Chinese Tech Stock Weekly Summary (Dec. 8 - 14, 2008)

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Includes: ALBCF, BIDU, CARYK, CHA, CHL, CTRP, FMCN, GOOG, JASO, SOL, ZTCOF
by: IRG Ltd

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

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Internet

  • Baidu (NASDAQ:BIDU) plans to officially release its right-column advertising system "Phoenix Nest," in the second quarter of 2009, reports qq.com, citing sources. September reports said the new system, similar to Google (NASDAQ:GOOG) AdWords, would be released soon, but Baidu has yet to announce a release date. The report said Baidu planned to spend three years developing the new product, but has speeded the release in response to recent press. Baidu included unlicensed companies in its paid search on November.
  • Alibaba.com Ltd. (OTC:ALBCF) announced it signed a reseller agreement with Melbourne IT Ltd, to jointly enter the small and medium business (SMB) market in Australia and New Zealand. Under the terms of the agreement, Melbourne IT will sell Alibaba's TrustPass Service to clients, which offers third-party verification and authentication of the seller's business to give buyers confidence. Alibaba.com states that more than 85 percent buyers in the Alibaba.com marketplace only trade with TrustPass-verified sellers.
  • China E-Learning Group is in the process of renegotiating with vendors the terms of the acquisition agreements in relating to the acquisition of 61.27 percent of the issued share capital of IIN Medical (BVI) at 24.5 million yuan (US$3.6 billion). IIN Medical Group aims at achieving its objective of becoming the leading provider of Chinese medicine distant education in PRC within 3 years. It plans to increase the coverage of education centers in more provinces and launch more professional subjects in addition to the existing 6 subjects.
  • Online travel services provider Ctrip.com International, Ltd. (NASDAQ:CTRP) expects to issue refunds of about 1 million yuan (US$0.1 million) for air ticket prices that dropped with fuel surcharges. Ctrip is refunding customers who purchased tickets before the surcharge decrease but were not issued their ticket until after prices were lowered. Ctrip said the total refund per customer was about 170 yuan (US$24.84). The company has begun the refund for airlines including Cathay Pacific and Dragon Air.

Telecommunications

  • China Mobile (NYSE:CHL) will begin its merger with China Tietong, a fixed-line operator owned by the Ministry of Railways, in February 2009 with completion slated for the second quarter of 2009. In February 2009, some 90 percent of China Tietong's management staff and 70 percent of China Tietong's employees will be transferred to the Ministry of Railways to work on the railway telecommunication network. The remaining staff will be taken on by China Mobile. In March 2009, China Tietong's local networks and long-distance transmission network will be integrated with China Mobile's network. The merger is part of the country's telecom industry overhaul, which will create three integrated telecoms giants.
  • China Mobile said it signed 5.4 billion yuan (US$789.1 million) worth of TD-SCDMA thirdgeneration network equipment orders. China Mobile said it signed contracts with ZTE Corp (OTCPK:ZTCOF), Datang Telecom Group, Nokia-Siemens (NYSE:NOK) and Ericsson (NASDAQ:ERIC), among others. It gave no other details. New TD-SCDMA networks covering 28 cities will be completed in June, it said. Wang Jianzhou, president of China Mobile, added that subscribers to its TD-SCDMA service totaled 337,000 at the end of November.
  • ZTE signed recently a contract with China Mobile Communications Corporation's Pakistani company CMPak Co., Ltd for the second phase of the GSM network expansion with contractual value of US$ 100 million. The GSM network expansion will cover Pakistan's advanced areas and half of its population. Zhang Liang, CEO of ZTE Pakistan, said that the expansion will mainly cover the middle part of the country, including its second largest city Lahore, as well as another eight cities and areas such as Multan and Faisalabad. ZTE will supply the 8000 series of base stations that can smoothly switch over to the mobile broadband network adopting the IP technology and help operators keep their costs low.
  • Huawei has joined the Open Handset Alliance as it prepares to enter the smartphone market during the first half of 2009. The Chinese vendor is the latest in a raft of new players to join the group, including Sony Ericsson, Vodafone (NASDAQ:VOD), Softbank Mobile and ASUSTek. The Open Handset Alliance was established to develop integrated software and applications for use by Google's recently-launched open standards mobile operating system, known as Android. The equipment maker expects the global handset market to grow at an annual rate of 37.7 percent, accounting for more than 30 percent of the global mobile phone market by 2012. Unit shipments are expected to exceed 400 million in 2011, compared to 110 million in 2007.
  • China Telecom (NYSE:CHA) is set to spend as much as 120 million yuan to market the 189-prefixed mobile phone numbers, 10 million yuan (US$1.5 million) of which will be put in Guangdong province. Buyers of numbers like 8888 and 6666 will have to pre-pay 30,000 yuan (US$4,384) and 6,000 yuan (US$877) and consume at least 2,500 yuan (US$365) and 500 yuan (US$73) each month, respectively, because these numbers are known as propitious in China. China Telecom will officially sell 189-prefixed telephone numbers on December 20 nationwide to attract more CDMA handset subscribers. As the newly-added CDMA numbers, it will be backed by more powerful value-added data services. China Telecom hopes to bring the number of CDMA subscribers from 43 million currently to 100 million in the coming three years to occupy 15 percent of China’s mobile telecom market.
  • China Telecom has made full preparations to explore the domestic mobile communications market and will launch related promotion activities soon. Tianyi Telecom Terminal Co., Ltd., China Telecom's new subsidiary, held an opening ceremony a week ago, which marks commencement of CDMA terminal operations of the company. China Telecom will carry out its operation of CDMA terminals. China Telecom took over the CDMA network from China Unicom in October this year and has procured 5 million CDMA handsets from manufacturers including ZTE, Huawei, Hisense, Yulong, and Samsung.

Media/Entertainment

  • Chinese digital advertising company Focus Media Holding Ltd. (NASDAQ:FMCN) said it plans to restructure its in-store advertising unit and expects a related fourth-quarter non-cash charge of about US$200 million. The company also terminated its remaining wireless advertising business segment, citing market conditions, and said it expects a related charge of about US$20 million, also in the fourth quarter. Focus Media also said it was not making additional performance-based payment of US$182 million for CGEN, which it acquired early this year, that was contingent upon CGEN meeting certain earnings targets during the 24-month period following the closing of the transaction.

Information Technology

  • China's IT industry is expected to maintain its 2008 growth rate of roughly 17-18 percent to reach a scale of 7.4 trillion yuan (US$1.1 trillion) in 2009, reports China Securities News quoting Ministry of Industry and Information Technology (MIIT) inspector Gao Sumei. The software industry is expected to grow 20 percent in 2009 to reach 900 billion yuan (US$131.5 billion), while manufacturing of TVs, computers, telecom equipment, mobile terminals and electronics components will see growth of 18 percent, 17 percent, 10 percent, 9 percent and 19 percent, respectively, in 2009. Total revenue from the domestic software industry rose 31 percent year-on-year to 643 billion (US$94 billion) in the first ten months of 2008.

Semiconductor

  • ReneSola (NYSE:SOL) has sold its 49 percent stake in polysilicon joint venture Linzhou Zhongsheng Semiconductor Silicon Material. Its share were sold to its partner Linzhou Zhongsheng Steel for 200 million yuan (US$29.2 million), 44 million yuan (US$6.4 million) in cash and 156 million yuan (US$22.8 million) in cash or credit via a 500 yuan (US$73.06) per kilogram discount on the future polysilicon spot price. ReneSola invested about 103 million yuan (US$15.1 million) to establish the JV with Zhongsheng Steel in Linzhou, Henan province in August 2007. In the third quarter, ReneSola's equity interest from the JV was US$5.2 million. The company is contracted to buy a minimum of 55 percent of Zhongsheng Semiconductor output at market price for a term of three years.

Alternative Energy

  • Chinese solar company JA Solar Holdings Co. Ltd. (NASDAQ:JASO) sharply reduced its fourth quarter revenue outlook, citing a dramatic slowdown in orders. JA Solar's warning came a day after Q-Cells (OTCPK:QCLSF), the world's largest maker of solar cells, stunned markets by abruptly cutting its outlook for this year due to "a flood" of requests from customers to postpone deliveries. JA Solar forecast revenue of US$124 million for the current quarter, down from its prior view of US$191.5 million to US$220.9 million. Analysts, on average, had been expecting revenue of US$201.8 million, according to Reuters Estimates. Total production for 2008 will be in the range of 250 megawatts (MW) to 260 MW, down from the company's previous expectation of 310 MW. JA Solar also stood by its gross margin forecast of 5 percent 7 percent for the quarter. JA Solar shares have lost 89 percent of their value since hitting a year high of US$27 in April.
  • The Asian arm of U.S. private-equity firm Carlyle Group L.P. (OTC:CARYK) is seeking US$206 million in damages from the founding managing partner of Sequoia Capital China Advisors Ltd., Neil Shen. The Carlyle fund alleges Mr. Shen thwarted its investment in Green Villa Holdings Ltd. by backdating an investment agreement with the company's founder. According to the fund, Green Villa's founder is a former classmate of Mr. Shen. In a writ submitted to Hong Kong's High Court on Dec. 2, Carlyle Asia Investment Advisors Ltd. accused Mr. Shen of backdating an US$11 million investment contract between Sequoia Capital China Growth Fund I L.P. for a 25% stake in Green Villa to four days before Carlyle signed an agreement for a US$10 million investment in the Chinese company. The agreement allowed it to increase its stake up to 38% for a total of US$28 million if the company met certain financial targets, the writ alleged. A day after the sales agreement was executed, Green Villa's controlling shareholder, Ren Jun, notified Carlyle the deal couldn't proceed as agreed because of a previous agreement with Sequoia, the document alleged. Carlyle claims that Mr. Ren sent a contract with Sequoia dated Oct. 4 to Carlyle in an email on or around Oct. 10, along with a message that read in Chinese "pray forgive." Carlyle also accused Mr. Shen of acquiring confidential information contained in Carlyle's business, legal and financial due diligence on Green Villa from Mr. Ren and using the information in devising Sequoia's contract. The US$206 million in damages Carlyle is seeking is the estimated profit that the private-equity fund would have reaped if it exited the investment in 2011, Carlyle alleged.