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China Watch: China Mobile Hurting Without iPhone Deal


Apple and Google were in the news this week.

MINYANVILLE ORIGINAL Is China more innovative than the US? In 2011, China received more patent applications than any other country in the world.

However, as The Economist points out, the story is not as simple as it appears to be.
"There is no reliable way to measure a patent's value. But one can use a rough-and-ready yardstick: In how many places did the inventors seek a patent for the same technology? If it is a good idea, they will try to patent it in lots of places. If they just want to pocket a Chinese subsidy, they won't bother…

Hardly any Chinese inventors seek to patent their ideas abroad. Between 2005 and 2009 fewer than 5% did... In America, the figure was 27%; in Europe, more than 40%. Geeks in the West should not relax, but it is not clear that their Chinese rivals have yet outstripped them."

Here is this week's business news:
China Mobile (NYSE:CHL): Apple's (NASDAQ:AAPL) iPhone is now available on China Unicom (NYSE:CHU) and China Telecom (NYSE:CHA), with China Mobile being the sole holdout. Apple may be losing out on access to China Mobile's 700 million-strong subscriber base, but the latter is also hurting as well.

According to Evercore Partners analyst Rob Cihra, "China Mobile could be starting to need the iPhone more," pointing out that the company's 3G market share slipped 7% year-to-year in 2012, while rivals China Telecom and China Unicom combined for a 7% increase.

"China Unicom alone has added nearly 2 million more 3G subs than China Mobile year-to-date despite being almost one-third the size, and overall share losses look to correlate with [the] introduction of the iPhone in Mainland China," wrote Cihra, according to All Things D.

Because of the losses in 3G subscribers, Cihra argued that Apple has gained leverage in its continued negotiations with China Mobile to work out a carriage deal. All signs point to a deal being worked out in the latter half of 2013, said Cihra.

Morgan Stanley analyst Katy Huberty also pointed out back in November the likelihood of a China Mobile iPhone in the second half of 2013, citing talks with those along the supply chain.

"Distributors expect iPhone 5, with its new form factor, and iPad Mini, with a lower price, to sell well in China. The industry expects the Chinese government to issue LTE licenses in 2H13, which likely coincides with an iPhone distribution agreement with China Mobile," said Huberty.

Google (NASDAQ:GOOG): Watch out, Baidu (NASDAQ:BIDU) -- Google has set its sights on toppling the leading Chinese search giant. Earlier in the week, Bloomberg reported that Google is planning a collaboration with Chinese search upstart, Qihoo 360 (NYSE:QIHU). According to an analyst from Wedge Partners, Google's linkup with Qihoo will bring $140 million in revenue to the latter in 2013.

There is, however, little information on the details for the partnership. "Qihoo can only confirm the existence of the partnership as the company is not in the position to disclose any detailed info of the partnership at this moment," the Chinese company told ZDNet.

The Qihoo-Google partnership is bad news for Baidu, say Citi's Muzhi Lee and Ravi Sarathy.

"Witnessing Qihoo's monetization in search and its alliance with Google AdWords, we reiterate our Sell rating of Baidu at TP of $95.1 due to its weakening fundamentals in 2013 and increasing competitive landscape in PC search in China. We recommend long-only investors to sell Baidu on the recent stock price rebound and wait at least for two to three quarters to see if Baidu can solidify its stronghold in PC search and offset weakness in the mobile field by leveraging its monopolistic position in search," the duo wrote in a research note.

Hormel Foods (NYSE:HRL): Famous for its Spam luncheon meat, Hormel Foods is hoping that Chinese consumers will soon take to peanut butter.

Hormel CEO Jeffrey Ettiinger explained that his company purchased the Skippy brand of peanut butter from Unilever (NYSE:UN) because it was "betting consumers there will develop a taste for peanut butter as well," according to the Wall Street Journal.

Currently, Chinese consumers already enjoy peanut and peanut oil in their diets, but they are more likely to have traditional congee or deep-fried dough for breakfast than a peanut butter sandwich. Hormel's challenge, then, is to get consumers to change their dietary habits. Quartz also noted that "it's not inconceivable that Hormel could launch Skippy-branded foodstuffs tailored to Chinese tastes."

Twitter: @sterlingwong
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