Baidu.com $BIDU $GOOG Alert: Google Announces Google.cn Shutdown (MORGAN STNALEY, CITIBANK RESEARCH)

Baidu.com (BIDU.O)
Alert: Google Announces Google.cn Shutdown

On Monday afternoon (US time), Google announced on its official blog (http://googleblog.blogspot.com) that it has stopped censoring its search services on Google.cn, and users are being redirected to Google.com.hk. This is consistent with our view that Google.cn will exit China, and we view Google.com.hk as a less attractive option for advertisers due to the potential delays in access. Subsequently, Xinhua reported that the State Council's Internet News Department has responded to Google's announcement, indicating that they are upset with Google's unreasonable accusations regarding hacking by Chinese parties, and that Google has violated its previous written promises (on censoring search results) when entering the China market. We continue to view Baidu as the biggest beneficiary of Google.cn’s exit. Maintain Buy and US$630 TP.

Specifically, users accessing Google’s search services, including its webpage Google Search, Google News and Google Images will be redirected to Google.com.hk, which will offer uncensored search in simplified Chinese. On its blog, Google stated that it has come to this decision after “the Chinese government has been crystal clear throughout our discussions that selfcensorship is a non-negotiable legal requirement.” Google intends to continue R&D and maintain a sales presence in China.

Google also acknowledged that potential slowdown in service or temporary inaccessibility to certain products may be possible as a result of redirecting to Google.com.hk. Because its servers are located outside of mainland China, we believe that Google.com.hk’s search traffic would be subject to the same delays in passing through China’s Internet gateways for foreign Internet traffic as Google.com’s, and material delays have been commonplace previously.

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