price will always choose something other than an iPhone. The reason Tim Cook always emphasizes switchers and new users is that this is where future growth will come from, even as Apple’s market share falls – new users become upgraders in the next cycle, and as the market saturates, Apple’s share tends to rise. It’s too early to know yet whether that will happen in China, but that’s what Cook is banking on, not steadily increasing market share in a market that’s far from maturity.
This is a great in-depth take on Facebook’s efforts to get back into China following the 2009 moves that saw it effectively blocked from operating in the country. The phrase I saw repeated most frequently in the article? Some version of “[Facebook executive] declined to to be interviewed,” which is indicative of just how carefully Facebook is treading in China – it would clearly like to get back in and compete for those billion-plus potential users along with the local social networks, and has even suggested that it’s willing to put up with a certain amount of censorship, but doesn’t yet seem to feel like the time is right. There would certainly be a big backlash against any censorship-based re-entry, especially if it felt like Facebook was willingly complicit rather than doing the bare minimum to comply, just as Google and Yahoo faced criticism over their activities in China in the past. This is definitely a double-edged sword for Facebook, though it’s not even clear at this point that it would be allowed back in even if it decided to give it a try. The whole piece is worth a read – lots of interesting detail here, much of which is also applicable to other big US tech companies that would like to be more active in China (or already are).
This is a good overview of how the international part of Xiaomi’s business fared over the last several years, while Hugo Barra was in charge, and it argues that Xiaomi’s progress during that time was limited to some countries and mostly symbolic elsewhere – gaining mind share but not market share. And of course, it still hasn’t fully launched in the US, which can be considered the biggest failure of Barra’s leadership of the international business, with the company’s first big CES press conference one of his last official actions in the role.
I cited some Counterpoint data on India the other day, and in that context said that they do a good job with these non-Western markets – these numbers are solid, although it’s interesting to see these results for China come out before Apple and several other companies have reported their results for the fourth quarter. Unlike India, China is a major contributor to Apple’s overall results, and there’s usually lots of commentary about the rate of growth there, so it’ll be interesting to compere these numbers with what Apple releases next week. In the meantime, there’s lot of interesting stuff here – over the full year, Xiaomi and Apple fared poorly out of the major vendors, though Apple’s Q4 sales held up a lot better than in Q1-Q3. Lenovo’s year in China was a disaster, and it will be very grateful once again that it has Motorola in the rest of the world to buoy things up a bit. The big story is Oppo and Vivo, which have broken into the top rankings globally off the back of a strong showing in China, but Huawei also did very well. It’s also interesting to look at the data in here on individual models, where the two iPhone 6s variants both score in the top 10, and two Oppo phones are in the top 5, including the number 1 slot. The whole post is well worth a read if you’re interested in the Chinese market.
I’ve commented a couple of times in the last week or so on payments-related stories, and have talked abbot the relative immaturity and fragmentation that characterize mobile payments. But those comments were referring to Western markets, and the situation in China is very different, with massive adoption of mobile payments across several major platforms, and Alibaba has been one of the largest players. It has separated its payment activities into a separate entity, Ant Financial, which has been becoming more and more like a bank in its own right, and is now about to buy MoneyGram, a large global person-to-person payments provider. This is a rare example of a Chinese company buying a global player to extend its reach into other markets – it’s been much more common for Chinese companies to expand organically, and generally that hasn’t gone well.
Verily is one of the most fascinating Other Bets – in some ways, it’s the most completely removed from much of the rest of what Alphabet/Google does, both in terms of its focus and in terms of the business model, which has largely involved partnering with big pharmaceutical firms so far. (We devoted a big chunk of an episode of the Beyond Devices Podcast to Verily a while back, so if you’re interested it’s probably worth a listen – I also wrote a brief summary of my findings here.) Getting outside investment is an interesting way to reduce Alphabet’s exposure to the risks associated with what are rightly called “Bets”, while also potentially allowing these businesses to move faster than they could with Alphabet cash alone, and move into new markets – Temasek is Singaporean, but invests heavily in China. I’m curious to see whether we’ll see this model applied to additional Other Bets, or whether it’s another unique facet of the Verily business which we won’t see repeated elsewhere.
The Apple-Qualcomm saga continues. Qualcomm was investigated by the Chinese authorities a couple of years back and although that investigation ended in 2015, Apple appears to be using it in much the same way as it is using the FTC’s action against Qualcomm in the US, as a basis for its own legal action. It’s still almost impossible for any outsider to know how much merit there is on each side of this argument, let alone how individual court systems might ultimately rule, but this fight just keeps getting uglier.
There are lots of pieces that come together in this announcement, though the actual details are still very vague, and no final decisions have been made. Firstly, there’s the pressure from President Trump during the campaign (repeated since in a gentler manner) for Apple to produce some of its hardware in the US. Then there’s the recent meeting between the SoftBank and Foxconn CEOs and Trump around bringing jobs to the US. And finally, the suggestion Apple might use Sharp (now owned by Foxconn to make OLED displays for the next iPhones). One scenario is that, as with the Mac Pro, Apple chooses a relatively low-volume, high margin product to manufacture in part in the US, with OLED screens from Sharp for a high-end iPhone 8 model one possibility. Apple has remained entirely silent on the question of manufacturing in the US, and of course doesn’t actually build its own devices anywhere, instead relying on Foxconn to do the assembly, so the ball here is somewhat in Foxconn’s court – without its support, Apple likely can’t do anything.
Hugo Barra is leaving his position as head of international at Xiaomi after 3.5 years – TechCrunch (Jan 23, 2017)
I attended Xiaomi’s press conference at CES earlier this month, and once again the company disappointed by not bringing more of its big products to the US. Although Hugo Barra has been in charge of Xiaomi’s international expansion for three and a half years, it has mostly expanded into other markets like India rather than major mature markets like the US or European countries. Ostensibly, Barra’s reasons for departing now are personal – he misses friends and family in the US, and wants to return there. But I wonder if he’s also been frustrated by Xiaomi’s lack of progress in pushing into some of those big markets. It’s impossible to know who’s been making the final decision on some of those moves – whether Barra or CEO Lei Jun – but not making it into the most high profile markets outside of China as head of international must feel like something of a failure. As with other recent high profile executive moves, it’s tempting to see this as a sign of broader troubles at Xiaomi, and things do seem to have been going poorly there recently, but this is so far something of an isolated case.
Qi Lu was very well respected at Microsoft and throughout the industry, and many were sad to see him step down from his role there due to health reasons a few months back. Now, he’s shown up at Baidu, the Chinese search engine, both to run much of the business but also apparently to spearhead a big push into AI. Given Google’s prominent role in pushing the boundaries of AI here in the US, it’s interesting to see its Chinese counterpart so far behind, and it makes sense that it wants to catch up. A single hire at the top (and one who will be very busy with other things) won’t get them there, but it can certainly demonstrate that Baidu is taking this initiative seriously, and help hire more of the best to assist in the work. The fact that he brings both significant US business and technology experience and Chinese nationality to bear on the role will also help bridge some of the gaps that might otherwise exist.
China Orders Registration of App Stores – NYTimes (Jan 14, 2017)
In and of itself, this new move by the Chinese government can be seen as relatively innocuous – the regulation is vague, and ostensibly motivated by policing the plethora of alternative app stores that exists in a market where the official Google Play store is unavailable. However, in the context of the recent request to remove the NY Times app from the App Store in China, this definitely has more sinister undertones. Having policed the web for years, China now appears to be trying to find ways to police the app stores as well, as a way to block access to content critical of the regime. This could end up getting very ugly for Apple in particular if it carries on.
Troubled LeEco lands 16.8 billion yuan lifeline after selling stakes in video, movie assets to Sunac China – South China Morning Post (Jan 13, 2017)
Despite its recent launch in the US and a strong presence at CES last week, most of the recent headlines about LeEco have been about its shaky finances rather than its products or services. It looks like it’s now solved at least its short term cash crunch by selling down some of its stakes in various subsidiaries, which should help fund its overseas expansion and particularly its aggressive entry to the US market. From my conversation with LeEco at CES, it appears the focus in the near term will be on expanding distribution channels and content relationships (with more of the latter to be announced very shortly), but until then the value proposition feels pretty thin, and without carrier partnerships all the retail distribution in the world won’t get it far in phones.
Xiaomi stops disclosing annual sales figures as CEO admits the company grew too fast – TechCrunch (Jan 12, 2017)
It’s been apparent for some time that Xiaomi’s early stellar rise was not sustainable, and in 2015 it had to revise its guidance for smartphone sales downward and even then missed it by 10 million. Its business is growing though, including hitting $1 billion in sales in India last year, a strengthening retail business, and good growth in “Internet services”, though those still make up a small minority of sales, for all the talk about Xiaomi as a services company. At this point, Xiaomi is far closer in its model to Amazon than to Google or even Apple in its model – a retail and e-commerce company which sells some of its own hardware and also has a growing services business. But it’s been missing its targets and there’s no clarity about profitability yet at this point. Lots more detail in the CEO letter.