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Aug 13, 2019
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China's tech firms to post slower June-quarter growth on sagging demand

Reuters API
Aug 13, 2019

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 Corp and its smaller rival JD.com, internet firm Baidu Inc, 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."

JD.com, which is expected to report earnings on Tuesday, could manage to eke out a small profit by curbing costs, according to Refinitiv data. 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.

Meanwhile, Alibaba's profit is likely to grow 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.

Similiarly, 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.

Finally, 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.

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