Chinese Tech Stock Weekly Summary (Feb. 9 - Feb. 15, 2009)

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

• • •

Internet

• Sohu.com (SOHU) forecast first-quarter earnings per share ahead of analysts' expectations, but said it expected revenue slightly below the consensus view. The company expected solid branding advertising revenue in the first quarter, which analysts said is reassuring investors that the company can still attract advertisers despite the economic downturn. Brand advertising is when a company pays to have their ad placed on a Web page for a designated amount of time, in contrast to search advertising, when a company is charged by the number of clicks its ads receive. Revenue jumped 86 percent to US$121.6 million.

• 51.com will invest 100 million yuan (US$14.65 million) in its soon-to-be-launched gaming portal over the next two years. Funds will be spent on network improvement for its gaming portal, which is under internal testing and is scheduled to be launched by June 2009. There are currently 20 casual games developed by 51.com on the portal. The company aims to reduce its reliance on advertising and value-added services by launching the game portal. 51.com signed a contract with Huawei Technologies Co. Ltd. this month, under which the latter will provide technical support for the game portal. At the end of 2008, 51.com divided its business into three units covering SNS, gaming and instant messenger (IM) services.

• Alibaba Group's (ALBCF.PK) online payment tool Alipay has released a Google (GOOG) Chrome-friendly environment where users of the Google browser can experience Alipay. Alipay will become the first domestic third-party payment company to provide Chrome with payment solutions, but did not mention when the service would begin.

• About.com China (Abang.com) has ceased its cooperation with EMG China in order to reduce costs. The company signed with EMG in the second half of 2008, and would have spent less then 500,000 yuan (US$0.1 million) on the partnership over the course of one year, according to an unnamed insider. Abang.com plans to take marketing in-house but has no plans to cut staff in the near future. About.com, a wholly-owned subsidiary of The New York Times (NYT), cut 19 employees, about 9.5 percent of staff, on February 5, reports Reuters. About.com China currently has 30-40 employees.

Mobile/Wireless

• Telstra (TLS) bought a 67 percent stake in both China M and Sharp Point, two mobile content providers in China. China M is a major consumer mobile content provider in the country, serving 350,000 customers per day. Sharp Point is the mobile music provider for China Mobile, the nation's largest telecommunications carrier. Telstra will pay or about 1.4 billion yuan (US$197 million) for the deal. Pro forma sales from the two companies for fiscal year 2009 will be around A$100 million (US$66 million), with both EBITDA and EBIT positive, and Telstra expects the purchases will add to earnings per share from 2010. Sol Trujillo, chief operating officer of Telstra, stated that the company aimed at a profit of A$1 billion (US$659.6 million) from its Chinese business before 2013. China is a potential market for the company. The acquisition is expected to enable the company to fulfill the goal. As early as 2006, Telstra acquired 51 percent of SouFun.com Ltd. for A$254 million (US$167.5 million). After that, it bought Che168.com, IT168.com, Autohome.com.cn, and PCPop.com, for a total of A$76 million (US$50.1 million).

• Intel Capital (INTC) inked an agreement to invest in Zhejiang Enjoyor Electronic Co., Ltd., a traffic intelligence and medical digitization solution provider in China. But, Intel Capital did not disclose how much it plans to inject into Enjoyor. In addition, Intel will join hands with Zhejiang on intelligence technology and mobile Internet in a bid to boost the application of mobile Internet equipment in traffic management and ease traffic jam. The company is Intel's second investment target in the software park of the Hangzhou Hi-Tech Industry Development Zone. Intel Capital invested US$10.5 million in SUPCON Technology Co., Ltd. in 2007.

• Motorola (MOT) was the top CDMA mobile phone manufacturer in terms of CDMA mobile phone shipments in mainland China in December. Motorola's handset shipments in mainland China surged by 2,100 percent month-on-month to reach 440,000 units in December. Samsung (SSNKF.PK) came second in the rankings, shipping 180,000 CDMA mobile phones to distributors in China in December. LG (LGERF.PK) slid to third position, shipping 120,000 CDMA handsets, after ranking first in November. Chinese mobile phone manufacturer ZTE (ZTCOF.PK) shipped 50,000 CDMA mobile phones in December, falling out of the top five CDMA mobile phone manufacturers by domestic shipments in December. On the GSM mobile phone domestic shipment front, Nokia (NOK), Samsung, Motorola, Cosun & CECT and Lenovo (LNVGY.PK) remained the top five manufacturers in December. Nokia shipped 3.15 million GSM mobile phones in China in December, up 8.6 percent month-on-month, followed by Samsung and Motorola, which shipped 1.81 million units and 850,000 units respectively. Chinese companies Cosun & CECT and Lenovo ranked fourth and fifth among the top five GSM mobile phone manufacturers by shipping 460,000 units and 410,000 units respectively.

• The size of the Chinese mobile phone game market grew to as much as 32.21 million yuan (US$4.7 million) during the final quarter of 2008, Analysys International, an Internet-based provider of business information about technology, media, and telecommunications in China. Over the quarter, China's mobile phone game use base increased to 2.85 million. The main players were Troodon Entertainment Technology, Kongzhong Corp., and PearlinPalm Information Technology. The top three games by revenue were Legend of Song Dynasty of Troodon, Tian Jie Online of Kongzhong, and Fantasy i Era (transliterated) of PearlinPalm. Legend of Song Dynasty captured revenues of 4.4 million yuan (US$0.6 million), with a market share of 13.6 percent.

Telecommunications

• China Unicom Ltd. (CHU) has made progress in talks with Apple Inc. (AAPL) on selling the iPhone in China, and may start selling the third-generation phone in May. China Unicom Chairman and Chief Executive Chang Xiaobing said in September the company was confident that Apple would sell the iPhone in China, and said his company was interested in selling it. The Chinese company will start offering 3G mobile services in the first half after the government awarded 3G licenses in January.

• China Mobile Communications Corp. (CHL) will begin the third round of bidding for its TD-SCDMA network equipment procurement, and plans to first promote the integration of TD-LTE and FDD-LTE. The second phase TD-SCDMA network construction in 28 cities is not yet completed. Thus far the TD 3G services have been kicked off in 18 cities, and users in some of the cities have even begun making video calls. The third phase tender should be delivered quickly and the TD-SCDMA network would cover more than 200 cities. The 3GSM 2008 Mobile World Congress would be held next month, and LTE would be the key topic of the congress. China Mobile would spare no effort to push forward the 4G LTE technology and take the lead in promoting the integration. China Mobile has asked its TD device manufacturers to provide TD devices, which can realize the smooth evolution from 3G to LTE.

• AsiaInfo Holdings Inc. (ASIA) recorded net income of US$2.2 million, compared to US$8.5 million in the year-ago period and US$6.1 million last quarter, for the fourth quarter of 2008. Basic earnings per share were US$0.05, compared to US$0.15 in the fourth quarter of 2007. The company previously lowered fourth quarter guidance on investment-related non-cash impairment charges of US$6.6 million. AsiaInfo's total revenues were increased 31.7 percent year-on-year and 19.8 percent quarter-on-quarter to US$53.7 million for the quarter. IT security-focused unit Lenovo-AsiaInfo contributed 22.2 percent, or US$11.9 million, of total revenue. For the first quarter of 2009, AsiaInfo will have the net income from continuing operations per basic share between US$0.12 and US$0.13 and net revenue of US$43-45 million.

• Huawei Technologies and Vodafone Group Plc (VOD) inked an agreement in the U.K. in a bid to deepen their strategic partnership. The two parties have joined hands in many countries in recent years. The construction of 3G network in Turkey is one of their important projects at the moment. The 3G network is expected to cover Turkey's major cities within five years. Based on its advanced 3G technology, Huawei will supply Vodafone with high-speed voice and data services to help the latter improve its competitiveness in Turkey.

• China Unicom has begun a two month-long marketing campaign to drum up 600 million yuan (US$87.8 million) in revenue from its mobile Internet service. China Unicom will partner with WAP portals, including Sohu, Kong.net, Sina (SINA) and Tencent (TCEHF.PK) as well as the developer of popular Chinese mobile Web browser, UCWeb, during the campaign. The operator will spend 3 million yuan (US$438,910) on Internet advertising for the campaign. China Unicom is preparing for the launch of 3G services, such as mobile music downloads, mobile email, 3G WAP, 3G MMS and Java services, although these services will not be available by April 2009.

Media, Entertainment and Gaming

• China's handset online game subscribers reached 2.85 million in the fourth quarter of 2008. The handset online game market size topped 32.21 million yuan (US$4.7 million) in the fourth quarter last year. China's handset game market size is expected to hit 4.2 billion yuan (US$0.6 billion) by 2011, with the compound annual growth rate amounting to 147.9 percent from 2003 to 2011. The compound annual growth rate of telecom carriers' revenue in 2003-2011 is estimated to top 143.9 percent, and that of SP revenue, 348 percent, thanks to the development of handset online games, users' increasing demand on entertainment, and the commercialization of 3G networks.

Hardware

• Suning Appliance is to set up 3G mobile phone counters in nearly 20 flagship outlets in Beijing, teaming up with China Mobile to expand the 3G market and offer 3G mobile phone business consulting services, disclosed an executive from Suning. The appliance retailer has clinched procurement agreements with major mobile phone makers. It plans to procure 100,000 3G mobile phones, which will be available before May 17, 2009. Suning gained priority to provide 3G service subscribers with China Mobile's 188-prefix mobile phone numbers. China's mobile phone market is expected to grow 7.7 percent to 240 million units or so this year, in contrast to an estimated 10.7 percent decline in global mobile phone shipments. The sales volume of 3G mobile phones will be likely to hit 8 million.

Semiconductor

• JA Solar Holdings Co. Ltd. (JASO) has lowered 2009 revenue guidance to between US$830-952 million, down from guidance of US$1.5-1.7 billion announced in November 2008, due to tightening credit and falling demand. The company lowered 2009 targets for total production output and nameplate production capacity by year-end to 500-550MW and 875MW, respectively, from targets of 800MW and more than 1GW announced in November.

Comments

[ArtfulDodger:]

Lots of good infor here for investors. Thank you for it.

Feb 17 11:00 PM

[Mad Hedge F...:]

If the Chinese think they are going to get 8% growth in 2009, then they are smoking their former largest import, Opium. I think they are totally unaware of the ton of bricks that is about to land on them in the form of the extinct American consumer. China has spent 30 years building a giant export machine, for which there are currently no buyers. Take a look at Japan’s statistics, which are far more reliable than China’s, which show exports falling off a cliff, machine tool orders evaporating, and once a half century losses for leading exporters like Toyota. These are numbers far worse than we saw during the depths of their lost decade. Of course, China has the money, and certainly the need, for a massive domestic infrastructure build out that can offset the disappearing exports. But this is not an economy that can exactly turn on a dime, and the transition will be painful. China can always report 8% GDP growth this year. Another problem is that modern China has never faced a recession, and defensive business strategies are essentially unknown. One of the advantages of a centrally planned totalitarian economy is that if you don’t like the economic numbers you are getting, just make up some better ones. Personally, I think 5% growth is more realistic, but then you have always known me as a shrinking, subdued, conservative kind of guy. If I wanted headlines I would be shouting 2% growth, or perish the thought, negative growth, from the rooftops, as some China watchers are. The implications for the global economy are huge.

Feb 18 12:01 PM