Asia Tech Stock Weekly Summary (June 15 - 21, 2009)

Japan

Telecommunications

• Japanese operator KDDI (KDDIF.PK) merging its South Korean subsidiaries Prism Communications and KDDI Korea. Following the merger, the merged entity will use the KDDI Korea name. KDDI decided to merge the subsidiaries to efficiently expand the ICT business in Korea.

Mobile/ Wireless

• The number of mobile phone shops in Japan is expected to contract by 5 percent this year, the Nikkei reports, citing research firm Seed Planning. The number of shops operated by thirty major retailers is expected to fall by 5 percent to 4,600 in fiscal 2009, from 4,866 in fiscal 2008. This would be the second year of decline. Furthermore, shops selling handsets for different carriers are forecast to drop by 50 percent to 400 while shops specializing in one carrier are expected to increase by 3 percent to 4,200. The new pricing schedules introduced by the mobile operators, which offered higher handset prices but cheaper calling plans, have made things more difficult for mobile retailers.

Semiconductor

• Elpida Memory Inc. (ELPDF.PK) plans to apply for public funds to shore up its depleted capital. Elpida, which plans to tie up with a new memory chip firm set up by Taiwan, has been battered by low dynamic random access memory prices even as it chases bigger rivals Samsung Electronics Co Ltd (SSNLF.PK) and Hynix Semiconductor Inc.

• Orders for Japanese chip-making equipment rose for the third straight month in May, suggesting conditions may be leveling off in the semiconductor sector, which has been weakened by slow demand and low prices. In the latest sign of bottoming out, orders for tools used to make microchips rose 22 percent in May from the previous month to 31.4 billion yen (US$326 million). Orders were still down 65 percent from a year earlier. The ratio of the three-month moving average of orders to sales stood at 0.66 in May, preliminary figures from the Semiconductor Equipment Association of Japan showed, meaning that for every 100 yen (US$1.00) of sales, chip makers placed new orders worth 66 yen with Japanese equipment makers. That was up from 0.44 in April, but still well below 1.00. A reading above 1.00 shows that orders are outpacing sales, signaling a recovery in subsequent months.

• Toshiba Corp. (TOSBF.PK) said it plans to mass produce 28-nanometre system chips in the next business year as it fights to stay relevant in an area dominated by the likes of Intel Corp (INTC) and Texas Instruments Inc (TXN). Toshiba is hurrying to restructure its system chip business, which has been smarting from shrinking demand, high costs and falling prices. Toshiba and NEC Electronics (NELTY.PK) would extend their development agreement with an IBM-led group of firms to develop 28-nanometre chips together. Toshiba had previously said it planned to start mass-producing 32-nanometre chips next year, but it now plans to skip 32-nanometre production altogether at its system chip plants in southern Japan. Systems chips control multiple functions in electronics or cars and look like a maze of circuits on a single sliver of silicon. Producers have been racing to shrink their chips while packing more power into each unit.

• Toshiba Corp. will shoulder US$307 million in restructuring costs from shutting down its old system chip and discrete chip lines as it seeks to unload losses. Toshiba plans to cut production capacity for lines that process 150-millimetre or smaller silicon wafers by 30 percent in the year to March 2010. The move comes after talks to merge Toshiba's system chip operations with NEC Electronics Corp floundered at the end of last year, with NEC Electronics announcing in April that it planned to merge with Renesas Technology Corp. Toshiba, which expects losses to continue on its chip operations this year, plans to scrap two lines at its Kitakyushu plant in southern Japan, to stop production at two lines in Himeji in western Japan, and to reduce production at two more plants.

Hardware

• Sony Corp. (SNE) chief executive Howard Stringer said the Japanese electronics conglomerate's turnaround efforts, which include job cuts, plant closures and a management reshuffle, were advancing well. Sony last month forecast a second consecutive year of losses as the global slump hits demand for electronics. To get back to growth, it is implementing far-reaching restructuring such as a headcount reduction of about 16,000 people and closure of eight of its 57 manufacturing sites. Mr Stringer took the helm at Sony in 2005 vowing to deliver growth and get its various divisions to work closely together to compete with new rivals such as Apple (AAPL) in portable music and Nintendo (NTDOY.PK) in games. Mr. Stringer's efforts have been hampered by a stronger yen and sluggish demand for its electronics products, which include Bravia liquid-crystal display televisions, Cyber-shot digital cameras, and the PlayStation 3 game console. Sony shareholders also approved a new management set-up at the company that will center power around Mr. Stringer and a team of younger executives.

Internet

• Rakuten Inc. (RKUNF.PK) now intends to take on 100 more new college graduates in the spring of 2010 than previously planned, for a maximum of 400, thanks to growing online sales operations. The virtual mall operator, which hired 307 college graduates this spring, had earlier eyed a similar number for next year. Its development division, which creates online services, will hire 150 graduates, up 40 percent from the spring of 2009. The other 250 are bound for sales and administration. Roughly 30 percent of this class of 2010 will have science backgrounds. Rakuten headquarters will employ six Chinese in the fall and seven Indians next January. In midcareer personnel, the company is keeping the 2009 figure on a par with last year's, which came to 690. The Rakuten group employs about 5,500 workers overall, a figure that the company says will top 10,000 within a few years.

China

Hardware

• Hisense Electric plans to raise as much as 1.5 billion yuan (US$219 million) by private placement of up to 150 million shares in order to fund further expansion into upstream segments of liquid-crystal display (LCD) television manufacturing. The share offer would target both institutional and individual investors at no less than 10.83 yuan (US$1.6) per share. Proceeds from the placement, which has yet to be approved by the China Securities Regulatory Commission (CSRC), would be used for boosting production capacity in LCD modules and flat-panel television sets. After the expansion, production capacity of LCD modules, a key component for flat-panel television sets, would jump from 1.5 million units to 6.5 million. The manufacturing of LCD modules, which usually makes up about 70 percent of the cost of the final product, has been an area of intense competition for domestic television makers. Hisense had attempted to issue additional shares to raise 1 billion yuan to fund an LCD module expansion project in April last year, but the CSRC vetoed the effort for reasons not fully clarified.

Internet

• Beijing Municipal Government rolled out an informatization infrastructure plan, aiming at transforming the city into an information hub and Internet center. The municipal government expected to absorb rolling investment of 100 billion yuan (US$14.6 billion) for the construction of the informatization infrastructure by 2012. To promote related industries' investments of about 200 billion yuan, Beijing plans to take the lead in building the urban-rural integrated high-speed broadband information networks during the implementation of 3G construction. As of the end of May 2009, Beijing boasts 10.4 million internet users, 8.8 million fixed-line phone users, 17 million cell phone users, and four million broadband access service subscribers.

• MySpace.cn announces that its operations will not be affected by the layoff plan of its parent MySpace. MySpace’s Chinese venture lacks the popularity its parent in the US has seen in the past years. Some believe that MySpace has encountered a setback in its expansion in the Chinese market. In the second half of 2008, Luo Chuan, former CEO of MySpace.cn, joined China Mobile Ltd., MySpace.cn's operating director went to work for Huawei Technologies Co. Ltd., and MySpace.cn's marketing director and product director left their posts as well. In June 2009, it was reported that MySpace planned to cut 30% of its jobs. Even in the US the company faced a big challenge from archrival Facebook. In May 2009, Facebook's user growth doubled from a year ago, while MySpace's user base lessened 5 percent.

• Sohu.com Inc. (SOHU) announced the introduction of a 3G channel, based on the company’s media platform, which will act as a dedicated broadcaster of 3G-related information for users. Sohu will provide some basic information services, such as a 3G map and product trials, through its 3G channel. The company registered the domain 3g.sohu.com for the channel. It was disclosed that the 3G channel would cooperate with Sohu's entertainment channel to offer an entertaining and fashionable experience to users. The new channel will join hands with Sohu's sports and financial channels.

• Sina Corp. (SINA) said online advertising sales would rebound as property and vehicle clients increased spending, after reporting a 31 percent drop in quarterly profit because of a decline in revenue. Third-quarter advertising sales were expected to increase from the current quarter. Still, the year-on-year comparison is challenging. First-quarter advertising sales fell 9.8 percent from a year earlier, prompting the company to freeze some rates to retain clients, and first-quarter net income dropped to US$9.75 million from US$14.1 million a year earlier. Advertising sales fell to US$43.2 million from US$47.8 million.

Mobile/Wireless

• An industry insider reveals that China Unicom (CHU) will continue the first phase of 3G construction in the remaining 229 cities, after it launched the first batch 3G trial commercial operation in 55 cities in May. The telecom service operator plans to finish the network construction in the 229 cities by the end of this year, and will have the cities capable of providing services in September, when the cell phone numbers will be released. China Unicom's second batch network construction will cover the country's major prefecture-level cities, while its first batch construction was mainly arranged in the provincial capitals and developed cities. Its first phase 3G network construction will cover China's 284 cities with 78,600 base stations established. Key cities and important regions will enjoy complete coverage of China Unicom's 3G network signals.

• Investment by mainland telecommunications network operators so far this year has exceeded last year's total because of the deployment of the 3G mobile system. State-owned operators China Mobile (CHL), China Unicom, and China Telecom Corp (CHA) have substantially boosted network investment since Beijing issued 3G licences in January. The increased investment is mainly due to the roll-out of new 3G networks, such as Unicom's deployment of a network covering more than 300 cities this year. China Telecom had opened the tender for the second phase of its CDMA network, which could extend its coverage to more than 500 cities. Beijing estimates the operators will spend more than 300 billion yuan (US$43.9 billion) on 3G deployment. Unicom had previously said it would spend 100 billion yuan (US$14.6 billion) on network infrastructure alone this year, while China Telecom plans to spend 80 billion yuan over three years.

• China Mobile Ltd. obtained approval from Taiwan's Far EasTone Telecommunications Co (FET) to buy a 12 percent stake in the company, sources reported. Shareholders of FET approved the issuance of up to 444 million new shares valued at NT$17.7 billion (US$537 million) to China Mobile to fund mergers and acquisitions or to invest in new business. China Mobile is planning to set up a wholly-owned subsidiary in Taiwan to handle the share transaction. The deal, which still needs regulatory approval, is expected to be the first direct investment by a mainland state-owned company on the island in six decades. China Mobile and FET jointly announced the proposed deal in late April. China Mobile, which just began offering 3G services in mainland China, has been seeking to expand overseas and to enhance its services. The company's first-quarter net profit grew 5.2 percent.

Telecommunications

• The China Telecom Group signed a long-term strategic cooperation agreement with northwestern China's Shaanxi Province to accelerate the information industry in the province. China Telecom Group agreed to invest 20 billion yuan within five years in the construction of Shaanxi's communications infrastructure to strengthen its comprehensive information service capability. The telecom giant plans to put four billion yuan into Shaanxi this year to improve the quality of wire and wireless wide band services in the province. It will stretch the coverage and utilization of its rural information network in Shaanxi, a large agricultural province, in an effort to narrow the distance of rural residents within the market and reduce the economic risks for them in operating farm products.

• JPMorgan buys 31.04 million shares in China Telecom at HK$130 million (US$16.8 million). According to the data of the Stock Exchange, has acquired 31.04 million shares, 0.22 percent issued share capital, of China Telecom, at HK$4.19 (US$0.54) apiece.

• ZTE Corp. (ZTCOF.PK) is likely to secure the biggest contract in China Mobile Ltd's third round of bidding to supply TD-SCDMA wireless equipment, sources reported. ZTE is likely to win a 36 percent share of China Mobile's equipment purchases, while Huawei Technologies Co Ltd and Nokia Siemens Networks may win a combined share of 30 percent. Datang Telecom Technology Co Ltd is expected to obtain an 18 percent share. China Mobile, the country's largest telecom operator, is expected to announce the bidding results soon. The telecom operator this year aims to build 85,000 TD-SCDMA base stations in 238 Chinese cities. It currently owns TD-SCDMA base stations in 38 cities in China, and has 514,000 3G network subscribers.

• The China Unicom Group will invest 40 billion yuan (US$5.85 billion) in Henan province in the next five years on its 3G mobile network and fixed-line broadband transmission infrastructure. The investment is part of a strategic alliance China Unicom Group has reached with Henan to enhance the province's information technology infrastructure. The company is spending 3 billion yuan this year building 7,000 WCDMA 3G base stations across the province. About 1,863 base stations have been undergoing trials since last month. The company will also increase its broadband internet connectivity bandwidth and optimize the network infrastructure in Henan. Analysts believe the massive investments made by telecommunications operators on the mainland will directly benefit equipment vendors such as ZTE Corp. Unicom chairman Chang Xiaobing said such investment plans could help the local economy face the challenges of the tough economic environment.

Media, Entertainment and Gaming

· Chinese digital advertising company Focus Media Holding Ltd (FMCN) reported a narrower-than-expected quarterly loss, and forecast sequentially higher revenue for the second quarter. The company said it would cease expansion of its digital poster frame network in light of uncertain demand. Focus Media posted a net loss of US$5.7 million, or US$4 cents per American Depositary Share, compared with a net loss of US$53.8 million, or US$42 cents per ADS, a year ago. Net revenue from continuing operations fell 14 percent to US$66.7 million, while that from discontinued operations fell 23 percent to US$64.4 million. Analysts on average had expected the company to post a loss of 5 cents a share, according to Reuters Estimates. For the second quarter, the company expects revenue from continuing operations of US$69 million. Net revenue from discontinued operations is expected to be US$81.5 million.

· UTStarcom Inc. (UTSI) will focus on IPTV solutions in China. China and India serve as two major markets for UTStarcom. While centering its business on broadband in India, the company would prioritize the development of IPTV solutions and related products in China. The company would take initiatives to concentrate its resources on specific business areas, services and markets. It will develop differentiated products with leading technologies to boost revenue and gross margin. The company recently announced plans to downsize global headcounts by over 50 percent and cap annual operating expenses below US$100 million. The company has set about to move its functional departments in the US headquarters to China. It will retain about 2,000 staff for major markets including India and China.

· Advertising and consumer spending in the mainland's media and entertainment industry will probably grow 7 percent this year and next. Despite the global downturn, the mainland will still manage to see a 2.15 percent gain in advertising revenue this year, to US$20.6 billion. Global advertising revenue was expected to fall 12.1 percent this year and rebound to a 1.4 percent increase in 2011. Video games and the internet were expected to be the leading growth engines on the mainland, with spending expected to grow at a compound rate of 15 percent and 13 percent, respectively, this year and next. Spending on digital music and outdoor media would increase 7.5 percent during the period, the study estimated. Revenue from digital media would account for 39 percent of the total in 2013, up from 28 percent last year. PricewaterhouseCoopers' global leader of entertainment and media practice, Marcel Fenez, said media companies needed to expand their digital operations, as more and more users were getting content online than by traditional means, such as printed and broadcasted media.

· Perfect World (PWRD) announced that it has updated its revenue guidance for the second quarter of 2009. Due to stronger than expected ramp-up and traction of the newly launched "Battle of the Immortals," especially in the past month, and better than anticipated results from recently launched expansion packs on some of the existing games during the second half of the quarter, the Company now raises its revenue guidance to be between 489 million yuan (US$71.5 million) and 510 million yuan (US$74.6 million), which represents a sequential increase of 15 to 20 percent. This compares to the previously announced sequential guidance of a 2 percent decline to a 2 percent increase in revenue.

· Shanda Games (SNDA) has secured an exclusive operator agreement for Japanese online game company Cyberstep's 3D fighting casual online game Get Amped II and 3D shooting casual online game Cosmic Break in China, according to 17173.com. Shanda currently operates Cyberstep's 3D online casual fighting game Get Amped.

· According to reports in local Chinese media, The9 (NCTY) Limited is seeking to cooperate with Kingsoft Limited to extricate themselves from the predicament their in after losing World of Warcraft. Once they come to an agreement, the9 Limited will be a partner in operating the new knight-errant MMORPG "Jianxia Online 3" which is produced by Kingsoft Limited in China. There are currently no official announcements or other details available..

Software

• Longtop Financial Technologies Limited (LFT) has signed a contract to upgrade the Customer Relationship Management (CRM) system for the headquarters of a leading National Commercial Bank in China. It was first selected by the customer to develop a customized CRM system in 2008 to improve the quality of client services and increase business efficiencies. In the phase-two project, the company will implement data mining techniques and new analytical functions will be added, including performance appraisal, unified view of customer profile, customer analysis and decision making, statistical inquiry and reporting.

Alternative Energy

• Yingli Green Energy Holding Company Limited (YGE) a Chinese vertically integrated photovoltaic ("PV") product manufacturer, announced that its follow-on public offering of 18,600,000 American Depositary Shares (ADSs), each representing one ordinary share of Yingli, was priced at US$13.00 per ADS. Of the 18,600,000 ADSs sold in the offering, 15,600,000 ADSs were sold by Yingli Green Energy, and 3,000,000 ADSs were sold by a selling shareholder, Yingli Power Holding Company Ltd., a company beneficially owned by the family trust of Mr. Liansheng Miao, the chairman and chief executive officer of Yingli Green Energy. The offering was increased from its initial announced size of 15,500,000 ADSs. Yingli Green Energy has granted the underwriters an option to purchase up to 2,790,000 additional ADSs to cover over-allotments. The company intends to use the net proceeds from the offering, after deducting underwriting discounts and offering expenses, to repay certain existing indebtedness, including repayment of approximately US$50.0 million in a loan facility provided to its subsidiary, Yingli Energy (China) Co., Ltd., by Asia Debt Management Hong Kong Limited, and for general corporate purposes. Deutsche Bank Securities Inc. (as Global Coordinator), Credit Suisse Securities (USA) LLC and Citigroup Global Markets Inc. are the joint bookrunners and underwriters for the offering. Piper Jaffray & Co. is the co-manager for the offering.

• LDK Solar Co., Ltd. (LDK), in an alliance with China Nuclear Power Engineering Co. and the Belgian Enfinity, has won the bid for China's Dunhuang photovoltaic (PV) station project. They won the bid at the price of 1.09 yuan/kwh and inked a 25-year contract. The station is in the pilot production phase. Despite that the enterprises can hardly make profits with the tender price now, their profits are expected to be on the rise as the PV station's mass-scale development will gradually cut down power generation costs. Dunhuang PV station, as a national exemplary project, will surely be connected to a grid for power generation.

Semiconductor

• Semiconductor Manufacturing International Corp. (SMI) said demand in the country for its products was recovering, and orders in the third quarter would be better than the second. China's 4 trillion yuan (US$585 billion) stimulus package is spurring domestic demand for chips used in televisions, mobile telephones and other electronic products. Increased sales on the mainland might help SMIC post an annual profit next year. The firm reported losses for each of the past four years. New orders in December last year fell to 20 percent of September levels. Demand began to increase in January and became very strong in March and April. China became the world's biggest buyer of chips in 2005 as Nokia and Sony produced more mobile telephones, gaming consoles and other electronics in the country. Chip sales on the mainland may decline to US$63 billion this year from US$73 billion last year. Sales might rebound to US$70 billion next year. Increased consumer demand had led the chipmaker's clients to restock, fuelling orders for SMIC. Clients, which usually keep six weeks of inventory, reduced their stockpiles to two weeks in December.

Information Technology

• Despite the economic slump, mainland information technology and financial services companies are pushing ahead with key investments in Britain, with an eye to accelerating their expansion across Europe. Initiatives from Huawei Technologies, Alibaba.com (ALBCF.PK), China Central Television, China Mobile, Crystal Digital Technology, China Construction Bank Corp and China Merchants Bank were just the cream of 59 new mainland projects in Britain in the past financial year to March. Britain's international business development and promotion group ranked China as the eighth-largest source of foreign direct investment during a strong year in which Britain saw a record 1,742 new projects from 53 countries, up 11 percent from the previous financial year.

Comments

[Mad Hedge F...:]

It’s sad to see a once great country fall on hard times. It’s like watching a formerly leading hedge fund manager apply for food stamps. I’m talking about Japan, which in 1989 boasted the world’s most valuable stocks, largest banks, and strongest currency. Oh, how the mighty have fallen. This week the Ministry of Finance published the trade figures for May showing a 42% YOY drop, and that the cataclysmic fall in exports continues unabated, as foreigners keep their money in their pockets instead of buying high quality cars and electronics. Even exports to China fell 29.7%. I’m sure the chart below will be found in business school textbooks for decades to come as proof of the risks of running an overly export dependent economy. Although a giant fiscal stimulus package will start to hit in the second half of this year, most economist have GDP forecast for the year of minus 6.8% or worse. This would take GDP back to the 2004 level, and makes our economy look positively bubbliscious by comparison. This is all happening when the numbers of those retiring is going through the roof, causing welfare payments to skyrocket. Taking a page out of Obama’s playbook, the government is borrowing to meet these costs, so the national debt is expected to reach the certifiable nosebleed territory of 197% by next year! Prime Minister Taro Aso has so far fought off increased consumption taxes, but it is just a matter of time before those efforts are tossed out the window. Continued deflation is a no brainer. Real estate prices are still stuck at 30% of their 1990 levels. This is what an “L” shaped recovery looks like up close and ugly. In the meantime the yen strengthens, making exports ever more expensive and uncompetitive. Better to stand aside from the Land of the Rising Sun and watch with tears.

Jun 26 01:18 PM