Baidu Rockets Higher On New Smartphone

May.13.12 | About: Baidu, Inc. (BIDU)

Baidu (NASDAQ:BIDU) recently announced its intention to compete on a wider level by introducing its own smartphone.

What makes the phone special is that it is affordable, at least in comparison to offerings from other leaders in the smartphone industry. This means that we can now add such players as Apple (NASDAQ:AAPL) and Google's (NASDAQ:GOOG) Android network to Baidu's list of serious competitors. Baidu apparently wants to sell its smartphone for $160. The smartphone will run on Baidu's Yi operating system. Foxconn Technology Group will manufacture the phone. What effect this will have on Baidu stock is not very clear at present, but, in my opinion, it can only mean good things for the company. Baidu's stock has recently experienced a significant drop, and the advent of this new smartphone may be exactly what the company needs in order to recover. Recently it was announced that Baidu fell for the fourth straight session.

At this point, we don't know much more about the release date of this smartphone other than that it will be "very soon". Among other things, the phone's features will include a 3.5-inch screen, a1400mAH battery, and a high-resolution camera. Baidu previously released a very expensive phone called the "Streak" which was aimed more at business users. The new smartphone that is in the pipeline will be more affordable and more accessible for the general population.

Baidu is often described as the Chinese version of Google, and for all of the right reasons. To me, is seems that Baidu is following a very similar trajectory to that of Google and I think that it will one day be among the most successful companies on the market. The only question on my mind is whether or not Baidu will outprice itself in the near future.

Although there are a number of concerns about whether or not Baidu is a good buy or too expensive, I can think of a few very good reasons to buy Baidu at present. Although investors have been disappointed in Baidu's revenue performance of late and some have even turned their backs on the company, it must be kept in mind that Baidu has actually still managed to perform at a very good level. In addition, Baidu is still the favorite in China. China provides a huge market, and as long as Baidu is popular in China, it should continue to net a large income. And, although Baidu will probably not overtake Google on an international level any time soon, it still succeeds in generating better net profit margins than Google.

Because of the many similarities between the two companies, Baidu and Google continue to battle for the market share in the search engine industry. Now that the economy is slowly starting to improve, corporations have started spending more and more money on marketing. At this point in the battle Google is currently the clear cut leader in North America with a 66.4% market share, while Baidu takes the lead in China with a 61% market share. In China specifically, Google takes a clear second place to the Chinese company which has a notable advantage in the market.

Major Baidu competitor, SINA (NASDAQ:SINA), recently got a whole lot more sensitive about its online content rules for SINA Weibo. Even the most frequent social network users in China are having difficulty keeping up with all of the items being blacklisted on a daily basis, and it seems that even the censors themselves are struggling to know what they should block and what they should not. Government pressure to crack down on what is considered to be "sensitive conversation" has led the social network to publish a list of things that people are not allowed to talk about online, and it's getting to be a long list indeed.

In other news, Yahoo! (NASDAQ:YHOO) recently decided to go after Facebook, accusing the social network of using 16 patents held by the company in its data servers and centers. There are already several other patent lawsuits underway between the two companies. Facebook has countered Yahoo's assertion by stating that Yahoo has in fact violated around ten of its patents. Basically, Facebook is claiming that it works both ways. Yahoo also claims that several of the patents were acquired by Facebook after the case was filed as a form of retaliation.

Competitor Google has so far had very little luck in its lawsuit against Oracle (NASDAQ:ORCL). Recently, jurors ruled that Google's Android operating system for smartphones violated Java software. Although Google is demanding a retrial this is a major setback for the company that's Android technology has been a major hit among consumers in the smartphone industry. At this point, jurors are still deadlocked on the issue of whether or not "fair use" policies make the violation acceptable in this particular context. The final decision in this regard will determine whether or not Oracle receives damages.

The Korean division of Apple recently announced that it would replace defective iPad and iPod products with brand new devices rather than refurbished ones within the first month of purchase. This is in order to comply with Korean local regulations. The Fair Trade Commission are responsible for convincing Apple to change its policy in this regard because, as a rule, if your Apple product breaks within the firs month of purchase you will be given a refurbished rather than a new product in return. In Korea, at least, things have now changed as Korean consumers will be protected under Korean warranty standards.

With tech giants trying to cash in on Baidu's reign in China, it's welcoming to see Baidu strike back in return. If it finds success with its smartphone, particularly in the large Asian markets, Baidu could easily become a name no one can forget. It has the opportunity to become one of the world's most powerful companies, and this is another step toward that reality. The company will continue to profit off of its online presence, but a popular smartphone on the market is what could set its stock on fire.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.