The following is excerpted from IRG's weekly stock report:
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• China TechFaith Wireless Communication Technology Ltd’s (CNTF) net profit for the fourth quarter of 2008 narrowed down to US$800,000. Its total revenues reached US$ 51.9 million, rising 13.5 percent from US$45.7 million in Q4 2007 and 2.1 percent from US$50.8 million in Q3 2008. Basic and diluted earnings per share both stood at US$0.02, lower than US$0.07 in Q4 2007. Gross margin was 16.2 percent, lower than 31.3 percent in the period a year ago and 18.4 percent in the previous quarter. The company expects that its total revenues for the first quarter of 2009 will reach US$45-49 million.
• China Mobile Ltd. (CHL) will spend 650 million yuan (US$95 million) to help small companies develop better third-generation mobile phones. China Mobile has a license to provide 3G services running on the locally developed technology, Time Division Synchronous Code Division Multiple Access. There are insufficient handsets that run on the TD-SCDMA standard. TD-SCDMA is less mature than rival 3G standards Wideband-CDMA and CDMA 2000, which are already widely used around the world. Mobile rates fell by 13 percent last year and 11 percent in 2007.
• China gained 8.49 million mobile phone subscribers in January 2009, pushing the country's total figure up to 649.72 million, while fixed-line subscribers numbered 339.79 million, down 1.02 million from the end of 2008. The penetration rate of fixed-line phones at the end of January was 25.8 percent while the penetration rate of mobile phones was 48.5 percent. About 99.7 percent of villages have access to telecom networks in China. Chinese mobile phone users sent and received 69.7 billion text messages, an increase of 27.6 percent from the same period of last year. China was home to 84.63 million broadband Internet users, with 1.21 million new broadband users added during the month. At the same time, China was home to 11.84 million registered dial-up Internet access users, 2.53 million fewer than recorded at the end of 2008. Telecom services generated total revenues of 62.94 billion yuan (US$9.21 billion) in January, up 5.7 percent when compared to the same period of 2008.
• Huawei predicts it will close infrastructure deals worth up to US$30 billion in 2009, despite industry expectations that the fixed-line and mobile infrastructure markets will decline during the year. The Chinese vendor signed just over US$23 billion in contracts last year. The company expects to grow substantially this year, even as other vendors such as Alcatel-Lucent (ALU) and Ericsson (ERIC) are predicting a slowdown in the market. News first circulated in January that Huawei was bullish on its prospects for 2009. The US$30 billion figure was first reported in the Chinese media, including China Daily, which cited an internal email sent to Huawei's employees by the company's chairwoman, Sun Yafang. A good deal of growth for Huawei will come from China’s 3G infrastructure projects this year. China Mobile alone expects to spend nearly US$9 billion on TD-SCDMA networks. It missed out on the recent Verizon (VZ) LTE contract to Alcatel-Lucent.
• China will be the world's largest 3G market by the third quarter of this year, despite only having issued licenses a few months ago, according to a local research firm. There will be 660,000 3G connections in China by Q3. The connections will be split between the country's three telecoms, with China Mobile's TD-SCDMA network taking the lion's share with more than 300,000 lines. China Mobile plans to invest 650 million yuan (US$95 million) in helping small companies develop better 3G handsets. The operator is concerned that there are insufficient TD-SCDMA handsets available. China Unicom (CHU), which holds a license to offer services based on the WCDMA standard, is forecast to reach 200,000 lines by the same date, with the remainder around 160,000 connections will be attributable to China Telecom and its cdma2000 network. At present local equipment manufacturers dominate the Chinese 3G infrastructure market. Foreign equipment vendors lag some way behind the big two Chinese players. Ericsson leads the way with 10.9 percent, while Nokia Siemens Networks (NOK) and Alcatel-Lucent have claimed 6.8 percent each.
• China's telecom sector posted a year-on-year growth of 5.7 percent in profits in January 2009. Figures from MIIT showed that the total income from the telecom services was up 5.7 percent year on year, and the total telecom business volume rose 9.4 percent. In addition, the number of fixed-line users in the country decreased by 1.02 million to 33.98 million in January, while the number of mobile phone users increased by 8.49 million to 64.97 million. In the meantime, the number of broadband users grew by 1.2 million to 84.6 million, while the number of dial-up network users dropped by 2.53 million to 11.84 million. The volume of fixed-line local calls shrank 17.1 percent year on year, while that of mobile phone calls expanded 15.9 percent year.
• China Telecom Corp. Ltd. (CHA) just ended its procurement of 1.2 million 3G mobile phones with seven types in total. The successful bidders were Huawei Technologies Co., Ltd., Samsung (SSNLF.PK), LG, and Yulong Telecommunication. Under its 3G timetable, China Telecom is scheduled to start 3G trial commercial service in some appointed areas including Beijing in March, and expand 3G commercial service throughout the country in May. In addition, it aims to drive up its CDMA subscriber base to 100 million in three years and add 35 million mobile subscribers in 2009. China's three regrouped telecommunications carriers won three 3G licenses from the three different 3G standards. China Mobile Ltd. already kicked off in advance during April 2008.
• ZTE Corp. (ZTCOF.PK) and Huawei Technologies Co Ltd. are likely to post a year-on-year growth rate of 30 percent in exports and overseas businesses in 2009. The growth forecast came from the stimulus policies to boost the telecom sector in many countries despite the global financial crisis. Many countries plan to invest heavily in constructing and upgrading networks, as well as plans for wireless equipments promotion. China last year invested a total of 100 billion yuan (US$14.6 billion) in 3G network. China Unicom (Hong Kong) Ltd, the second-largest mobile provider in the country, plans to invest as much as 95 billion yuan (US$13.9 billion) in networks this year.
Media, Entertainment and Gaming
• Time Warner Inc's (TWX) AOL is closing AOL Beijing Technology Research & Development Co. in China, shedding 56 jobs as part of global cost cutting measures. But AOL will continue to operate its homepages and other websites for Japan, China, Hong Kong, Taiwan and South East Asia from its Hong Kong regional base. The announcement comes after AOL said in January it would cut about 700 jobs, or 10 percent of its workforce, as it copes with an advertising slump. The cost-cutting moves could make the company more attractive to possible suitors like Yahoo Inc. (YHOO).
• Acorn International (ATV), a Shanghai-based multi-platform marketing company, reported a loss for the fourth quarter, compared to a profit a year ago due to increased sales of lower margin posted US$9.4 million net loss for the fourth quarter, including a US$0.3 million investment gain, compared to net income of US$0.7 million, with a $3.8 million investment gain last year. Total net revenues increased 7.1% to US$61.7 million from US$57.6 million in the fourth quarter 2007. For the first quarter 2009, the company expects significant growth in operating and net profit on sequential and year on year basis. Acorn expects to generate net revenues in 2009 in the range of US$310 million to US$350 million. Acorn expects net income in 2009, excluding share-based compensation expenses and investment income, to be between US$12 million and US$14 million.
• China Digital TV Holding’s (CDGT) fourth quarter 2008 revenues reached US$16.8 million, down 13.8 percent with net income of US$12.2 million. China Digital TV said that the annual decrease can be attributed to the decline in net revenue sand higher operating expenses, while the sequential increase resulted from a tax benefit. China Digital TV shipped around 2.66 million smart cards within the three month period, for annual and sequential increases of 2.1 percent and 20.1 percent, respectively.
• China's subsidy policy to promote sales of household appliances in rural areas is expected to greatly propel the household appliance industry. The campaign is also an effective move to stimulate the domestic demand. It helps promote electronic manufacturing and household appliance industry, and props up steel, chemical and machine building industries.
• The Lenovo Group (LNVGY.PK) aims to sell 5 million PCs in rural areas of China during the next three years. In accordance with the plan issued by China's Ministry of Finance (MOF) and the Ministry of Commerce (MOC), Lenovo provided 15 customized computer models with prices ranging from 2,500 yuan (US$365) to 3,500 yuan (US$512) each. The company could supply PCs to 320,000 villages, thus benefiting 5 million village families. Lenovo estimated that the government's subsidy program would boost the PC industry's sales revenue by RMB 10 billion, or around 5 percent of the annual total. Lenovo's rivals Hewlett-Packard Co (HPQ) and Dell Inc (DELL) have also been invited to participate in the program and are likely to do so.
• The Chinese software industry registered strong growth of more than 30 percent in 2008, indicating that the industry has not been impacted by the ongoing global economic crisis. The Chinese government's continuous efforts in the form of IT investment, construction of software parks, and provision of quick approvals to secure international investment have largely driven the software industry amidst global downturn.