Daily Brief: Chinese Regulators Could Be About To Make Life Very Difficult For Tech Companies

Daily Brief: Chinese Regulators Could Be About To Make Life Very Difficult For Tech Companies

almost 3 years ago3 mins

Tencent posted better-than-expected earnings on Wednesday, but investors refused to be distracted: they’re sure regulators are plotting something.

What does this mean?

You’re probably used to hearing that 2020 was a bumper year for tech firms, so these latest results from Tencent – which beat expectations for a fourth-straight quarter – were more or less par for the course. Most notable were the company’s sales, which topped forecasts thanks to 29% growth in its main business – online gaming – compared to the same time in 2019. Trouble is, it’s a big slowdown from the quarter before, as well as the segment’s slowest growth in a year. That might leave investors wondering if the gaming boom won’t just peter out once this whole pandemic thing clears up…

Game stop

Why should I care?

For markets: No one knows how far Chinese regulators will go.

Investors had bigger fish to fry than Tencent’s latest numbers, mind you: China’s regulators are digging into the company’s online ads and fintech businesses, as well as an investment portfolio that spans hundreds of startups. All that scrutiny hasn’t done its stock any favors, which has dropped 18% since its peak in January. It’s still not clear how far China intends to go to rein in Tencent’s power, but some more optimistic analysts have pointed out that the company’s biggest business – which accounts for almost 70% of its profit – has escaped the crackdown so far.

Lagging behind

The bigger picture: Tech companies have high standards to hit.

One of Tencent’s investments is in Chinese video app Kuaishou, whose share price surged 160% on its first day of public trading last month – the biggest tech initial public offering since Uber’s in 2019. Shame, then, that its maiden results as a listed company on Wednesday were less of a hit: the company reported a drop in its live-streaming revenue, and investors – eyeing up the ever-growing competition from Bilibili and Joyy – sent its shares down 12%.

Keep reading for our next story...

Intel's Investing In Chip Production

Intel image

Intel unveiled a whole new strategy and a $20 billion investment plan late on Tuesday, which it’s confident will help it regain the coveted title of world’s biggest chipmaker.

What does this mean?

Intel’s gone a little off track in the last few years: its manufacturing has slipped behind schedule, it’s lost its grip on the market, and some unimpressed investors even started pushing the company to sell off its chip production altogether to focus on designing them.

Now, though, it’s back with a new CEO and a new grand plan. Intel hasn’t just not ditched manufacturing, it’s actually doubled down on it: the company announced it’ll be investing $20 billion in two new factories, and launching a new unit that makes chips for other companies too. As for those pesky manufacturing delays, it’ll outsource what it needs to in order to stay competitive, but it still thinks it can manage the lion’s share itself.

Building boom
Source: The Wall Street Journal

Why should I care?

For markets: Intel’s gain might be TSMC’s pain.

Rival TSMC’s neck might be sore from whiplash: one moment the world’s biggest contract chip manufacturer thinks it’s about to pick up business from Intel, and the next it’s facing even stiffer competition from the American chipmaker – especially now Intel’s making chips for other companies. Still, that sore neck should go well with its sore tush: TSMC’s shares dropped 3% when investors heard the news.

The bigger picture: The real winners are upstream.

There’s a global shortage of chips right now, which Intel reckons could last for the next couple of years. That could spell bad news for carmakers that have had to halt operations until they’re all chipped up – a delay that could lose the auto industry $61 billion in sales this year. Still, at least those that build chipmaking equipment are bound to have good days ahead, which might be why shares of chip-quipment supplier ASML jumped 6% after Intel’s announcement.

Crisis mode
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