Asia Tech Stock Weekly Summary (June 22 - 28, 2009)

Japan

Hardware

• Suning Appliance will pay 800 million yen (US$8.4million) for 27.36 percent of Laox, making it the loss-making Japanese electronics retailer's biggest shareholder. Suning will pay 12 yen for each of 66.67 million shares and get two seats on the Laox board. Chinese firms have been looking for bargains in their efforts to expand abroad, but Suning said this was the first time a mainland firm had purchased a stake in a listed Japanese company. Suning hoped to return the flagging Laox to profitability within a year or 18 months. Laox was once among Japan's leading retailers of consumer electronics. At its peak in the business year to March 2001, the firm had revenues of 214 billion yen and ran about 120 stores nationwide. It has been losing market share to bigger rivals like industry leader Yamada Denki, and forecast a ninth consecutive year of net losses and revenue of 13.2 billion yen (US$139 million) for the year to March.

• Norio Sasaki, the new president of Toshiba Corp. (TOSBF.PK), said he aims to boost the company's capital adequacy ratio, which dropped below 14 percent earlier this year, to 30 percent during his tenure as he embarks on the challenge of bringing the electronics giant back into profitability. Sasaki, the 60-year-old former vice president of the company, officially took the helm of the struggling tech giant, which fell deeply into the red for the first time in seven years with its biggest-ever group net loss of more than 340 billion yen in fiscal 2008 ended in March. The company is aiming to return to the black with an operating profit of 100 billion yen (US$1.1 billion) for the current business year. Toshiba's capital adequacy ratio, including minority equity, plunged to 13.9 percent at the end of March, but now stands at around 19 percent after the company raised around 500 billion yen (US$5.3 billion) in capital through public stock and subordinated bond offerings. Toshiba plans to rebuild the system LSI operations by focusing resources on profitable products, emphasizing that a spin-off is only a means and not an objective.

Telecommunications

• Softbank Corp. (SFBTF.PK) plans to go national next month with sales of Flet's Hikari-branded fiber-optic broadband services from the Nippon Telegraph and Telephone Corp. (NTT) group. The decision effectively marks the end of Softbank's challenge to NTT. In 2004, Softbank launched a high-speed fiber-optic service under the Yahoo BB brand by leasing circuits from the NTT group. Softbank eventually gave in because of high leasing fees, starting to act as a sales agent for Flet's Hikari services in 10 prefectures in February. The company now plans to increase the prefectures to 34 this month and to all 47 in Japan on July 1. For customers who sign up for Flet's Hikari services through Softbank, the infrastructure portion is provided by NTT East Corp. or NTT West Corp., depending on the subscriber's location, while the service portion is handled by Softbank. And for each new subscriber, Softbank receives a sales commission as well as a portion of the monthly charge. The latter comes to 1,296 yen for a subscriber living in a single-family home. Fees and charges are the same whether the customer signs up through Softbank or the NTT group.

• KDDI Corp. (KDDIF.PK) reported that its net profit for the fiscal year climbed 2.3 percent but failed to meet market expectations as a 32 percent year-on-year drop in the number of handsets sold at the company's mobile business prompted a decline in revenue. The telecom company reported fiscal 2009 net income of 222.7 billion yen (US$2.27 billion) for the year ended March 31. That compared with a net income of 217.8 billion yen (US$2.22 billion) for fiscal 2008. Analysts had expected a net profit of 261.0 billion yen (US$2.66 billion) for the recently-ended fiscal year. However, for the recent January-March quarter, KDDI swung to a loss of 31.2 billion yen (US$0.32 billion). At the same time a year ago, it earned 3.0 billion yen. Operating revenue for the fiscal year fell to 3.5 trillion yen (US$36.7 billion).

Semiconductor

• AU Optronics Corp. (AUO) will buy a 50 percent share in polycrystalline silicon maker M. Setek Co., Ltd. of Japan for US$125 million. The acquisition will offer AUO access to the solar-energy business, which the LCD maker has been watching for a while. The company chairman, K.Y. Lee, said green-energy industries have become attractive to big enterprises, with energy saving and clean energy emerging as trends. AUO, Taiwan’s No.1 manufacturer of thin-film transistor liquid-crystal display (TFT-LCD) panels, will become another major Taiwanese enterprise to enter into the solar-energy industry, trailing heavyweights such as Taiwan Semiconductor Manufacturing Corp. (TSM), Formosa Plastics Corp. and Tatung Corp. Founded to produce monocrystalline-silicon wafers, M. Setek recently diversified into production of polycrystalline silicon. The company now puts out 3,000 metric tons of polycrystalline silicon a year, enough for making 300 megawatts of solar cells.

• Toshiba Corp. has developed a simulation tool that can help improve yield when manufacturing semiconductor devices with a 40nm design rule. To improve the performance of transistors fabricated with 40nm circuit widths, the silicon wafer is subjected to high pressure and then instantly heated to around 1,000 degrees Celsius. During heating, the silicon expands, which can cause tiny crystal fissures and other defects that lower the yield of good chips. Toshiba has developed software to simulate the process and predict the occurrence of crystal defects. With this information in hand, the transistors can be redesigned and the simulation run again and again until the defect rate is reduced and the yield boosted to nearly 100 percent. Using this software, Toshiba was able to determine that almost no crystal defects would occur if the surface area of the silicon-germanium pushing against the silicon in the transistor was reduced by 78 percent. The company calculates that 40nm SRAM could be made with a 100 percent yield by introducing this design change.

• Japan's leading semiconductor trading firms are racing to lower their marketing and administrative costs in order to wring out more profits amid stagnant demand and shrinking revenues in the year through March 2010. The global recession has cooled demand for semiconductors and kept the secondary market in a slump. Foreign chip trading companies such as Avnet Inc. are broadening their reach and ratcheting up the competition. And as chipmakers reorganize, typified by next April's planned merger between NEC Electronics Corp. (NELTY.PK) and Renesas Technology Corp., semiconductor traders also face more streamlined sales routes. Against this backdrop, the various trading firms are rushing to slash their administrative costs. The effort is particularly apparent among those that count on NEC Electronics for much of their business. Ryosan Co. is reducing such costs by 14 percent to 11.5 billion yen (US$120.71 million) by controlling personnel expenses and by merging and closing bases.

• Elpida Memory Inc. (ELPDF.PK) has applied for a new government financial aid program in a bid to shore up its financial health to ride out a severe industry downturn. Elpida is expected to obtain the government's approval by the end of this month, at the earliest, to become the first company to receive a capital injection under the new corporate rescue program. The move is likely to prompt other struggling electronics makers to seek such government-backed rehabilitation measures. Elpida sought the use of de facto public funds as it sank into the red from the erosion of chip prices and stagnant demand caused by the global economic turmoil.

Alternative Energy

• Sanyo Electric Co. (SANYY.PK) will spend 7.8 billion yen (US$81.9 million) to increase output capacity for solar cells at a Shimane Prefecture facility by about 70 percent next April. The firm plans to boost production of its HIT solar cells, which are a hybrid of crystalline and thin-film technologies. It foresees growth in demand for solar power generation systems on the back of economic stimulus spending by various countries.

Internet

• Sony Corp. (SNE) group Internet service company So-net Entertainment Corp. will remove DeNA Co., which operates major cellular phone Internet sites, from its list of equity-method affiliates as of July 1. The move coincides with the scheduled departure at month's end of a director So-net sent to DeNA, and the subsequent loss of its influence in the affiliate's operations. So-net will remain the top shareholder, with its stake unchanged at 16.9 percent. DeNA added slightly more than 1.3 billion yen (US$13.5 million) to So-net's consolidated profit in the year ended March 31. For the current year, So-net's projection as of May 12 shows a 17 percent increase in group pretax profit to 7.8 billion yen (US$82 million). This figure is believed to have already excluded any profit contribution from DeNA.

China

Internet

• Focus Media (FMCN) said that the merger between Focus Media and Sina Corp. (SINA) is not as optimistic as expected, and that China's Ministry of Commerce has not yet formally accepted the case. Even if the merger fails, the parties will maintain their good business cooperation, Focus Media spokesman Ji Hairong said. Sina remarked to The Beijing News that that everything was still going through the channels. Sohu (SOHU) quoted an investment bank insider on June 23 as saying that the merger between Sina and Focus Media has broken down due to problems with the transaction process rather than government hurdles.

Telecommunications

• China United Network Communications Group Company Ltd. (China Unicom) (CHU) will invest 40 billion yuan (US$5.88 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 has reached with Henan to enhance the province's information technology infrastructure.

•China Unicom (Hong Kong) Limited had a net increase of 682,000 GSM users in May 2009, dropping 40.2 percent from 1.141 million in April 2009 and 37.5 percent from 1.091 million in May 2008. China Mobile Ltd. (CHL) lured 5.118 million new mobile phone subscribers this May, down 12.1 percent from the previous month; and China Telecom Corporation Ltd. (CHA) saw a net increase of 2.2 million. China Mobile held a 64 percent share of the newly-added user base, down 1.9 percentage points; China Telecom snatched a 27.5 percent share, up 6.3 percentage points; and China Unicom took an 8.5 percent share, down 4.4 percentage points. China had a net increase of 36.449 million phone users in January-May 2009, driving the total number to 1.02 billion. In detail, fixed-line phone subscribers reduced 9.27 million to 332 million but mobile phone users rose 45.719 million to 687 million.

• China Telecom Corp. is in talks with Research In Motion Ltd. (RIMM) to offer Blackberry devices in China. The two companies are currently conducting tests on the devices and a schedule for the launch has not been determined yet. A RIM spokeswoman said the company doesn’t comment on market rumors.

• AsiaInfo Holdings (ASIA), a provider of telecom software solutions, won a bid for establishing a new charging system for China Mobile's Beijing branch to support its prepayment business. Zhang Zhenqing, CEO of AsiaInfo said that with intensive competition in China's telecom industry, telecom operators have to modernize their charging and operation support system to offer various services including fixed-line, broadband, and mobile, to meet customers' demand. AsiaInfo’s products could help them realize their targets by providing real-time data collection, cost calculation, and payment functions under a stable and customer-friendly environment while supporting all the features of current systems.

• CITIC 1616 Holdings Ltd, the telecoms service unit of Beijing backed CITIC Pacific, is seeking to buy international direct dialing (IDD) and mobile value-added service assets in the Asia-Pacific region by the end of 2009. However, the company, has no intention of introducing Chinese telecoms operators as strategic investors, said chief financial officer David Chan. Chan added that CITIC 1616 was interested in buying or consolidating IDD, mobile value-added services and integrated virtual private network businesses and was open to investment opportunities in Southeast Asia, and in particular Taiwan. The company, which provides international roaming voice, short messaging, mobile value-added services and virtual private network services to telecoms operators around the world, posted net profit growth of 26 percent in 2008.

Media, Entertainment and Gaming

• Perfect World (PWRD) announced that it has increased second quarter 2009 guidance by 15-20 percent, to between 489-510 million yuan (US$5.1-5.4 million). The company previously forecast second quarter revenue between RMB 417-434 million (US$4.4-4.6 million), for a quarterly change of -2 percent to 2 percent. Perfect World credited the revision to the strong performance of its in-house developed 2.5D MMORPG Battle of the Immortals, especially in the last month, expansion packs for existing games in the second half of the quarter, and diversification of its game portfolio and technology investment.

• Changyou.com Limited (CYOU) announced its unaudited financial results for the first quarter ended March 31, 2009. Total revenues reached a record of US$61.6 million, an increase of 6 percent quarter-over-quarter and 50 percent year-over-year. GAAP net income reached a record of US$33.5 million, an increase of 15 percent quarter-over-quarter and 120 percent year-over-year. Non-GAAP net income reached a record of US$34.4 million, an increase of 13 percent quarter-over-quarter and 100 percent year-over-year. Non-GAAP fully diluted earnings per American depositary share were US$0.72, compared to US$0.64 in the fourth quarter of 2008 and US$0.36 in the first quarter of 2008. Aggregate peak concurrent users for Changyou MMORPGs grew 16 percent quarter-over-quarter and 47 percent year-over-year to 970,000. Active paying accounts for MMORPGs grew 14 percent quarter-over-quarter and 50 percent year-over-year to 2.27 million.

Hardware

• Lenovo Group (LNVGY.PK) plans to expand its presence in the gaming computer market by targeting serious gamers in an effort to push up sales. The company plans to release a series of new gaming computers in the next few months to win more Chinese gamers, a group who are expected to reach 100 million by the end of this year. Lenovo's gaming computers, which are mainly sold between 4,000 yuan (US$585.2) to 7,000 yuan (US$1024), account for 17 to 20 percent of the company's total sales. The company plans to release a series of gaming desktops, laptops, and all-in-one computers in the following months. The global economic downturn had impacted consumers and companies across the world, dragging down global PC shipments by seven percent during the first three months of 2009. That has made the world's major PC makers strive to release new products aimed at stimulating consumer demand for technology products.

• Canon (CAJ) China predicted that its overall revenue will increase by 20 percent in 2009 and that revenues from the East China region may grow even more, benefiting from the rising demand for electronic gadgets such as cameras and video recorders. The company also hopes that the Expo will boost Canon's sales of multi-functional printers. Canon recorded a 50 percent month-on-month growth in sales of high-end digital cameras in China, said Hideki Ozawa, Canon's chief president in China, adding that some camera models were in short supply this year. Canon also plans to double its copy machine marketing network in China as it looks to boost sales in that growing market. The company is expanding its sales network to midsize and small cities in such provinces as Sichuan in China's interior, aiming to have 1,000 stores selling its copy machines within two years. Because the Chinese government is increasing public works spending in the interior, the purchasing power of residents there is expected to increase.

Alternative Energy

• GCL-Poly Energy Holdings Ltd. plans to spend HK$26.35 billion (US$3.4 billion) to purchase a 100 percent stake in a Chinese polysilicon producer, Jiangsu Zhongneng Polysilicon Technology Development Co, sources reported. The company, which is engaged in the development of cogeneration and power plants as well as coal trading in China, will pay HK$19.91 billion (US$2.6 billion) to Chairman Zhu Gongshan and relevant parties through the issuance of 9.05 billion new shares at an average price of HK$2.2 (US$.28), which is a 12 percent discount. The new shares will be equivalent to 885 percent of the current total equity and will account for 81.82 percent of the enlarged equity. The cogeneration plant operator will pay Zhu the remaining HK$6.44 billion (US$830 million), of which the firm will pay US$200 million in cash.