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  • Bloomberg

    Apple’s $44 Billion China Market Threatened by Trump WeChat Ban

    (Bloomberg) -- Apple Inc. spent years building China into a $44 billion growth driver. Then the U.S. president last week cast all that in doubt.IPhone loyalists across China are now reconsidering their attachment to the device after Donald Trump issued an executive order last week barring U.S. companies from doing business with WeChat, the super-app that has become integral to everyday life in the country. Scheduled to come into effect in roughly five weeks, the ban threatens to turn iPhones into expensive “electronic trash,” said Hong Kong resident Kenny Ou, who sees WeChat as one of the most essential software on his handset.On Wednesday, Tencent executives on a post-earnings conference call stressed they believed the ban applied only to WeChat in the U.S. and shouldn’t affect its Chinese cousin, known as Weixin. But they added that they themselves were still seeking clarity, and the sweeping language of Trump’s order means it could still spell trouble for Apple.The U.S. company has just come off a strong quarter in China, its most important international market and where it is facing intensifying competition from local Android rivals like Huawei Technologies Co. -- which, unlike Apple and its locked-down app stores, are free to either offer WeChat directly or allow their users access to download it themselves. The Cupertino company’s strategy of tapping first-time buyers and wooing back consumers with cheaper devices like the iPhone SE could be entirely derailed if it can’t offer WeChat and U.S.-China trade tensions continue to worsen.Tencent Holdings Ltd.’s flagship app connects a billion users globally and is used for everything from chatting with friends to shopping for movie and train tickets to paying restaurant and utility bills. While questions remain on how Trump’s orders will be implemented, any ban on the use of WeChat threatens to cut off a key communication link between China and the rest of the world and prevent U.S. companies like Starbucks Corp. and WalMart Inc. from reaching consumers in the world’s second-largest economy.If Apple was forced to remove the service from its global app stores, iPhone annual shipments will decline 25% to 30% while other hardware, including AirPods, iPad, Apple Watch and Mac computers, may fall 15%-25%, TF International Securities analyst Kuo Ming-chi estimated in a research note. Apple didn’t immediately respond to Bloomberg News’ requests for comment.A survey on the twitter-like Weibo service asking consumers to choose between WeChat and their iPhones has drawn more than 1.2 million responses so far, with roughly 95% of participants saying they would rather give up their devices. “The ban will force a lot of Chinese users to switch from Apple to other brands because WeChat is really important for us,” said Sky Ding, who works in fintech in Hong Kong and originally hails from Xi’an. “My family in China are all used to WeChat and all our communication is on the platform.”Read more: Apple Faces IPhone Sales Risk in China From Trump’s WeChat BanApple’s iPhones were first launched in China in 2009, two years after sales began in the U.S., and the company has shipped more than 210 million units in the country over the past five years, according to Bloomberg calculations based on IDC data. More than a fifth of all smartphone users in China used an iPhone as of June, second only to Huawei at 26%, according to researcher QuestMobile. The company has 42 stores in the country that also hosts most of the world’s iPhone manufacturing. And at its peak, Greater China accounted for 25% of Apple’s revenue though that share slipped to 17% in the last fiscal year, with sales in the region amounting to roughly $43.7 billion.Apple had been counting on the next generation of its flagship handset -- expected to be launched in October and the first in the series to feature 5G -- to woo potential customers like Vincent Han, a Shanghai-based commodities trader who had been planning to replace his Huawei handset with an iPhone. He’s since nixed those plans and is considering alternatives including Samsung Electronics Co.“I’m worried that WeChat will be banned on the iPhone. This will affect my work to a large extent, as 90% of my clients and colleagues communicate via WeChat,” said Han. “Still, even Samsung’s Android operating system is developed by Google and I’m concerned the Android platform will also bar WeChat.”Ready to fill the iPhone void will be a legion of high-spec, high-value 5G devices from local brands Xiaomi Corp., Oppo and Vivo as well as market leader Huawei. Xiaomi just announced the Mi 10 Ultra flagship, destined solely for China, and it has a full portfolio of devices to replace Apple’s range, including fitness-tracking watches, wireless earphones, tablets and laptops.Ou, an engineering student, is one of the millions of die-hard Apple fans in China who may need to make a difficult choice between his beloved iPhone and the ubiquitous app. “All my products are from Apple -- my Macbook, iPad, iPhone and even AirPods,” he said in an interview from his hometown of Shanghai. “Apple has created a robust linkage of their products and made me heavily reliant on their brand. It would be a tremendous disaster to my studies and work if such a ban was imposed.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Bloomberg

    Microsoft Surface Duo Phone Goes on Sale Starting at $1,399

    (Bloomberg) -- Microsoft Corp. begins taking orders for its dual-screen Surface device in the U.S. on Wednesday, an attempt to re-enter the mobile handset market with a product that blends the features of a tablet with those of a phone. The Android-powered Surface Duo starts at $1,399 and will be available Sept. 10, said Microsoft Chief Product Officer Panos Panay. The device will be sold on Microsoft.com as well as by AT&T Inc. and Best Buy Co. It is the thinnest Surface ever, with screens that unfold completely to serve as a phone or act like a book to provide more space for different apps.  The gadget represents Microsoft's return to the handset market following an ignominious retreat in 2016 after the company’s acquisition of Nokia’s handset unit crashed and burned in a costly writedown. It’s also the company’s first Surface device running Google’s Android operating system, which Windows Phone once sought to vanquish. Why Android? Panay told reporters it came down to the need for apps — Microsoft's previous efforts were largely doomed because of the lack of mobile developer support.“The product was built as the Microsoft you love and the Android you know,” Panay said. The gadget’s OLED displays measure 5.6 inches individually or 8.1 inches taken as a whole, with Microsoft promising “all-day battery life.” It’ll have either 128GB or 256GB of internal storage, 6GB of memory, a Snapdragon 855 processor from Qualcomm Inc., and will work on the wireless networks of Verizon Communications Inc., AT&T and T-Mobile US Inc.The U.S.-only release will disappoint international fans of the Courier concept device that Microsoft teased a decade ago — it’s the original “digital notebook” inspiration underpinning the Surface Duo and something that enthusiasts have been asking to see as a real product for a long time.Microsoft’s hinge-and-two-screen approach is less futuristic than devices from the likes of Samsung Electronics Co. with a single screen that folds in the middle.  To make it work, the Duo has 56 cables connecting the two screens with the batteries and mainboard split between the two halves.The device has a 360-degree hinge and can be used in vertical or horizontal orientation. Different apps can run on each screen or an app can be spread across both screens for things like gaming or a larger view. Users can create app groups — a blend of two apps that open with one click. Microsoft Chief Executive Officer Satya Nadella has used this to combine the Kindle app and Microsoft’s OneNote so he can take notes while reading.  To watch video, you can open the hinge partially and turn one side of the Duo into a stand.“I’m not trying to reinvent the phone,” Panay said. “But I do believe this is a better way to get things done, a better way to create, and a better way to connect on a mobile device.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Trump’s WeChat Assault Endangers $280 Billion Tencent Rally
    Bloomberg

    Trump’s WeChat Assault Endangers $280 Billion Tencent Rally

    (Bloomberg) -- Donald Trump’s WeChat ban targets a celebrated Chinese innovation at the heart of the world’s largest mobile gaming and social media empire, threatening one of the more eye-catching stock rallies of 2020.It’s hard to overstate WeChat’s importance to Tencent Holdings Ltd. It’s the means through which Tencent introduces a billion people to games and other online content, funneling trillions of dollars in annual payments to brands from Apple Inc. to Walmart Inc. WeChat’s reach underpinned Tencent’s $280 billion gain in market value since a March 18 Covid-19 trough -- equivalent to one Samsung Electronics Co. and the fifth biggest dollar-gain on the planet over that period.Trump single-handedly stopped that rally cold. The U.S. President signed an executive order last week to ban U.S. entities from dealing with WeChat -- along with TikTok, ByteDance Ltd.’s viral video platform -- in 45 days. Confusion and uncertainty reigned as investors grappled with the vague edict. Tencent shed $66 billion over two days before it partly bounced back.Executives unfurling earnings Wednesday will seek to reassure the market it can withstand a White House campaign that’s already ensnared Huawei Technologies Co. and dozens of Chinese up-and-comers. A U.S. official clarified the sanction involves only the app and not its owner. But the sweeping language of Trump’s order -- which bars “transactions” with the Chinese company -- leaves the door open for the administration to extend it well beyond WeChat, dubbed Weixin locally.“It’s really a gut punch to those companies when you look at their global expansion plans,” Wedbush analyst Daniel Ives told Bloomberg Television. Tencent’s stock stood largely unchanged ahead of the results this afternoon.Why Tencent and WeChat Are Such a Big Deal in China: QuickTakeThe WeChat operator is doing well in the short run: analysts on average foresee a 27% rise in June-quarter revenue and a 13% spike in net income. But investors appear divided over the fate of China’s second largest corporation. Options on the company -- contracts that let the holder buy or sell stock at a pre-agreed price -- suggest traders are bracing for a 5.7% swing in Tencent’s shares after it unveils earnings, or roughly four times the usual band.The three most popular options as of Wednesday included a bullish contract that projected a roughly 16% rise to HK$600 by September’s end and a bearish one that suggested a 20% plunge, Bloomberg data showed. But the put-to-call ratio, or the number of traded sell options divided by the number of buy contracts, is near its lowest since May, suggesting more upbeat than bearish investors still.The widening gulf reflects the central role WeChat plays in Tencent’s empire, and the outsized fallout now that it’s in Trump’s cross-hairs. Started in 2011 as a WhatsApp clone, the service has become deeply ingrained in Chinese life, indispensable to the hordes who use it to chat, shop, watch videos, play games, flirt, order food and taxis. It pioneered the all-in-one or super-app concept by embedding lite apps or mini programs -- a model emulated by Alibaba Group Holding Ltd. as well as Facebook Inc. Its success sprang in part from the fact that China banned global services such as WhatsApp, Twitter and Instagram, allowing WeChat and a host of other Chinese equivalents to flourish in an alternate internet realm.Today, if the Chinese company is a mashup of Facebook, Netflix, WhatsApp and Spotify, then WeChat is the smartphone and payments backbone that ties them all together.“The impact on valuation would be more severe if the implementation included banning all transactions of Chinese businesses of U.S. companies with Tencent as a whole, as this would also hurt Weixin, advertising in mainland China by U.S. affiliated firms, the international cloud business, the international gaming business, and so on,” Morningstar analyst Chelsey Tam wrote this week.At a minimum, Trump’s order likely gets WeChat removed from Apple and Google’s mobile stores, which in turn means suspending updates or even blacking out a service vital to communications on the factory floor, in households and the boardroom. And if American consumer giants like Starbucks Corp. and Walmart are prevented from doing business with WeChat in China, Tencent may also take a blow to advertising and e-commerce sales.But the ban has wider implications. Even if the executive order doesn’t cover WeChat China, it could hamstring Tencent in other ways. Take Tencent’s $15 billion cloud services and fintech division, a major driver of growth over past years. If American firms can’t sell servers to support WeChat, that effectively means they can’t sell to Tencent itself unless the messaging service can be completely ring-fenced. Secretary of State Michael Pompeo has already urged American companies to cut ties with Chinese cloud providers including Tencent and Alibaba, part of a “clean internet” campaign.Read more: Trump Ban on Top Messaging App Risks Snarling Global BusinessThen there’s Tencent’s cash cow. Gamers the world over were among the fastest and loudest opponents of the action, going online to campaign to save titles like PUBG Mobile and Call of Duty Mobile. Tencent has some $22 billion of investments in U.S. gaming assets and companies from Activision Blizzard Inc. to Fortnite maker Epic Games Inc. and League of Legends developer Riot Games Inc.What Bloomberg Intelligence SaysThe spilling over of U.S.-China tension into the software realm, marked by President Donald Trump’s executive orders against Tencent and ByteDance, could increase risks for global video-game makers if business operations are forced to decouple. Tencent has at least $22 billion of gaming investments in the U.S. that, if bans widen, may face forced divestment similar to ByteDance’s TikTok, while Activision Blizzard risks losing 10-20% of Blizzard revenue generated in China through its partnership with NetEase.\- Vey-Sern Ling and Matthew Kanterman, analystsClick here for the research.Tencent in recent years has searched for ways to extend its dominance of China’s social media and gaming scenes internationally, with mixed success. Its smaller global exposure now becomes an edge over upstart ByteDance, whose TikTok is the first truly successful Chinese-made internet service.Now it’s turning inward faster than before. On Monday, Tencent kicked off a deal to merge game-streaming platforms DouYu International Holdings Ltd. and Huya Inc. into a $10 billion local leader. Last month, it offered to buy out and take private domestic search engine Sogou Inc.But Beijing’s own moves could complicate the matter. China has threatened to retaliate against what it perceives as rising U.S. aggression, but any attempt to undercut American operations in China could hurt Tencent and potentially complicate matters for non-U.S. players.“Uncertainties still exist for Tencent and other Chinese internet companies with business in the U.S., and Chinese pure-plays will be perceived as safer by investors,” Bernstein analysts including David Dai wrote in a report.(Updates with Tencent’s shares from the fifth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

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