Japanese Tech Stock Weekly Update

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 |  Includes: DCM, SFTBF, SNE, TOSBF, VIA
by: IRG Ltd

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

Internet

Livedoor Co. said it booked a 6.4 billion yen (US$54.6 million) group net loss in the nine month period to June 30, due to the adverse effects of a scandal over alleged accounting fraud that resulted in the arrest of its former president and executives in January. Livedoor said it had to book a one-off loss of 12.2 billion yen (US$104.2 million) due to the discontinuation of a range of its business plans including one for an online bank. Livedoor withdrew a license application for the bank from the Financial Services Agency. Its operating revenue, however, went up by 94.6 percent to 101.7 billion yen (US$868.7 million) because Carchs Co., a used car dealership formerly known as Livedoor Auto Co., had joined the group, allowing Livedoor to consolidate Carchs' financial results with its own. Carchs assumed its current name Aug. 1 after the scandal involving the parent company. Livedoor's group operating profit fell 0.9 percent to 6.1 billion yen (US$52.1 million) as the recovery process for revenue from Internet advertising on its portal site was delayed with advertisers distancing from the company because of the scandal.

Mobile/Wireless

Industry sources said that Japan's Softbank Corp. (OTCPK:SFTBF) has plans to make mobile phone customers refund the cost of subsidizing phones if they cancel their subscription within two years. The move is seen as helping the company spread its costs over time and promote customer loyalty as the industry braces for a new rule from October that lets users keep their numbers when switching operators. The current situation typically allows Japanese mobile phone operators substantial subsidies to retailers to bring down the retail price of phones, or even offer them free of charge. They earn back the cost over time through monthly fees. Softbank's bestselling digital TV phones made by Sharp Corp. (OTCPK:SHCAY) cost Softbank about 70,000 yen (US$600) but are currently priced as low as 24,000 yen (US$200). Softbank borrowed 1.2 trillion yen (US$10.2 billion) to buy Vodafone Group Plc.'s (NASDAQ:VOD) local unit to become Japan's third largest mobile carrier. Sources said that Softbank also aims to catch up with industry leader NTT DoCoMo Inc. (NYSE:DCM) and KDDI Corp. by expanding its network and making new phones.

Sony Ericsson disclosed its plans to further develop its PlayNow service, currently used for downloading ring tones, with the company spokesperson not stating the details of the “further development”. Many phone makers have invested in online music downloading services, and handset makers see digital music as one of the key drivers for selling more expensive new phones, as they try to hold up their average selling prices despite surging demand for cheap phones on emerging markets. Nokia (NYSE:NOK), the world's largest handset maker, said at the start of August that it was buying U.S.-based digital music distributor Loudeye Corp. (LOUD) for US$60 million.

Vodafone Japan K.K. said it would charge its customers 2,100 yen (US$18) to cancel their contracts when transferring their phone numbers to different service providers. With Vodafone's announcement, all three major cell phone firms have set their cancellation fees at 2,100 yen (US$18). The other two firms, NTT DoCoMo Inc. (DCM) and KDDI Corp., have already announced their fees. The cell phone number portability service allows customers to transfer current phone numbers to other mobile phone services. In a related development, Vodafone Japan K.K. said it will change its name to Softbank Mobile Corp. The brand name will continue to be Vodafone.

NTT DoCoMo (DCM) disclosed its plan to dissolve Allucher, its subsidiary in Japan involved in marketing and consulting services for mobile phone use for businesses. The company said it made the decision to “encourage employee entrepreneurship.” Industry observers note, however, that the changing business environment has made it difficult for Allucher to continue its business, and that it has been unable to meet its revenue and profit targets. The liquidation is expected to be completed in January 2007. The company said the dissolution is not expected to have a significant impact on DoCoMo's consolidated or non-consolidated results of operations.

Media, Entertainment and Gaming

Industry sources said a Tokyo local TV broadcaster started posting its TV shows on YouTube and other web sites that offer free videos, primarily uploaded by amateurs. The move runs counter to the position of many TV broadcasters that see such sites as a threat to their business, a situation that saw many TV programs uploaded in violation of copyrights, and broadcasters stepping up their surveillance of such violations. The Tokyo Metropolitan Television Broadcasting Corp. [MXTV], however, said it intends to use the web sites to expand its viewers, sharing its programs with people around the world. The regular broadcast range of MXTV is limited to 8.5 million households in the Tokyo area. It will post BlogTV, a 30-minute program that introduces writers of popular blogs and discussions of topics picked up from blogs. MXTV said it is considering distributing programs to Japanese video Web sites, too, with the company claiming that it will not violate copyrights, as it has won approval from the program's sponsor Digital Garage Inc., a Tokyo-based Web-related business, as well as the show's personalities. YouTube started in February 2005. Though it was initially intended for sharing private videos, more and more recordings of TV programs are being posted in violation of copyrights.

MTV Networks, Viacom’s (NASDAQ:VIA) music broadcasting unit, said it has agreed to acquire all the shares it does not already own in MTV Japan from private equity firm H&Q Asia Pacific. The acquisition is MTV's second biggest outside the U.S., after its purchase of German broadcasting channel Viva for 308 million euros (US$395 million) in 2004. The source said MTV Japan was buying 68 percent of the company to boost its ownership to 100 percent. Spokesperson for both sides of the transaction declined to comment on the exact value of the deal. Upon completion of the deal, MTV Networks is expected to add the children's television program service Nickelodeon and the digital media brand Flux to its MTV Japan business line-up. H&Q Asia Pacific, which has about US$400 million for investment according to the Hong Kong-based research firm AVCJ Group Ltd., was instrumental in bringing the MTV brand to Japan in 2001. It bought a Japanese music channel in 2000 and created a joint venture partnership with MTV Networks that became MTV Japan. Over the past 18 months, MTV Japan's advertising growth has grown by 19 percent.

Hardware

Sony Corp. (NYSE:SNE) announced its plans to release a player in Japan after October, giving Toshiba (OTCPK:TOSBF) at least a six-month head start. Sony’s Blu-ray high-definition DVD competes with Toshiba’s format. Toshiba started sales of its HD DVD player in March. Sony and Toshiba are seeking support from movie studios and computer companies for their high-definition DVD formats that offer better picture quality and greater recording capacity. Sony, which delayed the introduction of its PlayStation 3 game console until November because of Blu-ray, is competing with Toshiba to set the standard format for home entertainment, as it did with Betamax against Video Home System tapes during the 1980s. Toshiba said between 100 and 150 HD DVD titles will be available in Japan and Europe by December, and 150 to 200 movies in the U.S. The Blu-ray disc can store at least five times more than the 4.7 gigabyte standard DVD and Toshiba's HD DVD can contain at least three times more content. The Blu-ray format is supported by Samsung Electronics Co., Apple Computer Inc. (NASDAQ:AAPL) and Dell Inc. (NASDAQ:DELL). Toshiba's main backers for HD DVD include NEC Corp. (NIPNY), Intel Corp. (NASDAQ:INTC) and Microsoft Corp. (NASDAQ:MSFT). Global shipments of high-definition DVD players and recorders are expected to reach 800,000 units this year, and will rise almost eightfold to 6.2 million next year, according to market researcher ISuppli Corp. Standard DVD player shipments are projected to gain 4.4 percent to 162.3 million units.