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Market expects fall in profit

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Robin Li, chief executive officer of Baidu.

Nelson Ching | Bloomberg | Getty Images

Chinese search giant Baidu is facing stiff competition from newer rivals, and has seen over $60 billion of its value wiped off since its peak last year.

It’s part of China’s internet trio — Baidu, Alibaba and Tencent — which have collectively been named “BAT.” But it’s facing an increasingly tough advertising market, and has been falling behind the other two rivals.

Often dubbed “China’s Google,” Baidu has seen its shares slide nearly 40% this year. In contrast, gaming titan Tencent is up just over 6%, while e-commerce giant Alibaba is more than 27% higher.

At its peak in mid-May 2018, Baidu was worth around $99 billion — with its shares priced at $284. Stocks of the search giant have fallen to $96.7 a share with its market cap plunging to $33.8 billion. Comparatively, Tencent and Alibaba are both worth over $400 billion.

Baidu earnings

Ahead of its second-quarter earnings report on Monday, analysts are expecting further pain for Baidu.

Wall Street is predicting the following results for the June quarter:

  • Revenue of 25.76 billion yuan ($3.66 billion), according to estimates from Refinitiv. If that number is realized, it would represent a near 0.8% year-on-year decline.
  • Earnings per share of 2.91 yuan, according to Refinitiv estimates. If achieved, that would be a more than 83% year-on-year decline.

For a long time, Baidu has enjoyed dominance of China’s search market given the absence of major competition. Google exited the market in 2010.

But Baidu was slow to respond to the growth of mobile and has faced growing competition from new entrants, such as TikTok parent ByteDance. As a result, advertisers have switched their budgets to other platforms.

“This is a structural change that is unfavorable to Baidu’s core search business,” Xueru Zhang, senior analyst at 86Research, told CNBC.

Mobile push

In China, there is a trend of so-called “super apps.” These are products like Tencent’s WeChat or Ant Financial’s Alipay where a user can do a number of different things ranging from payments to ordering food all within one app.

Baidu has been investing heavily in its own mobile offering. It has an app where users can search and watch videos as well as a number of other functions. The company announced last week that the number of daily active users on the app had surpassed 200 million.

It has introduced features such as mini programs which is an app within the app — something that WeChat has on its platform already. The aim is to increase the amount of time users spend within the app. But Zhang said Baidu is late to the party.

“Baidu is just a follower, and the market did not give much credit to these initiatives,” Zhang told CNBC.

A.I. focus

Baidu has been shifting its business to focus on artificial intelligence (AI) products. This includes its driverless car technology unit and voice assistant for example.

“We are leveraging Baidu AI to provide enterprise solutions to businesses and local governments, which significantly expands our total addressable market,” Baidu CEO Robin Li said in the first-quarter earnings statement.

While 2019 looks to be a year of pain for Baidu, the market sees a recovery in 2020 as some of these initiatives begin to make money.

“Its new initiatives in AI-related area are actually growing very fast,” Zhang said. “Although meaningful financial contribution from new AI initiatives are unlikely to kick in any time soon, the company has proven its capability to commercialize AI technology in a broad range of applications at a pace and scales that is hard to compete (with).”

Zhang said her firm believes “Baidu is one key player riding on China’s upcoming AI era,” and added: “These new AI businesses will be the long-term value driver for Baidu.”

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Ric Ocasek, The Cars’ lead singer, found dead

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Ric Ocasek at Alice Tully Hall, Lincoln Center on June 10, 2019 in New York City, United States.

Jim Spellman | Getty Images Entertainment | Getty Images

Ric Ocasek, famed front man for The Cars rock band, has been found dead in a Manhattan apartment.

The New York City police department said officers responding to a 911 call found the 75-year-old Ocasek at about 4 p.m. on Sunday. They said there was no sign of foul play and that the medical examiner was to determine a cause of death.

The Cars chart-topping hits in the late 1970s and 1980s included “Just What I Needed,” “Shake It Up” and “Drive.” The band was inducted last year into the Rock and Roll Hall of Fame.

In May of 2018, model and actress Paulina Porizkova announced on social media that she and Ocasek had separated after 28 years of marriage. The pair first met while filming the music video for “Drive.”

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China hack on Australia parliament kept secret to protect trade: Report

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Chinese supporters rally outside Parliament House during the Beijing 2008 Olympic torch relay through Canberra, Australia on April 24, 2008.

Torsten Blackwood | AFP | Getty Images

Australian intelligence determined China was responsible for a cyber-attack on its national parliament and three largest political parties before the general election in May, five people with direct knowledge of the matter told Reuters.

Australia’s cyber intelligence agency — the Australian Signals Directorate (ASD) — concluded in March that China’s Ministry of State Security was responsible for the attack, the five people with direct knowledge of the findings of the investigation told Reuters.

The five sources declined to be identified due to the sensitivity of the issue. Reuters has not reviewed the classified report.

The report, which also included input from the Department of Foreign Affairs, recommended keeping the findings secret in order to avoid disrupting trade relations with Beijing, two of the people said. The Australian government has not disclosed who it believes was behind the attack or any details of the report.

In response to questions posed by Reuters, Prime Minister Scott Morrison’s office declined to comment on the attack, the report’s findings or whether Australia had privately raised the hack with China. The ASD also declined to comment.

China’s Foreign Ministry denied involvement in any sort of hacking attacks and said the internet was full of theories that were hard to trace.

“When investigating and determining the nature of online incidents there must be full proof of the facts, otherwise it’s just creating rumours and smearing others, pinning labels on people indiscriminately. We would like to stress that China is also a victim of internet attacks,” the Ministry said in a statement sent to Reuters.

“China hopes that Australia can meet China halfway, and do more to benefit mutual trust and cooperation between the two countries.”

China is Australia’s largest trading partner, dominating the purchase of Australian iron ore, coal and agricultural goods, buying more than one-third of the country’s total exports and sending more than a million tourists and students there each year.

Australian authorities felt there was a “very real prospect of damaging the economy” if it were to publicly accuse China over the attack, one of the people said.

Unhindered access

Australia in February revealed hackers had breached the network of the Australian national parliament. Morrison said at the time that the attack was “sophisticated” and probably carried out by a foreign government. He did not name any government suspected of being involved.

When the hack was discovered, Australian lawmakers and their staff were told by the Speaker of the House of Representatives and the President of the Senate to urgently change their passwords, according to a parliamentary statement at the time.

The ASD investigation quickly established that the hackers had also accessed the networks of the ruling Liberal party, its coalition partner the rural-based Nationals, and the opposition Labor party, two of the sources said.

The Labor Party did not respond to a request for comment. One person close to the party said it was informed of the findings, without providing details.

Australian Prime Minister Scott Morrison at the Invictus Games opening ceremony on October 20, 2018 in Sydney, Australia.

Samir Hussein | WireImage | Getty Images

The timing of the attack, three months ahead of Australia’s election, and coming after the cyber-attack on the U.S. Democratic Party ahead of the 2016 U.S. election, had raised concerns of election interference, but there was no indication that information gathered by the hackers was used in any way, one of the sources said.

Morrison and his Liberal-National coalition defied polls to narrowly win the May election, a result Morrison described as a “miracle.”

The attack on the political parties gave the perpetrators access to policy papers on topics such as tax and foreign policy, and private email correspondence between lawmakers, their staff and other citizens, two sources said.

Independent members of parliament and other political parties were not affected, one of those sources said.

Australian investigators found the attacker used code and techniques known to have been used by China in the past, according to the two sources.

Australian intelligence also determined that the country’s political parties were a target of Beijing spying, they added, without specifying any other incidents.

The people declined to specify how the attackers breached network security and said it was unclear when the attack had begun or how long the hackers had access to the networks.

The attackers used sophisticated techniques to try to conceal their access and their identity, one of the people said, without providing details.

The findings were also shared with at least two allies, the United States and the United Kingdom, said four people familiar with the investigation.

The UK sent a small team of cyber experts to Canberra to help investigate the attack, three of those people said.

The United States and the United Kingdom both declined to comment.

China ties

Australia has in recent years intensified efforts to address China’s growing influence in Australia, policies that have seen trade with China suffer.

For instance, in 2017, Canberra banned political donations from overseas and required lobbyists to register any links to foreign governments. A year later, the ASD led Australia’s risk assessment of new 5G technology, which prompted Canberra to effectively ban Chinese telecoms firm Huawei from its nascent 5G network.

While some U.S. officials and diplomats have welcomed such steps by Australia and praise the countries’ strong intelligence relationship, others have been frustrated by Australia’s reluctance to more publicly confront China, according to two U.S. diplomatic sources.

U.S. Secretary of State Mike Pompeo bids farewell to officials in Sydney International Airport in Australia on August 4, 2019.

Jonathan Ernst | AFP | Getty Images

On a visit to Sydney last month, U.S. Secretary of State Mike Pompeo delivered thinly veiled criticism of Australia’s approach after Foreign Minister Marise Payne said Canberra would make decisions towards China in based on “our national interest”.

Pompeo said countries could not separate trade and economic issues from national security.

“You can sell your soul for a pile of soybeans, or you can protect your people,” he told reporters at a joint appearance with Payne in Sydney.

Morrison’s office declined to comment on whether the United States had expressed any frustration at Australia for not publicly challenging China over the attack. The U.S. State Department did not immediately respond to requests for comment.

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Difficult to maintain 6% growth, says PM Li Keqiang

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Chinese Premier Li Keqiang

Xinhua | Xing Guangli | Getty Images

Chinese Premier Li Keqiang said it would be “very difficult” for China’s economy to grow at a rate of 6% or more because of the high base from which it was starting and the complicated international backdrop.

The world’s No.2 economy faced “certain downward pressure” due to slowing global growth as well as the rise of protectionism and unilateralism, Li said in an interview with Russian media which was published on the Chinese government’s website, gov.cn.

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