China's auto industry is some 10 years away from being able to compete in the global market, says Sanford C. Bernstein.
Sandford auto analyst Max Warburton told Bloomberg this week that the likes of General Motors (GM), Volkswagen (VLKAY), and Toyota (TM) are still vastly outspending Chinese auto companies in research and development, which enables them to hold on to their lead in the global market.
"The Chinese are 80% of the way there; 20% doesn't sound very hard, but it's probably the most complex bits to get right," said the Singapore-based Warburton, who has a Neutral rating on Chinese automakers. "They'll be spending until they make it work and eventually they'll end up with Chinese carmakers on the world stage."
The Chinese car company with the greatest breakout potential, Warburton reckoned, was SAIC Motor (SHA:600104). Through its China joint venture with GM, SAIC has learned a "huge amount," Warburton told Bloomberg. SAIC also has more seasoned engineers compared to other Chinese automakers.
Here is this week's business news:
Baidu (BIDU): It's been a tough week for Baidu, with its shares having fallen more than 6% this week following a series of analyst downgrades.
Goldman Sachs got the ball rolling on Tuesday, lowering its price target on Baidu to $89 from $135 while also cutting its 2013 earnings-per-share estimate by 22% and its 2014 earnings estimate by another 30%. Goldman said that "mobile cannibalization and competition with Qihoo (QIHU) will pose structural threats to Baidu's high profit margins."
Meanwhile, both Credit Agricole and CLSA have also downgraded Baidu this week, citing increased competition from Alibaba's new search engine. Credit Agricole cut Baidu to Underperform from Outperform, with a price objective is $105. CLSA moved the stock to Underperform from Outperform, setting a $105 target.
Citi analyst Muzhi Lee also does not like the stock, even though it's fallen some 16% in the past month. Lee notes, according to Barron's:
"We recommend investors to sell Baidu now and thereafter monitor whether its competitive edge is improving; We do not recommend investors bottom fish based on price chart or valuation trend; We do not recommend investors analyze Baidu by assuming it is or will become Google (GOOG) in China. The management never intended to do so."
Microsoft (MSFT): Microsoft has thus far declined to release concrete sales figures for its line of Surface tablets, with CEO Steve Ballmer saying in an interview this week that "in an environment in which there's 350 million PCs sold, I don't think Surface is going to dominate volume, but it's a real business."
According to estimates from research firm IDC, sales in mainland China have gotten off to a sluggish start, with a mere 30,000 units of the Surface RT shipped in the fourth quarter of 2012, reported The Next Web. Microsoft had heavily promoted the Surface RT debut in China, with local retail partner Suning (SHE:002024) even holding midnight launches at some of its shops.
The number of units of Surface RT shipped represented 1% of China's tablet market. In comparison, Apple's (AAPL) line of iPads dominated the fourth quarter with 1.4 million shipments, or 62% of the market. Android held a 36% share in the same quarter.
Though sales were lackluster, IDC analyst Dickie Chang told The Next Web that "he believes Microsoft is playing the long game here and is using the Surface RT as a demo for OEMs to show the potential of the Windows RT operating system."
Sina (SINA): The owner of Weibo, China's Twitter-like microblogging service, posted an unexpected fourth-quarter earnings beat. Net income came in at $9 million, or $0.13 per share, far exceeding the consensus estimate of $0.05 per share. Revenue of $139.1 million also surpassed analysts' projection of $133.9 million.
Like Baidu, however, Sina continues to face mobile monetization challenges, with more of its over 400 million Weibo users now posting from mobile devices than from desktop computers.
"Weibo needs a lot of development and money, especially for the advertising-promotion system," Ma Yuan, a Hong Kong- based analyst at Bocom International Holdings, told Bloomberg before the earnings announcement. Ma has a Neutral rating on Sina.