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China Watch: Is Amazon Set to Launch the Kindle in China?

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Microsoft and Apple also make the news.

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MINYANVILLE ORIGINAL On Friday, stocks in China enjoyed their biggest jump since October 2009. The Shanghai Composite Index (SHA:000001) soared 4.3% to close at 2,150.63 points, with trading volume that was more than double the 30-day average.

The rally was in part sparked by robust Chinese manufacturing data, with the December preliminary reading for the HSBC flash purchasing managers' index rising to 50.9, surpassing the consensus estimate of 50.8 and the final reading of 50.5 for November.

"It looks like institutional investors are re-entering the market and they have to increase their stock positions now in order not to miss the boat," Dai Ming, a fund manager at Hengsheng Hongding Asset Management in Shanghai, which manages $190 million, told Businessweek. "The economy has stabilized."

Here are this week's business headlines.
Amazon (NASDAQ:AMZN): Is a China launch of the kindle all but inevitable? It certainly appears so. This week, Amazon opened a store selling Kindle-formatted Mandarin e-books on its Chinese website. For now, the site provides free software that allows buyers to read these e-books on other devices, such as Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) tablets and smartphones, but analysts expect Amazon to introduce the Kindle to China sometime in the first half of 2013.

Amazon's Kindle push will undoubtedly pose a threat to Chinese e-commerce giants Dangdang (NASDAQ:DANG), Jingdong Mall, Alibaba and Suning.com, noted the South China Morning Post.
From a bigger picture perspective, this Kindle move looks like the latest push by Amazon to rapidly build up its presence in China's e-commerce market, as it tries to pose a serious challenge to Jingdong Mall and even sector leader Alibaba. Amazon formally changed the name of its longtime China site, Joyo.com, to Amazon.cn about a year ago, and also rapidly built up a series of massive new logistic centers to help it deliver its products in a day or less to customers in major cities like Beijing, Shanghai and Guangzhou.

Those efforts are beginning to bear fruit as the company rapidly becomes a major new force in China's e-commerce scene. From my own street-level view, the presence of Amazon-branded delivery motorcycles, cars and bicycles has become very noticeable over the last half year, as the company also builds up its own massive fleet of vehicles to deliver its products.

Since the Kindle is competitively priced relative to the iPad, it could perhaps find success in the lower-end space of the growing tablet market, much like how local companies such as Lenovo (PINK:LNVGY), ZTE (SHE:000063), and Huawei (SHE:002502) have gained share in the lower-end smartphone market.

Microsoft (NASDAQ:MSFT): The launch of each new version of Windows brings about fresh worries of rampant piracy, as Microsoft knows all too well. The Wall Street Journal reports that for its latest Windows 8 software, the company is trying out a new approach in its attempt to cut down piracy of its product in China: educating consumers on the dangers installing unlicensed Windows operating systems can bring to their computers.
In recent months the company bought up 169 branded personal computers loaded with pirated versions of Windows in China to study the varieties of pernicious software on the machines and publicize the results.

Unsurprisingly, the company found 91% of the computers contained malware or other security vulnerabilities and 72% had altered browser settings that would guide users to fraudulent sites that extract personal and financial information from users.

Microsoft is also stepping up on other efforts to curb piracy in China. Nick Psyhogeos, a vice president with Microsoft, said at a media briefing Thursday that it would launch legal actions against 16 Beijing-based resellers that they assert are selling counterfeit Windows software, if current negotiations with the retailers do not produce satisfactory results.

Apple: The Cupertino, California-based company launched its flagship iPhone 5 in China today. Though the device is expected to sell well, analysts are saying that the phone will not be as popular as previous iterations of the iPhone.

"Some of our Chinese sources do not expect the iPhone 5 to do as well as the iPhone 4S," said UBS analyst Steven Milunovich in a note. Milunovich also cut its price target on Apple to $700 from $780, citing low iPhone and iPad shipment expectations for the Jan - March quarter. Peter Misek of Jefferies also lowered his shipment forecasts for the quarter, saying that Apple had already begun reducing the number of orders to its suppliers because of excess inventory.

On the iPhone 5 China launch, Misek note, "The iPhone 5 China launch has been surprisingly muted but (we) are unsure how much weather (snow) or the required pre-ordering (to prevent riots) are factors."

"In absolute terms, this (iPhone 5) launch will certainly result in strong sales for Apple in China. However, in relative terms, I don't believe it will move the needle enough in market share," Shiv Putcha, a Mumbai-based analyst at Ovum, a global technology consultant, added to Reuters.

As a result, shares of Apple tumbled today. The stock was well below its 50-day and 200-day lines and was close to testing its Nov. 16 low of $505.75.

Canon (NYSE:CAJ): Though smartphones have progressively taken share away from digital camera makers, the likes of Canon and Nikon still see growth potential in the high-end dSLR market. Canon, in particular, eyes an opening in the premium camera market in China and plans to increase its investment in the mainland.

According to Jeff Eisenhauer of Cnet, Canon is aiming to expand its number of Chinese offices to 32 from 11 this year, and grow annual sales to $10 billion from $3 billion in the next five years. Managing Director Hideki Ozawa said that China was "the most important [market] to Canon."

Eisenhauer also points out that premium dSLRS, with their intricate components, are difficult to pirate, which is especially helpful in a market like China, where piracy is rife.


Twitter: @sterlingwong
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No positions in stocks mentioned.
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