Monday, September 6, 2010
Foxconn's Gou Cuts Long-Term Sales Growth Target
Source: Bloomberg By Tim Culpan and Frederik BalfourFoxconn Technology Group Chairman Terry Gou cut his long-term growth target for the world’s largest contract manufacturer of electronics by 50 percent as demand for Apple Inc. iPhones and iPads fails to offset slowing computer sales.
Gou, who founded the Taiwanese company in 1974, will tell managers that he’s lowering Foxconn’s annual sales growth target to 15 percent from the 30 percent fixture set for more than a decade, Taiwan’s richest billionaire said.
“How many companies have grown this big and still grow 30 percent?” Gou, 59, said in an interview at his office in Shenzhen, China on Sept. 4 for Bloomberg Businessweek’s next edition. “Fifteen percent is also big.”
Foxconn’s flagship unit, Hon Hai Precision Industry Co., fell in Taipei trading and JPMorgan Chase & Co. cut its rating on the stock, citing concerns over growth. The reduced target, like the spate of suicides that’s kept him in Shenzhen since May, may underscore the challenges of managing a $60 billion business that generates more sales than Apple or Dell Inc., and employs almost 1 million workers.
“I don’t think investors are ready to hear news of such a big cut in the growth target,” said Vincent Chen, who rates shares of Hon Hai “hold” at Yuanta Securities Co. in Taipei. “These problems, including lower market growth, are giving Gou the biggest challenge he’s ever faced.”
Underperforming Stock
Hon Hai dropped 2.7 percent, the most since Sept. 1, to close at NT$108.50 in Taipei. The stock’s fallen 20 percent this year, underperforming the island’s Taiex Index, after the deaths of at least 10 workers led Gou to raise wages and accelerate factory relocation plans in China. The stock’s almost tripled this decade, giving Hon Hai a larger market value than electronics companies such as Sony Corp. or Panasonic Corp.
Worldwide growth in shipments of computers, Foxconn’s main business, will slow to 12 percent in 2011 from 18 percent this year, according to estimates at Taipei-based Capital Securities Corp.
Gou, who’s run Foxconn since its founding, said he has a succession plan that may be announced in three years. He plans to keep his job until his 1-year-old daughter gets married, the chairman said.
Gou founded Hon Hai as a maker of plastic television knobs with $7,500. By March, his wealth had soared to $5.9 billion, making him Taiwan’s richest man, according to Forbes Magazine.
Bigger Than Apple, Dell
Gou said he expects sales to meet the 30 percent growth target this year as customers recover from the global recession. Revenue at Hon Hai Precision Industry Co., Taipei-based Foxconn’s flagship unit, will increase 39 percent to NT$2.72 trillion ($85 billion), according to the average of 18 analyst estimates compiled by Bloomberg.
Those sales would trump those of Gou’s customers. Analysts forecast $63 billion for Apple, $62 billion for computer-maker Dell and the $54 billion for mobile-phone producer Nokia Oyj, according to average estimates compiled by Bloomberg.
Gou is considering biotechnology companies as acquisition targets, though he’ll slow Foxconn’s pace of purchases, he said, declining to identify any company names. Foxconn is also planning to expand in industries such as nanotechnology and media content, he said.
Still, Foxconn plans to drive growth mainly through internal expansion after overpaying for some acquisitions, he said.
More Conservative
“If I merge or acquire, I will be more conservative in what I need and what I really get from it,” Gou said. “On one company, I spent too much money to acquire it, then realized my internal knowledge is better than their internal knowledge.”
Hon Hai has spent $3.1 billion in the past decade on acquisitions, the biggest being its 2006 purchase of Taipei- based camera maker Premier Image Technology Corp. for $1.2 billion in stock, according to data compiled by Bloomberg. Innolux Display Corp., Foxconn’s liquid-crystal display unit, this year bought Chi Mei Optoelectronics Corp. and TPO Displays Corp. to form the world’s third-largest LCD maker.
“Without acquisitions, it will be hard for them to grow,” said Calvin Huang, who rates Hon Hai “underperform” at Daiwa Securities Group Inc. in Taipei. “They have new businesses, but their contributions are still too small to drive much growth.”
Coping with Suicides
Gou said he’s been spending most of his time over the past three months coping with the worker suicides, which prompted Foxconn to announce a doubling of wages at his largest facilities and relocate factories to inland China near the hometowns of his migrant workforce.
Foxconn said last month it may hire as many as 400,000 workers, more than triple the combined workforces of Microsoft Corp. and Apple, and boost its number of employees to as high as 1.3 million.
Gou said he’s considering building a fully-automated factory in the U.S. as part of plans to expand production in the country and reduce Foxconn’s reliance on labor. The company, which currently assembles computer servers in Houston, Texas, will probably make components and finished products at factories in the U.S. within five years, he said.
"If I can have automation in the U.S., then ship to China, the cost-price would still be competitive,” Gou said.
China's Mobile Internet Users May Double in 5 Years, Lee Says
Source: BloombergChina’s mobile Internet users may more than double within five years as smartphones that can browse the Web and download music become more affordable, Lee Kai-fu, the former head of Google Inc.’s China division, said.
The number of people accessing the Internet on their mobile devices in China may grow to 800 million within three to five years, from about 300 million now, Lee said today in an interview at the Beijing headquarters of Innovation Works, the technology business incubator he set up after leaving Google.
Lee’s company is investing in a mobile-software maker and 11 other businesses in the country to benefit from booming demand for Web technology. Lenovo Group Ltd., China’s biggest maker of personal computers, expects products aimed at the mobile Internet market may comprise as much as 20 percent of Lenovo’s sales in five years, President Rory Read said in April.
“It’s beginning to really take off,” Lee, 48, said of the nation’s mobile Internet market. “Everyone is starting out, figuring out how things will go. That’s exactly the right time when we want to get engaged.”
As 83 percent of mobile Internet users in China are aged about 29 years or younger, they don’t have a lot of money and are very sensitive to handset prices, Lee said. Smartphones must be priced lower than 2,000 yuan ($295), or less than half the current cost of more than 4,000 yuan, to be affordable, he said.
The price of a smartphone running Google’s Android system is likely to drop to about 1,500 yuan this year and 750 yuan in 2011, making such devices affordable to more people, Lee said.
Innovation Works raised $115 million to invest in startups, and eight of the 12 companies the company has funded so far are in the mobile Internet business, Lee said. Innovation Works, which received funding from WI Harper Group and Foxconn International Holdings Ltd., invests between $15,000 and $2.5 million in new businesses and supports them by providing access to technology-industry expertise, according to Lee.
China's Mofcom To Regulate Internet Sales Of Foreign Enterprises
Source: China Tech NewsChina's Ministry of Commerce has issued a notice to regulate the sales activities of foreign-invested enterprises that are engaged in either Internet sales or vending machine sales.
According to the notice, foreign enterprises who want to operate Internet sales business should submit applications to the respective provincial commerce departments and the departments will examine and approve companies' licenses in accordance to the "Measures for the Administration on Foreign Investment in Commercial Fields" and related laws.
Foreign-invested enterprises who provide Internet services to other trading parties via their Internet platforms should apply for the licenses for the operating of telecommunication value-added business issued by the Ministry of Industry and Information Technology of China; and foreign-invested enterprises who are directly engaged in the sales of commodities via their Internet platforms should register at the telecom management departments.
The notice emphasized that when operating Internet sales and related services, foreign-invested enterprises should display their business licenses on the main pages of their websites or on the pages for the sales activities. If these enterprises are sellers of oil, crude oil, books, magazines, and medicines, they should also provide information and clear photos of the certificates for the operating of these businesses.
The notice also said that foreign-invested enterprises who are established as vending machine operators or who want to expand into the vending machine business should submit applications to the respective provincial commerce departments for approval.
Friday, September 3, 2010
Internet plays integral role in decision-making: Study
Source: By Brian McRoberts (China Daily)BEIJING - The Digital Influence Index is Fleishman-Hillard's annual global research platform for uncovering how the Internet is not only informing and connecting consumers, but the way in which it's driving decision-making.
This study measures several key aspects of consumers' use of the Internet, from media consumption patterns, to the degree of adoption of various digital behaviors, to involvement with online social networking.
In its second year, the study has expanded from France, Germany and the United Kingdom to include Canada, China, Japan and the United States. Together, these seven countries represent 48 percent of the global online population.
The online survey took place between December 2009 and January 2010. The data was quota sampled and weighted to be representative of the online populations of each country.
One of the most interesting findings that we got in the survey, is that although the Internet is by far the most important medium in the lives of consumers, companies continue to under-invest in their online marketing efforts.
The Internet has roughly twice the influence of the second strongest medium, television, and about 10 times the influence of print media.
Although companies have been increasing resources applied to web-based activities like social media, online advertising, developing web properties and search management, there is still a gap between the relative importance of different media and spending on the media mix. One example is in the area of advertising.
Globally, online advertising captures only 14 percent of the total advertising market, yet based on time spent online and influence of that time, this is far less than what could be expected.
The Digital Influence Index underscores the importance of that gap, showing that it is not just about the amount of time consumers spend on the Internet but about its influence on their perceptions, attitudes and behaviors.
This suggests a strong opportunity for companies to continue to rebalance their media mix to address an unquestionable shift in the media influence patterns of consumers worldwide.
Internet in China
Although the Internet is the most important medium in all countries, it plays an even more critical role in China, home to the world's largest and fastest-growing population of online consumers.
According to a 2009 Nielsen study, China now has the largest population of online consumers at 330 million, more than the entire population of the United States.
However, only 27 percent of China's total population is online, compared to around 60 percent in more mature markets, leaving significant room for growth.
Beyond the sheer size of this online population, Chinese Internet users are much heavier users of most Internet behaviors, such as researching, communicating or self-expression through using social media tools, than their counterparts in other countries.
They also are much more advanced in their use of the Internet across a wide range of activities and behaviors, from researching to using mobile capabilities.
This may be, in part, because China's market is still developing, with Internet access adopted by a minority of the population likely to be made up of more technically adept early adopters compared to more mature markets.
According to one source on Internet penetration (China Internet Network Information Center, 2010) Internet use in China went from less than one percent of the population to more than 28 percent in the 10 years since 2000.
This is the most rapid shift in communications and technology uptake in human history. Time will tell whether Chinese Internet users begin to resemble the more mature markets as more of its overall population comes online, or if this outsized heavy use of the Internet will remain a national characteristic or if the more mature markets come to resemble China.
What we also find in the survey, is that the Internet not only provide entertainment for users, but also plays an integral role in the decision-making process.
Users incorporate the medium into their decision-making process. Those decisions range from where to meet a friend for lunch, to what television to purchase, to how to invest in the stock market.
Internet users report that online resources not only allow them to quickly and easily compare options, but also to seek out expert and peer advice that enables them to act with greater confidence.
Search engines are critical to the online decision-making process and often act as the launching point for consumers' research.
While the type of source referenced depends upon the decision being made, search engines serve as the link between users and blogs, company web pages, government-sponsored sites or social networking tools.
Brian McRoberts is a senior vice president at Fleishman-Hillard with 15 years of experience in online business models, technology, branding and advertising.
China's Baidu Brings App Craze to Web
Source: Wall Street Journal by Loretta ChaoInternet-Search Giant Opens Service Hosting Games, Books and Software on Its Site, Beating Google to the Punch
BEIJING—Baidu Inc. unveiled a platform that lets users run applications through Baidu's website, a step that could help shape China's fledgling apps-store sector.
Users of the new service can run games, videos, electronic books and other applications on Baidu's site. The service, which opened for business Wednesday evening, offers software similar to that available through websites like Facebook or platforms like Apple Inc.'s App Store or the Android Market based on Google Inc.'s mobile operating system. But unlike those, Baidu's platform is accessible from any device or personal computer connected to the Web and it works with any Web browser, including Apple's Safari.
Software developers can get paid through user donations, advertising revenue shared with Baidu, or by charging users, with a 30% commission paid to Baidu.
The Box Computing Open Platform, as Baidu calls the service, represents one of Baidu's most ambitious undertakings since the company was created in 2000 and could help the Chinese company shake its image in some circles as a copycat. Baidu has been enormously successful at its core business, boasting a 70% share of Internet search revenue in China, and its share price has skyrocketed.
But critics say it has largely just adapted the ideas of Google and others to the Chinese market. Several other products Baidu has started—such as a consumer-to-consumer e-commerce platform, Youa—have failed to gain traction.
Baidu's new app service appears to have beaten some competitors to the punch. Google, which has the second largest share of China's Internet-search market despite having scaled back its operation in China this year, has said it plans to launch a browser-based app service called Chrome Web Store, in an attempt to provide an app-search service for PC users similar to what is available on mobile devices. But that isn't scheduled to go live until later this year. Apple declined to comment and Google couldn't immediately be reached.
David Wolf, chief executive of Wolf Group Asia, a Beijing-based marketing-strategy firm, said the new service is "quite clearly something that is new and unique and may be worth emulating in other markets." Baidu is "stepping out" and taking a chance with the product, he said.
Baidu Chief Executive Robin Li began pushing what he called "box computing" last year, saying the company should develop technology around the concept that all computing tasks—from Web search to starting other programs or even finding someone to date—should available from a search box like the one on Baidu's home page. Chinese media at the time criticized the vision for being vague and unoriginal.
Haoyu Shen, Baidu's senior vice president of business operations said the progress Baidu made in the past year in developing this platform "shows the validity of this concept," which initially "didn't make sense to people." Mr. Shen said, however, that it could take years for the service to generate significant revenue for the company.
Developers had mixed reactions to the platform, which so far has about 400 apps. Most of them are games, such as "Plants vs. Zombies" by Seattle-based PopCap Games Inc. Some e-books are available, and other partners include video services and a streaming radio station. Apple says its store offers more than 250,000 apps.
Though the market for games, online video and other applications is huge in China, people download the programs through a number of small independent app stores or buy them from electronics sellers. Pirated games are common. For mobile applications, Apple's App Store doesn't have a Chinese-language interface, while Google's Market isn't packaged with many Android phones available here. Baidu's platform lets developers promote their applications and brands to Baidu's huge user base in China and offers lower commission fees than other Chinese platforms.
The new platform "sounds very appealing" for third-party application developers, said Frank Yu, chief product officer at Kwestr, a Shanghai-based social-media-software start-up. A 30% commission "seems to be generous by China standards," he said. Other online games platforms in China, such as Tencent Holdings Ltd.'s social-networking site, have lots of users but demand an average of 40% to 50% of revenue generated from the games, developers said.
Developers said it was unclear, however, whether the Baidu platform will generate revenue in a market plagued with software piracy or whether users will find such a service useful.
Bill Bishop, a Beijing-based online-game investor in China, said the Baidu service could help smaller developers gain awareness among Chinese users but could provide few benefits for makers of more popular games. "At the end of the day, when people are searching, they know the name of the game. If you already know the game, do you need to play it on Baidu?" he said.
The Box Computing Open Platform already has run into a copyright challenge. James Gwertzman, Asia-Pacific vice president for PopCap, said "Plants vs. Zombies" first appeared on Baidu's platform yesterday without the PopCap's permission. "We found out through some press articles [that] the game was up there, but not officially our game," Mr. Gwertzman said. PopCap contacted Baidu, which took down the game. PopCap then agreed to provide an official trial version of the game with a link to PopCap's website, in hopes of generating traffic.
"Overall this is a positive thing," Mr. Gwertzman said. "We happily support any model that allows us to put our games in front of more users.…We expect to work with them further in the future."
A Baidu spokesman said the unauthorized version of "Plants vs. Zombies" was mistakenly provided by a partner that has licenses to other PopCap titles. He said Baidu would address the issue by trying to work directly with rights holders.
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