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The Cheap iPhone Challenge in China (CHL, AAPL, CHU, CHA, S, VZ, VOD, T)

Administrator — Fri, 16 Sep 2011 12:58:57 +0000

The chairman of China Mobile Ltd. (NYSE: CHL) has said that the world’s largest mobile carrier, with more than 610 million subscribers, does not have a timetable to begin offering the iPhone from Apple Inc. (NASDAQ: AAPL) to its customers. At the same time, he did say that he hoped Apple will produce a new LTE-compatible phone and that China Mobile has already received a “positive answer” on that issue from Apple. Then why is China Mobile still hoping for a new iPhone?

Currently the only Chinese carrier for the iPhone is China Unicom (Hong Kong) Ltd. (NYSE: CHU), the second largest of the big three carriers, with about 155 million subscribers. China Telecom Corp. (NYSE: CHA) is the smallest of China’s large carriers and has been been in talks with Apple to produce a cheaper version of the iPhone for the Chinese market.

Whichever company gets the nod from Apple, it is very likely that the iPhone will be the company’s 3G model, not the 4G-LTE model that Apple is expected to introduce with its next iteration of the phone, the iPhone 5. China Telecom uses the CDMA network, similar to that of Verizon Wireless and Sprint Nextel Corp. (NYSE: S). Verizon Wireless is joint venture between Verizon Communications Inc. (NYSE: VZ) and Vodafone plc (NASDAQ: VOD).

China Mobile uses a home-grown version of CDMA known as TD-SCDMA, which is only available in China. China Unicom uses GSM technology, similar to AT&T (NYSE: T), and that is probably the reason the company got Apple’s first contract in China.

Apple has been resisting China Mobile’s efforts to get a version of the iPhone for its network. The cost of developing the iPhone for a network technology that is expected to give way to the faster 4G-LTE network probably isn’t worth the investment at this point. China Mobile is expected to begin rolling out its 4G-LTE network next year.

The request/requirement for a cheaper version of the iPhone is probably a result of China Unicom’s poor earnings report for its first-half of 2011. The country is moving toward adoption of 3G networks where the iPhone 4 is a strong contender. But the large subsidies that Apple demands (and gets) put a lot of pressure on China Unicom’s profitability. First-half profits were down more than -9% year-over-year.

Apple still hasn’t confirmed that the iPhone 5 will operate at 4G-LTE speeds. The company is wary of the reduced battery life that is a side-effect of the higher speed networks. iPhone users have become accustomed to eight hours or so of battery life, and cutting back on that may lead to dissatisfied customers, not something that Apple is used to.

Interestingly China Mobile currently supports about 8.5 million iPhone users on its 2G network. These are users who got their hands on unlocked versions of earlier models of the iPhone.

Will Apple release an 4G-LTE compatible iPhone? Of course. The issue is when. And for China Mobile the issue is will Apple release interim versions of the iPhone that are compatible with the company’s network. The answer to that is probably not, mainly because Apple probably stands to get a bigger share of the Chinese market by putting out a cheaper phone rather than a one-off phone. Besides, China Unicom’s experience indicates that Chinese versions of the iPhone may have to be sold at lower prices than Apple is used to.

If Apple succumbs to the pricing pressure and makes a cheaper iPhone for China, other carriers in other countries will demand the same phone. Can Apple reasonably deny that request? Not unless a future version of the iPhone is worlds better than anything else on the market.

The negotiations between Apple and the Chinese carriers are a precursor to negotiations Apple will face with other carriers around the world. New CEO Tim Cook faces a big decision here. And history may not provide much of a guide.

Paul Ausick

Filed under: ADR, China, Consumer Electronics, Telecom, Wireless Tagged: AAPL, CHA, CHL, CHU, S, T, VOD, VZ

China’s Mobile Phone Operators in Trouble (CHL, CHU, CHA, T, S, DTEGY, VZ, VOD)

247wallst — Wed, 01 Jun 2011 14:50:17 +0000

China’s three largest mobile phone operators are all being investigated for corruption by the Chinese Communist Party’s Central Commission for Discipline Inspection. So far, at least three managers have been forced to turn in their passports and more than 60 people, including some government officials are under investigation. The investigations are another reminder of the pitfalls awaiting the unwary investor in Chinese stocks.

The country’s largest mobile carrier, China Mobile Ltd. (NYSE: CHL) claims more than 606 million subscribers. The second largest carrier, China Unicom (Hong Kong) Ltd. (NYSE: CHU) claims 177 million subscribers and China Telecom Corp. Ltd. (NYSE: CHA) is the third largest with more than 103 million subscribers.

Mobile phone carriers in the US have some problems, but nothing like this. The $39 billion offer from AT&T (NYSE: T) for Deutsche Telecom AG’s (OTC: DTEGY) T-Mobile has stirred a hornet’s nest of oppostion from the US’s third largest carrier, Sprint Nextel Corp. (NYSE: S) and some smaller carriers. The second largest US carrier, Verizon Wireless, a joint venture between Verizon Communications Inc. (NYSE: VZ) and Vodafone Group plc (NASDAQ: VOD), has kept quiet, probably because if the AT&T/T-Mobile deal goes through it will kill off T-Mobile as a low-cost threat to Verizon. The added benefit is that AT&T is going to be distracted for some time with all the hearings and lawsuits surrounding the deal for T-Mobile.

Back in China, the big mobile carriers are getting another lesson in power politics. Earlier this year, a China Mobile executive was formally charged with crimes by the Communist Party’s discipline agency. Other Chinese companies are also getting squeezed by the scandals in the mobile sector.

A company called Myoo Music Entertainment Co. put up about $1.6 million to acquire the right to be China Mobile’s sole provider of music content. China Mobile then changed its mind and selected another company to act as its music provider. Myoo can’t get its money back following an investigation into financial misconduct by a China Mobile manager and the flight of another manager out of China.

Caixin Online notes, “The investment in Myoo was a fraction of the large amount of private money that’s been rushing into the telecom industry in China in recent years.” Here’s the money quote from Caixin:

“By teaming up with a state monopoly and massaging official connections, a private telecom service provider initially may find it easy to overcome technical and policy barriers for doing business. But success often hinges on orders from companies at the mercy of ever-changing government policies and subject to fallout when management troubles, such as a corruption case involving a high-ranking executive, bubble to the surface.”

There have been a succession of irregular accounting stories out of China in the past few months. And there will be more. The corruption story on the mobile operators is not the first of those stories and it won’t be the last.

What makes the corruption story interesting is that the investigations are being conducted by a political body. Either corruption is being viewed as a crime against the political system or its is being seen as a black eye on the free market system as it is developing in China.

Either way, the prosecution of corruption will be uneven, and some companies are likely to escape while others are pummeled. The mobile carriers are not likely to suffer a great deal because they are so large and so central to the country.

Read the quote from Caixin again. It doesn’t apply only to the telecom business. Caveat emptor.

Paul Ausick

Filed under: General Tagged: CHA, CHL, CHU, DTEGY, S, T, VOD, VZ

Top Analyst Upgrades & Downgrades (BHP, BA, SCHW, CHA, CMED, LFC, CIT, CREE, KONG, PAYX, HTM)

Administrator — Thu, 26 Aug 2010 11:59:22 +0000

These are some of this Thursday’s top analyst upgrades, downgrades, and initiations seen from Wall Street research calls:

BHP Billiton plc (NYSE: BHP) Target raised overseas by UBS.
Boeing Co. (NYSE: BA) Maintain Conviction Buy and Raised estimates by Goldman Sachs.
Charles Schwab Corp. (NASDAQ: SCHW) Cut to Equal-Weight at Morgan Stanley.
China Telecom (NYSE: CHA) Upgraded To Overweight From Neutral By HSBC
China Medical Tech (NASDAQ: CMED) Started At Buy; Target US$16 By Deutsche Bank
China Life Insurance Co. Ltd. (NYSE: LFC) Cut To Neutral Vs Outperform By Credit Suisse.
CIT Group (NYSE: CIT) Started as Neutral at Buckingham.
Cree Inc. (NASDAQ: CREE) Started as Overweight at Morgan Stanley.
KongZhong Corp. (NASDAQ: KONG) Cut to Hold at Roth Capital.
Paychex Inc. (NASDAQ: PAYX) Raised to Hold at Deutsche Bank.
U.S. Geothermal Inc. (AMEX: HTM) Started as Outperform with $1.25 target at Raymond James.

You can join our free daily email distribution list to hear more about dividend trends, analyst upgrades and downgrades, top day trader and active trader alerts, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG

Filed under: Analyst Calls Tagged: BA, BHP, CHA, CIT, CMED, CREE, DPZ, HTM, KONG, LFC, PAYX, SCHW

Top Analyst Upgrades and Downgrades (BIDU, BHP, CHL, CHA, GMCR, INFY, RAX, SRE, SYMC, UPS, VSAT)

247wallst — Wed, 13 Jan 2010 13:49:55 +0000

These are this Wednesday morning’s top analyst upgrades, downgrades, and initiations seen in major Wall Street research calls:

Baidu, inc. (NASDAQ: BIDU) Raised to Buy at Deutsche Bank; Raised to Buy at UBS.
BHP Billiton (NYSE: BHP) Raised to Buy at Canaccord Adams.
China Mobile (NYSE: CHL) Started as Outperform at Bernstein.
China Telecom (NYSE: CHA) Started as Market Perform at Bernstein.
Green Mountain Coffee (NASDAQ: GMCR) Started as Buy at Roth Capital.
Infosys Technologies (NASDAQ: INFY) Raised to Overweight at HSBC.
Rackspace Hosting, Inc. (NYSE: RAX) Started as Outperform at Wells Fargo.
Sempra Energy (NYSE: SRE) Cut to Market Perform at Wells Fargo.
Symantec Corporation (NASDAQ: SYMC) Raised to Outperform at Wells Fargo.
United Parcel Service (NYSE: UPS) Raised to Outperform at RBC Capital and its price target was raised to $72 at Goldman Sachs.
ViaSat (NYSE: VSAT) Cut to Perform at Oppenheimer.

You are invited to join our free daily email distribution list to hear about analyst upgrades and downgrades, day trader and options trader alerts, stock and market rumors, Buffett and guru investor news, M&A and IPOs, and more.

JON C. OGG

Posted in Analyst Calls Tagged: BHP, BIDU, CHA, CHL, GMCR, INFY, RAX, SRE, SYMC, UPS, VSAT

Subscriber Growth For Major Chinese Mobile Companies (CHL, CHU, CHA)

247wallst — Tue, 20 Oct 2009 17:30:42 +0000

Today China Mobile (NYSE: CHL) posted big numbers in its subscriber growth, claiming 500 million mobile users. By this metric, China Mobile can claim the title of the worlds biggest mobile company. However, looking at subscribers in terms of percentage growth over the past year tells a different story. The first chart below compares China Mobile, China Unicom (NYSE: CHU), and China Telecom (NYSE: CHA) on the basis of monthly subscriber growth off the September 2008 base. The second shows the monthly change in each stock price off their respective September 2008 price. (It should it be noted that there is a delay in the release of the monthly subscriber number for each company.)

Chart 1: Monthly Subscriber Growth, September 08-September 09

Chart 2: Monthly change in stock price, September 08-September 09

While some may appreciate steady companies, its hard not to like the exponential growth in China Telecom’s mobile subscriber base.

Garrett W. McIntyre

Posted in Charts, China, Telecom Tagged: CHA, CHL, CHU

Top 10 Analyst Upgrades & Downgrades (AZN, BDN, CHA, HURN, PRU, PETM, RF, SOL, RDS-B, TWB, UA)

247wallst — Thu, 20 Aug 2009 11:48:52 +0000

These are Thursday’s top ten analyst research summary upgrades, downgrades, and initiations from Wall Street brokerage firms:

AstraZeneca (AZN) Cut to Hold at Citigroup.
Brandywine Realty (BDN) Cut to Neutral at BofA/Merrill Lynch.
China Telecom (CHA) Raised to Hold from Sell at Deutsche Bank.
Huron Consulting (HURN) Raised to Neutral from Underperform at at Baird.
Prudential (PRU) Raised to Outperform at FBR.
PetSmart (PETM) Cut to Neutral from Outperform at Credit Suisse.
Regions Financial (RF) Cut to Hold at Deutsche Bank.
ReneSola (SOL) Raised to Buy from Neutral at Goldman Sachs.
Royal Dutch Shell (RDS-B) Raised to Buy at Citigroup.
Tween Brands (TWB) Raised to Hold from Sell at Citigroup.
Under Armour (UA) Cut to Underweight from Hold at KeyBanc.

JON C. OGG
August 20, 2009

Posted in Analyst Calls Tagged: AZN, BDN, CHA, HURN, PETM, PRU, RDS-B, RF, SOL, TWB, UA

Top Pre-Market Analyst Downgrades (AXP, ATML, BX, CHA, CYPB, HPQ, SLAB, UBS, WSM)

247wallst — Wed, 25 Mar 2009 11:59:46 +0000

These are some of the top pre-market analyst downgrades or cautious calls we have seen from Wall Street firms early this Wednesday morning:

American Express (AXP) Cut to Underweight at JPMorgan.
Atmel (ATML) Cut to Market Perform at FBR.
Blackstone (BX) Cut to Market Perform at KBW.
China Telecom (CHA) Cut to Sell at Citigroup.
Cypress Bioscience (CYPB) Cut to Perform at Oppenheimer.
Hewlett-Packard (HPQ) Started as Outperform at RBC.
Silicon Laboratories (SLAB) Cut to Market Perform at FBR.
UBS (UBS) Cut to Underperform at KBW.
Williams-Sonoma (WSM) Cut to Underweight at Barclays.

JON C. OGG

Posted in Analyst Calls Tagged: ATML, AXP, BX, CHA, CYPB, HPQ, SLAB, UBS, WSM

Top Analyst Upgrades (AA, WTR, BEC, CWT, CHRT, CHA, GAS, NOK, PNY, WW)

247wallst — Thu, 19 Mar 2009 11:23:31 +0000

These are the top upgrades and positive research calls we have seen from Wall Street analysts so far early this Thursday morning:

Alcoa (AA) Raised to Overweight at JPMorgan.
Aqua America (WTR) Raised to Outperform at Baird.
Beckman Coulter (BEC) Raised to Overweight at Barclays.
California Water (CWT) Raised to Outperform at Baird.
Chartered Semiconductor (CHRT) Raised to Neutral at HSBC.
China Telecom (CHA) Raised to Overweight at Morgan Stanley.
Nicor (GAS) Raised to Outperform at Baird.
Nokia (NOK) Raised to Outperform at Credit Suisse.
Piedmont Natural Gas (PNY) Raised to Outperform at Baird.
Watson Wyatt Worldwide (WW) Started as Buy at SunTrust Robinson Humphrey.

-JON C. OGG

Posted in Analyst Calls Tagged: AA, BEC, CHA, CHRT, CWT, gas, NOK, PNY, WTR, WW

Early Bird Analyst Upgrades & Downgrades (CHA, CHH, CMCSA, GOOG, ID, PAS, ACF, ERIC, NCC, NWS, NOK, PCTI, RAH, SHW)

247wallst — Tue, 28 Oct 2008 06:37:36 +0000

These are some of the top pre-market analyst upgrades and downgrades we are seeing from Wall Street firms this Tuesday morning with more than two hours to the open:

China Telecom (CHA) Raised to Buy at UBS.
Choice Hotels (CHH) Raised To Neutral From Underweight at JPMorgan.
Comcast (CMCSA) Started as Outperform at Credit Suisse.
Google (GOOG) Started as Outperform at Credit Suisse.
L-1 Identity Solutions (ID) Raised to Neutral from Underweight at JPMorgan.
PepsiAmericas (PAS) Raised to Buy at UBS.

AmeriCredit (ACF) Cut to Underperform at KBW.
Ericsson (ERIC) Cut to Sell at Goldman Sachs.
National City (NCC) Cut to Market Perform at KBW.
News Corp. (NWS) Cut to Neutral at Credit Suisse.
Nokia (NOK) Cut to Sell at Goldman Sachs.
PC-Tel (PCTI) Cut to Neutral at Baird.
Ralcorp Holdings (RAH) Cut to Neutral at Credit Suisse.
Sherwin-Williams (SHW) Cut to Neutral at JPMorgan.

Jon C. Ogg
October 28, 2008

Posted in Analyst Calls Tagged: ACF, CHA, CHH, CMCSA, ERIC, GOOG, ID, NCC, NOK, NWS, PAS, PCTI, RAH, SHW

China’s Complicated Telecom Mergers (CHU, CN, CHA, QCOM)

247wallst — Mon, 02 Jun 2008 07:12:55 +0000

There is a complicated merger in the Chinese telecom market, which is part of the government mandate to consolidate a fragmented telecom industry in China.

China Unicom Ltd. (NYSE: CHU) has formalized a deal that came out over the weekend to acquire China Netcom Group Corp. (NYSE: CN) in a deal that puts the debt and equity value around $56.3 Billion. In a separate deal, China Telecom Corp. (NYSE: CHA) will acquire China Unicom parent’s CDMA network for roughly $15.86 Billion in cash. China Netcom will be delisted and will become a wholly-owned subsidiary of China Unicom.

Recently, China’s government had mandated a restructuring of the country’s six major telecom operators where these will become three entities. Interestingly enough, China believes that the more consolidated players will create more competition and prevent any single carrier from a winner take all position.

China Unicom is the major CDMA service provider in China, and it has some 42 million subscribers as of the end of 2007. Because these stocks were all tied up in a coming deal, some of the shares had been halted on local exchanges while these terms were being worked out.

While it may be hard to interpret or play play the consolidation waves in China’s telecom mergers, one winner of this merger will likely be Qualcomm Inc. (NASDAQ: QCOM) because it wins on every new CDMA user it gets. This of course assumes that the other deals don’t take away from the company’s CDMA and WCDMA user base, and that is not necessarily an assured outcome.

You can join our open email distribution list to hear about other mergers, IPO’s, secondary financings, restructurings, and other special situations.

Jon C. Ogg
June 2, 2008