Chinese Tech Stock Weekly Summary (Feb. 2 - Feb. 8, 2009)

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

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Software

• The China Ministry of Industry and IT announced that China's software industry reported a 29-percent revenue growth for 2008 from one year earlier. Software technology services were the biggest driving factor, up 40 percent from 2007. And software products followed with a 17 percent rise. Output from industry leading state-owned and privately-owned high-tech companies, with annual sales revenues of more than 5 million yuan (US$0.73 million), was up 14 percent from the previous year. And production of high-end products such as laptops and LCD TV's also rose by more than 20 percent. The software industry generated 580 billion yuan (US$84.9 million) of revenue in 2007, up 21 percent year-on-year.

Internet

• Ctrip.com International, Ltd. (CTRP) plans to release an online platform at the end of February to sell accident insurance policies. The platform will initially cover cities including Shanghai, Beijing and Hangzhou and expand nationwide by the end of March. A Ctrip customer demanded compensation of RMB 800,000 and a public apology after discovering that two flight insurance policies he had purchased were due to expire while he was still in the air. Ctrip addressed the issue by giving the customer two new insurance policies before his flight.

Mobile/Wireless

• Lenovo Mobile Communications (LNVGY.PK) is to enhance its investment in the production of CDMA terminals in 2009, as an effort to lift its descending position in the Chinese mobile phone market. In the fourth quarter of 2007, the company snatched a 6 percent share of the market in terms of sales, taking the fourth place among mobile phone manufacturers. Lenovo launched several types of mobile phones capable of playing online videos. In cooperation with China Mobile, it is developing a mobile phone applicable to the Google (GOOG) Android platform. And it is one of the developers of the China Mobile OMS intelligent cellphone platform. The China Telecom CDMA terminal cake is not only for Lenovo Mobile. By the end of 2008, eSurfing Telecom Terminal had launched about 60 types of mobile phones through an online platform, including those products branded with Nokia (NOK), Motorola (MOT), Samsung (SSNLF.PK), LG (LGERF.PK), Alcatel-Lucent (ALU), ZTE (ZTCOF.PK) and Huawei.

• China's mobile phone game market is expected to be valued at 4.2 billion yuan (US$614.7 million) by 2011, enjoying an annual average growth rate of 147.9 percent. Sales of Chinese mobile telecom operators from mobile games will be growing at the pace of 143.3 percent. Income of service providers is expected to move forward at the rate of 348 percent. The fast growth of mobile phone games is driven mainly by the proliferation of mobile phone games, mounting demand of Chinese Internet users for leisure entertainment, the rapid penetration of JAVA and BREW mobile phones, and the debut of 3G applications. The market is thwarted by several factors such as the scarcity of quality games, players' unwillingness to pay for the games, and the seriously homogenous games. Mobile phone game designers need to come up with more good games to meet demand of players.

Telecommunications

• According to China Daily, China’s telecom regulator, the MIIT, has ordered China Telecom (CHA) and China Unicom (CHU) to close their Xiaolingtong wireless service within three years by 2011. The regulators are concerned the 1900-1920MHz range service could interfere with TD-SCDMA signals, which operates in the 1880-1900MHz spectrum. Based on the Japanese Personal Access System (PAS) technology, the rival services have 68.9 million users, although this has fallen by 15.6 million since 2007. Since launch in 2001, Xiaolingtong has won customers as a low-cost alternative to cellular services. It also offered the two fixed-line carriers, Telecom and Netcom, a means to compete against mobile operators.

• China Unicom announced that its previously proposed acquisitions of some assets and business from Unicom and Netcom parents had been completed by January 31, 2009. China Unicom announced the proposition was passed during the special meeting of its shareholders. The conditions precedent to the completion of the Proposed Acquisitions and the Lease becoming effective were satisfied on January 31, 2009. The profits and losses generated from the operation of the target assets and business were assumed by China Unicom with the effect starting on January 1, 2009.

• The CDMA handset market recorded a sale of 1.29 million sets in December 2008, representing an increase of 33.6 percent as compared to the corresponding period one year ago, increased 183 percent from the previous month. Latest statistics from China Telecom, the biggest CDMA service provider in this country, indicate that it has narrowed the CDMA subscriber turnover rate from 430,000 in last November to 60,000 by the end of December. Among the CDMA mobile phone sales, 46 percent were generated by Chinese domestic brands. Huawei, Coolpad and ZTE gained the first three places in the CDMA mobile phone market. The sudden rally and fast growth of CDMA handset sales were largely driven by the recently-launched WCDMA 3G services by China Telecom. China Telecom had customized over 100 CDMA handsets, covering markets at all levels. Yang Xiaowei, vice president of China Telecom, once disclosed that China Telecom would procure 50 million CDMA mobile phones in 2009, and 100 million in the coming three years.

• Huawei Technologies Co. Ltd. has agreed to provide network solutions for 51.com, discloses the Shanghai-headquartered social networking site (SNS). Huawei will serve as an integrated network solution provider for 51.com, which plans to pour over 100 million yuan (US$14.6 million) to upgrade its network. 51.com has entered into an agreement with its new partner and will make the cooperation known in the near future. Huawei is brewing an SNS-supporting project to come up with demand from telecom operators in the country, revealed people in the know, adding that China Mobile is likely to build up a mobile SNS platform in collaboration with the Shenzhen telecom equipment giant. Huawei was earlier reported to have poached some SNS talents in an attempt to dip toe in the lucrative SNS-related business. However, such speculation has not been confirmed by the company.

• Telefonica (TEF) has signed a new agreement for investing in China, following its acquisition of a stake in China Netcom in 2005. The Spanish operator has agreed to work with China Unicom, which recently merged with China Netcom, on developing mobile and especially 3G services. China Unicom is developing a 3G service based on the WCDMA standard, the same as used by Telefonica. The agreement covers a wide number of areas of collaboration such as developing innovative services, international business, joint procurement of network equipment, devices and handsets, platforms for innovative and advanced services, and services to corporate customers, among others. Telefonica is the largest private investor in China Unicom, with a 5.38 percent stake. Cesar Alierta, chairman of Telefonica, is a non-executive member of the board of directors of the new China Unicom.

• Ericsson (ERIC) may hire a few hundred more people in China this year, as it plans to shift some overseas operations to the country. Local media had earlier reported that the Swedish firm would axe 150 jobs, or 5 percent of its total workforce in China, as part of its previously announced global cutback of 5,000 employees, in an effort to curb cost. The firm was likely to hire, instead of firing, people in China this year. Ericsson and its Chinese partners won about 26 percent of China Unicom's 3G network construction orders last month, totalling up to US$2.3 billion.

• China Unicom plans to purchase WCDMA handsets in March 2009 while denying recent rumors that Apple's (AAPL) iPhone will be part of the operator's first wave of 3G devices. Unicom Vsens Telecommunications Technology Co. Ltd., China Unicom's subsidiary in charge of WCDMA handset procurement, will purchase WCDMA handsets in March to tie in with the operator's planned release of WCDMA numbers. Apple's iPhone could see its official debut in China through the tender, denying that any would be purchased by the operator this round.

• China Mobile (CHL) plans to boost the production of laptops with embedded TD network adapters. To promote the laptops, CMCC will subsidize laptop producers as it does with TD handset producers, and cover most of the costs during TD network adapter installation. The laptop configuration is expected to go public in March at the earliest. Internet access speeds via the TD network will be able to reach 384 Kbps. Wang Jianzhou, president of CMCC, said TD handset user numbers would be larger, but in the company's TD end product strategy, TD network adapters and TD laptops are equally important as handsets. Based on a plan of CMCC, the total subsidies on TD end product will exceed 10 billion yuan (US$1.5 billion) in 2009. Computer and chip producers, including Intel (INTC), Asus, BenQ, HP (HPQ), Dell (DELL), Lenovo, Founder and Acer, are negotiating with CMCC on TD laptop production.

• China's top three telecoms carriers, China Mobile, China Telecom, and China Unicom, had a telecoms revenue increased 7 percent from 2007. Revenue from mobile telecommunications rose 15.1 percent while revenue from fixed local phone and long-distance phone businesses decreased 9.4 percent and 7 percent. The number of fixed-line phone users reduced 24.83 million to 341 million. Guangdong, Jiangsu, Shandong, Zhejiang, Sichuan, Liaoning, Henan, Hebei, Fujian, and Anhui ranked the top ten with 35.73 million, 29.68 million, 24.21 million, 22.98 million, 16.9 million, 16.04 million, 15.62 million, 14.58 million, 14.31 million, and 13.8 million fixed-line phone users. The number of mobile phone subscribers across the country increased 93.924 million to 641 million. Fixed local call volume slipped 8.5 percent and fixed long-distance call volume dropped 15.8 percent.

• Huawei Technologies chalked increased sales revenue of US$1.3 billion in India. It has established cooperation with the local companies, such as Reliance Group, Bharti Airtel, Bharat Sanchar Nigam Ltd (BSNL), TATA Indicom, etc. The Chinese telecom equipment manufacturer has been expanding fast overseas in recent years. Huawei clinched a US$235 million contract with the Costa Rican Electricity Institute (ICE) to install a 3G (third-generation) mobile phone network in Costa Rica. The Shenzhen-based telecom equipment maker estimated its global sales to hit US$23.3 billion in 2008, increased 46 percent from a year earlier.

Media, Entertainment and Gaming

• The State Administration of Radio, Film and Television (SARFT) plans to give nearly a total of 9 million yuan (US$1.3 million) to original domestic animations created between the beginning of 2005 and the end of April 2008. SARFT will select ten animations to receive grants ranging from 350,000 yuan (US$51204) to 1.8 million yuan (US$15.8 million) each from applicants who submit up to three works between February 1 and 25. Ten animators will also receive grants of 80,000 yuan (US$11703). The Chinese government reduced business taxes by 3 percent for qualifying animation companies.

Hardware

• Lenovo Group Ltd. posted its first quarterly loss in almost three years and said Chief Executive Officer William Amelio resigned as sales in the U.S. and China plunged. Amelio will be replaced by Chairman Yang Yuanqing, while founder Liu Chuanzhi returns as chairman. The fiscal third- quarter loss of US$96.7 million was triple the median of four analyst estimates. The maker of the Thinkpad laptop posted a 20 percent decline in sales, dropping the company further behind Hewlett-Packard Co. and Acer Inc. as demand from corporate clients shrank. The departure of Amelio, a former Dell Inc. executive, returns Lenovo’s management to Chinese control and signals a renewed focus on its home market. Sales in China, Taiwan and Hong Kong fell 6.5 percent in the last quarter from a year earlier, while revenue in the Americas region, the company’s biggest market outside of China, dropped 22 percent. Hewlett-Packard, Dell and Acer have widened their lead over Lenovo as the Chinese company trails its bigger rivals on cheaper products aimed at consumers.

Alternative Energy

• Yingli Green Energy (YGE) announced the appointment of Dr. Dengyuan Song to the position of Chief Technology Officer. Dr. Song will oversee Yingli Green Energy's research and development initiatives, particularly the development of state-of-the-art and cost-competitive PV products as an integral part of the Company's overall business strategies. Dr. Song will replace Dr. Guoxiao Yao, who has resigned to pursue other interests. Dr. Song has more than 27 years of experience in the research and development of solar cells, silicon materials, and semiconductor PV devices in both Australia and China, including nearly 10 years of research and development in silicon-based solar cells, polycrystalline silicon thin-film solar cells and third-generation solar cells at the ARC Photovoltaics Centre of Excellence at the University of New South Wales in Sydney, Australia.

• China-based solar product producer Canadian Solar Inc. (CSIQ) has officially opened a new PV cell research center in East China's Suzhou in partnership with Dupont. This research center will consolidate all R&D facilities of Canadian Solar in one place in order to heighten the efficiency and product yield of both regular polysilicon cells and proprietary solar grade e-cells. The research center is staffed with 20 scientists, engineers and technicians with ultimate workers to be as many as 38. Canadian Solar has paid most of the outlay for the construction of this facility in 2008, which will have total cost of US$10 million and 1,500 square meters of acreage. The company aims to improve average cell efficiency for polysilicon/ monocrystalline cells to 18.5 percent and solar grade cells to 15.5 percent within 12 months.

Semiconductor

• Semiconductor Manufacturing International Corp. (SMI) said orders may have bottomed in the first quarter because of increased demand from domestic customers. SMIC, based in Shanghai, posted its seventh straight quarterly loss as orders slowed amid the global recession. The Chinese company said it will cut capital spending and employee costs to boost profitability. The fourth-quarter net loss widened to US$124.5 million from US$622,000 a year earlier, as sales fell 28 percent to US$272 million.

Comments

[ArtfulDodger:]

Thank you for this report.

Feb 11 08:09 PM