Chinese Tech Stock Weekly Summary (Jan. 12 - 18, 2009)

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

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Internet

• China's internet population grew 41.9 percent in 2008 to 298 million users. Of those, 270 million were broadband users, up from 163 million in 2007. The number of those using their mobile phones to go online grew 133 percent to 117.6 million. China's offshore bandwidth grew up to 74 percent, overtaking raw subscriber growth. China deployed 369Gbps in offshore backbone capacity in 2007 and 257Gbps in 2006. China overtook the U.S. in the middle of 2008 to take the crown as the biggest internet market by user numbers. Its internet penetration rate of 22.6 percent compares with 73.3 percent for Japan, the world leader, and 72.5 percent and 70.7 percent respectively for the U.S. and Korea.
• Alibaba Group's (ALBCF.PK) consumer-focused e-commerce site Taobao.com has added nearly 200,000 new online stores per month since September 2008, up more than 60 percent from the first half of 2008. The figures indicate that more than 5,000 people open stores on Taobao everyday on average. Taobao booked transaction volume of 99.96 billion yuan (US$14.6 billion) in 2008, up 131 percent from 2007. The site's 2007 transaction volume rose 156.3 percent year-on-year from 2006 to reach 43.3 billion yuan (US$6.3 billion).

Telecommunications

• China Mobile Ltd. (CHL) plans to launch a third-generation handset using Google Inc.'s (GOOG) Android platform in the first quarter. The handset, named "OPhone", will be the first phone in China that features Google's Android operating system, and will use China's homegrown 3G mobile network. The company has been in talks with Google on using the open mobile platform, but the companies haven't reached agreement. Taiwan's HTC Corp. launched the world's first Android-powered smartphone for T-Mobile USA in September. The company hasn't heard about China Mobile's requirement for an Android-powered mobile phone.
• China Mobile plans to invest 58.8 billion yuan (US$8.6 billion) to establish nearly 60,000 TDSCDMA base stations in 2009, bringing its total base stations to more than 80,000 as part of third-phase TD-SCDMA network construction. The 58.8 billion yuan (US$8.6 billion) investment will exceed total investment for the first two phases and will cover 238, or more than 70 percent, of prefecture-level cities. China Mobile plans to hold third-round TD-SCDMA bidding from January 20 until late March. Second-phase TD-SCDMA network construction will be completed by June 20, 2009.
• China Unicom (Hong Kong) Ltd. (CHU) Chairman Chang Xiaobing expects the company's third generation mobile telecommunication services to become profitable next year. Chang, who is also the company's chief executive, said China Unicom plans to launch 3G mobile services in 55 cities in China in the first half, and aims to expand the service to 282 cities by the end of this year. The company will spend 30 billion yuan (US$4.4 billion) in the first half to build its 3G network. Its total expenditure this year for its 3G network will exceed 60 billion yuan (US$8.8 billion). It will start the tender for the 3G network construction as soon as possible. China Unicom, China's second-largest mobile operator by subscribers after China Mobile Ltd., received its license for 3G services last week. It will use the Wideband Code Division Multiple Access standard for its 3G network. The Chinese government also granted 3G licenses to China Mobile and China Telecom Corp. (CHA).
• China Telecom subsidiary Shanghai Mobile has launched a new pay-for-time mobile Internet charging model for CDMA network handset users. Shanghai Mobile's 5 yuan (US$0.70) monthly package includes two hours of free mobile Internet and charges 0.1 yuan (US$0.01) for each additional minute; the 10 yuan (US$1.50) monthly package includes 6 hours of free mobile Internet. A Shanghai Telecom customer service representative said mobile Internet service packages are available from 5 yuan (US$0.70) to 30 yuan (US$4.40) per month with 0.1 yuan (US$0.01) for each extra minute. The Beijing Telecom subsidiary does not currently offer similar packages.
• China Unicom announced that China's state assets regulator State-owned Assets Supervision and Administration Commission of the State Council (SASAC) has approved the merger of the listed China Unicom and China Netcom's (CN) parent companies, which has become effective. Upon the formal approval of the merger, all associated rights and obligations under China Netcom's parent were assumed by China Unicom's parent. As the transactions have similar nature, the annual cap to Netcom parent's continuing connected transaction agreements will be aggregated with that to Unicom parent's for each of the financial years of 2009 and 2010. The annual caps of materials procurement part were 18.5 million yuan (US$2.7 million) and 20.1 million yuan (US$2.9 million) for the financial years of 2009 and 2010, respectively; that of property leasing part, 11.3 million yuan (US$1.7 million) and 11.7 million yuan (US$1.7 million); and that of engineering and information technology services part, 51.5 million (US$7.5 million) and 54 million yuan (US$7.9 million).
• Huawei Technologies Co. Ltd. plans to start its Internet business by launching its own social network service (SNS), according to an industry insider. Yan Wenbo, a former MySpace official responsible for business operations, has joined Huawei to work on its new SNS project. Launching Internet-based services is a trend in the global telecom and IT industries. If Huawei waits too long to enter the Internet industry, it is very likely to lose out to competitors in the future, even in areas where it is traditionally strong. Launching an SNS could help Huawei establish a closer connection with its customers and the means to provide better after-sales service. However, the source told Interfax that Huawei aims to make its SNS a platform for general users, not just its business clients.
• The Costa Rican Electricity Institute gave China's Huawei Technologies Co. a US$235 million contract to install a 3G mobile phone network for 935,000 customers in the country. ICE deputy manager Claudio Bermudez said the 3G network should be operational throughout the Central American nation by the end of 2009. The contract, which Huawei won in a bidding war against Sweden's Ericsson (ERIC) and China rival ZTE Corp. (ZTCOF.PK), will be submitted for approval to Costa Rica's General Accounting Office. An initial bid in August was won by Huawei with a US$583 million price tag against no opposition as other companies rejected ICE demands for the contract. President Oscar Arias intervened, asking ICE to withhold adjudication of the contract until another auction could be held. The 3G move will give mobile users access to high-end data applications on their phones, including high-speed interactive gaming and Internet access, video conferencing, video streaming and other multimedia features.

Media, Entertainment and Gaming

• Overseas revenue for China's online gaming industry reached US$70.74 million in 2008, US$30 million of which was generated by Beijing-based online game company Perfect World (PWRD). In 2007, Perfect World accounted for US$10.1 million of the US$55 million in overseas revenue generated by China's gaming industry. Michael Chi does not plan to resign from his position as CEO in order to clarify comments made by Chi at a recent conference. Chi would consider giving up his post as CEO before next year to give other talented employees space and opportunity. Perfect World expected fourth quarter 2008 overseas revenue to exceed US$10 million. The overseas revenue of US$8.4 million in the third quarter, US$5.1 million in the second quarter and US$5.5 million in the first quarter of 2008.
• Shanda (SNDA) plans to license Kingsoft's in-house developed 3D martial arts MMORPG "JX Online 3" for operation on its game platform "Shanda Online," and the companies will announce the agreement. Kingsoft gave away 4,000 testing accounts from the start of internal alpha testing in November 2008 until its conclusion. JX Online 3 is scheduled to start another round of testing in March and will be formally released in July. The companies' partnership began and they have not excluded the possibility of cooperating over "JX Online 3" in the future. Shanda paid US$50 million to license NCsoft's 3D fantasy MMORPG "AION," US$30 million as a signing fee and US$20 million as a minimum guarantee.
• Shanda plans to invest a total of 1 billion yuan (US$146 million) in the next three years to support original domestic content and has already invested a total of 300 million yuan (US$44 million) in more than 30 companies. Shanda established its "18 Fund" to support potential game developers with 1 billion yuan (US$146 million) in July 2007. The company also operates incentive mechanism "20 Plan," which shares 20 percent of revenue with game operators. Giant Interactive announced the launch of a "Win@Giant" incubation program aimed at attracting talent in game design, project management, programming, art and other areas.
• China Broadband Inc, a provider of cable broadband services and publisher of digital and analogue program guides, announced that the company's electronic programming guide division, Shandong Radio & Broadcasting Newspaper Group, has acquired two regional magazines, Music Review and Korean Drama. The operations of both the magazines will be moved into Shandong Group's offices in Jinan City and will be distributed throughout the Shandong province along with Shandong Group's existing titles. The purchase of these magazines further strengthens the company's leadership position in Shandong's publishing industry.
• Oak Pacific Interactive has signed Originality World Information Technology Co. Ltd. as its first strategic webgame partner by obtaining an exclusive license to Originality webgame "Shen Long Qi Shi II". Oak Pacific will provide Originality with capital support, while the two will cooperate on staff training and technology. Oak Pacific obtained exclusive global operation rights to all of Originality's future games through the agreement. Oak Pacific will release 8-10 webgames in 2009. The company received hundreds of game product introductions and established contact with nearly 100 webgame developers or teams after announcing its 500 million yuan (US$73.1 million) plan, "V Plan," to support or acquire webgame developers and license webgames.

Software

• Kingsoft Corp Ltd. is planning to spend 1 billion yuan (US$146.2 million) to set up a 96,000-square-meter headquarters and R&D center in Zhuhai, Guangdong province. The company made the decision because Kingsoft's existing office site can't meet the company's requirements. Kingsoft's revenue is expected to exceed 1 billion yuan (US$146.2 million) over the following three years and the number of its staff will rise to 5,000 with plans to further add more than 2,000 workers at present. The new software park, focusing on software development, overseas business expansion, training and customer service, is expected to be completed in three to five years.

Semiconductor

• Semiconductor Manufacturing International Corp. (SMI) has signed a strategic cooperation agreement with Datang Telecom Technology and Industry Holdings Co., LTD (Datang Holdings). SMIC will provide its current research and development facilities to help Datang develop advanced communication logic processing technology and IP bank. SMIC will give priority to the production requirements of Datang, and the latter, in return, will give priority to engage or employ the fabrication services of SMIC. The two parties' cooperation will cover the development of international markets and business globalization. They will make joint efforts to apply for China's national and local projects with scientific research and industrialization relating to the integrated circuit sector. Datang Holdings invested US$172 million in SMIC for 16.6 percent equity in late November 2008, on the condition that they should reach a strategic cooperation agreement upon the completion of new share issuance and allocation.

Comments

[ArtfulDodger:]

Very good info. Thanks for putting it out!

Jan 21 09:20 AM