Chinese Tech Stock Weekly Summary (Nov. 3 - 9, 2008)

by: IRG Ltd

The following is excerpted from IRG's weekly stock report:

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Ningbo Bird Co., Ltd. incurred net losses of 25.4 million yuan (US$4 million) in the third quarter of 2008, narrowing 90.7% from Q3 2007. From January to September 2008, the company suffered net losses of 47.5 million yuan (US$7 million) in total. Return on equity reached -6.7%. Sales and financial expenditures respectively reduced 62.2% and 30.1% from a year ago. Operating revenues from main business dropped 51.6% year on year mainly due to decrease in sales revenues caused by furious competition in the domestic market, explained Ningbo Bird. Export revenues fell because of the sale in stakes in its joint venture Ningbo Bird Sagem Electronics Co., Ltd.

The Lenovo Group Limited (OTCPK:LNVGY) is expected to become the sole shareholder of Fujitsu Siemens Computers (Holding) BV in the long run. Fujitsu Siemens Computers was established in 1999, with a 50-50 capital from Fujitsu Ltd. (OTCPK:FUJIY) and Siemens AG (SI), which signed a cooperative agreement about their joint investment with a term of ten years. With a market value of about EUR 1 billion, the joint venture has become the biggest computer manufacturer in Europe by far. However, the two parent companies are expected not to continue their agreement after the maturity, as Siemens wants to pay more attention to the sectors like energy and medical treatment. After several rounds of negotiation,
Fujitsu is to acquire Siemens's 50% stake in the Fujitsu Siemens Computers for 350 million euros (US$448 million) to 40 million euros (US$51.2 million). After the acquisition, Fujitsu would sell the joint venture as a whole to Lenovo.


Tsinghua Tongfang Co., Ltd is trying to deepen its footprint in the Chinese digital TV market. The company announced that it plans to spend US$19.5 million buying a 25% stake in Sino-Korean home shopping joint venture Shanghai Oriental CJ (OCJ). The deal will enable Tsinghua Tongfang to build up a complete industrial chain covering equipment, network services, content
resources and value-added services in the digital TV filed. The transaction will be conducted by an e-commerce unit of Tsinghua Tongfang. The unit will buy the OCJ stake after getting an additional 167.3 million yuan (US$24.5 million) investment from its parent. OCJ was founded by Shanghai Media Group and CJ Home Shopping in January 2004 with a registered capital of US$10 million. The venture provides services like TV shopping, online shopping and catalog shopping to customers in Shanghai and the Yangtze River delta. OCJ saw net profits and revenue amount to 25.2 million yuan (US$4 million) and 566 million yuan (US$83 million) in the first half of 2008, while it gained net profits of 22.02 million yuan (US$3.2 million) and revenue of 797 million (US$117 million) in 2007.

MediaG3, Inc., a developer for broadband wireless product and interactive rich-media content delivery applications, announced that it has launched China Green Pages, a web 2.0+ site similar to a combination of My Space with ecommerce. With revenue projection of reaching over US$5 million in the next few years, China Green Pages is an extensive network of branded communities for information exchange, social networking, commerce and targeted marketing to business and consumers in the vast China market space and beyond. China Green Pages aims to establish cultured green commerce networks and to build trusted relationships between market and customers, between product and users, between merchants and consumers. There are three revenue channels from registration fees, advertising and revenue sharing merchants. China Green Pages is operating under Oriental Media, a wholly owned subsidiary of MediaG3 in Shanghai, China. Among the attendees at the launching ceremony were government officials, business executives from domestic and international corporations- and senior level representatives from American Consulate


China's telecom industry saw rising business volume and profit in the first three quarters of this year as telephone and Internet users increased steadily. The fundamentals of China's telecom industry was sound with profit jumping 10.3% year on year in the first nine months. The nation's telephone users climbed to 977 million by the end of September, the world's largest. Subscribers jumped by 64.25 million in the January-September period. Up to 12.93 million broadband Internet users were added during the same period, pushing up the total to 79.35 million, the most in the world. Internet service has expanded to every township excluding those in Tibet, Gansu and Qinghai.

China Telecom (NYSE:CHA) has fully prepared for the project of updating the current CDMA network with the U.S. 3G standard CDMA2000 and would take the lead to put the updated network into trial operation at year-end 2008. Although the issue of 3G license is still in the air, such leading Chinese telecom operators as China Mobile (NYSE:CHL), China Unicom (NYSE:CHU) and China Telecom have showcased their trial 3G technologies at a recent exhibition. An insider of China Telecom disclosed that the company would not put the CDMA2000 network into trial commercial operation as China Mobile does for its TD-SCDMA network, and instead China Telecom would try the network insider the company. Besides, the majority of current terminals in the hand of C-network users have been equipped with the functions of CDMA 2000, so C-network users needn't buy another terminal after the update. 3G license would be issued in the next three months. China Unicom and China Telecom are under heavy pressure as most of the new mobile users choose China Mobile's services and 3G communication is the only trump card for them to compete with China Mobile.

Huawei Technologies is about to help local telecom carriers in Middle East build up the first commercial LTE/SAE network in June 2009. Latest statistics from ABI show that over 300,000 LTE (System Architecture Evolution) base stations will be built up before 2014 the world over, involving total investment of US$18 billion. ABI expects that the number of LTE users will hit 400 million to 450 million by 2015, representing a huge market of 150 billion euros (US$192 billion). Huawei Technologies is one of the initiators of LTE and one of the members of NGMN (next generation mobile network). The Chinese telecom carrier carried out the multi-user mobile testing of LTE. At the moment, Huawei is deploying LTE trial networks around the world by joining hands with telecom operators in Europe, North America, Japan, and so on.

China's CDMA will take the lead in the network quality in major Chinese cities by the end of this year. China Telecom (CHA), after shelling out 110 billion yuan (US$16 billion) for buying CDMA networks from China Unicom (CHU), will invest 80 billion yuan in upgrading, rebuilding and optimizing CDMA networks in three years. The first phase expansion construction is well underway. After the equipment is installed, efforts will focus on the second optimization phase such as to expand coverage, reduce the rate of dropped calls, increase the data throughput, and improve the indicators of the network. The target users of CDMA networks will focus on government users, enterprise users, home users and individual users. A number of new mobile services will be launched. These services not only cover different needs of the target user groups, but also include many differentiated products.

China Unicom (CHU) said in its latest financial report that its revenues in the first nine months grew a meager 3% to 52.5 billion yuan (US$7.6 billion). It saw a 13% drop in its third-quarter earnings on lower mobile usage and subscriber growth during the Beijing Olympics. China Unicom is in a good position to benefit from the evolution of the mobile telecoms industry in this country, which has seen the company jettison its fading CDMA business and merge with China Netcom, as Beijing's policies are seen favoring the smaller player over heavyweight China Mobile (CHL). But the massive capital expenditure lined up for the firm's foray into the third generation ((3G)) services is likely to erode short-term profitability and cast an overhang on the stock. The mobile operator, which completed its merger with fixed-line service provider Netcom in this October, reported net profit of 2.57 billion yuan (US$377 million) for the three months ended September, down from 2.98 billion yuan (US$437 million) a year

Media, Gaming and Entertainment

NetDragon Websoft Inc. (OTC:NDWTF) is estimated to have a profit decline in the first three quarters of 2008. The decline was caused by several reasons. The company reached a total operating revenue of 147 million yuan (US$22 million) in the second quarter, slashing nearly 30 million yuan (US$4.4 million). The games, operated by the company, had a revenue decline compared with the first quarter. For instance, Conquer Online had a revenue decline of 7.1%; Eudemons Online 13.2%; Zero Online 23%; and Tou Ming Zhuang Online 66.2%.

Suzhou Snail Electronic Co., Ltd. (Snail Game), a 3D online game developer based in Suzhou, got an operating license for a browser game in China from Astrum Online Entertainment Holding Company (AOE). And the game was named Legend: Legacy Of The Dragons. The two companies will have an exchanged operation form. Snail Game is to have a dealership of Legend:
Legacy Of The Dragons in China, and AOE is to a dealership of 5 Street in Russia. Established in October 2000, Snail Game is a developer of 3D online games. It has rich online game developing experience, and its own 3D online game engine. Their products are Voyage Century, Age of Armor, 5 Street, Super Richman in Kong-fu Land, Age of Armor II, and The Chosen. AOE, a player in the
online entertainment market in Russia, launched the first joint game project in partnership with Rambler Media Group ((LON:RMG)), a diversified Russian language internet media and services group.