Inside China Tech: Unfolding dramas with TikTok, Huawei
- TikTok CEO’s resignation and expectation of a ‘resolution’ for its US situation may fuel further speculation on which American tech giant could land a deal
- Huawei had expected to sell up to 130 million 5G smartphones next year but that target may drop by 75 per cent to 30 to 35 million, according to Isaiah Research
More TikTok troubles
The move comes amid the Trump administration’s pressure on Beijing-based owner ByteDance to divest the US operation of its popular short video service.
“As the political environment has sharply changed, I have done significant reflection on what the corporate structural changes will require, and what it means for the global role I signed up for,” said Mayer in an internal note to employees shared with SCMP reporter Coco Feng by a TikTok spokesman.
“Against this backdrop, and as we expect to reach a resolution very soon, it is with a heavy heart that I wanted to let you all know that I have decided to leave the company.”
06:35
US demands for TikTok may escalate decoupling and hurt businesses, says China expert
An executive order signed by US President Donald Trump on August 14 directed ByteDance to divest its TikTok operation in the US within 90 days. On Monday, ByteDance filed a lawsuit in federal court over an executive order signed on August 6, which sought to ban transactions with TikTok owner ByteDance in the interest of national security.
Vanessa Pappas, general manager for TikTok’s North America, Australia and New Zealand operations, has been named as interim head of TikTok. Pappas previously served as a strategic adviser to ByteDance, following a nearly four-year stint as global head for creative insights at YouTube.
Mayer’s resignation and expectation of a “resolution” for TikTok’s situation in the US may fuel further speculation on which American tech giant could land a deal with ByteDance.
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Netflix is the latest company to be linked to the sale of TikTok’s US business. Microsoft has since teamed up with Walmart in its bid while Oracle has also held talks with ByteDance on a deal.
In a letter to TikTok employees after Mayer’s decision was announced, ByteDance CEO Zhang Yiming said: “I want to thank Kevin, who joined us just as we were entering arguably our most challenging moment, in India and the US in particular. It is never easy to come into a leadership position in a company moving as quickly as we are, and the circumstances following his arrival made it all the more complex.”
He added: “I want to let everyone know that we are moving quickly to find resolutions to the issues that we face globally, particularly in the US and India. I cannot get into details at this point, but I can assure you that we are developing solutions that will be in the interest of users, creators, partners, and employees.”
03:07
Stop offering ‘untrusted’ Chinese apps like TikTok and WeChat, Washington urges US tech companies
Mayer, previously The Walt Disney Company’s top streaming executive, left the US entertainment and theme parks giant in May to become TikTok’s chief executive in June this year.
His move came just weeks after TikTok, combined with its Chinese version Douyin, reached the milestone of more than 2 billion downloads, according to analytics firm Sensor Tower.
Mayer, however, had to deal with problems related to geopolitical tensions – and not just in the US. In June, TikTok and 58 other Chinese-owned apps were banned by New Delhi over national security and privacy concerns, weeks after a deadly Himalayan border clash between China and India.
India was TikTok’s largest market, contributing 27.6 per cent to its 596 million downloads in the first half of this year. The US became the top market for TikTok after that ban, according to Sensor Tower.
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Checkmate for Huawei?
The target of crippling US tech sanctions, the Shenzhen-based company has been on the ropes for some time but was able to fight back, even claiming the No 1 spot in smartphones in the second quarter.
But with the latest move by Washington to tighten its grip over Huawei's access to US core tech like semiconductors, the company is literally facing a life or death situation.
“The US right now seems to be looking to kill Huawei [to] teach China a lesson,” said Stewart Randall, head of electronics and embedded software at Shanghai-based consultancy Intralink.
So far Beijing has not retaliated with anything other than fiery rhetoric, despite saying 15 months ago it would create an “unreliable entity list” of US companies operating in China.
“Retaliation from China isn’t a scenario we see playing out,” said Kenny Liew, telecoms analyst at Fitch Solutions “China still derives a lot of manufacturing value from US OEMs like Apple, and Chinese action will likely motivate the shift of production and assembly lines out of the country.”
For the next two months Beijing is likely to bide its time until the US presidential election, although analysts say a Biden win over Trump will not necessarily provide relief for Huawei.
“Leaner times certainly lie ahead for Huawei, but an enforced rationalisation and refocusing could make Huawei stronger in the long term,” said Liew.
Huawei had expected to sell up to 130 million 5G smartphones next year but that target may drop by 75 per cent to 30 to 35 million, according to Taiwan-based Isaiah Research.
Huawei’s inventory of 4G/5G smartphone chipsets will drop to around 50 million by the end of this year but that stockpile is likely to run out by the first quarter of next year, said Isaiah chief executive Eric Tseng.
Huawei then enters uncharted territory, say analysts. “It will likely have to reorganise, retrench and scale down operations to remain profitable,” said Liew.
A Shanghai-based investor compared Huawei’s situation to that of a pawn in a larger fight between the world's largest economies.
“China has to compromise because now it cannot defeat the US in the chip industry,” said the investor, who requested anonymity due to the sensitive topic. “The semiconductor industrial supply chain cannot be localised in China any time soon.”
Beijing’s reluctance to retaliate on behalf of Huawei comes amid a shift in strategy from a tit-for-tat confrontation with Washington to an effort to prevent bilateral relations collapsing.
“The current problem faced by Huawei cannot be solved by itself as a company,” said Szeho Ng, managing director of research at China Renaissance Securities. “It depends on diplomatic policies between the US and China.”
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A Biden Administration could opt for a subtle change in tone, focusing more on China’s human rights record, whereas Trump’s attention has been more directed at commerce and trade.
“I don't think Biden will roll everything back [if he wins], it will look bad for him. China isn't popular in the US right now,” said Randall. However, a new administration “could possibly grant more licences to US firms to sell products to Huawei”.
Xiaomi bounces back
“We see huge growth opportunities in the coming years in the overseas markets,” said Xiaomi president Wang Xiang in a conference call with analysts on Wednesday. “We will keep a close eye on geopolitical developments, but will stay focused on implementing our strategies.”
He indicated that Xiaomi’s overseas businesses have bounced back to pre-pandemic levels and that smartphone sales in India have resumed to about 72 per cent of their level before the Covid-19 outbreak.
The Beijing-based company reported a 129.8 per cent jump in second-quarter net profit to 4.5 billion yuan (US$651 million). The better-than-expected profit primarily came on the back of a gain made from the disposal of an investee company and a 21.8 per cent decrease in income tax expenses.
Revenue rose 3.1 per cent to 53.5 billion yuan from 51.9 billion yuan a year earlier. The company saw a higher proportion of sales generated by its mid- to high-end smartphones, increased demand for its Internet of Things and lifestyle products, solid growth from its internet services business, and improved overall turnover in its overseas markets.
Hong Kong-listed Xiaomi’s latest quarterly results showed the company’s resilience, as it continued to expand amid disruptions caused by the Covid-19 pandemic, macroeconomic uncertainties and geopolitical tensions. The recent border conflict between India and China has resulted in calls for a boycott of Chinese goods in the world’s second most-populous economy.
Research firms Counterpoint, IDC and Canalys each ranked Xiaomi as the world’s fourth-largest smartphone vendor in the second quarter, with a global market share of around 10 per cent, behind Huawei, Samsung and Apple.
TikTok avoids political storms in booming Southeast Asia as US woes mount
Xiaomi has rapidly developed over the past decade from a little-known smartphone start-up founded by tech entrepreneur Lei Jun into a diversified smart devices and internet services company, doing business in more than 90 countries and regions.
Lei, who serves as Xiaomi’s chairman and chief executive, has said that smartphones will remain as the cornerstone of the company’s business, while building up its so-called artificial intelligence of things (AIoT) platform.
The number of connected internet of things devices – excluding smartphones and laptop computers – on its platform already reached 271 million units, up 38 per cent from a year ago, as of June 30, according to Xiaomi’s latest quarterly financial results.
Xiaomi has committed more than 10 billion yuan in its research and development this year, which will cover a wide range of consumer electronics products and efforts to design its own semiconductors.
Despite its solid quarterly earnings, Xiaomi reported a 40.4 per cent increase in selling and marketing expenses last quarter, primarily because of higher promotion and advertising spending for its 5G and premium smartphones.
