Thursday Tech Briefing: German Officials Reportedly Considering Huawei Ban

1. German Officials Reportedly Considering Huawei Ban

Senior German officials are planning a last-ditch drive to convince the government to consider excluding Chinese firms such as Huawei from building the country’s 5G mobile internet infrastructure, Reuters reports.

The behind-the-scenes push in Berlin emerged at a late stage as Germany is expected to start its 5G auctions in early 2019. Prior to this, Australia and the United States decided to ban Chinese suppliers from 5G bidding.

The push highlights the extent of concern in Western countries about China’s role in building 5G networks, although there has been a lack of vigorous public debate in Germany about the security dimensions of 5G. Officials said it was unclear whether the initiative would succeed. (Reuters)

2. Foxconn Outlook Dims as Apple Sales Slow

Electronics manufacturer Foxconn, formally known as Hon Hai Precision Industry Co. Ltd., joined several Apple suppliers in getting downgrades from financial institutions amid rising concerns over cooling demand for Apple products.

Foxconn, whose biggest customer is Apple, said late Tuesday its third-quarter net profit rose 18% from a year earlier to NT$24.9 billion (US$806 million). Revenue gained 28% to TN$1.38 trillion. Although this was the company’s best quarterly profit performance of 2018, it was 12% shy of analysts’ estimates.

Analysts attributed Foxconn’s weaker performance to sluggish Apple sales, which contribute more than half of Foxconn’s revenue and net profit. Analysts warned of declining shipments in coming quarters for Foxconn. The Japanese investment bank Nomura said the company will crank out 11% fewer iPhones in 2019. (Caixin)

3. Tencent Q3 Earnings Outperform while Gaming Struggles

Chinese social media giant Tencent Holding Ltd. released Wednesday stronger-than-expected earnings for the third quarter backed by advertising growth and investment gains. Tencent reported a 30% jump in net profit to 23.3 billion yuan ($3.39 billion) for the three months ended Sept. 30. Revenue gained 24% to 80.6 billion yuan.

However, Tencent’s gaming business has continued to weaken. Gaming revenue in the third quarter dropped 4%, led by a slowdown in PC games. Online advertising rose 47% from a year earlier, boosted by growth in the popular social networking platforms QQ and WeChat, Tencent said. Investment gains, including the debut of the on-demand service platform Meituan Dianping, totaled 8.8 billion yuan.

Tencent’s stock in Hong Kong has plunged nearly 30% since August when it posted its first quarterly profit decline in more than a decade, as its main business of online games ran into regulatory hurdles. (Caixin)

4. China’s Facebook Renren.com Sold for $20 Million

Renren Inc. announced Wednesday that it’s selling all assets relevant to its social networking business to Beijing Infinities Interactive Media Co. Ltd for $20 million. In return, the buyer’s parent, Infinities Technology (Cayman) Holding Ltd., will issue $40 million worth of shares to Renren, which is valued at $700 million, according to a company statement.

Renren.com used to be seen as a Chinese equivalent of Facebook but fell out of fashion in recent years. Renren Inc. said the sale will help it focus on two other businesses: its used cars unit in China, and mobile app operations in the U.S. (Caixin)

5. Embattled Entrepreneur Accuses Evergrande of Trying to Seize Control of Electric Car Maker

Chinese entrepreneur Jia Yueting said at a company meeting early this week that he misread Evergrande Group’s intentions when its Hong Kong-listed health-care unit invested in his company Faraday Future last year, and that it really was seeking to take global control of the company, Caixin has learned.

Faraday has struggled to secure new funding before a Thursday deadline for giving the company’s 1,300 U.S. employees $1.63 million in half-wages. Legal action began on Monday in Hong Kong after Smart King filed an application for arbitration to take away Evergrande’s right to veto Faraday’s plans to seek outside funding for itself as it faces an imminent cash crisis.

Late last year, Evergrande Health Industry Group Ltd. agreed to invest $2 billion over three years and take a 45% stake in Smart King Ltd., which controls Faraday. At the Monday meeting, Jia said that Evergrande Health wished to incorporate Faraday into Evergrande Health, whereas Jia maintained that it must be operated independently. (Caixin)

6. Alibaba-Backed Babytree Slashes Hong Kong IPO

Babytree Group, a Chinese parenting website backed by Alibaba Group Holding Ltd. and Fosun International Ltd., slashed the size of its Hong Kong IPO by more than 70% Wednesday amid a weak stock market and a string of lackluster listings.

Babytree is now seeking to raise as much as $281 million by selling about 250 million shares, or 15% of its share capital, in a price range of HK$6.80-HK$8.80, according to its prospectus. Earlier, it aimed to raise $1 billion.

The company scaled back its IPO as most new listings in the past year are trading below their initial prices amid a selloff in global stock markets. (Caixin)

7. New York Times Publisher Explains the Strategy and Status of the Times' Digital Transition

In an interview with Caixin in Hong Kong, New York Times Publisher A.G. Sulzberger explained the Times’ strategy and the status of the organization’s so-called digital transition, which began just under five years ago. The New York Times has embraced being a “subscription-first company” and is aiming to take full advantage of all platforms and storytelling methods in its journalism, Sulzberger told Caixin.

Earlier this month, it was announced that the Times’ subscription revenue grew to $257.8 million in the third quarter, with revenue from digital-only subscriptions growing 18% to $101.2 million. In August, New York Times CEO Mark Thompson said that two-thirds of the company’s revenue came from subscriptions.

While it took three years for the Times to acquire 1 million digital subscribers after the paywall was introduced in 2011, digital subscribers now number over 3 million out of 4 million total subscribers. (Caixin)

Compiled by Isabelle Li