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.
Didi has opened a self-driving lab in the U.S. with famed Jeep hacker Charlie Miller – Recode (Mar 8, 2017)
This seems like a smart move – even though there are lots of talented engineers in China, the nexus for development of autonomous driving today has to be either Silicon Valley or Detroit, so putting a base of operations in the former makes a lot of sense. There’s no evidence here that Didi is otherwise expanding into the US (after all, its new partner Uber is dominant here and that likely wouldn’t go down well), but that’s not to say Didi won’t try to hire from the other companies in the area. It’s already hired Charlie Miller, who came from Uber itself and was best known for having hacked a connected Jeep while it was driving a while back. The competitive intensity in this market, especially over hiring, is only likely to ramp up over time and things will get increasingly nasty as a result (and we’ve already got two lawsuits underway).
via Recode
ZTE to Pay $892 Million to U.S., Plead Guilty in Iran Sanctions Probe – WSJ (Mar 8, 2017)
This case has been going on for a long time, and is another example of the tensions between US and Chinese tech companies, in the wireless space in particular. Though this case has nothing to do with the concerns about back doors in wireless networks I mentioned in the context of Huawei yesterday, it highlights another concern: that Chinese tech companies have often been willing to sell technology to some of the world’s repressive regimes, and have often had to cover their tracks in order to do so. ZTE got caught doing this in Iran a few years back and the US has taken action over breach of sanctions, as ZTE was incorporating US components. The worst case scenario here was that ZTE would be banned from exporting any US technology to use in its own products, which would have included Qualcomm chips apart from other things and would likely have been devastating. It avoided that outcome, but still has to pay a fine equivalent to its last two years of profits, which is pretty bad by itself. None of this is likely to make US wireless carriers more likely to place Chinese smartphones on their premium shelf space.
via WSJ
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.
via PCMag
Lenovo Reports December 2016 Quarter Results (Feb 16, 2017)
Lenovo continues to be a business in three quite different parts: in PCs, it’s the world’s largest vendor, grew slightly year on year, and is profitable; while in data centers and mobile it’s shrinking fast and unprofitable. Lenovo’s mobile business in China has collapsed by about 90% in the past two years, to the point that Lenovo didn’t even report China shipments at all this quarter, while it’s likely held up a little better outside of China, though it’s very focused on low-end shipments. Lenovo basically focused its whole earnings presentation on the PC business, with much less detail than usual on mobile, and the usual short shrift for data centers. This was a business that looked really good a couple of years ago, but looks much less so now. Another cautionary tale about the challenge of today’s smartphone market, especially for Android vendors, but also about the dangers of expanding too quickly through acquisitions.
via Lenovo
Xiaomi To Build Retail Stores and Smartphone Chips – Bloomberg / WSJ (Feb 10, 2017)
There’s a certain irony in a company which was a pioneer in its use of online retail falling back on brick and mortar stores as a way to shore up its business, but that’s what Xiaomi appears to be doing. It apparently wants to build 1000 stores in the next three years – roughly twice as many as Apple has globally, and 25 times as many as Apple has in China, by way of context. That’s a huge investment at a time when Xiaomi seems to be struggling, but physical retail is a good fit for the ecosystem of devices Xiaomi sells including both its own and its ecosystem devices for the home. Building its own chips is another big investment, and one that will likely take years to pay off – though it might establish some independence from current suppliers Qualcomm and MediaTek in the short term, the quality likely won’t be there from day one, so it’ll be interesting to see which of Xiaomi’s devices run its own chips – I’m guessing it’ll start by replacing MediaTek’s and work up from there. But it takes years to get really good in smartphone chips, and without an acquisition of existing talent here, I’m skeptical Xiaomi will do well anytime soon. Though Huawei is the local exemplar of this strategy, Apple and Samsung are still the gold standard for the make-your-own-chips strategy, and they’ve both been at it for years.
via Bloomberg (retail) and WSJ (chips)
NetEase Offers Google a Way Back to China — The Information (Feb 6, 2017)
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
Facebook Is Trying Everything to Re-Enter China—and It’s Not Working – WSJ (Jan 30, 2017)
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).
via WSJ
In Move to Facebook, Barra Leaves Unfinished Expansion at Xiaomi – Bloomberg (Jan 30, 2017)
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.
via Bloomberg
China Smartphone Shipments Reached an All-Time High in 2016 – Counterpoint (Jan 27, 2017)
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.
via Counterpoint
Alibaba Affiliate Ant Financial in Deal to Buy MoneyGram International – WSJ (Jan 26, 2017)
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.
via WSJ