Chinese Tech Stock Weekly Summary (Jan. 5 - 11, 2009)

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

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Internet

• Baidu (BIDU) has received a 1 million yuan (US$146, 274) award from a fund set up to promote "famous brands" by the government of Beijing's Haidian District. China Internet Illegal Information Reporting Centre cited 19 websites, including those operated by Google (GOOG), Baidu, Sina (SINA), Sohu (SOHU), Tencent (TCEHF.PK) and NetEase (NTES) for low-brow content that perverts social morals and harms the physical and mental health of children. Google, listed first, was called out for both web and image search, while Baidu, listed second, was picked up for web search, forums and its personal space service. Other pornographic content was found in forum, blog and photo services of the other aforementioned companies.
• Sohu search engine Sougou.com has fallen short of targets, according to Sohu CEO Charles Zhang. Zhang added that the company plans to release independent social networking service products after China's week-long Spring Festival holiday, which begins January 26, and online game subsidiary Changyou.com Limited will list independently when the economy improves. Sohu announced plans to submit a draft to the U.S. Securities and Exchange Commission regarding a possible initial public offering of Changyou.com in July. Sohu will focus on media and client ends in 2009 and also aims to improve its original content and input software. Competitor Tencent's QQ Pinyin software has copied numerous Sougou functions and displayed pages from Sougou.com, reports cnbeta.com.
• China Yahoo (YHOO) has abandoned its "real domain name" service 3721.com. A Sina report said the site was already inaccessible. Yahoo planned to shrink its business and focus on daily life information site koubei.com, which it merged with on June 1. Yahoo acquired 3721.com, established by Qihoo president Zhou Hongyi, with US$120 million in November 2003; the site was taken over by China Yahoo in 2005. The real domain name service redirects users who enter keywords in the address bar of a PC with 3721 software to a specific company site.
• Taobao.com saw daily transaction volume rise 100 percent year-on-year to reach 400 million yuan (US$58.5 million) between December 27, 2008 and January 2, 2009. Taobao figures show Guangdong transaction volume also doubled to exceed 200 million yuan (US$29.2 million) in December, second only to Shanghai. Spring festival food purchases came in around 1.5 billion yuan (US$219.4 million) over the past month, with average New Years product prices, including food and non-food items, down 40 percent year-on-year. Chinese sports brand Li Ning books online sales that beat all of its offline locations. Nearly 10,000 companies have opened stores on Taobao's business-to-consumer platform.
• By the end of November 2008, the number of blogs in China exceeded 100 million and the number of bloggers exceeded 50 million, said Gao Lulin, vice-chairman of the Internet Society of China (ISC). Personal blog sites are virtual places where netizens can express various opinions through the Internet. To date, the number of Chinese Internet users is over 290 million, making it the No. 1 Internet country in the world, with a total of more than 2.1 million websites. Netizens as a group have already become not only a force active in the virtual online world, but also an indispensable and significant group in the real society. Netizens, using unique online languages and a variety of online formula, reflect on a great deal of real life phenomena, closely follow hot topics and create an Internet culture. Therefore, the development of the Internet culture has become quite necessary.
• A newly established anti-piracy alliance intends to sue Shanghai-based video site Tudou.com for more than 10 million yuan (US$1.4 million). Nearly 80 content providers including Joy.cn, Polybona, Orange Sky Entertainment and SFS Emperor, a joint venture between EEG and Shanghai Film Group Corporation, announced the alliance the same day. Tudou said it has not received notice of the suit. The video provider agreed to settle a five-film copyright infringement case with Joy.cn in November for an unspecified amount

Telecommunications

• The Ministry of Industry and Information Technology (MIIT) issued 3G licenses to China Mobile (CHL), China Telecom (CHA) and China Unicom (CHU). China Mobile is licensed to run the TD-SCDMA network; Telecom takes CDMA 2000 and Unicom gets WCDMA. China Mobile launched 188-mobile numbers in Shanghai and Guangdong as it debuted a new 3G logo. The mobile operator intends to take 188-numbers nationwide in June, once network construction is complete in 28 provinces. The home-grown TD-SCDMA network covers 38 Chinese cities.
• China Mobile and China Telecom have requested wireless network equipment manufacturers to ensure their products to be compatible with WAPI function when bidding for AP. In the meantime, China's top three telecom operators decided to transform their WiFi hotspots constructed previously to WAPI. WAPI chip producer AzureWave lately announced that it would roll out wireless module IC supporting WAPI, which implies that WAPI terminals will not only be compatible with WiFi, but also can be applied to different types of cell phones, namely CDMA, GSM, and 3G, in future. Deputy secretary of WAPI Alliance Qin Zhiqiang said that there were over 20 types of WAPI chips with most of their outputs exceeding one million pieces. Production of WAPI terminal chip modules compatible of WiFi enriches the WAPI industry chain, and shows that the WAPI standard is accepted and supported by international manufacturers.
• Global contract sales of Huawei Technologies jumped 46 percent in 2008 to US$23.3 billion. Huawei Technologies Co. Ltd. also forecast sales of more than US$30 billion in 2009. Huawei normally announces only contract sales, while actual sales average about 72-75 percent of that figure. Over three quarters of Huawei's sales come from international markets, where it and smaller rival ZTE (ZTCOF.PK) have been expanding rapidly, taking market share from global giants such as Nokia (NOK) and Qualcomm (QCOM) with aggressive pricing. Without giving specific numbers, the paper said 15 percent of the staff at the company's headquarters in China would be transferred overseas, while another 5 percent would be laid off. Huawei's net income rose 31.6 percent in 2007 to US$674 million; however its operating profit margin has fallen steadily from 19 percent in 2003 to only 7 percent in 2007. The privately held company, based in Shenzhen, started its push abroad in developing markets in Africa and Asia, but in recent years has targeted mature markets in North America and Europe.

Alternative Energy

• LDK Solar (LDK) has lowered fourth quarter 2008 revenue guidance by US$130 million to US$425-435 million on requested shipment delays to 2009 and tight credit markets. Wafer shipment estimates have been dropped 15MW to a 245-255MW range. Gross margin for the quarter is now expected between 10-13 percent from previous estimates of 18-21 percent. Full year revenue guidance fell by US$600 million to between US$2.3 billion and US$2.5 billion, with gross margin of 22-27 percent, due to lower prices and shrinking shipments, now pegged at 1.57-1.67GW. Total capacity is still expected to grow from 1.46GW at the end of 2008 to 2.3GW at the end of this year.
• JA Solar Holdings Co. Ltd. (JASO) announced that Anthea Chung has been appointed as chief financial officer to replace Daniel Lui, who takes over as chief strategy officer. Solar Power Inc. announced the same day that it has signed a one-year, 60MW supply agreement with JA Solar. The vertically-integrated solar solutions provider said it would use JA Solar cells to make modules for sale in Europe and Asia and for turnkey systems in the U.S.
• Yingli Green Energy Holding Company Limited (YGE) has completed the acquisition of Cyber Power Group Limited. To fund the acquisition, the Company used available cash on hand and committed to issue senior secured convertible notes due 2012 to Trustbridge Partners II, L.P. Pursuant to a share purchase agreement entered into between Yingli and Grand Avenue Group Limited, a company controlled by Mr. Liansheng Miao, Chairman and Chief Executive Officer of the Company, Yingli acquired 100 percent of the issued and outstanding share capital of Cyber Power. Cyber Power, through Fine Silicon Co., Ltd., its principal operating subsidiary in China, is a development stage enterprise with plans to begin production of solar-grade polysilicon in the second half of 2009.

Semiconductor

• Semiconductor Manufacturing International Corp. (SMI) will import new strategic investors, including Intel Corp. (INTC). The two companies may cooperate on a US$2.5 billion microchip plant that Intel began building in China's northeast city of Dalian. Prior to Intel, SMIC announced in last November that it would sell US$171.8 million worth of its new shares, about 16.57 percent of its corporate equity to Datang Holdings, the international standard setter for TD-SCDMA third generation (3G) mobile telecommunication and the move is expected to draw new orders and capital for SMIC. So far, SMIC remains the largest semiconductor producer in China and the upcoming partnership with global giant Intel will further strengthen its edges in manufacturing techniques.

Media, Gaming and Entertainment

• SinoMedia Holding Limited announced that its subsidiary CTV Golden Bridge International Media Co. Ltd., also known as CTV Media (Shanghai), signed a five-year contract with CCTV International Network Co. Ltd. to gain exclusive rights to advertising on cctv.com's news channel starting January 1, 2009. The agreement includes all ad resources unrelated to the following four programs: "News Broadcasting" (Xinwen Lianbo), "News 30'" (Xinwen 30 Fen), "Evening News" (Wanjian Xinwen) and "Topics in Focus" (Jiaodian Fangtan).