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PUBLISHED : Tuesday, 25 September, 2012, 10:18am
UPDATED : Tuesday, 25 September, 2012, 10:18am

Huawei's slowing growth, Google-Hisense tie-Up

BIO

Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. He currently lives in Shanghai where he teaches financial journalism at Fudan University. He writes daily on his blog, Young’s China Business Blog (www.youngchinabiz.com), commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also author of a new book about the media in China, “The Party Line: How the Media Dictates Public Opinion in Modern China.”
 

A couple of items from the consumer electronics space are worth looking at today, including one that shows Huawei's consumer unit forecasting surprisingly slow growth while electronics giant Hisense (Shanghai: 600060) is cementing an interesting TV tie-up with Google (Nasdaq: GOOG). Both of these news bits highlight China's growing prowess as a consumer electronics maker, as the country rapidly rises to challenge traditional powerhouses like Japan, South Korea and Taiwan with products that can compete globally not only in price but also in quality.

Let's look at the Google-Hisense tie-up first, as that's the one that looks the most intriguing to me. Domestic media are reporting that Hisense, a top Chinese home appliance maker, is working with Google to develop a TV product for the global market that could be released in the next few months. The two sides have been working on the project for most of this year since signing a letter of intent in late 2011, and Hisense now has R&D centres devoted to the project in its hometown of Qingdao as well as in Canada and the US.

The two sides have already showed a set-top box for the new smart TV at a trade show in Germany last month, and the new TV product itself should be launched soon, the reports say. This particular foray seems to be part of Google's broader decision to become more involved in the consumer electronics hardware business, as reflected by its recent purchase of Motorola's handset unit. Such a strategy would make Google more like Apple (Nasdaq: AAPL), which has found huge success making devices like its popular iPhone smartphones and iPad table computers, and which is reportedly developing its own TV product.

Google's choice of Hisense is an interesting one, as the Chinese company enjoys a strong reputation at home but is largely unknown overseas. In choosing Hisense, Google is taking a gamble that the Chinese company can deliver a quality product that will appeal to finicky global consumers who typically demand very high quality out of their high-tech gadgets in new areas like smart TV. I'm a bit sceptical that Hisense can deliver that kind of device, but will hold back from passing judgement until the two companies make their official product launch, which perhaps could come at the upcoming CES consumer electronics show in Las Vegas in January.

Meantime, other media are reporting that Huawei expects its consumer electronics business to grow 30 per cent next year, a figure that looks surprisingly low to me considering that Huawei's emphasis on cellphones and other consumer products is relatively recent. The reports cite a Huawei executive saying that within its consumer product segment, smartphone sales should grow more quickly by more than 40 per cent.

The 30 per cent broader growth rate would be slight decline from forecast growth for the consumer products division this year, though it would still be well ahead of the 12 per cent growth in overall revenue the company posted in 2011 as business for its traditional networking equipment unit slowed.

The fact that its consumer product growth is just 30 per cent may be a good sign since it means Huawei is taking a more cautious approach to the business than crosstown rival ZTE (0763.HK; Shenzhen: 000063), which is posting much higher numbers as it sacrifices profits to expand its smartphone business. Still, it does seem like the days of big growth for Huawei may be firmly in the past now, with the company unlikely to post overall revenue growth of much more than 20 per cent anytime soon.

Bottom line: Hisense's new Google smart TV could have a difficult time winning over consumers, while Huawei's latest sales forecast indicates its overall growth is likely to stay below 20 per cent.

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