China’s tech companies to report slow growth on sagging demand - GulfToday

China’s tech companies to report slow growth on sagging demand

China-Technology

Visitors look at new products during a technology expo in Beijing. Reuters

China’s top technology, e-commerce and consumer electronic firms are set to report a sharp slowdown in revenue growth for the June quarter, as a bruising trade war with the United States weighed on the Chinese economy and hurt consumer spending.

Revenues at a handful of China’s biggest tech firms are expected to grow 26% on average in the quarter ended June 30 — the slowest in six quarters — compared with the same period a year earlier, according to consensus estimates from Refinitiv. This includes China’s e-commerce giant Alibaba Corporation and its smaller rival JD.com, Internet firm Baidu, and Tencent Holdings, the world’s largest gaming company.

Net income at these companies is expected to grow 9%, versus a galloping 50% increase a year earlier.

The trade war has roiled markets and global supply chains and forced tech companies to rethink production and marketing tactics. A lacklustre June quarter is expected to prompt firms to cut costs further to shore up margins.

China’s economic growth slowed to 6.2% in the second quarter, its weakest pace in at least 27 years.

“Given the slowing economy and tightening of credit within China, we can expect to see this reflected in different ways,” said Taipei-based technology analyst Sam Reynolds. “For the more business-to-consumer focused companies, this will be reflected in slower consumer spending; for the more business-to-business companies (like Baidu) this will be reflected in less ad buys.”

Below are some expected milestones for these firms that are scheduled to report results in the coming weeks, based on Refinitiv data:

JD.com, which is expected to report earnings on Tuesday, could manage to eke out a small profit by curbing costs. But with fewer consumers buying household appliances and electronics, the online retailer is likely to post its slowest revenue growth in at least five years.

Alibaba’s profit likely grew 27%, its fourth successive quarterly rise. Big promotions are expected to propel its sales 38% higher, but that will be the company’s slowest growth in 14 quarters.

Tencent is expected to post profit growth of 24%, versus a 2% decline a year earlier, helped by adoption of its patriotic-themed video games and cloud services. The music-streaming unit it backs - Tencent Music - on Monday missed revenue estimates as it reported the slowest increase in a widely watched metric for growth since its debut in December.

Alibaba and Tencent, China’s biggest listed companies, have together lost roughly $96 billion in market value since the trade war took a turn for the worse in May.

Baidu’s profit likely fell 71%, its third straight quarterly decline as it invested to keep up with competition from privately held ByteDance. Revenue is expected to fall 0.8%, its first decline in 10 quarters.

Smartphone maker Xiaomi Corp’s revenue growth is expected to be the slowest since its initial public offering in July last year.

OLED display panel maker BOE Technology - among China’s big bets to counter US tech - is expected to post 26% income growth, its second straight quarter of profit growth after three successive quarters of decline.

Meanwhile, China’s yuan is at an appropriate level currently and two-way fluctuations in the currency will not necessarily cause disorderly capital flows, a senior official at the People’s Bank of China (PBOC) told Reuters on Tuesday.

The yuan has weakened nearly 2.4% since US President Donald Trump threatened earlier this month to impose more tariffs on Chinese goods from Sept. 1, though there are signs China is trying to stem the declines.

“The current level of RMB exchange rate is appropriately aligned with fundamentals of China’s economy and market supply and demand,” Zhu Jun, head of the central bank’s international department, said in an interview with Reuters.

She said China was “shocked” by the US Treasury Department’s move last week to label China a currency manipulator, hours after Beijing let the yuan drop through a key support level to its lowest point in more than a decade.

But Zhu asserted that China will be able to “navigate all scenarios” arising from Washington’s currency-manipulator label.

In the short run, external shocks will also play a role by influencing the yuan’s movements, she said. “That said, as long as RMB moves in an orderly manner based on market supply and demand, such movements in either direction do not necessarily mean disorderly movement of capital flow,” Zhu said. The yuan is also known as renminbi, or RMB. The yuan will be supported by China’s solid economic fundamentals, a stable debt ratio, contained financial risks, adequate foreign exchange reserves, and favourable interest rate spreads between China and major advanced economies, she said.

Reuters