Narrative: Chinese Expansion
Each narrative page (like this) has a page describing and evaluating the narrative, followed by all the posts on the site tagged with that narrative. Scroll down beyond the introduction to see the posts.
Huawei to Create Cloud Business Unit, US Remains a Secondary Focus – Mobile World Live (Apr 11, 2017)
Huawei is holding its annual analyst summit in China this week, at which it offers an update on the different parts of its business. Two notable items are mentioned in this summary of the first day presentation by the CEO. Firstly, the company is creating a cloud business unit, which will sit alongside existing carrier, consumer (device), and enterprise business units. That’s a sign of the growing commitment of the company to the cloud, but also of the close ties between network equipment (and the telecoms operators who deploy it) and the cloud services which run over it. Separating cloud in this way is a public signal to operators that Huawei wants to provide more than just the guts of cloud services and wants to establish more of a partnership relationship, something which may be challenging, especially given its home base of China, which has already created issues in the US and elsewhere for its network business. Secondly, the CEO stated that (partly for the reasons I just mentioned) the US isn’t a focus for the network business, and even for the devices business it’s not a major focus, as Huawei continues to struggle to break into the mainstream here with its smartphones. Lastly, though there was strong growth in parts of Huawei’s business, the CEO didn’t address the lack of margin expansion, something which was reported on previously and was likely due to aggressive growth of the smartphone business at the expense of margins in 2016.
LeEco Is Said to Miss U.S. Sales Forecasts, Plan More Job Cuts – Bloomberg (Apr 10, 2017)
Here’s our second LeEco story of the day, both fairly momentous (the first was news that the Vizio acquisition had fallen through). This one fits with the recent narrative of financial troubles at LeEco, and if the numbers in here are right, then things are indeed going very badly, with revenue of $15 million versus a target of $100 million in 2016 and layoffs of around a third of the US employee base planned. I’ve been skeptical of LeEco’s strategy from the beginning, and have only become more so as we’ve seen that strategy play out in the shadow of the financial troubles of the parent company. More broadly, LeEco’s struggles in the US demonstrate how different the US and China still are as markets, and how hard it is for companies to go either way across that chasm. No big Chinese company has yet been successful in the US, and Apple remains something of an exception as a US company that has done well long-term in China. LeEco was up against this from the beginning and its focus on an ecosystem play was always going to struggle without a big known brand like Vizio at the center of it here in the US.
via Bloomberg
LeEco’s Acquisition of Vizio Officially Called Off – Variety (Apr 10, 2017)
There have been several signs that this acquisition wasn’t going smoothly, starting late last year when the companies said it wouldn’t close until 2017, pushing back the original close date, and continuing recently. The official reason for the collapse of the deal is regulatory headwinds, and supposedly tighter restrictions on getting Chinese capital out of the country, though of course LeEco has recently had a tough time getting money out of China to pay salaries in the US too, and that had nothing to do with regulatory barriers, so it’s possible that the real reason is some combination of factors. At any rate, what was to have been by far LeEco’s most prominent product and brand here in the US now won’t be, and it’ll have to fall back on its other, much less well known, products instead, giving it even more of an uphill climb in penetrating the US market.
via Variety
Troubled Chinese Giant LeEco Said to Delay Paying U.S. Employees – Bloomberg (Apr 4, 2017)
This is yet another sign that LeEco may be struggling financially because of an overly aggressive expansion into the US and into new product categories over the past year. It’s apparently struggling to meet payroll on time, and has also been struggling to close its acquisition of Vizio. It’s still somewhat baffling to me that LeEco pursued such an aggressive strategy in the US, because it’s meant not only stretching its tight finances even tighter, but also launching with quite a different set of assets from those that made it successful in China.
via Bloomberg
Xiaomi Billionaire CEO Is Doubling Smartphone Bet on India – Bloomberg (Mar 31, 2017)
The first part of this article gives too much credence to Xiaomi’s CEO’s projections about its future growth, taking them as given even though Xiaomi has struggled to meet its targets for smartphone shipments and growth for the last several years. But the rest of the article is interesting for what it says about where Xiaomi’s focus will be geographically going forward. Importantly, whereas one of the biggest questions about Xiaomi in recent years has been when it would come to the US, it seems to be moving in the opposite direction, doubling down on emerging markets like India rather than pushing into more mature markets. That will limit both its overall addressable market and the average selling price of its phones, given the disposable incomes in those markets and its product focus there, so Xiaomi’s future certainly won’t look very much like the one it projected a number of years ago, as a premium Android-based alternative to the iPhone.
via Bloomberg
Behind the Decline at China’s Tech Giant Baidu — The Information (Mar 29, 2017)
This is a fascinating piece, and well worth a read if you’re interested in the Chinese tech market. It’s a market I follow less closely, but I was struck by Baidu’s recent decline in fortunes and Alibaba’s rapid rise in the ad business when I was doing research for a recent piece on global ad revenue leaders. Baidu has always been referred to as the Chinese Google, and although that’s a horrible oversimplification, it’s hard to avoid the sense in reading this article that part of its trouble stems from pursuing many of the same areas and strategies as Google but with less success. Even the resentment among the successful search advertising employees of higher profile but non revenue generating businesses is reminiscent of the situation at Alphabet, though the latter has been reining in some of its excesses lately. Even outside the Chinese, context, though, this is a good cautionary tale on how quickly seemingly indomitable Internet companies can see their fortunes turn south.
via The Information
China’s Tencent Buys 5% Stake in Tesla – WSJ (Mar 28, 2017)
Tencent has been one of the most active Chinese investors in the US tech industry, and here’s another investment. It already has stakes in both Uber and Lyft, and although Baidu has been making bigger direct investments in autonomous driving in the US, Tencent’s indirect investments in transportation in the US are growing. This is a nice vote of confidence in Tesla at a time when it’s trying to raise money to fund the Model 3 manufacturing ramp, and it also gives Tencent decent exposure to what has been a nice growth stock so far this year.
via WSJ
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
Secretive Billionaire Reveals How He Toppled Apple in China – Bloomberg (Mar 20, 2017)
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.
via Bloomberg