Is Qihoo 360 Calling Up Baidu?

Baidu (Nasdaq: BIDU  ) isn't the only Chinese search engine with smartphone dreams.

TechInAsia.com is reporting that Qihoo 360 (NYSE: QIHU  ) is rolling out a smartphone -- and a surprisingly dirt-cheap and powerful quad-core handset at that -- to gain a stronger foothold in China's booming smartphone market.

How big is the Chinese market? Well, consider that China Mobile (NYSE: CHL  ) alone has more than 693 million customers. That's more than half of China, and the good news for smartphone makers is that most of the country's mobile customers are still using older feature phones.

Baidu unveiled the first device running the Baidu Yi mobile operating system late last year, upgrading the platform a few months ago to Baidu Cloud to play right into the dot-com giant's growing suite of online services.

Qihoo 360 may be new to search, but it's been a dot-com heavyweight, too, through its popular Web browser and online security tools. If Baidu feels that having some more skin in smartphones will help it grow its market in mobile, Qihoo 360 may as well follow along to make sure that its properties don't get lost along the way.

Lemon laws
Baidu isn't the only company that Qihoo 360 is battling against these days. Qihoo 360 recently sent a cease-and-desist notice to the well-read worrywarts at Citron Research.

Citron called Qihoo 360 "the most overvalued and misunderstood Chinese Internet stock" late last year, and Qihoo 360 fired back, refuting most of its bearish claims. Now it's getting lawyers on the case.

Citron has hit on a few of its targets in the past, but it may have missed on Qihoo 360. Forget Qihoo 360 for a moment. Many analysts have turned cautious on Baidu in recent weeks, to the point where China's leading search engine has surrendered nearly $10 billion in market cap, almost entirely on the arrival of Qihoo 360 as a market-share disruptor in search.

We'll have to see how this all plays out, but between the cheap smartphone push and Qihoo 360's market-share gains in search since rolling out its platform this summer, it doesn't seem as if Citron's $5 price target on the fast-growing Chinese Internet company is going to materialize anytime soon.

Betting on China
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Rick Aristotle Munarriz has no positions in the stocks mentioned above. The Motley Fool owns shares of Baidu and China Mobile. Motley Fool newsletter services recommend Baidu. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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